SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
1999.
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _______________
TO _____________
COMMISSION FILE NUMBER 0-15873
LASERGATE SYSTEMS, INC.
----------------------------------------------------
(EXACT NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
FLORIDA 59-2543206
-------------------------------- -------------------
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2189 CLEVELAND STREET, SUITE 230, CLEARWATER, FLORIDA 33765
-----------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
ISSUER'S TELEPHONE NUMBER: (727) 803-1574
CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION
13 OR 15(D) OF THE SECURITIES EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND
(2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICAL DATE.
CLASS OUTSTANDING AT NOVEMBER 19, 1999
- ----- --------------------------------
COMMON STOCK $0.03 PAR VALUE 15,299,393
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE)
YES [ ] NO [X]
<PAGE>
LASERRGATE SYSTEMS, INC. AND SUBSIDIARIES
FORM 10-QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999
INDEX
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Part I. FINANCIAL INFORMATION PAGE
--------------------- ----
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of September 30, 1999 3
(unaudited) and December 31, 1998
Consolidated Statements of Operations 4
(unaudited) for the three months and nine months ended
September 30, 1999 and 1998
Consolidated Statements of Cash Flows 5
(unaudited) for the nine months ended
September 30, 1999 and 1998
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan
of Operations 7
Part II. OTHER INFORMATION
-----------------
Item 1: Legal Proceedings 10
Item 2: Agreement and Plan of Merger 10
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
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Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 174,930 $ 71,952
Accounts receivable, net of allowance for doubtful
accounts of $46,400 and $35,000 142,788 109,537
Note receivable, current portion 65,210
Inventories 25,301 21,697
Prepaid expenses 20,496 44,948
------------ ------------
Total Current Assets 363,515 313,344
------------ ------------
Property and equipment, net 136,475 232,718
Systems and software costs, net of write-down and
amortization of $1,717,754 and $1,713,754 711,510 714,871
Goodwill, net of amortization of $646,288 and $531,546 2,001,985 2,116,727
Other assets, net 16,637 16,637
------------ ------------
Total Assets 3,230,122 3,394,297
------------ ------------
LIABILITIES & STOCKHOLDERS EQUITY (DEFICIT)
Current Liabilities
Notes payable, bank 2,118,219 317,956
Accounts payable, trade 843,483 920,157
Deferred revenues 667,009 421,197
Accrued warranty costs 441,484 473,775
Accrued expenses 74,354 419,941
------------ ------------
Total liabilities 4,144,549 2,553,026
------------ ------------
Stockholders equity (deficit)
Preferred stock, $.03 par value, 2,000,000 shares authorized
5,700 shares issued and outstanding at September 30, 1999
and December 31, 1998 171 171
Common stock, $.03 par value, 20,000,000 shares authorized
15,299,393 issued and outstanding at September 30, 1999
and December 31, 1998 458,982 458,982
Additional paid-in capital 20,888,218 20,888,218
Accumulated deficit (22,261,798) (20,506,100)
------------ ------------
Total stockholders' equity (deficit) (914,427) 841,271
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 3,230,122 $ 3,394,297
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 121,120 $ 733,291 $ 1,318,562 $ 2,711,289
Operating Expenses
Cost of Revenues 97,358 413,687 566,392 1,551,893
Development -- 3,688 -- 48,516
Selling, general and administrative 789,652 57,002 2,506,689 1,501,202
------------ ------------ ------------ ------------
Operating Loss (765,890) (258,914) (1,754,519) (390,322)
Other income (expense) (4,306) 7,502 (1,179) 16,418
------------ ------------ ------------ ------------
Net Loss (770,196) (266,416) (1,755,698) (373,904)
------------ ------------ ------------ ------------
Net Loss per common share $ (0.05) $ (0.02) $ (0.11) $ (0.03)
------------ ------------ ------------ ------------
Weighted Average Common Stock Outstanding 15,299,393 15,299,393 15,299,393 12,399,867
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements
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Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,755,698) $ (373,904)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation and amortization 309,994 294,288
Increase (decrease) in provision in doubtful accounts 11,400 44,265
Decrease (increase) in:
Accounts receivable, trade (44,651) 334,490
Inventories (3,604) 100,860
Prepaid expense 24,452 12,188
Other current assets -- 2,500
Note receivable and accrued interest 65,210 (6,074)
Increase (decrease) in:
Accounts payable and accrued expenses (422,261) (586,107)
Accrued product costs (32,291) (30,973)
Deferred revenue 245,812 23,112
----------- -----------
Net cash used in operating activities (1,601,637) (273,885)
----------- -----------
Cash flows from investing activities:
Additions to property and equipment (10) (27,783)
Capitalized software development costs (95,640) (319,447)
----------- -----------
Net cash used in investing activities (95,650) (347,230)
----------- -----------
Cash flows from financing activities:
Proceeds from loans 1,805,000 299,700
Repayment of loans, other (4,735) (4,168)
----------- -----------
Net cash provided by financing activities 1,800,265 295,532
----------- -----------
Net increase (decrease) in cash and cash equivalents 102,978 (325,583)
Cash and cash equivalents, beginning of period 71,952 390,762
----------- -----------
Cash and cash equivalents, end of period $ 174,930 $ 65,179
----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements
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<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - FINANCIAL STATEMENT PRESENTATION AND OTHER INTERNAL PRESENTATION
INTERIM PRESENTATION
The interim consolidated financial statements of Lasergate Systems, Inc. (the
Company) are unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto in its Form 10-KSB, as amended, for the
year ended December 31, 1998. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments necessary for a fair
presentation of the results of operations for this interim period. Interim
results are not necessarily indicative of the results for a full fiscal year.
OPERATIONAL AND FUNDING MATTERS AND REPORTING BASIS
The Company's financial statements have been prepared in conformity with
generally accepted accounting principles, which contemplate continuation of the
Company as a going concern. In the Company's Annual Report on Form 10-KSB as
amended, for the fiscal year ended December 31, 1998, the Company's auditors
qualified their opinion as to a going concern. The information contained in Note
3 to the Financial Statements included in the Company's Annual Report on Form
10-KSB as amended, for the fiscal year ended December 31, 1998 remains current
related to the status of certain of the Company's operational and funding
matters and, accordingly, should be referred to in conjunction with this Form
10-QSB.
For the nine months ended September 30, 1999, the Company incurred a loss of
$1,755,698 and used cash in operating activities of $1,601,637. From its
inception in March, 1985 through September 30, 1999, the Company has an
accumulated deficit of $22,261,798. In recent years the Company has relied upon
proceeds from private and public placements of equity securities (some of which
were converted to stock) and loans in order to fund its operation.
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the Company's balance
sheet is dependent upon continued operation of the Company, which in turn is
dependent upon the Company's ability to succeed in its future operations. 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.
See Note 5 for 1999 funding Information
REVENUE RECOGNITION
Revenues from the sale of equipment and software licenses, 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 90 days are accounted for using the percentage of
completion method.
Revenues from post contract customer support and maintenance are recognized
ratably over the maintenance period if collectibility is probable.
CLASSIFICATION OF EXPENSES
Cost of revenues includes the costs associated with the hardware and software
acquired for the Company's customers and the estimated direct costs associated
with the engineering (mostly software customization) and installation of the
system. Cost of revenues also includes the estimated direct cost related to the
support and maintenance of the Company's service contracts and amortization of
capitalized software development costs.
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NET INCOME (LOSS) PER COMMON SHARE
The net income (loss) per common share amount is based on the weighted average
number of common shares outstanding during the period.
NOTE 2 - 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.
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.
NOTE 3 - PRODUCT COST LIABILITY (WARRANTY ALLOWANCE)
An accrued warranty allowance of $441,484 has been provided to cover the cost of
enhancements to be made (free of charge) to systems installed in prior periods
and to provide for Year 2000 compliance of legacy products. Management has
reviewed warranty costs incurred within the past year, and believes this
provision is a conservative estimate of these costs but will continue to monitor
them to ensure they are provided for on a current basis in order to match the
cost with associated revenue.
NOTE 4 - 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 (CV97-3775) 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.
NOTE 5 - NOTES PAYABLE
On July 31, 1998 the Company borrowed $300,000 from RBB Bank, AG. The loan is
payable in one (1) year at an interest rate of 10% per annum. The loan also
included issuance of 300,000 stock warrants, which have an exercise price of
$.09375 per share, and is secured by Admits source code. The loan is currently
in default.
On June 23, 1999, the Company borrowed $800,000 from Tickets.com. The loan is
payable on demand. It bears interest at the rate of 10% per annum. Since June
30, 1999, Tickets.com has advanced the Company an additional $1,483,000. The
most recent advance of $500,000 was received on November 12, 1999. Total
borrowings from Tickets.com at September 30, 1999 and November 12, 1999 are
$1,783,000 and $2,283,000.
ITEM 2 - MANAGEMENT' S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
Due to the Company's net loss for 1998 of $799,713, 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.
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<PAGE>
The Company's operations for 1998 were adversely affected by tight cash flows.
This 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 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 51% 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
had 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., and Advantix Acquisition Corporation, which
agreement was amended in October 1999. Subsequent to the signing of this
Agreement, Tickets.com advanced the company $2,283,000, (including $500,000
advanced in November 1999), which the Company used to support its operations and
had a remaining cash balance of approximately $483,000 at November 15, 1999. The
Company believed that its new Admits 9.2 product would be completed and ready
for market by the end of October 1999. However, due to unexpected delays in the
completion of Admits 9.2, it is now anticipated that the product will be
substantially complete by December 15, 1999. The unexpected delays, in the
completion of the development of Admits 9.2, are attributable to significant
programming bugs detected in the product. 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
THREE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS THREE MONTHS ENDED SEPTEMBER 30,
1998
REVENUES:
Revenues were $121,120 and $733,291 in the third quarter of 1999 and the third
quarter of 1998 respectively, representing a decrease of $612,171 or 83%.
Product sales represented $28,090 and $533,425 in the third quarter of 1999 and
1998 respectively and revenue from maintenance and support of existing customers
represented $93,030 and $199,866 in the third quarter of 1999 and 1998
respectively. This decrease is attributable to the fact that the Admits 9.2
product was not completed on time and could not be marketed as expected. In
addition, tight cash flows restricted the sales force from traveling, and
consequently they could not make effective sales presentations to prospective
clients.
COST OF REVENUES:
Cost of revenues were $97,358 and $413,687 in the third quarter of 1999 and the
third quarter of 1998 respectively, representing a $316,329, or 76% decrease. As
a percentage of revenues, cost of revenues in the third quarter of 1999 was 80%
of revenues compared to 56% of revenues in the third quarter of 1998. This was
primarily due to the fixed portion of cost of revenues being spread over less
revenues during the second quarter of 1999 versus 1998.
DEVELOPMENT COSTS:
Development costs were $0 and $3,688 in the third quarter of 1999 and the third
quarter 1998 respectively, representing a decrease of $3,688, or 100%. The
decrease is due to the fact that for the third quarter of 1999 the development
efforts related to the development of Admits 9.2, all of which were capitalized.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses were $789,652 and $57,002 for the
third quarter of 1999 and 1998 respectively, representing a $732,650 or 1285%
increase. The increase in SG&A expense is attributable to additional expenses
related to the proposed merger agreement, including severance and other costs.
In addition, the 1998 quarter was affected by the elimination or reduction to
previously established reserves and accrued expenses.
Net loss was $770,196, or $.05 per common share, for the third quarter of 1999
compared to a net loss of $266,416, or $.02 per common share, for the third
quarter of 1998. The components of the increase in the Company's net loss are
explained above.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES:
Revenues were $1,318,562 and $2,711,289 for the nine months ended September 30,
1999 and 1998, respectively, representing a decrease of $1,392,727 or 51%. This
decrease is attributable to the fact that the Admits 9.2 product was not
completed on time and could not be marketed as expected. In addition, tight cash
flows restricted the sales force from traveling and consequently they could not
make effective sales presentations to prospective clients.
COST OF REVENUES:
Cost of revenues were $566,392 and $1,551,893 for the nine months ended
September 30, 1999 and 1998 respectively, representing a $985,501, or 64%
decrease. The ratio of cost-of-revenues to revenues is a function of whether the
sales or services are hardware or software intensive. Hardware sales result in
lower gross margins as hardware is not developed by Lasergate, but acquired for
customers, as is a small portion of software. Sales of the Company's software
provide the Company with significantly higher gross margins.
DEVELOPMENT COSTS:
Development costs were $0 and $48,516 for the nine months ended September 30,
1999 and 1998 respectively, representing a decrease of $48,516 or 100%. The
decrease is due to the fact that for the nine months ended September 30, 1999
the development efforts related to the development of Admits 9.2, all of which
were capitalized.
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses were $2,506,689 and $1,501,202 for
the nine months of 1999 and 1998 respectively, representing a $1,005,487, or 67%
increase. This increase in SG &A expense is primarily attributable to additional
expenses related to the proposed merger agreement, including severance and other
costs.
Net loss increased to $1,755,698, ($0.11 per common share) for the nine months
ended September 30, 1999 from $373,904, ($.03 per common share) for the nine
months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Lasergate used cash for operating activities of $1,601,637 in the nine months
ended September 30, 1999 and $273,885 in the nine months ended September 30,
1998.
Lasergate used cash in investing activities in the amount of $95,650 in the nine
months ended September 30, 1999 and $347,230 in the nine months ended September
30, 1998, which was primarily used for capitalized software development costs.
Lasergate was provided cash by financing activities of $1,805,000 in the nine
months ended September 30, 1999 and $299,700 in the nine months ended September
30, 1998. In the nine months ended September 30, 1999, cash from financing
activities was provided by loans from Tickets.com.
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 December 1999. Since January 1999, Lasergate has received from
Tickets.com a total of $2,283,000 to fund operations, including $500,000
advanced in November 1999. 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.
IMPACT OF THE YEAR 2000 ISSUE
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
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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 October 31, 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.
PART II. OTHER INFORMATION
ITEM 1 - 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 2 - 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
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 51% 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. 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 the 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 16, 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
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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 "Chance in Control
of Company" provisions included in her employment agreement.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: 27.1 Financial Data Schedule
10.1 Agreement and Plan of Merger dated June 21, 1999
10.2 Amendment to Agreement and Plan of Merger dated October 20,
1999
(b) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended September 30, 1999.
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SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Lasergate Systems, Inc.
Registrant
Date: November 6, 1999 STEVE H. NOBLE, III
Vice President
Chief Financial Officer
-12-
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