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 March 31, 1996.
/ / 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
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(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 March 31, 1996
- ----- -----------------------------
Common stock $0.03 par value 4,789,476
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
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Part I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of March 31, 1996 3
(unaudited) and December 31, 1995
Consolidated Statements of Operations 4
(unaudited) for the three months ended March 31,
1996 and 1995
Consolidated Statements of Cash Flows 5
(unaudited) for the three months ended March 31,
1996 and 1995
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan 11
of Operation
Part II. OTHER INFORMATION
-----------------
-2-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents $ 311,507 $ 656,506
Account receivable, net of allowance for
doubtful accounts of $43,777 and $36,000 900,713 439,311
Account receivable, related party 199,359 199,359
Inventories 294,941 325,664
Prepaid expenses 26,985 84,392
------------ ------------
Total current assets 1,733,505 1,705,232
Property and equipment, net 240,557 246,568
Systems and software costs, net of amortization of $354,167
and $283,333 1,345,833 1,416,667
Goodwill, net of amortization of $165,827 and $132,579 2,482,447 2,515,694
Customer lists and support contracts, net of amortization of
$88,542 and $70,833 336,458 354,167
Other assets, net 157,901 167,908
------------ ------------
$ 6,296,701 $ 6,406,236
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Note payable, related party $ 300,000 $ 300,000
Notes payable, other 21,757 21,757
Accounts payable, trade 684,202 634,863
Deferred revenues 922,355 729,406
Accrued product costs 93,807 297,000
Accrued expenses 240,451 272,104
------------ ------------
Total current liabilities 2,262,572 2,255,130
Promissory notes payable, stockholders with conversion features 2,324,335 2,324,335
Common stock subject to put options 140,000 140,000
------------ ------------
Total liabilities 4,726,907 4,719,465
Stockholders' equity:
Preferred stock, $.03 par value, 2,000,000 shares authorized,
207,750 and 387,750 shares issued and outstanding at
March 31, 1996 and December 31, 1995, respectively 6,233 11,633
Common stock, $.03 par value, 20,000,000 shares authorized,
4,789,476 and 3,125,013 issued and outstanding at
March 31, 1996 and December 31, 1995, respectively 143,684 93,751
Additional paid-in capital 14,068,188 14,065,743
Less: Common stock, $.03 par value, 20,000 shares and 20,000
shares at March 31, 1996 and December 31, 1995, respectively,
subject to put options (140,000) (140,000)
Note receivable, shareholders (559,000) (559,000)
Accumulated deficit (11,949,311) (11,785,356)
------------ ------------
Total stockholder's equity 1,569,794 1,686,771
------------ ------------
$ 6,296,701 $ 6,406,236
============ ============
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
Lasergate Systems, Inc. And Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended March 31,
----------------------------
1996 1995
------ ------
Revenues $ 1,465,989 $ 618,455
Operating Expenses:
Cost of revenues 751,890 365,555
Development 26,677 395,032
Selling, general and administrative 863,810 913,358
----------- -----------
Operating loss (176,388) (1,055,490)
Other income (expense)
Interest (7,125) (12,324)
Other, net 19,558 --
----------- -----------
Loss before income taxes (163,955) (1,067,814)
Income taxes -- --
----------- -----------
Net loss $ (163,955) $(1,067,814)
=========== ===========
Net loss per common share $ (.04) $ (.35)
=========== ===========
Weighted Average Common Stock Outstanding 4,632,809 3,023,013
=========== ===========
The accompanying notes are an integral part of these statements.
-4-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
March 31,
---------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(163,955) $(1,067,814)
Adjustments to reconcile net loss
to cash used in operating activities:
Depreciation and amortization of property and equipment 4,379 12,216
Amortization of intangibles 132,496 132,208
Increase in provision for doubtful accounts 7,777 --
Compensation recognized from grant of stock options 46,875 138,750
Decrease (increase) in:
Accounts receivable, trade (479,782) (99,503)
Inventories 30,723 (120,041)
Prepaid expense 57,407 145
Other (principally related to prepaid insurance) 10,007 12,775
Increase (decrease) in:
Accounts payable and accrued expenses 17,686 (80,052)
Accrued Product Costs (203,193) --
Deferred revenue 192,949 250,682
----------- -----------
Net cash used in operating activities (346,631) (820,634)
Cash flows from investing activities:
(Additions) to, disposal of, property and equipment 1,632 (31,424)
Product design costs -- (17,684)
Note receivable, stockholders -- (559,000)
Repayment of advances to joint venture -- 29,658
----------- -----------
Net cash provided (used) in investing activities 1,632 (578,450)
----------- -----------
Cash flows from financing activities:
Proceeds from loans, related parties -- 559,505
Repayment of loans, other -- (42,312)
----------- -----------
Net cash provided by financing activities -- 517,193
----------- -----------
Net increase (decrease) in cash and cash equivalents (344,999) (881,891)
Cash and cash equivalents, beginning of period 656,506 1,589,837
----------- -----------
Cash and cash equivalents, end of period $ 311,507 $ 707,946
=========== ===========
</TABLE>
See accompanying notes to financial statements.
-5-
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1- FINANCIAL STATEMENT PRESENTATION AND OTHER INTERNAL PRESENTATION
INTERIM 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, 1995. 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.
OPERATIONAL AND FUNDING MATTERS AND REPORTING BASIS
The information contained in Note 3 to the Financial Statements included in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1995 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.
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. However, for the three months ended March 31, 1996,
the Company incurred a loss of $163,955 and has an accumulated deficit of
$11,949,311 at March 31, 1996 and used cash in operating activities of $346,631
during the first quarter of 1996.
In recent years the Company has had to rely on proceeds from private and public
placements and loans (some of which were converted to stock) from former
principal stockholders to fund its operations. (See below).
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the Company's balance
sheet is dependent upon continued operation of the Company, which in turn is
dependent upon the Company's ability to succeed in its future operations and
obtain additional financing. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue in existence.
As more fully described in the Company's SEC Form 10-KSB for 1995, management
has taken various actions and revised its operating and financial requirements,
which it believes are sufficient to provide the Company with the ability to
continue existence. On March 27, 1996, the Company commenced the Private
Placement of the Company's newly established Series E Preferred Stock at $10.00
per share. Through the date of this filing 159,000 shares of the Series E
Preferred Stock successfully closed with the Company receiving total proceeds,
net of offering costs of $1,450,582. (See Note 7). The Company has received
stock subscriptions for the purchase of an additional 158,500 shares of Series E
Preferred Stock which will result in an additional $1,381,918 net proceeds
(after offering costs) to the Company if and when paid. There can be no
assurance, however, that the Company will receive full payment of such
subscriptions.
REVENUE RECOGNITION
The Company's revenues recognition policy is fully explained in the notes to the
Company's financial statements in its SEC Form 10-KSB for 1995. During the
quarter ended March 31, 1996, since one of the Company's customer installation
was for a duration which would exceed 90 days, the percentage of completion
method has been used to account for income. The contract included stages of
acceptance by the customer, and profitability and collection of the account are
reasonably assured.
-6-
<PAGE>
CLASSIFICATION OF EXPENSES
Cost of revenues includes the costs associated with the hardware and software
acquired for the Company's customers and the estimated direct costs associated
with the engineering (mostly software customization) and installation of the
system. Cost of revenues also includes the estimated direct cost related to the
support and maintenance of the Company's service contracts. While the Company
believes that the estimated direct costs are reasonably stated and classified in
all material respects, the Company intends to further refine its procedures of
capturing and reporting this information in 1996. Such refinement could, to some
extent, effect the comparability of the information being reported on.
For quarterly reporting in 1995, cost of revenues included principally the
hardware and software acquired for customer installations and support. The
estimated direct costs associated with engineering and installing systems and
providing customer support were not specifically categorized and reported as
cost of revenues as was done in 1996. In 1995, such costs were included in
development costs. In 1996, approximately $107,000 of these types of costs were
separately identified and classified as cost of revenues.
The Company's cost of revenues, development and selling, general and
administrative expense categories for the first quarter 1996 are consistent with
the expense classification presented in the Company's financial statements in
its SEC Form 10-KSB for 1995. The Company is currently in process of recasting
the quarterly information for 1995 to conform to that being used for 1996 and
used for its annual reporting in 1995. This information will be available for
the Company's quarter and year-to-date reporting at June 30, 1996.
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 2-ACQUISITION OF BUSINESSES AND SETTLEMENT OF ACQUISITION OBLIGATION
Effective January 1, 1995, the Company purchased 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 for the entertainment industry. The Admits
Gold, Select-a-Seat and Facility Management System are all products which the
Company obtained through the acquisition. The purchase price for the acquisition
was valued at $3,700,000 and was based upon the expected revenues of GIS and the
competitiveness of its products. 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, the Company's convertible promissory note in the principal
amount of $591,000 and the Company's convertible promissory note in the
principal amount of $1,733,335. In addition, the Company agreed to assume
certain liabilities of GIS and loaned GIS $559,000. Two executives formerly
associated with GIS, also agreed to serve as consultants to the Company for
terms which have since expired for fees of $11,051 and $1,666 per month,
respectively. 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.
In order to simplify the Company's capital and debt structure, on March 11,
1996, the Company and GIS agreed to, among other things, settle the remaining
obligation to GIS totaling $2,324,335 by the Company making a cash payment to
GIS of $1,550,000, canceling the $559,000 note receivable from GIS, and
canceling the $199,359 account receivable from GIS, and with GIS returning to
the Company for retirement the 109,333 shares of Common Stock and 111,800 shares
of Series B Preferred Stock previously issued to GIS. On April 12, 1996, the
transactions contemplated by the March 11 agreement were consummated.
-7-
<PAGE>
NOTE 3 - STOCKHOLDERS' EQUITY
In October 1995, the Company completed a private placement of 208,600 shares of
non-transferable convertible Series D Preferred Stock. Subsequent to the closing
one of the investors converted 28,600 shares of Series D Preferred Stock
purchased by him into 110,000 shares of Common Stock. During the first quarter
of 1996 the remaining 180,000 shares of Series D Preferred Stock were converted
by investors into 1,664,463 shares of Common Stock.
Effective March 27, 1996, the Board of Directors established one additional
series of preferred stock; Series E. The authorized number of Series E 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. The Series E Shares are
convertible into shares of the Company's common stock. On March 27, 1996, the
Company commenced a Private Placement of shares of the Company's newly
established Series E Preferred Stock at $10.00 per share. Through the date of
this filing 159,000 shares of the Series E Preferred Stock successfully closed
with the Company receiving total proceeds, net of offering costs of $1,450,582.
The Company has received stock subscriptions for the purchase of an additional
158,500 shares of Series E Preferred Stock which will result in an additional
$1,381,918 net proceeds (after offering costs) to the Company if and when paid.
There can be no assurance, however, that the Company will receive full payment
of such subscriptions.
Paid-in capital has also increased in 1996 by approximately $47,000 as a result
of the recognition of compensation related to executive stock options.
NOTE 4-NOTES PAYABLE, RELATED PARTY
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%. As of the date of this filing the note remains
unpaid.
NOTE 5 - LEGAL PROCEEDINGS
The Company's founder and former President and Chief Executive Officer has
commenced an action against the Company in Florida state court. The former
President alleges, among other things, that he was wrongfully terminated from
his employment and seeks damages which in the aggregate could exceed $1,000,000.
The Company believes that the former President's suit is without merit and
intends to vigorously defend the action.
NOTE 6-SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
INTEREST AND INCOME TAXES PAID:
Three Months Ended March 31,
----------------------------
1996 1995
---- ----
Interest - $1,824
Income taxes - -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
1995:
The Company acquired substantially all the assets of GIS Systems Limited
Partnership for total consideration of approximately $3,700,000 (common stock of
$765,331, preferred stock of $559,000, and promissory notes of $2,324,335) and
recorded assets at aggregate fair value of approximately $3,750,000, with
assumed payables of approximately $50,000.
-8-
<PAGE>
NOTE 7 - SUBSEQUENT EVENTS
On March 27, 1996, the Company commenced a Private Placement of shares of the
Company's newly established Series E Preferred Stock at $10.00 per share.
Through the date of this filing the sale of 159,000 shares of the Series E
Preferred Stock successfully closed with the Company receiving total proceeds,
(net of offering costs) of $1,450,582. The Company has received stock
subscriptions for the purchase of an additional 158,500 shares which will, if
and when paid, represent net proceeds of $1,381,918 (after offering expenses are
paid). There can be no assurance, however, that the Company will receive full
payment of such subscriptions.
On March 11, 1996, the Company and GIS Systems Limited Partnership executed an
agreement whereby the parties agreed to, among other things, settle the
remaining obligation to GIS totaling $2,324,335 by making a cash payment to GIS
of $1,550,000, canceling the $559,000 note receivable from GIS, canceling a
$199,359 account receivable from GIS, and with GIS returning to the Company for
retirement the 109,333 shares of common stock and 111,800 shares of Series B
Preferred Stock previously issued to GIS. The cash payment of $1,550,000 to GIS
on April 12, 1996 was principally provided from the proceeds of the Private
Placement described above.
-9-
<PAGE>
The following table sets forth a pro forma condensed balance sheet as of March
31, 1996, as if the sale of 159,000 shares of the Series E Preferred Stock
successfully closed as of the date of this filing, and the GIS settlement,
treated as a redemption and retirement of the related securities, discussed
above had occurred as of March 31, 1996.
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------------------------
PROFORMA PROFORMA
HISTORICAL ADJUSTMENTS AS ADJUSTED
--------------- ---------------------- ---------------
<S> <C> <C> <C>
Cash $ 311,507 (1) 1,450,582 $ 212,089
(2) (1,550,000)
Other Current Assets 1,421,998 (2) (199,359) 1,222,639
------------- -----------
Total Current Assets 1,733,505 1,434,728
Non-Current Assets 4,563,196 4,563,196
------------- -----------
Total Assets $ 6,296,701 $ 5,997,924
============= ===========
Total Current Liabilities $2,262,572 $ 2,262,572
Promissory Notes Payable, Stockholders 2,324,335 (2) (2,324,335) -
Common Stock Subject to Put Option 140,000 140,000
------------- -----------
Total Liabilities 4,726,907 2,402,572
STOCKHOLDERS' EQUITY
Preferred Stock 6,233 (1) 4,770 7,649
(2) (3,354)
Common Stock 143,684 (2) (3,279) 140,405
Additional Paid-In Capital 14,068,188 (1) 1,445,812 15,536,609
(2) 22,609
Put Option (140,000) (140,000)
Notes Receivable, Stockholders (559,000) (2) 559,000 -
Accumulated Deficit (11,949,311) (11,949,311)
------------- -----------
Total Stockholders' Equity 1,569,794 3,595,352
------------- -----------
Total Liabilities & Stockholders' Equity $6,296,701 $ 5,997,924
============= ===========
</TABLE>
(1) Reflects Private Placement, see above
(2) Reflects GIS settlement, see above
-10-
<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 MARCH 31, 1996 VERSUS THREE MONTHS ENDED MARCH 31, 1995
Revenues:
Revenues increased to $1,465,989 for the first quarter of 1996 from $618,455 for
the first quarter of 1995, an increase of $847,534 or 137%. Revenues consisted
of new system sales of $1,305,559 in 1996 and $543,455 in 1995, and
installations and maintenance and support to existing customers of $160,430 in
1996 and $75,000 in 1995. The continuing increase in revenues is primarily
attributable to marketing activities by a larger sales staff, from the Company's
enhanced products, and from new market accessibility resulting from the
acquisition of Delta Information Services, Inc. ("Delta") in December 1994 and
GIS Limited Partnership ("GIS") effective January 1995. Revenues for the first
quarter of 1996 included approximately $324,000 from a specific customer
contract being accounted for on a percentage of completion method. (See Note 1
to the financial statements).
Cost of Revenues:
Cost of revenues for the first quarter of 1996 includes the costs associated
with the hardware and software acquired for the Company's customers and the
estimated direct costs associated with the engineering and installation of the
systems, and the provision of customer support.
For the first quarter of 1995, cost of revenues includes principally the third
party hardware and software acquired for customer installations and support. The
estimated direct costs associated with engineering and installing systems and
providing customer support were not specifically categorized and reported as
cost of revenues. In 1995, such costs were included in development costs and
selling, general and administrative expenses.
For discussion purposes herein, cost of revenues will exclude the amounts of
direct cost allocated principally from development costs to cost of revenues in
1996.
Cost of revenues (exclusive of direct costs of $106,833) increased to $645,057
from $365,555 in 1995, representing a $279,502, or 76%, increase. The increase
resulted from the increased sales. As a percentage of revenues, cost of revenues
in 1996 was 44% of revenues compared to 59% of revenues in 1995. The ratio of
cost of revenues to revenues is a function of whether the sales or services are
hardware or software intensive. Hardware sales result in lower gross margins as
hardware is not developed by the Company but acquired, as is certain software,
for the customers. Sales of the Company's software and related systems
development and support activities provides the Company greater gross margins.
In addition, the Company's ability to price its products and services favorably
impacts gross margins and therefore the cost of revenues percentage. These
factors contributed to the change in the cost of revenues to revenues percentage
between 1996 and 1995 since in 1996 a greater percentage of revenues was made up
of systems development and support.
The Company's cost of revenues, development and selling, general and
administrative expense categories for the first quarter 1996 are consistent with
the expense classification presented in the Company's financial statements in
its SEC Form 10-KSB for 1995. The Company is currently in process of recasting
the quarterly information for 1995 to conform to that being used for 1996 and
used for its annual reporting in 1995. This information will be available for
the Company's quarterly and year-to-date reporting at June 30, 1996.
-11-
<PAGE>
Development Costs:
Development costs decreased to $133,510 ($26,677 plus $106,833 of direct costs)
in 1996 from $395,032 in 1995, a decrease of $261,522, or 66% . The decrease
reflects the costs of development of several new products and the costs in 1995
associated with integrating products of the Company, GIS and Delta which did not
also occur in 1996. The Company does intend to continue to develop products and
enhance existing products to ensure competitive viability in the marketplace.
In addition, during the first quarter of 1996, existing development personnel
were used to enhance certain systems previously installed in 1995 or earlier.
These related costs of approximately $203,000 were charged against a product
cost reserve established at December 31, 1995 for this purpose. Accordingly,
since these costs were previously anticipated and expensed in 1995, development
costs for 1996 have been favorably impacted.
Selling, General and Administrative:
Selling, general and administrative expenses (SGA) decreased to $863,810 in 1996
from $913,358 in 1995, representing a $49,548 or 5% decrease. As a percentage of
revenues, these expenses were 59% in 1996 and 148% in 1995 which reflects the
increase in revenues in 1996.
While the dollar amounts for SGA are not significantly different, the
percentages to revenues are dramatically different which reflect the Company's
ability, to a certain extent, to handle greater sales volume without significant
increase in support personnel and facility costs. Operationally though, as
explained elsewhere, the Company in the first quarter of 1995 was at the
beginning of the transition period of integrating the operations and software of
three companies- itself, GIS and Delta. Those integration expenses (principally
consulting and personnel costs) are reflected in 1995 expenses and not 1996. As
part of the integration process, the Company used consultants which are no
longer retained, accounting for a large portion of the higher level of SGA in
1995.
Bad debt expense was $19,962 for the first quarter of 1996 compared to $-0- for
the first quarter of 1995. Rent expense for corporate offices has increased from
$14,566 for the first quarter of 1995 to $33,738 for the first quarter of 1996,
a $19,172 increase related to the Company's move to new corporate offices.
Net loss decreased to $163,955 ($.04 a share) for the first quarter of 1996 from
$1,067,814 ($.35 a share) for the first quarter of 1995. The components of the
decrease in the Company's net loss are explained above.
LIQUIDITY AND CAPITAL RESOURCES
From its inception in October 1985 through March 31, 1996 the Company has
incurred a cumulative loss of $11,949,311, with a loss of $163,955 for the three
months ended March 31, 1996.
In February 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 valued at $765,331;
111,800 shares of the Company's Series B Preferred Stock valued at $559,000, and
the Company's unsecured, non-interest bearing promissory notes in the aggregate
amount of $2,324,335. In addition, the Company agreed to assume certain
liabilities of GIS and loaned GIS $559,000 as evidenced by a promissory note
from GIS due March 31, 1996, which was secured by the pledge to the Company of
the 111,800 shares of the Company's Series B Preferred Stock.
In order to simplify the Company's capital and debt structure, on March 11,
1996, the Company executed an agreement with GIS in which the Company agreed to
make a cash payment of $1,550,000 and cancel the $559,000 note receivable from
GIS and the $199,359 account receivable from GIS in exchange for GIS canceling
the Company's promissory notes in the aggregate amount of $2,324,335 and GIS
returning their 109,333 shares of Common Stock and their 111,800 shares of
Series B Preferred stock for retirement. On April 12, 1996, the transactions
contemplated by the March 11 agreement were consummated.
-12-
<PAGE>
The cash payment of $1,550,000 made to GIS was principally provided from the net
proceeds of the Private Placement described below.
On March 27, 1996, the Company commenced a Private Placement of 350,000 of
shares of the Company's newly established Series E Preferred Stock at $10.00 per
share. Through the date of this filing the sale of 159,000 shares of the Series
E Preferred Stock successfully closed with the Company receiving total proceeds,
(net of offering costs) of $1,450,582. The Company has received stock
subscriptions for the purchase of an additional 158,500 shares which, if and
when paid, will result in net proceeds of $1,381,918 (after offering expenses
are paid). There can be no assurance, however, that these subscriptions will be
paid in full. The Company is considering raising additional funds and may do so
through the sale of common and/or preferred stock.
At December 31, 1995, the Company reserved $297,000 to enhance systems installed
in earlier years. During the first quarter of 1996, $203,000 was spent for these
enhancements completed at 16 sites. As of March 31, 1996, $94,000 of the amount
reserved at December 31, 1995 remains available for this purpose and Management
believes this is sufficient to accomplish the remaining enhancements to be
performed during 1996. While these enhancements are likely to result in future
product and service revenues, no assurance can be given.
Since the Company does not purchase components for its products until an order
is received, there is typically a backlog of orders for systems. The Company
defines backlog as a signed contract, typically with some type of financial
assurance such as a deposit. As of March 31, 1996 and December 31, 1995, the
Company's backlog was approximately $1,500,000 and $1,200,000, respectively.
While no assurances can be given, management believes that the current
organization infrastructure and the Company's products are sufficient to support
revenues greater than the levels achieved in 1995. In addition, while no
assurances can be given, management believes that the Company's operations
should continue to progress throughout 1996 and that the net proceeds from the
completion of the April 1996 Private Placement and the operating revenues from
sales in 1996 should be sufficient to fund operations through 1996. Any
significant new marketing and development programs will only be initiated if
additional external financing has been obtained. See "Operational and Funding
Matters and Reporting Basis" of Note 1 to the financial statements.
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 March 31, 1996.
All other items required in Part II have been previously filed or are not
applicable for the quarter ended March 31, 1996.
-13-
<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: May 16, 1996 /s/ John P. Warnick
------------ -------------------
John P. Warnick
Vice President of Finance and
Chief Financial Officer
-14-
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