LS CAPITAL CORP, 10KSB, 1998-10-01

LS CAPITAL CORP
10KSB, 1998-10-01
MISCELLANEOUS AMUSEMENT & RECREATION

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended June 30, 1998 Commission File Number 0-21566

LS CAPITAL CORPORATION
(Name of small business issuer in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

84-1219819
(I.R.S. Employer Identification No.)

Rivercourt
17-19 Sir John Rogersons Quay
Dublin 2
Ireland
(3531) 679-0222
(Address, including zip code, and
telephone number, including area code, of
registrant's principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class
Common Stock, $.01 Par Value

Indicate by check mark whether registrant (1) has filed all reports 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 [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]

The issuer's revenues for the fiscal year ended June 30, 1998 were $-0-.

The aggregate market value of the voting stock held by non-affiliates of the
registrant on September 24, 1998 was $1,105,362, based on the closing price of
such stock of $.09 on such date. The number of shares outstanding of the
registrant's Common Stock, $.01 par value, as of September 24, 1998 was 12.6
million.

Transitional Small Business Disclosure format (Check one): YES [ ] NO [X]

<PAGE>

INDEX
<TABLE>
<CAPTION>

Page Number
PART I.
<S> <C>

Items 1. & 2. Business and Properties. 3

Item 3. Legal Proceedings. 21

Item 4. Submission of Matters to a Vote of Security Holders. 23

PART II.

Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 23

Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 24

Item 7. Financial Statements. 28

Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 28

PART III.

Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act. 28

Item 10. Executive Compensation. 29

Item 11. Security Ownership of Certain Beneficial Owners and
Management. 34

Item 12. Certain Relationships and Related Transactions. 35

PART IV.

Item 13. Exhibits and Reports on Form 8-K. 36

</TABLE>

<PAGE>

ITEMS 1 and 2. BUSINESS AND PROPERTIES.

INTRODUCTION

LS Capital Corporation ("Company") was organized under the laws of the
State of Delaware on December 30, 1992 under the name "Lone Star Casino
Corporation" to develop, own and operate casinos and related resort facilities.
Prior to May 3, 1993, the Company was a wholly-owned subsidiary of Viral Testing
Systems Corporation ("VTS"), then a publicly traded company. The Company became
publicly-held through the distribution of its common stock to the stockholders
of VTS on May 3, 1993. The Company adopted its current corporate name in June
1996 as a result of the change in its corporate direction described below.

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
subsidiary. Currently, the Company has a number of wholly-owned or
partially-owned precious metals/mining subsidiaries (separately, a "Subsidiary"
and collectively, the Subsidiaries"). The active Subsidiaries include Griffin
Gold Group, Inc. ("Griffin"), Escopeta Minerals, Inc. ("Escopeta"), Desert
Minerals, Inc. ("DMI"), SWM Ventures, Inc. ("SWM"), Mohave Metals Corporation
("Mohave") and DMI Land, Inc. ("DMI Land"). Griffin Gold and Escopeta have
rights in certain mining claims or properties believed to contain precious
metals. DMI, SWM and Mohave are in the processes of refining and developing
certain mineral extraction technologies. DMI Land owns two tracts of land that
are used as plant sites.

The Subsidiaries' proposed principal products are a condensate and dore
bars both containing precious metals. Neither of these products is currently
being produced on a commercial basis. Both of these products will be sold to
third parties for further refining. The Subsidiaries have only limited operating
histories and involve all the risks associated with companies with limited
operating histories. Each of the Subsidiaries is in the developmental stage and
is expected to require minimal capital. To implement the Company's new strategy
and to finance certain of the Subsidiaries' respective projects, the Company
intends, depending on market conditions, to establish a public trading market in
the shares of certain Subsidiaries, via initial public offerings and/or a
"spin-offs" of the Subsidiaries' shares to the Company's stockholders.

During fiscal 1997, the Company experienced some delays in the
development of its mineral extraction technologies. The technological delays
caused delays in the pursuit of the Company's business plan. Management believes
that the Company's business plan was delayed by about a year as a result of the
delays in the development of its mineral extraction technologies. Management
believes that the development of its mineral extraction technologies is now
progressing, although there can be no assurance that further technological or
other delays will not be encountered. See "BUSINESS AND PROPERTIES - RISK
FACTORS - Potential Technological Failure."

Also, regarding the recent history of the Company, during fiscal 1997
the Company formed Griffin, DMI and Shoshone Mining Co. ("Shoshone"), another
partially-owned Subsidiary. During fiscal 1997, each of these three Subsidiaries
received rights in certain mining claims by means of exploration agreements and
options to lease the related mineral claims. To maintain these rights in effect,
each of these Subsidiaries was required to make annual cash payments. During
fiscal 1998, the Company formed Escopeta Minerals and DMI Land. Escopeta
Minerals received rights in a certain tract of land by means of an exploration
agreement and option to purchase. DMI Land acquired two tracts of land intended
as plant sites. Upon acquisition of Escopeta Minerals' land rights, the Company
elected to allow DMI's and Shoshone's respective mineral rights to lapse to
avoid making the annual payments required to keep them in effect and to avoid
making tax payments due thereon. Management believes that the mineral rights
held by Griffin and Escopeta Minerals are sufficient for pursing the Company's
current business plan.

Another development that occurred during fiscal 1998 pertains to the
management of the Subsidiaries and the development of the Company's
technologies. During fiscal 1997, Richard W. Lancaster was primarily responsible
for the management of the Subsidiaries, and Douglass Schmitt was primarily
responsible for the development of the Company's technologies. Mr. Lancaster's
role in the management of the Subsidiaries has been reduced, and Mr. Schmitt has
completed his role in the development of the Company's technologies. Commencing
in fiscal 1998 and continuing for the foreseeable future, Terry Christopher and
Martin Blake will be responsible for the management of the Subsidiaries and the
development of the Company's technologies. For more information about Messrs.
Christopher and Blake, see "DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT."

Moreover, from its inception and until shortly after the start of
fiscal 1996, the Company was exclusively engaged in the gaming industry and had
generally adhered to an aggressive policy of pursuing attractive gaming
opportunities. As a consequence of this policy, the Company acquired interests
in or control over a number of gaming opportunities. Early in fiscal 1996, the
Company modified this policy, and adopted a policy of focusing more exclusively
on the development of the operations of "Papone's Palace" (a limited stakes
gaming casino located in Central City, Colorado), while pursuing other gaming
opportunities to a much lesser extent. As a result of this new policy, the
Company sold, relinquished or divested all of the gaming opportunities in which
it owned an interest or over which it had control, other than Papone's Palace.
On February 21, 1997, a judgment exceeding $1.1 million and decreeing the
foreclosure of the property on which Papone's Palace is situated (the
"Property") was entered against the indirect majority-owned subsidiary that then
owned Papone's Palace. The judgment was in favor of such subsidiary's largest
creditor (the "Creditor"). This development required this subsidiary 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
initially planned to appeal vigorously this decision. However, after the judge
in charge of the proceeding indicated some hostility to the Company's defense
position, the Company decided not to appeal. As a consequence, the Creditor
foreclosed the Property in March 1998, thereby divesting the Company of its last
gaming interest. For more information about this matter, see "BUSINESS AND
PROPERTIES - DISCONTINUED GAMING OPERATIONS."

The principal executive offices of the Company are located at
Rivercourt, 17-19 Sir John Rogersons Quay, Dublin 2, Ireland, and its telephone
number is (3531) 679-0222. The Company has a total of six employees. The term
"Company" as used herein refers to LS Capital Corporation and all of its
subsidiaries unless the context otherwise requires.

<PAGE>

RISK FACTORS

In addition to the other information in this Annual Report, the
following risk factors, among others, should be considered carefully in
evaluating the Company and its business.

History of Losses; Uncertainty of Future Financial Results

The Company has incurred net losses since its inception and had an
accumulated deficit of approximately $28.2 million as of June 30, 1998. Most of
these losses are attributable to the Company's effort to become a major
competitor in the gaming industry, an industry in which the Company has
abandoned future efforts. There can be no assurance that the Company will become
profitable or that the Company will be able to raise additional capital if its
capital resources become exhausted by losses or expenditures.

Limited Operating History

The Company has only a limited operating history in the precious metal
exploration and extraction business, the industry in which the Company intends
to focus its future business efforts. Accordingly, the Company is subject to all
risks inherent in a developing business enterprise. The likelihood of success of
the Company must be considered in light of the problems, expenses, difficulties,
complications, and delays frequently encountered in connection with a new
business in general and those specific to the mineral exploration and extraction
businesses and the competitive and regulatory environment in which the Company
will operate.

Industry Risks

Mineral exploration and extraction (particularly for gold) is highly
speculative in nature, frequently is nonproductive, and involves many risks,
including, without limitation, unforeseen geological formations, cave-ins,
environmental concerns and personal injury. Such risks can be considerable and
may add unexpected expenditures or delays to the Company's plans. Moreover, an
extended period of time may be needed to develop the Company's mineral
properties. Because the market prices of any minerals produced are subject to
fluctuation, the economic feasibility of production may change during this
period of time of development. Another factor is that the Company will use the
evaluation work of professional geologists, geophysicists, and engineers for
estimates in determining whether to commence or continue extraction work. These
estimates generally rely on scientific estimates and economic assumptions, which
in some instances may not be correct, and could result in the expenditure of
substantial amounts of money on a property before it can be determined whether
or not the property contains economically recoverable mineralization. The
Company is not able to determine at present whether or not, or the extent to
which, such risks may adversely affect the Company's strategy and business
plans. There can be no assurance that the Company's mineral extraction
activities will be successful or profitable.

Lack of Proven or Probable Mineral Reserves

The economic viability of a mineral property cannot be determined
until extensive exploration and development have been conducted and a
comprehensive feasibility study performed. Although the Company has conducted
surface sampling on its mineral properties indicating that precious metals exist
on these properties, the Company has not confirmed the level of existing
precious metals, and the Company has not had any independent testing undertaken
to confirm the results of the Company's internal sampling. As a result, the
Company has not completed sufficient geological testing to establish proven or
probable mineral reserves for its mineral properties. Consequently, the Company
has been unable to ascertain with certainty whether adequate minerals reserves
sufficient for profitable operations exist. Nonetheless, the Company is
continuing with on-going internal testing and is planning on obtaining
independent third-party testing as soon as funds are available therefor.
Notwithstanding the preceding, management believes that the Company's surface
sampling indicates the existence of sufficient mineralization to warrant
continued development of the Company's mineral properties. However, there can be
no assurance that proven or probable ore reserves will ultimately be
established.

Potential Technological Failure

The ultimate realization of the Company's investment in its mineral
properties depends upon the commercial feasibility of the technologies that the
Company intends to use in the Company's mineral extraction process. Some of
these technologies are currently undergoing refinement while other of these
technologies are currently undergoing development. See "BUSINESS AND PROPERTIES
- - Operations - Extraction." All of the Company's technologies are new, and some
of these technologies have been determined to be capable of extracting precious
metals in a laboratory setting. It has also been determined that precious metals
are contained in the ores mined from the Company's mineral properties. However,
the Company's technologies must prove capable of producing precious metals from
ores mined from the Company's mineral properties on a larger scale at cost
levels that will enable production to occur profitably. The Company has
processed ores only on an experimental basis and has not yet processed any ores
on a commercial basis. Additional time will be necessary to prove or disprove
the capability of the Company's technologies to extract precious metals on a
commercial basis. The Company estimates that it will need until the summer of
1999 to prove or disprove the capability of the Company's technologies to
extract precious metals on a commercial basis. Such proof or disproof will
depend on the Company's receipt of an adequate amount of funds to continue
testing the technologies appropriately, and there can be no assurance that the
Company will be successful in procuring these funds. Moreover, scaling up the
use of certain of the technologies has thus far created some unforeseen
difficulties in the application of such technologies. The Company is currently
working to solve these difficulties, and management is fairly confident that
these difficulties can be overcome. However, there can be no assurance that
these difficulties can be overcome at a cost acceptable to and manageable by the
Company or even at all for that matter. Furthermore, there can be no assurance
that if these difficulties are overcome, the Company will not encounter
additional unforeseen difficulties in the scaling up of the technologies, and
that if additional unforeseen difficulties are encountered, the Company will be
able to overcome them at a cost acceptable to and manageable by the Company or
even at all for that matter. Consequently, there can be no assurance that the
technologies will prove capable of producing precious metals at the required
scale and at the required cost levels. The failure of the technologies to
produce precious metals at the foregoing scale and cost levels would most likely
materially and adversely affect the Company's ability to pursue its business
objectives. In addition to the preceding, other companies competing with the
Company are expected to have the right to use certain of the technologies that
Company intend to use and will thus have the same abilities as the Company in
this regard.

Potential Title Problems

Title to mining properties in the western United States involves
certain inherent risks due to the impossibility of determining the validity of
unpatented claims from real estate records, as well as the potential for
problems arising from the frequently ambiguous conveyancing history
characteristic of many mining properties. Although the Company believes it
conducted reasonable investigations (in accordance with standard mining industry
practice) of the validity of ownership of and the ability of certain holders of
certain mining claims to transfer to the Company certain rights and other
interests therein, there can be no assurance that it holds good and marketable
title to all of its properties. The Company has conducted limited reviews of
title and obtained representations regarding ownership from holders of mineral
rights. The Company's practice will be, if possible, to obtain title insurance
with respect to its major mineral properties when a decision is made to proceed
with large scale mining. This insurance however may not be sufficient to cover
loss of investment or of future profits.

Competition

The precious metals exploration and extraction business is intensely
competitive for resources, equipment and personnel. Most of the Company's
principal competitors are substantially larger, have substantially greater
resources, and expend considerably larger sums of capital than the Company for
exploration, rehabilitation and development.

<PAGE>

Limited Diversification

The Company currently has rights, and for the foreseeable future will
have rights, in only a limited number of mineral properties, although the
Company intends to acquire additional mineral properties in the future. At the
present, the success of the Company depends entirely upon the Company's ability
to extract minerals from its current properties on a profitable basis. This
limited diversification may make the results of the Company's operations more
volatile than they would be if the Company owned or controlled more mineral
properties.

Volatile Market Prices for Gold

The price of gold will have a material effect on the Company's
financial operations. Following deregulation, the market price for gold has been
highly speculative and volatile. The price of gold reached a short-lived high in
1980 of slightly over $800 per ounce. The price of gold has declined to a price
of approximately $270 per ounce in July 1998. Instability in the price of gold
may affect the profitability of the Company's operations. No assurances can be
given that the Company has or will discover gold mineralization in commercial
quantities or, if such mineralization in commercial quantities has been or is
hereafter discovered, that gold could be produced at a profit given the recent
market price range for gold.

Proposed Changes to Mining Laws

The Company's unpatented mining claims on federal lands are currently
subject to procedures established by the U.S. General Mining Law of 1872.
Legislation has been introduced in prior and current sessions of the U.S.
Congress to make significant revisions to the U.S. Mining Laws including strict
new environmental protection standards and conditions, additional reclamation
requirements and extensive new procedural steps which would likely result in
delays in permitting and which could have a material adverse effect on the
Company's ability to develop minerals on federal lands. The proposed revisions
would also impose royalties on gold production from unpatented mining claims.
Although legislation has not been enacted, attempts to amend these laws can be
expected to continue. The extent of the changes that actually will be enacted
and their potential impact on the Company cannot be predicted.

Insurance Coverage and Uninsured Losses

The Company has procured insurance covering personal injury, workers'
compensation and damage to property and equipment. There can be no assurance
that the Company will be successful in maintaining such insurance at rates
acceptable to the Company or that such insurance will prove adequate. Moreover,
in view of recent trends in damage awards in personal injury lawsuits, insurance
apparently adequate at the time of its procurement may prove insufficient to
satisfy large losses or judgments against that may subsequently be obtained
against the Company. Furthermore, certain types of insurance coverage (generally
against losses caused by natural disasters and Acts of God) are either
unattainable or prohibitively expensive. Substantial damage awards against the
Company or substantial damages not covered by insurance could affect the
Company's ability to continue as a going concern and may force the Company to
seek protection under the federal bankruptcy laws.

Liquidity

As of June 30, 1998, the Company had a working capital deficiency of
approximately $1.3 million, and no cash and cash equivalents for all practical
matters. The Company has no constant and continual flow of revenues. During the
past several years, the Company has been able to continue meeting cash
requirements by renegotiating its existing debt obligations, issuing new debt,
selling certain non-revenue producing assets, reducing overhead expenses, and
issuing equity securities. While the Company's need for additional capital can
not now be precisely ascertained because of the indefiniteness of the ultimate
size and scope of the Company's mineral extraction activity, management believes
that the Company's future capital needs will exceed the Company's current
financial position. The Company expects to finance its operations for fiscal
1999 through the sale of certain publicly traded securities currently owned by
the Company and the possible placement of the Company's equity securities. The
Company is looking for sources of additional capital, but there can be no
assurance that such sources can be found or that, if found, the terms of such
capital will be commercially acceptable to the Company. Because of the Company's
need for additional capital, the lack of consistent revenues or the inability to
obtain necessary capital or both could prove to be detrimental factors in the
development of the Company's business.

Litigation

The Company is now subject to a proceeding instituted by the U.S.
Securities and Exchange Commission (the "Commission") pertaining to certain
events occurring about the time of the Company's spin-off from VTS in 1993. In
this proceeding, the Commission alleges that the Company made certain
misrepresentations in certain of its filings with the Commission and seeks a
permanent injunction against the Company to bar it from making future violations
of certain provisions of the federal securities laws. Paul J. Montle, the
President of the Company, has also been named as a defendant in this proceeding
on three claims, two of which are related to the Company. The Company and Mr.
Montle intend to vigorously defend themselves against these claims and
allegations. However, the outcome of this proceeding can not now be determined.
Moreover, the Company is a plaintiff in a major lawsuit and has been named as a
defendant in a number of lawsuits. The Company generally intends to vigorously
defend itself in the lawsuits in which it is a defendant. Of these lawsuits, a
single lawsuit seeking the return of a $100,000 deposit, in the opinion of
management, may have a possible adverse effect on the Company. For further
information regarding these lawsuits, see "LEGAL PROCEEDINGS." Also, a lien on
Papone's Palace, the Company's former casino property, was foreclosed during
fiscal 1998. The Company has been negotiating with the creditor foreclosing on
Papone's Palace in an effort to reach a settlement regarding the Company's
guarantee of the indebtedness leading to such foreclosure. For more information
about this matter, see "BUSINESS AND PROPERTIES - DISCONTINUED GAMING
OPERATIONS."

Regulatory Matters

The Company's mining facilities and operations are subject to
substantial government regulation, including federal, state and local laws
concerning mine safety, land use and environmental protection. The Company must
comply with local, state and federal requirements regarding exploration
operations, public safety, employee health and safety, use of explosives, air
quality, water pollution, noxious odor, noise and dust controls, reclamation,
solid waste, hazardous waste and wildlife as well as laws protecting the rights
of other property owners and the public. Although the Company believes that it
is in substantial compliance with such regulations, laws and requirements with
respect to its mineral properties, failure to comply could have a material
adverse effect on the Company, including substantial penalties, fees and
expenses, significant delays in the Company's operations and the potential
shutdown of the Company's operations. The Company must also obtain and comply
with local, state and federal permits, including waste discharge requirements,
other environmental permits, use permits, plans of operation and other
authorizations. Obtaining these permits can be very costly and take significant
amounts of time. Although the Company foresees no material problems or delays,
no assurances can be given that the Company can obtain the necessary permits or
commence mining operations, or that, if permits are obtained, there will be no
delay in the Company operations or the Company can maintain economic production
in compliance with the necessary permits.

Dependence on Key Personnel and Limited Management Resources

The Company is substantially dependent upon the efforts and skills of
Paul Montle (the Company's Chairman of the Board and Chief Executive Officer),
Terry Christopher (the President of certain of the Subsidiaries) and Martin
Blake (a significant employee of the Company). The loss of the services of
either of Messrs. Montle, Christopher or Blake or the inability of any of them
to devote sufficient attention to the operations of the Company, would have a
materially adverse effect on the Company's operations. The Company does not
maintain key man life insurance on Messrs. Christopher or Blake but does
maintain key man insurance in the amount of $3.5 million on Mr. Montle. In
addition, there can be no assurance that the current level of management is
sufficient to perform all responsibilities necessary or beneficial for
management to perform, or that the Company would be able to hire additional,
qualified management personnel to perform such responsibilities in view of tight
employment market and financial constraints. Mr. Montle has not entered into an
employment agreement, and none of Messrs. Montle, Christopher or Blake has
entered into a covenant not to compete agreement with the Company. The Company's
success may depend, in large part, on its ability to retain and attract highly
qualified personnel. The Company's success in attracting additional qualified
personnel will depend on many factors, including its ability to provide them
with competitive compensation arrangements, equity participation and other
benefits. There is no assurance that the Company will be successful in
attracting highly qualified individuals in key management positions.

Control

Management and directors of the Company currently own approximately
30.2% of the outstanding shares of the Company's common stock. Cumulative voting
in the election of Directors is not provided for. Accordingly, the holders of a
majority of the shares of the Company's common stock, present in person or by
proxy, are able to elect all of the Company's Board of Directors.

Problems Resulting from Partially-Owned Subsidiaries

The Company does not own all of the outstanding stock in all of its
mining Subsidiaries, but instead has one or more venture partners in certain of
the Subsidiaries. For each Subsidiary, the one or more venture partners own as
much or slightly more stock in such Subsidiary than the Company does. The
Company has not entered into customary agreements with such venture partners to
resolve disputes or terminate the Company's and such venture partners'
relationship with each other with respect to the Subsidiaries. If any deadlock
or dissension were to arise between the Company and one or more of its venture
partners in the Subsidiaries, the business of the related Subsidiary could be
materially adversely affected. Management believes that no contractual
arrangement could assure that a Subsidiary would not be materially adversely
affected by deadlock or dissension and that customary agreements might
themselves materially adversely affect a Subsidiary in certain circumstances.
However, additional protection might be afforded by greater contractual
protection than the Company now has.

Dilution

Future sales of substantial amounts of the Company's common stock in
the public market could adversely affect the market price of the Company's
common stock and could result in material dilution of existing stockholders.
Particularly, the Company has relied heavily on the issuance of the Company's
common stock to meet liquidity requirements and to outside consultants to
procure needed services. Unless cash flows from the Company's limited operations
increase or alternative sources of financing are secured, the Company will
likely be required to seek additional cash through the issuance of additional
shares of the Company's common stock or preferred stock or both. There are no
preemptive rights in connection with the Company's common stock. As a result of
the foregoing matters, there is a risk of a material increase in the number of
shares of the Company's common stock outstanding which may result in material
dilution of existing stockholders.

Possible Lack of Liquidity; Volatile Price

Shares of the Company's common stock are currently traded only on the
OTC Bulletin Board. Occasionally, trading volume in the Company's common stock
is fairly low. This has been particularly true just prior to the time that this
Annual Report was filed. As a consequence, investors may have a more difficult
time selling their shares than they would, and the prices for such shares may be
more erratic than it would be, if the shares of the Company's common stock were
listed on a stock exchange or included for quotation in NASDAQ and were traded
in a more active market. Shares of the Company's common stock were previously
included for quotation in NASDAQ, and the Company intends to seek such inclusion
as soon as the Company's common stock and the Company meet the requirements for
inclusion. There can be no assurance that the Company's common stock and the
Company will ever meet these requirements. In any event, the price of the
Company's common stock (like any publicly traded stock) could be subject to
general market volatility and declines, which in many cases would be unrelated
to the operating performance of, or announcements relating to, the Company.

Achievement of Corporate Strategy

As discussed herein, the Company is currently considering the
declaration of dividends consisting of portions of the outstanding stock in
certain of its Subsidiaries. The shares of stock comprising the dividends would
be registered with the Commission. The result of the dividends would be that the
subsidiaries whose stock comprised the dividends would become separate publicly
traded entities. There can be no assurance that the Company will undertake this
strategy, or that if such strategy is undertaken, the Company will be successful
in achieving this strategy or such strategy will enhance stockholder values.

Cautionary Statement Regarding Forward-Looking Statements

Certain statements contained in this Annual Report under the captions
"ITEMS 1 and 2. BUSINESS AND PROPERTIES" regarding beliefs as to the
mineralization present on the Company's mineral properties, the capability of
the technology to be used by the Company, the ability to market the Company's
production, the Company's regulatory compliance, the adequacy of insurance, the
availability of trucking services, the ability of the Company to attract and
retain competent personnel, proposed changes to laws, the Company's plan to
declare in-kind dividends of stock in certain of the Company's subsidiaries, the
outcome of certain litigation, and other statements contained herein regarding
matters that are not historical facts, are forward-looking statements (as such
term is defined in the Private Securities Litigation Reform Act of 1995).
Because such statements include risks and uncertainties, actual results may
differ materially from those expressed or implied by such forward looking
statements. Factors that could cause actual results to differ materially
include, but are not limited to, those discussed under "Risk Factors." As a
result, these forward-looking statements represent the Company's judgment as of
the date of this filing. The Company does not express any intent or obligation
to update these forward-looking statements.

OPERATIONS

Extraction.

The base material for the Company's extraction process will consist of
ore procured from the Company's mineral properties through standard open-cast
mining operations. Open-cast mining resembles open-pit mining, except that in
the case of open-cast mining unused portions of the mined materials are not
transported to waste piles for disposal but instead are cast or hauled directly
into adjacent mined-out panel. Thus, reclamation immediately follows mining.

A large component of the mined ore will be zeolites. Zeolites are a
large family of complex hydrous sodium, calcium, and aluminum silicates whose
structures allow them to trap other ions and atoms. Because of the nature of
zeolites, microscopic precious metal particles can become ionically bound in
metal salt complexes trapped in the zeolite.

To extract the minerals believed to be contained in the zeolite, the
Company intend to use certain proprietary, low-toxicity microfine precious
metals extraction technologies (the "Technologies"). (For a description of the
Company's rights with respect to the Technologies, see "BUSINESS AND PROPERTIES
- - Operations Intellectual Property.") Using the Technologies, ore mined from the
Company's mineral properties will be treated such that trapped precious metals
will be separated from the zeolite. The result of the treatment will be a
condensate. The Company can then either sell the condensate or treat it further.
If Company elects to treat the condensate further, the Company will electroplate
the condensate to produce dore. (Dore is a molten mixture containing unseparated
precious metals.) The dore is then further treated in an induction furnace.
After this treatment, the dore is poured to produced dore bars, which are then
sold to metal refiners and smelters for the ultimate production of precious
metals.

Of the Subsidiaries, only DMI has facilities to extract precious
metals from mined ore. Griffin and Escopeta Minerals intend to rely upon DMI to
extract their precious metals. DMI has entered into an agreement with Griffin to
process its ore on a limited basis in connection with the testing of DMI's
"pilot" plant and technologies, both discussed below. Escopeta Minerals and DMI
expect to enter into a similar agreement in the near future. In consideration of
DMI's processing such ore, Griffin agreed to pay to DMI the amount of DMI's
direct costs involved in the processing plus an additional amount equal to 10%
of such direct costs. In the event that DMI's technologies prove successful, DMI
has agreed to negotiate in good faith with Griffin with a view to the execution
and delivery of an agreement pertaining to the proposed larger processing plant
discussed below.

DMI currently has in operation only a "pilot" plant for testing the
extraction process described above. The pilot plant is a 50'x100' facility
consisting of a processing area, a laboratory building and two mobile homes to
serve as living quarters for personnel. The pilot plant is located in Armagosa
Valley, Nevada, near Griffin's Tecopa mineral property. The following is a brief
summary of certain information pertaining to the equipment comprising DMI's
pilot plant:

Description of Equipment
<TABLE>
<CAPTION>

Quant-
ity Equipment Size Age Use
<S> <C> <C> <C> <C>

1 Backhoe 680G 10 years Digs materials for processing and testing

1 Truck and Trailer 3/4 Ton 2 years Transports materials to plant and relocates equipment

3 Various grinders To 150 mesh 10 years Prepares materials for processing

10 Various tanks 3,000 gallons 5 years Mixes, leeches, heats and effects other
chemical and physical processes at various
stages

6 Primary and Secondary To 100 microns 2 years Preprocesses materials prior to laboratory
Filters work

10 Ion exchange columns Up to 502 years Extracts heavy metal ions
gallons per day

1 Electrowinning Up to 502 years Completes various orbital requirements of
Equipment gallons per day electrons of transmutational/transitional
metals

1 Hydroredux Oven 3 cubic feet 5 years Captures "sponge" materials without the
"flashing off" of transmutational/transitional
metals

1 Kiln 1/2 cubic feet 5 years Agglomerates materials
</TABLE>

The Company commenced its extraction business by trucking ore from Griffin's
Tecopa mineral property to the pilot plant. Trucking is initially being done by
outside trucking firms providing service and rates, which management believes
will be adequate and acceptable.

Construction of DMI's pilot plant commenced in the summer of 1997 and
was completed in September, 1997. The pilot plant is currently testing ore at a
rate of one to three tons per day ("TPD"). Thus far, the pilot plant has been
able to produce gold in a small-scale laboratory setting. The ultimate goal of
the pilot plant is to produce gold on a larger scale at a commercially feasible
cost. DMI has been conducting on-going tests to determine whether the pilot
plant will be able to produce gold on this scale and at this cost level. While
such tests have heretofore been encouraging, such tests have not yet determined
that the pilot plant will be able or unable to produce gold on a larger scale at
a commercially feasible cost.

Through March 31, 1998, the Company has invested $730,582 in start-up
expenses of the pilot plant, and another $80,134 in vehicles and equipment.
Prior to October 30, 1996, Zeotech Industries, Inc., one of the major minority
stockholders of Griffin, had invested approximately $100,000. The pilot plant's
facility and equipment are new and are in good operating condition and repair.
It has an ample supply of on-site well water for undertaking its extraction
processing. Waste water is recycled on-site and will be used for irrigation.
Electrical power for the pilot plant comes from an on-site, 35-kilowatt
three-phase generator owned by DMI and three-phase power generated off-site by
Valley Electric, the local utility company.

If production and operations at the pilot plant satisfy the
expectations of management, the Company will then attempt to proceed with the
construction of a larger processing plant at a site to be selected in the
future. Management currently expects that the larger plant would be capable of
processing ore at a minimum rate of 1,000 TPD, and that this larger plant (if
undertaken) will be finished in 2000 at a cost of between $2.5 and $5.0 million
dollars. Griffin is expected bear all of the costs of the construction and
operation of this plant. The construction of the larger plant will be contingent
on procuring necessary financing. This financing is expected to be procured
partly through the exercise of certain warrants to be issued by Griffin to
purchase Griffin common stock. Management believes the exercises of these
warrants will occur if the Company's technologies appear promising enough to
undertake the larger plant. The remainder of the financing is expected to be
provided through the possible private placement of the Company's equity
securities or joint venture arrangements (including project financing). There
can be no assurance that the aforementioned Griffin warrants will be exercised
(or even issued for that matter) or that any other form of suitable financing
will be obtained. Currently the Company has not entered into any agreement in
principle, much less any definitive agreement, with respect to the necessary
financing for the larger plant.

Mining Claims.

Griffin. Griffin has rights in certain mining claims (these claims are
referred to hereinafter as the "Claims"). (For additional information about the
land covered by the Claims, see "BUSINESS AND PROPERTIES Operations -
Properties.") To acquire its rights to its Claims, Griffin entered into an
Exploration Agreement and Option to Lease (the "Exploration/Option Agreement")
with a group of individuals who hold the Claims. For minimal cash payments, the
Exploration/Option Agreement permits Griffin to enter onto the land covered by
the Claims for purposes of exploring, investigating, sampling, examining and
testing for any precious metals located on such land. The initial term of the
Exploration/Option Agreement is for five years, and Griffin has the right to
extend the Exploration/Option Agreement for two additional five-year extension
terms. Depending on the results of Griffin's exploration effort and for a
minimal cash payment, Griffin has the option under the Exploration/Option
Agreement to enter into a lease of the related Claims pursuant to the terms,
provisions and conditions of a mining lease agreement attached as an exhibit to
the Exploration/Option Agreement (a "Mining Lease").

The Mining Lease will permit Griffin to exploit the minerals covered
by the related Claims. The term of the Mining Lease will be for 20 years and for
so long as Griffin is processing ore on properties located within a five-mile
radius of any of the Claims covered by the Mining Lease. The Mining Lease
obligates Griffin to pay a production royalty for all minerals mined, removed
and sold from the Claims covered by the Mining Lease equal to 2.5% of the
Smelter Returns. The Mining Lease defines "Smelter Returns" as the gross amount
received from the sale of valuable minerals after recovery of all exploration,
development and capital costs and less all taxes levied, incurred or imposed on
the sale, severance or production of such minerals and less costs of extraction,
mining, milling, treating, transportation to the smelter and/or refinery,
smelting and refining charges and costs of sale. The Mining Lease will obligate
Griffin to pay minimal advanced royalties, which are credited to the production
royalty described immediately above. The Mining Lease will be terminable by
Griffin upon the occurrence of certain customary events of default, and by
Griffin upon three-months notice. Under the Mining Lease, Griffin will have a
right of first refusal to purchase the Claims covered by the Mining Lease if the
lessors under the Mining Lease propose to transfer such Claims.

Escopeta Minerals. Escopeta Minerals has rights in a certain tract of
land (this tract of land is referred to hereinafter as the "Tract"). (For
additional information about the land covered by the Tract, see "BUSINESS AND
PROPERTIES - Operations - Properties.") To acquire its rights to the Tract,
Escopeta Minerals entered into an Exploration Agreement (the
"Exploration/Purchase Agreement") with the owner of the Tract. For $10,000 paid
by Escopeta Minerals, the Exploration/Purchase Agreement permits Escopeta
Minerals to enter onto the Tract for purposes of exploring, sampling and testing
for any minerals located on the Tract. The initial term of the
Exploration/Purchase Agreement is for one year, and Escopeta Minerals has the
right to extend the Exploration/Purchase Agreement for an additional one-year
extension term for a $20,000 extension payment. Escopeta Minerals has the option
under the Exploration/Purchase Agreement to purchase the Tract except that the
owner of the Tract will retain all rights with respect to all borate minerals
and borate-bearing brines lying under the Tract. The option price is $500 per
acre if the option is exercised during the initial one-year term, or $600 per
acre if the option is exercised during the one-year extension term. The
Exploration/Purchase Agreement imposes on the parties customary obligations with
respect to transactions of this nature, and permits one party to terminate the
Exploration/Purchase Agreement if the other party fails to perform such other
party's obligations and to cure such failure within specified periods of time.

Kent E. Lovelace, Jr., a director of the Company ("Lovelace"), made a
$10,000 advance to the Company to pay the initial option price required by the
Exploration/Purchase Agreement. Lovelace made this advance in reliance upon the
Company's promise to assign to him a 20% interest in the Exploration/Purchase
Agreement, and thus the ability to acquire a 20% undivided interest in the
Tract. Lovelace and the Company have not formalized this assignment. However,
they have been working on such assignment and expect to complete the assignment
at some time in the future.

Intellectual Property.

The technologies that the Company propose to use in its precious metal
extraction efforts (the "Technologies") are in the process of either being
refined or being developed. All of the Technologies operate in fundamentally the
same way with certain variations. Certain of the Technologies in their current
states have been determined to be capable of extracting precious metals in a
laboratory setting. Nonetheless, the Technologies must prove capable of
producing precious metals on a larger scale at cost levels that will enable
production to occur profitably. Additional time will be necessary to prove or
disprove the Technologies' capabilities of extracting precious metals on a
commercial basis. The Company believes that the extraction capabilities of its
most advanced Technologies will be proved or disproved during or about the
summer of 1999, although additional time may be needed. Such proof or disproof
will depend on the Company's receipt of an adequate amount of funds to continue
testing the technologies appropriately, and there can be no assurance that the
Company will be successful in procuring these funds. Moreover, scaling up the
use of certain of the technologies has thus far created some unforeseen
difficulties in the application of such technologies. The Company is currently
working to solve these difficulties, and management is fairly confident that
these difficulties can be overcome. However, there can be no assurance that
these difficulties can be overcome at a cost acceptable to and manageable by the
Company or even at all for that matter. Furthermore, there can be no assurance
that if these difficulties are overcome, the Company will not encounter
additional unforeseen difficulties in the scaling up of the technologies, and
that if additional unforeseen difficulties are encountered, the Company will be
able to overcome them at a cost acceptable to and manageable by the Company or
even at all for that matter. Consequently, there can be no assurance that the
Technologies will prove capable of producing precious metals at the required
scale and at the required cost levels. See "BUSINESS AND PROPERTIES RISK FACTORS
- - Potential Technological Failure."

One of the Technologies that the Company proposes to use (the "Hewlett
Technology") involves two non-toxic leaching systems developed by Richard F.
Hewlett ("Hewlett") specifically for the Company based on technology Hewlett had
already developed. One of the systems was customized for the
Tecopa/Shoshone/Barstow California areas, while the other system was customized
for the Cochise/Graham counties Arizona area. For his work in developing these
systems, Hewlett received a flat fee of $100,000 from the Company. Because
Hewlett developed these systems on a "for hire" basis, the Company has outright
ownership to the Hewlett Technology.

Another of the Technologies that the Company proposes to use (the
"Schmitt Technology") was developed primarily by Douglass Schmitt ("Schmitt").
Under their agreement governing the development of the Schmitt Technology, the
Company and DMI, on the one hand, are equal owners of the Technology with
Schmitt, on the other hand, and the Company and DMI have the right to assign and
license the Technology to their subsidiaries and affiliates. In addition, the
Company and DMI have a right of first refusal regarding all projects in which
Schmitt proposes to use the Schmitt Technology. In consideration of the creation
of the Company's and DMI's interests in the Schmitt Technology, Schmitt is
entitled to a five-percent royalty of gross proceeds from the related refiner
minus direct production costs (but not including any general overhead or
administrative costs) on all precious metals extracted or produced in marketable
form utilizing the Schmitt Technology. The royalty can be paid in cash or in
kind. The Company and DMI have the right to discontinue the use of the Schmitt
Technology at any time (a) in favor of technology provided by another source
that the Company and DMI believe is more attractive or cost effective or (b)
upon the abandonment of DMI's desert sands project. In either case, all royalty
obligations to Schmitt cease so long as the Company and DMI are not using the
Schmitt Technology. The Company and DMI will forfeit their interests in the
Schmitt Technology if they fail to construct an operating plant capable of
processing sand at a rate of 1,000 TPD by March 27, 2000; provided, however,
that if negotiations or design work on such a plant are underway at the time
that the Company's and DMI's interests would otherwise be forfeited, the Company
and DMI may extend the forfeiture date for up to 12 months by the payment of
$25,000. In addition, Schmitt received weekly payments of $1,500 for on-going
consulting services for a period of time and a $10,000 sign-on bonus. Moreover,
Schmitt received 125,000 shares of Common Stock.

A third Technology that the Company intends to use is currently being
developed for the Company on a "for hire" basis by Terry Christopher and Martin
Blake. The development of this technology is still in the early stages. There
can be no assurance that Messrs. Christopher and Blake will be successful in
developing a viable Technology for the Company's businesses.

The Company is currently negotiating the acquisition of a fourth
Technology, which it has indicated that it will license to the Company on a
non-exclusive, perpetual, royalty-free basis upon acquisition. The Company has
not yet entered into any binding agreement with regard to the acquisition of
this fourth Technology. There can be no assurance that the Company will be
successful in acquiring this fourth Technology on terms and conditions
satisfactory to it or at all for that matter.

Market and Marketing.

Precious metals have two main categories of use -- product fabrication
and bullion investment. Fabricated precious metals have a wide variety of end
uses, including industrial and technology uses. Purchasers of official coins and
high-karat jewelry frequently are motivated by investment considerations, so
that net private bullion purchases alone do not necessarily represent the total
investment activity in precious metals.

The profitability of the Company's current and proposed operations are
significantly affected by changes in the market price of precious metals. The
market prices of precious metals can fluctuate widely and are affected by
numerous factors beyond the Company's control, including industrial and jewelry
demand, expectations with respect to the rate of inflation, the strength of the
U.S. dollar and of other currencies, interest rates, central bank sales, forward
sales by producers, global or regional political or economic events, and
production and cost levels in major mineral-producing regions such as South
Africa. In addition, the prices of precious metals sometimes are subject to
rapid short-term changes because of speculative activities. The current demand
for and supply of precious metals affect precious metals prices, but not
necessarily in the same manner as current supply and demand affect the prices of
other commodities. The supply of precious metals consists of a combination of
new mine production and existing stocks of bullion and fabricated precious
metals held by governments, public and private financial institutions,
industrial organizations and private individuals. As the amounts produced in any
single year constitute a very small portion of the total potential supply of
precious metals, normal variations in current production do not necessarily have
a significant impact on the supply of precious metals or on their prices. If the
Company's revenue from precious metals sales falls for a substantial period
below its cost of production at any or all of its operations, the Company could
determine that it is not economically feasible to continue commercial production
at any or all of its operations or to continue the development of some or all of
its projects. In summary, the markets for precious metals generally are
characterized by volatile prices.

Because of the availability of a sufficient number of refiners and
smelters and the competitive nature of the gold market, management believes that
the Company will be able to sell all gold produced by them separately at then
current market rates. Due to the more restrictive and less competitive nature of
the platinum market, management believes that the Company will be less able to
sell all platinum and related minerals produced by them separately. Management
does not foresee that other minerals that are likely to be produced on the
Company's mineral properties will be of any significant consequence. The
Company's current policies is to sell their separate production at current
prices and not enter into hedging or other arrangements which would establish a
price for the sale of their separate future production.

Competition.

The mining industry is very competitive. There is a high degree of
competition to obtain favorable mining properties and suitable mining prospects
for drilling, exploration, development and mining operations. The Company will
encounter significant competition from firms currently engaged in the mining
industry. In general, all of these companies are substantially larger than the
Company, and have substantially greater resources and operating histories.
Accordingly, there can be no assurance that the Company will be successful in
competing with existing and emerging companies in the mining industry.

Government Regulation and Environmental Concerns.

The mining and mineral extraction operations of the Company will be
subject to extensive federal, state and local laws and regulations governing
exploration development and production. In addition, such operations will be
subject to inspection and regulation by the Mining, Safety and Health
Administration of the Department of Labor under provisions of the Federal Mine
Safety and Health Act of 1977, which is designed to ensure operational safety
and employee health and safety. The United States government also regulates the
environmental impact of the mining industry through the Clean Air Act, the Clean
Water Act, the Toxic Substances Control Act, the Resource Conservation and
Recovery Act of 1976 and the Federal Land Policy and Management Act of 1976. In
addition to imposing air quality standards and other pollution controls, the
most significant provisions of the above legislation deal with mineral land
reclamation and waste discharges from mines, mills and further processing
operations. The Company is also subject to extensive health and safety
regulations at the state level, as well as legislation and regulation with
respect to the environmental impact of its mining operations in the State of
California. Due to the nature of the Company's mineral extraction process, the
Company believes that its processing operations will have a modest effect on the
environment.

The Company generally will be required to mitigate long-term
environmental impacts by stabilizing, contouring, reshaping and revegetating
various portions of a site once mining and processing are completed. Reclamation
efforts will be conducted in accordance with detailed plans which will have been
reviewed and approved by the appropriate regulatory agencies. The Company plans
for reclamation to be conducted concurrently with mining. Management believes
that reclamation expenditures will not be material, although there can be no
certainty in this regard.

Compliance with the foregoing laws and regulations increases the costs
of planning, designing, drilling, developing, constructing, operating and
closing mining operations. It is possible that the costs and delays associated
with compliance with such laws and regulations could become such that the
Company would not proceed with the development of a project or continue to
operate a mine.

Though the Company believes that its mining operations will be
conducted in compliance with all present health, safety and environmental rules
and regulations, there is always some uncertainty associated with such due to
the complexity and application of such rules and regulations. The Company does
not anticipate that compliance with existing environmental laws and regulations
will have a material impact on its earnings in the foreseeable future; however,
possible future health, safety and environmental legislation, regulations and
actions could cause additional expense, capital expenditures, restrictions and
delays in the activities of the Company, the extent of which cannot be
predicted.

Seasonability.

The Company's business is not generally expected to be seasonal in
nature.

Employees.

The Company has two employees working at its corporate headquarters.
The Subsidiaries have a total of four employees. None of these employees are
covered by a collective bargaining agreement and relations with them are
considered to be good. The Company expects that the mining subsidiaries may have
as many as 25-30 employees within the next year. The Company does not now
foresee problems in hiring additional qualified employees to meet its labor
needs.

Properties

General.

Except as noted herein, the Company's properties are located in the
Lake Tecopa and Armagosa River Valley.

Geological records indicate that about a million or so years ago, large
inland fresh water lakes were located in the Armagosa Valley during the Ice Age.
Then, as glaciers receded and the lakes drained, the lowest places became
collection basins for minerals and deposits which are spread throughout the
valley. It is believed that large inland lakes, which dried up over a million
years ago, left behind significant deposits of precious metals, especially gold.

The Company has conducted surface sampling on its mineral properties.
The sampling indicates that land underlying these properties may contain gold,
platinum, iridium, palladium, rhodium and ruthenium. However, the Company has
not confirmed the level of existing precious metals, and the Company has not had
any independent testing undertaken to confirm the results of its internal
sampling. As a result, the Company has not completed sufficient geological
testing to establish proven or probable mineral reserves for mineral properties.
The Company currently intends to undertake only some subsurface exploration at
some unspecified point in time during the next two year. Notwithstanding the
preceding, management believes that the Company's surface sampling indicates the
existence of sufficient mineralization to warrant continued development of its
mineral properties. However, there can be no assurance that proven or probable
ore reserves will ultimately be established.

Griffin.

The Company owns 50% of the outstanding stock of Griffin. Griffin
currently holds rights to Claims covering two properties located in the Armagosa
Valley in the upper Mojave Desert in California. One of these properties
comprising 1,600 acres is located near Tecopa, California, while the other
comprising 1,920 acres is located about 25 miles east of Barstow, California in
the dried-up Mojave River bed. These two properties have a combined total of
about 5.5 square miles in surface land. Sands from a small portion of the
1,600-acre tract will be used in connection with the testing of DMI's pilot
plant. Access to the general vicinity of Griffin's mineral properties is by
means of state highways. Once in the general vicinity of the claims, easy access
to the claims is possible over dry, stable sands.

Escopeta Minerals.

The Company owns all of the outstanding stock of Escopeta Minerals.
Escopeta Minerals currently holds rights to a tract of property containing
approximately 2,445 acres. The tract is contiguous to Griffin's Tecopa,
California property. This property has a total of four and one-half square
miles. Access to Escopeta Mineral's mineral property is by means of a state
highway.

DMI Land

DMI Land is a wholly-owned subsidiary of DMI. The Company owns 47% of
the outstanding stock of DMI Land. DMI Land owns a five-acre tract of land near
Tecopa, California and a 40-acre tract of land in the Armagosa Valley. Both
tracts were acquired with a view to serving as plant sites in the future.

DISCONTINUED GAMING OPERATIONS

At the beginning of fiscal 1998, Papone's Palace Ltd. Liability
Company (the "Limited Liability Company") owned and operated Papone's Palace,
and the Company owned a 75.5% indirect interest in the Limited Liability
Company. Upon its opening for business on July 1, 1992, Papone's Palace operated
as a limited stakes gaming casino situated in a 6,000 square foot, two-story
Victorian building located in Central City. Shortly after June 10, 1993, the
Colorado gaming authorities approved the transfer to the Company of the
Company's current 75.5% interest in the Limited Liability Company.

Since its acquisition in June 1993, Papone's Palace had failed to
operate at a profit and had experienced continuing losses. Management believes
that the continuing losses of Papone's Palace were due in a large part to the
intense competition from the neighboring community of Black Hawk through which
potential patrons must drive to reach Central City. To meet a serious cash flow
deficiency, in October 1994 the Company and the Limited Liability Company
received a loan of $1 million (the "Loan") from a private creditor ("Creditor"),
assigned to the Creditor the first deed of trust on the property on which
Papone's Palace is situated (the "Property"), and granted in favor of the
Creditor a third deed of trust on the Property as well. Over time, the Creditor
made additional advances with respect to Papone's Palace, and obtained
additional security for the Loan.

As of May 16, 1996, certain payments of principal and interest on the
Loan had not been timely made, and the Loan was thereby in default. As a
consequence of this default, the Creditor commenced a public trustee foreclosure
proceeding with respect to the Property in the Gilpin County District Court,
Division G, in Colorado (case no. 96CV73) (the "Foreclosure Proceeding").
Eventually, the Company and the Limited Liability Company, on the one hand, and
the Creditor, on the other hand, entered into a settlement agreement with
respect to the aforementioned default (the "Settlement Agreement").

The Settlement Agreement was expressly subject to the procurement of a
court determination within 120 days after the date of the Settlement Agreement
that the Limited Liability Company had the authority to enter into the
Settlement Agreement. After operating for the summer of 1996, Papone's Palace
closed for the 1996-1997 winter season for seasonal reasons with the expectation
that it would reopen for the summer of 1997. However, a partner in Limited
Liability Company alleged that Limited Liability Company had no authority to
enter into the Settlement Agreement, and for this and other reasons, such
partner refused to sign the application to renew the Limited Liability Company's
gaming license, which was issued on a year-by-year basis. Consequently, such
license expired in June 1997, and the Company was not able to reopen Papone's
Palace for the summer of 1997 as was originally expected. As an additional
result, the Limited Liability Company was not able to obtain timely the judicial
determination required by the Settlement Agreement. Such failure constituted an
event of default with respect to the Loan under the terms of the Settlement
Agreement.

As a result, on February 21, 1997, a judgment was entered in the
Foreclosure Proceeding awarding to the Creditor the principal amount of
$1,101,337, together with interest and costs, and decreeing a foreclosure on the
Property. This development required the Limited Liability Company to file for
bankruptcy under Chapter 11 of the federal bankruptcy laws on April 23, 1997.
The Creditor eventually filed a motion to lift the bankruptcy stay against the
Property. In October 1997, the bankruptcy court granted this motion. The Company
initially planned to appeal vigorously this decision. However, after the judge
in charge of the proceeding indicated some hostility to the Company's defense
position, the Company decided not to appeal. As a consequence, the Creditor
foreclosed the Property in March 1998, thereby divesting the Company of its last
gaming interest. The Company believes that the combination of prior asset
transfers to the Creditor of approximately $1,643,000, plus the value of the
assets of Papone's Palace equals or exceeds the amount of indebtedness.
Therefore, the Company has been negotiating with the Creditor in an effort to
reach a settlement regarding the Company's guarantee of the indebtedness to the
Creditor in the amount of approximately $1,139,000. There can be no assurance
that the Company will be successful in this regard.

While the Company did not acquiesce in the foreclosure of Papone's
Palace, the Company had previously determined to abandon the gaming business and
had contemplated spinning off to the Company's stockholders the outstanding
equity of the Limited Liability Company (or a successor entity formed for
purposes of such a spin-off). The Company believes that the foreclosure of
Papone's Palace (together with the settlement of remaining matters pertaining to
the Company's primary indebtedness) may prove to be a route (acceptable to the
Company) by which the Company may abandon the gaming business and resolve the
related indebtedness situation.

ITEM 3. LEGAL PROCEEDINGS

On May 14, 1998, the U.S. Securities and Exchange Commission (the
"Commission") filed a complaint in the United States District Court, Southern
District of New York (98 Civ. 3446) against Paul J. Montle (the Chairman of the
Board of Directors and President of the Company), the Company, Paul V. Culotta
(a former Executive Vice President and Chief Financial Officer of the Company),
Carol C. Martino, CMA Noel, Ltd., Mario J. Iacoviello, Ilan Arbel, and Europe
American Capital Corporation, alleging numerous violation of federal securities
laws. With regard to the Company, the Commission alleges that the initial
registration statement of the Company filed and declared effective in 1993
contained omissions of material information regarding certain sales of stock in
the Company allegedly occurring prior to the date of such registration
statement. These alleged sales purportedly caused a dilution in the ownership of
the Company's stock distributed to the stockholders of VTS. The Commission seeks
a permanent injunction against the Company, barring it from making future
violations of certain provisions of the federal securities laws. The deadline
for the filing of answers has been extended by the agreement of the parties. The
Company intends to defend it vigorously in this lawsuit, although it may settle
on terms acceptable to it because the lawsuit does not seek any monetary
recovery against the Company.
However, there can be no assurances as to the outcome to this proceeding.

On December 14, 1994, the Company filed a lawsuit in Harris County,
Texas against Full House Resorts, Inc. ("Full House"), Allen E. Paulson,
Donaldson, Lufkin & Jenrette Securities Corporation and My Dang to enforce the
terms of a preliminary agreement executed on September 8, 1994 between the
Company and Full House to jointly acquire and relocate a casino to the Company's
site in Biloxi, Mississippi. With the agreement of the Company, this litigation
was continued in the District Court of Harrison County, Mississippi under case
no. A-2402-95-0142. Eventually, the Company's counsel untimely withdrew from the
case without the substitution of new counsel. The Company's proposed new counsel
conditioned its representation of the Company upon the issuance of a new
scheduling order allowing such counsel to prepare. The presiding judge refused
to issue a new scheduling order. Because of the Company's lack of
representation, the presiding judge granted the defendants' motions for summary
judgment in March 1996. The Company, with new counsel, immediately filed an
appearance and an appeal with the Mississippi Supreme Court. On April 7, 1998,
the Mississippi Court of Appeals affirmed the lower court's decision in part
while reversing and remanding such decision in other parts. Essentially, the
Court of Appeals reversed the summary judgment against the Company for its
claims of breach of contract and breach of fiduciary duties asserted against
Full House and remanded these claims to the lower court for a trial on the
merits. However, the Court of Appeals affirmed the summary judgment against the
Company as to all of its claims against My Dang, Allen B. Paulson and Donaldson,
Lufkin & Jenrette Securities Corporation and its claims of common law fraud
against Full House. As September 18, 1998, no setting has been entered for the
trial of the claims being remanded.

The Company is a defendant in a lawsuit filed by Mississippi Ventures
II ("MVII") on August 7, 1995, regarding a proposed joint venture between the
Company and MVII. The Company had a lease on certain property located in
Mississippi and had intended on developing a casino site with MVII. MVII had
required that the lease be amended in order to provide for a joint venture and
MVII agreed to place $100,000 in an escrow account to be used for rents owed.
Before the lease was amended and the escrow deposit released to the landlord,
the Mississippi Supreme Court declared the original leased site could not be
used as a legal casino site. The $100,000 had been released to the Company, and
the Company retained the $100,000 on the basis that MVII interfered with the
negotiation of the amended lease and its timely execution. MVII alleged breach
of the implied covenant of good faith and fair dealing, and breach of fiduciary
duty, and the Company denied all causes actions. Due to an unexpected
resignation of the Company's counsel, the Company defaulted on this lawsuit in
fiscal 1997. The Company is now appealing this judgment. The likelihood of the
Company's success on this appeal can not now be determined.

In fiscal 1997, Oriental Crystal (Holding) Ltd. ("Oriental") brought a
lawsuit against the Company and the subsidiary formerly pursuing the Company's
Tinian gaming business. The lawsuit was brought in the Superior Court of the
Commonwealth of the Northern Marianas Islands (C.A. 96-173) seeking a
declaratory judgment that an agreement previously made by Oriental not to
compete with the Company on Tinian was a restraint of trade and was therefore
unenforceable. The attorney representing Oriental attempted to serve the Company
at its 1994 business address in Houston and when it was not possible to obtain
service on the Company at that address, a default judgment granting the
declaratory judgment was entered in June 1996. The Company sought to have this
judgment set aside on the basis that service was not properly made and the
default judgment was improperly entered. The Supreme Court of the Northern
Marianas Islands declined to render a decision based on its belief that issue
was moot because the Company was no longer doing business in the Northern
Marianas Islands. Because of this decision, the Company has appealed the
Northern Marianas Islands courts' decisions to the United States Ninth Circuit.
If the Company is successful in its appeal to overturn the default judgment, it
intends to file an action to enforce its non-circumvention and non-compete
agreement with Oriental by seeking damages and/or an ownership interest in the
300 room hotel casino that Oriental built on Tinian. The ultimate outcome of
this lawsuit cannot be determined at this time.

On February 24, 1997, Papone's Palace Acquisition Corporation, a
Colorado corporation wholly-owned by the Company ("PPAC"), commenced an action
against Earl Neudecker in the Denver County District Court (case no. 97CV1021)
on a promissory note originally payable to the Hill Family Trust in the
principal amount of $1,450,000 due and payable on January 14, 1997 (the
"Neudecker Note"). The rights as the holder of the Neudecker Note were
eventually assigned to PPAC. Neudecker has asserted a variety of counterclaims.
This proceeding is currently in the discovery phase, and trial has been set for
April 1999. The ultimate outcome of this lawsuit cannot be determined at this
time. Moreover, the major creditor of the Limited Liability Company has
previously taken a collateral assignment of the Neudecker Note and is expected
to assert a claim in any amounts recovered by PPAC. The Company intends to
defend vigorously against any attempts to claim an interest on any amount
recovered on the Neudecker Note. However, if the Company recovers any amount on
the Neudecker Note, there can be no assurance that the Company will be
successful in any defense of any claim asserted based on the collateral
assignment.

The Company had been a party plaintiff in litigation in the 281st Judicial
District of Harris County, Texas entitled Lone Star Casino Corporation and
Hallmark Trading Co. Ltd. v. Cambridge Financial Corporation, Leslie S.
Greyling, Daniel M. Boyar, Claude Kirk, Jose Esquivel, Thomas Mahood, Jorge
Galvez, Gregory Martini, Aspen Marine Group, Inc., Ella Boutwell Chestnut,
Steven T. Dorrough, George D. Fowler, Paul A. Herman, C. Randolph Coleman,
Robert J. Baker, Joseph C.F. Chow, and Corporate Stock Transfer, Inc., (Civil
Action No. 93-041789), which seeks damages for the non-payment of a $500,000
promissory note and for the loss of profits arising out of the non- payment of
other consideration and for damages caused by fraud and other claims. All
defendants have been served. Aspen Marine Group, Inc., Ella Boutwell Chestnut,
Steven T. Dorrough, George D. Fowler, Paul A. Herman, C. Randolph Coleman,
Robert J. Baker, Joseph C.F. Chow, and Corporate Stock Transfer, Inc. have filed
special appearances to contest personal jurisdiction and were all non- suited.
No other defendant has answered. On January 10, 1994, the court entered an
interlocutory default judgment in the amount of $2,307,500 plus post-judgment
interest against Cambridge Financial Corporation, Leslie S. Greyling, and Daniel
M. Boyar. The court severed the lawsuit against Cambridge Financial Corporation,
Leslie S. Greyling and Daniel M. Boyar, and final judgment in favor of the
Company was entered against these defendants in January 1994. The remaining
defendants were Claude Kirk, Jose Esquivel and Jorge Galvez, against whom the
Company tried to obtain a summary judgment. However, the case against the
remaining defendants has been dismissed for want of prosecution.

In fiscal 1995, Truman L. Susman filed a lawsuit against the Company in
the U.S. District Court for the District of Delaware, (C.A. No. 94-210),
alleging that the Company participated in or induced VTS' management to commit
acts of mismanagement and breach of fiduciary duties against VTS, its
subsidiary, and its shareholders, in addition to inducing VTS to breach its
contractual obligations to the plaintiff. The court eventually entered a summary
judgment against the plaintiff for failure to state a claim. The plaintiff filed
a motion for leave to amend his complaint. On November 1, 1997, this lawsuit was
settled in consideration of the Company's payment of a token amount of money.

In fiscal 1995, TPM Financial, Inc. ("TPM") filed a lawsuit against
Lone Star Casino Corporation of Nevada, a subsidiary of the Company ("LSCCN").
The lawsuit dealt with a lease for a hotel property in Las Vegas, Nevada and a
lease for an adjacent casino property, both entered into in 1994 with TPM as
landlord and LSCCN as tenant. LSCCN had entered into a short-term sublease of
the hotel property effective April 1, 1995. In June 1995, the subtenant
defaulted on its payments to LSCCN, which in turn defaulted on its payments to
TPM. TPM is seeking a judgment against LSCCN for allegedly delinquent rents in
the approximate amount of $125,000, while LSCCN is seeking damages from its
subtenant. LSCCN filed a counter-claim against TPM, claiming that TPM conspired
with the subtenant to reduce, and eventually stop, payments under the sublease,
thereby causing LSCCN to default under the leases with TPM. The subtenant filed
a counterclaim against LSCCN citing misrepresentation of certain facts
concerning the property, LSCCN's inability to perform as sublandlord, breach of
the sublease, breach of implied covenant of good faith and fair dealing, and
fraud. This lawsuit had been in the discovery phase, and TPM had offered to
settle. However, in fiscal 1997, TPM filed for bankruptcy protection, and this
lawsuit has been stayed since that filing. Moreover, LSCCN eventually filed for
bankruptcy under Chapter 7 of the federal bankruptcy code, and the trustee in
the bankruptcy proceeding will decide whether it will continue to pursue LSCCN's
claims. The outstanding claims against LSCCN total approximately $500,000. If
LSCCN's trustee is successful in recovering more than this amount, the Company
(as the parent of LSCCN) could be expected to benefit from any excess. However,
the ultimate outcome of this matter can not now be determined. Because of the
uncertainty of the conclusion of this lawsuit and the unlikelihood that such
outcome will materially affect the Company either adversely or favorably, the
Company does not intend to report on this lawsuit any further unless some
material event occurs.

The Company was a defendant in litigation filed in fiscal 1994 in the
Supreme Court of the State of New York, County of New York, styled Nemsa
Establishment, S.A. v. Viral Testing Systems Corporation et al. (Index No.
94112917). The plaintiff had sued to collect principal and interest under a
promissory note issued to it and had alleged that it is entitled to recover
damages based on various torts alleged to have been committed by the defendants.
The Company believes that is was named as a defendant solely for harassment
purposes. This litigation was terminated by the related court in fiscal 1997
without any liability to the Company.

For a discussion of the foreclosure proceeding involving Papone's
Palace, see "BUSINESS AND PROPERTIES DISCONTINUED GAMING OPERATIONS."

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

The Company's common stock is traded on the OTC Bulletin Board under
the symbol "CHIP". As of June 30, 1998, the Company had 1,759 holders of record.
Presented below are the high and low closing bid prices of the Company's common
stock for the two years ended June 30, 1998.
<TABLE>
<CAPTION>

High Low
<S> <C> <C>
---- ----
Fiscal year ended June 30, 1997:
First Quarter $1.310 $0.125
Second Quarter 1.380 0.070
Third Quarter 2.090 0.720
Fourth Quarter 1.875 0.510

Fiscal year ended June 30, 1998:
First Quarter $1.150 $ .57
Second Quarter 1.030 .52
Third Quarter .590 .20
Fourth Quarter .350 .13
</TABLE>

The Company has never paid cash dividends, and has no intentions of
paying cash dividends in the foreseeable future.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion provides information to assist in the
understanding of the Company's financial condition and results of operations,
and should be read in conjunction with the selected financial data in Item 6
above and the consolidated financial statements and related notes appearing
elsewhere herein

Significant Events

During fiscal 1998, the Company focused its efforts on developing
precious metals mining prospects, with each project undertaken in a separate
corporate entity for the purpose of allowing its partners, who may originate the
mining prospects and/or provide technological expertise in the recovery process
to own a stake in their respective ventures. The active Subsidiaries include
Griffin Gold Group, Inc. ("Griffin"), Escopeta Minerals, Inc. ("Escopeta"),
Desert Minerals, Inc. ("DMI"), SWM Ventures, Inc. ("SWM"), Mohave Metals
Corporation ("Mohave") and DMI Land, Inc. ("DMI Land"). Griffin Gold and
Escopeta have rights in certain mining claims or properties believed to contain
precious metals. DMI, SWM and Mohave are in the processes of refining and
developing certain mineral extraction technologies. DMI Land owns two tracts of
land that are used as plant sites. These operations are in the developmental
stage and will require minimal capital. To implement this strategy and finance
these projects, the Company may establish a public trading market in the shares
of some of these mining ventures, via an initial public offering and/or a
"spin-off" of their shares to the Company's shareholders in fiscal year 1999 so
they can do their own financing with their own shares. To the extent this
strategy is implemented, the Company may essentially become a holding company
owning large share holdings in each mining corporation.

RESULTS OF OPERATIONS

Years ended June 30, 1998 and 1997

Overview

Operations for fiscal 1998 are not comparable to the operations for
fiscal 1997 because the Papone's Palace casino was open for three months in
fiscal 1997 and the Company had two one-time gains on sales of assets of
$1,603,000 and $203,000 and interest expense of $489,000 in fiscal 1998. The
Company had no revenue from operations in fiscal 1998 and had a net loss of
$2,605,000. The Company incurred a net loss of $72,000 on revenues of $238,000
from its discontinued casino business after the gains mentioned above for fiscal
1997. The increase in net loss is largely attributable to a loss from mining
operations of $935,000 in fiscal 1998 versus $20,000 in fiscal 1997, and an
increase of $458,000 in general and administrative costs in fiscal 1998, which
was primarily attributable to an increase in legal fees and related litigation
costs. Of the total loss of $2,605,000, $906,000 represented shares of common
stock issued for services valued at market at the time they were issued.

Operating Revenues

There were no operating revenues in fiscal 1998 compared to $238,000 in
fiscal 1997, all of which came from the Company's now discontinued casino
business.

Operating Expenses

General and administrative expenses increased $458,000 in fiscal 1998
compared to fiscal 1997, due to an increase in legal fees and related litigation
costs. Mining operation costs increased $915,000 in fiscal 1998 compared to 1997
due to a greatly increased level of research and development activity at the
Company's pilot plant in Nevada.

Other Income (Expense)

Other income (expense) declined significantly in fiscal 1998 versus
1997, due primarily to fewer gains from non-recurring items. The only income in
1998 was $64,000 from the sale of marketable securities compared to $1,623,000
gains in 1997. However, interest expense declined to $25,000 in 1998 compared to
$489,000 due to the disposal of the casino business and related debt late in
fiscal 1997. Litigation settlement costs increased to $153,000 in 1998 compared
to $88,000 in 1997.

Discontinued Business

In fiscal 1998, the Company had a loss of $52,000 related to the
write-off of the balance of the value of Papone's Palace Casino LLC compared to
a net gain in disposal of the Clutch Games business in 1997 of $135,000, which
reflects a gain on sale of $203,000 less a $68,000 loss from operations of that
business.

RESULTS OF OPERATIONS

Years ended June 30, 1997 and 1996

Overview

Operations for fiscal 1997 are not comparable to the operations for
fiscal 1996 because the Tinian casino was closed in December, 1995 and the
Papone's Palace casino was open for three months in fiscal 1997 compared to
eight months in fiscal 1996. The Company incurred a net loss of $72,000 for
fiscal 1997 on revenues of $238,000 compared to a net loss of $4,727,000 on
revenues of $1,340,000 for fiscal 1996. The decrease in net loss is largely
attributable to a lower costs and expenses in the casino operations in fiscal
1997 compared to fiscal 1996, non-recurring write-downs and losses on sale of
property in fiscal 1996, release of liability from the sale of two inactive
subsidiaries and a gain on the transfer of ownership in a card club to Papone's
principal creditor.

Operating Revenues

Gaming revenues decreased by approximately $990,000 in fiscal 1997
compared to fiscal 1996 due primarily to the closing of Tinian casino in fiscal
1996 and the shorter opening months of the Papone's Palace casino in fiscal 1997
compared to fiscal 1996. Food and beverage revenues decreased by approximately
$112,000 attributable to the same factors.

Operating Expenses

The decrease in gaming expenses in fiscal 1997 as compared to fiscal
1996 of approximately $1,873,000 is directly attributable to the closing of the
Tinian casino ($1,475,000) and the shorter season at Papone's Palace casino
($398,000). Likewise, the decrease in the cost of food and beverage is directly
attributable to the same factors. In addition, losses of $929,000 principally
from asset writedowns at the Tinian casino and losses from asset sales at the
Papone's Palace casino of $320,000, both in fiscal 1996 were non-recurring in
fiscal 1997. General and administrative expenses in fiscal 1997 decreased
approximately $660,000 compared with fiscal 1996, due primarily to the closing
of the Tinian casino and lower consulting and professional expenses in fiscal
1997 compared to fiscal 1996. Depreciation expense declined $353,000 in fiscal
1997 compared to fiscal 1996 due principally to the closing of the Tinian casino
in fiscal 1996 and a shorter season at Papone's in fiscal 1997 compared to
fiscal 1996.

Other Income (Expense)

Other income (expense) improved in fiscal 1997 compared to fiscal
1996 primarily due to the following: (1) gain on sale of two inactive
subsidiaries (Pacific American Casinos, Inc. [Tinian] and Lone Star Casino
Corporation of Nevada) of $1,013,000 in fiscal 1997, (2) non-recurring minority
interest in net loss of subsidiary of $203,000 in fiscal 1996, (3) non-recurring
gains from debt forgiveness and other of $239,000 in fiscal 1996, (4) lower
interest expense in fiscal 1997 of $175,000 compared to fiscal 1996 due to the
non-default periods on its Secured Convertible Senior Debenture and (5) a gain
of $590,000 on the transfer of card club partnership interest to the holder of
Papone's Secured Convertible Senior Debenture. The partnership interest was
valued at $590,000 (carried on the books at $0) and was applied as a reduction
in accrued interest.

Discontinued Business

The Company discontinued its board game project, Clutch Games, Inc., in
fiscal 1997 realizing a gain of $203,000, while incurring a loss from operations
of $68,000.

LIQUIDITY AND CAPITAL RESOURCES

Overview

As of June 30, 1998, the Company had a working capital deficiency of
$1,328,000 compared to $2,360,000 a year earlier. Throughout fiscal 1998, the
Company has been able to continue meeting cash requirements by selling assets,
renegotiating existing debt obligations, issuing new debt, paying for services
with stock, issuing common stock through private placements and capital
contributions by subsidiary minority shareholders. The ability of the Company to
continue to pursue its business objectives throughout fiscal 1999 and beyond
will depend on the Company's ability to continue to meet its cash requirements
by the means mentioned above and the potential sale of its shares and warrants
in another public company which was spun off from the Company in May, 1998 and
ultimately to achieve profitability with respect to its business operations.
There can be no assurance that the Company will sustain this ability or achieve
this goal.

Current Assets and Current Liabilities

During fiscal 1998, current assets declined approximately $754,000 due
primarily to a reduction in receivables from unaffiliated parties of $187,000
and affiliated parties of $561,000 offset by an increase in receivables from
affiliated parties of $308,000. Current liabilities decreased by $1,786,000 in
fiscal 1998 compared to fiscal 1997. Four factors contributed to the decrease:
(1) claims subject to compromise decreased $2,315,000, (2) notes and advances to
related parties decreased by $26,000 during fiscal 1998 as a result of
conversion of debt to common stock and retirements, (3) accounts payable and
accrued expenses increased by $430,000 in fiscal 1998 compared to fiscal 1997,
primarily due to increase in legal fees and payables and (4) the redemption
payable on the redeemable preferred stock decreased by $25,000 due to a
settlement reached in fiscal 1997.

Stock Sales

During fiscal 1998, the Company issued 3,111,000 shares of its common
stock at an average price per share of $.20. The Company received net proceeds
of $607,000.

During fiscal 1997, the Company issued 543,000 shares of its common
stock outside the United States at gross prices per share of between $.10 and
$1.00. The Company received net proceeds of $128,000, an average price per share
of $.22.

During fiscal 1998 and 1997, the Company issued 150,000 and 1,578,000 shares,
respectively, of its common stock in connection with the acquisition of gold
mining properties. The Company's interest in such ventures has been valued in
the consolidated balance sheet at $203,000 and $371,000, respectively, ( net of
cash reimbursements of $109,000 in fiscal 1997).

During fiscal 1997, the Company issued an additional 6,069,000 shares
in retirement of debt to officers and directors of $285,000 (including loans to
the Company and its subsidiaries, accrued interest and salaries) at a price of
$.045 per share. The Company has issued 735,000 and 600,000 shares in fiscal
1997 and 1996, respectively, to certain consultants in payment of approximately
$578,000 and $1,038,000 in services rendered.

The Company issued 800,000 shares to a foreign national under warrants
issued in fiscal 1997 to purchase common stock of the Company at $.375 per share
(later reduced to 546,000 shares in fiscal 1998). Proceeds were substantially
collected in July , August and September, 1997. In addition, the Company issued
600,000 shares of common stock in the settlement of litigation in June, 1997
regarding the redemption payable under the Company's redeemable preferred stock
of $505,000. All of the 600,000 shares were placed in escrow and the remaining
shares are subject to return and cancellation when proceeds of $600,000 have
been realized from the sale of some of the shares. Also, the Company issued
54,400 shares of common stock in settlement of claims regarding a land lease
under a proposed casino.

<PAGE>

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The reports of Company's Independent Auditors appear at Page F-1
hereof, and the Consolidated Financial Statements of the Company appear at Page
F-2 through F-12 hereof.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

Not applicable.

PART III.

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth certain information regarding the
directors and executive officers of the Company and its subsidiaries, including
the business experience of each for at least the past five years:

Officer Director
Name Age Since Since
<S> <C> <C> <C> <C>

Paul J. Montle 51 1993 1993
Chairman of the
Board, President and
Chief Executive Officer

Kent E. Lovelace, Jr. 62 1993 -----
Director

Roger W. Cope 57 1993 -----
Director

C. Thomas Cutter 58 1993 -----
Director

Terry Christopher 30 ----- 1998
President of SWM Ventures,
Inc. and Mohave Metals
Corporation

Martin Blake 30 ----- -----

</TABLE>

Paul J. Montle has served as the Chairman of the Board and Chief
Executive Officer of the Company since 1992. From 1991 to October 15, 1994, Mr.
Montle served as President and Chief Executive Officer of Viral Testing Systems
Corporation ("VTS"), a distributor of a FDA-licensed AIDS test and other medical
diagnostic products, and from 1991 to 1992, he also served as Chairman of the
Board of such company. VTS filed for protection under Chapter 11 of the
Bankruptcy Code on January 4, 1995. Eventually this bankruptcy proceeding was
converted to a proceeding under Chapter 7, and the remaining assets of VTS have
been liquidated. Since 1987, Mr. Montle has been a Managing Director of Montle
International Incorporated, a privately-held merchant banking firm.

Kent E. Lovelace, Jr. has served as a Director of the Company since August
1993. Since 1975, he has served as President and Chief Executive Officer of
Equitrust Mortgage Corporation, formerly Hancock Mortgage Corporation.

Roger W. Cope has served as a Director of the Company since 1993. He
now serves as Vice President Business Development with Lamb Technicon Machining
Systems. From June 30, 1993 until January 16, 1996, Mr. Cope served as President
of the Company and Manager of Papone's Palace, Ltd. Liability Co. During 1991
and 1992, he served as Director of Strategic Planning for the Applied Technology
Division of Litton Systems, Inc., a provider of electronic warfare products to
the defense industry. From 1986 to 1991, Mr. Cope served as President of Cope
Development Corp., a privately-held consulting firm. He also serves as a
Director of Waste Recovery, Inc., a publicly-held corporation engaged in
specialized resource recovery.

C. Thomas Cutter has served as a Director of the Company since December
1992. Since 1968, he has served as President, Director and sole shareholder of
Cutter Fire Brick Co., Inc., which is engaged in the repair and maintenance of
industrial heat enclosures. Since 1975, Mr. Cutter has served as President,
Director and sole shareholder of both Cutter Ceramics, Inc., a manufacturer and
distributor of art clay, and ADC Supply Corp., a distributor of industrial
insulation materials. Since 1985, Mr. Cutter has served as President, Director
and sole shareholder of Cutter Northern Refractories, Inc., which is engaged in
the repair and maintenance of industrial heat enclosures.

Terry Christopher has served as the President of each of SWM Ventures,
Inc. and Mohave Metals Corporation, majority-owned subsidiaries of the Company,
since the dates of their respective formations. Prior to serving in these
capacities, Mr. Christopher spent four years working in both mineral and oil and
gas exploration. Until recently, he was a director and head geologist for
Imperial Venture Corp., a private oil and gas exploration company. While in this
position, he selected more than 450,000 acres of oil and gas permits in western
Newfoundland, Canada. Mr. Christopher has also worked in gold, nickel, and
lead-zinc exploration environments, detailed hard rock and alluvial mapping, and
made aggregate evaluations. He is expected to receive his PhD. from the
Department of Earth Sciences at Memorial University of Newfoundland in the near
future. He presently holds a BSc. (honors) in earth science from this
institution.

Martin Blake became employed by the Company in 1998. For the year
preceding his employment with the Company, he served as a well site geologist
for Belloy Petroleum Consultants Ltd. While working part-time during the pursuit
of his education, Mr. Blake received extensive experience in mineral
exploration, much of which has been in epithermal gold and MVT lead-zinc
exploration. He also has additional experience in PGM, nickel, and diamond
exploration, as well as oil and gas exploration and development in western
Canada. Mr. Blake holds a BSc. (honors) in geology from the Department of Earth
Sciences at Memorial University of Newfoundland and an MSc. in geochemistry from
this institution as well, in addition to substantial credits in pure chemistry.

Each officer of the Company generally serves at the pleasure of the
Board of Directors, other than Messrs. Christopher and Martin with whom the
Company has entered into a written employment agreement.

There are no family relationships among the officers and directors, and
there are no present arrangements or understandings pursuant to which any of
them were elected as officers or directors.

ITEM 10. EXECUTIVE COMPENSATION.

Report for Compensation Committee
on Executive Compensation

The Compensation Committee of the Board of Directors is responsible for
reviewing and approving the Company's compensation policies and the compensation
paid to its executive officers (including the executive officers named below).
The Company's compensation program for its executive officers (including the
Chief Executive Officer) is designed to provide levels of compensation required
to assist the Company in attracting and retaining qualified executive officers.
The Compensation Committee attempts to set an executive officer's compensation
at a level which is similar to such officer's peers in the Company's industry.
Generally, executive officer compensation (including the Chief Executive
Officer) is not directly related to the Company's performance. Instead, the
Compensation Committee has a philosophy which recognizes individual initiative
and achievement which can significantly influence an officer's compensation
level. The executive compensation program is comprised of salary, annual cash
incentives and stock options. The following is a discussion of each of the
elements of the executive compensation program.

Salary. Generally, base salary for each executive officer is similar to
levels within the industry and comparable to the level which could be attained
for equal positions elsewhere. Also taken into account are benefits, years of
service, responsibilities, Company growth, future plans and the Company's
current ability to pay.

Annual Cash Incentives. The annual cash incentive plan is a cash bonus
program designed to reward significant corporate accomplishments and individual
initiatives demonstrated by executive officers during the prior fiscal year. The
amount of each cash bonus is determined by the Compensation Committee at the end
of the fiscal year and is paid in cash in a single payment.

Stock Options. The 1993 and 1995 Stock Option Plans were adopted for
the purpose of promoting the interests of the Company and its stockholders by
attracting and retaining executive officers and other key employees of
outstanding ability. Options are granted to eligible participants based upon
their potential impact on corporate results and on their individual performance.
Generally, options are granted at market value, vest over a number of years, and
are dependent upon continued employment. The Committee believes that the grant
of time-vested options provides an incentive that focuses the executive
officers' attention on managing the business from the perspective of owners with
an equity stake in the Company. It further motivates executive officers to
maximize long-term growth and profitability because value is created in the
options only as the Company's stock price increases after the option is granted.

The Compensation Committee:
Kent E. Lovelace, Jr.
C. Thomas Cutter

Summary Compensation Table

The following table sets forth the compensation paid by the Company and
its subsidiaries to the Chief Executive Officer. No other executive officer
whose total annual salary and bonus for the fiscal year ended June 30, 1998,
1997 or 1996 exceeded $100,000 for services in all capacities to the Company and
its subsidiaries.

Summary Compensation Table (1)
<TABLE>
<CAPTION>

Annual Long-Term
Compensation Compensation

(a) (b) (c) (d) (e) (g)
Other
Name and Fiscal Annual Securities Underlying
Principal Year Compen- Stock Options
Position Ended Salary Bonus ation (Number of Shares)
<S> <C> <C> <C> <C> <C>

Paul J. Montle 6/30/98 $183,225 290,000
Chairman and 6/30/97 $200,912 500,000
Chief Executive 6/30/96 $169,062 13,000
Officer
</TABLE>
- -----------------

(1) The Columns designated by the SEC for the reporting of certain
long-term compensation, including awards of restricted stock, long term
incentive plan payouts, and all other compensation, have been
eliminated as no such awards, payouts or compensation were awarded to,
earned by or paid to any specified person during any fiscal year
covered by the table.
(2) Nominal perquisites not meeting the applicable disclosure threshold.

Stock Option Grants

The following table sets forth information pertaining to certain stock
options granted during the fiscal year ended June 30, 1998. The Company has not
granted stock appreciation rights ("SAR's") of any kind.
<TABLE>
<CAPTION>

Option Grants in the Last Fiscal Year

(a) (b) (c) (d) (e)
Number of
Securities Percentage of Total
Underlying Options Granted
Options to Employees Exercise Expiration
Name Granted in Fiscal Year Price Date
<S> <C> <C> <C> <C>

Paul J. Montle 290,000(1) 48% $ .341 2/3/2008

Terry Christopher 40,000(2) 8% $ .50 3/16/2008

Terry Christopher 30,000(2) 6% $ .75 3/16/2008

Terry Christopher 30,000(2) 6% $1.00 3/16/2008
</TABLE>

(1) All of these options are fully vested.

(2) Twenty-five percent of these options are fully vested. Additional
batches representing 25% of these options shall become vested on each
of the first three annual anniversaries of the grant of these options.

Option Exercises/Value of Unexercised Options

The following table sets forth the number of securities underlying
options exercisable at June 30, 1998, and the value at June 30, 1998 of
exercisable in-the-money options remaining outstanding as to the Chief Executive
Officer of the Company. No SAR's of any kind have been granted.

Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
<TABLE>
<CAPTION>

(a) (d) (e)

Number of Securities
Underlying Unexercised Value of Unexercised
Options at June 30, 1998 In-the-Money Options at
(Numbers of Shares) June 30, 1998
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Paul J. Montle 491,600 300,000 (2) (2)

Terry Christopher 25,000 75,000 (2) (2)
</TABLE>
- ---------------------
(1) The Columns designated by the SEC for the reporting of the number of
shares acquired on exercise, the value realized, and the number and
value of unexercisable options have been eliminated as no options were
exercised and no unexercisable options existed during the fiscal year
covered by the table.
(2) The average of the closing bid and ask prices of the Common Stock on
June 30, 1998 on the NASDAQ Stock Market was $.14, which was less than
the exercise price of all options reported in the table.

Other Plans

The Company has no other deferred compensation, pension or retirement
plans in which executive officers participate.

Certain Compensation Agreements

The Company currently has no written employment contracts or other
written compensation agreements with any of its current executive officers other
than Terry Christopher, President of SWM Ventures, Inc. and Mohave Metals
Corporation (a couple of the Company's Subsidiaries). The Company currently has
a written employment contract with Martin Blake, a significant employee of the
Company.

Pursuant to his employment agreement (the "Christopher Employment
Agreement"), Terry Christopher is to receive an annual salary of $50,000.
Pursuant to the Christopher Employment Agreement, the Company issued to Mr.
Christopher 30,000 shares of Common Stock, and the Company agreed to grant to
Mr. Christopher options to acquire shares of Common Stock. These options cover
40,000 shares of Common Stock, which may be purchased at an option price of $.50
per share, 30,000 shares of Common Stock, which may be purchased at an option
price of $.75 per share, and 30,000 shares of Common Stock, which may be
purchased at an option price of $1.00 per share. Upon execution of the
Christopher Employment Agreement, Mr. Christopher became vested in 25% of each
batch of these options. Mr. Christopher will become vested in another 25% of
each batch on each annual anniversary of the Christopher Employment Agreement
until such time as he becomes fully vested in each batch. The Christopher
Employment Agreement is terminable by either Mr. Christopher or the Company at
any time. The Christopher Employment Agreement does not contain a covenant not
to compete. Mr. Christopher also owns 40% of the outstanding common stock in
each of SWM Ventures, Inc. and Mohave Metals Corporation.

Pursuant to his employment agreement (the "Blake Employment
Agreement"), Martin Blake is to receive an annual salary of $50,000. Pursuant to
the Blake Employment Agreement, the Company issued to Mr. Blake 20,000 shares of
Common Stock, and the Company agreed to grant to Mr. Blake options to acquire
shares of Common Stock. These options cover 40,000 shares of Common Stock, which
may be purchased at an option price of $.50 per share, 30,000 shares of Common
Stock, which may be purchased at an option price of $.75 per share, and 30,000
shares of Common Stock, which may be purchased at an option price of $1.00 per
share. Upon execution of the Blake Employment Agreement, Mr. Blake became vested
in 25% of each batch of these options. Mr. Blake will become vested in another
25% of each batch on each annual anniversary of the Blake Employment Agreement
until such time as he becomes fully vested in each batch. The Company also
agreed to grant to Mr. Blake options to acquire shares of common stock in SWM
Ventures, Inc. ("SWM Common Stock"). These options cover 100,000 shares of SWM
Common Stock, which may be purchased at an option price of $.01 per share, and
150,000 shares of SWM Common Stock, which may be purchased at an option price of
$.50 per share. The optioned SWM Common Stock will vest on the same schedule as
the optioned Common Stock. The Blake Employment Agreement is terminable by
either Mr. Blake or the Company at any time. The Blake Employment Agreement does
not contain a covenant not to compete.

<PAGE>

Compliance with Section 16(a) of
the Securities Exchange Act

Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than 10
percent of a registered class of the Company's equity securities to file reports
of ownership and changes of ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10 percent stockholders are
required to furnish the Company with copies of all Section 16(a) reports they
file. Based solely on its review of the forms received by the Company, or
written representations from certain reporting persons that no Form 5 reports
were required for those persons, the Company believes that during the year ended
June 30, 1998, all filing requirements applicable to the Company's officers,
directors and greater than 10 percent shareholders were satisfied.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information as of June 30, 1998
concerning the beneficial ownership of the Common Stock (i) by each stockholder
who is known by the Company to own beneficially in excess of 5% of the
outstanding Common Stock; (ii) by each director; (iii) by each executive officer
named in the Summary Compensation Table under "Executive Compensation," below;
and (iv) by all executive officers and directors as a group. Except as otherwise
indicated, all persons listed below have (i) sole voting power and investment
power with respect to their shares of Common Stock, except to the extent that
authority is shared by spouses under applicable law, and (ii) record and
beneficial ownership with respect to their shares of Common Stock.
<TABLE>
<CAPTION>

Shares of
Common Stock Beneficially Owned (1)

Name and Address of Beneficial Owner Number Percent
<S> <C> <C>

Paul J. Montle 2,411,087(2) 12.0%
Rivercourt
17 - 19 Sir John Rogersons Quay
Dublin 2
Ireland

Kent E. Lovelace, Jr. 2,497,058(3) 12.4%
1201-25th Avenue, Suite One
Gulfport, Mississippi 39501-1950

Roger W. Cope 1,349,398(4) 6.7%
5663 East Nine Mile Rd.
Warren, Michigan 48901

C. Thomas Cutter 2,200(5) (6)
82 Olympia Ave.
Woburn, Massachusetts 01801

Terry Christopher 55,000(7) (6)
154 Pioneer Ave. #211
Logan, Utah 84321

All directors and officers
as a group (five persons) 6,314,743(8) 31.4%
</TABLE>

- ---------------------

(1) Includes shares of Common Stock beneficially owned pursuant to options
and warrants exercisable on the June 30, 1998 or within 60 days
thereafter.
(2) Includes 1,902,136 shares of Common Stock directly owned, 17,351 shares
of Common Stock held by Travis Partnership, G.P., a general partnership
in which Mr. Montle has a 51.67% interest and a trust for the benefit
of Mr. Montle's children has a 15% interest, and 491,600 shares of
Common Stock beneficially owned pursuant to non-qualified stock options
currently exercisable. Does not include 400,000 shares of Common Stock
owned by trusts for the benefit of Mr. Montle's children, all such
shares of which Mr.
Montle disclaims beneficial ownership.
(3) Includes 2,064,658 shares directly owned, 358,000 shares of Common
Stock beneficially owned pursuant to non-qualified stock options
currently exercisable, 68,000 shares beneficially owned pursuant to
currently exercisable warrants, and 6,400 shares held by Equitrust
Mortgage Corporation, a corporation for which Mr. Lovelace acts as
President and Chief Executive Officer. Does not include 36,000 shares
owned by Cheryl Lovelace, Mr. Lovelace's wife, all such shares of which
Mr. Lovelace disclaims beneficial ownership.
(4) Does not include 12,000 shares owned by Elizabeth Cope, Mr. Cope's
wife, all such shares of which Mr. Cope disclaims beneficial ownership.
(5) Includes 200 shares directly owned, and 2,000 shares beneficially owned
pursuant to stock options immediately exercisable. Does not include
14,345 shares owned by Sasiree Cutter, Mr. Cutter's wife, all such
shares of which Mr. Cutter disclaims beneficial ownership.
(6) Less than 1%
(7) Includes 25,000 shares of Common Stock beneficially owned pursuant to
non-qualified stock options currently exercisable.
(8) Includes 5,346,392 shares directly owned; 944,600 shares beneficially
owned pursuant to stock options and warrants currently exercisable; and
23,751 shares beneficially owned indirectly through affiliated
entities.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

None.

<PAGE>

PART IV.

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) Documents filed as part of this report:

1. Consolidated Financial Statements:
<TABLE>
<S> <C>

Report of Independent Auditor .........................................................................F-1

Balance Sheets as of June 30, 1998 ................................................................... F-2

Income Statements for the years ended
June 30, 1998 and 1997 ............................................................................... F-3

Statements of Stockholders' Equity for the
years ended June 30, 1998 and 1997 ....................................................................F-4

Statements of Cash Flows for the years
ended June 30, 1998 and 1997 ......................................................................... F-5

Notes to Financial Statements .........................................................................F-6
</TABLE>

2. Financial Statement Schedule:

Schedule II - Valuation and Qualifying Accounts

None
3. Exhibits:

The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
<TABLE>
<CAPTION>

Exhibit
Number Description
<S> <C>

4.01 Certificate of Incorporation of the Company filed December 30, 1992 is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit 3.1.
4.02 Bylaws of the Company are incorporated herein by reference from the Company's (SEC
File No. 33-57998-D) Form SB-2 Registration Statement filed April 29, 1993, Item
27(a), Exhibit 3.2.
4.03 Certificate of Amendment of Certificate of
Incorporation of the Company is incorporated herein
by reference from the Company's (SEC File No.
33-57998-D) Form SB-2 Registration Statement filed
April 29, 1993, Item 27(a), Exhibit 3.5.
4.04 Amendment to Certificate of Incorporation filed February 2, 1995 is incorporated
herein by reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for
the period ended December 31, 1994, Item 6, Exhibit 3.01
4.05 Certificate of Designation, Preferences, Rights and Limitations of 12% Senior
Convertible Preferred Stock of the Company filed January 25, 1993, is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, Item 27(a), Exhibit 4.1.
4.06 Certificate of Amendment of Certificate of
Incorporation of the Company filed June 26, 1996 is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1996, Part IV, Item 14(c),
Exhibit 4.06.
10.01 The Company's 1993 Stock Option Plan is incorporated herein by reference from the
Company's (SEC File No. 33-57998-D ) Form SB-2 Registration Statement filed April 29,
1993, Item 27(a), Exhibit 10.8.
10.02 Amendment to the Company 1993 Stock Option Plan is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended
September 30, 1994, Item 6, Exhibit 10.8.
10.03 Amendment No. 2 to the Company 1993 Stock Option Plan is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.02.
10.04 Amendment No. 3 to the Company 1993 Stock Option Plan is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.03.
10.05 The Company, Papone's Palace Acquisition Corporation
and Papone's Palace Ltd. Liability Company Secured
Convertible Senior Debenture Due January 1, 1995
Debenture No. 1 dated October 5, 1994 in the original
principal amount of $1,000,000 is incorporated herein
by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended
December 3, 1994, Item 6, Exhibit 10.05.
10.06 The Company's 1994 Employee Stock Purchase Plan is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended
December 3, 1994, Item 6, Exhibit 10.06.
10.07 The Company's Capital Accumulation Plan is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.07.
10.08 The Company's 1994 Stock Option Plan for Non-Employee Directors is incorporated herein
by reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the
period ended December 31, 1994, Item 6, Exhibit 10.08.
10.09 Amendment Number One to the Company Papone's Palace
Acquisition Corporation and Papone's Palace Ltd.
Liability Company Secured Convertible Senior
Debenture Due January 1, 1995 Debenture No. 1 is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the
period ended March 31, 1995, Item 6, Exhibit 10.02.
10.10 Settlement Agreement dated August 5, 1996 by and among the Company, Les Alexander,
Papone's Palace Acquisition Corporation and Papone's Palace Ltd., Liability Co. is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1996, Part IV, Item 14(c), Exhibit
10.31.
10.11 Absolute Assignment of Membership Interest dated
August 20, 1996 executed by the Company in favor of
Les Alexander is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1996,
Part IV, Item 14(c), Exhibit 10.32.
10.12 Agreement dated October 30, 1996 among Zeotech
Industries, Inc., Ed Hemsted, W.D. Groves, KJM
Capital Corp., Keith J. McKenzie, Kent E. Lovelace,
Jr., Griffin Gold Group, Inc. and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.32.
10.13 Warrant Purchase Agreement dated June 30, 1997 between Keith J. McKenzie and the
Company is incorporated herein by reference from the Company's (SEC File No. 0-21566)
Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.34.
10.14 Agreement dated February 28, 1997 among Tanye Capital
Group, Shoshone Mining Co., and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.35.
10.15 Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc. and Desert
Minerals, Inc. is incorporated herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item
14(c), Exhibit 10.36.
10.16 Services Agreement dated March 1, 1997 between Shoshone Mining Co. and Desert
Minerals, Inc. is incorporated herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item
14(c), Exhibit 10.37.
10.17 Release and Partial Termination Agreement among W.D.
Groves, Zeotech Industries, Inc., Ed Hemsted, KJM
Capital Corp., Keith J. McKenzie, Kent E. Lovelace,
Jr., Griffin Gold Group, Inc. and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.38.
10.18 First Amendment to Agreement dated October 30, 1996
among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the
Company is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.39.
10.19 Second Amendment to Agreement dated October 30, 1996
among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the
Company is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.40.
10.20 Letter Agreement dated March 27, 1997 among the Company, Griffin Gold Group, Inc.,
Desert Minerals, Inc., Douglas Schmitt, Zeotech Industries, Inc. and Ed Hemsted is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.42.
10.21 Stipulation filed in the Supreme Court of the State
of New York, County of New York (Index No. 127087-94,
by Glenville Properties Incorporated, RMS Titanic,
Inc., Arnie Geller, Allan H. Carlin, William S.
Gasparrini, the Company, Paul J. Montle, Paul V.
Culotta, and Roger W. Cope is incorporated herein by
reference from the Company's (SEC File No. 0-21566)
Annual Report on Form 10-K for the year ended June
30, 1997, Part IV, Item 14(c), Exhibit 10.44.
10.22 Amendment to Stipulation filed in the Supreme Court
of the State of New York, County of New York (Index
No. 127087-94, by Glenville Properties Incorporated,
RMS Titanic, Inc., Arnie Geller, Allan H. Carlin,
William S. Gasparrini, the Company, Paul J. Montle,
Paul V. Culotta, and Roger W. Cope is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year
ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.45.
10.23 Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd. and the Company
is incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.46.
10.24 Exploration Agreement and Option to Lease dated June
5, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Griffin
Gold Group, Inc. is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997,
Part IV, Item 14(c), Exhibit 10.47.
10.25 Exploration Agreement and Option to Lease dated June
13, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Desert
Minerals, Inc. is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997,
Part IV, Item 14(c), Exhibit 10.48.
10.26 Exploration Agreement and Option to Lease dated June
10, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Shoshone
Mining Co. is incorporated herein by reference from
the Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.49.
10.27 The Company's 1998 Consultant Compensation Plan is incorporated herein by reference
from the Company's (SEC File No. 333-31963) Registration Statement on Form S-8 filed
July 24, 1997, Exhibit 4.2.
10.28 Letter Employment Agreement dated March 13, 1998 between the Company and Terry
Christopher.
10.29 Letter Employment Agreement dated June 11, 1998 between the Company, Desert Minerals,
Inc., SWM Ventures, Inc. and Martin Blake.
21.01 Subsidiaries of Registrant.
27 Financial Data Schedule
99.1 Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the United
States Bankruptcy Court for the District of Colorado, No. 97-15695- SBB. is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.43.
99.2 Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the in the
United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
99.1.
99.3 Disclosure Statement filed by Papone's Palace Ltd. Liability Company in the in the
United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
99.2.
</TABLE>

(b) Reports on Form 8-K

The Registrant filed a report on Form 8-K dated July 10, 1997,
reporting on the issuances and sales of 150,000 shares of the
Registrant's common stock sold outright, a $250,000
convertible debenture, and 545,299 shares of the Registrant's
common stock acquired pursuant to exercises of outstanding
warrants, all pursuant to the exemption provided for by
Regulation S under the Securities Act of 1933, as amended.

The Registrant filed a report on Form 8-K dated December 31,
1997, reporting on the issuances and sales of a $100,000
convertible debenture, the 639,887 shares of the Registrant's
common stock into which such debenture was converted, and
771,429 shares of the Registrant's common stock sold outright,
all pursuant to the exemption provided for by Regulation S
under the Securities Act of 1933, as amended.

<PAGE>

Independent Auditors' Report

To the Board of Directors and Stockholders
LS Capital Corporation
Houston, Texas

We have audited the accompanying consolidated balance sheets of LS Capital
Corporation as of June 30, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of LS Capital
Corporation as of June 30, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended, in conformity with generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.

August 26, 1998
MALONE & BAILEY, PLLC
Houston, Texas

F-1

<PAGE>

LS CAPITAL CORPORATION
Balance Sheets

- As of June 30, -
(in thousands) 1998 1997
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash $ 5
Funds held in law firm trust accounts 73
Marketable securities 8 15
Receivable from affiliated parties 81 561
Receivables from unaffiliated parties 181
Other 8
-------- --------

Total Current Assets 89 843
-------- --------

Property and equipment, net of depreciation 2 1,877
Equity investment in gold mining ventures 203 371
Other assets 7 14
--------- --------

TOTAL ASSETS $ 301 $ 3,105
======== ========

LIABILITIES
Current Liabilities
Claims subject to compromise $ 2,313
Notes and advances payable to related parties $ 10 36
Accounts payable 1,136 697
Accrued payroll taxes and other 196 57
Redemption payable - redeemable preferred stock 75 100
-------- --------
Total Current Liabilities 1,417 3,203
-------- --------

Minority interest in subsidiary

Contingent liabilities

Stockholders' Equity
Preferred stock, par value $.01 per share, authorized
10,000,000 shares, no shares issued and outstanding
Common stock, par value $.01 per share, authorized
50,000,000 shares, issued and outstanding 17,598,000
shares (1998) and 12,150,000 shares (1997) 176 121
Additional paid-in capital 26,906 25,374
Accumulated deficit (28,198) (25,593)
---------- --------
Total Stockholders' Equity Deficit ( 1,116) ( 98)
-------- --------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 301 $ 3,105
======== ========
</TABLE>

See accompanying notes.
F-2

<PAGE>

LS CAPITAL CORPORATION
Income Statements

<TABLE>
<CAPTION>
- - Year Ended - -
(in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>

REVENUES - -

OPERATING EXPENSES
Mining exploration costs $ 935 $ 20
General and administrative 1,652 1,129
Depreciation and amortization 5 7
-------- --------

OPERATING LOSS ( 2,592) ( 1,155)
-------- -----------

OTHER INCOME (EXPENSE)
Gain on sale of marketable equity securities 64
Gain on sale of two inactive subsidiaries 1,013
Gain on sale of card club interest 590
Other, net 20
Interest expense ( 25) ( 489)
----------- -------

LOSS FROM CONTINUING OPERATIONS ( 2,553) ( 21)
------------ -----------

DISCONTINUED BUSINESS - Papone's Casino, LLC
Loss from operations (186)
Loss on foreclosure ( 52)
DISCONTINUED BUSINESS - Clutch Games, Inc.
Loss from operations ( 68)
Gain on sale 203
-------- --------

NET LOSS $( 2,605) $( 72)
======== ========

NET INCOME (LOSS) PER COMMON SHARE
Continuing operations $( 0.19) $ (0.00)
Discontinued operations 0.00 0.00
Weighted average common shares outstanding 13,481,000 7,177,000

</TABLE>

See accompanying notes.
F-3
<PAGE>

LS CAPITAL CORPORATION
Statements of Stockholders' Equity

Common Stock Paid in Accum.
(in thousands) Shares Amount Capital Deficit Totals
<S> <C> <C> <C> <C> <C>

Balances, June 30, 1996 1,721 $ 17 $23,141 $(25,521) $(2,363)

Shares issued for cash 543 5 122 127
Shares issued for services 735 7 571 578
Shares issued in connection with
- debt forgiveness by related parties 6,069 61 224 285
- acquisition of gold
mining ventures 1,578 15 436 451
- purchase of investment in gold
mining company securities 50 1 49 50
- share subscriptions 800 8 300 308
- redeemable preferred
stock payable 600 6 499 505
- lawsuit settlement 54 1 32 33
Net loss
( 72) ( 72)
-------- ------- ------- --------- --------

Balances, June 30, 1997 12,150 121 25,374 (25,593) ( 98)

Shares issued for cash 3,111 31 586 617
Less: commission paid ( 10) ( 10)
Shares issued for services 2,413 24 882 906
Shares issued in connection with
- acquisition of gold
mining ventures 150 2 110 112
- accrued interest on
convertible debentures 28 6 6
Stock dividend - JVWeb spinoff ( 3) ( 3)
Cancellation of share
subscriptions ( 254) ( 2) ( 39) ( 41)
Net loss ( 2,605) (2,605)
--------- ----- ------- ------- ------

Balances, June 30, 1998 17,598 $ 176 $26,906 $(28,198) $(1,116)
======= ===== ======= ======== =======
</TABLE>

See accompanying notes.
F-4
<PAGE>

LS CAPITAL CORPORATION
Statements of Cash Flows

<TABLE>
<CAPTION>
- - Year Ended - -
(in thousands) 1998 1997
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $( 2,605) $( 72)
Adjustments to reconcile net income (loss)
to net cash used in operating activities
Depreciation and amortization 5 71
Stock issued for services 906 479
Stock issued for mining claims 113
Writedown of mining venture investments 179 21
Writeoff of stock subscriptions receivable 41
Loss on foreclosure of Papone's Casino, LLC ( 52)
Stock issued to pay interest expense 6
(Gain) loss on sale of Tinian ( 732)
(Gain) on sale of Chaparral ( 282)
(Gain) on sale of card club interest ( 590)
(Gain) on sale of Clutch Games ( 203)
Stock issued in settlement of litigation 33
Changes in
Funds held in law firm trust accounts 73 29
Marketable securities 7
Receivable from affiliated parties 365
Accounts receivable 180
Other current assets 8 16
Claims subject to compromise 234
Payables to related parties ( 26) ( 76)
Accounts payable 289 233
Accrued payroll taxes and other
161 34
--- ---------
( 530) ( 625)
-------- -----------
Cash Flows from Investing Activities
Purchase of mining claims ( 10)
Purchase of JVWeb common stock ( 5)
Proceeds from sale of Clutch Games 138
Sale of property and equipment
15
( 15) 153
-------- --------
Cash Flows from Financing Activities
Sales of stock 516 128
Reimbursements by attorneys of excess fees
paid in S-8 stock 49 102
Payments on redemption payable ( 25)
Reimbursements by affiliates of their
expenses paid in parent S-8 stock 108
-------- --------
540 338
-------- --------
Net increase (decrease) in cash ( 5) ( 134)
Cash at beginning of year 5 139
-------- --------
Cash at end of year $ 0 $ 5
======== ========
</TABLE>

See accompanying notes.
F-5
<PAGE>

LS CAPITAL CORPORATION
Notes to Financial Statements

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Business. LS Capital Corporation (the "Company"), is a Delaware corporation
formed December 30, 1992 to develop and operate casinos and related resort
facilities. During the past two years, the Company began acquiring interests in
gold mining claims and exploration and development of those claims. The fiscal
year-end is June 30.

Basis of Presentation. The consolidated financial statements include (1
unconsolidated 45 - 50% ownership interests in three gold mining Nevada
corporations, accounted for using the equity method, (2) from 55% - 100%
ownership of three new mining ventures, and (3) 100% ownership in three other
inactive subsidiaries as of June 30, 1998. Significant intercompany accounts and
transactions have been eliminated in consolidation.

Use of Estimates. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues, and expenses. Actual results could differ from those
estimates.

Cash includes demand deposit bank accounts. Company policy includes any highly
liquid investments with original maturities of three months or less.

Funds held in law firm trust accounts represents cash held by law firms from
receivables collections and from excess advance payments for legal fees, all of
which was returned to the Company subsequent to year end.

Marketable Securities are shown at market value.

Receivables are written down, where appropriate, to the estimated collectible
amount in the opinion of management.

Depreciation is calculated using the straight-line method over the useful lives
of property and equipment.

Equity Investment in Gold Mining Ventures includes the Company's approximate 50%
ownership share of the net book value of each of three different corporations
formed to exploit certain adjacent mining claims in eastern California. Costs
incurred procuring mining claims are considered exploration and development
costs and are capitalized until the claims are producing or are written off as
unproductive. Costs incurred in extraction process methods testing are written
off as incurred.

Earnings (Loss) Per Share calculations are presented in accordance with
Financial Accounting Standards Statement 128, and are calculated on the basis of
the weighted average number of common shares outstanding during the year. They
include the dilutive effect of common stock equivalents, principally stock
options, in years with net income.

F-6
<PAGE>

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Claims subject to compromise represent the net liabilities subject to
jurisdiction of the federal bankruptcy court in Colorado supervising the
restructuring of Papone's Casino in Central City, Colorado. See Note 7.
<TABLE>
<CAPTION>

- Year Ended - -
1998 1997
<S> <C> <C>
---------- -------
Supplemental Cash Flow Information is as follows:
No cash was paid for interest or income taxes during either year.
Papone's Palace asset foreclosure
Carrying value of assets taken $ 2,133
Net liabilities offset against assets taken (2,185)
Redeemable preferred stock
Conversion into common stock $ 440
Reclassified into current liabilities ( 440)
Accrued dividends on former preferred stock 65
Gain on transfer of investment securities in
exchange for debt reduction 590
</TABLE>

Income taxes are not due since the Company has had substantial losses since
inception.

Reclassifications of certain prior year amounts were made to conform with the
current year presentation.

NOTE 2 - GOING CONCERN

Since inception, the Company has incurred substantial recurring operating losses
resulting in cash flow problems. The Company's principal operating subsidiary
and sole casino operation, Papone's Casino, was dismissed from federal Chapter
11 bankruptcy proceedings in February 1998. See Note 7.

Because the ultimate success of the gold mining ventures is still unknown at
this time, the Company's ability to continue as a going concern is still in
doubt.

The Company has in the past relied to a large extent upon cash proceeds from
stock sales for working capital requirements. There can be no assurance that
present or future conditions will be conducive to funding current working
capital needs from proceeds from stock sales. Absent stock sales, the Company is
uncertain how it is going to fund working capital requirements. The financial
statements do not include any adjustments that might be necessary if the Company
is unable to continue as a going concern.

F-7
<PAGE>

NOTE 3 - RECEIVABLES FROM AFFILIATED PARTIES
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
---------- -------
These consist of the following:
Receivable from officer $ 81
Stock sale subscription receivable from
mining companies stockholder $ 308
Note receivable from 24.5% partner of Papone's
Casino 253
-------- --------
Total $ 81 $ 561
======== ========
</TABLE>

The amount receivable from officer was collected in July and August 1998.
$266,550 of the stock sale subscription receivable was collected and the balance
written off by agreement. See Note 7 for discussion of the note receivable from
Papone's 24.5% partner.

NOTE 4 - RECEIVABLES FROM UNAFFILIATED PARTIES
<TABLE>
<CAPTION>

1998 1997
<S> <C> <C>
---------- -------
These consist of the following:
Note receivable - RMS Titanic, Inc. $ 90
Amount due from sale of sports game 65
Other 26
--------
$ 181
</TABLE>

Legal disputes concerning the RMS Titanic, Inc. receivable were resolved in
January, 1997. Collections on the RMS Titanic, Inc. note receivable totaled
$90,000 and $95,000 in 1998 and 1997. All amounts due from the sale of the
sports game were collected in 1998.

NOTE 5 - PROPERTY AND EQUIPMENT

Substantially all property and equipment pertained to Papone's Palace Casino,
and was foreclosed in 1998. See note 7.

NOTE 6 - GOLD MINING VENTURES

In 1997 and 1998, the Company made substantial investments in several related
corporations formed to pursue the extraction of gold and other precious metals
from ore mined in the desert in southeastern California. Two of these
corporations are wholly owned and the other four corporations have substantially
the same stockholders, including one director of the Company.

In 1997, funds invested in one of the companies by other stockholders were used
to purchase land and equipment at a cost of $321,000. The Company used its
common stock to pay for services performed for these ventures of $451,000 during
fiscal 1997. The Company received net cash reimbursements of $109,000,

F-8
<PAGE>

NOTE 6 - GOLD MINING VENTURES (continued)

leaving a net investment from these ventures of $342,000, which has been written
down by $21,000 to the net book value of the ventures of $321,000, which equals
the gross asset value.

In 1998, an additional $484,000 in cash and $280,000 in stock issued for
services and mining claims was invested in these several companies. The
equipment and mining claims carrying value was written down from $321,000 at
June 30, 1997 to $203,000 at June 30, 1998 to reflect the net assets of these
companies, less secured debt to third parties.
<TABLE>
<CAPTION>

1998 1997
---------- -------
<S> <C> <C>
Components of the asset carrying value are as follows:
Intangible mining claims $ 34 $ 59
Land and buildings held for resale 21 21
Land, buildings and equipment, net of secured debt 148 241
-------- --------
$ 203 $ 321
======== ========
</TABLE>

NOTE 7 - SUBSIDIARY BANKRUPTCY

Papone's Palace Casino was closed on September 30, 1996 due to substantial
recurring losses. In August 1997, Papone's filed a Plan of Reorganization and in
October 1998 the court granted the motion of the principal creditor to allow
foreclosure of all assets and dismissal of the bankruptcy proceeding.

This bankruptcy followed the failed restructuring of the repayment terms of the
principal secured creditor of Papone's, who is currently owed $1,196,000 plus
substantial accrued interest. The Company netted liabilities of $2,185,000
against the carrying value of assets of $2,133,000 to record a $52,000 loss in
fiscal 1998. The Company is contingently liable on this debt to the secured
creditor. However, management believes the assets are worth more that total debt
owed to the secured creditor, but there is substantial uncertainty surround the
ultimate realization value of these assets and Company liability, if any.

In fiscal 1997, the Company recognized a $590,000 gain on the transfer of a 7%
ownership interest in the Fowler California card club to the secured creditor as
a partial payment on the debt.

NOTE 8 - NOTES AND ADVANCES PAYABLE TO RELATED PARTIES
<TABLE>
<CAPTION>

1998 1997
---------- -------
<S> <C> <C>
These consist of the following:
Notes payable to officers and directors $ 10
Accrued officer salaries $ 36

</TABLE>

F-9
<PAGE>

NOTE 9 - INCOME TAXES

Net operating losses of $2,800,000 are available as of June 30, 1998 to offset
future taxable income. Of this amount, about $260,000 is restricted to about
$15,000 per year, due to the Internal Revenue Code Section 382 limitation, which
occurred in October, 1996. These net operating losses expire mostly in the years
2012 and 2013.

NOTE 10 - REDEEMABLE PREFERRED STOCK

On June 30, 1997, 54 remaining shares of convertible preferred stock were
converted into 600,000 common shares valued at $504,800, plus $100,000 payable
in 3 installments due on or before December 31, 1997. $25,000 of this obligation
was paid in 1998. No renegotiation of remaining payment terms has been made.

NOTE 11 - SALE OF TWO INACTIVE SUBSIDIARIES

In June, 1997, the Company transferred ownership of Lone Star Casino Corporation
of Nevada and Pacific American Casinos, Inc. (the Tinian casino) to two
individuals for nominal consideration. There has been no operating activity in
either entity since 1995. Lone Star Casino Corporation of Nevada had previously
filed a federal bankruptcy Chapter 7 liquidation petition in August, 1996.
Related continuing legal costs are considered insignificant. Related debts of
$1,013,000 are shown as a gain on the sale. Two lawsuits on Tinian totaling
$25,000 were converted to judgment liens in 1998 and are included in accounts
payable, pending settlement negotiations. Management is not aware of any other
pending litigation here.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

As a result of casino development efforts in the years 1993 - 1995 and other
business investment transactions, the Company and its subsidiaries have been
sued by a number of entities during the past few years. Several of the lawsuits
were settled without significant cost to the Company in fiscal 1997 and 1998.
One lawsuit filed by Mississippi Ventures II pertaining to a Mississippi casino
site sought the return of a $100,000 deposit. This lawsuit was reduced to a
judgment lien in 1998 and is included in accounts payable. Management believes
the likelihood of significant losses on any other lawsuits is remote, and that
any possible future losses in aggregate are not significant.

F-10
<PAGE>

NOTE 13 - STOCK OPTIONS AND WARRANTS

Beginning in 1997, the Company adopted the disclosure requirements of FASB
Statement 123, Accounting for Stock Based Compensation Plans. The Company's 1993
and 1995 Stock Option Plans provide for the grant of incentive stock options
qualifying under the Internal Revenue Code to officers and other employees of
the Company, the grant of non-qualified options to directors, employees and
consultants of the Company, and opportunities for directors, officers, employees
and consultants of the Company to make purchases of stock in the Company. In
addition, the Company issues stock warrants from time to time to employees,
consultants, stockholders and creditors as additional financial incentives. The
plans and warrants issuances are administered by a committee of the Board of
Directors of the Company, who have substantial discretion to determine which
persons, amounts, time, price, exercise terms, and restrictions, if any. Both
options and warrants carry certain anti-dilution provisions concerning stock
dividends or splits, mergers and reorganizations. Options differ from warrants
in that most of the options awards have employment termination restrictions,
vesting periods and are non-transferable. In contrast, all warrants issued are
immediately exercisable and are assignable.

The Company uses the intrinsic value method of calculating compensation expense,
as described and recommended by APB Opinion 25, and allowed by FASB Statement
123. During the years ended June 30, 1998 and 1997, no compensation expense was
recognized for the issuance of these options and warrants, because no option
prices were below market prices at the date of grant. In addition, no options or
warrants have been exercised during these periods. As of June 30, 1998, almost
all outstanding warrants are payments for consulting and professional services.
Summary information on each are as follows:
<TABLE>
<CAPTION>

Weighted Weighted
average average
Options Share Price Warrants Share Price
<S> <C> <C> <C> <C>

Year ended June 30, 1997:
Outstanding at
June 30, 1996 34,400 $ 75.06 106,000 $ 83.25
Granted 800,000 .63 376,000 1.73
Expired ( 9,200) 135.87
Forfeited ( 16,200) 25.00
-------- ------- ---------
Outstanding at
June 30, 1997 818,200 1.63 472,800 16.15

Year ended June 30, 1998:
Granted 1,260,000 .44
Expired ( 38,000) 71.63
--------- ------- -------- -------
Outstanding at
June 30, 1998 2,078,200 $ .98 434,800 $ 12.65
========= ======= ======== =======

</TABLE>

F-11
<PAGE>

NOTE 15 - STOCK OPTIONS AND WARRANTS (Continued)

Additional disclosures as of June 30, 1998 are:
<TABLE>
<CAPTION>

Options Options Options
$0.26-$0.75 $1.00-$2.03 $15-$122
<S> <C> <C> <C>
Total options
Number of shares 1,900,000 161,000 17,200
Weighted average exercise price $ 0.47 $ 1.01 $56.69
Remaining life 7 years 9 years 6 years
Currently exercisable options
Number of shares 814,500 40,800 13,600
Weighted average exercise price $ 0.41 $ 1.02 $71.69

Warrants Warrants Warrants
$.40 - $.95 $2 - $5 $28 - $150
Total warrants
Number of shares 146,200 230,000 58,800
Weighted average exercise price $ 0.68 $ 2.39 $82.54
Remaining life 2 years 2 years 1 year
Currently exercisable warrants
Number of shares 146,000 230,000 58,800
Weighted average exercise price $ 0.68 $ 2.39 $82.54
</TABLE>

Had compensation cost for the Company's two stock-based compensations plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the Black-Scholes option-pricing model suggested by FASB
Statement 123, the Company's net losses and loss per share would have been
increased to the pro forma amount indicated below:
<TABLE>
<CAPTION>

1998 1997
---------- -------
<S> <C> <C>

Net loss -As reported $( 2,605) $( 72)
-Pro forma ( 3,069) ( 343)
Net loss per share -As reported $( 0.19) $( 0.01)
-Pro forma ( 0.22) ( 0.05)
</TABLE>

Variables used in the Black-Scholes option-pricing model include (1) 5.5%
risk-free interest rate, (2) expected option life is the actual remaining life
of the options as of each year end, (3) expected volatility is the actual
historical stock price fluctuation volatility and (4) zero expected dividends.

F-12

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, LS Capital Corporation has duly caused this annual report
on Form 10-KSB to be signed on its behalf by the undersigned, thereunto duly
authorized.

Dated: September 30, 1998 LS Capital Corporation
(Registrant)

By: /s/ Paul J. Montle
Paul J. Montle,
Chief Executive Officer
(Principal Executive Officer,
Principal Financial Officer and
Principal Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

Name Title Date
<S> <C> <C>

/s/ Paul J. Montle Chairman of September 30, 1998
Paul J. Montle the Board

/s/ Roger W. Cope Director September 30, 1998
- ---------------------
Roger W. Cope

/s/ C. Thomas Cutter Director September 30, 1998
- --------------------------
C. Thomas Cutter

/s/ Kent E. Lovelace, Jr. Director September 30, 1998
- --------------------------
Kent E. Lovelace, Jr.

</TABLE>

<PAGE>

EXHIBITS INDEX
<TABLE>
<CAPTION>

Exhibit
Number Description
<S> <C>

4.01 Certificate of Incorporation of the Company filed December 30, 1992 is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, 1993, Item 27(a), Exhibit 3.1.
4.02 Bylaws of the Company are incorporated herein by reference from the Company's (SEC
File No. 33-57998-D) Form SB-2 Registration Statement filed April 29, 1993, Item
27(a), Exhibit 3.2.
4.03 Certificate of Amendment of Certificate of
Incorporation of the Company is incorporated herein
by reference from the Company's (SEC File No.
33-57998-D) Form SB-2 Registration Statement filed
April 29, 1993, Item 27(a), Exhibit 3.5.
4.04 Amendment to Certificate of Incorporation filed February 2, 1995 is incorporated
herein by reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for
the period ended December 31, 1994, Item 6, Exhibit 3.01
4.05 Certificate of Designation, Preferences, Rights and Limitations of 12% Senior
Convertible Preferred Stock of the Company filed January 25, 1993, is incorporated
herein by reference from the Company's (SEC File No. 33-57998-D) Form SB-2
Registration Statement filed April 29, Item 27(a), Exhibit 4.1.
4.06 Certificate of Amendment of Certificate of
Incorporation of the Company filed June 26, 1996 is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1996, Part IV, Item 14(c),
Exhibit 4.06.
10.01 The Company's 1993 Stock Option Plan is incorporated herein by reference from the
Company's (SEC File No. 33-57998-D ) Form SB-2 Registration Statement filed April 29,
1993, Item 27(a), Exhibit 10.8.
10.02 Amendment to the Company 1993 Stock Option Plan is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended
September 30, 1994, Item 6, Exhibit 10.8.
10.03 Amendment No. 2 to the Company 1993 Stock Option Plan is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.02.
10.04 Amendment No. 3 to the Company 1993 Stock Option Plan is incorporated herein by
reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period
ended December 31, 1994, Item 6, Exhibit 10.03.
10.05 The Company, Papone's Palace Acquisition Corporation
and Papone's Palace Ltd. Liability Company Secured
Convertible Senior Debenture Due January 1, 1995
Debenture No. 1 dated October 5, 1994 in the original
principal amount of $1,000,000 is incorporated herein
by reference from the Company's (SEC File No.
0-21566) Report on Form 10-Q for the period ended
December 3, 1994, Item 6, Exhibit 10.05.
10.06 The Company's 1994 Employee Stock Purchase Plan is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended
December 3, 1994, Item 6, Exhibit 10.06.
10.07 The Company's Capital Accumulation Plan is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Report on Form 10-Q for the period ended December 31,
1994, Item 6, Exhibit 10.07.
10.08 The Company's 1994 Stock Option Plan for Non-Employee Directors is incorporated herein
by reference from the Company's (SEC File No. 0-21566) Report on Form 10-Q for the
period ended December 31, 1994, Item 6, Exhibit 10.08.
10.09 Amendment Number One to the Company Papone's Palace
Acquisition Corporation and Papone's Palace Ltd.
Liability Company Secured Convertible Senior
Debenture Due January 1, 1995 Debenture No. 1 is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Report on Form 10-Q for the
period ended March 31, 1995, Item 6, Exhibit 10.02.
10.10 Settlement Agreement dated August 5, 1996 by and among the Company, Les Alexander,
Papone's Palace Acquisition Corporation and Papone's Palace Ltd., Liability Co. is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1996, Part IV, Item 14(c), Exhibit
10.31.
10.11 Absolute Assignment of Membership Interest dated
August 20, 1996 executed by the Company in favor of
Les Alexander is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1996,
Part IV, Item 14(c), Exhibit 10.32.
10.12 Agreement dated October 30, 1996 among Zeotech
Industries, Inc., Ed Hemsted, W.D. Groves, KJM
Capital Corp., Keith J. McKenzie, Kent E. Lovelace,
Jr., Griffin Gold Group, Inc. and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.32.
10.13 Warrant Purchase Agreement dated June 30, 1997 between Keith J. McKenzie and the
Company is incorporated herein by reference from the Company's (SEC File No. 0-21566)
Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.34.
10.14 Agreement dated February 28, 1997 among Tanye Capital
Group, Shoshone Mining Co., and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.35.
10.15 Services Agreement dated March 1, 1997 between Griffin Gold Group, Inc. and Desert
Minerals, Inc. is incorporated herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item
14(c), Exhibit 10.36.
10.16 Services Agreement dated March 1, 1997 between Shoshone Mining Co. and Desert
Minerals, Inc. is incorporated herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year ended June 30, 1997, Part IV, Item
14(c), Exhibit 10.37.
10.17 Release and Partial Termination Agreement among W.D.
Groves, Zeotech Industries, Inc., Ed Hemsted, KJM
Capital Corp., Keith J. McKenzie, Kent E. Lovelace,
Jr., Griffin Gold Group, Inc. and the Company is
incorporated herein by reference from the Company's
(SEC File No. 0-21566) Annual Report on Form 10-K for
the year ended June 30, 1997, Part IV, Item 14(c),
Exhibit 10.38.
10.18 First Amendment to Agreement dated October 30, 1996
among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the
Company is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.39.
10.19 Second Amendment to Agreement dated October 30, 1996
among Zeotech Industries, Inc., Ed Hemsted, W.D.
Groves, KJM Capital Corp., Keith J. McKenzie, Kent E.
Lovelace, Jr., Griffin Gold Group, Inc. and the
Company is incorporated herein by reference from the
Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.40.
10.20 Letter Agreement dated March 27, 1997 among the Company, Griffin Gold Group, Inc.,
Desert Minerals, Inc., Douglas Schmitt, Zeotech Industries, Inc. and Ed Hemsted is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.42.
10.21 Stipulation filed in the Supreme Court of the State
of New York, County of New York (Index No. 127087-94,
by Glenville Properties Incorporated, RMS Titanic,
Inc., Arnie Geller, Allan H. Carlin, William S.
Gasparrini, the Company, Paul J. Montle, Paul V.
Culotta, and Roger W. Cope is incorporated herein by
reference from the Company's (SEC File No. 0-21566)
Annual Report on Form 10-K for the year ended June
30, 1997, Part IV, Item 14(c), Exhibit 10.44.
10.22 Amendment to Stipulation filed in the Supreme Court
of the State of New York, County of New York (Index
No. 127087-94, by Glenville Properties Incorporated,
RMS Titanic, Inc., Arnie Geller, Allan H. Carlin,
William S. Gasparrini, the Company, Paul J. Montle,
Paul V. Culotta, and Roger W. Cope is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-K for the year
ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.45.
10.23 Settlement Agreement dated June 30, 1997 between GFL Ultra Fund, Ltd. and the Company
is incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.46.
10.24 Exploration Agreement and Option to Lease dated June
5, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Griffin
Gold Group, Inc. is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997,
Part IV, Item 14(c), Exhibit 10.47.
10.25 Exploration Agreement and Option to Lease dated June
13, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Desert
Minerals, Inc. is incorporated herein by reference
from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997,
Part IV, Item 14(c), Exhibit 10.48.
10.26 Exploration Agreement and Option to Lease dated June
10, 1997 among Charles Jackson, Marie Unruh, James
Hopkins, Sr., Tracy Hopkins, Rick Jackson, Mara
Jackson, Paul Jackson, Jared Jackson, and Shoshone
Mining Co. is incorporated herein by reference from
the Company's (SEC File No. 0-21566) Annual Report on
Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 10.49.
10.27 The Company's 1998 Consultant Compensation Plan is incorporated herein by reference
from the Company's (SEC File No. 333-31963) Registration Statement on Form S-8 filed
July 24, 1997, Exhibit 4.2.
10.28 Letter Employment Agreement dated March 13, 1998 between the Company and Terry
Christopher.
10.29 Letter Employment Agreement dated June 11, 1998 between the Company, Desert Minerals,
Inc., SWM Ventures, Inc. and Martin Blake.
21.01 Subsidiaries of Registrant.
27 Financial Data Schedule
99.1 Bankruptcy petition filed by Papone's Palace Ltd. Liability Company in the United
States Bankruptcy Court for the District of Colorado, No. 97-15695- SBB. is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
10.43.
99.2 Plan of Reorganization filed by Papone's Palace Ltd. Liability Company in the in the
United States Bankruptcy Court for the District of Colorado, No. 97-15695-SBB is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV, Item 14(c), Exhibit
99.1.
99.3 Disclosure Statement filed by Papone's Palace Ltd.
Liability Company in the in the United States Bankruptcy Court for
the District of Colorado, No. 97-15695-SBB is incorporated herein
by reference from the Company's (SEC File No. 0-21566) Annual
Report on Form 10-K for the year ended June 30, 1997, Part IV,
Item 14(c), Exhibit 99.2.
</TABLE>

EXHIBIT 10.28
AGREEMENT

This Agreement dated March 13, 1998, is between LS Capital Corporation
(LS), a publicly traded Delaware Corporation, and Terry Christopher an
individual residing in Edmonton, Alberta, Canada (TC).

RECITALS

WHEREAS TC will attempt to develop proprietary technology, seek out and
locate other proprietary processes from other vendors for the extraction of
precious metals from certain desert sands properties in the western United
States and elsewhere,

WHEREAS TC wishes to form a joint venture with LS to operate and mine
certain properties using TC's proprietary technology or another process found or
located by TC or LS for extraction of precious metals, and to form one or more
new publicly-traded entities to hold these precious metals properties, TC and LS
agree as follows:

1. After execution of this Agreement, LS will form a new Delaware
corporation "NEWCO". Shares of common stock will be issued as follows:

2,000,000 (two million) shares to TC or his designees;
3,000,000 (three million) shares to LS or its designees.

2. As consideration for the 2,000,000 (two million) shares of NEWCO
issued to him, TC assigns to NEWCO all of his rights, title and other interests
in the extraction process technology and any enhancements subsequently
developed, which will be the joint property of you, NEWCO, and such subsidiaries
or affiliates as they may, from time to time, assign or license the technology
to, with the proviso, however, that should TC present in writing to LS and NEWCO
a project which would utilize the technology to extract gold and/or precious
metals, and LS and NEWCO declines in writing to pursue that project, then you
shall have the right to utilize the technology to extract minerals from that
project, as long as appropriate measures are taken to maintain the integrity and
security of the extraction process technology. TC shall be designated as
President of NEWCO.

3. As consideration for the total of 3,000,000 (three million) shares
of NEWCO issued to it, LS shall advance on behalf of NEWCO such funds as are
deemed necessary to cover overhead and conduct mining operations on the
properties until precious metal recovery amounts are such that NEWCO has
positive cash flow.

4. Within three (3) years after NEWCO is formed LS shall commence
preparation of a registration statement for NEWCO on form SB2 and file said
registration statement with the SEC as soon as practicable thereafter covering
up to 1,000,000 shares of NEWCO to be distributed to the stockholders of LS upon
clearance by the SEC and appropriate stock market conditions for such a
transaction.

5. It is agreed that TC, NEWCO and Cochise Mining Corporation shall
pursue a joint venture on terms mutually acceptable to all the parties.

6. Consulting. Your consulting fee payable by NEWCO will be Cdn $500
weekly, payable semi-monthly effective April 1, 1998, which shall be reviewed at
such time as you are available for full-time employment, but not later than
January 1, 1999.

7. Signing Bonus. Upon execution of this letter agreement you will be
paid a bonus in the form of 30,000 freely tradable shares of LS Capital
Corporation at an agreed value of US $.25 per share.

8. Stock Options. Upon execution of this letter agreement you will be
granted options to purchase a total of 100,000 shares of its common stock as
follows: 40,000 shares at $.50, 30,000 shares at $.75 and 30,000 shares at
$1.00; 25% of each option will be vested immediately and 25% will vest on each
one year anniversary of the option grant so that 100% of the options will be
vested on the third anniversary of the option grant.

9. Security. LS and you will take such measures as are necessary to
secure and protect the secrecy of the technology, including effecting such
intellectual property filings with the appropriate international bodies as may
be advised by counsel.

10. Confidentiality. The parties to this agreement agree that it is
confidential and highly sensitive and no disclosure of its terms can be made
without the consent of both parties, except as may be required by government
agencies such as tax or securities authorities.

AGREED as of the date above first written:

LS CAPITAL CORPORATION

/s/ Terry Christopher By: /s/ Paul J. Montle

EXHIBIT 10.29 AGREEMENT

This agreement, dated June 11, 1998, is between LS Capital Corporation
(LS), a publicly traded Delaware Corporation, Desert Minerals, Inc. and SWM
Ventures, Inc., both Delaware subsidiaries of LS and Martin Blake an individual
residing in Edmonton, Alberta, Canada (MB).

RECITALS

WHEREAS MB will participate in an effort to develop proprietary
technology, seek out and locate other proprietary processes from other sources
for the extraction of precious metals from certain desert sands properties in
the western United States and elsewhere.

WHEREAS MB will be initially employed at the Desert Minerals, Inc.
(DMI) pilot plant facility in Amargosa Valley, Nevada as Director of Research
and Development reporting directly to Terry Christopher, President of (SWM).

1. Salary - Your salary payable by DMI will be US $50,000 annually,
payable semi-monthly effective upon your arrival at DMI for permanent employment
with a work visa, which salary shall be reviewed not later than January 1, 1999.

2. Work Schedule - As a salaried employee you are expected to work at
least forty (40) hours per week and such additional hours as may be necessary to
successfully perform your assignment. Salaried employees are not eligible for
overtime but may request compensatory time off from the supervisor when they
have worked exceptionally long hours. You will receive two (2) weeks of paid
vacation for the first year and three (3) weeks in subsequent years.

3. Signing Bonus. Upon execution of this letter agreement you will be
paid a bonus in the form of 20,000 freely tradable shares of LS Capital
Corporation at an agreed value of US $.25 per share.

4.0 Stock Options. Upon execution of this letter agreement you will be
granted options to purchase a total of 100,000 shares of its common stock as
follows: 40,000 shares at $.50, 30,000 shares at $.75 and 30,000 shares at
$1.00; 25% of each option will be vested immediately and 25% will vest on each
one year anniversary of the option grant so that 100% of the options will be
vested on the third anniversary of the option grant.

4.1 You will be granted options to purchase 250,000 shares of SWM
Ventures, Inc. common stock as follows: 100,000 shares at $.01, and 150,000
shares at $.50. The options will vest on the same schedule as the LS options.

5. Expenses - LS will pay your fuel and any highway tolls when you
drive down from Canada to begin work in Amargosa, plus up to US $50/day lodging
allowance and a flat US $25 per diem allowance for food enroute. While at
Amargosa you will live in the DMI mobile home you inspected with utilities paid
by DMI. You will be responsible for your food and any personal telephone calls.

6. Security. LS, DMI and SWM and you will take such measures as are
necessary to secure and protect the secrecy of the technology, which shall
remain the property of LS, and SWM, including effecting such intellectual
property filings with the appropriate international bodies as may be advised by
counsel.

7. Confidentiality. The parties to this agreement agree that it is
confidential and highly sensitive and no disclosure of its terms can be made
without the consent of both parties, except as may be required by government
agencies such as tax or securities authorities.

AGREED as of the date above first written:

LS CAPITAL CORPORATION

/s/ Martin Blake By: /s/ Paul J. Montle
Paul J. Montle, President

DESERT MINERALS, INC.

By: /s/ Paul J. Montle
Paul J. Montle, Vice
President

SWM VENTURES, INC.

By:/s/ Terry Christopher
Terry Christopher, President

SUBSIDIARIES OF THE REGISTRANT

LS CAPITAL CORPORATION

PAPONE'S ACQUISITION CORPORATION

PAPONE'S PALACE LLC (75.5% SUBSIDIARY)

COTTON EXCHANGE CASINO, INC.

LSCC OF NEVADA, INC.

LONE STAR PINE HILLS, INC.

CLUTCH GAMES, INC.

GRIFFIN GOLD GROUP, INC. (APPROX 50% OWNED)

DESERT MINERALS, INC. (APPROX. 50% OWNED)

DMI LAND, INC.

SHOSHONE MINING CO. (APPROX. 50% OOWNED)

SAM HOUSTON GOLD, INC.

LANCASTER SAND & GRAVEL, INC.

ESCOPETA MINERALS, INC. (APPROX. 50% OOWNED)

MOHAVE MINERALS, INC. (APPROX. 50% OWNED)

SWM VENTURES, INC. (APPROX. 50% OWNED)

<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ITEM 7
OF FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 1998 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>
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<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> JUN-30-1998
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<RECEIVABLES> 81
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