

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                   FORM 10-KSB

[X]  Annual report  pursuant to Section 13 or 15(d) of the  Securities  Exchange
     Act of 1934 for the fiscal year ended December 31, 1995

[ ]  Transition  report  pursuant  to  Section  13 or  15(d)  of the  Securities
     Exchange  Act of 1934 for the  transition  period from  _______________  to
     _____________

                         Commission file number 0-15873

                             LASERGATE SYSTEMS, INC.
               -------------------------------------------------
              (Exact name of small business issuer in its charter)

            FLORIDA                                             59-2543206
- ----------------------------------                         -------------------
 (State or other jurisdiction                                (I.R.S.Employer
 of incorporation or organization)                         Identification No.)

28050 U.S. 19 NORTH, SUITE 502, CLEARWATER, FLORIDA                34621
- ---------------------------------------------------               -------
    (Address of principal executive office)                      (Zip Code)


Issuer's telephone number:       (813) 725-0882
                                 --------------
Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

                          COMMON STOCK, $0.03 PAR VALUE
                        ---------------------------------
                                (Title of Class)

                               REDEEMABLE WARRANTS
                         ------------------------------
                                (Title of Class)

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 
   ---            ---

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation  S-B is not  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.  [ ]

The issuer's revenue for its most recent fiscal year was $2,835,206.

At March 31, 1996,  4,798,492 shares of Common Stock were  outstanding,  and the
aggregate  market value of the Common Stock of Lasergate  Systems,  Inc. held by
non-affiliates (4,777,992 shares) was $7,614,925.

- -------------------
Documents  incorporated  by reference:  Proxy  Statement for the Company's  1996
Annual Meeting of  Shareholders  Incorporated by Reference into Part III of this
Form 10-KSB.


<PAGE>



                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

     Lasergate Systems, Inc. (the "Company") is a corporation that was organized
under the laws of the State of Florida in 1985. The Company is an integrator and
provider of admission control and revenue accounting systems worldwide.

GENERAL

     The Company is engaged in the development,  assembly, marketing,  servicing
and installation of admission control and revenue accounting systems for general
admission and reserve seating at entertainment  events.  The systems can be used
primarily at amusement parks,  theme parks,  water parks,  night clubs and other
public   facilities   including  state,   county  and  local  fairs,   theaters,
professional and university athletic and multi-purpose  arenas,  movie theaters,
aquariums, race tracks, museums, zoos, casinos, ski resorts and golf courses.

     The Company has developed two versions of the general  admission  ticketing
product  called  "Admits  Gold" and  "Admits  Platinum."  Each  system  provides
computerized  point-of-sale general admission tickets, including timed admission
tickets and/or wristband  tickets for amusement and water parks.  Admits Gold is
generally marketed to smaller facilities with ten or less points of sale. Admits
Platinum is marketed to facilities with more than ten points of sale.

     The Company's reserved seating ticketing product,  "Select-a-Seat,"  allows
the customer to ticket 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's admission control system, known as "Gatepas", employs various
applications  of laser  scanning  bar code  technology  to  automate  and verify
admission to attractions and provide revenue control and accountability. Gatepas
reduces fraud  inherent in situations  involving cash  transactions  when proper
controls  are not  implemented.  Gatepas  creates a detailed  record and permits
individual charges for both overall facility admission and access to each of the
facility's  attractions  or  events.  This is an  optional  system  that  can be
purchased to be used in conjunction with the Admits Platinum system.

     The Company markets the Passmaker  Video ID System in conjunction  with the
Admits  Platinum  product,  that can be used 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.  



                                       -2-

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     A computer  software  system  option for any of the  ticketing  systems can
include  on-line  credit card  authorizations  allowing a report  writer and the
ability to sell a ticket with as few as two key strokes.

     The Company has installed  various  configurations of Gatepas and/or Admits
Gold or Admits Platinum in over 200 facilities including:

     *    SUN VALLEY, Sun Valley, Idaho
     *    WORLD OF COCA COLA, Atlanta, Georgia
     *    SNOWBIRD, Snowbird, Utah
     *    HOUSE OF BLUES,  a night club chain in Los  Angeles,  California,  New
          Orleans, Louisiana and Cambridge, Massachusetts
     *    THE FLORIDA AQUARIUM, Tampa, Florida
     *    THE GUGGENHEIM MUSEUM, New York, New York
     *    SUNDAY RIVER, Bethel, Maine
     *    STEAMBOAT SPRINGS SKI RESORT, Steamboat Springs, Colorado
     *    THE BASKETBALL HALL OF FAME, Springfield, Massachusetts
     *    ROCK N ROLL HALL OF FAME, Cleveland, Ohio

     The  Company's  Select-a-Seat  system  is used  in  over  80  installations
including:

     *    CARNEGIE HALL, New York, New York
     *    BOSTON RED SOX, Boston, Massachusetts
     *    MGM GRAND HOTEL, Las Vegas, Nevada
     *    ROYAL ONTARIO MUSEUM, Toronto, Ontario, Canada
     *    ABBEY THEATRE, Dublin, Ireland

     Current  installations  of the  Company's  systems  vary from  those  which
provide for simple  admissions  tickets  allowing access by patrons to a park or
stadium,  to those which provide for more complex  arrangements  such as tickets
with  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 or which  specify a  particular  seat  attributed  to each ticket.
Certain of the Company's  products identify tickets with a bar code,  consisting
of a series of lines or bars.  As  an example,  bar code  technology is commonly
used to identify  consumer  products for checkout at supermarkets.  Individually
bar-coded tickets are printed by both Admits Gold and Admits Platinum.  Relevant
data concerning the remaining value and restrictions of the ticket are available
from Gatepas each time the bar code is read and processed.  Bar code  technology
differs from magnetic stripe  technology.  Generally  magnetic stripe technology
encodes  information  in a magnetic  strip  which is part of a ticket.  With bar
codes,  no  information  is actually  contained in the bar code,  but is held by
Gatepas in individual records identified by the unique bar code. The bar code is
scanned by a laser scanner.  If the bar code is valid,  to permit access Gatepas
releases a turnstile. This validation process, in conjunction with the Company's
proprietary processing and storage features,  permits the combination of Gatepas
and Admits Platinum and the  combination of a third party scanning  product with
Admits Gold to utilize numerous ticket printing point-of-sale stations

                                       -3-

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and turnstiles to process simultaneous information at each location. Gatepas and
Admits Platinum can be configured to accommodate facilities of most any size.

ADMITS GOLD AND ADMITS PLATINUM

     The Company's Admits computer  software systems 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.

     ADMITS GOLD.  Admits Gold is  particularly  well-suited  for use by smaller
facilities with one to ten selling  stations.  The computer program is installed
on a personal computer with an MS-DOS operating system.

     ADMITS  PLATINUM AND GATEPAS.  The Company has combined the  laser-scanning
capabilities of Gatepas with the general admission  ticketing software of Admits
Platinum to create a comprehensive  admission  system that is flexible enough to
meet a variety of customer needs.  Admits Platinum is better-suited  than Admits
Gold for larger applications, such as ski resorts and large amuse ment parks, in
which numerous ticketing stations are required. Operating on a personal computer
workstation  with a UNIX host,  Admits Platinum can include,  in addition to the
ticketing issuance capabilities of Admits Gold,  point-of-sale software for gift
shops and  concession  stands as well as a link to Gatepas for bar code  scanner
and turnstile features. The Admits Platinum software,  although not protected by
a  registered  copyright,  is deemed by the Company to be  proprietary,  and the
Company  relies upon a combination  of contract and trade secret laws to protect
its proprietary  interest in such software.  See "Intellectual  Property." It is
the Company's belief that this comprehensive system provides the Company with an
advantage  over  its  competitors  by  providing  customers  with a  variety  of
functions  which can be customized to the needs of an  installation.  The system
competes on the basis of its  reputation in the market,  based on the number and
quality of its installed sites. In the Admits Platinum and Gatepas systems, each
ticket  is  given a  unique  bar  code  that,  when  processed,  identifies  the
conditions  under which it can be used,  the remaining  value of that ticket and
the time, place and frequency of admission.  As a ticket passes a laser scanner,
the bar codes are  scanned,  allowing  Gatepas  to  simultaneously  release  the
turnstile or perform  another  function  while reducing the value of the ticket.
This system may  accommodate  millions of active tickets in use and thousands of
different ticket types, varying from tickets that admit holders during specified
hours, during specified days or that are issuable for children,  adults,  senior
citizens or other special categories.

     Unlike other forms of admission  control which can be subject to tampering,
Gatepas  maintains the records for each ticket holder on the system computer and
only  recognizes  those  tickets   produced  by  Admits  Platinum.   This  makes
counterfeiting nearly impossible and discourages ticket holders from



                                       -4-

<PAGE>



manipulating the value of their ticket.  While  competitors  offer systems which
supply many of the same  features as Admits  Platinum and  Gatepas,  the Company
believes that the large number of features and  flexibility of its systems gives
the  Company  a   competitive   advantage  in  marketing   its   products.   See
"Competition."

     The Company  continues  its success  with  respect to the  installation  of
Admits  Platinum  in the ski area  market.  The  system  provides  for fast lift
ticketing  and season pass  production  in  addition to mobile  scanning at lift
entry areas. Recent installations include Snowbird in Snowbird,  Utah and Sunday
River in Bethel, Maine.

     This  combined  admission  control  system  utilizes  the  following  basic
components:

     TICKET.  A bar-coded ticket is printed at one of several  locations.  Since
the bar code is ink on paper  and is  printed  by a  standard  thermal  or laser
printer, it cannot be demagnetized  (unlike magnetic tickets) and will generally
remain  valid  even if the  ticket is folded or  mutilated.  The  system  can be
augmented to provide  season passes with  photographic  identification  cards as
well as group ticketing and reservation  applications to print numerous  tickets
simultaneously for sales through brokers or to groups.

     ATTENDED AND AUTOMATED POINT OF SALE TERMINALS.  Tickets can be sold either
by an attendant with a point-of-sale  terminal,  which includes a cash drawer, a
terminal  to select  the  ticket  type and ticket  printer,  or by an  automated
point-of-sale terminal. As a ticket is printed, a computer record is made of the
bar code, the type of ticket sold,  its cost and the type of payment.  These can
be  reconciled  later  against the funds  collected by a ticket  attendant.  The
terminal can also be operated to request patron survey information.

     An  automated  point-of-sale  terminal  menu is much like a bank  ATM.  The
patron  answers  questions  about the type of ticket  desired on a touch screen,
inserts  cash and the  terminal  can print the ticket.  Both the  automated  and
attended  point-of-sale  terminal have the capability of directly  communicating
with credit card companies to check the patron's credit and make the appropriate
charge.  Accountability  for cash receipts  occurs by tracking and reporting all
cash and other  collections  and the subsequent  use of the ticket issued.  Each
transaction and entry updates the record for each bar code.

     SCANNER.  The scanners provided by Gatepas can be directly linked to Admits
Platinum  software to read  bar-coded  tickets  produced by the Admits  Platinum
software.

     PRICE.  The price for the Admits  Platinum or the Admits Gold System varies
widely,  ranging  from  approximately  $30,000  to  $750,000,  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.  To date, most of the Admits
Platinum  systems the Company has installed  were  purchased for prices  ranging
from  approximately  $50,000 to  $250,000.  The price for the Admits Gold System
also varies depending on generally the same factors

                                       -5-

<PAGE>



as Admits  Platinum.  However,  as this product is specifically  targeted to the
lower end of the market the price range is generally under $100,000.

     ADMITS FEATURES. Both Admits systems are easily adapted to allow a facility
to meet any 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.  Both Admits 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 a 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 (including a logo, if
desired). 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  systems  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 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.

     Admits  Gold  and  Admits  Platinum  are  comprehensive  computer  software
systems. Each can be purchased separately for inclusion in a facility's existing
computer  system  or,  more  typically,  with a number  of  additional  optional
hardware or software  components  with which the  Company can  integrate  at the
customer's request.  Such additional hardware items may include ticket printers,
cash  drawers,  personal  computers,  customer  display  devices and attended or
automated  point  of  sale  terminals.  What  the  Company  believes  to be  the
proprietary  nature of the Admits systems 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, fundraising, and access control.

SELECT-A-SEAT

     The Company  entered the reserve  seating  market in February 1995 with the
purchase of GIS Systems Limited  Partnership  (referred to herein as "GIS".  See
"Recent Acquisitions."). The Company's reserve seating software system is called
"Select-a-Seat".  Select-a-Seat  software  controls  reserve  seating as well as
general  admission  ticket sales and can be  purchased  with the  capability  of
taking telephone and mail order reservations, group reservations,  remote outlet
sales and season  subscription  sales.  These  capabilities make it particularly
well-suited for concerts, sporting arenas and

                                       -6-

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theaters.  Depending upon the availability of storage area on the hardware,  the
Select-a-Seat  software system can store a perpetual data base of ticket buyers,
allowing system users to enhance their marketing abilities by having easy access
to  the  name,  ticket  purchase   history,   payment  history  and  demographic
information  such as age,  performance  preference  and  source  of sale for its
customer  base.  This  flexibility  allows  facilities to use  Select-a-Seat  to
computerize their box office management,  reservation and event marketing in one
system, without reliance on outside ticket vendor services.

     The  Select-a-Seat  system is installed in over 80 customer sites servicing
over 200 facilities worldwide,  including the United States, Canada,  Australia,
Singapore and Ireland.  The software system can be used in venues ranging from a
one-selling  station  system to  potentially  an  unlimited  number  of  selling
stations.  However,  historically,  most of our  customer  base  typically  have
between  25 - 150  selling  stations.  What  the  Company  believes  to  be  the
proprietary  nature of Select-a-Seat is the  interrelationship  of the terminals
with the software which links them,  rather than the terminals  themselves.  The
software  can be used for  distribution  and  control of  admission  tickets for
theaters,  professional and university  athletic and multi-purpose  arenas, race
tracks, theme parks, museums and zoos.

     TICKETING.  Select-a-Seat  maintains a constant  inventory of all 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  in the  facility.  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.  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.

     Select-a-Seat  systems  have been sold to  entrepreneurs  and  governmental
agencies who have established regional or city-wide ticket distribution networks
as an alternative to the national ticketing providers such as TicketMaster. With
Select-a-Seat,  a  facility  can  control  its own  ticket  inventory,  maintain
reasonable  ticketing  service  charges  and  retain  ticketing  service  charge
revenue. By retaining the per-ticket service income, many organizations purchase
Select-a-Seat for use as a source of revenue generation.

     MARKETING.   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.




                                       -7-

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     Select-a-Seat  offers features  specifically  designed to meet the needs of
various market niches such as performing arts venues, large stadiums,  city-wide
ticket bureaus and professional sports teams.

     PRICE. The price of Select-a-Seat varies depending on the modules purchased
and the number of concurrent  users provided for,  ranging from a basic price of
$7,000 for a single  terminal box office to $600,000 for  multi-terminal  access
and modules to support season tickets,  telephone  orders,  reporting and credit
card authorizations.  To date, most of the Select-a-Seat  systems installed were
purchased for prices ranging from approximately $35,000 to $200,000.

GATEPAS

     BACKGROUND.  Bar codes,  which have been available for use since the 1970s,
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's technology, through its admission and access control systems,
reduces fraud and labor costs while enhancing  accountability and profitability.
Within the United  States  alone,  the  entertainment  and  recreation  industry
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  permits  Gatepas  scanning  equipment or radio  frequency
hand-held scanners to closely monitor general attendance at both amusement/theme
park  facilities as well as ski resorts.  By recognizing  tickets with valid bar
codes,   these  scanning  devices  reduce  the  possibility  of  admission  from
counterfeit  tickets.  Bar-coded  tickets cannot be successfully  altered by the
holder to defeat the  system  and are more  durable  than the  fragile  magnetic
strips.

     FEATURES.  The Company's Gatepas system integrates the scanning  technology
of bar codes with  scanners  placed in  turnstiles,  and hand-held or stationary
readers.  The  Company  believes  the  proprietary  nature  of  Gatepas  is  the
interrelationship  of the components,  as well as the software which links them,
rather  than  the  components  themselves.  To gain  entry to a  facility  or an
individual attraction,  the bar code on the card or ticket is scanned by a laser
scanner  located  at the  point of  entry.  The  ticket  can be  scanned  in any
direction by the ticket holder.  After it is processed,  if the ticket is valid,
Gatepas 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. Signs are generally
posted indicating the location of point value for individual events.

     Facility personnel can thus access a statistical  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

                                       -8-

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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.

     SOFTWARE AND COMPUTERS.  The Company holds a federal registered  copyright,
granted in 1987, on its gate-control  software  included in the Gatepas system,.
The Gatepas  system was designed and  developed by the Company.  This  copyright
affords the Company the protection of the federal  copyright laws until the year
2062.  The Company has  introduced  an upgrade to its  ticketing  and  reporting
software based on software  acquired when the Company  purchased  Delta and GIS.
The software upgrade is not protected by a registered  copyright;  however,  the
Company  deems  it  proprietary  and  relies  upon a  combination  of  contract,
copyright  and trade  secret  laws to protect  its  proprietary  interest in the
upgraded software. See "Intellectual Property."

FACILITY MANAGEMENT SYSTEM

     Through its  acquisition  of GIS (see "Recent  Acquisitions"),  the Company
commenced  marketing of the Facility  Management  System, a relational  database
software  application,  the  proprietary  rights  to which  are owned by a third
party.  This system is designed to manage  functions  and events for a public or
private facility.  The Facility  Management System is the combination of booking
and scheduling software with industry standard office automation products,  such
as word processing  systems.  The system operates using standard  IBM-compatible
personal computers and the MicroSoft Windows (TM) computer program.  The Company
sales of these systems are covered by an agreement with the third party owner of
the  software.  This  software  is sold  alone or along  with  various  optional
hardware such as personal computers, printers and other related equipment. Since
August of 1995 this product has not been a primary focus of the Company's  sales
force, nor does the Company expect it to account for meaningful revenue in 1996.

RESORT MANAGEMENT SYSTEM

     The Company acquired a Resort  Management  System in December 1994 upon its
acquisition of Delta Information Services,  Inc. (Referred to herein as "Delta."
See "Recent Acquisitions."). The Resort Management System is a computer software
system  that  provides a resort  with the  ability  to manage  golf tee time and
tennis  reservations,  pro shop sales,  group services,  membership,  concession
stand sales and restaurant  management.  The system uses distributed  processing
technology  which  allows  each  point-of-sale  station  to  perform  sales  and
reservation   functions   throughout  the  facility,   including   administering
reservations,  ticket sales, room service, dining, gift shop and group services.
The system  integrates  with  off-the-shelf  inventory  control  and  accounting
software to offer a complete software package for a resort. This product has not
been a primary focus of the Company's  sales force,  nor does the Company expect
it to account for meaningful revenue in 1996.





                                       -9-

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PRODUCT SERVICING AND ADMINISTRATION

     The Company has developed a number of common  procedures  for producing and
servicing each of its products.

     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 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 to ensure 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
standard  telephone-type 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  (LANs) and
fiber-optics systems.

     The Company provides initial training for the administrators of each system
at each installation and provides a user manual.  The Company offers training of
facility personnel; however, the Company has not historically engaged any of the
personnel at the  supervisory  level and relies upon these  individuals to train
the  end  users  who  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 had historically offered a
three-month warranty for its products. After the end of the warranty period, the
Company had offered its  customers a maintenance  and servicing  contract for an
annual fee.  However,  both  companies  recently  acquired  by the Company  (see
"Recent  Acquisitions"),  Delta and GIS,  had  historically  offered a  one-year
warranty period followed also by a maintenance and service contract. The Company
continued the one-year  warranty  practice  throughout  1995.  Effective June 1,
1996,  the Company wil most likely  return to its original  practice of a 90-day
warranty period.  The Company contract 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, standard updates to the
system purchased, user guides and repair or replacement (at customer expense) of
hardware  components.  The Company's  engineering  staff is able to diagnose and
correct most 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. Approximately 11% of the Company's revenue for
the year ended  December 31, 1995 was  generated by  maintenance  and  servicing
fees.


                                      -10-

<PAGE>



     In early  1995,  the Company  intended  to install  the  "Admits  Platinum"
product at all of the  original  "Lasergate"  product  sites.  The  Company  had
reserved  $281,000 as of December 31, 1994, for the  conversions.  However,  the
Company was  ultimately  able to enhance the Lasergate  product at many of these
sites which made reinstallation unnecessary. As a result, only $21,400 was spent
in 1995 for required conversions.  The remaining Lasergate sites present upgrade
opportunities in 1996 and $57,000 has been reserved to accomplish the upgrades.

     In 1996, the Company  intends to enhance  several of the original Delta and
GIS sites and has reserved $240,000 to accomplish this. While these enhancements
are  likely to result  in future  product  and  service  revenues,  no  absolute
assurance can be given at this time.

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 markets for the  Company's  products  and to develop new  products to
compete more effectively.  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.  The Company has expended $585,348 and
$345,379  during  fiscal  years 1995 and 1994,  respectively,  on  research  and
development.  Included is research  and  development  conducted by Delta and GIS
prior to their acquisitions by the Company. See "Recent Acquisitions."

MARKETING

     The  Company  currently  markets  its  Admits  Platinum,  Admits  Gold  and
Select-a-Seat products through its direct sales staff. Marketing is accomplished
by several avenues;  participation in industry trade shows, targeted direct mail
campaigns,  advertising  in trade  periodicals,  direct  sales and  joint  sales
efforts to specific  accounts with certain other  vendors.  The Company plans to
market the Admits Gold product through a reseller channel of distribution by the
end of 1996,  potentially  supplementing  revenues in 1997.  The Company is also
planning  to  augment  its  direct  sales  staff  with  a  telemarketing  staff,
specifically   seeking   additional   business  from  current   customers.   The
telemarketing  staff may also be able to  generate  new sales leads for both the
direct sales staff and reseller channels.

     The Company  believes that certain of its prior customers using one or more
of the  Company's  products  may  currently  have or may soon develop a need for
additional  products offered by the Company.  Therefore,  in addition to seeking
new customers and new markets for its  products,  the Company  intends to market
its full product line to its existing customer base through targeted direct mail
campaigns and telemarketing.

     The Company has also  recently  aligned  itself  with  certain  partners in
related  industry  sales and has  successfully  secured  sales  contracts in the
process. The Company does not have exclusive  arrangements with any vendors with
whom the Company has from time-to-time partnered, however, as these arrangements
have been mutually beneficial in the past, the Company intends to further pursue
this "partner selling" option.

                                      -11-

<PAGE>


     The  Company has  primarily  concentrated  its  marketing  on the  domestic
amusement    park   and    entertainment    industries,    ski    resorts    and
stadiums/multi-purpose  arenas.  The  Company  intends  to expand the market for
Admits Gold, by targeting zoos, aquariums,  museums,  movie theaters, ice rinks,
high schools and religious organizations. The Company also intends to expand the
market for all its products  through the  presentation of alternative  financing
options. One method allows a customer to acquire a system on a per-ticket-charge
basis,  eliminating  the  up-front  capital  costs  normally  associated  with a
purchase.  The Company would derive its revenue under such a program from either
fees charged  based on the number of tickets sold or the number of uses for each
ticket.

CUSTOMERS

     Through March 31, 1996,  the Company  (including  the Delta company and the
GIS company)  had  installed  over 220 general  admission  systems,  and over 80
Select-a-Seat systems. Listed below is one example of each type of installation:

     CARNEGIE HALL, NEW YORK, NEW YORK.  SELECT-A-SEAT was installed in Carnegie
Hall in 1985.  There are over 35 users of this system that sells  tickets to all
concert  performances,  taking  telephone  reservations  and  processing  season
subscription ticket sales;

     ROCK N ROLL HALL OF FAME, CLEVELAND, OHIO. The ADMITS GOLD SYSTEM installed
at the Rock n Roll Hall of Fame includes 10 point-of-sale ticketing stations and
provides  for  automated  scanning  and  access  control.  The  system  has been
operating since opening day in September,  1995 and has processed over 1,000,000
tickets;

     SNOWBIRD SKI RESORT, SNOWBIRD, UTAH. The ADMITS PLATINUM SYSTEM at Snowbird
Ski Resort includes 15 point-of-sale stations for lift ticket sales, and 3 video
imaging stations for season pass sales. The system was installed in 1995 and has
processed over 300,000 skier visits annually;

     THE FLORIDA AQUARIUM, TAMPA, FLORIDA. The Company, in April 1995, installed
its GATEPAS and ADMITS  PLATINUM  SYSTEMS in The Florida  Aquarium.  The systems
provide for a computerized point-of-sale ticketing system and laser scanning bar
code technology to automate and verify admission and access to the facility. The
systems have sold and scanned  approximately  1,200,000  tickets since its Grand
Opening.

     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 significant
backlog of orders for equipment.  As of December 31, 1995 and December 31, 1994,
the Company's  backlog was  $1,190,000 and $200,000,  respectively.  The backlog
represented   sales  to  numerous  sites  with  purchase   prices  ranging  from
approximately  $2,000 to over  $350,000.  However,  unlike the situation in 1994
wherein one customer

                                      -12-

<PAGE>



represented over 48% of the year's revenue,  no one customer in 1995 represented
more than 10% of the Company's sales.

COMPETITION

     The Company faces  competition from different  sources with respect to each
of its products.  The Company is unaware of any one competitive  source with the
capabilities to supply the number of different  admission and ticketing products
which the Company offers.  The Company  believes it has a competitive  advantage
over any other single  company due to the  Company's  ability to satisfy a great
variety of software or hardware  requirements a customer might have with respect
to ticketing, access control and reserve seating.

     ADMITS.  There are several  companies in the United States  offering  basic
computerized  ticketing  capabilities  which are  similar  to those the  Company
offers through its Admits Gold and Admits Platinum systems. They include,  among
others,  PACER CATS, and GATEWAY TICKETING  SYSTEMS(TM).  While those firms have
automated  ticketing  programs similar to that of the Company,  and many of them
have  resources  substantially  greater than those of the  Company,  the Company
believes  Admits  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 reserve seating system competes
against  companies such as  TICKETMASTER,  INC.,  SELECT  TICKETING  SYSTEMS and
PROLOGUE  SYSTEMS INC.  Many of those  companies  have  resources  substantially
greater  than the  Company.  The  Company  believes,  however,  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
which a customer  might  already  own.  The  computerized  reserved  seat ticket
industry has historically  been dominated by two national  ticketing  companies,
Ticketron,  Inc.  and  TicketMaster,   Inc.  Ticketron,  Inc.  was  acquired  by
TicketMaster,  Inc., leaving only one national ticketing company,  TicketMaster,
Inc. TicketMaster,  Inc. leases their equipment and software to arenas, stadiums
and theaters and establishes  remote sales locations and telephone  reservations
centers to sell  tickets.  Ticket buyers pay a service  charge to  TicketMaster,
Inc. for their services. Service charges can range from $1.50 per ticket to over
$10.00 per ticket. The Company's  Select-a-Seat system, as an alternative to the
national  ticketing  companies,  allows  facilities  to control their own ticket
inventory,  maintaining lower ticketing service charges and retaining  ticketing
service charge revenue. When organizations purchase  Select-a-Seat,  all tickets
sold over the telephone,  the Internet, or at remote sales locations can carry a
per-ticket service charge which the owner of the system retains. Therefore, many
organizations purchase Select-a-Seat as a source of revenue. For a discussion of
Select-a-Seat,  see the information  included under the caption  "Select-a-Seat"
above.

     GATEPAS.  The primary competing technology for the Company's Gatepas 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.  The
Company's  primary  competitor for its Gatepas system is Data Service Company of
America,  Inc.  which  offers  access  control by allowing  users to swipe their
bar-coded ticket through a

                                      -13-

<PAGE>



slot reader. The Company believes Gatepas competes effectively with Data Service
Company of America, Inc.

     GENERAL.  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 whom 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 housing and circuit boards are specially manufactured
for  the  Company  to its  specifications  and  ordered  from  one  of  numerous
suppliers.  The Company's  major  suppliers of such components are BOCA Systems,
Inc., Alvarado Corporation, Indiana Cash Drawer Corporation, Jetstar, Inc., Arco
Distributors,  Inc., American Microsystems,  Inc., Digital Equipment Corporation
and Data General.  The other products the Company offers are primarily software.
Any  hardware the Company may supply to a customer  will  generally be purchased
from one of the suppliers listed above or others that make substantially similar
products.

     The  Company  assembles  and tests its  software  at its  headquarters  and
installs it along with appropriate hardware on-site for its various customers.

PERSONNEL

     Effective January 1, 1996 the Company entered into an agreement with a 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. Among other advantages, the new arrangement enables the
Company to reduce its administrative and benefit costs relating to employees.

     As of December 31, 1995, the Company  employed 27 individuals,  including 4
in management,  14 in engineering and customer support,  3 in direct sales and 6
support staff  personnel.  The Company also retained 15 individuals who serve as
consultants or temporary  independent  contractors and who provide  expertise in
the areas of management, sales and marketing, and software programming.

     The Company does not currently  have  employment  contracts with any of its
personnel other than Ms. Soechtig,  the Company's  President and Chief Executive
Officer.  The Company generally enters into  non-disclosure and  non-competition
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 is excellent.




                                      -14-

<PAGE>




INTELLECTUAL PROPERTY

     The Company holds a registered copyright, granted in 1987, for the software
included in Gatepas.  This  copyright  affords the Company the protection of the
federal  copyright laws against the  unauthorized  use and  reproduction  of the
Gatepas  software until the year 2062. The Company believes that its copyrighted
software for interfacing bar codes,  omnidirectional laser scanners, and related
computer  and  system  components   provides  the  Company  with  a  competitive
advantage.  Through  acquisition  of GIS,  the  Company  acquired  a  registered
trademark in the name  "Select-a-Seat" and a registered federal copyright in the
software comprising the Select-a-Seat  system. The copyright affords the Company
the  protection  until the year 2066.  The Company  believes the  trademark  and
copyrighted software provides the Company with a competitive advantage.

     The Company regards certain features of its internal  operations,  software
and  documentation  as  proprietary.  The  Company  relies on a  combination  of
contract,  copyright,  trademark  and trade  secret  laws and other  measures to
protect its  proprietary  information.  The Company 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  trademarks  and  copyrights 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  Admits,  Select-a-Seat  and  Gatepas  is a  result  of the
inter-relationships  of these  components  and the variety of features that they
are able to provide when  integrated and the software  which links them,  rather
than the individual components themselves.





                                      -15-

<PAGE>



     The   Company   intends  to  apply  for  patents  to  protect  its  product
enhancements as they are developed.  There can be no assurance that patents will
be obtained or that they 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 or
prospective patents.

RECENT ACQUISITIONS

     On December  23,  1994,  the Company,  through a  wholly-owned  subsidiary,
purchased all of the  outstanding  capital stock of Delta, a former  supplier of
revenue control and ticketing  systems  targeted  primarily for the ski industry
and other  family  entertainment  facilities.  Delta was  purchased  from  James
Potter, Marion Audrey Potter and Derek Betty (the "Sellers"). The purchase price
for the  acquisition  was valued at  $1,200,000  and  included a cash payment of
$500,000 and a promissory  note which was converted  into 100,000  shares of the
Company's  common  stock  (the  "Shares").  The  Sellers  were  granted  certain
registration rights for two years with respect to the Shares and a put option to
sell to the  Company up to 10,000 of the Shares at $7.00 per share each year for
the next three years. Additionally,  James Potter, one of the Sellers, agreed to
act as a  consultant  to the Company  for one year for a fee of  $70,000.  These
services were rendered in 1995 and the consultant  contract expired in December,
1995. The Company  currently  offers the Delta product under the name of "Admits
Platinum" as a product alone alone and in combination with the Gatepas product.

     On February 15, 1995, the Company purchased substantially all of the assets
of GIS, a company  formerly  engaged  in the  business  of design,  integration,
installation  and sale of  admission  control  and revenue  accounting  computer
systems for the  entertainment  industry.  The Admits  Gold,  Select-a-Seat  and
Facility  Management  System are all products which the Company now offers.  The
purchase price for the  acquisition  was valued at $3,700,000 and was based upon
the  expected  revenues  of GIS and the  competitiveness  of its  products.  The
purchase  price  consisted  of 109,333  shares of the  Company's  common  stock,
111,800  shares  of the  Company's  Series  B  Preferred  Stock,  the  Company's
promissory note in the principal amount of $591,000 and the Company's promissory
note in the principal amount of $1,733,335.  In addition,  the Company agreed to
assume  certain  liabilities  of GIS and loaned GIS $559,000.  Fred Maglione and
Nicholas  Flaskay,  both formerly  associated  with GIS, also agreed to serve as
consultants  to the  Company  for terms  which  have since  expired  for fees of
$11,051  and $1,666 per month,  respectively.  On March 11,  1996,  the  Company
restructured  its  arrangement  with GIS  whereby in  exchange  for a payment of
$1,550,000,  the  109,333  shares  of common  stock  were  redeemed  and the two
promissory  notes held by GIS for $591,000 and  $1,733,335,  were  canceled.  In
addition,  the  $559,000  loan from the Company to GIS was  extinguished  by the
return to the Company of the shares of Series B Preferred  Stock.  This March 11
agreement was successfully executed on April 12, 1996.


                                      -16-

<PAGE>



ITEM 2.  DESCRIPTION OF PROPERTY

     The Company  currently  leases  approximately  10,760 square feet of office
space in Clearwater,  Florida.  The lease expires on April 30, 1999. 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 building as space  becomes  available.
From February 1996 through February 1997, the rent payable will be approximately
$10,000 per month each month.

ITEM 3.  LEGAL PROCEEDINGS

     The Company's  founder and former  President and Chief  Executive  Officer,
Donald  Turner,  has commenced an action  against the Company in a Florida state
court. Mr. Turner alleges, among other things, that he was wrongfully terminated
from his  employment  and seeks  damages  which in the  aggregate  could  exceed
$1,000,000.  The Company believes Mr. Turner's suit is without merit and intends
to continue vigorously defending the action.


                                      -17-

<PAGE>




ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     At the Annual Meeting of  Shareholders  of the Company held on December 21,
1995,  stockholders  voted  on  proposals  to  (i)  elect  five  directors  to a
classified  Board of  Directors,  (ii) amend its  Articles of  Incorporation  to
increase the number of authorized  shares of Common Stock,  $.03 par value, from
5,000,000 to 20,000,000,  (iii) approve amendments to its 1994 Stock Option Plan
(the  "Plan"),  and (iv) approve the grant of 250,000 stock options to its Chief
Executive Officer. Proxies for the meeting were solicited pursuant to Regulation
14A of the  Securities  Exchange  Act of 1934,  as  amended,  and  there  was no
solicitation in opposition.

     All five  nominees for directors  were elected with the  following  persons
receiving  the votes shown beside  their names below.  Each Class I Director was
elected for a one year term,  the Class II  Director  was elected for a two year
term and each Class III director was elected for a three year term.


NAME                         CLASS        FOR              WITHHELD
- ----                         -----        ---              --------
Jacqueline E. Soechtig       III          2,726,595        236,833
Stewart L. Krug              I            2,785,008        178,420
Timothy Mahoney              I            2,780,949        182,479
Frank W. Swacker             III          2,723,967        239,461
Lawrence W. Umstandter       II           2,726,997        236,431

     The proposal to amend its Articles of  Incorporation to increase the number
of authorized shares of Common Stock was approved by the following vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
1,871,373     66.3%     1,063,047      35.9%        22,816           .8%

     The  proposal  to amend the Plan so as to  increase  the  number of options
which could be granted  under the Plan to 600,000 was rejected by the  following
vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
865,177      41.7 %     1,174,368       56.6%       33,853           .2%


                                      -18-

<PAGE>



     The proposal to amend the Plan so as to limit the number of shares that may
be subject to options  granted to any one employee in any fiscal year to 200,000
to comply with Section  162(m) of the  Internal  revenue Code was adopted by the
following vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
2,315,649    78.5%      588,124        19.9%          45,255        1.5%

     The proposal to amend the Plan so as to allow  non-qualified  stock options
to be granted  with an exercise  price no less than 25% of the fair market value
of the Common Stock on the date of grant was adopted by the following vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
1,810,602    61.4%      1,015,133      34.4%         121,296        4.1%

     The  proposal  to amend the Plan so as to  provide  that  upon the  initial
election and upon each reelection as a director,  outside directors will receive
an automatic grant of 5,000 options for each year of the term for which they are
to serve was adopted by the following vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
1,838,951    62.2%      1,037,094      35.1%          80,986        2.7%

            The  proposal to approve the grant of certain  stock  options to its
Chief Executive Officer was adopted by the following vote:

                                                   BROKER NON-VOTES
  SHARES VOTED FOR      SHARES VOTED AGAINST       AND SHARES ABSTAINING
  ----------------      --------------------       ---------------------
1,855,464    62.6%      1,055,449      35.6%          52,515        1.8%



                                      -19-

<PAGE>



                                     PART II

ITEM 5.  MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS


     On October 18, 1994 the Company's  Common Stock began trading on the NASDAQ
Stock Market under the symbol LSGT.  During the fiscal year prior  thereto there
was no trading in the Company's Common Stock. The following tables set forth the
high and low sales  prices for the Common  Stock on the NASDAQ  Stock Market for
the periods indicated:

QUARTER ENDED           HIGH SALES PRICE          LOW SALES PRICE
- -------------           ----------------          ---------------

December 31, 1994           14 7/8                    6 1/4
March 31, 1995              13 3/4                    7 1/2
June 30, 1995                9 5/8                    4 3/8
September 30, 1995           6 1/4                    3 3/4
December 31, 1995            6 5/8                    1 3/4

As of March 29, 1996 there were 1,587 holders of record of the Common Stock.  No
dividends  have ever been  declared or paid on the Company's  Common Stock.  The
closing price of the Common Stock on March 29, 1996 was $1 19/32 per share.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

GENERAL

     Since the second quarter of 1994, a number of significant events have had a
material impact upon the Company's operating results, and its current and future
prospects.  In  addition  to a change in control  and a public  offering  of its
securities,  the changes  included  replacement  of all of the Company's  senior
executives  including the  President/CEO as well as most of its other personnel,
two acquisitions  which included an additional  customer base of over 200 sites,
and various  product  integration and  development  efforts.  As a result of the
successful  implementation  of these changes,  the Company believes it currently
has  the  management,  personnel,  products,  market  position and commitment to
become a leader in providing business solutions to the entertainment industry.

     In December 1994 the Company acquired all the outstanding  capital stock of
Delta.  This Ontario,  Canada based company was engaged in the sale of admission
control and revenue  accounting  systems targeted primarily at the ski industry.
It was  determined  that the  addition  of Delta's ski  install  base,  its name
recognition  as a leader in that  industry,  and its product  functionality  and
audit safeguards would be of significant value to the Company.  Moreover, it was
determined  the Delta  software  could be  integrated  with Gatepas to provide a
product  that the Company  believed  would be superior  to  currently  available
alternative systems.


                                      -20-

<PAGE>


     In February 1995, the Company acquired  substantially  all of the assets of
GIS Limited  Partnership.  This Tampa,  Florida based company was engaged in the
sale of admission control and revenue accounting  systems targeted  specifically
at fine arts  facilities,  museums,  sporting  facilities  and various  reserved
seating entertainment facilities.

     The  purchase of both Delta and GIS brought a  significant  install base to
the Company which among other benefits  provided  significant  additional annual
maintenance revenues.  The combination of diversity of product capability in the
various  entertainment  marketplaces and the goodwill and sales reference impact
of its install base made the  acquisition  very desirable.  Management  believes
that the quality of the acquired  install base,  which includes a number of high
profile facilities, will have a positive impact on its future sales efforts.

     These  factors  have  allowed the Company to enter  markets not  previously
accessible  to  it  or  cost  effective  As  a  result  of  the  Delta  and  GIS
acquisitions,  revenues did  substantially  increase  during 1995.  However,  as
anticipated,  the acquisition  costs,  both in time and money,  and the costs of
integrating the operations and personnel of these completely  separate companies
was  expensive  and the  increased  costs  related  to the  integration  process
together  with other  costs  related  to the other  changes  referred  to above,
affected at the company, more than offset the increased revenues.

     Due to the  Company's  net loss for 1995 of  $4,206,782  and its history of
operating  losses which have  accumulated  to  $11,785,356 at December 31, 1995,
along with the Company's need for additional  financing  and/or capital infusion
to fund operations for 1996 and to satisfy its cash obligations, our independent
certified  public  accountants have qualified their  accountants'  report on the
Company's  1995  financial  statements  as to a going concern  uncertainty.  The
Company is currently  in process of  completing  a private  placement  which the
Company is  confident  will be  successfully  completed in the very near future.
While no  assurance  can be given,  if the  private  placement  is  successfully
completed in the near future and no other factors change or occur,  the auditors
will consider reissuing their accountants' report and removing the going concern
qualification.  The following  commentary  within  "Management's  Discussion and
Analysis" further  addresses the Company's  operations for 1995 and its plans to
reduce operating losses and to obtain financing and/or capital  infusion.  These
matters are also discussed in Note 3 to the financial statements.

RESULTS OF OPERATIONS:  1995 COMPARED TO 1994

Revenues:

     Revenues   increased  to  $2,835,206  in  1995  from  $1,047,414  in  1994,
representing a $1,787,792, or 171%, increase. Revenues consisted of system sales
and  installations  of $2,508,206 in 1995 and $885,102 in 1994, and  maintenance
and  support of $300,000 in 1995 and  $162,312 in 1994.  The  increase in system
sales and  installations  (over  sixty  installations  in 1995 and less than six
installations in 1994) was primarily  attributable to marketing  activities from
an increased sales staff,  from the Company's  enhanced  products,  and from new
market accessibility as a result of the acquisitions of Delta and GIS.

     In 1995, the Company's  principal products  Select-A-Seat,  Admits Platinum
and  Admits  Gold  represented  approximately  39%,  28%  and  11% of  revenues,
respectively.  In  1994  the  principal  product  represented  85% of  revenues.
Maintenance  and support  represented  11% and 15% of revenues in 1995 and 1994,
respectively.  In 1996,  the  Company  anticipates  a  similar  product  mix for
Select-A-Seat  and Admits Platinum with Admits Gold increasing to  approximately
20% of revenues.  While  maintenance and support revenue for 1996 is expected to
increase, its percentage of total revenues is not expected to increase.


                                      -21-

<PAGE>



     In 1995,  no customers  represented  10% or more of revenues.  As the total
customer base grows the  likelihood of having  certain  customers  exceed 10% of
total  revenues  in  future  years is  reduced.  In 1994,  two  major  customers
represented 48% and 10% of total revenues, respectively.

     Although no  assurances  can be given,  based on actual sales for the first
two months of 1996 and committed sales orders to date, revenues for 1996 will be
at least at the level achieved in 1995,  with greater  revenues being  targeted.
The foregoing is a forward looking statement  contingent upon no cancellation of
existing  sales  orders and the  receipt of future  sales  orders at the current
rate.

Cost of Revenues:

     Cost of revenues in 1995  included the costs  associated  with the hardware
and software acquired for the Company's customers and the estimated direct costs
associated  with  the  engineering  and  installation  of the  systems,  and the
provision of customer  support.  While the Company  believes  that the estimated
direct costs are reasonably stated and classified in all material respects,  the
Company plans to further refine its  procedures for capturing and reporting this
information  in  1996.  Such  refinement  could,  to  some  extent,  affect  the
comparability of this information.

     In 1994, cost of revenues included principally the third party hardware and
software acquired for customer  installations and support.  The estimated direct
costs associated with engineering and installing  systems and providing customer
support were not specifically  categorized and reported as cost of revenues.  In
1994,  such costs were included in  development  costs.  In 1995,  approximately
$900,000 of these categories of costs were separately  identified and classified
as cost of revenues.

     For discussion  purposes herein,  cost of revenues will exclude the amounts
of direct cost allocated from development costs to cost of revenues in 1995.

     Cost of  revenues  (exclusive  of direct  costs)  increased  to  $1,522,440
($2,422,440  less  $900,000  of direct  costs in 1995)  from  $914,838  in 1994,
representing a $607,602, or 66%, increase.  The increase resulted from the costs
related to increased  sales.  As a percentage  of revenues,  cost of revenues in
1995 was 54% of revenues  compared to 87% of revenues in 1994. The ratio of cost
of revenues  to  revenues  is a function  of whether  the sales or services  are
hardware or software intensive.  Hardware sales result in lower gross margins as
hardware is not developed by the Company but acquired,  as is certain  software,
for  the  customers.  Sales  of  the  Company's  software  and  related  systems
development and support  activities  provides the Company greater gross margins.
In addition,  the Company's ability to price its products and services favorably
impacts  gross  margins and  therefore  the cost of revenues  percentage.  These
factors contributed to the change in the cost of revenues to revenues percentage
between 1995 and 1994 since in 1995 a greater percentage of revenues was made up
of systems development and support.



                                      -22-

<PAGE>



Development Costs:

     Development costs increased to $1,485,348 ($585,348 plus $900,000 of direct
costs) in 1995 from $345,379 in 1994, an increase of  $1,139,929,  or 330%. As a
percentage of revenues,  development  cost  increased to 52% in 1995 from 33% in
1994.  The  increase  reflects  the  increased  revenues  in 1995,  the costs of
development  of four new  products and the  integration  costs  associated  with
integrating  products of the  Company,  GIS and Delta.  The  Company  intends to
continue to develop products and enhance existing products to ensure competitive
viability in the marketplace.

Selling, General and Administrative:

     Selling,  general and  administrative  expenses  increased to $4,082,914 in
1995 from $2,091,116 in 1994, representing a $1,991,798,  or 95% increase.  As a
percentage of revenues,  these expenses were 144% in 1995 and 200% in 1994 which
reflects the increase in revenues in 1995:

     The principal components of the $1,991,798 increase in selling, general and
administrative in 1995 as compared to 1994 are described below.

     Sales and marketing  expenses increased to $1,036,506 in 1995 from $525,180
in 1994,  representing  a $511,326  increase.  This  increase was  attributed to
increased  salaries and commissions of $338,756 and travel and  entertainment of
$95,129 associated with the Company's  increased  marketing efforts in 1995. The
significantly  increased  marketing efforts are partly responsible for increased
revenues in 1995 and should also benefit future period results.

     General and  administrative  expenses  increased to $3,046,408 in 1995 from
$1,565,936 in 1994, representing a $1,480,472 increase. The principal components
of the increase are as follows:

*    Amortization of intangibles in the amount of $515,078  related to the Delta
     and GIS acquisitions (none in 1994).

*    $427,731 of legal costs associated with various  items,  including  matters
     related  to Delta  and GIS  which  were  not  capitalized,  Securities  and
     Exchange  Commission  filings and related  contracts  and  agreements,  and
     defense of legal  actions.  In 1994,  approximately  $80,000 of legal costs
     were  incurred,  excluding  legal fees related to the 1994 public  offering
     which were netted against the offerings' proceeds.

*    $98,148 of bad debt expense  related to increased  revenues.  In 1994,  bad
     debt expense was $44,965.

*    $112,500 of executive  compensation   associated   with  the   granting  of
     non-qualified stock options.

                                      -23-

<PAGE>


Other Income (Expense)

     Interest  expense  decreased  to  $45,061  in 1995  from  $80,035  in 1994,
reflecting  in part the  payment  and/or  conversion  to stock of certain of the
Company's debt existing in 1994.

     Net other income  (expense)  increased to $93,775 in 1995 from ($18,430) in
1994,  an  increase  of  $112,205.  The  increase  is composed of an increase in
earnings  from an equity  interest in a joint  venture of $85,496 (See Note 2 to
the financial  statements),  an increase in interest  income of $10,232,  and an
increase in miscellaneous income of $16,475.

Income Taxes:

     The Company  currently has 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 10 to the financial statements).

Net Loss:

     Net loss  increased to $4,206,782  ($1.39 a share) in 1995 from  $2,402,384
($1.62 a share) in 1994.  As discussed  above,  the Company  believes  that 1995
operations  were impacted by various factors  including the integration  process
involved with combining the Company with Delta and GIS.

     The Company  incurred  total  compensation  expense  and  related  costs of
$2,361,280  in 1995  compared to  $1,477,268 in 1994, an increase of $884,012 or
60%. A portion of this increase was attributable to the integration  process. As
a result of  substantially  completing  this  integration  process in 1995,  the
Company was able to curtail or eliminate in many cases the use of consultants by
December  31,  1995.  Although  no  assurances  can be  given,  based on  actual
compensation  expense  and  related  costs for the first two  months of 1996 and
management's  plan for 1996,  reduced  levels of these  costs  are  expected  to
maintain the current sales level described  earlier.  The foregoing is a forward
looking  statement  contingent  on  several  factors  including:  no  unexpected
turnover of personnel; no need for additional expenses for unbudgeted personnel;
and no unexpected adjustment to compensation levels currently being paid.

FINANCIAL CONDITION: 1995 COMPARED TO 1994

     Total assets  increased to $6,406,236 on December 31, 1995 from  $3,478,831
on  December  31,  1994,  representing  an increase of  $2,927,405, or 84%.  The
principal  contributing  factor  to the  increase  was  the  acquisition  of GIS
effective  January,  1995.  On  December  31, 1995 the  balance  sheet  reflects
intangibles of $3,229,000 (e.g., goodwill) related to the acquisition.

     Total  liabilities  increased  to  $4,719,465  on  December  31,  1995 from
$1,920,339  on December 31, 1994,  representing  an increase of  $2,799,126,  or
146%.  The  principal  contributing  factors to the increase are the  $2,324,335
promissory  notes associated with the GIS acquisition  subsequently  repaid at a
substantial discount, (See Note 4 to the financial statements and "Liquidity and
Capital Resources"

                                      -24-

<PAGE>



below),  and the increase in deferred revenues of $667,406 ($729,406 in 1995 and
$62,000 in 1994), resulting from increased revenues.

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
be Disposed Of

     In March 1994, the Financial Accounting Standards Board issued the SFAS No.
121,  Accounting  for the  Impairment  of Long-Lived  Assets and for  Long-Lived
Assets to Be  Disposed  Of. SFAS No. 121  requires  that  long-lived  assets and
certain identifiable intangibles held and used by the entity along with goodwill
should be reviewed 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. SFAS No.
121  also  generally  required   long-lived  assets  and  certain   identifiable
intangibles to be disposed of to be reported at the lower of the carrying amount
or the fair value  less cost to sell.  SFAS No.  121 will be  effective  for the
Company's  1996 fiscal year. The Company has not finalized its assessment of the
potential  impact  of  adopting  SFAS  No.  121  at  this  time;  however,  on a
preliminary basis management does not believe the impact will be material to the
financial statements.

Accounting for Stock Based Compensation

     SFAS No. 123  Accounting  for Stock  Based  Compensation  was issued by the
Financial  Accounting  Standards  Board in October  1995. As it relates to stock
options granted to employees,  SFAS No. 123 permits  companies to continue using
the accounting method promulgated by the Accounting Principals Board Opinion No.
25 ("APB  No.  25"),  Accounting  for  Stock  Issued to  Employees,  to  measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued,  pro forma  disclosures  are required as if
SFAS No. 123  accounting  provisions  were followed.  SFAS No. 123's  accounting
recognition  method can be adopted  anytime  subsequent  to the  issuance of the
Statement in October 1995,  and would pertain to stock option awards  granted or
modified or settled for cash after the date of adoption.  If the Company  elects
to  continue  using  the  method  under  APB No.  25,  SFAS No.  123's pro forma
disclosures are required after December 31, 1995.  Management has not completely
analyzed  the  provisions  of SFAS  No.  123;  accordingly,  management  has not
determined whether or not SFAS No. 123's accounting  recognition provisions will
be adopted or APB No. 25's method will be continued. In addition, management has
not  yet  determined  the  potential  effect  that  SFAS  No.  123's  accounting
provisions, if adopted, will have on the Company's financial statements.


                                      -25-

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

     The following  table presents a summary of the Company's cash flow for 1995
and 1994:

                                                  1995                1994

Net cash used in operating activities        $(2,833,237)       $(1,631,156)
Net cash used in investing activities           (708,917)          (675,531)
Net cash provided by financing activities      2,608,823          3,881,147
                                            ------------       ------------
Net increase(decrease) in cash
   And cash equivalents                      $  (933,331)       $ 1,574,460
                                            ============       ============

     The Company  used cash of  $2,833,237  in 1995 and  $1,631,156  in 1994 for
operating  activities.  From its inception in October 1985 through  December 31,
1995,  the Company  incurred a  cumulative  loss of  $11,785,356  with a loss of
$4,206,782  for the year ended  December 31,  1995.  The  Company's  net loss of
$4,206,782  in 1995 was due  primarily  to  expenditures  related to the factors
referred to under the caption  "Results of  Operations:  1995  Compared to 1994"
above.  Included  in the net loss for 1995 were  non-cash  expenses  and  income
totaling  $1,034,175  which included (i)  depreciation/amortization  expenses of
$575,985, and (ii) equity-related transactions totaling $487,250 of compensation
expense  recognized  from the  grant of stock  options.  Cash  which was used to
purchase items  classified as current assets increased by $480,110 with accounts
receivable  increasing  by $505,141,  investment  in  inventories  increasing by
$115,022 and prepaid expenses and insurance  decreasing by $140,053.  These uses
of cash were offset by an increase in accounts  payable and accrued  expenses of
$152,074 and an increase in deferred revenue of $667,406.

     The Company used cash for investment purposes in the amounts of $708,917 in
1995  and  $675,531  in  1994  principally  related  to the  acquisition  of GIS
($559,000) and Delta ($500,000), respectively.

     The Company was provided cash by financing activities of $2,608,823 in 1995
and  $3,881,147  in 1994.  The Company  relied on net  proceeds  from public and
private  offerings  and loans and  advances  from  related  parties  to fund its
operations  during  1995  and  1994.  A  private  offering  in 1995 and a public
offering  in  1994,  provided  $1,870,976  and  $3,906,002,   respectively.  The
Company's private placement of 208,600 shares of  non-transferable,  convertible
Series D Preferred Stock was completed October 1995.

     In 1995  the  Company  borrowed  $859,505,  consisting  of  $559,505  as an
unsecured cash advance from two former shareholders as evidenced by a promissory
note due October  1996,  at an annual  interest  rate of 8%, and  $300,000 as an
additional  unsecured  cash  advance  from  the  same  parties  evidenced  by  a
convertible  secured  promissory  note due March 30, 1996, at an annual interest
rate of 9.5%.  In June 1995,  the Company  issued  79,950 shares of its Series A
Preferred Stock in satisfaction of the $559,505  promissory note and $200,000 of
additional  note  payables  outstanding  since 1994. In 1994 loans from the same
individuals  provided  $1,259,505  to the Company all but  $200,000 of which had
been previously repaid.

     In February 1995, the Company acquired  substantially  all of the assets of
GIS for an aggregate  consideration  of approximately  $3,700,000.  The purchase
price consisted of 109,333 shares of the

                                      -26-

<PAGE>



Company's  Common  Stock  valued at $765,331,  111,800  shares of the  Company's
Series B  Preferred  Stock  valued at  $559,000,  and the  Company's  unsecured,
non-interest bearing promissory notes in the aggregate amount of $2,324,335.  In
addition, the Company agreed to assume certain liabilities of GIS and loaned GIS
$559,000 as evidenced by a  promissory  note from GIS due March 31, 1996,  which
was secured by the pledge to the Company of the 111,800  shares of the Company's
Series B Preferred Stock.

     On March 11, 1996, the Company and GIS Systems Limited Partnership executed
an  agreement  whereby the parties  agreed to,  among other  things,  settle the
remaining  obligation  to GIS  totaling  $2,324,335  at a  discount,  cancel the
$559,000 note receivable from GIS, cancel the $199,359  account  receivable from
GIS, and redeem the 109,333  shares of Common Stock and 111,800 shares of Series
B Preferred Stock previously issued to GIS. In connection therewith, the Company
agreed to pay to GIS the sum of $1,550,000.

     The cash payment of $1,550,000  made to GIS on April 12, 1996,  the date of
closing,  was  principally  provided  from the net  proceeds  of the April  1996
Private Placement described below.

     On March 27,  1996,  the  Company  commenced a Private  Placement  of up to
350,000 shares, at $10.00 per share, of the Company's newly established Series E
Preferred Stock.  Through April 15, 1996 139,000 shares of the Private Placement
successfully  closed with the Company receiving total proceeds,  net of offering
costs of $1,271,982.  On April 15, 1996, remaining stock subscriptions  totaling
$1,335,000  (133,500  shares) which will result in an additional  $1,155,500 net
proceeds  to the  Company  when  paid  have  been  received.  The  Company  also
anticipates  receiving  additional stock  subscriptions for 77,500 shares which,
when paid, would provide net proceeds of $697,500.

     The above mentioned note payable-related party of $300,000 is currently due
and is expected to be paid from the net proceeds of the private  placement to be
received after April 15, 1996.

     While no  assurances  can be given,  management  believes  that the current
organization infrastructure and the Company's products are sufficient to support
revenues  greater  than the  levels  achieved  in 1995.  In  addition,  while no
assurances  can be given,  management  believes  that the  Company's  operations
should  continue to progress  throughout 1996 and that the net proceeds from the
April 1996  Private  Placement  and the  operating  revenues  from sales in 1996
should be  sufficient  to fund  operations  through 1996.  Any  significant  new
marketing and development  programs will only be initiated if external financing
has been obtained.


                                      -27-

<PAGE>




ITEM 7.  FINANCIAL STATEMENTS

          Following  this page are the Company's  financial  statements  for the
          year ended December 31, 1995, which include the following items:

                                                                           PAGE
          Report of Independent Certified Public Accountants ............. F-1

          Consolidated Balance Sheets......................................F-2

          Consolidated Statements of Operations............................F-3

          Consolidated Statements of Stockholders' Equity (Deficit)........F-4

          Consolidated Statements of Cash Flows............................F-6

          Notes to Consolidated Financial Statements ......................F-7


ITEM 8.  CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
         FINANCIAL DISCLOSURE

     Not applicable.







                                      -28-

<PAGE>



                                    PART III

ITEM 9.  DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
             COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

     The information  required by this item is incorporated by reference  herein
in the  "Election  of  Directors"  section  of the  Company's  definitive  Proxy
Statement  to be filed for the  Company's  1996 Annual  Meeting of  Shareholders
pursuant to Regulation 14A.

ITEM 10.  EXECUTIVE COMPENSATION

     The information  required by this item is incorporated by reference  herein
in the  "Executive  Compensation"  section  of the  Company's  definitive  Proxy
Statement  to be filed for the  Company's  1996 Annual  Meeting of  Shareholders
pursuant to Regulation 14A.

ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information  required by this item is incorporated by reference  herein
in the "Security  Ownership of Certain Beneficial Owners and Management" section
of the Company's  definitive  Proxy Statement to be filed for the Company's 1996
Annual Meeting of Shareholders pursuant to Regulation 14A.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information  required by this item is incorporated by reference  herein
in the "Certain Relationships and Related Transactions" section of the Company's
definitive  Proxy Statement to be filed for the Company's 1996 Annual Meeting of
Shareholders pursuant to Regulation 14A.



                                      -29-

<PAGE>



                                     PART IV

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a) Exhibits

3.1    Articles of  Incorporation  (incorporated  by reference to Exhibit 3.1 to
       the  Company's  Registration  Statement  on Form SB-2,  Registration  No.
       33-79980).

3.1    Articles  of  Amendment  to Articles of  Incorporation  (incorporated  by
       reference to Exhibit 3.2 to the Company's  Registration Statement on Form
       SB-2, Registration No. 33-79980).

3.2    Articles  of  Amendment  to Articles of  Incorporation  (incorporated  by
       reference to Exhibit 3.3 to the Company's  Registration Statement on Form
       SB-2, Registration No. 33-79980).

3.3    Articles  of  Amendment  to Articles of  Incorporation  (incorporated  by
       reference  to Exhibit 4.1 to the  Company's  Form 8-K dated  February 15,
       1995, File No. 0-15873).

3.4*   Articles of Amendment to Articles of Incorporation 

3.5*   Articles of Amendment to Articles of Incorporation

3.6    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.

4.2*   Form of Subscription Agreement for Series E Preferred Stock

10.1   Lease,  dated  February  27,  1992,  between  the  Company and PNC Realty
       Holding  Corp. of Florida  (incorporated  by reference to Exhibit 10.1 of
       the Company's Annual Report on Form 10-K, File no. 0-15873,  for the year
       ended December 31, 1992).

10.2   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).

10.3   Form of Financial  Advisory and Investment  Banking Agreement between the
       Company and Sterling Foster & Co.  (incorporated  by reference to Exhibit
       10.1 to the Company's Registration  Statement on Form SB-2,  Registration
       No. 33-79980).


                                      -30-

<PAGE>



10.4   Promissory  Note in the  principal  amount of  $100,000 by the Company to
       SupeRadio Canada, Ltd.  (incorporated by reference to Exhibit 10.4 to the
       Company's   Registration   Statement  on  form  SB-2,   Registration  No.
       33-79980).

10.5   Form of  Promissory  Note by the Company to Donald G. Turner and Margaret
       J. Turner  (incorporated  by reference  to Exhibit 10.5 to the  Company's
       Registration Statement on Form SB-2, Registration No. 33-79980).

10.6   Promissory Note by the Company to Richard Friedman and Jeffrey  Markowitz
       (incorporated by reference to Exhibit 10.6 to the Company's  Registration
       Statement on Form SB-2, Registration No. 33-79980).

10.7   Promissory Note by the Company to Richard Friedman and Jeffrey  Markowitz
       (incorporated by reference to Exhibit 10.7 to the Company's  Registration
       Statement on Form SB-2, Registration No. 33-79980.

10.8   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).

10.9   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).

10.10  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. 0-15873).

10.11  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).

10.12  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).

10.13  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).

10.14  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).

                                      -31-

<PAGE>



10.15  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).

10.16  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).

10.17* Letter  Agreement  among the Company,  GIS Systems  Limited  Partnership,
       Nicholas Flaskay, and Fred Maglione.

10.18  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,
1995, see Part II, Item 7 of this Report on Form 10-KSB.

     (b) The Company filed a report on Form 8-K on October 21, 1995 with respect
to Item 5 "Other  Events."  The report  disclosed  the  completion  of a private
placement of 208,600 shares of convertible Series D Preferred Stock resulting in
net  proceeds  to the  Company  of  approximately  $1,796,074  and  included  an
Unaudited  Condensed Pro Forma  Consolidated  Balance Sheet of the Company as of
September 30, 1995.

                                      -32-


<PAGE>

CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS

LASERGATE SYSTEMS, INC.
AND SUBSIDIARIES

December 31, 1995 and 1994




<PAGE>







                                TABLE OF CONTENTS


                                                                            Page

Report of Independent Certified Public Accountants                          F-1

Consolidated Balance Sheets as of December 31, 1995 and 1994                F-2

Consolidated Statements of Operations for the Years Ended
  December 31, 1995 and 1994                                                F-3

Consolidated Statements of Stockholders' Equity (Deficiency) for the
  Years Ended December 1995 and 1994                                        F-4

Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1995 and 1994                                          F-5 - F-6

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, 1995 and 1994, and the related
consolidated  statements of operations,  stockholders' equity (deficit) 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 the 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, 1995 and 1994, 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 $4,206,782 during the year ended December 31,
1995 and, as of that date,  the Company has current  liabilities  exceeding  its
current  assets by  $549,898,  and the  Company  has an  accumulated  deficit of
$11,785,356.  The Company requires additional  financing and or capital infusion
in order to fund its  operations  and  satisfy its cash  obligations.  While the
Company is currently in the process of obtaining  additional  capital  infusion,
there is no assurance that all of these monies will be received.  These factors,
among  others  as  discussed  in  Note  3 to  the  financial  statements,  raise
substantial  doubt about the Company's  ability to continue as a going  concern.
Management's  plans in regard to these matters are also described in Note 3. 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
April 12, 1996, (Except for
Paragraph 8 of Note 3 and
Note 16, as to which the
date is April 15, 1996)

                                       F-1



<PAGE>

                    Lasergate Systems, Inc. and Subsidiaries
                           CONSOLIDATED BALANCE SHEETS
                                  December 31,

<TABLE>
<CAPTION>
                                     ASSETS
                                                                          1995                    1994
                                                                       ---------               --------
<S>                                                                 <C>                      <C>        
Current assets:
     Cash and cash equivalents                                      $    656,506             $ 1,589,837
     Accounts receivable, net of allowance for
       doubtful accounts of $36,000 and $17,000                          439,311                 152,529
     Account receivable, related party                                   199,359                       -
     Inventories                                                         325,664                 124,680
     Prepaid expenses                                                     84,392                 116,948
                                                                    ------------             -----------
                 Total current assets                                  1,705,232               1,983,994

Property and equipment, net                                              246,568                  96,993
Systems and software costs, net of amortization of
  $283,333 and $-0-                                                    1,416,667                 529,558
Goodwill, net of amortization of $132,579 and $-0-                     2,515,694                 536,919
Customer lists and support contracts, net of amortization of
  $70,833 and $-0-                                                       354,167                 125,000
Other assets, net                                                        167,908                 206,367
                                                                    ------------             -----------
                                                                    $  6,406,236             $ 3,478,831
                                                                    ============             ===========

                      LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Notes payable, related parties                                 $    300,000      $                -
     Notes payable, other                                                 21,757                  74,910
     Accounts payable, trade                                             634,863                 530,260
     Deferred revenues                                                   729,406                  62,000
     Accrued product costs                                               297,000                 281,075
     Accrued expenses                                                    272,104                 112,094
                                                                    ------------             -----------
                 Total current liabilities                             2,255,130               1,060,339

Notes payable, related party                                                   -                 200,000
Promissory notes payable, stockholders with conversion futures         2,324,335                       -
Obligations to issue common stock and common stock options               140,000                 450,000
Common stock subject to put options                                            -                 210,000
                                                                    ------------             -----------
                 Total liabilities                                     4,719,465               1,920,339

Commitments and contingencies                                                  -                       -

Stockholders' equity:
     Preferred stock, $.03 par value,  2,000,000 shares
          authorized,  387,750 and 36,364 shares issued and
          outstanding at December 31, 1995 and 1994, respectively         11,633                   1,091
     Common stock, $.03 par value, 20,000,000 shares authorized,
          3,125,013 and 2,913,680 issued and outstanding at
          December 31, 1995 and 1994, respectively                        93,751                  87,412
     Additional paid-in capital                                       14,065,743               9,258,563
     Less:  Common stock, $.03 par value, 20,000 and 30,000 shares
                 at December 31, 1995 and 1994, respectively,
                 subject to put options                                 (140,000)               (210,000)
            Notes receivable, stockholders                              (559,000)                      -
     Accumulated deficit                                             (11,785,356)             (7,578,574)
                                                                     -----------             -----------
                                                                       1,686,771               1,558,492
                                                                     -----------             -----------
                                                                     $ 6,406,236             $ 3,478,831
                                                                     ===========             ===========
</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-2



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF OPERATIONS

                            Years ended December 31,

<TABLE>
<CAPTION>

                                                 1995                    1994
                                               --------                --------
<S>                                          <C>                     <C>        
Revenues                                     $ 2,835,206             $ 1,047,414

Operating Expenses:
  Cost of revenues                             2,422,440                 914,838
  Development                                    585,348                 345,379
  Selling, general and administrative          4,082,914               2,091,116
                                             -----------             -----------

        Operating loss                        (4,255,496)             (2,303,919)

Other income (expense)
        Interest expense                         (45,061)                (80,035)
        Other, net                                93,775                 (18,430)
                                             -----------             -----------

        Loss before income taxes              (4,206,782)             (2,402,384)

Income taxes                                           -                       -
                                             -----------             -----------

        Net loss                             $(4,206,782)            $(2,402,384)
                                             ===========             ===========

Net loss per common share                    $     (1.39)            $     (1.62)
                                             ===========             ===========

Weighted Average Common Stock Outstanding      3,023,346               1,487,246
                                             ===========             ===========


</TABLE>










        The accompanying notes are an integral part of these statements.

                                       F-3


<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
                     Years ended December 31, 1995 and 1994

<TABLE>
<CAPTION>

                                                     Preferred Stock     Common Stock
                                                     ---------------   ----------------             Common
                                                                                                     Stock     Notes
                                                                                        Additional  Subject Receivables      Accu- 
                                                                 Par                Par    Paid-in   to Put    Stock-      mulated
                                                      Shares   Value    Shares    Value    Capital   Option    holders     Deficit
                                                     -------- ------ ---------- ------- ---------- --------    -------    ---------
<S>                                                 <C>      <C>      <C>     <C>      <C>        <C>        <C>       <C>         
Balance, January 1, 1994                                              424,032 $12,721  $3,648,676                       $(5,176,190)
Issuance of common stock at $.36-$.50 per
  share for performance awards and services
    Executives and/or major stockholders                              290,483   8,715      95,860
    Financing costs, executives                                        37,907   1,137      12,510
    Major stockholders (related to December 31,
     1993 obligation)                                                 833,333  25,000     275,000
    Major stockholders                                                200,000   6,000      94,000
    Cancellation of options
      Executives                                                       26,667     800       8,800
      Other                                                            10,000     300       3,300
Issuance of common stock at $5.00 per share for
 satisfaction of debt
    Executives                                                         36,083   1,083     179,336
    Employees                                                          13,925     418      69,208
Employment services contributed by
 officers/stockholders                                                                     83,200
Issuance of units in secondary public offering
 at $4.95 per unit (net of underwriter's
 discount/commissions), less offering expenses
 of $647,998                                                          920,000  27,600   3,878,402
Exercise of warrants                                                   21,250     638      14,362
Issuance of common stock at $7.00 per share in
 connection with Delta acquisition                                    100,000   3,000     697,000
Issuance of Series A preferred stock for
 satisfaction of notes payable
 Major stockholders                                 36,364  $1,091                        198,909
Common stock (30,000 shares) subject to put
 option at $7.00 per share                                                                        (210,000)
Net loss                                                                                                                 (2,402,384)
                                                  --------  ------ ---------- -------  ---------- --------    -------     ---------
Balance, December 31, 1994                          36,364   1,091  2,913,680  87,412   9,258,563 (210,000)              (7,578,574)
                                                  --------  ------ ---------- -------  ---------- --------    -------     ---------
Issuance of common stock at $7.00 a share and
 preferred stock at $5.00 per share in
 connection with GIS acquisition                   111,800   3,353    109,333   3,279   1,317,697
Less: note receivable collateralized by preferred
 stock                                                                                                        (559,000)
Issuance of preferred stock in Private Placement at
 $10 per share less offering expenses of $215,024  208,600   6,258                      1,864,718
Grants of stock options for 1994 and 1995 
 executive compensation                                                                   937,250
Conversion of preferred to common stock            (28,600)   (858)   110,000   3,300      (2,442)
Issuance of common stock for satisfaction of
 notes payable, related party                       79,950   2,400                        757,106
Exchange of preferred stock                        (36,364) (1,091)
                                                    16,000     480                            611
Issuance of common stock under stock option plan                        2,000      60       1,940
Exercise of common stock put option                                   (10,000)   (300)    (69,700)   70,000
Net loss                                                 -       -          -       -           -         -          -   (4,206,782
                                                  --------  ------ ---------- -------  ----------  --------    -------     ---------
Balance, December 31, 1995                         387,750 $11,633  3,125,013 $93,751 $14,065,743 $(140,000) $(559,000)$(11,715,356
                                                  ========  ====== ========== =======  ==========  ========   ========   ==========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-4



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                            Years ended December 31,

<TABLE>
<CAPTION>

                                                                            1995                    1994
                                                                         ----------              ---------
<S>                                                                     <C>                     <C>         
Cash flows from operating activities:
     Net loss                                                           $(4,206,782)            $(2,402,384)
     Adjustments to reconcile net loss to cash
       used in operating activities:
          Depreciation and amortization of property and equipment            59,778                   7,433
          Amortization of intangibles                                       516,207                  74,637
          (Gain) loss in joint venture                                      (48,060)                 37,486
          Increase (decrease) in allowance for doubtful accounts             19,000                 (70,855)
          Common stock issued principally for services                            -                 131,422
          Obligations to issue options granted as
            compensation for services                                       (75,000)                450,000
          Compensation recognized from grant of stock options               562,250                       -
          Employment services contributed by officers/stockholders                -                  83,200
          Financing costs satisfied and to be satisfied by issuance
            of common stock                                                       -                 100,000
          Decrease (increase) in:
               Accounts receivable, trade                                  (305,782)                 70,107
               Account receivable, related party                           (199,359)                      -
               Inventories                                                 (115,022)                (46,423)
               Prepaid expenses                                              53,028                (116,849)
               Other (principally related to prepaid insurance)              87,025                 (65,313)
          Increase (decrease) in:
               Accounts payable and accrued expenses                        136,149                (130,422)
               Accrued product costs                                         15,925                 281,075
               Deferred revenue                                             667,406                 (34,270)
                                                                        -----------              ----------
                      Net cash used in operating activities              (2,833,237)             (1,631,156)
                                                                        -----------              ----------

Cash flows from investing activities:
     Additions to property and equipment                                   (121,772)                (82,213)
     Loan to GIS stockholders related to GIS acquisition                   (559,000)                      -
     Advances to joint venture                                                    -                 (63,761)
     Acquisition of Delta                                                         -                (500,000)
     Other acquisition costs                                                (28,145)                      -
     Other                                                                        -                 (29,557)
                                                                        -----------              ----------
                      Net cash used in investing activities                (708,917)               (675,531)
                                                                        -----------              ----------

Cash flows from financing activities:
     Proceeds from secondary public or private offering, net of
       offering costs                                                     1,870,976               3,906,002
     Proceeds from exercise of warrants/stock options                         2,000                  15,000
     Repurchase of common stock subject to put option                       (70,000)                      -
     Proceeds from loans, other                                              36,924                  95,584
     Proceeds from loans, related parties                                   859,000               1,259,505
     Repayment of loans, related parties                                          -                (887,005)
     Repayment of loans, other                                              (90,077)               (120,674)
     Repayment of loans, bank                                                     -                (387,265)
                                                                        -----------              ----------
                      Net cash provided by financing activities           2,608,823               3,881,147
                                                                        -----------              ----------

Net increase (decrease) in cash and cash equivalents                       (933,331)              1,574,460

Cash and cash equivalents, beginning of year                              1,589,837                  15,377
                                                                        -----------              ----------

Cash and cash equivalents, end of year                                  $   656,506              $1,589,837
                                                                        ===========              ==========

</TABLE>

        The accompanying notes are an integral part of these statements.

                                       F-5


<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                     Years ended December 31, 1995 and 1994


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

INTEREST AND INCOME TAXES PAID:

                                            Year ended December 31,
                                       --------------------------------
                                       1995                        1994
                                       ----                        ----
     Interest                        $31,155                     $81,847
     Income taxes                          -                           -


NON-CASH INVESTING AND FINANCING ACTIVITIES:

1995:

The  Company  acquired  substantially  all the  assets  of GIS  Systems  Limited
Partnership for total consideration of approximately $3,700,000 (common stock of
$765,331,  preferred  stock of $559,000,  and promissory note of $2,324,335) and
recorded  assets at  aggregate  fair  value of  approximately  $3,750,000,  with
assumed payables of approximately $50,000.

The Company issued 79,950 shares of preferred  stock in  satisfaction of related
party notes payable of $759,505.

1994:

The  Company  issued  833,333  shares  of  common  stock in  satisfaction  of an
obligation  to issue the common  stock which  existed at  December  31, 1993 for
financing  costs of $300,000  recorded  for the year ended  December  31,  1993.
During June 1994,  current  liabilities  totaling  $250,044 were  converted into
50,008 shares of common stock ($5.00 per share).

The Company acquired Delta Information Services, Inc. for total consideration of
$1,200,000  (cash of  $500,000  and  common  stock  of  $700,000)  and  recorded
intangible assets at an aggregate fair value of $1,200,000.  No liabilities were
assumed in the transaction (see Note 4).

The  Company  issued  36,364  shares  of Series A  preferred  stock to two major
stockholders  of the Company in satisfaction of $200,000 of debt owed to them by
the Company.






        The accompanying notes are an integral part of these statements.

                                       F-6


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 1 - DESCRIPTION OF BUSINESS

Lasergate Systems,  Inc. (LSI) (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 reserve seating. These systems
are used primarily at amusement parks, theme parks, water parks, night clubs and
other public  facilities  including  state,  county and local  fairs,  theaters,
professional and university athletic and multi-purpose  arenas,  movie theaters,
aquariums, race tracks, museums, zoos, casinos, ski resorts and golf courses.

The Company's principal products "Select-a-Seat",  "Admits Platinum" and "Admits
Gold",   represent   approximately  39%,  28%  and  11%  of  revenues  in  1995,
respectively.

In  March  1993,  the  Company  formed  a  joint  venture   (Lasergate   Systems
Asia-Pacific Pty. Limited) with PMSI Group Pty. Limited,  an Australian company,
to market and sell products of Lasergate Systems, Inc. (see Note 2).

In December  1994,  the  Company  formed  Lasergate  Systems  Canada  Company to
facilitate the acquisition of Delta Information Services, Inc. (Delta) (see Note
4).

Effective January 1995, the Company acquired substantially all the assets of GIS
Systems Limited Partnership (GIS) (see Note 4).


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The  accompanying  consolidated  financial  statements  include the  accounts of
Lasergate  Systems,  Inc. (the Company) and its wholly-owned  subsidiaries.  All
significant intercompany 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.  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.



                                       F-7


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

CASH EQUIVALENTS

The Company considers all highly liquid investments purchased with a maturity of
three months or less to be cash equivalents.

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.

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 (5-10 years)
for financial statement and income tax purposes.

SYSTEMS AND SOFTWARE COSTS

Systems and software costs represent the fair values assigned in connection with
the  Company's  acquisition  of GIS and Delta in December  1994 and January 1995
(see Note 4). 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.

The  Company's  expenditures  related  to the  development  of its  systems  and
software  along  with the cost to  integrate  GIS and  Delta  products  with the
Company's products in 1995 have been expensed and included in development costs.
No amounts have been  capitalized  by the Company  during 1995 and 1994,  except
those recorded as a result of the GIS and Delta  acquisitions,  since either the
amounts  qualifying for capitalization  under Statement of Financial  Accounting
Standards  (SFAS) No. 86 "Accounting for Costs of Computer  Software to be Sold,
Leased or Otherwise  Marketed" once  technological  feasibility (as defined) has
been achieved,  have been insignificant or the customer  specifically funded the
development of the unique and discrete systems and software through the customer
contract.






                                       F-8


<PAGE>




                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

INTANGIBLES

Intangibles  which were recognized in connection with the Company's  acquisition
of GIS and Delta in 1995 and 1994, respectively,  relate to systems and software
costs  (see  above),  non-competition  agreements,  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),  non-competition   agreements--three  (3)  years,
customer list and support  contracts--six (6) years, and  goodwill--twenty  (20)
years.  Amortization  expense for 1995 was  $516,207 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   which  could  warrant  an  adjustment  to  the  carrying   values.
Undiscounted cash flow projections  associated with the acquired business is the
primary focal point in the  assessment  and analysis for  potential  impairment.
During 1995 and 1994, no impairment has been identified.

INVESTMENT IN JOINT VENTURE

The Company  uses the equity  method of  accounting  for its 50%  investment  in
Lasergate Systems  Asia-Pacific Pty. Limited. At December 31, 1995 and 1994, and
for the years then ended, the joint venture's assets, liabilities and results of
operations are not significant. The Company's investment in/advances to ($77,790
and  $29,730)  and  share  of the  joint  venture's  net  earnings  (loss)  from
operations  ($48,060 and  $(37,436))  are  classified  in other assets and other
income  (expense),  respectively,  in the  accompanying  consolidated  financial
statements for 1995 and 1994,  respectively.  The Company has not guaranteed any
of the joint venture's  liabilities nor does the Company have any commitments to
fund its operations.

PRODUCT COST LIABILITY

The  Company  has  established  a  product  cost  liability.   The  Company  has
historically  offered a three month  warranty for its  products.  For the period
commencing  after the end of the  warranty  period,  the Company had offered its
customers a maintenance and service  contract for an annual fee.  However,  both
companies  acquired,  Delta and GIS, offered a one year warranty period followed
by a  maintenance  and  service  contract.  The Company  continued  the one year
warranty practice throughout 1995.  Effective June 1, 1996 the Company will most
likely return to its original 90 day warranty period.




                                       F-9


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

In early 1995, the Company intended to install the "Delta" product at all of the
original  "Lasergate"  product  sites.  The  Company  had  reserved  $281,000 at
December 31, 1994 for the conversions.  However, the Company was ultimately able
to  enhance   the   Lasergate   product  at  many  of  these  sites  which  made
reinstallation  unnecessary.  As a result,  only  $21,400  was spent in 1995 for
required  conversions.  The remaining  original  Lasergate sites present upgrade
opportunities in 1996 and $57,000 has been reserved to accomplish the upgrades.

In 1996,  the  Company  intends  to  enhance,  at no charge to their  customers,
several  of the  original  Delta  and GIS  sites and has  reserved  $240,000  to
accomplish this. While these enhancements are likely to result in future product
and service revenues, no absolute assurance can be given at this time.

Product cost provisions are classified as cost of revenues.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 1995, the carrying amount of cash, accounts 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 post contract customer support arrangements are recognized ratably
over the contract period if collectibility is probable.

Revenues include product sales and service revenues.  Service revenues represent
approximately 11% and 15%, respectively, of total revenues in 1995 and 1994.

Deferred revenues include customer deposits of $384,731 and $62,000 and advanced
billings in accordance  with contract terms of $344,675 and $-0- at December 31,
1995 and 1994, respectively.






                                      F-10


<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Cost of revenues  includes the costs  associated  with the hardware and software
acquired for the Company's  customers and the estimated  direct costs associated
with the engineering  (mostly  software  customization)  and installation of the
system.  Cost of revenues also includes the estimated direct cost related to the
support and maintenance of the Company's  service  contracts.  While the Company
believes that the estimated direct costs are reasonably stated and classified in
all material  respects,  the Company intends to further refine its procedures of
capturing and reporting this information in 1996. Such refinement could, to some
extent, effect the comparability of the information being reported on.

During 1994 and 1995, certain of the Company's contracts with customers afforded
the Company the  opportunity to develop  products for their customers which were
also new products for the Company not subject to exclusive arrangements with the
customers. The resulting cost of these products is included in development costs
versus  cost  of  revenues  along  with  other   development  costs  related  to
enhancement of existing products during 1995.

In 1994,  cost of  revenues  included  principally  the  hardware  and  software
acquired for customer  installations  and support.  The  estimated  direct costs
associated  with  engineering  and  installing  systems and  providing  customer
support were not  specifically  categorized  and reported as cost of revenues as
was done in 1995. In 1994,  such costs were included in  development  costs.  In
1995,  approximately $900,000 of these types of costs were separately identified
and classified as cost of revenues.

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.  Common stock equivalents (options and warrants)
and  the  effect  of  the  convertible  securities  were  not  included  in  the
calculation of net loss per share because they were either  antidilutive  and/or
insignificant.

RECLASSIFICATIONS

Certain  reclassifications  of accounts  and amounts  have been made to the 1994
financial statements to conform to the 1995 presentation.

                                      F-11



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

NEW ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED

Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be Disposed Of

In March 1994, the Financial Accounting Standards Board issued the SFAS No. 121,
Accounting for the Impairment of Long-Lived  Assets and for Long-Lived Assets to
Be  Disposed  Of.  SFAS No. 121  requires  that  long-lived  assets and  certain
identifiable  intangibles  held and used by an entity along with goodwill should
be reviewed 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.  SFAS No.  121 also
generally required long-lived assets and certain identifiable  intangibles to be
disposed of to be reported at the lower of the carrying amount or the fair value
less cost to sell.  SFAS No. 121 will be effective for the Company's 1996 fiscal
year.  The Company has not finalized its  assessment of the potential  impact of
adopting SFAS No. 121 at this time;  however,  on a preliminary basis management
does not believe the impact will be material to the financial statements.

Accounting for Stock Based Compensation

SFAS No. 123 Accounting for Stock Based Compensation was issued by the Financial
Accounting  Standards  Board in October  1995.  As it  relates to stock  options
granted to  employees,  SFAS No. 123 permits  companies  to  continue  using the
accounting method promulgated by the Accounting  Principals Board Opinion No. 25
("APB  No.  25"),   Accounting  for  Stock  Issued  to  Employees,   to  measure
compensation or to adopt the fair value based method prescribed by SFAS No. 123.
If APB No. 25's method is continued,  pro forma  disclosures  are required as if
SFAS No. 123  accounting  provisions  were followed.  SFAS No. 123's  accounting
recognition  method can be adopted  anytime  subsequent  to the  issuance of the
Statement in October 1995,  and would pertain to stock option awards  granted or
modified or settled for cash after the date of adoption.  If the Company  elects
to  continue  using  the  method  under  ABP No.  25,  SFAS No.  123's pro forma
disclosures are required after December 31, 1995.  Management has not completely
analyzed  the  provisions  of SFAS  No.  123;  accordingly,  management  has not
determined whether or not SFAS No. 123's accounting  recognition provisions will
be adopted or APB No. 25's method will be continued. In addition, management has
not  yet  determined  the  potential  effect  that  SFAS  No.  123's  accounting
provisions, if adopted, will have on the Company's financial statements.



                                      F-12



<PAGE>

                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994

NOTE 3 - OPERATIONAL AND FUNDING MATTERS

The  accompanying  financial  statements  have been prepared in conformity  with
generally accepted accounting principles,  which contemplate continuation of the
company as a going concern.  However,  for the year ended December 31, 1995, the
Company  incurred  a  loss  of $4,206,782  and  has  an  accumulated  deficit of
$11,785,356  at December  31,  1995 and used cash  in  operating  activities  of
$2,833,237  during 1995. In addition at December  31, 1995  current  liabilities
exceeded current assets by $ 549,898.

In recent years the Company has had to rely on proceeds  from private and public
placements  and  loans ( some of which  were  converted  to stock ) from  former
principals stockholders to fund its operations. (See Statements of Cash Flows ).

In view of the matters described in the preceding paragraphs,  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  financing.  The  financial  statements  do not  include  any
adjustments  relating to the recoverability and classification of recorded asset
amounts or amounts and  classification  of  liabilities  that might be necessary
should the Company be unable to continue in existence.

Management has taken various  actions,  which are discussed below, to revise its
operating  and  financial  requirements,  which it believes  are  sufficient  to
provide the Company with the ability to continue existence.  These actions along
with further discussion of the 1995's operations follows:

A number of  significant  events  have had a  material  impact on the  Company's
operating results, and its current and future prospects. In addition to a change
in control and a public  offering of its  securities  in 1994,  the  significant
events included replacement of all of the Company's senior executives, including
the President/CEO as well as most of its other personnel, two acquisitions which
included an  additional  customer  base  responsibility  of over 200  locations,
integration of personnel from both acquired  companies,  various related product
integration and development efforts and a physical relocation to consolidate the
operations and personnel of all companies.  These events were expensive in terms
of both time and money and took considerable  attention from the management team
to focus on these activities.

Although  revenues  increased to $2,835,206 in 1995 from $1,047,414 in 1994, the
increased costs related to the integration process together with the other costs
related to the other  changes at the Company  referred to above more than offset
the increased revenues. The acquisitions and integration of Delta and the assets
of GIS also  resulted  in  increased  legal and  accounting  expenses  and other
non-recurring operating expenses.

Personnel  related  expenses,  including  fees paid to  consultants  holding key
positions in sales,  marketing and technical areas totaled $2,361,280.  However,
as the integration  process  progressed in 1995, the Company was able to curtail
or  eliminate  in many  cases  the use of  consultants  by the end of  1995.  By
December 31, 1995 personnel in the Company  totaled 27  individuals  and several
consultants.  The current  staffing level in April,  1996 is 34 and the plan for
1996 contemplates minimal increase in that level.

Although no assurances can be given,  based on actual  compensation  expense and
related costs for the first two months of 1996 and  management's  plan for 1996,
reduced  levels of these costs are expected to maintain the current  sales level
described  below.  The foregoing is a forward  looking  statement  contingent on
several  factors  including:  no unexpected  turnover of personnel;  no need for
additional expenses for unbudgeted  personnel;  and no unexpected  adjustment to
compensation levels currently being paid.

Although no  assurances  can be given,  based on actual  sales for the first two
months of 1996 and committed sales orders to date,  revenues for 1996 will be at
least at the level achieved in 1995, with greater  revenues being targeted.  The
foregoing is a forward  looking  statement  contingent  upon no  cancellation of
existing sales orders and the receipt of future sales orders at the current rate

On March 27, 1996, the Company  commenced a Private Placement of 350,000 shares,
at $10.00 a share, of the Company's newly established  Series E Preferred Stock.
Through April 15, 1996,  139,000  shares of the Private  Placement  successfully
closed with the  Company  receiving  total  proceeds,  net of offering  costs of
$1,271,982.  On April 15, 1996 remaining stock subscriptions totaling $1,155,500
net  proceeds  to the Company  when paid have been  received.  The Company  also
anticipates  receiving  additional stock  subscriptions  for 77,500 shares which
will provide net proceeds of $697,500. (See Note 16).

On April 12, 1996 , the  Company  paid GIS the sum of  $1,550,000  to settle the
remaining obligations to GIS. This represented a substantial discount of amounts
due owed and redeemed the 109,333  shares of common stock and 111,800  shares of
Series B Preferred Stock previously issued to GIS. ( See Note 16 ).

The Company  plans to repay the note  payable-related  party of $300,000 that is
currently due. This will be paid from the net proceeds of the private  placement
to be received after April 15, 1996.

While  no  assurances  can  be  given,  management  believes  that  the  current
organization infrastructure and the Company's products are sufficient to support
revenues  greater  than the  levels  achieved  in 1995.  In  addition,  while no
assurances  can be given,  management  believes  that the  Company's  operations
should  continue to progress  throughout 1996 and that the net proceeds from the
April 1996  Private  Placement  and the  operating  revenues  from sales in 1996
should be  sufficient  to fund  operations  through 1996.  Any  significant  new
marketing and development  programs will only be initiated if external financing
has been obtained.



                                      F-13

<PAGE>

                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994

NOTE 4 - ACQUISITION OF BUSINESSES

On February 15, 1995, effective January 1, 1995 (the date control  transferred),
the Company  acquired  substantially  all of the assets of GIS  Systems  Limited
Partnership  ("GIS").  The  purchase  price for the  acquisition  was  valued at
approximately $3,700,000.  The purchase price consisted of 109,333 shares of the
Company's  common  stock  valued at $765,331,  111,800  shares of the  Company's
Series B Preferred  Stock valued at $559,000,  the Company's  promissory note in
the principal amount of $591,000 (see Note 9) and the Company's  promissory note
in the  principal  amount of $1,733,335  (see Note 9). In addition,  the Company
agreed to assume certain liabilities of GIS (aggregating $45,718) and loaned GIS
$559,000 (see paragraph below).  Direct  acquisition  costs aggregating  $82,744
(principally  legal and  accounting  fees) were incurred in connection  with the
acquisition.  The promissory notes, totalling $2,324,335,  were convertible into
preferred stock and derived their valuation from the underlying preferred stock.
The common stock  valuation of $7.00 per share and the preferred stock valuation
of $5.00 per share reflected the agreed-upon price between the buyer and sellers
and was approved by the Company's Board of Directors after giving effect to such
factors as the  restrictions  and the size of the blocks of common and preferred
stock.

The loan of $559,000 to GIS  evidenced  by a  promissory  note is secured by the
111,800 shares of the Company's  Series B Preferred  Stock and was due March 31,
1996. The sellers had the option of returning  preferred stock if the assignable
call  provision  of $5.00  per share was not  exercised.  Accordingly,  the note
receivable is presented as a reduction of stockholders' equity.

The  total  purchase  price  of GIS was  allocated  based  on fair  value of net
tangible assets acquired,  with the excess allocated to identifiable  intangible
components based on their individual estimated fair values and the remainder was
allocated to goodwill.

The purchase price,  including the direct  acquisition  costs,  was allocated as
follows:

     Inventory                                                   $     85,962
     Prepaid expenses and other current assets                         20,472
     Fixed assets                                                      87,581
     Accounts payables assumed                                        (45,718)
     Systems and software costs                                     1,200,000
     Customer list and support contracts                              300,000
     Goodwill                                                       2,083,113
                                                               --------------
                                                                 $  3,731,410
                                                               ==============
See Note 16.

On  December  22,  1994,   Lasergate  Systems  Canada  Company,  a  wholly-owned
subsidiary  of the  Company,  acquired  the capital  stock of Delta  Information
Services,  Inc.  (Delta) (a Canadian  company) for  aggregate  consideration  of
$1,200,000.  The purchase  price  consisted of cash of $500,000 and a promissory
note of $700,000,  convertible into 100,000 shares of the Company's unregistered
and restricted  $.03 par value common stock valued at $7.00 a share.  The common
stock valuation reflected the agreed-upon price between the buyer and seller and
was also  determined  by the  Board of  Directors  after  giving  effect to such
factors as the restrictions and the size of the block of common stock,  etc. The
promissory note was immediately converted into common stock in December 1994. In
addition, the Company incurred approximately $46,919 in direct acquisition costs
(principally  legal and accounting fees). At the date of acquisition,  Delta had
no tangible  assets nor liabilities  that were  transferred to or assumed by the
Company.

The purchase price,  including the direct  acquisition  costs,  was allocated as
follows:

            Computer software                                    $   500,000
            Non-competition agreement                                 85,000
            Customer list and support contracts                      125,000
            Goodwill                                                 536,919
                                                                 -----------
                                                                 $ 1,246,919
                                                                 ===========

                                      F-14
<PAGE>




                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 4 - ACQUISITION OF BUSINESSES - Continued

Pursuant to the  acquisition of Delta,  the Company  effectively  acquired a 50%
equity  interest in Deltan Limited  Partnership,  which was  inactive and had no
significant assets nor liabilities.  In addition, the Company did not assume any
funding  obligations  and/or  guarantees  associated  with their interest in the
limited  partnership.  Accordingly,  the Company did not assign any value to the
partnership interest in the allocation of the purchase price of Delta.

The sellers were granted certain  registration rights for two years with respect
to the shares of common  stock issued and a put option to sell to the Company up
to 10,000 of the shares of the  Company's  common  stock at $7.00 per share each
year for the next three years.  The put option  which has an aggregate  value of
$210,000  has been  classified  as common  stock  subject to put  options in the
consolidated  balance  sheets and  represents  the amount the  Company  would be
required to pay if all the put  options  were  exercised.  During  1995,  10,000
options were  exercised  resulting in $70,000 of common  stock  (10,000  shares)
being retired,  leaving a remaining  balance  subject to put options at December
31, 1995, of $140,000.

The above two  transactions  have been  accounted for as purchases in accordance
with APB No. 16 Business Combinations,  accordingly,  the results of Delta's and
GIS'  operations  have been  included in the  Company's  consolidated  financial
statements  from the date of  acquisition.  The  following are the unaudited pro
forma  results of  operations  for the year ended  December  1994,  assuming the
transactions  were  effective  January 1, 1994,  after  including  the impact of
certain  adjustments  such as consulting  fees,  amortization of intangibles and
reduction of selling,  general and administrative expenses (principally salaries
and wages and rent to reflect  personnel  not  transferred  and lease  space not
assumed).


                                                                  Delta and
                         Delta                 GIS               GIS Combined
                      ------------         ------------          ------------
Revenues               $ 1,801,000          $ 4,473,000           $ 5,208,000
Net Income (Loss)      $(2,521,000)         $(2,322,000)          $(2,440,000)
Income (Loss) per
  Common Share              $(1.50)              $(1.45)               $(1.37)

The pro forma results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for the period  presented and are
not intended to be a projection of future results of operations.


                                      F-15



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 5 - INVENTORIES

Inventories as of December 31, consist of the following:

                                                1995                    1994
                                              --------                -------
            Installations-in-process          $172,411                $111,016
            Parts and systems                  153,253                  13,664
                                             ---------                --------

                                              $325,664                $124,680
                                             =========                ========


NOTE 6 - PROPERTY AND EQUIPMENT

Property and equipment as of December 31, consist of the following:

                                                 1995                    1994
                                              --------                --------
            Furniture and equipment           $357,346                $167,061
            Vehicles                                 -                  16,705
            Purchased software                  12,231                   8,976
            Test equipment                      49,812                  34,002
                                              --------                --------
                                               419,389                 226,744
            Less accumulated depreciation      172,821                 129,751
                                              --------                --------
                                              $246,568                $ 96,993
                                              ========                ========


NOTE 7 - OTHER ASSETS

Other assets as of December 31, consist of the following:

                                                     1995                1994
                                                   --------            -------
   Non-competition agreement net of amortization
    of $28,333 and $-0-                           $  56,667          $  85,000
   Investment in and advances to joint venture       77,790             29,730
   Other                                             33,451             91,637
                                                   --------           --------

                                                   $167,908           $206,367
                                                   ========           ========






                                      F-16


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 8 - NOTES PAYABLE

At December 31, 1995 and 1994, the Company had an outstanding balance of $21,757
and  $74,910  under a  premium  financing  agreement  due in 1996,  at an annual
interest rate of 9.25%.

At December 31, 1994, the Company had outstanding  borrowings  under  promissory
notes payable to two former stockholders of $200,000 representing unsecured cash
advances  due in October  1996,  at an annual  interest  rate of 8%. In February
1995, the Company  increased the  borrowings to $759,505 which was  subsequently
settled  in full in June  1995 by the  issuance  of  79,950  shares  of Series A
Preferred Stock. In June 1995, the Company borrowed $300,000 under a convertible
secured  promissory  note due March 30, 1996 from these same  individuals  at an
annual rate of 9.5% (see Note 16).


NOTE 9 - ACQUISITION OBLIGATIONS

At  December  31,  1995,  the  "promissory  notes  payable,   stockholders  with
conversion  features"  totaling  $2,324,335  which  is  associated  with the GIS
acquisition (see Note 4) were, at the Company's election, either payable in cash
or by conversion  into  preferred and common stock prior to March 31, 1996.  The
promissory  notes for $591,000 were  convertible into 118,200 shares of Series B
Preferred Stock. The other promissory notes totaling $1,733,335 were convertible
into the number of common stock shares determined by dividing  $1,733,335 by the
quoted  market  value of the common stock near the date of the  conversion.  The
Company's  stated intent since the  acquisition  date of GIS and at December 31,
1995 has been to satisfy the obligations, which are non-interest bearing, by the
issuance  of  preferred  stock  and  common  stock  and  not by a cash  payment.
Accordingly,  the  promissory  notes at December 31, 1995 were not classified as
current liabilities as current assets will not be used to satisfy the promissory
notes. The obligations were subsequently  satisfied in April 1996 as part of the
March 11, 1996  agreement  between the Company and GIS,  such  agreement was not
contemplated  at December 31, 1995.  The  settlement  did involve some amount of
cash  along with  other  consideration,  however,  such cash was  provided  by a
Private Placement completed in April 1996 (See Note 16).

At December 31, 1995,  the balance sheet  reflects  "common stock subject to put
options" of  $140,000.  This  obligation  is further  described  in Note 4 as it
pertains to the Company's acquisition of Delta.







                                      F-17



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                           December 31, 1995 and 1994


NOTE 10 - INCOME TAXES

The  Company  has  a net  operating  loss  (NOL)  for  income  tax  purposes  of
approximately $9,000,000 at December 31, 1995 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 carryforward
and,  therefore,  the Company has recognized an equivalent  valuation  allowance
against the deferred tax benefit.

The principal types of temporary  differences and their related tax effects that
give rise to the deferred tax assets are as follows:

                                                          December 31,
                                                  --------------------------
                                                  1995                  1994
                                                  ----                  ----
    Intangibles                                  $   70,000         $       --
    Bad debt allowance, employee
     vacation pay, and other accruals               190,000             10,000
    Compensation related to stock options           350,000            168,000
    Net operating loss carryforward (1)           3,340,000          2,250,000
                                                 ----------         ----------
                                                  3,950,000          2,428,000
    Less valuation allowance                     (3,950,000)        (2,428,000)
                                                 ----------         ----------

                                               $         -          $       -
                                               ============         ==========

(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:

                                                                1995      1994
                                                               ------     -----

     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 %
                                                                =====     =====





                                      F-18


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 11 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

The Company leases its office and warehouse facilities under an operating lease,
which expires in 1999.

Future minimum payments under this operating lease are as follows:

            1996                                            $116,148
            1997                                             134,512
            1998                                             173,521
            1999                                              50,218
            2000 and thereafter                                    -
                                                        ------------
                                                            $474,399
                                                        ============


Rental  expense for the years ended  December  31, 1995 and 1994 was $89,027 and
$51,305, respectively.


LEGAL PROCEEDINGS

The Company's  founder and former  President and Chief  Executive  Officer,  has
commenced an action  against the Company in Florida state court.  The individual
alleges,  among  other  things,  that  he was  wrongfully  terminated  from  his
employment and seeks damages which in the aggregate could exceed $1,000,000. The
Company believes the suit is without merit and intends to vigorously  defend the
action.

The Company is also involved in other legal actions. Management does not believe
that the ultimate  resolution of these and the above matter will have a material
effect on the Company's financial position.










                                      F-19


<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY

COMMON STOCK

During October 1994, the Company completed a secondary offering of 920,000 units
at a price of $5.50 per share. Each unit consisted of one share of stock and two
redeemable  warrants.  Net proceeds to the Company was approximately  $3,906,000
after  deducting  underwriters'  discounts/commissions  of $506,000 and offering
costs of $647,998.

In December 1995, the Company's  authorized shares of common stock was increased
from 5,000,000 to 20,000,000.

PREFERRED STOCK

The Company's  articles of  incorporation  authorize a total of 2,000,000 shares
preferred stock. The Company's Board of Directors has established Series A, B, C
and D convertible preferred stock (see Note 16).


                                          Series of Preferred Stock
                               -------------------------------------------------
                                  A          B         C         D        Total
Authorized shares
  December 31, 1995            200,000    230,000   350,000   350,000  1,130,000

Outstanding shares
  December 31, 1995             95,950    111,800         -   180,000    387,750
  December 31, 1994             36,364          -         -         -     36,364

Outstanding share amounts
  December 31, 1995             $2,879     $3,354         -    $5,400    $11,633
  December 31, 1994             $1,091          -         -         -   $  1,091


All series contain  specific  provisions as to conversion  into shares of common
stock and liquidation values. The shares are nonvoting and, except for Series A,
participate  equally as to dividends  declared with the Company's  common stock.
The Series A preferred stock bears a cumulative dividend at an annual rate of 8%
of its liquidation value ($959,500).

In June 1995, the Company issued 95,950 shares of its newly designated  Series A
preferred stock to former principal  stockholders in satisfaction of $759,505 in
promissory  notes  due  October  1996 and in  conversion  of  36,364  shares  of
previously designated Series A preferred stock.





                                      F-20



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY - Continued

ISSUANCE OF COMMON STOCK FOR SERVICES

During the year ended  December  31,  1994,  the Company  issued an aggregate of
1,398,390 shares of its common stock for: (1) performance awards and services to
executives and/or major stockholders, (2) financing arrangements with executives
and/or major stockholders,  (3) consulting and marketing services; and (4) other
purposes.  Since the Company's common stock trading activity had been relatively
limited and these shares were issued prior to the secondary  public  offering in
October  1994,  its  estimated  fair value has been  determined  by the Board of
Directors  considering  various factors.  As a result, the value of the services
rendered or received  were used to determine the value of the  transactions  and
not the estimated  fair value of the common stock issued.  The fair value of the
services  provided by  executives  and/or  major  stockholders  was  approved or
determined by the Board of Directors. The fair value of consulting and marketing
services was based on  agreements  with the parties  involved.  The valuation of
services resulted in 200,000 shares being issued at $.50/share in September 1994
and 1,198,390 shares being issued at $.36/share from April to September 1994.

On April 5, 1993,  the Company  entered into an agreement  with an individual to
obtain funding for operations. As part of this agreement, the individual pledged
a $300,000  certificate  of  deposit  to enable the  Company to obtain a line of
credit  with a  financial  institution.  Under the terms of the  agreement,  the
Company committed to issuing shares of its common stock as an inducement for the
pledge of the certificate of deposit, the number of shares to be calculated upon
the  occurrence  of certain  events,  as  defined.  The Company  also  granted a
security  interest in  substantially  all assets of the Company.  During October
1993, upon the expiration of the agreement and the occurrence of certain events,
the Company became obligated to issue 833,333 shares of its common stock to this
individual  with a value of $300,000.  In April 1994, the Company  completed its
obligation through the issuance of the shares of common stock to this individual
and his designees, after notice was duly given to stockholders,  to complete its
obligation.

In September  1994,  the Company issued 200,000 shares of common stock valued at
$.50 per share to two former  stockholders as consideration  for providing funds
to the Company.  In September  1994,  the Company also issued  32,250  shares of
common stock to a consultant and former director and Chief Executive  Officer of
the Company,  in payment of $161,251 of debt owed to him, 4,233 shares of common
stock to an employee of the Company and the son of a consultant, former director
and Chief  Executive  Officer,  in payment of $21,167 of debt owed to him, 9,692
shares of common  stock to a former  employee  of the  Company  and the son of a
consultant  and  former  director  and Chief  Executive  Officer,  in payment of
$48,459 of debt owed to him,  and 3,833 shares of common stock to a director and
executive  officer  of the  Company,  in payment of $19,167 of debt owed to her.
Total debt and liabilities satisfied aggregated $250,044.



                                      F-21


<PAGE>







                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY - Continued

1988 INCENTIVE STOCK OPTION PLAN

In 1988,  the Company  adopted an incentive  stock  option  plan.  The number of
shares of common stock of the Company that may be awarded is 24,306.  The option
price per share shall be  determined by the option  committee,  but shall not be
less than 100% of the fair market  value of the  Company's  common  stock at the
time the option is granted.  There were no options  granted during 1993 and none
were  outstanding as of December 31, 1993.  During 1994, the Company  terminated
this  incentive  stock option plan,  and a new stock option plan was approved by
the Board of Directors (see below).

STOCK OPTION PLANS

In February 1994, the Board of Directors  authorized  the  establishment  of the
Company's  1994 Stock Option Plan.  The plan permits the grant of options  which
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  which 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  which
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.

On February 5, 1994, the Board of Directors  granted NQSO's to the former Senior
Vice  President--Chief   Technical  Officer,  Executive  Vice  President  and  a
marketing  consultant  to  purchase  up to 16,667,  12,500,  and 12,500  shares,
respectively,  of the Company's common stock. These options were waived by these
individuals effective May 23, 1994.

In June 1994 and October  1994,  respectively,  the Board of  Directors  granted
40,000  ISO's to  officers  and  employees  and 18,300  NQSO's to  employees  to
purchase shares of the Company's  common stock at a price of $1.00 per share for
a term of five (5) years.  In October 1994,  the Board of Directors  amended the
vesting  requirement to be one year of continuous  service to the Company,  with
past service to be counted toward the  requirement.  Additionally,  the Board of
Directors  granted an ISO to a former  employee to purchase  1,000 shares of the
Company's common stock at a price equal to the fair market value of the stock on
this date (after the secondary  offering),  exercisable  upon the execution of a
general release form acceptable to the Company.






                                      F-22


<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY - Continued

In March 1995, the Board of Directors,  subject to stockholder approval, adopted
amendments  to the  Company's  1994 stock  option plan which  included  that the
number of shares which could be granted  under the Plan would be increased  from
58,333 to 600,000 shares. At the annual  stockholders  meeting in December 1995,
the proposal to increase the number of shares was not approved.

Information as to shares subject to options is as follows:

<TABLE>
<CAPTION>

                                                                    Shares        Price per Share
                                                              ------------------  ---------------
                                                                ISO        NQSO
                                                              -------    -------
<S>                                                           <C>        <C>       <C>
  Options outstanding, January 1, 1994                           --         --
  Options granted                                              82,667     18,300    $1.00 - 13.00
  Options canceled or forfeited                               (45,667)                      $1.00

  Options exercised                                              (500)    (1,500)           $1.00
                                                              -------    -------
  Options outstanding, December 31, 1994                       36,500     16,800

  Options granted                                                --         --
  Options canceled or forfeited                                (3,500)   (14,800)   $1.00 - $3.633
                                                              -------    -------
  Options outstanding, December 31, 1995                       33,000      2,000
                                                              =======    =======


Exercise price range per share of options
  outstanding at year end                                     $  1.00    $1.00 - 13.00
                                                              =======    ==============
</TABLE>

As of December 31, 1995, all stock options are exercisable 

NON-QUALIFIED STOCK OPTIONS

On March 7,  1995,  the  Board of  Directors  authorized  the  grant of  375,000
non-qualified  stock  options  at an  exercise  price of $2.00  per share to the
Company's  President and Chief Executive Officer in connection with a three year
employment  agreement.  Of the total options granted,  125,000 were granted as a
signing bonus effective October 31, 1994 and were immediately exerciseable since
their  issuance  was not  contingent  on future  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 as restrictions,  etc.) and the exercise
price, has been 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 will vest on October 31, 1996. In accordance with accounting
provisions of APB No. 25, the Company has recorded  compensation expense in 1995
of $562,500 and will record additional expense of $187,500 in 1996.


                                      F-23



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY - Continued

With the Company  granting  options in 1995 with the full vesting of the 125,000
options  related to the 1994  sign-up  bonus and the related  December  31, 1994
obligation of $375,000 along with the additional 125,000 options vesting October
1995, paid-in capital in 1995 was increased by $937,250.

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.

Additionally,  a warrant to purchase  276,000 shares at $9.08 was granted to the
underwriter,  exercisable  during  the four years  commencing  one year from the
closing date of the offering.

The Company  granted  warrants to purchase 4,167 shares of the Company's  common
stock at an exercise price of $4.50 per share,  which expire on May 20, 1998 and
granted  warrants to purchase  900 shares of the  Company's  common  stock at an
exercise price of $3.75 per share, which expire in July 1997, in connection with
financing activities in 1993.

Information as to warrants is as follows:


                                                           Range of
                                                           Price per
                                             Shares          Share
                                           ----------      ----------
Warrants outstanding, January 1, 1994 .       13,400    $        4.50
Warrants granted ......................    2,128,917    $ .706 - 9.08
Warrants exercised ....................      (21,250)   $        .706
                                          ----------    -------------
Warrants outstanding, December 31, 1994    2,121,067      3.75 - 9.08
Warrants granted ......................         --                 --
Warrants exercised ....................         --                 --
                                          ----------    -------------


Warrants outstanding, December 31, 1995    2,121,067    $3.75 - 9.08
                                          ==========    =============



                                      F-24



<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 12 - STOCKHOLDERS' EQUITY - Continued

As of December 31, 1995, all warrants were exercisable.

RESERVATION OF COMMON STOCK

At December 31, 1995,  the aggregate  number of the  Company's  shares of common
stock reserved for issuance upon exercise of options and warrants, conversion of
convertible debt, and preferred stock totaled approximately 6,130,000 shares.


NOTE 13 - FOURTH QUARTER ITEMS

During the fourth  quarter of 1995,  there were several  adjustments  related to
revenues,  and selling,  general and administrative items which in the aggregate
increased  net loss by  approximately  $242,000  ($.08 a share)  related  to the
previous three quarters of 1995.

There were no material  fourth  quarter  adjustment  in 1994 that  affected  the
previous three quarters of 1994.

For the financial  statements  for the year ended December 31, 1995, the Company
reclassified  certain  amounts to cost of  revenues  (formerly  cost of products
sold) previously included in selling,  general and administrative  expenses (see
Note 2). The  reclassification  had no effect on the reported  operating loss in
the previous three quarters of 1995.


NOTE 14 - SALES TO MAJOR CUSTOMERS

                                               Percentage of Net Sales
                                               Year ended December 31,
                                            -----------------------------
            Customer                         1995                  1994
            --------                        --------            ---------
               A                               -                   47.9%
               B                               -                   10.4%

In 1995, there were no customers representing 10% or more of revenues.

In 1994, the major customers are also foreign  customers whose sales  aggregated
approximately  $611,000,  including sales to Lasergate Systems Asia-Pacific Pty.
Limited of $109,000 (see Note 1).




                                      F-25


<PAGE>




                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1995 and 1994


NOTE 15 - EMPLOYEE BENEFIT PLAN

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 1995.


NOTE 16 - SUBSEQUENT EVENTS

On March 27, 1996, the Company  commenced a Private Placement of 350,000 shares,
at $10.00 a share, of the Company's newly established  Series E Preferred Stock.
Through  April 15, 1996,  139,00  shares of the Private  Placement  successfully
closed with the Company  receiving  total  proceeds,  (net of offering costs) of
$1,271,982.

On March 11, 1996, the Company and GIS Systems Limited  Partnership  executed an
agreement  whereby  the  parties  agreed  to,  among  other  things,  settle the
remaining  obligation to GIS totaling $2,324,335 by making a cash payment to GIS
of $1,550,000,  cancelling the $559,000 note receivable from GIS, cancelling the
$199,359 account  receivable from GIS, and with GIS returning to the Company for
retirement  the 109,333  shares of Common  Stock and 111,800  shares of Series B
Preferred Stock previously issued to GIS.

The cash payment of $1,550,000 to GIS on April 12, 1996 was principally provided
from the proceeds of the Private Placement described above.

The $300,000  obligation to the Company's former  stockholders (see Note 8) will
be paid in full  including  interest at the time the Private  Placement  becomes
fully subscribed and the proceeds are received.

At April 15, 1996 the Company has stock  subscriptions  for 133,500 shares which
will represent net proceeds of $1,155,500.  In addition, the Company anticipates
receiving stock  subscriptions for additional  shares of 79,500 (net proceeds of
$697,500) which along with the stock subscriptions already received at April 15,
1996 should be paid within a short period of time.




                                      F-26


<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.
                                                  (Registrant)


                                                  By: /S/ JACQUELINE E. SOECHTIG
                                                     ---------------------------
                                                     Jacqueline E. Soechtig
                                                     President and Chief
                                                     Executive Officer



     In  accordance  with the Exchange Act, this report has been signed below by
the following  persons on behalf of the  registrant and in the capacities and on
the dates indicated.

           NAME                       CAPACITY                     DATE
           ----                       --------                     ----


/S/ JACQUELINE E. SOECHTIG     President and Chief Execu-     April 12, 1996
- --------------------------     tive Officer (Principal
Jacqueline E. Soechtig         Executive Officer)


/S/ STEWART L. KRUG            Director                       April 12, 1996
- --------------------------
Stewart L. Krug


/S/ TIMOTHY E. MAHONEY         Director                       April 12, 1996
- --------------------------
Timothy E. Mahoney



/S/ FRANK W. SWACKER           Director                       April 12, 1996
- --------------------------
Frank W. Swacker





                                    

<PAGE>


/S/ LARRY W. UMSTADTER         Director                       April 12, 1996
- --------------------------
Larry W. Umstadter



/S/ JOHN P. WARNICK            Vice President-Finance,        April 12, 1996
- --------------------------     Chief Financial Officer,
John P. Warnick                Secretary and Treasurer
                               (Principal Financial and
                               Accounting officer)


                                      

