SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[x] Annual report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 for the fiscal year ended December 31, 1998
[ ] Transition report under 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.
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(Name of small business issuer in its charter)
FLORIDA 59-2543206
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State or other jurisdiction (I.R.S. Employer Identification)
of incorporation or organization
2189 CLEVELAND STREET, SUITE 230, CLEARWATER, FLORIDA 33765
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (727) 803-1574
Securities registered under Section 12 (b) of the Exchange Act: NONE
Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, PAR VALUE $0.03 PER SHARE REDEEMABLE WARRANTS
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(Title of Class) (Title of Class)
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 90 days. Yes [ ] No [X]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
The issuer's revenue for its most recent fiscal year was $3,013,311.
At August 31, 1999, the aggregate market value of the Common Stock of Lasergate
Systems, Inc. held by non-affiliates (7,438,545 shares) was $743,855.
At June 31, 1999, 15,299,393 shares of Common Stock were outstanding
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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PART I
Some of the statements contained in this document are based on current
expectations. These statements are forward looking and actual results may differ
materially based upon certain risk factors. These impacting factors may include,
but are not limited to, technological change, availability and cost of
financing, long-term investment cycles, customer acceptance, product ship
schedules, product integration, saturation, corporate licenses, cost of
revenues, sales and marketing and support investments, intellectual property
rights, and litigation.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Lasergate Systems, Inc. (the "Company") is a corporation that was organized
under the laws of the State of Florida in 1985. The Company is engaged in the
development, assembly, marketing, servicing, installation, and sales of
computerized admission control and revenue accounting systems. These products
include a reserved seating ticketing system, general admission ticketing system
and an access control solution which are marketed to ticketing operations at a
variety of entertainment venues. The Company's products are generally marketed
to the facility based entertainment industry and are used at many types of
facilities, including amusement parks, theme parks, ski resorts, multi-purpose
stadiums and arenas, performing arts theaters, museums, casinos, aquariums, and
zoos in the United States, Canada, and certain countries outside of North
America.
The Company developed an access control system that employs applications of
various technologies to automate and verify admission to attractions and to
provide revenue control and accountability, while reducing fraud inherent in
situations involving cash transactions when proper controls are not implemented.
These technologies include proximity or radio frequency identification (RFID)
scanning, laser (bar code) scanning, and reading magnetic stripe data. The
system creates a detailed record of and permits individual charges for both
overall facility admission and access to each of its attractions or events. The
access control system is designed to interface with any of the Company's general
admission ticketing systems, thus providing a seamless solution.
In March, 1997, the Company introduced its newest version of the general
admission ticketing product called ADMITS FOR WINDOWS(R), a WINDOWS NT(R)
ticketing system. The system provides computerized point-of-sale general
admission tickets, including timed admission tickets and/or wristband tickets
for amusement and water parks. The Company has discontinued the sale and support
of its previous general admission products, ADMITS GOLD and ADMITS PLATINUM.
The Company markets its VIDEO IMAGING SEASON PASS system, in conjunction with
the Admits for Windows(R) product. This system allows the venue to issue
on-the-spot personalized credentials for season passes, membership cards, and
employee cards. Producing a personalized credential involves bringing together
information, a photo image, a bar code, and some fixed text onto a medium for
tamper-proof, durable use by a customer, employee, or member.
The Company's reserved seating ticketing product, "SELECT-A-SEAT," allows the
customer to sell tickets and assigns individual seats for a particular
performance or for a series of performances. The SELECT-A-SEAT system controls
individual box office ticket sales and optionally has the capability of taking
telephone and mail order reservations, group reservations, remote outlet sales
and season subscription sales.
The Company has installed general admission ticketing systems in over 200
facilities including:
Sun Valley, a ski and golf resort in Sun Valley, Idaho
World of Coca Cola, Atlanta, Georgia and Las Vegas,
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Blackpool Pleasure Beach, Ltd., Blackpool, England
Regal Cinemas Fun Centers
Art Gallery of Ontario
National Science Center
Museum of African American History, Detroit, Michigan
The Company's SELECT-A-SEAT system is used by over 80 facilities including:
Contemporary Group (providing tickets for the St. Louis
Blues), St. Louis, Missouri
Current installations vary from systems which provide for simple general
admission tickets to those which allow access by patrons to an entertainment
facility, to systems which provide for more complex arrangements, such as
tickets of decrementing value, (the point or monetary value of the ticket
decreases with each use), which permit limited access to individual events and
attractions within a park. Individually bar-coded tickets are printed by the
ADMITS FOR WINDOWS(R) system and authorized for use by the holder upon printing.
Relevant data concerning the remaining value and restrictions of the ticket are
available from the access control system each time the bar code is read and
processed. With bar codes, no information is actually contained in the bar code,
but instead is held by the ADMITS FOR WINDOWS(R) system in individual records
identified by the unique bar code. The bar code is scanned by a laser scanner
and, if the bar code is valid, the access control system releases a turnstile.
This validation process, in conjunction with proprietary processing and storage
features, permits the ADMITS FOR WINDOWS(R) system to utilize many printing
point-of-sale stations and turnstiles at individual attractions to process
simultaneous information at all locations.
PRODUCT STRATEGY
The Company's product strategy is focused on integrating leading edge hardware
and software technologies into a cohesive family of products that provide users
with the flexibility and control to positively impact their business results.
The Company began selling the next generation of its general admission ticketing
system, ADMITS FOR WINDOWS(R), in 1996. It is a WINDOWS(R) version that includes
ticketing, access control, concession sales, reporting and advanced reservations
as well as other features currently under development designed to meet the many
needs of WINDOWS(R) based clients. The Company continues to sell, install and
support its Select-a-Seat product, which is designed for reserved seating
venues.
ADMITS FOR WINDOWS(R)
ADMITS FOR WINDOWS(R) is A WINDOWs(R) based point-of-sale (POS) system that
integrates technologies that enhance ticketing and access control operation. The
system can be used to issue tickets, wristbands or receipts and provide access
control both for general admission or timed admission events. A minimum
configuration for an Admits for Windows(R) for Windows system presently consists
of the following basic components: a personal computer, a printer, and the
Company's ADMITS FOR WINDOWS(R) ticketing software. It may also have optional
peripherals, including but not limited to: touch screen monitor; specialized
keyboards; ticket, wristband or receipt printer; credit card reader; and a
customer display, as well as third party software for specialized applications.
ADMITS FOR WINDOWS(R) is designed to handle the diverse needs of a ticketing
office including cash control, ticket printing, event set-up and financial
reporting. It can also include point-of-sale software for gift shops and
concession stands, as well as access control using turnstiles and proximity or
radio frequency identification (RFID) scanning or laser (bar code) scanning. The
Company has a registered copyright for ADMITS FOR WINDOWS(R). The
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Company relies upon this copyright as well as a combination of contract and
trade secret laws to protect its proprietary interest in such software (See
"Intellectual Property"). The Company believes that the proprietary nature of
the ADMITS FOR WINDOWS (R) system is a result of the inter-relationship of these
components and the increased number of functions that this relationship
provides, as well as the software which links them, rather than the components
themselves. Additional software systems could include, but are not limited to,
credit card processing, season pass capability, access control, capacity
ticketing, and additional products provided by third parties, such as fund
raising. ADMITS FOR WINDOWS(R) can be a stand-alone POS device or multiple POS
stations networked together, selling from one common inventory of available
events. Using the WINDOWS(R) platform, ADMIts FOR WINDOWS(R) delivers a superior
price/performance ticketing and access control solution.
The ADMITS FOR WINDOWS(R) product architecture uses a layered approach that
provides the user with a relatively powerful set of user definable configuration
options in addition to a high level of integrity of operations. The Company
deploys this product architecture to enhance performance and provide customers
with application and programming flexibility. The configuration layer of the
architecture provides software development tools for custom configurations. By
developing this configuration layer, the Company has given the end user the
ability to configure systems more effectively and efficiently with less risk and
expense of software modifications.
The Company's ADMITS FOR WINDOWS(R) computer software system provides general
admission ticketing for facilities that desire the flexibility of offering
tickets that can be printed for a variety of applications, with and without bar
codes. It ranges from simple entry fees to timed admission and tickets of
decrementing value.
Unlike other forms of admission control, which can be subject to tampering, the
Company's access control system maintains the records for each ticket holder on
the system computer and only recognizes those tickets produced by ADMITS FOR
WINDOWS(R). This makes counterfeiting nearly impossible and prevents ticket
holders from manipulating the value of their ticket. While competitors offer
systems which supply many of the same features as ADMITS FOR WINDOWS(R) the
Company believes that the large number of features and flexibility of its system
gives the Company a competitive advantage in marketing its products (See
"Competition.").
SCANNERS. Scanners can be directly linked to ADMITS FOR WINDOWS(R) software to
read bar-coded tickets produced by the ADMITS FOR WINDOWS(R) software. Scanners
can be hand-held or integrated with access control equipment.
PRICE. The price for the ADMITS FOR WINDOWS(R) system varies widely depending on
the complexity of the system desired, the kinds of additional features added to
the system, and the number of people expected to use the system, which affects
the number of entry points and the equipment required.
ADMITS FOR WINDOWS (R) FEATURES. ADMITS FOR WINDOWs(R) systems are adaptable to
allow a facility to meet its ticketing requirements. Applications range from
ticketing for simple general admission to a facility to more complex ticketing,
such as season passes, tickets which admit the holder to certain or all rides
and/or areas of the park and discount tickets which may only be used at certain
times of the day or on certain days. ADMITS FOR WINDOWS(R) systems are menu
driven, allowing individuals without computer skills to operate them. The
Systems are also flexible, allowing facility personnel to modify the charge
(i.e., apply a coupon or discount, give consideration to the age of the ticket
holder, etc.) to the ticket holder for a given ride or attraction. A ticket or
card can be printed at one of several locations and can include the name of the
facility. The type of ticket and any other information specified by the facility
may also be included. Tickets can be designed in the form of paper tickets for
single day use, laminated plastic cards with photographs for season pass use, or
wristbands for use by children or in water parks.
Facilities are able to utilize the ability of the ADMITS FOR WINDOWS(R) system
to generate a wide variety of ticket types and to easily change the value of a
ticket-type to enhance revenues. For example, an amusement park can lower the
points needed to enter an attraction during low-usage periods to equalize patron
traffic and generate more
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revenue during low-use time periods. Similarly, a park can offer commercial
sponsorship for various attractions during specific time periods, attracting
advertising income. The system's flexibility permits numerous variations of
ticketing strategies to encourage facility attendance and increase usage.
ACCESS CONTROL
BACKGROUND. Bar codes, which have been available for use since the 1970's,
consist of a series of lines or bars printed on paper or plastic. By varying the
width of the bars and spaces between the bars, a bar code provides an item, such
as a ticket, with a unique identity. The Company also utilizes magnetic stripe
and proximity chip technologies providing equally unique characteristics.
The Company's technology, through its admission and access control system,
reduces fraud and labor costs while enhancing accountability and profitability.
Within the United States alone, the entertainment and recreation industries
encompass tens of thousands of facilities adaptable to the Company's systems.
Included are family entertainment centers, fairgrounds, stadiums, water parks,
amusement parks, arenas, zoos, aquariums, museums, ice skating facilities, movie
theaters and convention centers.
Use of bar codes and standard scanning equipment or radio frequency hand-held
scanners permits the access control system to closely monitor general attendance
at both amusement/theme park facilities as well as ski resorts. By determining
the validity of each ticket based on its identification number encoded in its
barcode or proximity chip, these scanning devices reduce the possibility of
admission from counterfeit tickets.
FEATURES. The Company's access control system, which is an optional feature with
the ADMITS FOR WINDOWS(R) family of products, integrates the scanning technology
of bar codes and proximity chips with laser scanners placed in turnstiles, and
hand-held or stationary proximity readers. The Company believes the proprietary
nature of the access control system is the inter-relationship of the components,
as well as the software that links them, rather than the components themselves.
To gain entry to a facility or an individual attraction, the bar code or chip on
or in the card or ticket is scanned by a laser scanner located at the point of
entry. The ticket holder can scan the ticket in any direction. After it is
processed, if the ticket is valid, the access control system responds with an
audible signal and, if desired, opens a turnstile. If the ticket holder does not
pass through the turnstile, the ticket retains its prior value. In facilities
where tickets decrease in value as used, display devices may be placed
throughout the facility to simply read the ticket value so that a holder can
determine the remaining value of a ticket.
Facility personnel can thus access a summary of cash receipts, attendance and
other statistical information about admissions as it is occurring. The computer
can be programmed to generate a summary of the day's activity, including the
cash and credit card transactions, the number of patrons entering the facility
and individual attractions and other statistical information. Such data, along
with summary weekly, monthly or annual data, assists facilities in managing
their business and can highlight irregularities in ticket collections.
SELECT-A-SEAT
The Company's reserved seating software system is called SELECT-A-SEAT.
SELECT-A-SEAT is a broad in-house computerized box office management,
reservation and event marketing system. For reserved seating as well as general
admission sales. SELECT-A-SEAT has 75 installations servicing over 150
facilities, which are selling in excess of 40 million tickets annually in the
United States, Canada, Malaysia, and Singapore. The software can be used for
distribution and control of admission tickets for theaters, professional sports
teams, university athletic departments, multi-purpose arenas, racetracks,
casinos, concert halls, performing arts organizations, museums and IMAX
theaters.
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SELECT-A-SEAT maintains an inventory of available seats in a facility, including
section, row and seat information. At the time of sale, the system prints
tickets for a customer with the pertinent performance information as well as the
seating location . SELECT-A-SEAT displays a series of prompts on a computer
screen, leading the ticket seller through the selling process. Once a ticket
sale is completed, all pertinent performance records are updated and inventory
is simultaneously depleted. SELECT-A-SEAT controls reserved seating and general
admission box office sales, telephone and mail ORDER RESERVATIONS, GROUP
RESERVATIONS, REMOTE OUTLET SALES, AND SEASON SUBSCRIPTION TICKET SALES. THE
SELECT-A-SEAT season ticketing program provides for rapid, efficient and simple
entry of season ticket purchases or account data, seat assignment, payment
posting, account verification, financial auditing, seat status auditing, ticket
printing and client invoicing.
In addition to ticket sales and revenue control, SELECT-A-SEAT stores a database
of ticket buyers. Facilities can maintain such information as name, address,
purchase and payment history, and demographic information such as age,
performance preference and source of account.
When selling tickets, SELECT-A-SEAT displays a series of prompts on a computer
screen, leading the ticket seller through the selling process. Tickets are held
in the system, unavailable for other sales, while a transaction is in process.
Once a ticket sale is completed, all pertinent performance records are updated
and inventory is immediately depleted. Any unsold tickets held for that
transaction are made available again.
The SELECT-A-SEAT season ticketing program provides for fast, efficient and
simple entry of season purchase or account data, seat assignment, payment
posting, account verification, financial auditing, seat status auditing, ticket
printing and client invoicing.
In addition to being a comprehensive ticket and revenue control system,
SELECT-A-SEAT is an important marketing tool. It stores parking, novelty
purchases, and tracks buyer characteristics such as show preference and
advertising response. Demographic and biographic information about a ticket
buyer or prospective ticket buyer is stored in SELECT-A-SEAT.
The SELECT-A-SEAT system is also purchased by entrepreneurs and governmental
agencies to set up regional or citywide ticket distribution networks as an
alternative to a national service bureau. The Select-A-SEAT system is an
alternative to a national service bureau, allowing facilities to control their
own ticket inventory, maintain reasonable service charges, and retain service
charge revenue. The Company has sold and installed SELECT-A-SEAT Systems that
sell tickets where the event is held, as well as over the telephone and through
remote ticket distribution points. When organizations purchase SELECT-A-SEAT,
tickets sold over the telephone and at remote sales locations can carry a per
ticket service charge, which the owner of the system retains. Therefore, many
organizations will purchase SELECT-A-SEAT to be used as a source of generating
additional revenue for the facility as well as controlling inventory and ticket
sales.
In addition to ticket and revenue control functions, SELECT-A-SEAT can be used
to store various characteristics of each individual patron, such as car parking
preferences, novelty purchases made, performance preferences and past responses
to various forms of advertising. These characteristics, combined with
demographic and biographic data, give system owners a powerful tool for direct
mailings.
SELECT-A-SEAT offers features specifically designed to meet the needs of various
market niches such as performing arts venues, large stadiums, citywide ticket
bureaus and professional sports teams.
The price of SELECT-A-SEAT varies depending on the modules purchased and the
number of concurrent users provided for, ranging from a price of $7,000 for a
single terminal box office to $600,000 for multi-terminal access and
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modules to support season tickets, telephone orders, reporting and credit card
authorizations. To date, most of the Select-a-Seat systems installed were sold
for prices ranging from approximately $35,000 to $200,000.
PRODUCT SERVICING AND ADMINISTRATION
The Company has developed a number of common procedures for producing and
servicing each of its products, as explained below.
ASSEMBLY AND TESTING. The Company purchases components for its systems, such as
the computer equipment and circuit boards, turnstiles, metal housings, laser
scanners and ticket printers from a variety of carefully selected sources and
assembles and integrates critical components with its proprietary software. Many
of the components are enhanced by off-the-shelf hardware readily available from
numerous sources. However, all subsections and unique operating environments are
fully integrated and all Company software is tested for proper operation and
delivery of the highest quality product possible.
INSTALLATION AND TRAINING. The Company's technicians install each of the
Company's systems, providing any customization required and overseeing the
placement of all equipment. The purchaser is responsible for installation of
cabling to link each component to the central computer. Low-voltage cables are
dedicated to the system and are not expensive or difficult to install. This
cabling method allows both new and existing purchasers to easily install the
Company's systems and allows existing installations to expand their existing
systems as their business grows. The Company also provides interfaces into
various local area networks (LAN's) and fiber-optics systems.
The Company provides initial training for the administrators and/or facility
personnel of each system at each installation and provides a user manual. The
Company encourages training of personnel at the supervisory level and encourages
these individuals to train the end users that operate the Company's system
within the customer's environment. Additional training is available either at
the installation site or the Company's headquarters at the option and expense of
the purchaser.
WARRANTY MAINTENANCE AND SERVICING. The Company offers a 90-day warranty for its
software products. After the end of the warranty period, the Company offers its
customers maintenance and servicing for an annual fee. The Company provides for
telephone response to calls for assistance during certain business hours and
days, or available around the clock, seven days a week for certain additional
charges. Also provided are standard updates to the system purchased, user guides
and repair or replacement (at customer expense) of hardware components. The
Company's customer support staff is often able to diagnose and correct problems
through computer link-up from the Company's headquarters to each site. If more
extensive modifications are required or if a facility requires training for
additional personnel, Company personnel will make additional site visits for a
fee.
As of December 31, 1998, the Company has accrued $473,775 to provide for costs
which may be incurred to fix software errors ("bugs") including estimated costs
to make discontinued products "Year 2000 Compliant." Management believes all
current products are "Year 2000 Compliant." The Company will not support
products, which are not Year 2000 Compliant.
RESEARCH AND DEVELOPMENT
The Company's engineers are engaged in developing enhancements and applications
for the Company's technology. Such applications are intended to create new
products for the Company's markets and to enhance product competitiveness. The
Company's technical staff will concentrate their efforts on completing the
technology necessary for such new installations, although there can be no
assurance that the Company will be able to develop or market such new products
or applications.
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MARKETING
The Company's overall marketing strategy is focused on a distribution model that
provides for direct distribution. The Company's products are segmented to
address requirements targeted at specific entertainment venues which include
amusement/theme parks, ski resorts, stadiums and arenas, performing arts
theaters, museums, aquariums and zoos and regional ticketing networks.
The Company has traditionally marketed its products and services through a
direct sales channel. Marketing efforts take place principally at selected
industry trade shows which are aligned with the above defined vertical markets,
at regional seminars which focus on application solutions, through targeted
direct mail campaigns and by advertising in trade periodicals. Qualified leads,
generated as a result of these marketing efforts, and high profile, target
accounts selected from the above vertical markets, provide the basis upon which
the direct sales organization pursues new opportunities. Additionally, some new
prospects have been attracted by the positive impressions created through
discussions with or visits to existing customer installations.
The Company views its installed base as a very important source of new leads
and, in fact, it has led to substantial business in 1998. The Company intends to
continue to explore these references and use its installed base as a basis for
getting new business.
The Company markets products that typically require substantial customization in
order to meet the customers' particular requirements. While the Company has
reduced the cost of installing, customizing and servicing (maintaining) the
customized software, these costs have remained higher than desired. With this in
mind, in June 1996, the Company initiated an internal assessment of its
marketing and product management strategies to determine whether the Company's
software could be modified in order to provide a broader range of product
options to its customers without incurring substantial customization costs.
As a result of the assessment, the Company concluded that its principal
application components for ticketing, revenue management and access control will
continue to provide significant benefits to our customers and prospects;
however, rather than continue to market products that require substantial
customization, it will design and offer products in a modular fashion that allow
the user to define how the software is set up or configured for a particular
site through a table-driven set of parameters selected by the user. They will
consist of a primary product with optional pre-developed modules and a
configuration layer to meet specific customer needs that would require limited
or no customization by the Company. Additionally, the implementation of this
project will afford the Company an opportunity to employ the same development
tool (a high level, Rapid Application Development language) for each module that
will provide a high degree of consistency and efficiency in the product
development process. Although no assurances can be given, management expects
that applying the Company's proprietary technology in this fashion will provide
a more effective means of delivering business solutions to the entertainment
industry.
This modular concept was implemented in the Company's new ADMITS FOR WINDOWS(R)
product, which was introduced in May, 1997. For most of 1997, the additional
costs of introducing the new product more than offset any cost savings achieved,
but the Company has begun to achieve cost reductions as a result of this
development effort and new product introduction in areas of product development
and customer support. In addition, the product has a new appearance that is more
user friendly and allows the user to modify a configuration layer (without
access to the source code), which can remain in place when updating the product
to a new revision level. As a result, the Company expects its new products to be
more competitive in the market.
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CUSTOMERS
The Company has sold its products to a variety of customers. Listed below are
examples of installations:
ADMITS FOR WINDOWS(R) AT SUN VALLEY SKI RESORT, SUN VALLEY, IDAHO. ThE ADMITS
FOR WINDOWS(R) at Sun Valley Ski Resort includes 27 point-of-sale stations for
lift ticket sales, six video ID stations for season passes, and 6 radio
frequency ski lift scanning stations for access control. It processes over
400,000 tickets per year.
ADMITS FOR WINDOWS(R) AT ART GALLERY OF ONTARIO, ONTARIO, CANADA. The ADMITS FOR
WINDOWs(R) system at the Art Gallery of Ontario ("AGO") was installed in the
first quarter of 1997. It includes 12 point-of-sale stations for main ticketing,
group sales and back office ticketing applications. The system has enabled AGO
to implement an Art Card which provides bar coded access control through 6 entry
points utilizing custom ticket stock imprinted with selected artwork.
Due to the length of time it takes for the Company to purchase, customize and
install certain of its products, there may occasionally be a backlog of orders
for equipment. As of December 31, 1998 and December 31, 1997, the Company's
backlog was $133,242 and $893,000 respectively. The backlog represented sales to
numerous sites with purchase prices ranging from approximately $90,000 to
$196,000. Management believes the backlog was less than the prior year because
of the transition in sales from legacy products to the new product. As is common
within the software industry, some prospective customers refused to consider a
system that did not have a lengthy history of performance at sizable
installations within their market segment. In 1998, American Skiing Company
(owner of multiple U.S. ski resorts) represented 18.5% of the Company's sales.
Regal Cinemas represented 16.4% of total sales.
COMPETITION
The Company faces significant competition from different sources. This
competitive activity can be analyzed by the following areas: product features
and capabilities, price, service/support, product availability, technology, and
corporate structure.
PRODUCT FEATURES AND CAPABILITIES
ADMITS FOR WINDOWS(R). There are several companies in the United States offering
basic computerized ticketing capabilities which are similar to those the Company
offers through its ADMITS for Windows(R) systems. They include, among others,
PACER CATS and Gateway Ticketing Systems. While those firms have automated
ticketing programs similar to that of the Company, and have resources
substantially greater than those of the Company, the Company believes ADMITS FOR
WINDOWS(R) competes effectively with these companies on the basis of pricing and
ease of installation, use and maintenance.
SELECT-A-SEAT. The Company's Select-a-Seat reserved seating system competes
against companies such as Ticketmaster, Inc. Those companies have resources
substantially greater than the Company. The Company believes that it competes
effectively both in pricing and over all functionality of its Select-a-Seat
system and that the Company has a competitive advantage in that the
Select-a-Seat software will operate with a wide variety of hardware products
that a customer might already own.
ACCESS CONTROL. The primary competing technology for the Company's access
control system is magnetic strips, such as those located on the back of most
credit cards and many forms of paper tickets as well as various forms of bar
code readers. Competitors in this arena include VGS, Gateway Ticketing Systems
and recently Ticketmaster.
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PRICING
There is significant and consistent competitive pressure to adjust and modify
pricing, particularly for hardware components. The Admits for Windows product,
with its differentiated feature set continues to command a premium price,
however as the product matures and as competitors develop their competitive
offerings, the price will need to be reduced. The Select-a-Seat product is
market priced, however, the company has made the decision to forgo any further
improvement to the product.
SERVICE AND SUPPORT
The majority of the Company's competitors have established customer service
centers, help desks, and technical support services. The ability to provide
highly reliable, well skilled support staffs generally extends the competitive
position of each company. The Company has deployed these functions to support
customer needs, and is able to remain competitive in the general admissions
market.
PRODUCT AVAILABILITY
Currently, the Company distributes its products through its direct sales
channel, and although this remains to be an effective method, reserved seat
customers have recently expressed alternative buying preferences. The Company's
major competitors have responded quickly to these preferences by deploying
on-line ticketing through the Internet. Although this method of distribution is
unrefined, it has captured the interest of many, and has created significant
discussion in the market. The Company has recognized the value of the
distribution channel and intends to develop its own offering.
TECHNOLOGY
The Company's products are developed and implemented using industry standard
methodologies and products. The open product architecture provides customers the
ability to access the database from, and to integrate with third party packages.
This capability provides the Company a competitive advantage over many
competitors.
CORPORATE STRUCTURE AND OTHER
The Company is publicly held, and as such is required to disclose all
activities, financial and otherwise. At times, this has been a disadvantage,
allowing competitors to obtain and publicize information in ways that have
created concern among prospective customers.
The Company generally enters into non-disclosure agreements related to its
proprietary technologies and trade secrets with its employees and with those
companies and individuals with which it has contractual agreements.
PRODUCTION AND SUPPLIERS
The Company produces each of its systems by enhancing, integrating and
assembling various components readily available from numerous suppliers. A few
components, such as metal housings and circuit boards are specially manufactured
for the Company to its specifications and ordered from one or more suppliers.
The Company's major suppliers are BOCA Systems, Inc., Peak Technologies, Brady
Signmark, Alvarado Manufacturing Co., Indiana Cash Drawer Corporation, and
Jetstar, Inc. The other products the Company offers are primarily software.
The Company typically assembles and tests its software at its headquarters and
installs it along with appropriate hardware on-site for its various customers.
PERSONNEL
In order to reduce its overhead costs, the Company entered into an agreement
effective December 16, 1996, with a
10
<PAGE>
firm that provides all administrative services relating to payroll, personnel
and employee benefits (an employee leasing agreement). Management continues to
hire, dismiss, set pay rates, and supervise the employees.
As of December 31, 1998, the Company employed (or employee leased) 24
individuals, including 4 in management, 4 in engineering, 4 in operations, 6 in
sales and marketing, 4 in finance and accounting and 2 support staff personnel.
The Company retained one individual as a contract employee and another
individual who served as a part-time consultant.
The Company generally enters into non-disclosure agreements with its employees.
None of the Company's employees is represented by a union or covered by a
collective bargaining agreement. The Company believes its relations with its
employees are excellent.
INTELLECTUAL PROPERTY
The Company holds a copyright for the software comprising the SELECT-A-SEAT
system. The Company has service marks for the names SELECT-A-SEAT and Lasergate
Systems, Inc. and also for the SELECT-A-SEAT and LSi logos. The Company believes
that its copyright and service marks provide it with a competitive advantage and
are valuable assets.
The Company has obtained a copyright for its new ADMITS FOR WINDOWS(R) product
There can be no assurance that a copyright will afford sufficient protection for
the Company's products. In addition, the Company may not have the resources
necessary to enforce its rights with respect to any of its copyrights, trade
secrets, service marks or prospective filings since this can sometimes involve
protracted legal battles.
As referred to above, the Company has service marks for the names SELECT-A-SEAT
and Lasergate Systems, Inc.; ADMITS FOR WINDOWS(R) is a product of the Company.
All other brands and products mentioned in this report are trademarks of their
respective holder(s).
The Company regards certain features of its internal operations, software and
documentation as proprietary. The Company relies on a combination of contract,
copyright, service mark and trade secret laws as well as other measures to
protect its proprietary information. The Company generally enters into
confidentiality agreements with each of its employees and customers and, where
appropriate, with certain vendors, in which each party agrees not to use the
Company's proprietary intellectual property for purposes other than those for
the benefit of the Company. In addition, the Company safeguards its technology
through security measures such as passwords and codes. Policing unauthorized use
of the Company's information and technology is difficult, and there can be no
assurance that these safeguard measures will be successful or that the Company
will have the financial resources necessary to enforce its proprietary rights.
Trade secret laws in the computer technology area are rapidly developing and,
should the Company's proprietary products be appropriated, it may seek to
enforce its rights.
While the Company's competitiveness may be affected by its ability to protect
its proprietary information, the Company believes that because of the rapid pace
of technological change in the computer software industry, trade secret and
copyright protection are less significant competitive factors than the know-how,
ability and experience of the Company's employees, frequent product enhancements
and the timeliness and quality of support services. While competitors may be
able to develop software products with similar capabilities, the Company
believes that a competitor would have to devote substantial resources to develop
products that can compete effectively with the Company's products. Accordingly,
although the Company deems its proprietary interest in its service marks and
copyright to be important, it does not believe that its failure or inability to
protect that interest would have a material adverse effect on its business. The
competitive advantage derived from the technology involved in each of the
11
<PAGE>
Company's products is a result of the inter-relationships of the components and
the variety of features that they are able to provide when integrated, and the
software that links them, rather than the individual components themselves.
YEAR 2000 COMPUTER ISSUES
Many currently installed computer systems and software products are coded to
accept only two-digit entries in the date code field. Beginning around January
1999, these date code fields will need to distinguish twenty-first century dates
from twentieth century dates. As a result, in less than one year, computer
systems and/or software used by many companies may need to be upgraded to comply
with such "Year 2000" requirements. Significant uncertainty exists in the
software industry concerning the potential effects associated with such
compliance. Although the Company's current products (its new WINDOWS(R) products
and the current version of its reserved seat product, Select-a-Seat) are
designed to be Year 2000 compliant, some legacy products are not Year 2000
compliant. These legacy products are few in number and each customer has been
notified that these products are not Y2K compliant and that the Company will no
longer support these products in the future. All licenses for these
non-compliant products have expired or will expire prior to December 31, 1999.
As of August 1999 Management believes all Year 2000 issues have been addressed
for the currently supported products and in addition has taken all reasonable
steps to ensure the software products used internally and for development
purposes are Year 2000 compliant.
ITEM 2. DESCRIPTION OF PROPERTY
In November 1997, the Company leased approximately 10,160 square feet of office
space in Clearwater, Florida. The lease expires on November 30, 2002. The
Company has the right under its written lease agreement to one five-year renewal
of the lease at prevailing market rates. The Company also has a right of first
refusal for additional office space in the same office complex as space becomes
available. Until November 1999, the rent payable will be approximately $9,094
per month.
ITEM 3. LEGAL PROCEEDINGS
On or about June 27, 1997, a class action was commenced in the United States
district Court for the Eastern District of New York (CV 97-3775) by Andrew Petit
and Michael A. Lepera, on behalf of themselves individually, and on behalf of
all others similarly situated against INTER ALIA, the Company, Sterling Foster,
& Co., Inc. ("Sterling Foster"), the Company's former underwriter, counsel for
Sterling Foster and certain issuer defendants for whom Sterling Foster acted as
underwriter. The Complaint alleges that in connection with an offering of the
Company's securities which became effective on October 17, 1994, Sterling Foster
engaged in a campaign to inflate the price of the Company's stock, to create a
short position at the inflated price and then cover the short position with
shares from shareholders who had been secretly released from "lock-up"
agreements. With respect to the Company, the Complaint alleges that it failed to
disclose in its Registration Statement that prior to the date the offering
became effective, Sterling Foster had secretly agreed to release certain
shareholders from "lock-up" agreements for the purpose of selling their shares
to Sterling Foster at reduced prices. The Plaintiffs' claims allege that the
Company violated Sections 11 and 12 (2) of the Securities Act of 1933, Sections
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder and Section 349 of the New York General Business Law, as well as
making negligent misrepresentations. Since the Complaint was filed, it has been
amended twice, but the allegations against the Company have remained the same.
on August 5, 1999 the Company moved to dismiss The Second Amended and
Consolidated Class Action Complaint in its entirety. The Company believes that
it has defenses to these claims and intends to vigorously defend itself in this
action.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of August 26, 1999, the Company had issued and outstanding 15,299,353 shares
of Common Stock held of record by 4,030 shareholders. The Company's Common Stock
had been quoted on NASDAQ until it was delisted on October 17, 1998. Since that
date, the Company's Common Stock has been traded on the
Over-the-Counter/Bulletin Board market under the symbol LSGT.
The following tables set forth the high and low sales prices for the Common
Stock on the NASDAQ Stock Market for the periods indicated, which do not reflect
inter-dealer prices, without retail mark-up, markdown or commission, and may not
necessarily represent actual transactions.
QUARTER ENDED HIGH SALES PRICE LOW SALES PRICE
- ------------- ---------------- ---------------
March 31, 1997 3/4 9/32
June 30, 1997 15/32 7/32
September 30, 1997 7/16 7/32
December 31, 1997 1/2 1/8
March 31, 1998 1/8 3/32
June 30, 1998 5/32 1/8
September 30, 1998 3/32 1/32
December 31, 1998 15/100 81/100
The Company has not paid any dividends to date and does not anticipate that any
cash dividends will be declared in the foreseeable future. The terms of the
Company's Series G Preferred Stock provide that dividends are payable on those
shares when and if declared by the Company's board of directors. In addition,
whenever the Company pays any dividend, in cash, property or otherwise on its
Common Stock, the Company must pay a dividend on shares of the Series G
Preferred Stock in an amount per share equal to that which holders of the Series
G Preferred Stock would have received had they converted their shares into
shares of Common Stock.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Due to the Company's net loss for 1998 of $799,713, and its excess of current
liabilities over current assets of $2,239,682 and its history of operating
losses that have accumulated to $20,506,100 at December 31, 1998, our
independent certified public accountants have qualified their accountants'
report dated August 31, 1999, on the Company's 1998 financial statements as to a
going concern uncertainty. The following commentary within Management's
Discussion and Analysis addresses the Company's plans with regard to these
matters and subsequent events that have a direct bearing on these matters.
The Company's operations for 1998 have been adversely affected by tight cash
flows. This has resulted in 1998 staff reductions that, in turn, have resulted
in the Company not being able to effectively develop new software product
releases or achieve the software revenues that its 1998 strategic plan
envisioned. This has resulted in the Company not being able to sustain 1998
revenues to the level achieved in 1997 as potential customers could not be
13
<PAGE>
provided assurance that development and/or support of new and current products
would continue. To help fund its operations during 1998, it was necessary for
the Company to borrow $300,000 from RBB Bank, an entity acting as an agent
representative for various common shareholders owning approximately 52% of the
outstanding common stock and owning all of the outstanding Series "G" preferred
shares. This debt obligation is in default as of August 31, 1999. The Company
has also delayed payments on its vendor obligations, further compounding its
ability to produce revenues.
During the 1998 fourth quarter and through May 1999, the Company's primary focus
has been that of pursuing financing alternatives to remain in existence. In
January 1999, Company management contemplated a bankruptcy filing as its reduced
operations, without additional funding, could not continue to adequately support
its obligations. Discussion with several potential suitors since January 1999
resulted in the Company signing a proposed Agreement and Plan of Merger in June
1999 with Tickets.com, Inc. and Advantix Acquisition Corporation. Subsequent to
the signing of this Agreement, Tickets.com has advanced the Company $1,433,000,
which the Company has used to support its operations and had a remaining cash
balance of approximately $70,000 at August 31, 1999. On September 16, 1999 the
company received an additional advance of $350,000 from Tickets.com to sustain
operations through October, 1999, at which time it believes that the Company's
Admit 9.2 product will be completed and ready for market. If the Agreement and
Plan of Merger is not consummated, the Company does not currently have any
further funding alternatives and will most likely invoke bankruptcy proceedings,
unless another strategic funding partner can be located which can not be
assured.
RESULTS OF OPERATIONS: 1998 COMPARED TO 1997
REVENUES
Revenues decreased to $3,013,311 in 1998 from $4,917,536 in 1997, representing a
39% decrease. Revenues consisted of system sales and installations of $2,522,659
in 1998 and $4,470,626 in 1997, and maintenance and support of $490,652 in 1998
and $446,910 in 1997. The decrease in system revenues is primarily due the
Company's financial and operating situation described above. The increase in
maintenance revenues is primarily due to a larger installed customer base (which
includes 1997 installations for 1998).
COST OF REVENUES
Cost of revenues in 1998 and 1997 included the costs associated with the
hardware and software acquired for the Company's customers, the full costs
associated with the engineering and installation of the systems, the full costs
associated with the provision of customer support, and the amortization of
capitalized software.
Cost of revenues decreased to $1,747,923 from $3,809,442. This 54% decrease was
primarily the result of the 39% decrease in sales. Warranty provisions for 1998
totaled $78,250 and warranty work charged against the allowance in 1998 totaled
$158,973. As a percentage of revenues, cost of revenues in 1998 represented 58%
of revenues compared to 77% of revenues in 1997. This decline is a result of
increased margins on significant sales to American Skiing Company in 1997 which
did not re-occur in 1998 and an increase in software sales relative to hardware
sales in 1998 versus 1997.
Although the sales mix for hardware versus software has decreased during 1998,
it should be noted that the ratio of cost of revenues-to-revenues is also 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 for customers, as is a small portion of software. Sales of
the Company's software and related systems development activities provide the
Company greater gross margins.
14
<PAGE>
DEVELOPMENT COSTS
Development costs decreased to $38,040 in 1998 from $445,365 in 1997, a decrease
of $407,325. As a percentage of revenues, development costs decreased from 9% in
1997 to 1% in 1998. Development costs for 1998 do not include $341,380 of
capitalized costs or $158,973 of costs charged to the warranty allowance.
Development costs for 1997 do not include $318,650 of capitalized costs or
$123,578 of costs charged to the warranty allowance. By adding these amounts
back to development costs, gross spending on development activities can be
calculated. Gross spending decreased from $887,593 in 1997 to $538,393 in 1998,
a decrease of 39%. This decrease, as well as the decrease in development costs
expensed as a percent of revenue, was primarily due to decreased staffing and
consulting costs.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased to $2,046,011 in 1998
from $3,396,415 in 1997, representing a 40% decrease. As a percentage of
revenues, these expenses were 68% in 1998 and 69% in 1997, which reflects
minimal cost reductions in 1998 relative to revenue volume.
The principal components of the decrease in selling, general and administrative,
in 1998 as compared to 1997 are described below:
General and administrative expenses decreased to $1,200,246 in 1998 from
$2,186,182 in 1997, representing a 45% decrease. The principal components of the
decrease are decreases in compensation of $445,000, legal fees of $267,000, and
bad debt expense of $110,000. In addition, 1997 includes a write off of customer
lists totaling $230,000.
Sales and marketing expenses decreased to $845,765 in 1998 from $1,210,233 in
1997, representing a 30% decrease. This decrease was primarily attributable to
reduced sales commissions and trade show and advertising expense.
INCOME TAXES
The Company currently has a substantial net operating loss carry forward for
which the Company has not recognized a tax benefit due to the uncertainty
related to when and how much of the tax benefits will be ultimately realized
(See Note 7 to the financial statements).
NET LOSS
Net loss decreased to $799,713 in 1998 from $2,923,069 in 1997. The Company's
operations were affected by various factors as discussed above.
NET LOSS PER SHARE
In March 1997, the Securities and Exchange Commission (SEC) announced its
position on accounting for the issuance of convertible preferred stock with a
non-detachable conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature"). The Company's preferred stock has
such features. As a result, the Company has recognized the intrinsic value of
beneficial conversion features of preferred stock as dividends to preferred
shareholders. The accounting described herein for the intrinsic value of
beneficial conversion features does not affect the financial statements,
including the reported net loss and, stockholders' equity (including retained
earnings), with the exception that the reported net loss per common share has
been increased by the amount of the
15
<PAGE>
preferred dividends. After recognizing dividends of $475,570 for 1997 and $0 for
1998, the net loss per common share is $(.06) for 1998 and $(.46) for 1997.
NEW ACCOUNTING PRONOUNCEMENT ADOPTED
In 1998 the Company adopted SOP 97-2, "Software Revenue Recognition." Adoption
of this pronouncement did not have a material impact on the Company's financial
statements.
LIQUIDITY AND CAPITAL RESOURCES
The following table represents a summary of the Company's cash flow for 1998 and
1997:
1998 1997
---- ----
Net cash used in operating activities $(218,918) $(2,520,099)
Net cash used in investing activities (394,273) (456,411)
Net cash provided by financing activities 294,381 1,442,447
Net decrease in cash and cash equivalents $(318,810) $(1,534,063)
The Company used cash of $218,918 in 1998 and $2,520,099 in 1997 for operating
activities. From its inception in October 1985 through December 31, 1998, the
Company has incurred cumulative losses of $20,506,100, with a loss of $799,713
for the year ended December 31, 1998. The company's net loss in 1998 was due
primarily to expenditures related to the factors referred to under the caption
"Results of Operations: 1998 Compared to 1997" above. Included in the net loss
for 1998 were non-cash expenses totaling $237,983, which included (i)
depreciation/amortization expenses of $360,673, and (ii) a decrease in the
allowance for doubtful accounts of $122,690. Cash generated from items
classified as current assets totaled $711,171 which consisted primarily of
decreases in accounts receivable and inventories. These sources of cash were
offset primarily by decreases in accounts payable and accrued warranty costs.
The Company used cash in investing activities in the amount of $394,273 and
$456,611 in 1998, and 1997, respectively which was used for additions to
property, equipment, and software costs.
The Company was provided cash by financing activities of $294,381 in 1998 and
$1,442,447 in 1997. In 1998, cash from financing activities was primarily
provided by loans from a related party. In 1997, cash from financing activities
was primarily provided by the Company's sale of 7,500 shares of Series G
Preferred Stock to RBB Bank, AG ("RBB") for $7,500,000 pursuant to an exemption
from the registration requirements of the Securities Act, as amended, under
Regulation S promulgated thereunder. Pursuant to the transaction, the Company
redeemed 7,945 shares of the Company's Series F Preferred Stock owned by RBB for
$6 million leaving the Company with $1,447,500 of net proceeds after giving
effect to expenses of the offering. No sales commissions were paid.
The Company's ability to continue operations is entirely dependent upon its
ability to receive further funding. While no assurances can be made, the Company
believes that the June 1999 Agreement and Plan of Merger will be consummated by
the end of November 1999. On September 16, 1999 the company received an
additional advance of $350,000 from Tickets.com to sustain operations through
October, 1999, at which time it believes that the Admit 9.2 product will be
completed and ready for market. If the Agreement and Plan of Merger is not
consummated, the Company does not currently have any further funding
alternatives and will most likely invoke bankruptcy proceedings, unless another
strategic funding partner can be located, which can not be assured.
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company's financial statements for the year ended December 31, 1998, appear
beginning at page F-1 of this report as follows:
PAGE
----
Report of Independent Certified Public Accountants F-1
Consolidated Balance Sheets as of
December 31, 1998 and December 31, 1997 F-2
Consolidated Statements of Operations for the years ended
December 31, 1998 and December 31, 1997 F-3
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1998 and December 31, 1997 F-4
Consolidated Statements of Cash Flows for the years
ended December 31, 1998 and December 31, 1997 F-5
Notes to Consolidated Financial Statements F-7
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
NAME AND ADDRESS* AGE OCCUPATION
----------------- --- -----------------------
David A. Riley 42 President,
Chief Executor Officer,
Director
Steven H. Noble, III 37 Chief Financial Officer,
Director
---------------------------
*The address of each director is 2189 Cleveland Street, Suite 230, Clearwater,
Florida 33765.
(1) In June 1999, Mr. Riley and Mr. Noble replaced Jacqueline E. Soechtig,
Frank W. Swacker and John J. Chluski, each of whom was a director of the
Company at the end of 1998. See item 12 below for information regarding the
resignation of these three directors and their replacement.
David A. RILEY. Mr. Riley became a director of the company on June 21, 1999,
subject to compliance with applicable rules of the SEC. Mr. Riley is the Chief
Executive Officer of the Company. From November 1995 through December 1998, Mr.
Riley was the President and Chief Executive Officer of Coredata, Inc., a
software
17
<PAGE>
concern, and from September 1987 through November 1995 had served as the
President and Chief Executive Officer of Sunland Computer, a systems integrator.
STEVEN H. NOBLE, III. Mr. Noble became a director of the Company on June 21,
1999, subject to compliance with applicable rules of the SEC. Mr. Noble is the
Chief Financial Officer of the Company. From May 1998 until June 1999 Mr. Noble
was the Chief Financial Officer of the Tampa Bay Lightning, a National Hockey
League team. Prior to that position, he had acted as an independent consultant
to A. L. Williams, Jr., a private individual, from January 1995 through May
1998. Prior to January 1995 Mr. Noble had been a principal of the certified
public accounting firm Noble and Associates.
All directors hold office until the next annual meeting of shareholders and the
election and qualification of their successors. Vacancies on the Board of
Directors may be filled by the remaining directors until the next annual
shareholder's meeting. Officers serve at the discretion of the Board. The
directors are not receiving any fees for service on the Board of Directors or
any committee thereof.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 (the "Act"), as amended,
requires the Company's Executive Officers and Directors, and any persons who own
more than 10% of any class of the Company's equity securities which are
registered under the Act to file certain reports relating to their ownership of
such securities and changes in such ownership with the Securities and Exchange
Commission, and to furnish the Company with copies of such reports. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company, all Section 16(a) filing requirements applicable to
such Officers, Directors and owners of over 10% of the Company's equity
securities registered under the Act, during the year ended December 31, 1998,
have been complied with.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
The Board of Directors has an Audit Committee and a Compensation Committee. The
Audit Committee recommends to the Board of Directors the appointment of
independent auditors to audit the Company's consolidated financial statements,
reviews the Company's internal control procedures and advises the Company on tax
and other matters connected with the growth of the Company. The Audit Committee
also reviews with management the annual audit and other work performed by the
independent auditors. The Compensation Committee administers the Company's 1994
Plan Stock Option Plan and recommends to the Board of Directors the nature and
amount of compensation to be paid to the Company's Executive Officers. The audit
committee and the compensation committee did not have any meetings during the
fiscal year ended 1998.
During the fiscal year ended December 31, 1998, the Board of Directors of the
Company held 9 meetings. Each Director attended at least 75% of the aggregate
number of meetings of the Board of Directors, which were held during the period
the Director served as a Director during the fiscal year ended December 31,
1998.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation with respect to each person who served as the Company's Chief
Executive Officer during the fiscal year ended December 31, 1998 and each of the
Company's Executive Officers whose total cash compensation for the year ended
December 31, 1998 exceeded $100,000:
18
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
NAME
AND SECURITIES
PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY $ BONUS $ OPTIONS (#) COMPENSATIONS
-------- ---- -------- ------- ----------- -------------
<S> <C> <C> <C>
Jacqueline E. Soechtig(1) 1998 $198,333
President, 1997 222,500
Chief Executive Officer, 1996 220,000 100,000
Chairman
James H. Moore, Jr. (2) 1998 $100,000
Vice President, 1997 100,000
Operations 1996 100,000 50,000
</TABLE>
- ------------------------------------------------------------------------------
(1) Ms. Soechtig was employed by the Company beginning October 31, 1994. As
of November 1, 1997, Ms. Soechtig's annual salary became $235,000.
During the year ended December 31, 1996, Ms. Soechtig was awarded a
bonus of $100,000.
(2) Mr. Moore was employed by the Company beginning January, 1995. During
the year ended December 31, 1996, Mr. Moore was awarded a bonus of
$50,000.
No options(1) were granted during the Company's 1998 fiscal year to the current
and former Executive Officers named in the Summary Compensation Table above.
The following table sets forth certain information concerning the number of
shares of Common Stock acquired upon the exercise of stock options during the
year ended December 31, 1998 by, and the number and value at December 31, 1998
of shares of Common Stock subject to unexercised options held by, the
individuals listed in the Summary Compensation Table.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED VALUE OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
ON REALIZED AT FY-END (#) AT FY-END ($)
NAME EXERCISE (#) ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Jacqueline E. Soechtig --- --- 0/0 0/0
James H. Moore, Jr. --- --- 0/0 0/0
</TABLE>
19
<PAGE>
EMPLOYMENT AGREEMENT
Jacqueline E. Soechtig, President and Chief Executive Officer of the Company, is
a party to an employment agreement with the Company, which commenced on October
31, 1994 for a term of three years. Ms. Soechtig's base salary for the entire
three-year term was $220,000 per annum. The agreement also provided for
incentive compensation in the form of bonuses. A performance bonus of $100,000
was paid to Ms. Soechtig in 1996. Pursuant to the agreement and as a signing
bonus, Ms. Soechtig was paid $20,170 and was granted ten-year stock options to
purchase 375,000 shares of Common Stock, which are all presently exercisable at
an exercise price of $2.00 per share. Ms. Soechtig was granted certain
registration rights with respect to the shares of Common Stock underlying all of
such options. The fair value of the 375,000 shares of Common Stock underlying
Ms. Soechtig's options was determined by the Board of Directors to be $5.00 per
share at the time of the option grant considering various factors such as
restrictions placed on the underlying shares and their lack of liquidity, as
well as their quoted market price on October 31, 1994 of $13.50 per share. In
accordance with accounting provisions of APB No. 25, the Company recorded
compensation expense of $375,000 in 1994, $562,500 in 1995 and $187,500 in 1996.
These amounts represent the difference between the fair value of $5.00 per share
(determined by the Board of Directors considering various factors as
restrictions, etc.) and the exercise price. On July 30, 1997, the Board of
Directors unanimously approved a resolution (with Ms. Soechtig abstaining)
authorizing an amendment to the employment agreement, which extends the term of
the agreement to October 31, 2000 and increases her base salary to $235,000.
The Registrant and Ms. Soechtig agreed to a mutual termination of her employment
on June 21, 1999. The termination of her employment occurred pursuant to the
Settlement and Release Agreement entered into as of that date between the
Registrant and RBB Bank, AG (the "Bank") of Graz, Austria, acting on behalf of
certain shareholders of the Registrant. Reference is made to "Certain
Relationships and Related Transactions" for a more complete description of the
Settlement and Release Agreement and the litigation to which Ms. Soechtig was
subject that the Settlement and Release Agreement resolved. Pursuant to that
agreement, the Registrant delivered an inducement letter from Ms. Soechtig and
from each of the Registrant's other directors containing mutual releases. The
arrangements with Ms. Soechtig provided that she would receive $70,000 and
payment of reasonable business expenses in connection with the Settlement and
Release Agreement and her individual inducement letter. Ms. Soechtig agreed for
a one-year period not to solicit or induce, and not to attempt to solicit or
induce, any customer of the Registrant or any employee of the Registrant to
terminate or lessen that person's affiliation with the Registrant or to violate
the terms of any agreement with the Registrant. Ms. Soechtig further agreed to
remain bound by all obligations to keep confidential all proprietary information
and trade secrets of the Registrant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of August 31, 1999
regarding the beneficial ownership of shares of Common Stock by (i) each person
(including any "group" as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended) who is known by the Company to be
the beneficial owner of more than five percent of the Common Stock, its only
class of voting securities (ii) each Director and director nominee, (iii) each
current Executive Officer and former Executive Officer named in the Summary
Compensation Table and (iv) all current Directors and Executive Officers of the
Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP
------------------------------------ ---------------------
NUMBER OF SHARES APPROXIMATE
OF COMMON STOCK PERCENTAGE OF
BENEFICIALLY OWNED CLASS (1) (2)
<S> <C> <C>
RBB Bank, AG 7,837,332 (3) 51%
Burgring 16
8010, Graz
Austria
Tickets.com, Inc. 24,818,217 (4) 62%
555 Anton Blvd. 12th Floor
Coasta Mesa, CA 92660
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Jacqueline Soechtig 23,500 *
James H. Moore 16 *
David A. Riley 0 0%
Steven H. Noble, III 0 0%
Directors and Officers as a Group (2) 0 0%
</TABLE>
- -------------------------------------
*Under one percent.
(1) There were 15,299,393 shares of Common Stock outstanding as of September
30, 1998, which is the date of the most recent Quarterly Report or Annual
Report which the Registrant has filed with the Securities Exchange
Commission. The Registrant does not believe that the number of Shares
currently outstanding is materially different.
(2) For purposes hereof, a person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days from the date
hereof, upon the exercise of warrants or options or conversion of
convertible securities. Each beneficial owner's percentage ownership is
determined by assuming that any warrants, options or convertible securities
that are held by such person (but not those held by any other person) and
which are exercisable or convertible within 60 days from the date hereof,
have been exercised or converted.
(3) The Bank disclaims beneficial ownership of these shares since it holds
these shares as nominee for its clients who are the beneficiaries of the
shares. These shares are referenced in the above table.
(4) On June 28, 1999 Tickets.com acquired 5,700 shares of the Company's Series
G Preferred Stock (the "Preferred Shares") from the Bank. The Preferred
Shares are convertible into 24,818,217 shares of Common Stock.
(5) Neither Ms. Soechtig nor Mr. Moore has acted as directors or officers of
the Registrant since June 21, 1999.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During June 1996 the Company completed a private placement of its securities
subject to Regulation S promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). In that transaction, RBB Bank, AG (the "Bank") acquired
for approximately 60 independent holders, each of who is an Austrian national,
an aggregate of 8,000 shares of the Company's Series F Preferred Stock. The
investors paid $6,000,000 in cash, before commissions and offering expenses, for
these securities. The sources of funds for the purposes were the personal funds
of the respective independent purchasers.
On November 4, 1997, the Bank sold 7,500 shares of its Series G Preferred Stock
(the "Preferred Shares") to holders of the Series F Preferred Stock in a
transaction pursuant to Regulation S under the Securities Act for $7,500,000. In
the transaction, the Company redeemed 7,945 shares of Series F Preferred Stock
for $6,000,000, providing the Company with $1,447,500 of net proceeds after the
expenses of the offering. The sources of the additional funds provided by the
investors were their respective personal funds. The shares of the Preferred
Stock had no voting rights as such. The shares of the Company's Common Stock
into which such shares were convertible have identical voting rights with all
other shares of the Company's common Stock. The 7,500 shares of the Preferred
Stock issued to the purchasers thereof were by their terms immediately
convertible into 32,655,549 shares of the Company's Common Stock (the
"Conversion Shares") after a period of 40 days. Notwithstanding this provision
of the Preferred Shares, the Company failed to obtain authorization from its
shareholders to increase the number of its authorized but unissued shares of
Common Stock, and, accordingly, sufficient additional Conversion Shares were not
reserved for issuance upon conversion of all shares of the Preferred Stock. The
Conversion Shares and the Preferred Shares are referred to herein as the
"Underlying Shares."
21
<PAGE>
On April 11, 1998, the Bank converted 1,800 shares of Series G Preferred Stock
into 7,837,332 shares of the Company's Common Stock, the maximum number of
Conversion Shares, which at the time had been authorized for issuance.
In July 1998 certain clients of the Bank, including certain beneficial holders
of the Underlying Shares, loaned $300,000 to the Company by purchasing the
Company's $300,000 secured promissory note due July 31, 2000. The Company
granted the Bank a first security interest in certain computer source code used
by the Company in its business and related intangible property to secure the
repayment of the promissory note.
From time to time during the second half of 1998, the Bank discussed the
prospects of the Company with representatives of Tickets.com, Inc.
("Tickets.com"), a privately-owned corporation based in Newport Beach,
California formerly known as Advantix, Inc. On January 8, 1999, Tickets.com sent
a letter to the Company stating that Tickets.com was prepared to make an offer
to purchase all outstanding shares of the Company's Common Stock at $0.10 per
share payable in cash and to close the transaction by January 31, 1999, subject
to completion of standard due diligence. Tickets.com also stated in its letter
that, upon the Company's agreement to consider its offer, Tickets.com was
prepared to loan $250,000 to the Company so that the Company could meet its
immediate cash needs. Tickets.com requested that the Company respond to its
letter by January 11, 1999. The Company did not so respond.
On January 24, 1999, following periodic individual consultations between the
Bank and the beneficial holders of the Underlying Shares, the Bank received
separate oral authorizations from the holders of the Underlying Shares to agree
to sell all of the Underlying shares to Tickets.com at its offered price, or the
equivalent value in securities of Tickets.com, and to facilitate a transaction
that permitted Tickets.com to acquire all of the outstanding securities of the
Company in addition to the Underlying Shares. Concurrently, Tickets.com
proceeded to enter into discussions with the Company with a view to the
acquisition of the Company by a cash merger that would pay each holder of Common
Stock of the Company $0.10 per share (the "Merger").
On January 24, 1999 Tickets.com and the Bank entered into a Stock Purchase
Agreement (the "Purchase Agreement"), dated that date, providing for the sale of
the Underlying Shares of Tickets.com at a closing to be held not later than May
15, 1999, or such later date as the Bank and Tickets.com would agree. The
Purchase Agreement was later amended by the First Amendment to Purchase
Agreement, dated as of June 21, 1999, between the Bank and Tickets.com.
The Purchase Agreement provided that the Bank would support the Merger and vote
the Underlying Shares in favor thereof and that Tickets.com will purchase the
Underlying Shares from the Bank if the Company did not approve the Merger by
January 31, 1999. The purchase price to be paid by Tickets.com was (i) $0.10
cash for each Underlying Share that is a share of Common Stock and (ii) 170.081
shares of Tickets.com common stock for each Underlying Share that is a Preferred
Share. If Tickets.com had not consummated a registered public offering of its
stock on or before May 15, 1999, or such later date as Tickets.com and the Bank
agree, then, notwithstanding any other provision of the Purchase Agreement, the
purchase price would be (i) for each Underlying Share that is a share of Common
Stock, $0.10 in cash, and (ii) for each Underlying Share that is a Preferred
Share, $0.10 in cash for each share of the Company's Common Stock into which
such Underlying Share is convertible at closing.
Additionally, the Bank and Tickets.com agreed in the Purchase Agreement that if
the board of directors of the Company had not approved the Merger on or before
January 31, 1999, the Bank would, as soon as possible thereafter, take all
appropriate or necessary actions, including without limitation making all
appropriate filings with the Securities and Exchange commission, to elect a
majority of the members of the Company's board of directors, that the members of
the Company's board of directors would include David A. Riley and Stephen Fryer,
or other individuals acceptable to Tickets.com, and that David A. Riley would be
named as the Company's business manager. The Bank agreed not to, and agreed to
cause the Company not to, take action inconsistent with the purposes of this
Agreement or the Merger or otherwise detrimental to Tickets.com.
On January 28, 1999, after learning that the Company was taking steps to file a
petition under Chapter 11 of the Bankruptcy Act and had ceased discussions with
Tickets.com regarding additional credit lines and the Merger, and after
receiving sufficient authorizations from the holders of the Underlying Shares
and their representatives to take
22
<PAGE>
such steps, the bank executed and delivered to the Company a written consent in
lieu of meeting which consent removed all members of the Company's board of
directors. Acting with the same authority, on January 28, 1999 the Bank executed
and delivered to the Company a written demand for the Company to provide the
Bank or its representatives with the record of shareholders required to be
maintained under Florida corporate law so that the Bank could comply with the
provision of Florida corporate law that requires that a written consent signed
by fewer than all shareholders of record to be sent to all shareholders of
record who did not execute such consent and a separate written demand for the
Company to call a meeting of its shareholders for purposes of electing a board
of directors.
On January 29, 1999 counsel to the Company sent a letter that purported to
reject the removal of Company's board of directors as well as the Bank's demands
for the record of holders and for the meeting.
On February 8, 1999 the Bank commenced a legal proceeding (the "Removal Action")
against the Company and its board of directors in the Circuit Court of Pinellas
County, seeking to remove the Company's Board of Directors. Thereafter, the
Company and its directors interposed certain defenses and counterclaims against
the Bank in that case.
On June 21, 1999, the Company's board of directors voted to approve the proposed
Agreement and Plan of Merger (the "Merger Agreement") among the Company,
Tickets.com and a wholly-owned subsidiary of Tickets.com, after determining that
the Merger was in the best interest of the Company's shareholders. The Company's
board of directors also recommended that the shareholders of the Company accept
the Merger and vote to adopt and approve the Merger Agreement. The Merger
Agreement as executed included substantially the same terms and conditions,
including the price of $0.10 per share in cash, that Tickets.com had proposed in
January 1999.
Immediately thereafter, the Bank and the Company entered into a Settlement and
Release Agreement (the "Settlement Agreement") settling the Removal Action.
Pursuant to the Settlement Agreement, the Company delivered inducement letters
from each of the Company's directors containing mutual releases pursuant to
which each of the Bank, the Company and Tickets.com released the directors, and
each of the directors generally released the Bank, the Company and Tickets.com
from claims, liabilities and obligations. The inducement letters provided for
the resignation of the three directors and, in the case of Jacqueline Soechtig,
the former chief executive officer of the Company, the termination of her
employment as well. The parties agreed to dismiss the Removal Action with
Prejudice.
The Settlement Agreement also provided that, as a material condition to the
Bank's obligations set forth therein, immediately after approving the
transactions contemplated by the Merger Agreement and recommending that the
Company's shareholders accept the Merger and adopt and approve the Merger
Agreement, the Company's Board of Directors would (i) appoint David A. Riley as
the Company's President and Chief Executive Officer, (ii) fill two existing
vacancies with David A. Riley and Steven H. Noble III and (iii) then resign from
the Company's Board of Directors. The three individuals who comprised the
Company's board immediately prior to June 21, 1999 so acted, and Mr. Riley and
Mr. Noble, having been so appointed, became the Company's Board of Directors.
Also on June 21, 1999 the Bank and Tickets.com, Inc. amended the Purchase
Agreement between them in several material respects. First, notwithstanding that
the consummation of the transactions contemplated by the Purchase Agreement was
initially to have occurred on or prior to May 15, 1999, Tickets.com agreed to
purchase all of the Preferred Shares within three business days after the
Company executed the Merger Agreement. Second, Tickets.com agreed to pay either
170.081 shares of Tickets.com common stock or $435.00 in cash for each
outstanding Preferred share, at the option of the holder of each of the
Preferred Shares. Third, the parties agreed that Tickets.com would purchase the
shares of Common Stock held by the Bank as part of the Merger under the Merger
Agreement and not as a separate transaction under the Purchase Agreement. All
other provisions contained in the Purchase Agreement remained in full force and
effect.
On June 28, 1999, the Bank sold and delivered the Preferred Shares to
Tickets.com and Tickets.com paid $754,290 and issued 674,541 shares of its
common stock pursuant to the First Amendment.
23
<PAGE>
PART IV
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 of Amendment No. 1 to the Company's Quarterly
Report on Form 10-QSB, File No. 0-15873, for the quarter ended June 30,
1996).
3.2 Articles of Amendment of Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Company's Form 8-K dated November 19,
1997, File No. 0-15873).
3.3 By-laws, as amended (incorporated by reference to Exhibit 3.4 of the
Company's Annual Report on Form 10-K, File No. 0-15878, for the year
ended December 31, 1994).
4.1 Form of Subscription Agreement for Series D Preferred Stock
(incorporated by reference to Exhibit 4.1 of the Company's Annual
Report on Form 10-KSB, File No. 0-15873, for the year ended December
31, 1995).
4.2 Form of Subscription Agreement for Series E Preferred Stock
(incorporated by reference to Exhibit 4.2 of the Company's Annual
Report on Form 10-KSB, File No. 0-15873, for the year ended December
31, 1995).
4.3 Form of Subscription Agreement for Series F Preferred Stock
(incorporated by reference to Exhibit 4.1 of the Company's Quarterly
Report on Form 10-QSB, File No. 0-15873, for the quarter ended June 30,
1996).
4.4 Form of Registration Rights Agreement with Respect to the Purchase of
Shares of Series F Preferred Stock (incorporated by reference to
Exhibit 4.2 of the Company's Annual Report on Form 10-K, File No.
0-15873, for the year ended December 31, 1995).
4.5 Subscription Agreement between RBB Bank Akiengesellschaft and the
Company (incorporated by reference to the Company's Form 8-K dated
November 19, 1997, File No. 0-15873).
4.6 Registration Rights Agreement between Herbert Strauss (as Headtrader of
RBB Bank Aktiengesellschaft) and the Company (incorporated by reference
to the Company's Form 8-K dated November 19, 1997, File No.
0-15873).
4.7 Letter Agreement between the Company and RBB Aktiengesellschaft
granting the Company the right to return its Series F Preferred Stock
(incorporated by reference to the Company's Form 8-K dated November 19,
1997, File No. 0-15873).
4.8 Amended and Restated 1994 Stock Option Plan.
10.1 Lease, dated as of February 20, 1995, between the Company and 28050
Corporate Square Associates, L.P. (incorporated by reference to Exhibit
10.2 of the Company's Annual Report on Form 10-K, File No.
0-15873, for the year ended December 31, 1994).
10.2 Office Building Lease, dated October 21, 1997, between DCS Real Estate
and the Company.
10.3 Stock Purchase Agreement by and among 1103065 Ontario Inc., Delta
Information Services, Inc., James Potter, Marion Audrey Potter and
Derek Betty (incorporated by reference to Exhibit 2.1 to the Company's
Form 8-K dated December 22, 1994, File No. 0-15873).
24
<PAGE>
10.4 Registration Rights and Put Agreement by and among James Potter, Marion
Audrey Potter, Derek Betty and the Company (incorporated by reference
to Exhibit 10.1 to the Company's Form 8-K dated December 22, 1994, File
No. 0-15873).
10.5 Asset Purchase Agreement by and between the Company and GIS Systems
Limited Partnership (incorporated by reference to Exhibit 2.1 to the
Company's Form 8-K dated February 15, 1995, File No.
10.6 Series B Promissory Note made by the Company payable to GIS Systems
Limited Partnership (incorporated by reference to Exhibit 99.1 to the
Company's Form 8-K dated February 15, 1995, File No. 0-15873).
10.7 Series C Promissory Note made by the Company payable to GIS Systems
Limited Partnership (incorporated by reference to Exhibit 99.2 to the
Company's Form 8-K dated February 15, 1995, File No. 0-15873).
10.8 Promissory Note made by GIS Systems Limited Partnership payable to the
Company (incorporated by reference to Exhibit 99.2 to the Company's
Form 8-K dated February 15, 1995, File No. 0-15873).
10.9 The Series B Preferred Stock Pledge and Call Agreement by and among the
Company, GIS Systems Limited Partnership and NationsBank of Florida,
N.A. (incorporated by reference to Exhibit 99.4 to the Company's Form
8-K dated February 15, 1995, File No. 0-15873).
10.10 Consulting Agreement by and between the Company and Fred Maglione
(incorporated by reference to Exhibit 99.5 to the Company's Form 8-K
dated February 15, 1995, File No. 0-15873).
10.11 Consulting Agreement between James Potter, 1103065 Ontario Inc. and the
Company (incorporated by reference to Exhibit 10.2 to the Company's
Form 8-K dated December 22, 1994, File No. 0-15873).
10.12 Letter Agreement among the Company, GIS Systems Limited Partnership,
Nicholas Flaskay, and Fred Maglione (incorporated by reference to
Exhibit 10.17 of the Company's Annual Report on Form 10-KSB, File No.
0-15873, for the year ended December 31, 1995).
10.13 Employment Agreement of Jacqueline E. Soechtig (incorporated by
reference to Exhibit 10.17 of the Company's Annual Report on Form 10-K,
File No. 0-15873, for the year ended December 31, 1994).
21.1 Subsidiaries of the Company (incorporated by reference to Exhibit 21.1
of the Company's Annual Report on Form 10-K, File No. 0-15873, for the
year ended December 31, 1994).
27.1* Financial Data Schedule
*Filed herewith.
For the Company's financial statements for the period ended December
31, 1996, see Part II, Item 7 of this Report on Form 10-KSB.
(b) Reports on Form 8-K.
No reports on form 8-K were filed during the last fiscal quarter of
1998.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
LASERGATE SYSTEMS, INC.
Date: September 24, 1999 BY: /s/ DAVID A. RILEY
-----------------------
David A. Riley
Chairman
President and
Chief Executive Officer
Date: September 24, 1999 BY: /s/ STEVE H. NOBLE, III
---------------------------
Steve H. Noble, III
Director
Chief Financial Officer
26
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
LASERGATE SYSTEMS, INC.
AND SUBSIDIARIES
December 31, 1998 and 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
Report of Independent Certified Public Accountants................. F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997....... F-2
Consolidated Statements of Operations for the Years
Ended December 31, 1998 and 1997 ............................... F-3
Consolidated Statement of Stockholders' Equity for the
Years Ended December 31, 1998 and 1997........................... F-4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1998 and 1997 ............................... F-5
Notes to Consolidated Financial Statements......................... F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
Board of Directors
Lasergate Systems, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Lasergate
Systems, Inc. and Subsidiaries as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating an overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lasergate Systems, Inc. and
Subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for the years then ended, in conformity with generally
accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $799,713 during the year ended December 31,
1998 and as of that date, the Company has current liabilities in excess of
current assets of $2,239,682 and an accumulated deficit of $20,506,100. The
Company's operating loss history and financial condition raise substantial doubt
about the Company's ability to continue as a going concern. The Company has
historically relied on net proceeds from public and private offerings and loans
and advances from related parties to fund its operations. Management believes
that additional monies from these sources or from strategic corporate
partnerships will be necessary to fund its operations in 1999. Management's
plans in regard to these matters and subsequent events that have a direct
bearing on these matters are described in Notes 3 and 14. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
/s/ GRANT THORNTON LLP
----------------------
Grant Thornton LLP
Tampa, Florida
August 31, 1999, except for paragraph 3 of Note 3
and paragraph 9 of Note 14 as to which the date
is September 16, 1999
F-1
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 71,952 $ 390,762
Accounts receivable, net of allowance for doubtful accounts of $35,000 and
$157,690 109,537 455,001
Note receivable, current portion 65,210 50,251
Inventories 21,697 232,192
Prepaid expenses 44,948 30,838
------------ ------------
Total current assets 313,344 1,159,044
------------ ------------
Note receivable, long-term portion - 59,091
Property and equipment, net 232,718 305,509
Systems and software costs, net of amortization of $1,713,754 and $1,611,753 714,871 475,491
Goodwill, net of amortization of $531,546 and $398,557 2,116,727 2,249,716
Other assets, net 16,637 19,137
------------ ------------
Total assets $ 3,394,297 $ 4,267,988
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank $ 317,956 $ 23,575
Accounts payable, trade 920,157 780,271
Deferred revenues 421,197 356,471
Accrued warranty costs 473,775 554,497
Accrued expenses 419,941 912,190
------------ -------------
Total liabilities 2,553,026 2,627,004
Stockholders' equity:
Preferred stock, $.03 par value, 2,000,000 shares authorized, 5,700 and 7,500
shares issued and outstanding at December 31, 1998 and 1997, respectively 171 225
Common stock, $.03 par value, 20,000,000 shares authorized, 15,299,393 and
7,462,061 issued and outstanding at December 31, 1998 and 1997, respectively 458,982 223,862
Additional paid-in capital 20,888,218 21,123,284
Accumulated deficit (20,506,100) (19,706,387)
------------ -------------
Total stockholders' equity 841,271 1,640,984
------------ ------------
Total liabilities and stockholders' equity $ 3,394,297 $ 4,267,988
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Revenues $ 3,013,311 $ 4,917,536
Operating expenses:
Cost of revenues 1,747,923 3,809,442
Development 38,040 445,365
Selling, general and administrative 2,046,011 3,396,415
Write down of customer list - 230,208
------------ ----------
Operating loss (818,663) (2,963,894)
Interest income 18,950 40,825
------------ ----------
Loss before income taxes (799,713) (2,923,069)
Income taxes
- -
------------ ----------
Net loss $ (799,713) $(2,923,069)
============ ==========
Dividends to preferred shareholders (intrinsic value of beneficial conversion
features - see Note 9) - (475,570)
------------ ----------
Net loss available to common shareholders $ (799,713) $(3,398,639)
============ ==========
Net loss per common share - basic and diluted $ (.06) $ (.46)
============ ==========
Weighted Average Common Stock Outstanding - basic and diluted 13,152,179 7,454,938
============ ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended December 31, 1998 and 1997
<TABLE>
<CAPTION>
COMMON
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
PAR PAR PAID-IN SUBJECT TO ACCUMULATED
SHARES VALUE SHARES VALUE CAPITAL PUT OPTION DEFICIT
------ ----- ------ ----- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 8,000 $ 240 7,362,061 $220,862 $19,818,769 $(140,000) $(16,783,318)
Conversion of Series F preferred to
common stock (55) (2) 100,000 3,000 (2,998) - -
Issuance of Series G preferred stock;
net of $52,500 of offering costs 7,500 225 - - 7,922,845 - -
Preferred stock dividend, Series G
(intrinsic value of beneficial
conversion features) - - - - (475,570) - -
Redemption of Series F preferred
stock (7,945) (238) - - (5,999,762) - -
Cancellation of Put Option - - - - (140,000) 140,000 -
Net Loss - (2,923,069)
--------- ----- ---------- -------- ----------- ------------- ------------
- - - - -
BALANCE, DECEMBER 31, 1997 7,500 225 7,462,061 223,862 21,123,284 - (19,706,387)
Conversion of Series G preferred to
common stock (1,800) (54) 7,837,332 235,120 (235,066) - -
Net Loss - - - - - - (799,713)
--------- ----- ---------- -------- ----------- ------------- ------------
BALANCE, DECEMBER 31,1998 5,700 $ 171 15,299,393 $458,982 $20,888,218 $ - $(20,506,100)
======== ===== ========== ======== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
<TABLE>
<CAPTION>
1998 1997
--------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(799,713) $(2,923,069)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization 360,673 436,621
Write-down of customer list - 230,208
(Decrease) increase in allowance for doubtful accounts (122,690) 10,566
Decrease (increase) in:
Accounts receivable, trade 468,154 403,364
Note receivable 44,132 (109,460)
Inventories 210,495 22,709
Prepaid expenses (14,110) 10,246
Other 2,500 87,051
Increase (decrease) in:
Accounts payable and accrued expenses (352,363) (118,868)
Accrued warranty costs (80,722) (16,422)
Deferred revenue 64,726 (553,045)
-------- ----------
Net cash used in operating activities (218,918) (2,520,099)
-------- ----------
Cash flows from investing activities:
Net additions to property, equipment, and software costs (52,893) (137,762)
Capitalized software development costs (341,380) (318,649)
-------- ---------
Net cash used in investing activities (394,273) (456,411)
-------- ---------
Cash flows from financing activities:
Proceeds from secondary public or private offering, net of offering costs - 7,447,500
Redemption of preferred stock - (6,000,000)
Proceeds from loans - related party 300,000 -
Repayment of loans (5,619) (5,053)
-------- ----------
Net cash provided by financing activities 294,381 1,442,447
-------- ----------
Net decrease in cash and cash equivalents (318,810) (1,534,063)
-------- -----------
Cash and cash equivalents, beginning of year 390,762 1,924,825
-------- ---------
Cash and cash equivalents, end of year $ 71,952 $ 390,762
========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
Year Ended December 31,
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
INTEREST AND INCOME TAXES PAID:
Interest $1,274 $2,810
Income taxes - -
NON-CASH INVESTING AND FINANCING ACTIVITIES:
1997
- ----
The Company recognized $475,570 of preferred dividends for 1997 based on the
intrinsic value of beneficial conversion features (see Note 9).
The Company cancelled its obligation to issue common stock of $140,000 in
connection with a legal settlement.
1998
- ----
The Company converted 1,800 shares of Series "G" preferred shares into 7,837,332
shares of common stock (See Note 9).
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
NOTE 1 - DESCRIPTION OF BUSINESS
Lasergate Systems, Inc. (the "Company") was organized and incorporated in the
State of Florida in 1985. The Company is engaged in the development, assembly,
marketing, servicing and installation of admission control and revenue
accounting systems for both general admission and reserved seating. These
systems are used primarily at amusement parks, theme parks, water parks,
museums, aquariums, zoos, casinos, ski resorts, night clubs, theaters,
professional and university athletic and multi-purpose arenas, and other public
facilities, including state, county and local fairs, movie theaters, race tracks
and golf courses. The Company's customers are primarily located in the United
States and Canada.
The Company introduced a new product in 1997, Admits for Windows(R), which
represented 74% and 89% of product revenues in 1998 and 1997, respectively, with
Select-a-Seat representing 26% and 11% of product revenue in 1998 and 1997,
respectively.
In June 1999, the Company entered into a proposed Agreement and Plan of Merger
(see Note 14).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.
USE OF ESTIMATES IN FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management makes estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosures of contingent
assets and liabilities at the date of the financial statements, as well as the
reported amounts of revenues and expenses during the reporting period. These
estimates are a major factor in providing for warranty costs, valuation of
intangibles, and certain taxes that are further described herein. While actual
results could differ from those estimates, management does not expect the
variances, if any, to have a material effect on the financial statements.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE, NET
Accounts receivable are reported net of allowance for doubtful accounts. At
least quarterly, management reviews the collection status of its accounts and
provides an appropriate allowance, if necessary. Based on these reviews,
management believes that its accounts at December 31, 1998 and 1997 are
reasonably stated.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost being
determined principally by the use of the first-in, first-out method.
F-7
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles, excluding systems and software
costs, held and used by an entity along with goodwill are reviewed by management
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows (undiscounted and without interest) is less than the carrying
amount of the asset, an impairment loss is recognized. Measurement of that loss
would be based on the fair value of the asset.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is being provided using
the straight-line method over the estimated economic useful lives (3-5 years)
for financial statement and income tax purposes.
SYSTEMS AND SOFTWARE COSTS
Systems and software costs represent the capitalized software costs (at full
cost) of software development for the Company's new ADMITS FOR WINDOWS(R)
product plus $200,000 of remaining acquisition costs for old products (Admits,
Delta, and Select-a-Seat) which was estimated to be the value of a detailed
product plan for the new products (the Company did not incur any costs for a
detailed product plan - it was able to use the old products to serve that
purpose). Such costs are amortized on a product-by-product basis. The annual
amortization expense is the greater of the amount computed using the ratio that
current gross revenues for each product bear to the total of current and
anticipated future gross revenues for that product or the straight-line method
over the remaining estimated economic life (6 years) of the product.
All development costs are capitalized once technological feasibility has been
achieved on a product until the product is released for general sale, at which
time only the costs of development of significant additions to a product's
features and functions are capitalized. Technological feasibility is determined
on a project-by-project basis.
The Company believes that its software development costs provide future benefit
in excess of net capitalized costs; however, this is dependent on the degree of
future market acceptance of currently released products and the degree of future
market acceptance of new software releases. This also may be dependent upon the
Company obtaining adequate levels of financing to support effective development
efforts.
Amortization of system and software costs in 1998 and 1997 was $102,000 and
$95,014, respectively, and is included in Cost of Revenues.
F-8
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
CUSTOMER LISTS/SUPPORT CONTRACTS AND GOODWILL
Remaining intangibles, other than systems and software costs (see above), that
were recognized in connection with the Company's acquisition of GIS and Delta in
1995 and 1994, respectively, relate to customer list and support contracts, and
goodwill. Such costs have been and are being amortized using the straight-line
method over their respective estimated useful lives: systems and software costs
(see above) and goodwill--twenty (20) years. Amortization expense (exclusive of
software) for 1998 and 1997 was $132,989 and $214,447, and is included in
selling, general and administrative expenses. Management reviews, at least on a
quarterly basis, whether or not any impairment has occurred with respect to such
acquired intangibles that could warrant an adjustment to the carrying values. As
a result of this review, during 1997 the remaining net balance of customer list
and support contracts of approximately $230,000 was written off. Undiscounted
cash flow projections associated with the acquired business is the primary focal
point in the assessment and analysis for potential impairment. During 1998 and
1997, no impairment was identified exclusive of the write down of the customer
lists and support contracts discussed above.
With respect to determining whether goodwill ($2,116,727 at December 31, 1998)
has suffered impairment, the Company's undiscounted cash flow forecast over the
next 16 years (estimated remaining useful life of goodwill) assumed that
revenues increase 12% per year, cost of revenues as a percent of revenues remain
at 58%, development costs remain at 14% of revenues, and selling, general, and
administration expense increase 6% per year. Based on these assumptions, the
Company believes that goodwill does not need to be adjusted for impairment at
December 31, 1998; however, future obtainment of these assumptions is contingent
upon the Company's ability to obtain adequate funding to support operations and
development activities (see "Systems and Software Costs" above).
WARRANTY COSTS AND WARRANTY LIABILITY (ALLOWANCE)
The Company provides for warranty costs each month as a percentage of sales in
order to more closely match these costs with the associated revenue. The total
provision during 1998 was $78,250 or 2.6% of sales, and charges against the
allowance amounted to $158,973. The warranty liability at December 31, 1998 is
$473,775 which management believes is sufficient to cover all known and unknown
warranty costs that will be incurred in the future to satisfy customers for
sales through December 31, 1998.
Provisions for the warranty allowance are classified as cost of revenues.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At December 31, 1998 and 1997, the carrying amount of cash and cash equivalents,
accounts receivable, notes receivable, accounts payable and accrued expenses,
and notes payable, approximate fair value because of the short-term maturities
of these assets and liabilities.
REVENUE RECOGNITION
Revenues from the sale of equipment, which have been predominately under
short-term contracts during the periods presented herein, are recognized upon
the acceptance of the system by the customer provided that no significant vendor
or post-contract support obligations remain outstanding and collection of the
resulting receivable is probable. Revenues from special sales sold under
evaluation periods are recognized at the end of this period. Revenues from the
sale of equipment and software licenses with a planned installation period
exceeding ninety days are accounted for using the percentage of completion
method.
F-9
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
Revenues from post contract customer support and maintenance are recognized
ratably over the maintenance period if collectibility is probable.
Revenues include product sales and service revenues. Service revenues represent
approximately 33% and 9%, respectively, of total revenues in 1998 and 1997.
Deferred revenues include customer deposits and advanced billings in accordance
with contract terms of $421,197 and $356,471 at December 31, 1998 and 1997,
respectively.
Cost of revenues includes the costs associated with the hardware and software
acquired for the Company's customers, the estimated full costs associated with
the engineering and installation (mostly software customization) of the system,
and amortization of capitalized software. Cost of revenues also includes the
estimated full cost related to support and maintenance. The Company believes
that the estimated full costs are reasonably stated and classified in all
material respects.
Effective January 1, 1998, the Company adopted the AICPA Accounting Standards
Executive Committee's SOP 97-2, "Software Revenue Recognition," which supercedes
SOP 91-1. This SOP retains the same basic revenue recognition criteria of SOP
91-1; however, with respect to bundled contracts, a new criterion for allocation
of contract fee is introduced--"vendor-specific objective evidence of fair
value." In addition, further guidance is given as to revenue recognition issues
when elements of a contract are not all delivered, including services and
post-contract customer support. Adoption of this pronouncement did not have a
material impact on the Company's financial statements.
INCOME TAXES
Under the liability method specified in Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities as measured by the enacted tax
rates which will be in effect when these differences reverse.
NET LOSS PER COMMON SHARE
Net loss per common share is based on the weighted average number of shares
outstanding during the periods. All common stock equivalents (options and
warrants - see Note 9) and the effect of the all convertible securities (see
Note 9) were not included in the calculation of net loss per share because they
were anti-dilutive. The net loss used in the calculation is the net loss
available to common shareholders, which reflects preferred stock dividends for
1997 (intrinsic value of beneficial conversion features-see Note 9).
ACCOUNTING FOR STOCK BASED COMPENSATION
For employee stock awards, as allowed by SFAS No. 123, the Company has elected
to continue using the accounting method promulgated by the Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," to measure
compensation. As a result, SFAS No. 123 pro forma disclosures are required in
these financial statements (See Note 9).
F-10
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
NOTE 3 - OPERATIONAL AND FUNDING MATTERS
The Company incurred a net loss of $799,713 for the year ended December 31, 1998
and as of that date, current liabilities in excess of current assets of
$2,239,682 and a history of operating losses that have accumulated to
$20,506,100. In view of these matters, recoverability of a major portion of the
recorded asset amounts shown in the accompanying 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 or obtain additional
equity or debt funding. 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.
The Company's operations for 1998 have been adversely affected by tight cash
flows. This has resulted in 1998 staff reductions that, in turn, have resulted
in the Company not being able to effectively develop new software product
releases or achieve the software revenues that its 1998 strategic plan
envisioned. This has resulted in the Company not being able to sustain 1998
revenues to the level achieved in 1997 as potential customers could not be
provided assurance that development and/or support of new and current products
will continue. It was necessary that the Company borrow $300,000 from RBB bank
(see Note 6), an entity acting as an agent representative for various common
shareholders owning approximately 52% of the outstanding common stock and owning
all of the outstanding Series "G" preferred shares, to help fund its operations
during 1998. This debt obligation is in default as of August 31, 1999. The
Company has also delayed payments on its vendor obligations, further compounding
its ability to produce revenues.
During the 1998 fourth quarter and through May 1999, the Company's primary focus
has been that of pursuing financing alternatives to remain in existence. In
January 1999, Company management contemplated a bankruptcy filing as its reduced
operations, without additional funding, could not continue to adequately support
its obligations. Discussion with several potential suitors since January 1999
resulted in the Company signing a proposed Agreement and Plan of Merger in June
1999 (see Note 14) with Tickets.com and Advantix Acquisition Corporation.
Subsequent to the signing of this Agreement, Tickets.com had advanced the
Company $1,430,000, which the Company has used to support its operations and had
a remaining cash balance of approximately $70,000 at August 31, 1999. On
September 16, 1999, the Company received an additional advance of $350,000 from
Tickets.com to sustain operations through October 1999, at which time it
believes that the Admit 9.2 product will be completed and ready for market.
While Ticket.com has the ability to provide further funding, there can be no
assurances that such future funding will occur, that the Agreement and Plan of
Merger will be consummated, or, if not consummated, that the Company will not
invoke liquidation proceedings on the Company.
NOTE 4 - INVENTORIES
Inventories as of December 31, consist of the following:
1998 1997
---- ----
Installations-in-process $11,697 $104,930
Parts and systems 10,000 127,262
------- --------
$21,697 $232,192
During fourth quarter 1998, an adjustment of $70,000 was made to write inventory
down to its estimated net realizable value.
F-11
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
NOTE 5 - PROPERTY AND EQUIPMENT
Property and equipment at December 31, consist of the following:
1998 1997
---- ----
Furniture and equipment $503,122 $452,171
Purchased software 11,869 10,269
Test equipment 45,665 45,323
-------- --------
560,656 507,763
Less accumulated depreciation 327,938 202,254
-------- --------
$232,718 $305,509
======== ========
Depreciation expense was $125,684 and $137,513 for 1998 and 1997.
NOTE 6 - NOTES PAYABLE
1998 1997
---- ----
Note payable to bank, due August 23, 2001,
bears interest at 10%, collateralized by equipment $ 17,956 $19,137
Note payable to bank (related party), due July 30,
1999, bears interest at 10%, collateralized by
Admits Source code. Currently in default. 300,000 -
-------- -------
$317,956 $19,137
======== =======
NOTE 7 - INCOME TAXES
The Company has a net operating loss (NOL) for income tax purposes of
approximately $16,200,000 at December 31, 1998, which begins to expire in the
year 2000. The deferred tax benefit is determined based on the difference
between the financial reporting and tax bases of assets and liabilities as
measured by the enacted tax rate which will be in effect when these differences
are realized. The Company cannot reasonably predict when it can utilize the NOL
carry forward and, therefore, the Company has recognized an equivalent valuation
allowance against the deferred tax benefit.
F-12
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
The principal types of temporary differences and their related tax effects that
give rise to the deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
----------- -----------
<S> <C> <C>
Net operating loss carry forward (1) $ 6,009,000 $ 5,385,000
Compensation related to stock options 415,000 415,000
Bad debt allowance, employee vacation pay and other
accruals 141,000 320,000
Warranty cost 175,000 205,000
Basis difference in intangible assets (93,000) 33,000
6,647,000 6,358,000
Less valuation allowance (6,647,000) (6,358,000)
------------ ------------
$ - $ -
============ ============
</TABLE>
(1) Certain transactions involving the beneficial ownership of the Company have
occurred which resulted in a stock ownership change for purposes of Section 382
of the Internal Revenue Code of 1986, as amended. Consequently, a portion of the
Company's net operating loss carryforward is subject to limitation on their
utilization against future income.
The Company's computed effective tax rate differs from the Federal statutory tax
rate as follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Federal statutory rate 34% 34%
Effect of net operating losses (NOL) or NOL carryforward (34)% (34)%
--- ---
Effective tax rate, after the effect of NOL 0% 0%
==== ====
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE
The Company leases its office and warehouse facility as well as some office
equipment under operating leases.
Future minimum payments under these operating leases are as follows:
1999 $125,051
2000 134,861
2001 132,192
2002 118,803
2003 -
--------
$510,907
========
Total lease payments for the years ended December 31, 1998 and 1997 were
$105,687 and $167,620, respectively.
F-13
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
LEGAL PROCEEDINGS
On June 15, 1995, the Company's founder and former President and Chief Executive
Officer, Donald Turner, commenced an action against the Company in the Circuit
Court for Pinellas County, Florida, Civil Division. Mr. Turner alleges, among
other things, that he was wrongfully terminated from his employment and sought
damages that, in the aggregate, exceeded $1,000,000. The Company settled this
case in 1998 for a total amount of $312,500, of which $150,000 was paid by two
individuals who were formerly affiliated with the Company. Primarily as a result
of settling this case, the Company reversed its previously recorded legal
accrual by approximately $180,000 during the fourth quarter of 1998.
On or about June 27, 1997, a class action was commenced in the United States
district Court for the Eastern District of New York (CV 97-3775) by Andrew Petit
and Michael A. Lepera, on behalf of themselves individually, and on behalf of
all others similarly situated against INTER ALIA, the Company, Sterling Foster,
& Co., Inc. ("Sterling Foster"), the Company's former underwriter, counsel for
Sterling Foster and certain issuer defendants for whom Sterling Foster acted as
underwriter. The Complaint alleges that in connection with an offering of the
Company's securities which became effective on October 17, 1994, Sterling Foster
engaged in a campaign to inflate the price of the Company's stock, to create a
short position at the inflated price, and then cover the short position with
shares from shareholders who had been secretly released from "lock-up"
agreements. With respect to the Company, the Complaint alleges that it failed to
disclose in its Registration Statement that prior to the date the offering
became effective, Sterling Foster had secretly agreed to release certain
shareholders from "lock-up" agreements for the purpose of selling their shares
to Sterling Foster at reduced prices. The Plaintiffs' claims allege that the
Company violated Sections 11 and 12 (2) of the Securities Act of 1933, Sections
10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder and Section 349 of the New York General Business Law, and made
negligent misrepresentations. In 1999, the plaintiff amended the complaint and
the Company resubmitted a new motion to dismiss the complaint in its entirety.
The Company believes that it has defenses to these claims and intends to
continue vigorously defending itself in this action.
The Company is also involved in other legal actions. Management does not believe
that the ultimate resolution of these and the above matters will have a material
effect on the Company's financial position.
OTHER MATTERS
Management has executed voluntary disclosure agreements with several states
regarding its sales tax reporting obligations. Management believes the reported
sales tax liability as of December 31, 1998, is reasonably adequate.
NOTE 9 - STOCKHOLDERS' EQUITY
COMMON STOCK
The Company has 20,000,000 authorized shares of Common Stock, of which
18,608,560 are either issued and outstanding or reserved for options and
warrants.
F-14
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
PREFERRED STOCK
The Company's articles of incorporation authorize a total of 2,000,000 shares of
preferred stock. The Company's Board of Directors has established and authorized
the Series G convertible preferred stock that is presently outstanding.
G
Total authorized shares -----
December 31, 1998 8,000
December 31, 1997 8,000
Outstanding shares
December 31, 1998 5,700
December 31, 1997 7,500
Outstanding share amounts
December 31, 1998 $171
December 31, 1997 $225
The series G preferred stock contains specific provisions as to conversion into
shares of common stock and liquidation values. The shares are nonvoting and
participate equally as to dividends declared with the Company's common stock.
None of the preferred stock above has mandatory redeemable provisions.
As of December 31, 1998, 5,700 shares of Series G preferred stock are
outstanding which can convert into 24,818,217 Common Shares.
On October 30, 1997, the Board of Directors authorized a new series of
convertible preferred stock, par value $.03, designated as Series G Convertible
Preferred Stock ("Series G Shares"). The authorized number of such shares is
8,000. Each share has a face value of $1,000 and is convertible into 4,354
shares of Common Stock (a conversion price of $0.22967 per Common Share).
On November 4, 1997, the Company sold 7,500 shares of Series G Preferred Stock
to RBB Bank, AG ("RBB") for $7,500,000 pursuant to an exemption from the
registration requirements of the Securities Act of 1933, as amended, under
Regulation S promulgated thereunder. The Series G Shares are convertible into
32,655,549 common shares. Pursuant to the transaction, the Company redeemed
7,945 shares of the Company's Series F Preferred Stock for $6 million, leaving
the Company with $1,447,500 of net proceeds after giving effect to expenses of
the offering. No sales commissions were paid.
In april 1998, the Company converted 1,800 shares of the Series G preferred
stock into 7,837,332 shares of common stock.
F-15
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
Under the terms of the subscription agreement, the Company will pay a penalty of
5% of the face value of outstanding Series G Shares ($375,000) if shareholders
have not approved an increase in the authorized number of Common Shares in an
amount sufficient to allow for conversion of all Series G Shares within 120 days
of the subscription agreement (by March 4, 1998). An additional penalty of 10%
will be incurred for each 120 days beyond March 4, 1998, until shareholders
approve an increase in the authorized number of Common Shares in an amount
sufficient to allow for conversion of all Series G Shares. Such penalties shall
be payable in cash. If sufficient cash is not available to legally pay the
penalty, the Company will issue a note payable to the Series G holders in the
amount of the penalty bearing interest at a rate of 20% per annum.
As of December 31, 1998, no penalties had been accrued or paid. In connection
with the June 1999 signing of a Settlement and Release Agreement between the
Company and RBB (see Note 14), the penalties described in the preceding
paragraph have been permanently terminated.
For discussion of Series G shares see Issuance of Stock--Private Placements.
PREFERRED STOCK DIVIDENDS
In March 1997, the Securities and Exchange Commission (SEC) announced its
position on accounting for the issuance of convertible preferred stock with a
non-detachable conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature"). The beneficial conversion feature is
initially recognized and measured by allocating a portion of the preferred stock
proceeds equal to the intrinsic value of that feature to additional paid-in
capital. The intrinsic value is calculated at the date of issue as the
difference of the conversion price and the quoted market price of the Company's
common stock, into which the security is convertible, multiplied by the number
of shares into which the security is convertible. The discount resulting from
the allocation of proceeds to the beneficial conversion feature is treated as a
dividend and is recognized as a return to the preferred shareholders over the
minimum period in which the preferred shareholders can realize that return (i.e.
from the date the securities are issued to the date they are first convertible).
The accounting for the beneficial conversion feature requires the use of an
unadjusted quoted market price (i.e. no valuation discounts allowed) as the fair
value used in order to determine the intrinsic value dividend. However, since
the proceeds of some series of preferred stock have been used to redeem
previously issued preferred stock, the intrinsic value is reduced by the amount
of any previously recognized dividend on the redeemed shares. The intrinsic
value of dividends to preferred shareholders are added to the net loss before
calculating the net loss per common share. The intrinsic value of beneficial
conversion features to preferred shareholders was $475,570 for 1997.
RESERVATION AND AUTHORIZATION OF COMMON STOCK
The 5,700 outstanding Series G Shares are convertible into 24,818,217 common
shares, but only approximately 163,000 common shares are reserved for such
conversion. The Board of Directors plans to recommend to the Company's
stockholders at the 1999 Annual Meeting of Stockholders that they approve an
amendment to the Company's Articles of Incorporation to increase the number of
authorized shares of common stock. Upon approval of this amendment by the
stockholders of the Company, the Company will reserve approximately 24,655,000
additional shares to allow for the possibility of the conversion of the
remaining outstanding Series G shares.
F-16
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
STOCK OPTION PLANS
the Company's 1994 Stock Option Plan (the "Plan) permits the grant of options
that may be either incentive stock options (ISO's) or non-qualified stock
options (NQSO's). The total number of shares of common stock for options that
may be granted under the plan may not exceed 58,333 subject to adjustment, as
defined. The Compensation/Stock Option Committee of the Board of Directors is
authorized to determine the number of options to be granted, the number of
shares that will be subject to any option and the exercise price. The exercise
price for non-qualified stock options may not be less than 25% of the fair
market value of the common stock on the date of grant. At the 1995 annual
meeting of shareholders, shareholders approved changes to the Plan that
authorized grants of 5,000 options per term year at an exercise price of 85% of
the market value for each outside Director. The options vest at the rate of
5,000 shares per year at the beginning of each term year. grants of 5,000
options were made during 1997 to three outside directors. A total of 40,000
options have been granted under the Plan. The Compensation/Stock Option
committee of the Board of Directors did not grant any stock options under the
Plan during 1998, and upon the signing of the Proposed Agreement and Plan of
Merger (see Note 14), no such grants will subsequently occur.
NON-QUALIFIED STOCK OPTIONS
In 1997, the Company granted an additional 37,500 options outside of the Plan to
these individuals as an inducement for them to join the Board in addition to
grants made under the Plan. These options are exercisable for 10 years at
exercise prices ranging from $.28125 to $.65625 and were immediately vested. In
order to compensate another director at the same rate as all other non-employee
directors, this director was granted an option to purchase 37,500 shares outside
of the 1994 Stock Option Plan at an exercise price of approximately $.28 (100%
of the market value at time of grant) during 1997.
In October 1994, the Board of Directors authorized the grant of 375,000
non-qualified stock options at an exercise price of $2.00 per share, which were
granted to the Company's President and Chief Executive Officer in connection
with a three year employment agreement. Of the total options granted, 125,000
were granted as a signing bonus effective October 31, 1994 and were immediately
exercisable since their issuance was not contingent on future services as are
the remaining 250,000 options. Accordingly, compensation expense of $375,000
representing the difference between the fair value of $5.00 per share
(determined by the Board of Directors considering various factors such as
restrictions, etc.) and the exercise price, was recorded in the consolidated
statement of operations for 1994. In addition, the corresponding obligation to
issue (grant) common stock options also has been reflected in the balance sheet
as of December 31, 1994. Of the remaining balance of 250,000 options, 125,000
options vested on October 31, 1995 and 125,000 options vested on October 31,
1996.
The Company granted options to purchase 120,000 shares of common stock to an
executive officer for services rendered during 1996. During 1997, 20,000 of
these options were cancelled. The remaining options grant the right to purchase
100,000 shares at an exercise price of $0.66 and are exercisable until one year
after registration of the underlying stock (the underlying stock has not been
registered as of August 30, 1999).
F-17
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
A summary of the status of the Company's outstanding stock options as of
December 31, 1998 and 1997, and changes during the years ending on those dates,
is presented below:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- --------------
<S> <C> <C> <C>
Options outstanding, December 31, 1996 601,000 $1.59
Options granted 90,000 $0.27
Options canceled or forfeited (26,000) $1.00
------- -----
Options outstanding, December 31, 1997 665,000 $1.41
Options granted - $ -
Options canceled or forfeited - $ -
------- -----
Options outstanding, December 31, 1998 665,000 $1.41
======= =====
</TABLE>
The following table summarizes information concerning currently outstanding and
exercisable stock options:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED
EXERCISE NUMBER CONTRACT LIFE AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE
-------- ----------- ------------- --------
<S> <C> <C> <C> <C>
Outstanding Options: $0.24 - 0.66 275,000 6.1 0.52
$2.00 - 2.76 390,000 5.7 2.03
Exercisable Options: $0.24 - 0.66 275,000 6.1 0.52
$2.00 - 2.76 390,000 5.7 2.03
</TABLE>
The Company has adopted only the disclosure provisions of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation," as it relates to
employment awards. It applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations in accounting for its plans and does
not recognize compensation expense for its stock-based compensation plans other
than for restricted stock. If the Company had elected to recognize compensation
expense based upon the fair value at the grant date for awards under these plans
consistent with the methodology prescribed by SFAS 123, the Company's net loss
available to common shareholders would be increased to the pro forma amounts
indicated below for the years ended December 31:
1998 1997
---- ----
Net loss available to common
shareholders As reported $749,713 $3,398,639
Pro forma 749,713 3,416,889
Loss per common share As reported $ .06 $ .46
Per forma $ .06 $ .46
The fair value of each option grant is estimated on the date of grant using the
Binomial options-pricing model with the following weighted-average assumptions
used for grants in 1997: no dividend yield; expected volatility of approximately
128%; risk-free interest rate of approximately 6%, and expected life of
approximately 2.5 years. There were no options granted during 1998.
F-18
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
The weighted average fair value of options granted during 1997 was $.20.
WARRANTS
In connection with the secondary public offering completed in October 1994, the
Company issued 1,840,000 redeemable warrants to purchasers of the Company's
common stock. These redeemable warrants were immediately detachable and
separately tradable from the common stock with which they were issued. Each
redeemable warrant expires on October 16, 1999, and entitles the holder,
commencing one year from the effective date of the offering, to purchase one
share of the Company's common stock for $5.50, the exercise price. The
redeemable warrants are subject to redemption commencing one year after the
effective date at a price of $.05 per redeemable warrant subject to the
occurrence of certain events, as defined, including a reduction of the price per
share of common stock to less than the redemption price.
In connection with the private placement of Series F Convertible Preferred Stock
completed in June 1996, the Company issued 500,000 warrants to the placement
agent. These warrants expire on September 30, 2001, and entitle the holder to
purchase one share of the Company's common stock at an exercise price of the
average conversion price of the Series F Convertible Preferred Stock ($0.55),
with anti-dilution provisions which reduce the exercise price to the average
conversion price of any subsequent issuance of convertible preferred stock
(Series G = $0.22967). In 1997, Series G Preferred Stock was issued with a
conversion price of $0.22967. Accordingly, the exercise price of these warrants
was reduced to $0.22967. In 1996, the estimated fair value of these warrants for
the placement agent services rendered, based on SFAS No. 123 provisions is
approximately $190,000, determined by using a binomial option-pricing model with
assumed volatility of 122%, risk-free rate of 6.0%, and expected holding period
of three years. A SFAS No. 123 valuation of these warrants in 1997 based upon
the new exercise price did not result in a higher fair value than $190,000 and,
accordingly, this amount has not been revalued. For financial statement
purposes, the value of the services (compensation) is reflected as a reduction
to the proceeds received from the related private placement and, accordingly, a
reduction to paid-in capital. In addition, the value assigned to the warrants is
reflected as an addition to paid-in capital (Stockholders' Equity). Because the
reduction and increase to paid-in capital are offsetting amounts of $190,000,
the Company has chosen not to reflect them separately in the Statement of
Stockholders' Equity.
In 1998, the Company issued 300,000 warrants in connection with the $300,000
promissory note (see Note 6). The warrants have an exercise price of $.09375.
The fair value of the warrants was not significant.
A summary of the status of the Company's outstanding warrants as of December 31,
1998 and 1997, and changes during the years ending on those dates, is presented
below:
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
Warrants outstanding, December 31, 1996 2,621,067 $4.87
Warrants granted - -
Warrants canceled or forfeited (276,900) 9.06
-------- ----
Warrants outstanding, December 31, 1997 2,344,167 4.37
Warrants granted 300,000 0.09375
Warrants canceled or forfeited (4,167) 4.50
--------- -------
Warrants outstanding, December 31, 1998 2,640,000 $3.88
========= ====
F-19
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
The following table summarizes information concerning currently outstanding and
exercisable warrants:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
RANGE OF REMAINING WEIGHTED
EXERCISE NUMBER CONTRACT LIFE AVERAGE
PRICES OUTSTANDING (YEARS) EXERCISE
<S> <C> <C> <C> <C>
Outstanding Warrants: $.09375 - $.23 800,000 5.3 0.18
$5.50 1,840,000 0.8 5.50
Exercisable Warrants: $.09375 - $.23 800,000 5.3 0.18
$5.50 1,840,000 0.8 5.50
</TABLE>
If the June 1999 proposed Agreement and Plan of Merger (see Note 14) is
executed, all December 31, 1998 outstanding stock options and all of the
outstanding warrants are to be canceled on or before the Agreement's effective
date.
NOTE 10 - SALES TO MAJOR CUSTOMERS
In 1998, two customers, American Skiing and Regal Cinemas represented 19% and
17% of the Company's revenues, respectively.
In 1997, one customer, American Skiing Company represented 54% of revenues.
NOTE 11 - EMPLOYEE BENEFITS
Effective July 1, 1995, the Lasergate Systems, Inc. Profit Sharing 401(k) Plan
was established covering substantially all employees. The Company made no
contribution to the Plan during 1998 or 1997.
Since 1996, the Company has utilized an employee-leasing firm that provides all
administrative services relating to payroll, personnel and employee benefits.
Management continues to hire, dismiss, set pay rates, and supervise the
employees.
NOTE 12 - RELATED PARTY TRANSACTIONS
During 1998, the Company made cash payment of $30,000 to an outside Director of
the Company for extensive business consulting services and accrued an additional
$59,000 for legal services performed which have not been paid as of August 30,
1999. The total balance due the Director at December 31, 1998 was $119,900. The
Company also paid $39,000 to a relative of the Chief Executive Officer for
consulting and travel expense reimbursements during the year.
During 1997, the Company paid $156,630 to a vendor in which an outside director
had a substantial financial interest for programming services, paid $36,000 to a
relative of the chief executive officer for consulting services, and accrued
$50,000 for services performed by an outside director.
See also Note 6.
F-20
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
NOTE 13 - YEAR 2000 ISSUE
The Year 2000 issue relates to limitations in computer systems and applications
that may prevent proper recognition of the Year 2000. The potential effect of
the Year 2000 issue on the Company's operations will not be fully determinable
until the Year 2000 and thereafter. If the Year 2000 modifications are not
properly completed by the Company or entities with which the Company conducts
business, the Company's revenues and financial condition could be adversely
impacted.
NOTE 14 - SUBSEQUENT EVENTS
AGREEMENT AND PLAN OF MERGER
On June 21, 1999, the Company entered into a proposed Agreement and Plan of
Merger (the "Agreement") with Tickets.com, Inc., and Advantix Acquisition
Corporation (Advantix). It is the intention of the Agreement that LSI and
Advantix will merge together and become a wholly-owned subsidiary of
Tickets.com. The proposed merger is subject to LSI shareholder approval and the
shareholders have not yet voted on this matter. In connection with this the
Agreement, Tickets.com agrees to cause all of its shares of LSI common stock to
be voted in favor of the approval of the proposed merger. Tickets.com and RBB
signed a contract whereby RBB has agreed to vote all of its shares of LSI common
stock in favor of the proposed merger. RBB is the representative agent for
approximately 52% of the outstanding voting shares.
Under the Agreement, the holders of each share of LSI common stock will receive
$.10 per share.
Also under the Agreement, LSI is to terminate its stock option plan immediately
before the effective date and will issue no further stock options or any other
securities convertible into common stock. In addition, LSI will cancel all
outstanding options and all outstanding warrants at or before the Closing of the
Merger (see Note 9). In exchange for cancellation of these equity instruments,
each holder is to receive cash consideration equal to $.10 less the exercise
price for each option or warrant held. The consideration to be paid on these
equity instruments upon cancellation is not expected to exceed $2,000.
In connection with the signing of the Agreement, former executives (including
the President/CEO and Chairman of the Board) and the former board of directors
resigned and two new individuals became President/CEO and CFO and were appointed
to the Board of Directors (which consists of these two members as of August 31,
1999). In addition, two of the former board members signed 1 year consulting
agreements and non-compete agreements extending three months after the end of
the consulting agreements calling for Company to make payments totaling $50,000
each.
Six employees signed severance agreements that call for the severance amounts in
case of involuntary termination or voluntary termination on or before August 16,
1999 totaling $250,000. As of August 31, 1999, a total of $140,000 has been paid
under these severance agreements. In addition, a former executive received
$70,000 upon the signing of an inducement letter in connection with his
resignation.
Also in connection with the Merger documents, RBB will pay the former President
and CEO $200,000 and give her 10,000 shares of Tickets.com common stock. In
addition, the former President and CEO is granted the opportunity to purchase
20% (up to 20,000 shares) of Tickets.com common stock that Tickets.com allocates
to RBB in its initial public offering (IPO) at the IPO price, of which the first
10,000 shares will be purchased by RBB at its sole cost. This consideration is
in lieu of the amount that would be due this individual in accordance with
"Change in Control of Company" provisions included in her employment agreement.
No amounts relating to the above three paragraphs have been accrued for at
December 31, 1998.
F-21
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended December 31, 1998 and 1997
Also in connection with the signing of the Agreement, a Settlement and Release
Agreement (the Release) was signed between LSI and RBB Bank (see Note 10) that
forever forgives each party for any damages or claims that the parties may have
had against each other. This included a legal proceeding entitled RBB BANK, A.G.
V. LASERGATE SYSTEMS, INC., ET AL, which was filed in june 1999 and had been
pending in the circuit court of Pinellas County, Florida. The Release does not
relieve LSI's $300,000 promissory note obligation to RBB (see Note 6).
LOAN PROCEEDS RECEIVED FROM TICKETS.COM
In 1999, the Company has received $1,430,000 through August 31, 1999 from
Tickets.com to support the Company's ongoing operations evidenced by
uncollateralized demand note payables. On September 16, 1999, the Company
received an additional advance of $350,000 from Tickets.com to sustain
operations through October 1999.
ADDITIONAL COMPENSATION TO THE FORMER PRESIDENT/CEO
In 1999, prior to the signing of the Agreement and Merger described above, the
board approved approximately $150,000 payable to the former President/CEO for
accumulated unpaid vacation, fringe benefits, and related compensation prior to
1999. This entire amount has been accrued for in the 1998 financial statements.
As of August 31, 1999, the Company has paid approximately $114,000 of this
total.
SERIES G PREFERRED SHARES TRANSFER (UNAUDITED)
On June 28, 1999, RBB bank sold and delivered 5,700 Series G Preferred shares
(see Note 9) to Tickets.com in exchange for $754,290 cash and 674,541 shares of
Tickets.com common stock.
MANAGEMENT BONUSES
On april 22, 1999, the Board of Directors approved Company payment of management
bonuses totaling $120,000, which management states has all been paid as of
August 31, 1999. The bonuses were for management's efforts in seeking a
strategic partner and for prior service with payment contingent upon the signing
of the Agreement and Plan of Merger. Accordingly, these bonuses have not been
accrued at December 31, 1998.
SALE OF LICENSE AGREEMENT (UNAUDITED)
In March 1999, the Company sold a license agreement to a third party in exchange
for $600,000 in cash, which has been received. The license agreement allows the
third party to exclusively use the Company's Select-a-Seat software (and source
code) at any location or in any form of commerce within the States of Washington
and Montana. In addition, the third party has non-exclusive use of the software
(and source code) in the States of alaska, Oregon, Idaho and Utah, and in the
provinces of British Columbia, Alberta, and Saskatchewan.
F-22
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LASERGATE
SYSTEMS, INC AND SUBSIDIARIES FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FORM 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 71,952
<SECURITIES> 0
<RECEIVABLES> 144,537
<ALLOWANCES> (35,000)
<INVENTORY> 21,697
<CURRENT-ASSETS> 313,344
<PP&E> 560,656
<DEPRECIATION> 327,938
<TOTAL-ASSETS> 3,394,297
<CURRENT-LIABILITIES> 3,553,026
<BONDS> 0
171
0
<COMMON> 458,982
<OTHER-SE> 382,118
<TOTAL-LIABILITY-AND-EQUITY> 3,394,297
<SALES> 0
<TOTAL-REVENUES> 3,013,311
<CGS> 0
<TOTAL-COSTS> 1,747,923
<OTHER-EXPENSES> 2,084,051
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (799,713)
<INCOME-TAX> 0
<INCOME-CONTINUING> (799,713)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (799,173)
<EPS-BASIC> (0.06)
<EPS-DILUTED> (0.06)
</TABLE>
