UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the quarterly period ended: December 31, 1997
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934: For the transition period from _______ to _________
Commission file number: 0-21566
LS CAPITAL CORPORATION
(Exact name of small business issuer as specified in its charter)
Delaware 84-1219819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
15915 Katy Freeway, Suite 250, Houston, Texas 77094
(Address of principal executive officer) Zip Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares of common stock, $0.01 par value, outstanding
as of December 31, 1997: 12,724,438 shares
Transitional Small Business Disclosure Format (check one): Yes No X
<PAGE>
LS CAPITAL CORPORATION AND SUBSIDIARIES
QUARTER ENDED DECEMBER 31, 1997
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Condensed consolidated financial statements
of LS Capital Corporation and Subsidiaries:
Balance sheet as of December 31, 1997 3
Statements of income for the three months
ended December 31, 1997 and 1996 4
Statements of income for the six months ended
December 31, 1997 and 1996 5
Statements of stockholders' equity for the six months
ended December 31, 1997 and 1996 6
Statements of cash flow for the three months
ended December 31, 1997 and 1996 7
Notes to condensed consolidated financial statements 9
Item 2. Management's Discussion and Analysis 10
PART II. OTHER INFORMATION
Item 1. Legal proceedings 12
Item 6. Exhibits and Reports on Form 8-K. 12
(a)Exhibits
10.1 Letter of Intent
10.2 Mineral Lease - Private Land
27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURE 13
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated Balance Sheet
December 31, 1997
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 97
Marketable equity securities 15
Receivable from affiliated parties, less
allowances for losses of $800,000 253
Receivable from unaffiliated parties, net 183
Prepaid expenses and other 4
-------
Total current assets 552
Property and equipment, net 1,851
Equity in gold mining ventures 324
Other assets 10
-------
$ 2,747
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of notes payable $ 1,549
Accounts payable and accrued expenses 1,837
Redemption payable - redeemable preferred stock 75
Convertible debenture payable 300
------
Total current liabilities 3,761
Stockholders' equity:
Common stock 127
Additional paid-in capital 25,783
Accumulated deficit (26,924)
-------
( 1,014)
-------
Commitments, contingencies and other matters
$ 2,747
=======
See accompanying notes
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Income(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
December 31
1997 1996
------- ------
OPERATING REVENUES
<S> <C> <C>
Gaming $ - $ -
Food, beverage, etc. - -
------- ------
- -
OPERATING EXPENSES
Gaming - 1
Food, beverage, etc. - 31
Equity in loss of unconsolidated mining subsidiaries 227
General and administrative 314 263
Depreciation and amortization 14 69
------- ------
OPERATING LOSS (555) (364)
OTHER INCOME AND EXPENSE
Interest expense, net (145) (173)
Gain on sale of properties - 233
Other, net - -
-------- ------
(145) 60
-------- ------
NET INCOME (LOSS) $ (700) $( 304)
======== =======
NET INCOME (LOSS) PER COMMON SHARE $(0.06) $(0.05)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,496 6,360
</TABLE>
See accompanying notes
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Income(in thousands, except per share amounts)
Six Months Ended
December 31
1997 1996
---- ----
OPERATING REVENUES
Gaming $ - $ 224
Food, beverage, etc. - 16
------- -------
- 240
OPERATING EXPENSES
Gaming - 41
Food, beverage, etc. - 81
Equity in loss of unconsolidated mining
subsidiaries 378 -
General and administrative 641 579
Depreciation and amortization 30 142
------- -------
1,049 843
------- -------
OPERATING LOSS (1,049) (603)
OTHER INCOME AND EXPENSE
Interest expense, net (282) (233)
Gain on transfer of partnership interest
to creditor 590
Gain on sale of properties 233
Other, net 2
------- -------
(282) 592
------- -------
NET INCOME (LOSS) $ (1,331) $( 11)
========== ========
NET INCOME (LOSS) PER COMMON SHARE $(0.11) $(0.00)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 12,307 4,064
See accompanying notes
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Stockholders' Equity
(in thousands)
<TABLE>
<CAPTION>
Common Stock Paid-in Subs. Rec. Accum.
Shares Amount Capital Stock Sales Deficit Totals
<S> <C> <C> <C> <C> <C> <C>
Balances, June 30, 1996 1,721 $ 17 $23,141 $ - $ (25,521) $(2,363)
Shares issued for cash 800 7 162 169
Shares issued for services 450 5 355 360
Shares issued in connection
with debt forgiveness by
related parties 6,069 61 224 285
Subscription receivable
for sale of shares (146) ( 146)
Payments on subscription
receivable 53 53
Net(loss) ( 9) ( 9)
------- ------- ------- ---------- ------------- --------
Balances, December 31, 1996 9,040 $ 90 $23,883 $ ( 93) $ (25,530) $(1,650)
======= ======= ======== ========= ============= ========
Balances, June 30, 1997 12,150 $121 $25,374 $ - $(25,593) $( 98)
Shares issued for services 595 6 440 446
Shares issued in connection
with:
Partial conversion
of debenture 84 1 49 50
Acquisition of gold
mining ventures 150 2 8 10
Stock subscription
adjustment ( 255) ( 3) (38) ( 41)
Cancellation of investment
in gold mining securities ( 50) - (50) ( 50)
Net (loss) ( 1,331) (1,331)
---------- -------- ------- --------- -------- ------
Balances, December 31, 1997 12,674 $127 $25,783 $ - $(26,924) $(1,014)
========== ======== ======= ========= ========== ======
</TABLE>
See accompanying notes
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (1,332) $ ( 9)
Adjustments:
Depreciation and amortization 30 142
Gain on sale of card club interest (590)
Stock issued for services 446 360
Gain on sale of Clutch Games (232)
Changes in:
Accounts receivable ( 60) (223)
Accounts payable and accrued expenses 285 164
------- ------
Net cash used by operating activities $( 632) $ (388)
CASH FLOWS OF INVESTING ACTIVITIES
Proceeds from sale of Clutch Games 65 111
Proceeds from collection of stock
subscription receivable 266
Other ( 4)
--------- ------
Cash (used) provided by investing activities 331 107
CASH FLOWS FROM FINANCING ACTIVITIES
Sales of stock 77
Reimbursements by attorneys of excess fees
paid in S-8 stock 102
Reimbursements by attorneys of receivable
collections held in escrow 73
Payment of preferred stock redemption (25)
Proceeds from issuance of convertible debenture 346
---- ----
Cash provided by financing activities 394 179
Increase (decrease) in cash 92 (102)
Beginning of period 5 139
---- -----
End of period $ 97 $ 37
====== =======
(continued)
<PAGE>
LS Capital Corporation and Subsidiaries
Unaudited Condensed Consolidated
Statements of Cash Flows
(in thousands)
Six Months Ended
December 31
1997 1996
SUPPLEMENTAL CASH FLOW INFORMATION Common stock issued for:
Prepaid legal and other services $446 $ 360
Reduction in related party payables 285
Gain on transfer of investment securities in
exchange for debt reduction 590
Reduction in stock subscription receivable (41)
Cancellation of investment in securities of
gold mining company (50)
</TABLE>
See accompanying notes
<PAGE>
LS Capital Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
Three and Six Months Ended December 31, 1997
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information. The financial statements contained herein should
be read in conjunction with the audited consolidated financial statements for
the year ended June 30, 1997 included in the Company's Annual Report on Form
10-K. Accordingly, footnote disclosure which would substantially duplicate the
disclosure in the audited consolidated financial statements has been omitted.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for a fair
statement of the results for the unaudited three and six months ended December
31, 1997 and 1996. The results of operations for an interim period are not
necessarily indicative of the results to be expected for a full year.
2. Papone's Palace LLC has not been open since September, 1996 because of a
dispute between the Company and Papone's 24.5% minority shareholder. In April,
1997, following the failed restructuring of the repayment terms of the
indebtedness to the principal secured creditor of Papone's, who is currently
owed $1,196,000, Papone's filed for bankruptcy under Chapter 11 of the federal
bankruptcy laws. After filing a Plan of Reorganization in August, 1997 and a
Disclosure Statement in October, 1997, the secured creditor filed a motion in
the Bankruptcy Court to dismiss the bankruptcy citing the perceived inability of
Papone's to reorganize. The Company initially intended to defend vigorously
against this motion. However, after the judge in charge of the proceeding
indicated some hostility to the Company's defense position, the Company decided
not to defend against the motion. In October, 1997, the court ruled in favor of
the Creditor lifting the bankruptcy stay against Papone's property. The secured
creditor then foreclosed on Papone's on December 16, 1997. As part of the
foreclosure, the secured creditor assumed a note payable of $410,000 secured by
the property. Such sale will become effective upon the expiration of a 75 day
redemption period ending March 5, 1998. The Company currently has no intention
to attempt to redeem Papone's and continue the ownership thereof. The Company
believes that the combination of prior asset transfers to the creditor of
approximately $1,643,000, plus the value of Papone's assets equals or exceeds
the amount of indebtedness. Therefore, the Company is negotiating with the
secured creditor in an effort to reach a settlement regarding the Company's
guarantee of the indebtedness to the secured creditor in the amount of
approximately $1,139,000. There can be no assurance that the Company will be
successful in this regard.
<PAGE>
The Company has made no adjustment in its financial statements regarding
the foreclosure pending the above settlement and the expiration of the
redemption period discussed above. Upon the finalization of the above, the
removal of Papone's assets and liabilities from the Company's financial
statements will produce a non-cash gain of approximately $500,000. While the
Company did not acquiesce in the foreclosure of Papone's, the Company had
previously determined to abandon the gaming business and had contemplated
spinning off to the Company's stockholders the stock of the subsidiary that
owned Papone's prior to the foreclosure. The Company believes that the
foreclosure of Papone's (together with the settlement of remaining matters
pertaining to the Company's primary indebteness) 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
During fiscal 1997, the Company adopted a significant change in its
corporate direction. It decided to focus its efforts on developing precious
metals mining prospects, with each project undertaken in a separate corporate
entity. Currently, the Company has an ownership share of three corporations
(Griffin Gold Group, Inc., Desert Minerals, Inc. and Shoshone Mining Co.),
formed to exploit certain adjacent mining claims in eastern California. Each of
these corporations has received assignments of mining claims and non-exclusive
licenses to use proprietary mineral extraction technology. These operations are
in the developmental stage and will require minimal capital. To implement this
strategy and finance these projects, the Company intends to establish a public
trading market in the shares of each gold mining corporation, via an initial
public offering and/or a "spin-off" of their shares to the Company's
shareholders in fiscal year 1998 so they can do their own financing with their
own shares. As this strategy is implemented, the Company will essentially become
a holding company owning large share holdings in each gold mining corporation.
The Company has retained a consultant to evaluate the best structure to manage
such activity and maximize value for its shareholders. The Company has not
received the report from the consultant but such report may recommend conversion
to closed-end non-diversified investment holding company status.
On November 20, 1997, the Company entered into a letter of
intent (the "Letter of Intent") with Au Consolidated, Inc. ("Consolidated") with
respect to a newly-formed Delaware subsidiary named "Cochise Mining Corporation"
("Cochise"). Cochise is initially to be owned 60% by the Company and 40% by
Consolidated. Under the terms of the Letter of Intent, Consolidated agreed to
lease to Cochise mineral leasehold interests in Arizona's Cochise and Graham
counties covering 79 square miles. Pursuant to the Letter of Intent,
Consolidated and Cochise entered into a definitive Mineral Lease - Private Land
(the "Lease Agreement") implementing the terms of the Letter of Intent. The
Lease Agreement has a term continuing until the latter to occur of the end of
ten years or the cessation of production of minerals in commercial quantities
for any calendar quarter. Cochise is obligated to pay to Consolidated a
production royalty equal to 5.0% of the net smelter returns for all minerals
mined, removed and sold from the leased acreage. Cochise is also obligated to
pay to Consolidated quarterly royalties (credited against the production
royalty) in amounts of $54,000 for the first three quarterly periods and
$100,000 for each quarterly period thereafter.
The Letter of Intent requires the Company to invest in, or
raise $1.4 million in equity for, Cochise by May 1, 1998. The equity should
enable Cochise to commence production within 60 days of the construction of its
placer plant, expected to be completed in fiscal 1999. If the Company fails to
invest or raise the $1.4 million by May 1, 1998 or if the Company is unsatisfied
with the results of its assay sampling program relating to the acreage leased to
Cochise, the transaction provided for by the Letter of Intent and the Lease
Agreement might be terminated.
If and when production begins, Cochise expects to process
10,000 tons of head ore during its first month of production, followed by
monthly increases to 80,000 tons over the following four months. Based on the
conventional mining methods that Cochise intends to use, the Company anticipates
that Cochise will maintain low production costs.
In December, 1997, Griffin Gold Group, Inc. ("Griffin Gold") filed a
registration statement with the Securities and Exchange Commission regarding the
contemplated spin-off of 20% of the Company's ownership in Griffin Gold to the
Company's shareholders. Griffin Gold is currently awaiting the final approval of
its registration statement, as amended.
MATERIAL CHANGES IN FINANCIAL CONDITION
At December 31, 1997, the Company had a working capital deficiency of
$3,209,000 compared to a deficit of $3,479,000 at December 31, 1996. The lower
deficiency was primarily due to the reduction in liabilities as a result of the
exchange of a preferred stock redemption into common stock and the reduction in
accrued interest resulting from the transfer of a card club interest to a
creditor.
Papone's Palace LLC has not been open since September, 1996 because of
a dispute between the Company and Papone's 24.5% minority shareholder. In April,
1997, following the failed restructuring of the repayment terms of the
indebtedness to the principal secured creditor of Papone's, who is currently
owed $1,196,000, Papone's filed for bankruptcy under Chapter 11 of the federal
bankruptcy laws. After filing a Plan of Reorganization in August, 1997 and a
Disclosure Statement in October, 1997, the secured creditor filed a motion in
the Bankruptcy Court to dismiss the bankruptcy citing the perceived inability of
Papone's to reorganize. The Company initially intended to defend vigorously
against this motion. However, after the judge in charge of the proceeding
indicated some hostility to the Company's defense position, the Company decided
not to defend against the motion. In October, 1997, the court ruled in favor of
the Creditor lifting the bankruptcy stay against Papone's property. The secured
creditor then foreclosed on Papone's on December 16, 1997. As part of the
foreclosure, the secured creditor assumed a note payable of $410,000 secured by
the property. Such sale will become effective upon the expiration of a 75 day
redemption period ending March 5, 1998. The Company currently has no intention
to attempt to redeem Papone's and continue the ownership thereof. The Company
believes that the combination of prior asset transfers to the creditor of
approximately $1,643,000, plus the value of Papone's assets equals or exceeds
the amount of indebtedness. Therefore, the Company is negotiating with the
secured creditor in an effort to reach a settlement regarding the Company's
guarantee of the indebtedness to the secured creditor in the amount of
approximately $1,139,000. There can be no assurance that the Company will be
successful in this regard. The Company has made no adjustment in its financial
statements regarding the foreclosure pending the above settlement and the
expiration of the redemption period discussed above. Upon the finalization of
the above, the removal of Papone's assets and liabilities from the Company's
financial statements will produce a non-cash gain of approximately $500,000.
While the Company did not acquiesce in the foreclosure of Papone's, the Company
had previously determined to abandon the gaming business and had contemplated
spinning off to the Company's stockholders the stock of the subsidiary that
owned Papone's prior to the foreclosure. The Company believes that the
foreclosure of Papone's (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.
In October, 1997, the Company received $250,000 from a private investor
as convertible debt, which matures in one year and bears interest at 8%. The
debt is convertible into the Company's common stock at 70% of the average
closing bid for the previous five days. In December, 1997, the investor
converted $50,000 of the convertible debt into 84,348 shares of common stock. In
December, 1997, the Company received an additional $100,000 from the private
investor on similar terms with the convertible period beginning February 10,
1998. In January, 1998, the private investor converted an additional $50,000 of
the first debenture into 138,905 shares of common stock.
Management believes that it can obtain the funds necessary to meet its
working capital needs for the remainder of fiscal 1998 and the $1.4 million
required for the Cochise project, primarily through the sale of common stock and
from the sale of other non-revenue producing assets.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 and 1996
The Company had incurred a net loss of $700,000 or $.06 a share, as
compared to a net loss of $304,000 or $0.05 per share for the comparable period
in the prior year. The change of $396,000 was attributable to the gain on the
sale of Clutch Games of $233,000 in the 1996 period, the equity in loss of
mining venture subsidiaries of $227,000 in the 1997 quarter.
General and administrative expenses totaled $314,000 during the quarter
ended December 31, 1997, as compared with $263,000 for the comparable prior year
quarter.
Six Months Ended December 31, 1997 and 1996
The Company had incurred a net loss of $1,331,000 or $.11 a share, as
compared to a net loss of $11,000 for the comparable period in the prior year.
The change of $1,320,000 was attributable to the gains totaling $823,000 in the
1996 period and the equity in loss of mining venture subsidiaries of $378,000 in
the 1997 period.
General and administrative expenses totaled $641,000 during the six
months ended December 31, 1997, as compared with $579,000 for the 1996 period.
PART II. OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
On February 21, 1997, a judgment was entered against Papone's Palace LLC
(the "Limited Liability Company"), the indirect majority -owned subsidiary that
owns the Company's Papone's Palace casino (the "Property"). The judgment was
entered in favor of the Limited Liability Company's largest creditor
(the"Creditor") in the principal amount of $1,101,337, together with interest
and costs, and decree a foreclosure on the Property. This development required
the Limited Liability Company to file for bankruptcy protection under Chapter 11
of the federal bankruptcy laws on April 23, 1997. However, in October, 1997, the
bankruptcy court granted a motion filed by the Creditor to lift the bankruptcy
stay against the Property allowing the Creditor to foreclose on the Property in
December, 1997, subject to a 75 day redemption period which ends on March 5,
1998. The Company currently has no intention to attempt to redeem the Property
and continue the ownership thereof.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
The following exhibits are filed with this Quarterly Report or are incorporated
herein by reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
10.1 Letter of Intent dated November 20, 1997 among the Company, Cochise Mining
Corporation, Au Consolidated, Inc.
10.2 Mineral Lease - Private Land dated effective January 1,
1998 between Au Consolidated, Inc., as lessor, and Cochise
Mining Corporation, as lessee.
27 Financial Data Schedule
(b)Reports on Form 8-K
None
</TABLE>
<PAGE>
SIGNATURE
In accordance with the requirements of the Exchange Act, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LS CAPITAL CORPORATION
(Registrant)
By: /s/ Paul J. Montle
Paul J. Montle
President, Chief Executive Officer
and Chief Financial Officer
Dated: February 17, 1998
<PAGE>
EXHIBITS INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <C>
10.1 Letter of Intent dated November 20, 1997 among
the Company, Cochise Mining Corporation, Au Consolidated, Inc.
10.2 Mineral Lease - Private Land dated effective
January 1, 1998 between Au Consolidated, Inc., as lessor, and Cochise
Mining Corporation, as lessee.
27 Financial Data Schedule
</TABLE>
EXHIBIT 10.1
LS CAPITAL CORPORATION
15915 Katy Freeway, Suite 250
Houston, Texas 77094
November 20, 1997
LETTER OF INTENT
Au Consolidated, Inc.
c/o William F. Doran, Esq.
Attorney at Law
706 E. Bell, Suite 200
Phoenix, AZ 85022
Gentlemen:
This letter of intent outlines our mutual understanding of certain
basic terms and conditions governing a transaction whereby Au Consolidated, Inc.
("Lessor") would lease, to a newly-formed Delaware corporation to be named
"Cochise Mining Corporation" ("Lessee") and to be organized by LS Capital
Corporation ("LS Capital"), the mineral rights on 50,000 acres of land under the
control of Lessor and mutually identified and agreed upon by Lessor and Lessee
(the "Acres").
This letter of intent is subject to definitive documentation and does
not constitute a binding obligation or commitment of Lessor, Lessee or LS
Capital with respect to any matter provided for or contemplated herein, except
for the provisions of Sections 4, 5, 6, 7 and 8, which shall constitute binding
agreements.
1. Lease Agreement. Lessor and Lessee shall cause to be prepared,
executed and delivered a definitive lease agreement (the "Lease Agreement") in a
form and containing definitive terms, provisions and conditions mutually
satisfactory to Lessor, Lessee and LS Capital. The Lease Agreement shall contain
terms, provisions and conditions reflecting the following:
(a) Lessor shall lease to Lessee the mineral rights respecting the
Acres, for a term commencing on execution and continuing after ore begins being
processed on the Acres and ending once Lessee no longer processes ore on any
properties located within a five-mile radius of any of the Acres, for purposes
of exploiting the minerals underlying the Acres.
(b) Lessee shall pay to Lessor a production royalty for all minerals
mined, removed and sold from the Acres equal to 5.0% of the Net Smelter Returns.
"Net Smelter Returns" shall mean the total receipts from the mill, refinery,
smelter or other purchaser for production from the Acres, less only (i) the
transportation costs from the Acres to the place of sale if paid by Lessee, and
(ii) the costs, penalties, treatment charges and other charges paid by Lessee
(or deducted from the amount paid to Lessee) by the mill, refinery, smelter or
other purchaser.
(c) Lessee shall pay to Lessor quarterly advance royalties in the
following amounts:
(i) $10,000.00 upon signing of the lease;
(ii) thereafter, $54,000.00 for the next three three-month periods; and
(iii) thereafter, $100,000.00 for each three-month period.
Such quarterly advanced royalties shall be credited to the
production royalty described immediately above.
(d) Lessee shall pay to Lessor a $20,000.00 non-refundable deposit upon
execution of this Letter of Intent, and such $20,000.00 shall be credited
against the funds to be raised under paragraph 2(g) of this letter of intent.
(e) Lessor shall have the option, from May 2 through May 15, 1998, to
terminate the Lease Agreement if LS Capital has not satisfied its obligations
described in Section 2(g) below.
(f) All State of Arizona land will be maintained as mining claims. If
Lessee desires to convert the claims to exploration permits or mineral leases,
Lessee shall pay all additional fees as advance royalties.
2. Organization and Financing of Lessee. In connection with and as a
condition precedent to the execution and delivery of the Lease Agreement, LS
Capital shall organize, and procure financing for, Lessee upon the following
terms, provisions and conditions:
(a) Lessee shall be organized under the laws of the state of Delaware
and shall be qualified to do business as a foreign corporation under the laws of
the state of Arizona.
(b) Lessee shall be capitalized with 20,000,000 shares of common stock,
par value $.001 per share, and 10,000,000 shares of "blank check" preferred
stock, par value $.01 per share. Shares of preferred stock shall be issued only
upon the consent of both Lessor and LS Capital.
(c) Paul J. Montle, Kent E. Lovelace, Jr., C. Thomas Cutter, and two
nominees selected by Lessor shall serve as the initial directors of Lessee.
Lessor and LS Capital shall enter into a voting agreement ("Voting Agreement"),
in a form and containing terms, provisions and conditions mutually satisfactory
to them, entitling LS Capital to elect three persons to the Board of Directors
of Lessee and Lessor to elect two persons to the Board of Directors of Lessee.
(d) In consideration of its procuring the financing described in
Section 2(g) below, LS Capital shall be issued 60% of the shares of common stock
initially issued. In consideration of its agreement to enter into the Lease
Agreement, Lessor shall be issued 40% of the shares of common stock initially
issued. The stock certificates representing Lessor's shares of common stock
shall be held by LS Capital until May 15, 1998. If by May 15, 1998 Lessor has
not terminated the Lease Agreement, then LS Capital shall deliver to Lessor the
stock certificates representing Lessor's shares of common stock. If by May 15,
1998 Lessor has terminated the Lease Agreement, then LS Capital may, with
Lessor's consent (which is hereby given), cause the stock certificates
representing Lessor's shares of common stock to be cancelled.
(e) LS Capital, Lessor and Lessee shall enter into an agreement (the
"Right of First Refusal/Preemptive Rights Agreement"), in form and containing
terms, provisions and conditions mutually satisfactory to them, whereby each of
LS Capital and Lessor agrees to give to each other a right of first refusal with
respect to proposed transfers of their shares of common stock in Lessee, and
whereby Lessee gives to each of LS Capital and Lessor (subject to customary
exceptions) pre-emptive rights with respect to shares of stock to be newly
issued. The Right of First Refusal/Preemptive Rights Agreement shall not apply
to any in-kind dividend of shares in Lessee made to the stockholders of LS
Capital, and shall terminate immediately upon Lessee becoming a publicly traded
company. Moreover, Lessor shall be free to sell any and all of its shares in
Lessee under the exemption from registration provided for by Rule 144 under the
Securities Act of 1933.
(f) The following persons shall be elected to the offices of Lessee set
forth to the right of their respective names:
Richard Bradshaw President
Michael Bradshaw Vice President - Operations
Paul J. Montle Vice President & Treasurer
Su J. Lee Corporate Secretary
Moreover, Richard Bradshaw and Michael Bradshaw shall be
responsible for the day-to-day operations of Lessee, and shall, at the option of
LS Capital, enter into employment agreements (the "Employment Agreements") in
forms and containing terms, provisions and conditions mutually satisfactory to
them and LS Capital.
(g) LS Capital agrees to contribute as equity or raise from investors
in an equity financing, by May 1, 1998 and upon terms, provisions and conditions
believed by LS Capital to be advisable for Lessee, $1.4 million to be invested
in Lessee for purposes of obtaining processing equipment and operating capital
to begin extracting gold from the Acres. In this connection, Lessor agrees to
furnish to LS Capital by November 30, 1997 a budget for the use of the $1.4
million for purposes of disclosure to potential investors.
3. Latest Signing Date. Lessor, Lessee and LS Capital shall cooperate
fully with each other, in good faith and with a view to organizing Lessee and
executing and delivering the Lease Agreement, the Voting Agreement, the Right of
First Refusal/Preemptive Rights Agreement, and the Employment Agreements by
November 30, 1997 (the "Latest Signing Date").
4. Due Diligence. Lessor shall permit LS Capital and Lessee, their
accountants, attorneys, consultants, employees, agents and other
representatives, full and complete access to make such inspections, tests and
surveys of the Acres, and Lessor shall disclose and make available to LS Capital
and Lessee, their accountants, attorneys, consultants, employees, agents, and
other representatives, all contracts, books, records, papers, documents, plans
and drawings relating to Acres. In addition to the preceding, Lessor shall
arrange for LS Capital and Lessee to discuss with it or its appropriate
directors, officers, accountants, attorneys, consultants, employees, agents and
other representatives, such matters relative to the Acres as LS Capital or
Lessee reasonably requests. LS Capital's obligation to form Lessee and Lessee's
obligation to enter into the Lease Agreement are expressly conditioned upon LS
Capital's and Lessee's receipt of information regarding the Acres as LS Capital
and Lessee may request and upon LS Capital's and Lessee's approval of all such
information. If LS Capital or Lessee finds any such information unacceptable for
any reason, LS Capital may elect not to form Lessee and Lessee may elect not to
enter into the Lease Agreement.
5. Confidentiality. LS Capital and Lessee shall not disclose to any
third person (other than its accountants, attorneys, consultants, employees,
agents and other representatives for purposes of evaluating the lease of the
Acres), except as may be required by applicable law, any information obtained
pursuant to this Letter of Intent or otherwise in contemplation of the lease of
the Acres at any time, unless such information is otherwise already known by LS
Capital or Lessee or is generally available to the public, or hereafter is
disclosed to LS Capital or Lessee by a person who did not have an obligation not
to disclose such information or hereafter becomes generally available to the
public. In the event that the Lease Agreement is not entered into by the Latest
Signing Date as it may be hereafter extended, LS Capital and Lessee shall
promptly return all nonpublic information, documents and other written
information containing information obtained pursuant to this Letter of Intent,
including any item obtained in any investigation permitted pursuant to this
Letter of Intent, and any copies thereof. LS Capital and Lessee shall require
their accountants, attorneys, consultants, employees, agents and other
representatives not to disclose such information, unless required by applicable
law.
6. Other Negotiations. Lessor agrees, until the earlier of the Latest
Signing Date or Lessee's indication that it no longer desires to pursue the
possible lease of the Acres, not to contact in any way or negotiate with any one
other than Lessee and LS Capital or their authorized representatives concerning
the possible lease of the Acres.
7. Expenses. Each of Lessor, Lessee and LS Capital shall each pay its
own expenses in connection herewith including without limitation, attorneys'
fees and accountants' fees. Lessor and Lessee each represent that no broker or
finder is entitled to any fee or commission in connection herewith.
8. Publicity. Lessor shall not (without the express prior written
consent of LS Capital and Lessees), and neither of LS Capital nor Lessee shall
(without the express prior written consent of Lessor), issue or make, or cause
to have issued or made, any further public release or announcement concerning
the lease of the Acres except as required by law. All parties hereto shall
cooperate with each other in preparing a form of press release mutually
acceptable to Lessor, Lessee and LS Capital.
If this letter of intent correctly sets forth our agreement, please
acknowledge by signing and returning the enclosed counterpart copy to the
undersigned.
Very truly yours, Very truly yours,
LS CAPITAL CORPORATION, COCHISE MINING CORPORATION.
a Delaware corporation a Delaware corporation
By: /s/ Paul J. Montle By: /s/ Paul M.
Montle
Paul J. Montle, President Paul J. Montle, Vice President
ACKNOWLEDGED AND AGREED to this 24 day of November, 1997.
AU CONSOLIDATED, INC.
By:/s/ Frank Cobb
Name: Frank Cobb
Title: President
EXHIBIT 10.2
MINERAL LEASE-PRIVATE LAND
This Minerals Lease ("Lease") is effective this 1st day of January, 1998, by and
between Au Consolidated, Inc, an Arizona corporation (Lessor") and Cochise
Mining Corporation, a Delaware corporation ("Lessee").
In consideration of the mutual promises of Lessor and Lessee stated in this
lease, Lessor and Lessee agree as follows:
1. a. Lessor hereby leases to Lessee for the purposes of exploring for,
developing, mining, recovering, processing, transporting and otherwise using,
enjoying and exploiting Minerals in a prudent manner, all of Lessor's right,
title and interest in and to all minerals of whatever type and in whatever form
in, on or under the Leased Premises described in Exhibits A, B, and C to this
Mineral Lease together with all of Lessor's rights to use, occupy or consume the
surface of the Leased Premises.
b. The rights of Lessee under this Lease shall be subject to the right
of Lessor to use the Leased Premises for any and all purposes not detrimental to
Lessee's use of the Leased Premises for the purposes permitted to Lessee by
Paragraph 1.a.
c. Lessor warrants and represents that:
(i) it is the owner of the Leased Premises described in Exhibit A;
(ii) it is the holder of Placer Mining Claims issued by the
United States Bureau of Land management for the Leased Premises described in
Exhibit B;
(iii) it is the holder of valid mining claims leased from the
State of Arizona for the Leased Premises described in Exhibit C;
(iv) and it has not made any prior transfer of any interest in
the Leased Premises.
d. Lessor shall have no responsibility for obtaining or maintaining
access to the Leased Premises for Lessee. Lessee may us whatever rights of
access Lessor may have to the Leased Premises.
2. a. This Lease shall be effective and in full force for a Term commencing with
the date of this Lease and ending on the earliest of:
(i) The date which is the later of the following described
term: Ten (10) years from the date of this Lease or for so long thereafter until
Minerals from Leased Premises or any part thereof cease being produced in
commercial quantities for any calendar quarter; or
(ii) the date of cancellation pursuant to Paragraph 13; or
(iii) the date of surrender pursuant to Paragraph 13.
b. Commencing on the date of this lease the Lessee shall pay Lessor a
quarter annual lease payment. Payment shall be due commencing the date of this
Lease and on the same date in each ensuing quarter year. If a payment is not
received within 10 days of its due date a delinquent penalty equal to 10% of the
payment due shall be assessed. The payments due Lessor and their due dates shall
be as follows:
(i) A payment in the amount of $10,000.00 due January 1, 1998;
(ii) April 1, 1998, the sum of $54,000.00;
(iii) July 1, 1998, the sum of $54,000.00;
(iv) October 1, 1998, the sum of $54,000.00;
(v) Commencing January 1, 1999 and every quarter year
thereafter for so long as this Lease is effective the
sum of $100,000.00.
c. Lessee shall be under no obligation to commence mining operations on
the Leased Premises, however, in the event Lessee removes Minerals from the
Leased Premises, Lessee shall, at the end of each calendar quarter, calculate a
production royalty due Lessor. The amount due Lessor as a production royalty
shall be equal to five (5.0%) percent of the Net Smelter Returns received by the
Lessee in the previous calendar quarter less the amount paid to Lessor under
Paragraph 2-b above for the previous quarter. If the result of this calculation
is negative Lessee will owe no production royalty for that quarter year. This
calculation shall be performed for each calendar quarter and there will be no
carry forward of any credits from prior quarters. Payments shall be made on a
quarterly basis and shall be due 20 days after the end of each quarter.
d. Net Smelter Return shall mean the total receipts from the mill,
refinery, smelter or other purchaser for production from the Leased Premises,
less only (i) the transportation costs from the Leased Premises to the place of
sale if paid by Lessee, and (ii) the costs, penalties, treatment charges and
other charges paid by Lessee (or deducted from the amount paid to Lessee) by the
mill, refinery, smelter or other purchaser.
3. a. Lessee shall work and operate on the Leased Premises as a diligent,
prudent operator during the Term in accordance with commonly accepted methods so
as to discover, develop, mine remove the maximum amount of Minerals consistent
with good mining practices and with due regard to the development and
preservation of the Leased Premises as mineral property, Lessee shall make no
permanent alterations in watercourses which cross or border the Leased Premises
without prior written consent of Lessor, any state or federal agency or surface
owner, if required. Lessor's consent shall not be unreasonable withheld. Prior
to disposal of waste rock or tailing or the construction of building or other
permanent structures upon the Leased Premises, Lessee shall determine, by
drilling to reasonable depth at reasonable spacing, that no economic or possible
economic ores or minerals occur at reasonable open pit depth beneath any site
proposed for such disposal or construction Lessee shall notify Lessor of its
plans to dispose or construct and of the results of its drilling prior to
commencing disposal or construction.
b. Lessee shall have the right to cross-mine and to commingle ore and
minerals from the Leased Premises with ore and minerals from other properties
owned, leased or controlled by Lessee, provided, however, that before
commingling, Lessee shall calculate from representative samples the average
grade of the ore from the Leased Premises and shall either weigh or
volumetrically calculate the number of tons of ore from the Leased Premises to
be commingled. As other products are produced from the commingled ores, Lessee
shall calculate from representative samples the average percentage recovery of
other products from the commingled ores during each month. In obtaining
representative samples, calculating the average grade of commingled ores and
average percentage of recovery, Lessee may use any procedures acceptable in the
mining and metallurgical industry which Lessee believes to be accurate and cost
effective for the type of mining and processing activity being conducted, and
Lessee's choice of such procedures shall be final and binding on Lessor. The
records relating to commingled ores shall be available for inspection by Lessor,
at Lessor's sole expense, at all reasonable times.
4. a. Lessor or its authorized representatives may enter, during ordinary
business hours, into and upon all parts of the Leased Premises and Lessee's
facilities off the Leased Premises where Minerals from the Leased Premises are
weighed, sampled, assayed, or processed for the purposes of making inspections
or visual surveys or taking samples. Lessee shall, at Lessee's cost, assist
Lessor or its representatives in the conduct of any inspections, visual surveys
or sampling. Lessee shall furnish summary reports to the Lessor, including maps
and assay reports showing all factual data concerning all of the mining,
development and exploration work done or in progress upon the Leased Premises
together with all assays made. Lessee shall furnish such reports on a quarterly
basis beginning three months after the date of this Lease. Each report shall be
complete as of the preceding three months and shall be submitted within 30 days
after the three month period.
b. Lessee shall maintain complete and accurate books and records of
Lessee's activities on or related to the Leased Premises and the production or
discovery of minerals. Lessor shall have the right to inspect, review, and copy,
at Lessor's expense, all books and records related to Lessee's activities on the
Leased Premises.
5. a. Lessee shall, at its sole expense, discharge, remove satisfy and take all
other action to eliminate any and all liens and encumbrances, except those
existing prior to the date of this Lease or resulting from taxes not yet due and
payable, which attach to or are imposed against any interest in any portion of
the Leased premises or any other properties of Lessor of whatever nature or type
and arise out of Lessee's acts or omissions. Whenever any person threatens any
action which might result in the imposition or attachment of any such lien or
encumbrance, Lessee shall, at its sole expense, take all reasonable action
necessary to prevent the imposition or attachment of any such lien or
encumbrance. Lessee shall have the right to contest in good faith the imposition
of any such lien or encumbrance.
b. In the event Lessee fails to perform the obligations of Paragraph
5.a., Lessor, after 15 days notice to Lessee, may take such other action to
eliminate such lien, encumbrance or threat. Lessee shall fully reimburse Lessor
for all costs and expenses involved in such discharge, removal, satisfaction and
action.
c. Lessor warrants that the only liens on the Leased Premises are
described in Exhibit D.
6. Lessee shall file with the proper governmental authorities any renderings or
returns required covering its mineral estate in Minerals, its operations on the
Leased Premises, the Minerals produced from the Leased Premises, and all
personal property which Lessee may place upon the Leased Premises. Lessee shall
pay all valid taxes, charges, rates and assessments which may be levied upon, or
assessed in any respect upon or against, its mineral estate in Minerals, its
operations on the Leases Premises, the Minerals produced from the Leased
Premises, and all personal property which Lessee may place upon the Leased
Premises, together with all increases in the taxes, charges, rates or
assessments upon the Leased Premises by reason of the discovery or production of
Minerals by Lessee or on account of all improvements and facilities erected upon
the Leased Premises. In the event such taxes, charges, rates or assessments are
included in the general amount of taxes, charges, rates or assessments charged
Lessor and Lessor pays such taxes, then Lessee shall promptly repay or refund to
Lessor the amount of the tax, charge, rate or assessment for which Lessee is
obligated under this Lease. All payments by Lessor on account of Lessee shall
bear interest at the prevailing prime rate as established by Bank One Arizona,
N.A., plus 1% per annum commencing 30 days after written notice to Lessee and
continuing until paid.
7. a. Lessee shall release, indemnify and defend Lessor from and against all
liability, cost and expense (including, without limitation, attorneys fees in
addition to costs of suit and judgment) for loss of or damage to any property
other than that which normally occurs in a prudent exploration and mining
operation, or loss of the use thereof or for injury or death of any person
arising or resulting from:
(i) the use of the Leased Premises by Lessee, its agents, employees,
or invitee; or,
(ii) Lessee's breach of any provision of this Lease not caused
or contributed by the negligence of Lessor, its employees, agents, or invites.
b. Lessee shall, at its expense, comply with all applicable statutes,
regulations, rules and orders of all governmental bodies with jurisdiction over
the Leased Premises or Lessee's activities on the Leased Premises, regardless of
when they become or became effective, including, without limitation, those
relating to health, safety, noise, environment protection, reclamation, waste
disposal, and water and air quality. Lessee shall furnish Lessor with
satisfactory evidence of such compliance upon request of Lessor. Should any
discharge, leakage, spillage, emission or pollution of any type occur upon the
Leased Premises due to Lessee's use and occupancy, Lessee, at its expense, shall
clean and restore the Leased Premises to standards equal to or exceeding the
standards imposed by any governmental body having jurisdiction over the Leased
Premises. Lessee shall indemnify, hold harmless and defend Lessor against all
liability, cost and expense (including without limitation any fines, penalties,
judgments, litigation costs and attorneys' fees) incurred by Lessor as a result
of lessee's breach of this Paragraph 7, or as a result of any discharge,
leakage, spillage, emission or pollution, due to Lessee's use and occupancy,
regardless of whether such liability, cost or expense arises during or after the
Term, unless such liability, cost or expense is proximately caused solely by the
active negligence of Lessor.
Lessee shall pay all amounts due Lessor under this Paragraph 8
within 30 days after any such amounts become due.
8. Upon commencement of mining operations on the Leased Premises and thereafter
Lessee shall carry and maintain at all times the following insurance coverage
which shall name Lessor as an addition named insured:
(i) Workers' Compensation including Occupational Disease with a minimum
limit of liability of $500,000 for Employers Liability;
(ii) Comprehensive General Liability with limits not less
than $1,000,000;
(iii) "All Risk" physical damage insurance on all surface facilities.
(iv) Excess Umbrella Liability Coverage with limits of not less than
$5,000,000 covering its operations under this Lease.
Lessee shall provide Lessor with evidence that the required insurance
is in effect on an annual basis.
9. Upon the expiration, termination or cancellation of this Lease, Lessee shall
surrender the Leased Premises in good order and condition and in compliance with
all governmental laws, ordinances, rules, regulations, requirements and orders
affecting conditions or the activities of Lessee on the Leased Premises
including, but not limited to, those relating to the reclamation, restoration,
reconditioning or conservation of lands and waters or to air and water quality,
which are in effect or which become effective during the Term. Lessee shall have
6 months from date of expiration termination, or cancellation to remove all its
machinery, tools, facilities, and improvements from the Leased Premises;
provided however, that no tools, machinery, facilities, or improvement shall be
removed while Lessee may be in any manner indebted to Lessor under any
obligation imposed by this Lease. Lessee shall not remove any timbers or
improvements which may be necessary or desirable to leave in the Leased Premises
to protect their value as a mining property unless prior written approval is
obtained from Lessor. When any mining operations are suspended and upon the
expiration, termination or cancellation of this Lease, Lessee shall backfill or
in some manner effectively close or blockade all shafts, tunnels, or other
surface openings and shall fence all surface pits and depressions on the Leased
Premises. Lessee shall also post appropriate warning signs at or near all
surface openings and provide such other safeguards to persons and property.
Lessee shall comply with all laws and regulations of the State of Arizona and
the United States of America as they pertain to reclamation of the surface of
the Leased Premises. Lessee shall reclaim the Leased Premises to standards and
regulations of the United States Bureau of Land Management in the vicinity of
the Leased Premises.
10. Any notice to be given to Lessor shall be addressed: Au Consolidated, Inc.,
10959 West Yukon Ave., Sun City, Arizona 85379. Any notice to be given to Lessee
shall be addressed: c/o LS Capital Corporation, Suite 250, 15915 Katy Freeway,
Houston, Texas 77094. If mailed, all notices shall be by certified mail and
shall be deemed received 3 days after mailing.
11. No termination, expiration or cancellation of this Lease shall release
Lessee from any liability or obligation under this Lease, whether of indemnity
or otherwise, resulting from or relation to any acts, omissions or events
happening prior to the date of termination, expiration or cancellation.
12. a. Lessor may transfer all its interest in this Lease to any person provided
that it shall give notice of the transfer to Lessee within 30 days after
transfer. Lessee may not transfer its interest without first obtaining the
written approval of Lessor, which approval shall not be unreasonable withheld.
b. This Lease shall inure to the benefit of and be binding upon the
heirs, administrators, executors, personal representatives, successors and
assigns of Lessor and Lessee.
13. a. This Lease concerns lands located in Arizona and will be performed in
Arizona. This Lease shall be governed and construed according to the laws of
Arizona. All judicial proceedings arising out of or relating to this Leases
shall be brought in Arizona.
b. Except for the remedy of cancellation, all remedies available at law
or in equity shall be available to Lessor or Lessee. Lessor and Lessee intend
that this Lease shall be beneficially enforceable against either party in the
event of breach of such party. Cancellation shall only be available pursuant to
Paragraph 13.d.
c. Lessor and Lessee shall continue to perform and not withhold
performance in any respect during periods of breach. Continuation of
performance, including the receipt of any payment by a non-breaching party with
knowledge of the breach, shall not constitute a waiver of any rights under this
Lease. Notwithstanding the foregoing, Lessor may seek and obtain appropriate
judicial action including restraining orders, injunctions and other decrees, to
prevent Lessee from continuing operations on the Leased Premises which cause or
imminently threaten to cause irreparable damage to the Leased Premises or waste
of Minerals.
d. If Lessee fails to comply with any term or condition of this Lease
or fulfill any obligation hereunder (other than failure to make payments when
due) within 30 days after the receipt of notice from Lessor specifying the
nature of the default, Less may cancel this Lease by written notice to Lessee.
If the default cannot be completely cured within the 30 day period, this Lease
shall not be cancelled provided that Lessee commences correction of the default
within the 30 day period and thereafter proceeds with reasonable diligence and
in good faith and effects the remedy as soon as possible. If Lessee fails to
make any payment of any money to Lessor when due, Lessor may cancel this Lease
upon written notice to Lessee and Lessee's failure to pay the full amount due
within 30 days after Lessor's notice. In no event shall cancellation be the
exclusive remedy of Lesser. Nothing in this Paragraph 13.d shall be deemed to
waive any right Lessee may have to contest such alleged default.
e. Commercial frustration, commercial impracticability or the
occurrence of unforeseen events renders performance of this Lease uneconomical
shall not constitute an excuse of nonperformance of any obligation imposed by
this Lease on Lessee.
14. a. Only written modifications of this Lease, signed by both parties shall be
effective.
b. No rights under this Lease shall be waived unless the party having
the rights expressly waived them in a written instrument identified as a waiver.
LESSOR:
Au Consolidated, Inc.
By: /s/ Frank Cobb
Its: President
LESSEE
Cochise Mining Corporation
By: /s/ Paul J. Montle
Its: Vice President
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
PRIVATELY OWNED LAND
The Southwest 1/4 of Section 25, Township 12 South, Range 27 East, Cochise
County Arizona (160 acres more or less)
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
PLACER MINING CLAIMS BUREAU OF LAND MANAGEMENT
Township 11 South, Range 28 East, Graham County Arizona:
1. The North 1/2 and the Southeast 1/4 of Section 19
2. All of Section 20
3. The West 1/2 of Section 21
4. The East 1/2, the Northwest
5. All of Sections 23, 24, 25, 26
6. The South 1/2, the Northeast 1/4, and the South 1/2 of the
Northwest 1/4 of Section 27
8. The Southeast 1/4, the South 1/2 of the Northeast 1/4,
The East 1/2 of the Southwest 1/4 of Section 28
9. All of Section 29
10. The East 1/2 of both Sections 30 and 31
11. All of Sections 32, 33, 34, 35, 36
Township 11 South, Range 29 East, Graham County Arizona
1. All of Section 19
(10,320 acres more or less)
<PAGE>
EXHIBIT C
LEGAL DESCRIPTIONS
STATE OF ARIZONA MINING CLAIMS
Township 12 South, Range 26 East, Cochise County Arizona
1. All of Sections 35 and 36
Township 13 South, Range 26 East, Cochise County Arizona
1. All of Sections 2, 3, and 13 and the West 1/2 of Section 10
Township 12 South, Range 27 East, Cochise County Arizona
1. All of Sections 1, 2, 4, 5, 6, 10, 11, 12, 13, 14, 24
2. The North 1/2 and the Southeast 1/4 of Section 25
3. All of Sections 34 and 35
4. The North 1/2 and the Southwest 1/4 of Section 36
Township 13 South, Range 27 East, Cochise County Arizona
1. All of Sections 2, 3, 4
2. The North 1/2, the North 1/2 of the Southwest 1/4, the
Southwest 1/4 of the Southwest 1/4 of Section 9
3. The West 1/2 of Section 10
4. The West 1/2 and the Southwest 1/4 of the Southeast 1/4 of
Section 11
5. The East 1/2, the Northwest 1/4, the East 1/2 of the Southwes
1/4 of Section 17
Township 12 South, Range 28 East, Cochise County Arizona
1. All of Sections 1, 3, 5, 6, 7, 8, 9, 11, 12, 18, 19, 30
2. The East 1/2 and the Southwest 1/4 of Section 2
3. The West 1/2 of Sections 4 and 29
4. The Northwest 1/4 of Section 17
5. The Southwest 1/4 of Section 20
6. The North 1/2 of Section 31
Township 11 South, Range 27 East, Graham County Arizona
1. All of Sections 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32,
33, 34, 35, 36
Township 11 South, Range 26 East, Graham County Arizona
1. All of Sections 23, 24, 25
Township 11 South, Range 28 East, Graham County Arizona
1. The West 1/2 of Section 30
(39,800 acres more or less)
<PAGE>
EXHIBIT D
LIENS
There is a lien against the real property described in Exhibit A in the
approximate amount of $105,000,00 which is held by the prior owner.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION FROM ITEM 1 OF
FORM 10-KSB FOR THE THREE MONTHS ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCES TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000897545
<NAME> LS CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> OCT-1-1997
<PERIOD-END> DEC-1-1997
<EXCHANGE-RATE> 1
<CASH> 97
<SECURITIES> 15
<RECEIVABLES> 1236
<ALLOWANCES> 800
<INVENTORY> 0
<CURRENT-ASSETS> 552
<PP&E> 2215
<DEPRECIATION> 364
<TOTAL-ASSETS> 2747
<CURRENT-LIABILITIES> 3761
<BONDS> 0
0
0
<COMMON> 127
<OTHER-SE> (1141)
<TOTAL-LIABILITY-AND-EQUITY> 2747
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 555
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 145
<INCOME-PRETAX> (700)
<INCOME-TAX> 0
<INCOME-CONTINUING> (700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (700)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> (.06)
</TABLE>
