SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended
September 30, 1995.
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________
to _____________
Commission file number 0-15873
LASERGATE SYSTEMS, INC.
(Exact name of small business issuer in its charter)
Florida 59-2543206
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
28050 US 19 N, Suite 502, Clearwater, Florida 34621
(Address of principal executive office) (Zip Code)
Issuer's telephone number: (813) 725-0882
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities 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 90 days. Yes x No ___
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date.
Class Outstanding at September 30, 1995
Common stock $0.03 par value 3,023,013 <PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1995
INDEX
Part I. FINANCIAL INFORMATION PAGE
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of
September 30,1995 (unaudited) and
December 31, 1994 3
Consolidated Statements of Operations 4
(unaudited) for the three months
and the nine months ended
September 30, 1995 and 1994
Consolidated Statements of Cash Flows 5
(unaudited) for the nine months ended
September 30, 1995 and 1994
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or 12
Plan of Operation
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
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Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
1995 1994
Current assets
(Unaudited)
Cash and cash equivalents $ 83,824 $ 1,589,837
Account receivable, net of allowance for
doubtful accounts of $167,733 and $17,000 574,190 152,529
Inventories 138,754 124,680
Prepaid expenses 99,248 116,948
----------- -------------
Total current assets 896,016 1,983,994
Property and equipment 224,318 96,993
Systems and software costs 1,487,500 529,558
Other assets (including goodwill of
$2,648,273 and $536,919) 3,084,881 868,286
----------- -------------
$ 5,692,715 $ 3,478,831
=========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, related party 300,000 -
Notes payable, other: 6,667 74,910
Current portion of obligations under
capital leases 14,028 -
Accounts payable, trade 452,429 530,260
Customer payment for future services 319,167 62,000
Deferred revenue 294,092 -
Accrued expenses:
Salaries and wages 18,538 53,647
Reinstallation 259,684 281,075
Other 155,223 58,447
----------- ---------
Total current liabilities 1,819,828 1,060,339
Obligations under capital leases, less
current portion 23,039 -
Note payable, related party - 200,000
Promissory notes payable, shareholders,
with conversion features 2,324,335 -
Common stock subject to put options 210,000 210,000
Obligations to issue common stock
and common stock options 776,250 450,000
Stockholders' equity:
Preferred stock, $.03 par value, 2,000,000
shares authorized, 95,950 and 36,364 shares
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of Series A issued and outstanding
111,800 and -0- shares of Series B issued
and outstanding at September 30, 1995 and
December 31, 1994, respectively 6,232 1,091
Common stock, $.03 par value, 3,023,013
shares authorized, 3,023,013 and 2,913,680
issued and outstanding at September 30, 1995
and December 31, 1994 , respectively 90,691 87,412
Additional paid-in capital 11,333,978 9,258,563
Less: Common stock, $.03 par value,
30,000 shares subject to put options (210,000) (210,000)
Note receivable, shareholders (559,000) -
Accumulated deficit (10,122,638) (7,578,574)
------------ --------------
Total stockholder's equity 539,263 1,558,492
------------ --------------
$ 5,692,715 $ 3,478,831
============ ==============
See accompanying notes to financial statements.
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Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1995 1994 1995 1994
Revenues $ 777,895 $172,642 $2,268,344 $ 865,499
Cost of goods sold 340,990 50,650 1,005,066 401,317
-------- -------- ---------- ---------
Gross Profit 436,905 121,992 1,263,278 464,182
Selling, general and
administrative
expenses 1,261,935 392,705 3,769,878 1,208,396
--------- -------- ---------- ---------
Operating Loss (825,030) (270,713) (2,506,600) (744,214)
Other expense
interest expense 8,536 29,775 37,464 68,170
--------- -------- ---------- ---------
Loss before income taxes (833,566) (300,488) (2,544,064) (812,384)
Income taxes - - - -
--------- -------- ---------- ---------
NET LOSS ($833,566) ($300,488) ($2,544,064) ($812,384)
========== ======== ========== =========
Net loss per common share ($0.28) ($0.27) ($0.84) ($0.73)
========== ======== ========== =========
Weighted Average Common
Stock Outstanding 3,023,013 1,107,702 3,023,013 1,107,248
========== ========= ========== =========
See accompanying notes to financial statements.
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Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Sept. 30, 1995 Sept. 30, 1994
Cash flows from operating activities:
Net loss $ ( 2,544,064) $ ( 812,384)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization 440,003 79,437
Increase (decrease) in allowance for
doubtful accounts 150,733 (6,855)
Common stock issued principally for services - 131,422
Common stock issued for financing costs - 100,000
Obligations to issue options granted as
compensation for services 326,250 -
Common stock issued for compensation 64,033
Decrease (increase) in:
Accounts receivable, trade (572,394) (115,137)
Inventories 71,888 ( 79,342)
Prepaid expenses 38,911 ( 53,036)
Other (principally related to
prepaid insurance) 40,009 -
Increase (decrease) in:
Accounts payable and accrued expenses ( 172,543) ( 153,252)
Customer payment for future services 257,167 ( 25,000)
Deferred revenue 294,092 -
---------- ----------
Net cash provided by (used in)
operating activities ( 1,669,948) ( 870,114)
------------ ----------
Cash flows from investing activities:
Additions to property and equipment ( 82,666) ( 6,366)
Note receivable, stockholders ( 559,000)
Repayment of advances to joint venture 29,657
Other - (160)
------------ ----------
Net cash used in investing
activities (612,009) (6,526)
Cash flows from financing activities:
Proceeds from loans, related parties 859,505 1,144,505
Repayment of loans, other (74,910) (100,000)
Repayment of loans, related parties - (27,500)
Repayment of obligations under capital leases ( 8,651) -
Public/private placement costs - (90,209)
------------ ----------
Net cash provided by financing
activities 775,944 926,796
------------ ----------
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Net increase (decrease) in cash
and cash equivalents (1,506,013) 50,156
Cash and cash equivalents,
beginning of period 1,589,837 15,377
------------ ----------
Cash and cash equivalents,
end of period $ 83,824 $ 65,533
============ ==========
See accompanying notes to financial statements.
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LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 1- BASIS OF PRESENTATION
The interim consolidated financial statements of Lasergate Systems, Inc. (the
"Company") are unaudited and should be read in conjunction with the
consolidated financial statements and notes thereto in its Form 10-KSB for the
year ended December 31, 1994. In the opinion of management, the accompanying
consolidated financial statements (with all explanations contained in these
Notes ) contain all adjustments necessary for a fair presentation of the
results of operations for this interim period. Interim results are not
necessarily indicative of the results for a full fiscal year.
NOTE 2 - NET LOSS PER COMMON SHARE
The net loss per common share amount is based on the weighted average number of
common shares outstanding during the period.
NOTE 3 - OPERATIONAL AND FUNDING MATTERS
The information contained in Note 2 to the Company's 1994 Form 10-KSB remains
current related to the status of certain of the Company's operational and
funding matters and, accordingly, should be referred to in conjunction with
this Form 10-QSB. In addition, during October 1995, the Company completed a
private placement with proceeds to the Company of approximately $1,820,000
which is net of approximately $300,000 of private placement costs. (See Note
10).
NOTE 4-NOTES PAYABLE, RELATED PARTY
On February 6, 1995, the Company borrowed $559,505 as an unsecured cash
advance from two former shareholders under a promissory note due October 1996,
at an annual interest rate of 8%.
On June 15, 1995, the Company borrowed $300,000 under a Convertible Secured
Promissory Note due March 30, 1996, advanced from a former shareholder at an
annual interest rate of 9.5%.
On June 30, 1995, the Company issued 75,950 of its Series A Preferred Stock in
satisfaction of $759,505 of such Notes Payable (See Note 8).
NOTE 5-OPERATING LEASE
In February 1995, the Company entered into an operating lease for its new
office facility, as the lease term for the previous office and warehouse
facilities expired. The lease term is for the period of March 1, 1995 to April
30, 1999, with annual minimum rent as follows.
1995 $ 61,056
1996 116,144
1997 123,748
1998 148,418
1999 50,220
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---------
$499,586
=========
NOTE 6-ACQUISITIONS OF BUSINESSES
On December 22, 1994, Lasergate Systems Canada Company, a wholly-owned
subsidiary of the Company, acquired the capital stock of Delta Information
Services, Inc. ("Delta"), a Canadian company, for an aggregate consideration of
$1,200,000. The purchase price consisted of $500,000 of cash and a promissory
note of $700,000, convertible into 100,000 shares of the Company's unregistered
(subject to the registration rights discussed below) and restricted $.03 par
value common stock valued at $7.00 a share. The common stock valuation
reflected the agreed-upon price between the buyer and seller and was approved
by the Company's Board of Directors after giving effect to such factors as
the restrictions on resale and the size of the block of common stock, etc. The
promissory note was immediately converted into common stock in December 1994.
In addition, the Company incurred approximately $63,656 in direct acquisition
costs (principally legal and accounting fees). At the date of acquisition,
Delta had no tangible assets nor liabilities that were transferred to or
assumed by the Company. The sellers were granted certain registration rights
for two years with respect to the shares of common stock issued and a put
option to sell to the Company up to 10,000 of the shares of the Company's
common stock at $7.00 per share each year for the next three years. The put
option, which has an aggregate value of $210,000, has been classified as common
stock subject to put options in the consolidated balance sheets and represents
the amount the Company would be required to pay if all the put options were
exercised. Additionally, one of the sellers agreed to act as a consultant to
the Company for a one year fee of $70,000.
On February 15, 1995, effective January 1, 1995, the Company acquired
substantially all of the assets of GIS Systems Limited Partnership ("GIS"), a
company formerly engaged in the business of design, integration, installation
and sale of admission control and revenue accounting computer systems and
software for the entertainment industry. The purchase price for the
acquisition was valued at approximately $3,700,000 and was based upon the 1994
revenues of GIS, which were approximately equal to the value of the purchase
price, the expected revenues of GIS and the sophistication and market potential
of its products. The purchase price consisted of 109,333 shares of the
Company's common stock (par value $.03 a share), 111,800 shares of the
Company's Series B Preferred Stock (par value $.03 a share). The Company's
promissory note in the principal amount of $591,000 (which may be paid by the
issuance by the Company of 118,200 shares of Series B Preferred Stock) and the
Company's promissory note in the principal amount of $1,733,335 (which may be
paid by the issuance by the Company of 346,667 shares of Series C Preferred
Stock). In addition, the Company agreed to assume certain liabilities of GIS
(aggregating $45,718) and loaned GIS $559,000 (see paragraph below). Direct
acquisition costs aggregating $82,744 (principally legal and accounting fees)
were incurred in connection with the acquisition. The promissory notes which
are convertible into preferred stock derive their valuation from the underlying
preferred stock. The common stock valuation of $7.00 per share and the
preferred stock valuation of $5.00 per share reflected the agreed-upon price
between the buyer and sellers and was approved by the Company's Board of
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Directors after giving effect to such factors as the restrictions and the sizes
of the blocks of common and preferred stock.
The loan of $559,000 to GIS evidenced by a promissory note is secured by
111,800 shares of the Company's Series B Preferred Stock and is due March 31,
1996. The sellers have the option of returning preferred stock if the
assignable call provision of $5.00 per share is not exercised. Accordingly,
the note receivable is presented as a reduction of stockholders equity.
The total purchase price of GIS was allocated based on fair value of net
tangible assets acquired with the excess allocated to identifiable intangible
components based on their individual estimated fair values, and the remainder
was allocated to goodwill.
Net tangible assets acquired consist of:
Inventory $85,962
Prepaid expenses and other current assets 20,472
Fixed assets 87,581
--------
$194,015
========
Intangible assets components consist of: Estimated Amortization
Useful Life Method
Systems and software costs $1,200,000 6 years Straight line
Customer list and support contracts 300,000 6 years Straight line
Goodwill 2,083,113 20 years Straight line
----------
3,583,113
----------
$3,777,128
==========
Since these transactions have been accounted for as purchases in accordance
with APB No. 16 "Business Combinations," accordingly, the results of Delta's
and GIS' operations have been included in the Company's consolidated financial
statements from the date of acquisition. The following are proforma results of
operations for the three months ended September 30, 1994 and the nine months
ended September 30, 1994 assuming the transactions were effective January 1,
1994, after including the impact of certain adjustments such as consulting
fees, amortization of intangibles and reduction of selling, general and
administrative expenses (principally salaries and wages and rent to reflect
personnel not transferred and lease space not assumed).
-10-<PAGE>
Three Months Ended September 30, 1994
(Unaudited)
Delta GIS Delta and GIS Combined
Revenues $ 252,734 $1,024,326 $1,104,418
Net Income (Loss) $(337,508) $( 283,211) $ (320,231)
Income (Loss)
per Common Share $(0.26) $( 0.23) $(0.23)
Nine Months Ended September 30, 1994
(Unaudited)
Delta GIS Delta and GIS Combined
Revenues $ 1,143,937 $3,420,550 $3,698,988
Net Income (Loss) $(1,038,856) $ (760,558) $ (987,030)
Income (Loss)
per Common Share $(0.80) $( 0.63) $(0.70)
The proforma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the period presented. In
addition, they are not intended to be a projection of future results of
operations.
NOTE 7 - LEGAL PROCEEDINGS
The Company's founder and former President and Chief Executive Officer, Donald
Turner, has commenced an action against the Company in Florida state court.
Mr. Turner alleges, among other things, that he was wrongfully terminated from
his employment and seeks damages which in the aggregate could exceed
-11-<PAGE>
$1,000,000. The Company believes that Mr. Turner's suit is without merit and
intends to vigorously defend the action.
NOTE 8 - STOCKHOLDERS' EQUITY
ISSUANCE OF PREFERRED STOCK
Effective February 15, 1995, the Board of Directors established two additional
series of preferred stock: Series B and Series C. The authorized number of
Series B and Series C shares is 230,000 and 350,000, respectively. Holders of
such shares have no voting rights and dividend rates may be fixed by the Board
of Directors at its sole discretion. Both series are convertible into shares of
the Company's common stock.
Effective June 30, 1995, the Board of Directors rescinded the previously
authorized Series A Preferred Stock and designated a new Series A Preferred
Stock in its place. The authorized number of Series A shares is 200,000. Such
shares contain no voting rights and the shares bear cumulative dividends at the
annual rate of 8% of the liquidation value. The Series A shares are
convertible into shares of the Company's Common Stock.
In June 1995, the Company issued 95,950 shares of its newly designated Series A
Preferred Stock to two former principal shareholders in satisfaction of
$759,505 in promissory notes due October 1996 and in conversion of 36,364
shares of previously designated Series A Preferred Stock.
Effective August 1, 1995, the Board of Directors established another series of
Preferred Stock designated as Series D. The authorized number of Series D
shares is 350,000. Holders of such shares have no voting rights and dividend
rates may be fixed by the Board of Directors at its sole discretion. Series D
Preferred Shares are convertible into shares of the Company's Common Stock.
In October 1995, the Company completed a private placement of 208,600 shares of
non-transferable convertible Series D Preferred Stock (See Note 10).
RESERVATION OF COMMON STOCK
In February 1995, the underwriter of the Company's public offering agreed not
to exercise its warrants to purchase a total of 276,000 shares of common stock
until the Company's authorized number of shares of common stock has increased.
In May 1995, two holders of stock options under the Company's Stock Option Plan
agreed not to exercise their rights to purchase a total of 16,000 shares of
common stock until the Company's authorized number of shares of common stock
has increased. Consequently, the Company has no longer reserved such shares
for issuance. Effective August 1995, the Board of Directors has proposed an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 5,000,000 to 20,000,000. Upon approval
of this amendment by the shareholders of the Company, the Company will reserve
such shares for issuance.
AUTHORIZATION OF COMMON STOCK
Effective August 1, 1995, the Board of Directors amended the resolution adopted
February 1995 to amend the Company's Articles of Incorporation to increase the
Company's authorized shares of Common Stock to 20,000,000. The amendment is
not effective until it is approved by the shareholders of the Company.
-12-<PAGE>
STOCK OPTION PLAN
On March 7, 1995, the Board of Directors, subject to shareholder approval,
adopted amendments to the Company's 1994 stock option plan (the "Plan"). As
amended, (i) the number of shares which could be granted under the Plan would
be increased from 58,333 to 600,000 shares; (ii) the number of shares granted
to an optionee would be limited to 200,000 in a year; (iii) the exercise price
of non-qualified stock options granted to employees and consultants could not
be less than 25% of the fair market value of the common stock on the date of
the grant and (iv) outside Directors of the Company's Board of Directors would
be granted an option to purchase 5,000 shares of common stock for each year of
the respective term, with vesting as to 5,000 shares to occur at the beginning
of each year of such term.
STOCK OPTION GRANTS
On March 7, 1995, the Board of Directors, authorized the grant of 375,000 non-
qualified stock options at an exercise price of $2.00 per share to the
Company's President and Chief Executive Officer, in connection with a three (3)
year employment agreement. Of the total options granted, 125,000 were granted
as a signing bonus effective October 31, 1994 and were immediately exerciseable
since their issuance was not contingent on future service as are the remaining
250,000 options. Accordingly, compensation expense of $375,000, representing
the difference between fair value of $5.00 per share (determined by the Board
of Directors considering such factors as restrictions, etc.) and the exercise
price, has been recorded in the consolidated statement of operations for 1994.
In addition, a corresponding obligation to issue (grant) common stock options
also has been reflected in the balance sheet at December 31,1994. The balance
of the 250,000 options, which are subject to shareholder approval, vest as to
125,000 shares each on October 31, 1995 and 1996. The Company will record
additional compensation expense of $375,000 in 1995 and in 1996 to correspond
with the Chief Executive Officer's period of service. Compensation expense of
$281,250 was recorded for the nine months ended September 30, 1995.
On March 7, 1995 the Board of Directors granted 25,000 non-qualified stock
options to the Company's former President and Chief Executive Officer, in
connection with services rendered to the Company in 1994. The exercise price of
the options is $2.00 per share and the options are immediately exerciseable.
Accordingly, compensation expense of $75,000, representing the difference
between the fair value of $5.00 per share (determined by the Board of
Directors) and the exercise price, has been recorded in the consolidated
statement of operations for 1994. In addition, a corresponding obligation to
issue (grant) common stock options also has been reflected in the balance sheet
at December 31, 1994.
On March 7, 1995 the Board of Directors granted 30,000 non-qualified stock
options at an exercise price of $2.00 per share to each of three of the
Company's senior executives for services in 1995-1997. Of the total options
granted, 15,000 shares were immediately exerciseable with an additional 15,000
vesting January 1, 1996, 30,000 vesting January 1, 1997, and 30,000 vesting
January 1, 1998. Compensation expense of $45,000 representing the difference
between fair value of $5.00 per share and the exercise price has been recorded
in the consolidated statement of operations for the nine months ended September
30, 1995. In addition, a corresponding obligation to issue (grant) common
stock options also has been reflected in the balance sheet at September 30,
-13-<PAGE>
1995. The Company will record additional compensation of $45,000 in 1996 and
$90,000 in each of 1997 and 1998.
Upon approval by the shareholders of an amendment to increase the authorized
number of Common Shares and an amendment to the Company's stock option plan to
increase the number of shares which can be granted under the plan, the
obligations to issue (grant) Common Stock will be reclassified as additional
paid-in capital.
On September 15, 1995 the Board of Directors granted 406,000 qualified stock
options at an exercise price to be determined at the next Board meeting and
subject to the approval of shareholders of amendments to increase the
authorized number of common shares and to increase the number of shares which
can be granted under the Company's stock option plan. At a telephonic Board
meeting held on October 6, 1995, the exercise was set at $3.625 per share.
All employees and certain consultants to the Company were granted options
ranging from 1,000 to 70,000 shares. The options vest at 20% per year over a
five-year period from the date of grant.
NOTE 9 - NON-CASH INVESTING AND FINANCING ACTIVITIES
In January 1995, the Company acquired substantially all of the assets of GIS
(see Note 6) for stock, promissory notes and the assumption of certain
liabilities as set forth below.
Fair Value of Assets Acquired $ 3,777,000
=============
Promissory Notes Issued $ 2,324,000
Common Stock Issued 765,000
Preferred Stock Issued 559,000
-------------
3,648,000
Liabilities Assumed 83,000
Acquisition Cost Incurred (a liability) 46,000
-------------
$ 3,777,000
=============
In June 1995, the Company converted $759,505 of notes payable, related party
into 75,950 shares of its newly created Series A Preferred Stock .
NOTE 10 - SUBSEQUENT EVENTS
During October 1995, the Company completed a private placement of 208,600
shares of non-transferable, convertible Series D Preferred Stock to seven
investors for use by the Company primarily for working capital. The
Company will be obligated to reserve a sufficient number of shares of Common
Stock for issuance upon the conversion of the Series D Preferred Stock upon
approval by the shareholders of an amendment to the Company's Articles of
Incorporation to increase the number of authorized shares of Common Stock.
-14-<PAGE>
ITEM 2-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussions should be read in conjunction with the financial
statements and notes thereto, and is qualified in its entirety by reference
thereto.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS THREE MONTHS ENDED
SEPTEMBER 30, 1994
Revenues increased by $605,253 or 350.6% from $172,642 during the three months
ended September 30, 1994 to $777,895 during the three months ended September
30, 1995. Sales for the three months ended September 30, 1995 consisted of a
number of new system sales as well as maintenance and support contract revenue,
reflecting the results of an increase in direct sales staff and marketing
activities made possible by the infusion of capital from the Company's public
offering in October 1994. The increased sales for the period also resulted
from the Company's enhanced products and markets obtained through the
acquisition of Delta Information Services, Inc. ("Delta") in December 1994 and
GIS Systems Limited Partnership ("GIS") in January 1995. Sales for the three
months ended September 30, 1994 consisted primarily of maintenance and support
contract and other sales to existing customers.
Net loss increased by $533,078 from $300,488 for the three months ended
September 30, 1994 to $833,566 for the three months ended September 30, 1995,
or 177.4%.
Costs of goods sold ("COGS") increased from 29.3% of revenues for the three
months ended September 30, 1994 to 43.8% of revenues for the three months
ended September 30, 1995. This increase in costs is due to the fact that COGS
are primarily related to the mix of product sales between service and software
sales, which carry a lower cost, and hardware sales,
which carry a higher cost.
In the three months ended September 30, 1994, revenues were primarily
maintenance and support contracts and therefore, COGS were lower than in the
three months ended September 30, 1995 which included more system sales
requiring hardware. COGS are expected to vary based on product mix in the sales
of given periods.
During 1994 a reserve of approximately $281,000 was established for the costs
of reinstallation of software and related required hardware at certain customer
sites in order to remedy technical problems as well as to standardize the
Company's products to allow for more cost effective ongoing customer support.
During the quarter ended September 30, 1995 there were no expenditures for
reinstallations. Some delay in the reinstallation program resulted from
customer requests to defer any disruption to their operations or requirement
for staff retraining during their primary operating season. Management
believes that the reserve will be adequate to cover the costs of all such
reinstallations without further provisions. Management further believes that
the cost for reinstallations may be reduced if proposed software upgrades for
existing products can be made to satisfy customer requirements, eliminating the
need for hardware upgrades which represented a significant amount of the
original estimate for reinstallation costs.
-15-<PAGE>
Selling, general and administrative expenses ("SG & A") increased 221.3% from
$392,705 during the three months ended September 30, 1994 to $1,261,935 during
the three months ended September 30, 1995. During the three months ended
September 30, 1994, the Company began to expend funds on a moderate basis to
increase its sales and marketing efforts in anticipation of completion of a
public offering which was intended to provide the funds necessary for the
Company to accelerate its growth. Funding during this period was provided by
loans from two major shareholders of the Company. Upon completion of its
public offering in October 1994, the Company began to restructure by first
recruiting experienced management and staff. The Company then completed two
acquisitions to enhance its product line and to introduce the Company to
markets not previously accessible to it. Management believes that as a result
of these acquisitions the Company can increase its revenues and become a more
diverse and profitable company much sooner than would otherwise have been
possible. The costs of implementation of its growth plan including the costs
of integrating the operations and software of the three companies impacted
SG&A for the three months ended September 30, 1995, but had less effect than in
the first six months of 1995. The increase in SG&A was attributable to
personnel-related expenses, which included fees paid to consultants who held
key positions in sales, marketing, technical and executive management which
increased 158.5% from approximately $224,000 for the three months ended
September 30, 1994 to approximately $579,000 for the three months ended
September 30, 1995; legal , accounting , and other professional fees, which
increased 4800% from approximately $3,000 for the three months ended September
30, 1994 to approximately $147,000 for the three months ended September 30,
1995; travel and entertainment expense which increased 61.5% from approximately
$52,000 for the three months ended September 30, 1994 to approximately
$84,000 for the three months ended September 30, 1995; amortization of
financing and acquisition costs which increased 149.1% from approximately
$53,000 for the three months ended September 30, 1994 to approximately $132,000
for the three months ended September 30, 1995; telephone expense which
increased 130.0% from approximately $20,000 for the three months ended
September 30, 1994 to approximately $46,000 for the three months ended
September 30, 1995. Bad debt expense increased from $ 0 for the three months
ended September 30, 1994 to approximately $138,000 for the three months ended
September 30, 1995. All other SG & A expenses cumulatively increased 240.0%
from approximately $40,000 for the three months ended September 30, 1994 to
approximately $136,000 for the three months ended September 30, 1995. SG & A
personnel expenses include non-cash stock options or grants of $ 0 for the
three months ended September 30, 1994 and $93,750 for the three months ended
September 30, 1995.
NINE MONTHS ENDED SEPTEMBER 30, 1995 VERSUS NINE MONTHS ENDED
SEPTEMBER 30, 1994
Revenues increased by $1,402,845 or 162.1% from $865,499 during the nine months
ended September 30, 1994 to $2,268,344 during the nine months ended September
30, 1995. Sales for the nine months ended September 30, 1995 consisted of a
number of new system sales as well as maintenance and support contract revenue,
reflecting the results of an increase in direct sales staff and marketing
activities made possible by the infusion of capital from the Company's public
offering in October 1994. The increased sales for the period also resulted
from the Company's enhanced products and markets obtained through the
acquisition of Delta Information Services, Inc. ("Delta") in December 1994 and
GIS Systems Limited Partnership ("GIS") in January 1995. Sales for the nine
months ended September 30, 1994 consisted primarily of ongoing maintenance and
support contracts and other sales to existing customers, and revenue from one
new system sale which represented 47.9% of total revenue for 1994.
-16-<PAGE>
Net loss increased by $1,731,680 from $812,384 for the nine months ended
September 30, 1994 to $2,544,064 for the nine months ended September 30, 1995,
or 213.2%.
Costs of Goods Sold ("COGS") were $401,317 for the nine months ended September
30, 1994 and $1,005,066 for the nine months ended September 30, 1995,
representing 46.4% and 44.3% of revenues, respectively. COGS are primarily
related to the mix of product sales between service and software sales, which
carry a lower cost, and hardware sales, which carry a higher cost. Although
some improvement resulted from systems and procedures implemented to reduce
costs through better cost estimation and controls, COGS are expected to vary
based on product mix in the sales of given periods. Both periods included a
comparable mix of revenue from service, software, and hardware sales.
During 1994 a reserve of approximately $281,000 was established for the costs
of reinstallation of software and related required hardware at certain customer
sites in order to remedy technical problems as well as to standardize the
Company's products to allow for more cost effective ongoing customer support.
During the nine months ended September 30, 1995 approximately $21,400 has been
expended for reinstallations. Some delay in the reinstallation program
resulted from customer requests to defer any disruption to their operations or
requirement for staff retraining during their primary operating season.
Management believes that the reserve will be adequate to cover the costs of all
such reinstallations without further provisions. Management further believes
that the cost for reinstallations may be reduced if proposed software upgrades
for existing products can be made to satisfy customer requirements, eliminating
the need for hardware upgrades which represented a significant amount of the
original estimate of reinstallation costs.
Selling, general and administrative expenses ("SG & A") increased 212.0% from
$1,208,396 during the nine months ended September 30, 1994 to $3,769,878 during
the nine months ended September 30, 1995. During the first nine months of
1994 the Company was actively engaged in raising capital and reduced
expenditures in all areas of its operations until adequate funding was
obtained. Upon completion of its public offering in October 1994, the Company
began to restructure by first recruiting experienced management and staff. The
Company then completed two acquisitions to enhance its product line and to
introduce the Company to markets not previously accessible to it. Management
believes that as a result of these acquisitions the Company can increase its
revenues and become a more diverse and profitable company much sooner than
would otherwise have been possible. The costs of implementation of its growth
plan including the costs of integrating the operations and software of the
three companies are primarily responsible for the increase in SG & A for the
nine months ended September 30, 1995. More specifically, personnel-related
expenses, which included fees paid to consultants who held key positions in
sales, marketing, technical and executive management increased 165.1% from
approximately $770,000 for the nine months ended September 30, 1994 to
approximately $2,041,000 for the nine months ended September 30, 1995; legal ,
accounting , and other professional fees increased 453.3% from approximately
$75,000 for the nine months ended September 30, 1994 to approximately $415,000
for the nine months ended September 30, 1995; travel and entertainment expense
increased 142.0% from approximately $119,000 for the nine months ended
September 30, 1994 to approximately $288,000 for the nine months ended
September 30, 1995; amortization of financing and acquisition costs increased
459.2% from approximately $71,000 for the nine months ended September 30, 1994
-17-<PAGE>
to approximately $397,000 for the nine months ended September 30, 1995;
telephone expense increased 156.9% from approximately $51,000 for the nine
months ended September 30, 1994 to approximately $131,000 for the nine months
ended September 30, 1995. Bad debt increased from approximately ($7,000) for
the nine months ended September 30, 1994 to approximately $151,000 for the nine
months ended September 30, 1995. All other SG & A expenses cumulatively
increased 184.4% from approximately $122,000 for the nine months ended
September 30, 1994 to approximately $347,000 for the nine months ended
September 30, 1995. SG & A personnel expenses include non-cash stock options
or grants of $117,774 for the nine months ended September 30, 1994 and
$326,250 for the nine months ended September 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in October 1985 through September 30, 1995 the Company has
incurred a cumulative loss of $10,122,638, with a loss of $2,544,064 for the
nine months ended September 30, 1995. The Company has engaged in various
financing and investing activities.
During October 1994, the Company completed a public offering of 920,000 units
at a price of $5.50 per unit, each unit consisting of one share of Common Stock
and two redeemable warrants each to purchase one share of Common Stock. Net
proceeds to the Company were approximately $3,900,000.
From January through August 1994 two individuals loaned the Company an
aggregate of $959,505 at an interest rate of 8% per annum. In September 1994,
these individuals agreed to defer repayment of the loans until October 1996.
During October 1994, $200,000 of the $959,505 in outstanding loans was
converted into 36,364 shares of the Company' Series A Preferred Stock. In June
1995 the Company issued 95,950 shares of its newly designated Series A
Preferred Stock in satisfaction of the $759,505 outstanding loan balance and in
conversion of the 36,364 of previously designated Series A Preferred Stock.
In December 1994, Lasergate Systems Canada Company, a wholly-owned subsidiary
of the Company, acquired the capital stock of Delta for an aggregate
consideration of $1,200,000. The purchase price consisted of $500,000 of cash,
a promissory note of $700,000, convertible into 100,000 shares of the Company's
Common Stock. The promissory note was immediately converted into Common Stock.
In January 1995, the Company acquired substantially all of the assets of GIS
for an aggregate consideration of approximately $3,700,000. The purchase price
consisted of 109,333 shares of the Company's Common Stock, 111,800 shares of
the Company's Series B Preferred Stock and the Company's unsecured, non-
interest bearing promissory notes in the aggregate amount of $2,324,335. The
promissory notes are payable at the Company's option in cash or convertible
Preferred Stock. In addition, the Company has agreed to assume certain
liabilities of GIS and has loaned GIS $559,000 which has been evidenced by a
promissory note of GIS due March 1996, which is secured by the pledge to the
Company of the 111,800 shares of the Company's Series B Preferred Stock.
On June 15, 1995 the Company borrowed $300,000 under a Secured Convertible
Promissory Note due March 30, 1996, advanced from a former shareholder at an
annual interest rate of 9.5%.
The Company anticipates that the improvements in its products, the addition of
new products and access to new markets resulting from the acquisitions of Delta
and GIS will result in substantial revenue growth, of which there can be no
assurance. Although the Company believes that it can achieve operating
-18-<PAGE>
profitability, management determined that prior to reaching that stage it will
require additional capital to fund the costs associated with integrating the
products and operations of the two acquired companies and substantial sales and
marketing costs to promote the restructured Company and its products.
In October 1995, the Company completed a private placement of 208,600 shares of
non-transferable, convertible Series D Preferred Stock with net proceeds to the
Company of approximately $1,820,000. The Company is considering raising
additional funds and may do so through the private or public sale of its Common
Stock. There can be no assurance the Company will be able to obtain such
financing on acceptable terms, if at all.
At September 30, 1995 the Company had a backlog of approximately $865,000.
Part II-Other Information
Item 6-Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: The Company has not filed any reports on Form 8-K
during the quarter ended September 30, 1995.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended September 30, 1995.
-19-<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.
Lasergate Systems, Inc.
Registrant
Date: November 14, 1995 /s/Vickie L. Guth
Vickie L. Guth
Vice President of Finance and
Chief Financial Officer
-20-<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 83,824
<SECURITIES> 0
<RECEIVABLES> 741,923
<ALLOWANCES> 167,733
<INVENTORY> 138,754
<CURRENT-ASSETS> 896,016
<PP&E> 396,991
<DEPRECIATION> 172,673
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