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 March 31, 1997
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 May 12, 1997
----- --------------
Common Stock, $.001 par value 3,824,836
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
LASER STORM, INC.
FORM 10-QSB
March 31, 1997
INDEX
-----
Page No.
PART I. Financial Information --------
Item 1. Condensed Balance Sheets -
March 31, 1997 3
Condensed Statements of Operations -
Three months ended March 31, 1997 and 1996 4
Condensed Statements of Cash Flows -
Three months ended March 31, 1997 and 1996 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 7-9
PART II. Other Information 10
SIGNATURES 11
EXHIBIT INDEX 12
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED BALANCE SHEETS
March 31, 1997
ASSETS (UNAUDITED)
------ MARCH 31,1997 DECEMBER 31, 1996
------------- -----------------
<S> <C> <C>
Current Assets:
Cash ................................................................................. $ 63,757 $ 272,633
Receivables - net:
Trade notes, current portion .................................................... 359,241 535,256
Trade accounts .................................................................. 770,688 433,463
Landlord reimbursement and other ................................................ 106,167 132,235
Income taxes ..................................................................... 56,000 56,000
Inventories .......................................................................... 647,314 977,896
Prepaid expenses and other ........................................................... 106,635 97,172
----------- -----------
Total current assets ................................................ 2,109,802 2,504,655
----------- -----------
Property and Equipment, net:
Laser game systems and facilities ............................................... 1,553,334 1,339,081
Other ........................................................................... 503,555 546,805
----------- -----------
2,056,889 1,885,886
----------- -----------
Other Assets:
Trade notes receivable, less current portion .................................... 335,663 514,489
License and design costs, net ................................................... 171,277 191,731
Goodwill, net .................................................................... 167,708 172,083
Deposits and other ............................................................... 132,714 132,297
----------- -----------
Total other assets ................................................ 807,362 1,010,600
----------- -----------
Total Assets ......................................................................... $ 4,974,053 $ 5,401,141
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of capital lease obligations ................................. $ 104,021 $ 69,034
Accounts payable ................................................................ 784,358 783,998
Accrued expenses and other ...................................................... 472,800 529,352
Customer deposits and deferred revenue .......................................... 89,920 171,770
Acquisition costs payable ....................................................... 195,000 195,000
----------- -----------
Total current liabilities .................................... 1,646,099 1,749,154
Capital Lease Obligations, less current maturities ................................... 204,921 143,885
Deferred Lease Inducements ........................................................... 148,144 158,143
Stockholders' Equity:
Preferred stock, $.001 par value; 2,000,000 shares authorized, no shares issued -- --
Common stock, $.001 par value, 2,000,000 shares authorized; 3,824,836 shares
issued and outstanding ................................................... 3,825 3,825
Additional paid in capital ........................................................ 6,256,174 6,256,174
Accumulated deficit ............................................................... (3,285,110) (2,910,040)
----------- -----------
Total stockholders' equity ................................... 2,974,889 3,349,959
----------- -----------
Total Liabilities and Stockholders' Equity ........................................... $ 4,974,053 $ 5,401,641
=========== ===========
</TABLE>
See accompanying notes to these condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE QUARTERS
ENDED MARCH 31,
------------------
1997 1996
---- ----
<S> <C> <C>
Laser Systems and Related Revenue:
Net sales ....................................................................... $ 1,023,697 $ 969,882
Cost of sales ................................................................... 532,362 418,420
----------- -----------
Gross profit ..................................................... 491,335 551,462
----------- -----------
Retail Operations:
Net sales ....................................................................... 377,244 71,619
Cost of sales ................................................................... 284,571 42,415
----------- -----------
92,673 29,204
----------- -----------
Expenses:
General and administrative ...................................................... 614,901 580,004
Selling and marketing ........................................................... 160,113 202,381
Depreciation and amortization ................................................... 151,035 43,920
Product development ............................................................. 33,580 49,240
----------- -----------
Total expenses .............................................. 959,629 875,545
----------- -----------
Operating Loss ....................................................................... (375,621) (294,879)
T
Other Income (Expense):
Interest income (Expense) ....................................................... 551 (2,606)
----------- -----------
Loss Before Taxes .................................................................... (375,070) (297,485)
Income tax benefit ........................................ -- 110,000
----------- -----------
Net Loss ............................................................................. $ (375,070) $ (187,485)
=========== ===========
Net Loss Applicable to Common Stockholders ........................................... $ (375,070) $ (187,485)
=========== ===========
Net Loss Per Share Applicable to
Common Stockholders ............................................................... $ (.10) $ (.10)
=========== ===========
Weighted Average Common Shares Outstanding ........................................... 3,824,836 1,968,000
=========== ===========
</TABLE>
See accompanying notes to these condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
LASER STORM, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE QUARTERS
ENDED MARCH 31,
-----------------
1997 1996
---- ----
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss ................................................................. $(375,070) $(187,485)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................................ 151,035 43,920
Provision for bad debts ................................................... 4,000 10,000
Deferred income taxes .................................................... -- (110,000)
Changes in operating assets and liabilities:
(Increase) decrease in:
Receivables ..................................................... (341,225) (85,521)
Inventories ....................................................... 330,582 (38,161)
Prepaid expenses and other ......................................... 98,500 (2,248)
Increase (decrease) in:
Accounts payable ................................................... 360 (188,325)
Accrued expenses .................................................... (66,550) 82,360
Customer deposits and deferred revenue .............................. (81,850) (17,329)
--------- ---------
Net cash used in operating activities .............................. (280,218) (492,789)
--------- ---------
Cash Flows From Investing Activities:
Proceeds from sale of notes receivable .............................. 203,599 --
Principal payments collected on notes receivable .................... 60,925 --
Cash expenditures for property and equipment ......................... (289,205) (127,490)
License and design costs ............................................. -- (25,000)
--------- ---------
Net cash used in investing activities ............ (24,681) (152,490)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from sale of 12% Convertible Cumulative Preferred Stock .......... -- 900,000
Proceeds from capital lease .............................................. 130,000 --
Offering costs ........................................................... -- (96,925)
Principal payments on capital lease obligations .......................... (33,977) (2,935)
--------- ---------
Net cash provided by financing activities ................ 96,023 800,140
--------- ---------
Increase (Decrease) In Cash ................................................... (208,876) 154,861
Cash, at beginning of period .................................................. 272,633 10,473
--------- ---------
Cash, at end of period ........................................................ $ 63,757 $ 165,334
========= =========
</TABLE>
See accompanying notes to these condensed financial statements.
5
<PAGE>
LASER STORM, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Financial Statements:
In the opinion of 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 financial statements should
be read in conjunction with the financial statements and related notes for the
fiscal year ended December 31, 1996 contained in the Company's annual report on
Form 10-KSB for the year ended December 31, 1996.
The results of operations for the three months ended March 31, 1997, are not
necessarily indicative of the results to be expected for the full year.
2. Earnings Per Share:
For the quarter ended March 31, 1996, the calculation of weighted average shares
outstanding includes all common stock options and the Series A and Series B
Preferred stock, which were issued prior to the Company's initial public
offering at prices below the $4.00 per unit offering price. Such preferred stock
and options to purchase common stock are included in the calculation for the
entire three months ended March 31, 1996, using the treasury stock method based
on the $4.00 per unit offering price.
For the three months ended March 31, 1997, comon stock equivalents are excluded
from the weighted average shares since they are anti-dilutive.
6
<PAGE>
LASER STORM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATIONS
Liquidity and Capital Resources
The Company's operations used cash flow of $280,218 for the quarter ended March
31, 1997, and used cash flow of $492,789 for the same period last year.
Operating losses continue to negatively impact the Company's liquidity, however,
the Company does still maintain over $460,000 in working capital and over
$2,974,000 in stockholders' equity. The Company is pursuing financial
alternatives to assist in its working capital needs as well as capital that will
be required to open additional Company-owned facilities. If such financing does
not occur, management believes it will still have adequate cash flow to sustain
operations through 1997, but will not be able to realize its objectives of
diversifying more into Company-owned and operated facilities.
During 1996 the Company funded approximately $1,400,000 in sales made through an
extended term financing program. In October 1996, the Company entered into an
agreement with a financial institution which purchased certain credit worthy
notes receivable under this extended terms program. During the quarter ended
March 31, 1997 the Company sold $293,916 of these notes to this financial
institution, realizing $203,599. The financial institution held back
approximately $90,000 as a condition of buying these notes. The hold back will
be collected by the Company upon satisfactory payment performance on these
notes. The Company also collected $60,925 on notes the Company did not sell to
the financial institution. As of March 31, 1997, the Company had a principal
amount of $694,904 of these notes that remain unsold. The Company does not have
the working capital to internally finance future sales through this type of
financing, but has been able to establish alliances with external financial
institutions in order to make financing options available to its customers.
The Company's trade receivables increased by $341,225 and the Company's
inventory decreased by $330,582 during the quarter ended March 31, 1997. The
inventories decreased as a result of system sales to independent operators, the
opening of a Company-owned and operated facility in the Denver metropolitian
area and the opening of a revenue participation facility in Cuernavaca, Mexico.
Capital expenditures for the quarter ended March 31, 1997, were $289,205
compared to $127,490 for the same quarter last year. The construction costs and
the costs of the Laser Storm(R) game equipment necessary to open its
Company-owned and operated facility in the Denver metropolitian area and a
revenue participation facility in Cuernavaca, Mexico were the primary components
of the capital expenditures for the quarter ended March 31, 1997.
Financing activities provided $96,023 for the quarter ended March 31, 1997
compared to $800,140 for the quarter ended March 31, 1996. In January, 1997, the
Company entered into a $130,000 capital lease arrangement to assist in the
financing of its new Denver metropolitan area Company-owned and operated
facility. In February 1996, the Company completed the sale of 200,000 shares of
Series B 12% Convertible Cumulative Preferred Stock and received proceeds of
$900,000.
In 1996 the Company purchased two existing Laser Storm(R) game centers from
unaffiliated persons. Pursuant to the terms of the purchase agreements, in May
1997 the Company is obligated to pay the sellers approximately $217,000. The
Company is attempting to raise the capital to finance these two purchases as
well as the capital to finance future Laser Storm(R) game facilities. 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.
7
<PAGE>
Results of Operations
Net sales from laser tag game systems and related revenues for the quarter ended
March 31, 1997 increased by 6% to $1,023,697, as compared to $969,882 for the
quarter ended March 31, 1996. The primary reason for the increase is the result
of increased warranty sales. The number of customers participating in the
Company's, "Built to Blast" ("BTB") warranty program has increased from 78 at
March 31, 1996 to 117 at March 31, 1997. The BTB program requires the customer
pay a fee based upon the number of games played per month.
During the quarter ended March 31, 1997 the Company reduced its selling price on
laser tag systems and its themed arenas in order to stimulate sales during what
has been historically the Company's slowest quarter. The program emphasized the
Company's themed arenas and resulted in a 15% reduction of its average arena
sales price when comparing the quarters ended March 31, 1997 and 1996,
respectively. The number of arenas purchased did however increase by 50% as a
result of the lower sales prices. Over the past two years the Company had
increased selling prices to its customers, however, with increased competition,
the Company determined it must lower its prices in order to remain competitive.
This program has been extended into the second quarter of 1997.
Net sales from retail operations for the quarter ended March 31, 1997 increased
to $377,244 compared to $71,619 for the quarter ended March 31, 1996. This
increase is the result of sales generated by the five new Company-owned
facilities. The Company opened its newest facility in the Denver metropolitan
area late in the first quarter of 1997 and is expecting to open six more
facilites by the end of the second quarter. The Company will require additional
capital to finance the costs of opening these and future facilities.
Gross profit from laser tag game systems and related revenue for the quarter
ended March 31, 1997 decreased 11% to $491,335 as compared to gross profit of
$551,462 for the quarter ended March 31, 1996. Gross profit as a percentage of
net sales decreased 9% for the quarter ended March 31, 1997 to 48% compared to
57% for the quarter ended March 31, 1996. The decrease in the gross profit in
1997 is the result of a 15% sales price reduction of the Company's themed arenas
and a 17% increase in material costs as a result of upgrading certain of the
components of the Company's laser tag games and price increases on the
electronics portion of the Company's laser tag games.
Gross profit from retail operations for the quarter ended March 31, 1997
increased to $92,673 compared to $29,204 for the quarter ended March 31, 1996.
The increased gross profit is the result of the five Company-owned and operated
facilities being opened and operating. The Company-owned facilities sales and
operating expense results continue to be in line with management's expectations
for the facilities.
General and administrative expenses ("GA expenses") increased by less than 1% to
$614,901 for the quarter ended March 31, 1997 compared to $580,004 for the
quarter ended March 31, 1996. The increase in GA expenses is primarily the
result of identifying, opening and operating Company-owned and operated
facilities. During the fourth quarter of 1996 and the first quarter of 1997 the
Company implemented several cost reduction actions in an effort to properly
position the Company for the future. Subject to obtaining sufficient financing,
of which there is no assurance, the Company's focus during the remainder of 1997
is to open and operate up to 20 additional Company-owned and operated
facilities. As a percentage of net revenues (net sales from laser tag game
systems and related revenues plus net sales from retail operations), GA expenses
decreased to 45% for the quarter ended March 31, 1997 compared to 58% for the
quarter ended March 31, 1996. The decrease in GA expense as a percentage of net
revenues is the result of the increased sales from retail operations.
Selling and marketing expenses ("SM expenses") decreased 21% to $160,113 for the
quarter ended March 31, 1997 compared to $202,381 for the quarter ended March
31, 1996. As a percentage of net revenues SM expenses decreased to 12% for the
quarter ended March 31, 1997 compared to 20% for the quarter ended March 31,
1996. The decrease in SM expense is primarily the result of cost reduction
efforts made during the fourth quarter of 1996.
8
<PAGE>
Depreciation and amortization increased from $43,920 for the quarter ended March
31, 1996 to $151,035 for the quarter ended March 31, 1997. The increase is
primarily the result of the capital expenditures made related to the opening and
acquisition of the five Company-owned and operated facilities during the last
nine months.
Product development costs decreased by 32% to $33,580 for the quarter ended
March 31, 1997 compared to $49,240 for the quarter ended March 31, 1996. The
decrease is primarily the result of the Company's cost reduction efforts which
began in the fourth quarter of 1996. The Company has deferred certain
development projects until the Company's liquidity position improves and will
allow for such discretionary spending.
The Company recognized an operating loss for the quarter ended March 31, 1997 of
$375,070 compared to an operating loss of $297,485 for the quarter ended March
31, 1996. The operating loss can primarily be attributed to the non-cash
depreciation and amortization expenses as well as the increased GA expenses
associated with the Company staffing its organization to open and operate
Company-owned and operated facilites.
The Company recognized income tax benefits of $110,000 during the quarter ended
March 31, 1996, but was unable to record any income tax benefit for the quarter
ended March 31, 1997 due to a valuation allowance for the Company's net
operating loss carryforward.
9
<PAGE>
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
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: May 13, 1997 By: /s/ William R. Bauerle
------------------------------
William R. Bauerle
President
DATE: May 13, 1997 By: /s/ John E. McNutt
------------------------------
John E. McNutt
Chief Financial Officer and
Principal Accounting Officer
11
<PAGE>
EXHIBIT INDEX
Exhibit 27 Financial Data Schedule
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 63,757
<SECURITIES> 0
<RECEIVABLES> 1,617,703
<ALLOWANCES> 152,111
<INVENTORY> 647,314
<CURRENT-ASSETS> 2,109,802
<PP&E> 2,490,215
<DEPRECIATION> 433,326
<TOTAL-ASSETS> 4,974,053
<CURRENT-LIABILITIES> 1,646,099
<BONDS> 0
0
0
<COMMON> 3,825
<OTHER-SE> 2,971,064
<TOTAL-LIABILITY-AND-EQUITY> 4,974,053
<SALES> 1,023,697
<TOTAL-REVENUES> 1,400,941
<CGS> 532,362
<TOTAL-COSTS> 816,933
<OTHER-EXPENSES> 959,629
<LOSS-PROVISION> 4,000
<INTEREST-EXPENSE> 4,991
<INCOME-PRETAX> (375,070)
<INCOME-TAX> 0
<INCOME-CONTINUING> (375,070)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (375,070)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
