SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the Quarterly Period Ended June 30, 1996
OR
[ ] Transition report Under Section 13 or 15(d) of the Exchange Act
For the transition period from to
-------- --------
Commission file number: 0-28254
LASER STORM, INC.
---------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Colorado 84-1139159
------------------------------ -----------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
7808 Cherry Creek South Drive, Unit # 301
Denver, Colorado 80231
-----------------------------------------
(Address of principal executive offices)
Telephone: (303) 751-8545
-------------------------
(Issuer's telephone number)
NA
------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ninety (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:
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Outstanding at
Class July 26, 1996
----- --------------
Common Stock, $.001 par value 3,726,211
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
LASER STORM, INC.
FORM 10-Q
JUNE 30, 1996
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Condensed Balance Sheets -
June 30, 1996 and December 31, 1995 3
Condensed Statements of Operations -
Three and six months ended June 30, 1996 and 1995 4
Condensed Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 5
Condensed Statement of Changes in Stockholders Equity
Six months ended June 30, 1996 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis
or Plan of Operation 8-10
PART II. Other Information NA
SIGNATURES 11
2
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED BALANCE SHEETS
ASSETS
June 30, 1996 December 31, 1995
------------- -----------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 3,803,878 $ 10,473
Accounts receivable-trade, net ............................. 824,029 613,949
Notes receivable, current .................................. 271,589 --
Inventories ................................................ 456,487 442,545
Deferred income taxes ...................................... 145,000 111,000
Prepaid expenses and other ................................. 248,096 57,524
--------- ---------
Total current assets ............................. 5,749,079 1,235,491
--------- ---------
PROPERTY AND EQUIPMENT, net ................................... 540,033 337,602
OTHER ASSETS:
Deferred offering costs .................................... -- 277,929
Software development, net .................................. 72,527 88,536
License fees, net .......................................... 50,066 53,667
Notes receivable, non-current .............................. 348,684 --
Deposits and other ......................................... 43,128 29,473
--------- ---------
Total other assets ............................... 514,405 449,605
--------- ---------
TOTAL ASSETS .................................................. $ 6,803,517 2,022,698
--------- ----------
LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT LIABILITIES:
Accounts payable ........................................... 251,957 722,755
Accrued expenses ........................................... 171,597 104,019
Accrued compensation ....................................... 172,606 127,238
Income taxes payable ....................................... 10,000 60,000
Current maturities of long-term debt ....................... 7,940 20,294
Customer deposits and deferred revenue ..................... 150,507 214,805
Contingent settlements ..................................... -- 270,000
--------- ---------
Total current liabilities ........................ 764,607 1,519,111
--------- ----------
LONG TERM DEBT, less current maturities ....................... 33,942 30,884
DEFERRED INCOME TAXES ......................................... 51,000 60,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS EQUITY:
Preferred stock, $.001 par value; 2,000,000 shares authorized:
Series A 12% Convertible Cumulative Preferred
Stock, 140,000 shares issued and outstanding at
December 31, 1995, liquidation preference of $718,000 .. -- 140
Series B 12% Convertible Cumulative Preferred Stock ..... -- --
Common Stock, $.001 par value; 20,000,000 shares authorized;
1,601,250 and 3,726,211 shares issued and outstanding
at December 31, 1995 and June 30, 1996, respectively .... 3,726 1,601
Additional paid in capital ................................. 6,186,662 575,136
Accumulated deficit ........................................ (236,420) (164,174)
--------- ---------
Total stockholders equity ....................... 5,953,968 412,703
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .................... % 6,803,517 $ 2,022,698
--------- ---------
</TABLE>
See accompanying notes to condensed financial statements
3
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF OPERATIONS
Three Months Ended June 30 Six Months Ended June 30
-------------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET REVENUES .................................... $ 1,880,304 $ 1,290,493 $ 2,879,389 $ 2,169,436
COST OF GOODS SOLD .............................. 715,128 558,893 1,133,549 1,023,959
----------- ----------- ----------- -----------
GROSS PROFIT .................................... 1,165,176 731,600 1,745,840 1,145,477
EXPENSES:
General and administrative ................... 544,918 298,598 1,059,719 617,705
Selling and marketing ........................ 360,049 194,744 627,634 353,037
Depreciation and amortization ................ 61,395 25,370 105,313 43,363
Product development .......................... 52,193 37,095 101,433 83,161
----------- ----------- ----------- -----------
Total expenses ..................... 1,018,555 555,807 1,894,099 1,097,266
----------- ----------- ----------- -----------
OPERATING INCOME ................................ 146,621 175,793 (148,259) 48,211
Interest income (expense) .................... 35,620 754 33,014 (1,166)
----------- ----------- ----------- -----------
INCOME BEFORE TAXES ............................. 182,241 176,547 (115,245) 47,045
Income tax (expense) benefit ................. (67,000) -- 43,000 --
----------- ----------- ----------- -----------
NET INCOME (LOSS) ............................... $ 115,241 $ 176,547 $ (72,245) $ 47,045
----------- ----------- ----------- -----------
COMMON SHARES OUTSTANDING ....................... 3,414,282 1,601,250 2,608,665 1,601,250
----------- ----------- ----------- -----------
NET INCOME (LOSS) PER SHARE ..................... $ 0.03 $ 0.11 $ (0.03) $ 0.03
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
4
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended June 30
------------------------
1996 1995
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ....................................................................... $ (72,246) $ 47,045
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities
Depreciation and amortization ........................................................ 105,314 43,364
Loss on asset disposition ............................................................ (11,375) --
Provision for bad debts .............................................................. 10,000 --
Deferred income taxes ................................................................ (43,000) --
Changes in operating assets and liabilities
(Increase) decrease in:
Accounts receivable ........................................................... (226,513) 139,074
Notes receivable .............................................................. (620,273) --
Inventories ................................................................... (13,942) 214,628
Other ......................................................................... (203,792) (51,661)
Increase (decrease) in:
Accounts payable .............................................................. (464,799) (11,810)
Accrued expenses .............................................................. 112,945 12,014
Income taxes payable .......................................................... (50,000) --
Customer deposits and deferred revenue ........................................ (64,299) (169,962)
Contingent settlements ........................................................ (270,000) --
----------- -----------
Net cash provided by (used in) operating activities ..................................... (1,811,980) 222,692
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for property and equipment ......................................... (251,760) (34,609)
Software development costs .............................................................. -- (15,251)
License costs ........................................................................... (25,000) --
----------- -----------
Net cash provided by (used in) investing activities .......................... (276,760) (49,860)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of Series B 12% Convertible Cumulative Preferred Stock ............... 889,985 --
Proceeds from sale of Common Stock ...................................................... 4,723,526 --
Deferred offering costs ................................................................. 277,929 (10,000)
Principal payments on notes payable
(9,295) (3,971)
----------- -----------
Net cash provided by (used in) financing activities .......................... 5,882,145 (13,971)
----------- -----------
INCREASE (DECREASE) IN CASH ................................................................ 3,793,405 158,861
CASH, at beginning of period ............................................................... 10,473 16,228
----------- -----------
CASH, at end of period ..................................................................... $ 3,803,878 $ 175,089
----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
5
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the Six Months Ended June 30, 1996
Preferred Stock Common Stock
--------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
BALANCES, December 31, 1995 ................... 140,000 $ 140 1,601,250 $ 1,601
Private placement of Series B 12% .......... 200,000 200
Convertible Cumulative Preferred Stock
Offering costs related to private placement
Public offering of 1,495,000 units ......... 1,495,000 1,495
Offering costs related to public offering ..
Conversion of Series A and B 12 %Convertible (340,000) (340) 629,961 630
Cumulative Preferred Stock
Net income (loss) ..........................
----------- ----------- ----------- -----------
BALANCE, June 30, 1996 ........................ -- $ -- 3,726,211 $ 3,726
----------- ----------- ----------- -----------
<CAPTION>
Additional
Paid-In Accumulated
Capital Deficit Total
---------- ----------- ---------
<S> <C> <C> <C>
BALANCES, December 31, 1995 ................... $ 575,136 $ (164,174) $ 412,703
Private placement of Series B 12% .......... 999,800 1,000,000
Convertible Cumulative Preferred Stock
Offering costs related to private placement (109,815) (109,815)
Public offering of 1,495,000 units ......... 5,978,505 5,980,000
Offering costs related to public offering .. (1,256,474) (1,256,474)
Conversion of Series A and B 12 %Convertible (490) (200)
Cumulative Preferred Stock
Net income (loss) .......................... (72,246) (72,246)
----------- ----------- -----------
BALANCE, June 30, 1996 ........................ $ 6,186,662 $ (236,420) $ 5,953,968
----------- ----------- -----------
</TABLE>
See accompanying notes to condensed financial statements
6
<PAGE>
LASER STORM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Interim Financial Statements:
In the opinion of the management of the Company, the accompanying unaudited
financial statements include all adjustments necessary, all of which were of a
normal recurring nature, to make the financial statements not misleading.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and related notes for the fiscal year ended December 31, 1995
contained in the Company's definitive prospectus dated April 23, 1996.
The results of operations for the six months ended June 30, 1996, are not
necessarily indicative of the results to be expected for the full year.
2. Public Offering:
In April 1996, the Company completed a public offering of 1,495,000 units at a
price of $4.00 per unit. Each unit consists of one share of common stock and one
warrant. The warrants are exercisable for a period of five years and entitle the
holder to purchase one share of common stock at an exercise price of $5.00 per
share. However, if the Company does not report net after tax earnings of at
least $.40 per share (target earnings) for the four fiscal quarters ending March
31, 1997, then the exercise price per share will be reduced by $.20 for each
$.01 shortfall from the target earnings, but such exercise price will not be
reduced below $1.00 per share. The warrants are redeemable by the Company under
certain circumstances at $.05 per warrant provided that for at least 30
consecutive trading days the market price of the Company's common stock is at
least $7.00 per share. In connection with the offering, the underwriters
received a 10% discount and a 3% nonaccountable expense allowance and, subject
to certain limitations, the representative of the underwriters will receive a 4%
commission on proceeds received from the exercise of warrants solicited by the
representative of the underwriters. The representative of the underwriters also
received a warrant, exercisable for 130,000 units at $5.40 per unit for a period
of four years, beginning on April 23, 1997. Net proceeds from the public
offering were $4,723,526, after paying the aforementioned discounts and expenses
to the underwriters and other offering costs totaling $479,074. Also in April
1996, an additional 629,961 units were issued as a result of the conversion of
140,000 shares of Series A 12% Convertible Cumulative Preferred Stock and
200,000 shares of Series B 12% Convertible Cumulative Preferred Stock.
3. Notes Receivable:
During the quarter ended June 30, 1996, the Company offered a financing program
to its customers for sales of its systems and arenas. The program required an
advanced deposit ranging from 30% to 40% and the balance plus interest to be
paid over a period ranging from 24 to 36 months. Sales under this program were
$941,554 and the amount financed was $620,284.
7
<PAGE>
LASER STORM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
RESULTS OF OPERATIONS:
Net revenues for the quarter ended June 30, 1996, increased by 46% to
$1,880,304, as compared to $1,290,493 for the quarter ended June 30, 1995. The
increase was the result of new customers ordering larger player systems and
arenas and a 10% price increase implemented during the quarter ended June 30,
1996. The average sales price per system (net of discounts) has risen to $87,000
for the quarter ended June 30, 1996, from $66,000 for the quarter ended June 30,
1995. Sales of these larger systems, arenas and accessories were stimulated by a
new financing program offered by the Company. Approximately 50% of the net
revenues during the quarter ended June 30, 1996 were financed under this program
which requires an advance deposit ranging from 30% to 40% and the balance to be
paid over a period ranging from 24 to 36 months. Also contributing to the
increase in revenues was the promotion of upgrade options to the Company's
existing customer base and increased sales and marketing efforts. Discounts for
the quarter ended June 30, 1996 were 11% of gross revenues compared to 3% for
the quarter ended June 30, 1995. This increase is the result of negotiating down
the 10% price increase on orders placed during the past six months that did not
ship until the second quarter. A specific breakdown of revenues is as follows:
Quarter Ended June 30,
1996 1995
---- ----
System Sales ................. $ 1,116,170 $ 827,636
Upgrade Sales ................ 118,986 --
Arena Sales .................. 509,530 204,534
Warranty Sales ............... 98,449 60,327
Accessories Sales ............ 263,174 237,691
Discounts .................... (226,005) (39,695)
----------- -----------
Net Revenues $ 1,880,304 $ 1,290,493
=========== ===========
Net revenues for the six months ended June 30, 1996 increased 33% to $2,879,389,
as compared to $2,169,436 for the six months ended June 30, 1995. The increase
was lower than that achieved during the second quarter as a result of the
cyclical nature of the business whereby the first quarter is historically the
lowest sales quarter of the year. Additionally, the Company's senior management
was focused on completing the public offering which was completed on April 23,
1996 and opening Company-owned and Company operated facilities. A specific
breakdown of revenues is a follows:
Six Months Ended June 30,
1996 1995
---- ----
System Sales ................. $ 1,658,934 $ 1,464,523
Upgrade Sales ................ 118,986 --
Arena Sales .................. 734,646 379,632
Warranty Sales ............... 178,242 101,939
Accessories Sales ............ 442,869 355,259
Discounts .................... (254,288) (131,917)
----------- -----------
Net Revenues $ 2,879,389 $ 2,169,436
=========== ===========
8
<PAGE>
LASER STORM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
(Continued)
Gross profit for the quarter ended June 30, 1996 increased 59% to $1,165,176 as
compared to gross profit of $731,600 for the quarter ended June 30, 1995. Gross
profit as a percent of net revenues increased during the quarter ended June 30,
1996 to 62% compared to 57% for the quarter ended June 30, 1995. Gross profit
for the six months ended June 30, 1996 increased by 52% to $1,745,840 as
compared to gross profit of $1,145,477 for the six months ended June 30, 1995.
Gross profit as a percent of net revenues increased from 53% to 61% for the six
months ended June 30, 1995, and 1996, respectively. The increase in the gross
profit percentage is the result of the sales price increases on systems and
arenas and lower direct material and labor costs. The lower direct material
costs is the result of efficiencies realized from increased volumes and improved
purchasing management. The Company has expanded its vendor base and improved its
vendor selection processes in order to ensure that the Company receives the most
competitive prices on its materials. The lower direct labor costs are the result
of efficiencies being realized from increased volumes as well as improvements in
the assembly processes.
Selling, general and administrative expenses ("SGA expenses") increased by 83%
to $904,967 for the quarter ended June 30, 1996, compared to $493,342 for the
quarter ended June 30, 1995. "SGA expenses" as a percent of net revenues
increased from 38% to 48% for the quarters ending June 30, 1995 and 1996,
respectively. "SGA expenses" increased $716,611 or 74% to $1,687,353 for the six
months ended June 30, 1996, compared to $970,742 for the six months ended June
30, 1995. "SGA expenses" as a percent of net revenues increased from 45% to 59%
for the six month periods ending June 30, 1995 and 1996, respectively. The
increases are primarily the result of additions to administrative and sales
staffs to accelerate the opening of Company-owned and Company operated
facilities and as a result of the Company becoming a publicly-held company.
During the six months ended June 30, 1996, the Company increased its sales and
marketing efforts associated with opening Company-owned and Company operated
facilities by approximately $300,000. The Company believes that it is now
positioned to meet its objectives of opening future Company-owned and Company
operated facilities. As of June 30, 1996 there were no associated revenues
generated from these recent efforts. Additionally, the Company incurred
approximately $250,000 in expenditures related to becoming a public company and
moving into a new facility which meets its capacity requirements for the
foreseeable future.
Product development expenses increased 41% to $52,193 for the quarter ended June
30, 1996, compared to $37,095 for the quarter ended June 30, 1995. These
expenses increased 22% to $101,433 for the six months ended June 30, 1996
compared to $83,161 for the six months ended June 30, 1995. The Company is
planning on continuing to increase its investment in the design and development
of interactive laser tag game systems.
The Company generated $35,620 of interest income for the quarter ended June 30,
1996 compared to $754 during the same period last year. Interest income was
$33,014 for the six months ended June 30, 1996 compared to interest expense of
$1,166 for the six months ended June 30, 1995. Pending the capital requirements
associated with opening new Company-owned and or operated facilities, proceeds
from the public offering in April 1996 are being invested in short term,
interest bearing investment grade securities.
Operating income for the quarter ended June 30, 1996 was $146,621 compared to
$175,793 for the quarter ended June 30, 1995. The Company experienced a $115,245
operating loss during the six months ended June 30, 1996 compared to operating
income of $47,045 for the six months ended June 30, 1995. The lower operating
income for the quarter ended June 30, 1996 and the operating loss for the six
months ended June 30, 1996 is the result of additional "SGA expenses" incurred
in establishing Company-owned and Company-operated facilities and the cost of
the Company being a publicly-held company.
The provision for income taxes of $67,000 for the quarter ended June 30, 1996 is
based upon an effective tax rate of 37%. The Company realized an income tax
benefit of $43,000 during the six months ended June 30, 1996. The results for
1995 reflect no tax provision as a result of the full utilization of net
operating loss carryovers from prior years.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations used cash flow of $1,811,980 for the six months ended
June 30, 1996, but provided cash flow of $222,692 for the same period ending
June 30, 1995. Cash flow was used during the first six months of 1996 to fund
sales made through both the new extended term financing program being offered by
the Company ($620,273) and the increase in the accounts receivable ($226,513).
Additionally, payments were made on both accounts payable ($464,799), which had
become aged when cash was being conserved until the public offering was
completed; and to settle the contingent liabilities ($242,500) the Company had
incurred during 1995. The Company is pursuing an opportunity to sell the total
receivables associated with the extended term financing to an independent third
party leasing company.
Capital expenditures for the six months ended June 30, 1996 were $251,760 verses
$34,609 for the six months ended June 30, 1995. The Company is funding the
up-front capital requirements associated with opening Company owned facilities
and facilities for which the Company has a revenue sharing arrangement.
Additionally, the Company purchased new trade show equipment and made some
leasehold improvements in its new office and assembly space.
Financing activities provided $5,882,145 of cash flow for the six months ended
June 30, 1996 as compared to a use of cash of $13,971 for the six months ended
June 30, 1995. In February 1996, the Company completed the sale of 200,000
shares of Series B 12% Convertible Cumulative Preferred Stock and received net
proceeds of $889,985. In April 1996, the Company completed the sale of 1,495,000
units at $4.00 per unit. Each unit sold consisted of one share of common stock
and one warrant. Net proceeds from the sale were $4,723,526.
Management believes current cash flows of the Company, when combined with the
proceeds from the public offering of units, will support the Company's current
operations associated with direct system and arena sales and opening and
operating Company-owned Laser Storm(R) game facilities and will provide working
capital for anticipated growth.
The Company may require additional capital to finance enhancements to, and
expansion of, its' manufacturing capacity and future Laser Storm(R) game
facilities. Management believes that the need for working capital will continue
to grow at a rate generally consistent with the growth of the Company's
operations. Although no assurance can be given that financing will be available
on terms acceptable to the Company, the Company may seek additional funds, from
time to time, through public or private debt or equity offerings, bank
borrowings or leasing arrangements.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
LASER STORM, INC.
DATE: August 6, 1996 By: /s/ William r. Bauerle
--------------------------------------
William R. Bauerle
President
DATE: August 6, 1996 By: /s/ John E. McNutt
-------------------------------------
John E. McNutt
Vice President, Finance
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<PERIOD-START> JAN-01-1996
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,803,878
<SECURITIES> 0
<RECEIVABLES> 1,483,719
<ALLOWANCES> 39,417
<INVENTORY> 456,487
<CURRENT-ASSETS> 5,749,079
<PP&E> 699,937
<DEPRECIATION> 159,904
<TOTAL-ASSETS> 6,803,517
<CURRENT-LIABILITIES> 764,607
<BONDS> 0
0
0
<COMMON> 3,726
<OTHER-SE> 5,950,242
<TOTAL-LIABILITY-AND-EQUITY> 6,803,517
<SALES> 2,879,389
<TOTAL-REVENUES> 2,879,389
<CGS> 1,133,549
<TOTAL-COSTS> 1,133,549
<OTHER-EXPENSES> 1,894,099
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (115,245)
<INCOME-TAX> (43,000)
<INCOME-CONTINUING> (72,245)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (72,245)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> 0
</TABLE>
