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, 1999 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, 1999 were $3,000.
The aggregate market value of the voting stock held by non-affiliates of the
registrant on October 7, 1999 was $556,400, based on the closing price of such
stock of $.022 on such date. The number of shares outstanding of the
registrant's Common Stock, $.01 par value, as of October 7, 1999 was 30,209,789.
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. 3
Item 4. Submission of Matters to a Vote of Security Holders. 5
PART II.
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters. 5
Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 5
Item 7. Financial Statements. 8
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure. 8
PART III.
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange Act. 8
Item 10. Executive Compensation. 9
Item 11. Security Ownership of Certain Beneficial Owners and
Management. 11
Item 12. Certain Relationships and Related Transactions. 13
PART IV.
Item 13. Exhibits and Reports on Form 8-K. 14
</TABLE>
<PAGE>
ITEMS 1 and 2. BUSINESS AND PROPERTIES.
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 certain of its shares of 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.
From its inception and until shortly after the start of fiscal 1997,
the Company was involved exclusively in the gaming industry. 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. The Company organized a
number of wholly-owned or partially-owned precious metals/mining subsidiaries
that held rights in certain mining claims or properties believed to contain
precious metals or in certain mineral extraction technologies. In February 1999,
primarily due to the unavailability of capital to develop the Company's
technologies further, the Company decided to discontinue its mineral activities
and furlough its remaining personnel in the U.S. The Company allowed its mineral
interests to lapse. The Company continues to own a five-acre tract of land in
Tecopa, California, miscellaneous equipment believed to have an aggregate fair
market value of $25,000 and rights in certain technologies believed to have no
meaningful commercial value. The Company intends to dispose of the tract of land
and the remaining equipment as purchasers can be procured. The Company has no
present intentions regarding its technologies.
In the future, the Company intends to explore opportunities to develop
or acquire one or more businesses in other industries. The Company expects to
focus specifically on Internet-related businesses. The Company does not now any
particular prospect under consideration in any meaningful sense. The nature of
the business in which the Company will engage in the future, the terms and
circumstances under which the Company will engage in such business and even
whether or not the Company will engage in a future business, are now uncertain.
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 currently has only one employee.
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 alleged 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. The Commission sought a permanent injunction against the Company,
barring it from making future violations of certain provisions of the federal
securities laws. On December 28, 1998, the Company, without admitting or denying
the Commission's allegations and without the payment of any monetary amount,
consented to the entry of a final judgment of permanent injunction of the nature
sought by the Commission.
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 October 6, 1999, no setting has been entered for the
trial of the claims being remanded. The Company is currently in the process of
retaining new counsel to proceed with this lawsuit.
Mississippi Ventures II ("MVII") filed a lawsuit against the Company on
August 7, 1995 in a Nevada District Court (case no. 32012) 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 was 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. The Company denied all causes of actions. Due to an unexpected
resignation of the Company's counsel, the Company defaulted on this lawsuit in
fiscal 1997. The Company appealed this judgment. However, on September 24, 1999,
the Nevada Supreme Court dismissed the Company's appeal.
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 appealed the Northern
Marianas Islands court's decisions to the United States Ninth Circuit. On May
10, 1999, the Ninth Circuit ruled that it lacked jurisdiction to consider the
Company's appeal and consequently dismissed the appeal.
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, and eventually PPAC collaterally assigned its
rights in the Neudecker Note to a creditor of an affiliate. On March 22, 1999,
the parties filed a Stipulated Dismissal Without Prejudice with the Court in
this case. As a result, on April 5, 1999, the Court dismissed this action
without prejudice.
On September 25, 1998, Genesee Holdings, Inc. ("Genesee"), as successor
in interest to GFL Ultra Fund, Ltd., brought an action against the Company and
Paul J. Montle, the Company's President, in the 61st Judicial District Court,
Harris County, Texas (case no. 98-46203), alleging that the Company breached a
settlement agreement reached in a previous lawsuit to pay an aggregate amount of
$75,000 in two future installments. On September 1, 1999, Genesee, on the one
hand, and the Company and Mr. Montle, on the other hand entered into an
agreement to settle this second lawsuit. This settlement involved the payment of
an amount of $3,500 and the issuance of up to 1,200,000 shares of the Company's
common stock. This cash amount and number of shares are in addition to the cash
paid and shares issued in connection with the settlement of the first lawsuit.
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, 1999, the Company had 1,803 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, 1999.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal year ended June
30, 1998:
First Quarter $1.15 $ .57
Second Quarter 1.03 .52
Third Quarter .59 .20
Fourth Quarter .35 .13
Fiscal year ended June 30, 1999:
First Quarter $ .145 $ .055
Second Quarter .090 .040
Third Quarter .057 .032
Fourth Quarter .050 .030
</TABLE>
The Company has never paid cash dividends, and has no intentions of
paying cash dividends in the foreseeable future.
ITEM 6. 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
From its inception and until shortly after the start of
fiscal 1997, the Company was involved exclusively in the gaming industry. 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. The
Company organized a number of wholly-owned or partially-owned precious
metals/mining subsidiaries that held rights in certain mining claims or
properties believed to contain precious metals or in certain mineral extraction
technologies. In February 1999, primarily due to the unavailability of capital
to develop the Company's technologies further, the Company decided to
discontinue its mineral activities and furlough its remaining personnel in the
U.S. The Company allowed its mineral interests to lapse. The Company continues
to own a five-acre tract of land in Tecopa, California, miscellaneous equipment
believed to have an aggregate fair market value of $25,000 and rights in certain
technologies believed to have no meaningful commercial value. The Company
intends to dispose of the tract of land and the remaining equipment as
purchasers can be procured. The Company has no present intentions regarding its
technologies.
In the future, the Company intends to explore opportunities to develop
or acquire one or more businesses in other industries. The Company expects to
focus specifically on Internet-related businesses. The Company does not now any
particular prospect under consideration in any meaningful sense. The nature of
the business in which the Company will engage in the future, the terms and
circumstances under which the Company will engage in such business and even
whether or not the Company will engage in a future business, are now uncertain.
RESULTS OF OPERATIONS
Years ended June 30, 1999 and 1998
Overview
Operations for fiscal 1999 are not comparable to the operations for fiscal 1998
because of the discontinuance of its mining operations and the Company had two
one-time gains on forgiveness of debt of $632,000 and gain on sale of marketable
securities of $106,000. The Company had revenue of $3,000 from operations in
fiscal 1999, none in fiscal 1998, and had a net loss of $12,000 in fiscal 1999
and $2,605,000 in fiscal 1998. The decrease in net loss is largely attributable
to lower mining exploration costs of $773,000 and lower general and
administrative expenses of $1,064,000, together with higher gains discussed
above totaling $674,000. Of the total general and administrative expenses,
$127,000 and $906,000 in fiscal 1999 and 1998, respectively, represented shares
of common stock issued for services valued at market at the time they were
issued.
Operating Revenues
There were operating revenues of $3,000 from mining operations in
fiscal 1999 and none in fiscal 1998.
Operating Expenses
General and administrative expenses decreased $1,064,000 in fiscal 1999
compared to fiscal 1998, due to decreased legal fees and related litigation
costs. Mining operation costs decreased $773,000 in fiscal 1999 compared to 1998
due to the discontinuance of mining operations in fiscal 1999.
Other Income (Expense)
Other income (expense) increased significantly in fiscal 1999 versus
1998, due primarily to debt forgiveness income of $632,000 in fiscal 1999 and
increased gain on the sale of marketable securities of $42,000.
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.
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.
LIQUIDITY AND CAPITAL RESOURCES
Overview
As of June 30, 1999, the Company had a working capital deficiency of
$946,000 compared to $1,328,000 a year earlier. Throughout fiscal 1999, 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 2000 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 1999, current assets declined approximately $89,000 due
primarily to a reduction in marketable securities of $8,000 and receivables from
affiliated parties of $81,000. Current liabilities decreased by $471,000 in
fiscal 1999 compared to fiscal 1998, primarily due to forgiveness of debt of
$632,000. Offsetting the reduction, notes payable to related parties increased
by $113,000 during fiscal 1999 as a result of borrowings.
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, the Company issued 150,000 shares 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 fiscal 1998 balance sheet at
$181,000.
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-9 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:
<TABLE>
<CAPTION>
Director Officer
Name Age Since Since
<S> <C> <C> <C>
Paul J. Montle 52 1993 1993
Chairman of the
Board, President and
Chief Executive Officer
Roger W. Cope 58 1993 -----
Director
C. Thomas Cutter 59 1993 -----
Director
</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.
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. For over 14 years, he has served as President, Director and sole
shareholder of Cutter Fire Brick Co., Inc. and Cutter Northern Refractories,
Inc., both of which are engaged in the repair and maintenance of industrial heat
enclosures. For over 24 years, Mr. Cutter has served as President, Director and
sole shareholder of Cutter Ceramics, Inc., a manufacturer and distributor of art
clay.
Each officer of the Company generally serves at the pleasure of the
Board of Directors.
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, 1994 and 2000 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:
Paul J. Montle
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, 1999,
1998 or 1997 exceeded $100,000 for services in all capacities to the Company and
its subsidiaries.
<TABLE>
<CAPTION>
Summary Compensation Table (1)
Annual Long-Term
Compensation Compensation
(a) (b) (c) (g)
Name and Fiscal Securities Underlying
Principal Year Stock Options
Position Ended Salary (Number of Shares)
<S> <C> <C> <C> <C>
Paul J. Montle 6/30/99 $124,019(2) -0-
Chairman and 6/30/98 $183,225 290,000
Chief Executive 6/30/97 $200,912 500,000
Officer
- -----------------
</TABLE>
(1) The Columns designated by the SEC for the reporting of certain annual
compensation (including bonuses and other annual compensation) and
certain long-term compensation (including awards of restricted stock,
long term incentive plan payouts, and all other compensation) have been
eliminated as no such bonuses, other annual compensation, awards,
payouts or compensation were awarded to, earned by or paid to any
specified person during any fiscal year covered by the table.
(2) Of this amount, only $29,673 was actually paid while the remaining
$94,346 was accrued.
Stock Option Grants
The Company did not grant any stock options during the fiscal year
ended June 30, 1999.
Option Exercises/Value of Unexercised Options
The following table sets forth the number of securities underlying
options exercisable at June 30, 1999, and the value at June 30, 1999 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.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year End Option Values
(a) (d) (e)
Number of Securities
Underlying Unexercised Value of Unexercised
Options at June 30, 1999 In-the-Money Options at
(Numbers of Shares) June 30, 1999
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Paul J. Montle 591,600 200,000 (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, 1999 on the NASDAQ Stock Market was $.04, 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.
Compensation Agreements
The Company currently has no written employment contracts or other
written compensation agreements with any of its current executive officers.
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, 1999, 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, 1999
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 2,111,434(2) 9.86%
Rivercourt
17 - 19 Sir John Rogersons Quay
Dublin 2
Ireland
Roger W. Cope 1,355,798(3) 6.33%
5663 East Nine Mile Rd.
Warren, Michigan 48901
C. Thomas Cutter 2,200(4) (5)
82 Olympia Ave.
Woburn, Massachusetts 01801
Kent E. Lovelace, Jr. 2,497,058(6) 11.66%
1105 30th Ave., Suite 200
Gulfport, Mississippi 39501
David W. Tice & Associates, Inc. 1,573,000(7) 7.34%
8140 Walnut Hill Lane, Suite 405
Dallas, Texas 75231
Prudent Bear Fund, Inc. 1,420,000(8) 6.63%
8140 Walnut Hill Lane, Suite 405
Dallas, Texas 75231
All directors and officers
as a group (three persons) 3,469,432(9) 16.20%
</TABLE>
- ---------------------
(1) Includes shares of Common Stock beneficially owned pursuant to
options and warrants exercisable on the June 30, 1999 or within 60
days thereafter.
(2) Includes 1,502,483 shares of Common Stock directly owned, 17,351 shares
of Common Stock held by Travis Partners, 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 591,600 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 1,349,398 shares directly owned and 6,400 shares of Common
Stock beneficially owned pursuant to stock options currently
exercisable. Does not include 12,000 shares owned by Elizabeth Cope,
Mr. Cope's wife, all such shares of which Mr. Cope disclaims beneficial
ownership.
(4) 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.
(5) Less than 1%
(6) 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.
(7) Shares beneficial ownership over 1,420,000 shares with Prudent Bear
Fund, Inc. Moreover, the information set forth with respect to this
stockholder was obtained from a Schedule 13D filed by such stockholder
with the U.S. Securities and Exchange Commission.
(8) Shares beneficial ownership over 1,420,000 shares with David W. Tice &
Associates, Inc. Moreover, the information set forth with respect to
this stockholder was obtained from a Schedule 13D filed by such
stockholder with the U.S. Securities and Exchange Commission.
(9) Includes 2,852,081 shares directly owned; 600,000 shares beneficially
owned pursuant to stock options and warrants currently exercisable; and
17,351 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:
<TABLE>
1. Consolidated Financial Statements:
<S> <C>
Report of Independent Auditor .........................................................................F-1
Consolidated Balance Sheets as of June 30, 1999 ...................................................... F-2
Consolidated Statements of Income for the years ended
June 30, 1999 and 1998 ............................................................................... F-3
Consolidated Statements of Stockholders' Equity for the
years ended June 30, 1999 and 1998 ....................................................................F-4
Consolidated Statements of Cash Flows for the years
ended June 30, 1999 and 1998 ......................................................................... F-5
Notes to Consolidated Financial Statements ............................................................F-6
</TABLE>
2. Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts
3. Exhibits:
The following exhibits are filed with this Annual Report or are
incorporated herein by reference:
<TABLE>
<CAPTION>
Exhibit
Number Description
<S> <C> <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'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.
10.06 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.
10.07 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.
10.08 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.
10.09 The Company's Fiscal 2000 Non-Qualified Stock Option Plan is incorporated herein by reference from the
Company's (SEC File No. 333-87825) Registration Statement on Form S-8 filed September 27, 1999, Exhibit
4.2.
10.10 The Company's 1999 Consultant Compensation Plan is
incorporated herein by reference from the Company's
(SEC File No. 333-65761) Registration Statement on
Form S-8 filed October 15, 1998, Exhibit 4.2.
10.11 Letter Employment Agreement dated March 13, 1998 between the Company and Terry Christopher is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual Report on Form
10-SBK for the year ended June 30, 1998, Part IV, Item 14(c), Exhibit 10.28.
10.12 Letter Employment Agreement dated June 11, 1998
between the Company, Desert Minerals, Inc., SWM
Ventures, Inc. and Martin Blake is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-SBK for the year
ended June 30, 1998, Part IV, Item 14(c), Exhibit
10.29.
10.13 Amended and Restated Agreement dated September 1, 1999 between Genesee Holdings, Inc., successor in
interest to GFL Ultra Fund, Ltd., on the one hand, and the Company and Paul J. Montle, on the other hand.
21.01 Subsidiaries of Registrant.
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
The Registrant filed no report on Form 8-K during the last
quarter of its 1999 fiscal year.
<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, 1999 and 1998, 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, 1999 and 1998, 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.
October 5, 1999
Malone & Bailey, PLLC
Houston, Texas
<PAGE>
LS CAPITAL CORPORATION
Balance Sheets
<TABLE>
<CAPTION>
- As of June 30, -
(in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------
ASSETS
Current Assets
<S> <C> <C>
Marketable securities $ 8
Receivable from affiliated parties 81
----------
Total Current Assets 89
Land held for resale $ 22 22
Equity investment in gold mining ventures 181
Other assets 9
----------- -----------
TOTAL ASSETS $ 22 $ 301
=========== ===========
LIABILITIES
Current Liabilities
Accounts payable $ 586 $ 1,136
Accrued expenses 237 196
Notes payable to related parties 123 10
Redemption payable - redeemable preferred stock 75
------------- ---------
Total Current Liabilities 946 1,417
------------- ---------
Minority interest in subsidiaries
Contingent liabilities
Stockholders' Equity
Preferred stock, par value $.01, 10,000,000
shares authorized, no shares issued or
outstanding
Common stock, par value $.01, 50,000,000
shares authorized, 21,718,000 and
17,598,000 shares issued and outstanding 217 176
Paid in capital 27,068 26,906
Accumulated deficit (28,210) (28,198)
-------- --------
Total Stockholders' Equity Deficit ( 924) ( 1,116)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 22 $ 301
============= ===========
</TABLE>
See summary of accounting policies and notes to financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
LS CAPITAL CORPORATION
Income Statements
Year Ended June 30,
(in thousands) 1999 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
REVENUES $ 3 -
OPERATING EXPENSES
Mining exploration costs 162 935
General and administrative 588 1,652
Depreciation and amortization 3 5
--------- -----
OPERATING (LOSS) ( 750) ( 2,592)
-------- --------
Other Income (Expense)
Debt forgiveness income 632
Gain on sale of marketable equity securities 106 64
Interest expense ( 25)
-------- -------
(LOSS) FROM CONTINUING OPERATIONS ( 12) (2,553)
DISCONTINUED BUSINESS - Papone's Casino, LLC
Loss on foreclosure ( 52)
--------- ----------
NET (LOSS) $( 12) $( 2,605)
======== ========
NET (LOSS) PER COMMON SHARE
Continuing operations $( 0.00) $( 0.19)
Discontinued operations 0.00
Weighted average common shares outstanding 19,143,000 13,481,000
</TABLE>
See summary of accounting policies and notes to financial statements.
F-3
<PAGE>
LS CAPITAL CORPORATION
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid in Accum.
(in thousands) Shares Amount Capital Deficit Totals
<S> <C> <C> <C> <C> <C>
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)
Shares issued for services 2,620 26 102 127
Shares issued for debt
cancellation 1,500 15 60 75
Net income ( 12) ( 12)
------- ------- ------- -------- -------
Balances, June 30, 1999 17,598 $ 217 $27,068 $(28,210) $( 924)
====== ======= ======= ======== =======
</TABLE>
See summary of accounting policies and notes to financial statements.
F-4
<PAGE>
LS CAPITAL CORPORATION
Statements of Cash Flow
<TABLE>
<CAPTION>
Year Ended June 30,
(in thousands) 1999 1998
- -------------------------------------------------------------------------------------------------------
Cash Flows from Operating Activities
<S> <C> <C>
Net (loss) $( 12) $(2,605)
Adjustments to reconcile net income (loss)
To net cash used in operating activities
Depreciation and amortization 3 5
Debt forgiveness income ( 632)
Gain on sale of marketable securities ( 106)
Stock issued for services 128 906
Stock issued for mining claims 113
Writedown of mining venture investments 184 179
Writeoff of stock subscriptions receivable 41
Loss on foreclosure of Papone's Casino, LLC ( 52)
Stock issued to pay interest expense 6
Changes in:
Funds held in law firm trust accounts 73
Marketable securities 7
Receivable from affiliated parties 81 365
Other current assets 8
Accounts payable 83 289
Accrued expenses 41 161
------- ------
( 230) ( 530)
------- ------
Cash Flows from Investing Activities
Proceeds from sale of marketable securities 117
Purchase of mining claims ( 10)
Purchase of JVWeb common stock ( 5)
------- ------
117 ( 15)
------- ------
Cash Flows from Financing Activities
Loans from shareholders 113
Sales of Company common stock 516
Reimbursements by attorneys of excess fees
paid in S-8 stock 49
Payments on redemption payable ( 25)
---------- --------
113 540
Net increase (decrease) in cash 0 ( 5)
Cash at beginning of year 0 5
-------------- --------
Cash at end of year $ 0 $ 0
======== =======
SUPPLEMENTAL INFORMATION
Interest paid $ 0 $ 0
Income taxes paid 0 0
</TABLE>
See summary of accounting policies and notes to financial statements.
F-5
<PAGE>
LS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES
Business. LS Capital Corporation ("Company") is a Delaware corporation formed
December 30, 1992, to develop and operate casinos and related resort facilities.
During the past three years, the Company acquired interests in gold mining
claims and exploration and development of those claims. Currently, the Company
has no operations. The fiscal year-end is June 30.
Basis of Presentation. The consolidated financial statements include varying
ownership interests in nine different currently inactive corporations.
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.
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.
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.
F-6
<PAGE>
LS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
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 lost through foreclosure in
October 1998.
All current gold mining leases have expired, and all related mining assets have
been written off, excepting one real estate tract currently held for sale.
The Company has no present intentions regarding its gold mining technologies,
and intends to pursue other business prospects, although none are as yet
identified.
Ther 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.
NOTE 3 - FORGIVENESS OF DEBT
In the early 1990s, the Company incurred substantial unpaid debts in connection
with its casino site exploratory activities through its various subsidiaries.
The Company's policy is to recognize as debt forgiveness income any such
liabilities for which no attempt at collection has been made for more than the
statute of limitations period in each state in which the debts were incurred.
During the years ended June 30, 1999 and 1998, $632,000 and $0, respectively, of
such liabilities were written off as forgiveness of debt income.
NOTE 4 - INCOME TAXES
Net operating losses of $2,800,000 are available as of June 30, 1999, 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
relating to significant changes in ownership, which occurred in October 1996.
These net operating losses expire mostly in the years 2012 and 2013.
NOTE 5 - 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, and the balance was repaid with the issuance of 1,500,000
shares of Company common stock in early 1999.
F-7
<PAGE>
LS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - 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 1998 and 1999.
During fiscal 1998, three lawsuits were reduced to judgment liens against the
Company and are included in accounts payable. There is currently one remaining
active lawsuit with a maximum exposure to the Company estimated by management at
$30,000. Management believes the likelihood of significant losses on this or any
other possible lawsuits is remote, and that any possible future losses in
aggregate are not significant.
NOTE 7 - STOCK OPTIONS AND WARRANTS
Beginning in 1997, the Company adopted the disclosure requirements of SFAS 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 SFAS 123. No
options or warrants were issued during fiscal 1999. During the year ended June
30, 1998, 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, 1999, 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>
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-8
<PAGE>
LS CAPITAL CORPORATION
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - STOCK OPTIONS AND WARRANTS (continued)
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
Options Share Price Warrants Share Price
<S> <C> <C> <C> <C>
Outstanding at June 30, 1998: 2,078,200 $ .98 434,800 $12.65
Year ended June 30, 1999:
Expired ( 200) 25.00 (78,000) 75.00
--------- ------ ------- ------
Outstanding at June 30, 1999: 2,078,000 $ .98 364,800 $ 6.15
========= ====== ======= ======
</TABLE>
Additional disclosures as of June 30, 1999, are:
<TABLE>
<CAPTION>
Options Options Options
$.26-$.75 $1.00-$2.03 $15-$122
Total Options
<S> <C> <C> <C>
Number of shares 1,900,000 161,000 17,000
Weighted average exercise price $ 0.47 $ 1.01 $56.69
Remaining life 6 years 8 years 5 years
Currently exercisable options
Number of shares 1,100,000 81,000 15,200
Weighted average exercise price $ 0.41 $ 1.01 $71.69
</TABLE>
<TABLE>
<CAPTION>
Warrants Warrants Warrants
$.40-$.75 $2 - $5 $28-$62.50
Total warrants
<S> <C> <C> <C>
Number of shares 106,000 230,000 28,800
Weighted average exercise price $ 0.58 $ 2.39 $56.75
Remaining life 2 years 2 years 1 year
</TABLE>
All warrants are currently exercisable.
Had compensaiton cost for the Company's two stock-based compensation 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 SFAS
123, the Company's net losses and loss per share would have been increased to
the pro forma amount indicated below:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Net loss - As reported $( 12) $( 2,605)
- Pro forma ( 196) ( 3,069)
Net loss per share - As reported $( 0.00) ( 0.19)
- Pro forma ( 0.01) ( 0.22)
</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-9
<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: November 9, 1999 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.
Name Title Date
/s/ Paul J. Montle Chairman of November 9, 1999
Paul J. Montle the Board
/s/ Roger W. Cope Director November 9, 1999
- ---------------------
Roger W. Cope
/s/ C. Thomas Cutter Director November 9, 1999
- --------------------------
C. Thomas Cutter
<PAGE>
EXHIBITS INDEX
Exhibit
Number Description
<TABLE>
<CAPTION>
<S> <C> <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'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.
10.06 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.
10.07 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.
10.08 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.
10.09 The Company's Fiscal 2000 Non-Qualified Stock Option Plan is incorporated herein by reference from the
Company's (SEC File No. 333-87825) Registration Statement on Form S-8 filed September 27, 1999, Exhibit
4.2.
10.10 The Company's 1999 Consultant Compensation Plan is
incorporated herein by reference from the Company's
(SEC File No. 333-65761) Registration Statement on
Form S-8 filed October 15, 1998, Exhibit 4.2.
10.11 Letter Employment Agreement dated March 13, 1998 between the Company and Terry Christopher is
incorporated herein by reference from the Company's (SEC File No. 0-21566) Annual Report on Form
10-SBK for the year ended June 30, 1998, Part IV, Item 14(c), Exhibit 10.28.
10.12 Letter Employment Agreement dated June 11, 1998
between the Company, Desert Minerals, Inc., SWM
Ventures, Inc. and Martin Blake is incorporated
herein by reference from the Company's (SEC File No.
0-21566) Annual Report on Form 10-SBK for the year
ended June 30, 1998, Part IV, Item 14(c), Exhibit
10.29.
10.13 Amended and Restated Agreement dated September 1, 1999 between Genesee Holdings, Inc., successor in
interest to GFL Ultra Fund, Ltd., on the one hand, and the Company and Paul J. Montle, on the other hand.
21.01 Subsidiaries of Registrant.
27 Financial Data Schedule
</TABLE>
EXHIBIT 10.13
AMENDED AND RESTATED AGREEMENT
THIS AMENDED AND RESTATED AGREEMENT (the "Amended and Restated
Agreement") is dated this _____ day of September, 1999, by Genesee Holdings,
Inc. ("Genesee"), successor in interest to GFL Ultra Fund, Ltd. ("Ultra"), a
British Virgin Islands corporation, on the one hand, and LS Capital Corporation
("LS"), a Delaware corporation, and Paul J. Montle ("Montle"), on the other
hand.
RECITALS:
WHEREAS, Ultra and LS entered into an Agreement dated June 30, 1997
(the "Original Settlement Agreement") to settle and resolve all disputes then
existing between the parties, including but not limited to, those allegations
raised in the litigation entitled GFL Ultra Fund vs. Lone Star Casino
Corporation, Cause No. H-96-1423 then pending in the United States District
Court for the Southern District of Texas, Houston Division (the "First
Lawsuit"), and to establish a procedure by which Ultra could convert the
preferred shares it then held in LS; and
WHEREAS, the Original Settlement Agreement required (among other
things) LS to pay to Ultra an aggregate amount of $75,000 in two future
installments; and
WHEREAS, LS failed to pay to Ultra an aggregate amount of $75,000 in
two future installments as provided in the Original Settlement Agreement; and
WHEREAS, Genesee has succeeded to the interests of Ultra for all
purposes hereof; and
WHEREAS, Genesee instituted the litigation entitled Genesee Holdings,
Inc., successor in interest to GFL Ultra Fund, Ltd. vs. LS Capital Corporation,
f/k/a Lone Star Casino Corporation, and Paul J. Montle, in the 61st Judicial
District Court, Harris County, Texas (the "Second Lawsuit") with respect to the
delinquent installments (the First Lawsuit and the Second Lawsuit are referred
to hereinafter collectively as the "Litigation"); and
WHEREAS, Genesee has the legal right to rescind the settlement provided
for in the Original Settlement Agreement by virtue of the breach by LS of the
terms thereof; and
WHEREAS, Genesee and LS desire to amend and restate the Original
Settlement Agreement in the form of this Amended and Restated Agreement in order
to settle and resolve all disputes now existing between the parties, including
but not limited to, those allegations raised in the Litigation, and to establish
a procedure to complete the conversion of Genesee's preferred shares in LS;
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements
of LS and Genesee to amend and restate the Original Settlement Agreement, each
of LS, Montle and Genesee hereby agrees as follows:
I. AMENDMENT AND RESTATEMENT
OF ORIGINAL SETTLEMENT AGREEMENT
Each of LS and Genesee hereby agrees that the Original Settlement
Agreement be and hereby is amended and restated in its entirety in the form of
this Amended and Restated Agreement.
II. RESCISSION OF ORIGINAL SETTLEMENT
Each of Genesee and LS hereby agrees that, by virtue of the breach by
LS of the terms of the Original Settlement Agreement and in accordance with
rights that Genesee legally has a consequence thereof, the settlement provided
for in the Original Settlement Agreement be and hereby is rescinded.
Notwithstanding the preceding rescission and in view of the provisions of
Section III. and Section IV. below, LS hereby waives its right to receive a
return of a stock certificate representing the 600,000 shares of LS common
stock, par value $.01 per shares (the "Common Stock"), and the $25,000 that (in
both cases) LS previously delivered to Genesee or Ultra. Instead, such 600,000
shares and $25,000 shall serve as credits for fulfilling LS's obligations
provided for in Section III. and Section IV. below. Moreover, notwithstanding
the preceding rescission and in view of the provisions of Section IV. below,
Genesee hereby waives its right to receive a return of a stock certificate
representing the shares of LS preferred stock that Genesee or Ultra previously
delivered to LS for conversion.
III. SETTLEMENT OF LITIGATION
LS agrees to pay $28,500 to Genesee. Genesee hereby acknowledges the
prior receipt of $25,000 (satisfactory to meet a portion of the obligation
imposed on LS by the preceding sentence) pursuant to the terms of the Original
Settlement Agreement, such $25,000 constituting one of the credits provided for
in Section II. above. The $3,500 additional cash amount required by this Section
III. shall be delivered to Genesee promptly after the execution and delivery of
this Amended and Restated Agreement.
IV. CONVERSION PROCEDURE
The parties hereby agree that at the time of the execution of this
Amended and Restated Agreement, Genesee will convert its remaining preferred
shares in return for 1,500,000 shares of common stock of LS. Genesee hereby
acknowledges the prior receipt of 600,000 (satisfactory to meet a portion of the
obligation imposed on LS by the preceding sentence) pursuant to the terms of the
Original Settlement Agreement, such 600,000 shares constituting one of the
credits provided for in Section II above. The 900,000 additional shares required
by this Section IV (the "Additional Shares") shall be delivered to Genesee
promptly after the execution and delivery of this Amended and Restated
Agreement. All Additional Shares shall be unlegended and shall not be subject to
any stop-transfer restriction. Additionally, at the sole option of Genesee and
upon written demand from Genesee to LS, LS shall deliver to Genesee an
additional 300,000 shares (the "Option Shares"), for a total of 1,800,000 shares
in the aggregate, to Genesee, care of Genesee Investments, 10500 NE 8th Street
#1920, Bellevue, Washington 98004-4332.
The Option Shares shall be delivered to Genesee exactly seventy-five
(75) days after the written demand is made upon LS. LS shall not deliver the
Option Shares sooner than seventy-five (75) days from the written demand by
Genesee, and Genesee shall have no ownership interest in the Option Shares until
delivery. The Option Shares shall also be unlegended and shall not be subject to
any stop-transfer restriction.
Genesee agrees not to sell in any trading week hereafter a number of
Additional Shares or Option Shares exceeding 50% of the number of shares of
common stock of LS that is bought and sold during that trading week. In
addition, Genesee agrees not to sell in any 30-day period more than 400,000
Additional Shares or Option Shares. Genesee agrees to provide with confirmations
of sales of any Additional Shares or Option Shares at least one each month.
All demands, notices or other communications required or permitted
herein, including but not limited to the demand for the Option Shares and the
confirmation of sales of any Additional Shares or Option Shares, to LS shall be
in writing and shall be sent personally, by facsimile or by certified,
registered or express mail, postage prepaid, to Mr. James Pearson at Pearson &
Pearson, 3524 Citicorp Center, Houston, Texas 77002, facsimile number (713)
739-8341, and shall be deemed delivered and given to LS when so sent personally
or by facsimile or, if by mail, two days after the date of mailing. If Mr. James
Pearson changes addresses or facsimile numbers, or if LS desires that the
demands, notices or other communications required or permitted herein be
delivered or sent to someone other than Mr. James Pearson, then LS must notify
Genesee in writing of the change at the following address: Genesee Holdings,
Inc., care of Genesee Investments, 10500 NE 8th Street #1920, Bellevue,
Washington 98004-4332. Unless LS notifies Genesee in writing as set forth above,
then all demands, notices or other communications required or permitted herein
to LS shall be deemed given and delivered to LS when sent personally or by
facsimile or, if by mail, two days after the date of mailing, addressed to Mr.
James Pearson at the above address or facsimile number, regardless of whether
Mr. James Pearson has changed addresses or facsimile numbers, and regardless of
whether LS still desires that Mr. James Pearson continue to act as agent for LS
for receipt of the demands, notices or other communications required or
permitted herein.
V. EFFECT OF BANKRUPTCY FILING
The parties hereby agree that, if (within one year after the date of
this Amended and Restated Agreement) LS institutes a voluntary bankruptcy
proceeding or has instituted against it an involuntary bankruptcy proceeding
that is not dismissed within 90 day after it is filed, then upon the delivery of
all unsold Additional Shares and Option Shares, LS shall owe Genesee an amount
equal to the difference between $97,125 minus the aggregate amount of proceeds
from any prior sales of the Additional Shares and Option Shares.
VI. MUTUAL RELEASES
With the exception of the obligations undertaken in this Agreement and
in the documents necessary to effectuate the transfer of the common shares to
Genesee, Genesee and Ultra (on the one hand) and LS and Montle (on the other
hand) hereby release and discharge the other from any and all claims, judgments,
demands or suits, known or unknown, fixed or contingent, liquidated or
unliquidated, whether or not asserted in the Litigation, as of this date,
arising from or relating to events and transactions which are the subject matter
to the Litigation. This Mutual Release runs to the benefit of all attorneys,
agents, employees, officers, directors, shareholders, parents, affiliates, and
partners of the parties. Genesee acknowledges that LS is not guaranteeing that
Genesee will receive any amount for the sale of the Additional Shares or Option
Shares.
VII. MISCELLANEOUS
7.1 Each party agrees that the terms of this settlement are to be held
confidential and not be disclosed to any third party unless the other party
hereto consents in writing or unless ordered to do so by a court of competent
jurisdiction or unless otherwise required by law.
7.2 Each signatory hereto warrants and represents that he has authority
to bind the party for whom that signature purports to act and that the claims,
suits, rights/or interests which are the subject matter hereto are owned by the
party asserting the same, have not been assigned, transferred or sold, and are
free of encumbrance. Genesee warrants and represents that it has succeeded to
the ownership of all claims, suits, rights/or interests that Ultra had or might
have had against LS with regard to the subject matter hereof.
7.3 This Agreement is made and performable Harris County, Texas and
shall be construed in accordance with the laws of the State of Texas as they
presently exist.
7.4 Each signatory to this settlement has entered into the same freely
without duress, having consulted with professionals of his/her choice.
7.5 The parties agree that this Agreement is made pursuant to
section 154.071 of the Civil Practice and Remedies Code and is not subject to
revocation.
7.6 This Agreement represents the entire agreement of the parties
hereto and may not be changed orally, but only in writing.
7.7 If any provision of this Agreement is declared to be void, invalid
or illegal by a court of competent jurisdiction, then the other provisions of
this Agreement shall be severed therefrom and shall remain in full force and
effect.
7.8 This Agreement may be executed in any number of counterparts
and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the undersigned have set their hands hereunto as of
the first date written above.
LS CAPITAL CORPORATION GENESEE HOLDINGS, INC., successor
in interest to GFL ULTRA FUND, LTD.
By:_________________________________ By:_________________________________
Paul J. Montle, President
Name:______________________________
- ------------------------------------
Paul J. Montle, Individually Title:______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM ITEM 7
OF FORM 1O-KSB FOR THE YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000897545
<NAME> LS CAPITAL CORPORATION
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22
<DEPRECIATION> 0
<TOTAL-ASSETS> 22
<CURRENT-LIABILITIES> 946
<BONDS> 0
0
0
<COMMON> 217
<OTHER-SE> (1142)
<TOTAL-LIABILITY-AND-EQUITY> 22
<SALES> 3
<TOTAL-REVENUES> 3
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (12)
<INCOME-TAX> 0
<INCOME-CONTINUING> (12)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (12)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
