SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 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 [ ] NO [X]
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON
EQUITY, AS OF THE LATEST PRACTICAL DATE.
CLASS OUTSTANDING AT MARCH 31, 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 March 31, 1999.
INDEX
Part I. FINANCIAL INFORMATION PAGE
----
Item 1. Consolidated Financial Statements 3
Consolidated Balance Sheets as of March 31, 1999 3
(unaudited) and December 31, 1998
Consolidated Statements of Operations 4
(unaudited) for the three months ended
March 31, 1999 and March 31,1998.
Consolidated Statements of Cash Flows 5
(unaudited) for the three months ended
March 31, 1999 and March 31, 1998.
Notes to Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis or Plan 8
of Operation
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
Signature 10
-2-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS MARCH 31 DECEMBER 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 265,027 $ 71,952
Accounts receivable, net of allowance for doubtful
accounts of $42,500 and $35,000 277,551 109,537
Note receivable, current portion 67,944 65,210
Inventories 14,041 21,697
Prepaid expenses 20,339 44,948
------------ ------------
Total Current Assets 644,902 313,344
------------ ------------
Property and equipment, net 190,643 232,718
Systems and software costs, net of write-down and
amortization of $1,739,253 and $1,713,754 730,953 714,871
Goodwill, net of amortization of $564,793 and $531,546 2,083,480 2,116,727
Other assets, net 16,638 16,637
------------ ------------
Total Assets 3,666,616 3,394,297
------------ ------------
LIABILITIES & STOCKHOLDERS EQUITY
Current Liabilities
Notes payable, bank 341,296 317,956
Accounts payable, trade 584,617 920,157
Deferred revenues 835,177 421,197
Accrued warranty costs 480,860 473,775
Accrued expenses 564,626 419,941
------------ ------------
Total liabilities 2,806,576 2,553,026
------------ ------------
Stockholders equity
Preferred stock, $.03 par value, 2,000,000 shares authorized
5,700 shares issued and outstanding at
March 31, 1999 and December 31, 1998 171 171
Common stock, $.03 par value, 20,000,000 shares authorized
15,299,393 issued and outstanding at
March 31, 1999 and December 31, 1998 458,982 458,982
Additional paid-in capital 20,888,218 20,888,218
Accumulated deficit (20,487,331) (20,506,100)
------------ ------------
Total stockholders' equity 860,040 841,271
------------ ------------
Total liabilities and stockholders' equity $ 3,666,616 $ 3,394,297
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements
-3-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED MARCH 31
1999 1998
----------- -----------
Revenues $ 899,129 $ 1,215,329
Operating Expenses
Cost of Revenues 236,940 722,764
Development -- 25,894
Selling, general and administrative 644,324 781,835
----------- -----------
Operating Income (Loss) 17,865 (315,164)
Other income (expense) 904 3,059
----------- -----------
Net Income (Loss) 18,769 (312,105)
----------- -----------
Net Gain (Loss) per common share $ .001 $ (0.4)
----------- -----------
Weighted Average Common Stock Outstanding 15,299,393 7,462,061
----------- -----------
The accompanying notes are an integral part of these statements
-4-
<PAGE>
Lasergate Systems, Inc. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------
MARCH 31, 1999 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 18,769 $(312,105)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation, write-down and amortization 42,084 42,100
Increase (decrease) in provision in doubtful accounts 7,500 15,000
Amortization of intangibles 58,747 58,747
Decrease (increase) in:
Accounts receivable, trade (175,514) 184,233
Inventories 7,656 72,946
Prepaid expense 24,609 9,678
Other current assets (1) 2,500
Note receivable and accrued interest (2,734)
Increase (decrease) in:
Accounts payable and accrued expenses (190,855) (154,270)
Accrued product costs 7,085 (3,070)
Deferred revenue 413,980 (46,393)
--------- ---------
Net cash used in operating activities 211,326 (130,634)
--------- ---------
Cash flows from investing activities:
(Additions) to, disposal of, property and equipment -- (1,597)
Capitalized software development costs (41,591) (94,325)
--------- ---------
Net cash provided (used) in investing activities (41,591) (95,922)
--------- ---------
Cash flows from financing activities:
Proceeds from loans 23,340 --
Repayment of loans, other -- (1,353)
--------- ---------
Net cash provided by financing activities 23,340 (1,353)
--------- ---------
Net increase (decrease) in cash and cash equivalents 193,075 (227,909)
Cash and cash equivalents, beginning of period 71,952 390,760
--------- ---------
Cash and cash equivalents, end of period $ 265,027 $ 162,851
--------- ---------
</TABLE>
The accompanying notes are an integral part of these statements
-5-
<PAGE>
LASERGATE SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
NOTE 1 - FINANCIAL STATEMENT PRESENTATION AND OTHER INTERNAL PRESENTATION
INTERIM PRESENTATION
The interim consolidated financial statements of Lasergate Systems, Inc. (the
Company) are unaudited and should be read in conjunction with the consolidated
financial statements and notes thereto in its Form 10-KSB, for the year ended
December 31, 1998. In the opinion of management, the accompanying consolidated
financial statements (with all explanations contained in these Notes) contain
all adjustments necessary for a fair presentation of the results of operations
for this interim period. Interim results are not necessarily indicative of the
results for a full fiscal year.
OPERATIONAL AND FUNDING MATTERS AND REPORTING BASIS
The 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, 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 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 three months ended March 31, 1999, the Company made a profit of $18,769
and used cash in operating activities of $211,326. From its inception in March,
1985 through March 31, 1999, the Company has an accumulated deficit of
$20,487,331. 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.
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.
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.
-6-
<PAGE>
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 $480,860 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 (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.
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.
-7-
<PAGE>
ITEM 2-MANAGEMENT S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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.
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
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
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 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
THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998
REVENUES:
Revenues were $899,129 and $1,215,329 in the first quarter of 1999 and the first
quarter of 1998 respectively, representing a decrease of $316,200 or 26%.
Product sales represented $768,326 and $1,061,1400 in the first quarter of 1999
and 1998 respectively and revenue from maintenance and support of existing
customers represented $130,803 and $154,189 in the first quarter of 1999 and
1998 respectively.
COST OF REVENUES:
Cost of revenues were $236,940 and $722,764 in the first quarter of 1999 and the
first quarter of 1998 respectively, representing a $485,824, or 68% decrease. As
a percentage of revenues, cost of revenues in the first quarter of 1999 was 27%
of revenues compared to 60% of revenues in the first quarter of 1998. This was
primarily due to the increase in software sales relative to hardware sales. The
ratio of cost-of-revenues to revenues is a function of whether the sales or
services are hardware or software intensive. Hardware sales result in lower
gross margins, as hardware is not developed by the Company, but acquired 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 $25,894 in the first quarter of 1999 and the first
quarter 1998 respectively, representing a decrease of $25,894, or 100%. The
Company expects to continue to develop enhancements to its products for the
remainder of 1999 and will capitalize this cost in the second fiscal quarter.
Future development efforts will be focused on a reserved seating module as soon
as resources become available and customer demands justify.
-8-
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE:
Selling, general and administrative expenses were $644,324 and $781,835 for the
first quarter of 1999 and 1998 respectively, representing a $137,511 or 18%
decrease. This decrease is attributable to Management's actions to operate in a
conservative manner and reduce operating expenses, including salary expense,
travel expense, rent expense, and employee recruitment expenses.
Net income was $18,769, or $.001 per common share, for the first quarter of 1999
compared to a net loss of $312,105, or $.04 per common share, for the first
quarter 1998.
LIQUIDITY AND CAPITAL RESOURCES
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.
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 filed. 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.
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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits: 27.1 Financial Data Schedule
(b) Reports on Form 8-K: The Company did not file any reports on Form 8-K
during the quarter ended March 31, 1999.
-9-
<PAGE>
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: October 6, 1999 /s/ STEVE H. NOBLE, III
-----------------------------------
Steve H. Noble, III
Vice President
Chief Financial Officer
-10-
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27.1 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000797324
<NAME> LASERGATE SYSTEMS, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 265,027
<SECURITIES> 0
<RECEIVABLES> 277,551
<ALLOWANCES> 42,500
<INVENTORY> 14,041
<CURRENT-ASSETS> 644,902
<PP&E> 190,643
<DEPRECIATION> 370,022
<TOTAL-ASSETS> 3,666,616
<CURRENT-LIABILITIES> 2,806,576
<BONDS> 0
0
171
<COMMON> 458,982
<OTHER-SE> 20,888,218
<TOTAL-LIABILITY-AND-EQUITY> 3,666,616
<SALES> 899,129
<TOTAL-REVENUES> 899,129
<CGS> 236,940
<TOTAL-COSTS> 881,264
<OTHER-EXPENSES> (904)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 18,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,769
<EPS-BASIC> .001
<EPS-DILUTED> .001
</TABLE>
