SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


   
                                 AMENDMENT NO. 5
                                       on
                                  FORM 10-KSB/A
    


|X|      Annual report under Section 13 or 15(d) of the Securities  Exchange Act
         of 1934 for the fiscal year ended December 31, 1996

|_|      Transition report under Section 13 or 15(d) of the  Securities Exchange
         Act of 1934 for the transition period from _________ to _________

                         Commission file number 0-15873

                             LASERGATE SYSTEMS, INC.
                 (Name of small business issuer in its charter)

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



2189 Cleveland Street, Suite 230, Clearwater, Florida                   33765   
-----------------------------------------------------                 ----------
         (Address of principal executive offices)                     (Zip Code)


Issuer's telephone number: (813) 803-1574


Securities registered under Section 12 (b) of the Exchange Act:  None

Securities registered under Section 12 (g) of the Exchange Act:

                     Common Stock, par value $0.03 per share
                                (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  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 $4,204,626.

State the  aggregate  market  value of the voting  stock held by  non-affiliates
computed by reference  to the price at which the stock was sold,  or the average
bid and asked  prices of such stock,  as of a specified  date within the past 60
days.

State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.


At  January  26, 1998, 7,462,061  shares of Common  Stock were  outstanding.  At
January 26, 1998,  the  aggregate  market value of the Common Stock of Lasergate
Systems, Inc. held by non-affiliates (7,196,718 shares) was $1,236,936.




                                       -1-

<PAGE>


                                     PART II


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

GENERAL

         Due to the Company's net loss for 1996 of  $4,997,962,  and its history
of operating losses that have accumulated to $16,783,318,  at December 31, 1996,
our independent  certified public  accountants have qualified their accountants'
report dated March 28, 1997, on the Company's 1996 financial  statements as to a
going  concern   uncertainty.   The  following  commentary  within  Management's
Discussion and Analysis addresses the Company's operations for 1996 and its plan
to improve  future  results.  These matters are also  discussed in Note 3 to the
financial statements.

         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 the majority of the Board of
Directors  during 1996 and over the course of 1995 and 1996 all of the Company's
senior  executives,  as well as most of its other  personnel.  This included the
President/CEO,  the Vice President of Finance/CFO (twice), the Vice President of
Development/Operations and the Vice President of Sales. Some of this turnover of
senior executives was encouraged or effected by the Board of Directors.

         These  events also  included  two  acquisitions  (Delta and GIS Systems
Limited Partnership ("GIS") with a combined customer base of over 200 sites, and
various product integration and development efforts)


                                      -2-

<PAGE>



and required more than two years of sustained effort and substantial  amounts of
capital.  At the beginning of 1996, the Company had very little working capital.
This  situation  grew  worse  during the first  half of the year,  resulting  in
shipments to customers  falling behind schedule because orders for their product
were not placed  with  vendors,  in that the  Company  had  utilized  all credit
extended to it by its vendors. Given those circumstances,  the Company undertook
two private  placements of convertible  preferred stock during that time period,
for  which  the  Company  received  a  combined  total  of  $6,623,082,  net  of
commissions and offering expenses.  That capital infusion allowed the Company to
initiate two basic programs  designed to move the Company toward  profitability.
First was development of a new modular product (Admits)  allowing the product to
be  customized  more  easily  and  installed  more  efficiently.  The second was
committing  additional funds to marketing  efforts,  including a doubling of the
sales force aimed at substantially  increasing  revenues and potentially  moving
the Company beyond the break-even point and towards profitability in the future.

         The  development  effort  was  immediately  focused  upon  the  general
admission  product  since it would most  likely  yield the  fastest  and largest
payback.  The core of the product was developed  earlier than planned and was in
Beta testing by November 1996. The  experience of the  development  team and the
ability to forego the creation of a detailed  program  design by  utilizing  the
software  programs  of the legacy  products  as a  production  plan  accelerated
development.  With the  Company's  efforts to satisfy new and existing  customer
demands for  programming  changes to the Delta and GIS  products,  a substantial
portion of the Company's  resources remained dedicated to the legacy products in
all areas: development, installation, customer support, training, documentation,
and  marketing.  However,  the Company  kept the general  admission  development
effort on schedule.  At the present time,  management  believes the Company will
have the new Admits general  admission  product available for general release by
June 1997.

         For  most of 1996  the  Company  employed  three  or four  field  sales
representatives.  During the fourth quarter of 1996, two systems  engineers were
dedicated to providing  pre-sales  support and an inside  sales  department  was
organized with two inside sales representatives hired initially. During February
and March of 1997,  two  additional  field  sales  representatives  were  hired,
bringing the total to six sales  personnel.  Thus, for most of 1997, the Company
plans to have ten employees dedicated to sales efforts compared to three or four
during 1996.

         The result for the Company expanding its sales force and delivering the
new Admits general  admission  product on schedule should  favorably impact upon
revenue during the latter part of 1997.  Management believes it can thus achieve
a reduction of the operating  loss by the end of 1997 and lay the foundation for
future  profitability.  Although no assurance can be given,  management believes
that sustained  expenditure and cash controls,  would maintain  adequate working
capital  through  1997,  based upon the  further  premise  that the new  general
admission   Admits   product   will  be  completed  as  planned  by  June  1997.
Nevertheless,  the  Company  intends  to seek and  actively  pursue  a  possible
relationship with a strategic partner,  which would include an equity investment
in the Company and may review other financing opportunities.

Results of Operations: 1996 Compared to 1995

REVENUES

         Revenues  increased  to  $4,204,626  in 1996 from  $2,835,206  in 1995,
representing   a  48%   increase.   Revenues   consisted  of  system  sales  and
installations  of $3,588,383 in 1996 and $2,538,206 in 1995, and 


                                      -3-

<PAGE>



maintenance  and support of $616,243 in 1996 and $300,000 in 1995.  The increase
in system  sales and  installations  was  primarily  attributable  to  marketing
activities  from an  increased  sales  staff,  and from the  Company's  enhanced
products.

         In  1996,  the  Company's  principal  products,  Select-a-Seat,  Admits
Platinum,  and Admits  Gold,  represented  approximately  33%,  35%,  and 16% of
revenues, respectively, compared to 42%, 30%, and 12% of revenues, respectively,
in 1995.  By the end of 1997,  the  Company  expects  the  revenue  from  Admits
Platinum  and Admits Gold to be  substantially  replaced by revenue from Admits,
the Company's modular Windows7 based general admission product.  Maintenance and
support  represented 14% of revenues in 1996 and 11% in 1995. While  maintenance
and support  revenue for 1997 is expected to increase,  its  percentage of total
revenues is not expected to increase.

         In 1996, one customer,  Bayindir Insaat Turizm Ticaret, a large, indoor
amusement park in Istanbul,  Turkey,  represented  12% of revenues.  In 1995, no
customers represented 10% or more of revenues. 


COST OF REVENUES

   
         Cost of revenues in 1996 and 1995  included the costs  associated  with
the hardware and software acquired for the Company's  customers,  the full costs
associated with the engineering  and  installation of the systems,  and the full
costs associated with the provision of customer support, and the amortization of
the capitalized software costs.

         Cost of revenues  increased  to  $3,104,792  from  $2,902,769.  This 7%
increase  was the  result  of costs  related  to a 48%  increase  in  sales  and
increased  warranty  costs,   partially  offset  by  increased  efficiencies  in
installing products.  Warranty provisions for 1996 totaled $568,000 and warranty
work charged against the allowance in 1996 totaled  $430,000.  The warranty work
was primarily a continuation of the enhancements to original Delta and GIS sites
as  discussed  in the  Company's  annual  report on Form 10-K for the year ended
December  31,  1995.  As a  percentage  of  revenues,  cost of  revenues in 1996
represented  74% of  revenues  compared  to  102%  of  revenues  in  1995.  This
improvement represents more efficient installation and support of products.
    


         Although the sales mix for hardware versus software has been relatively
consistent  during  1995 and 1996,  it should be noted that the ratio of cost of
revenues-to-revenues  is also a function of whether  the sales or  services  are
hardware or software intensive.  Hardware sales result in lower gross margins as
hardware is not developed by the Company,  but acquired for  customers,  as is a
small portion of software.  Sales of the Company's  software and related systems
development activities provide the Company greater gross margins.

DEVELOPMENT COSTS

         Development  costs increased to $460,709 in 1996 from $348,352 in 1995,
an increase of $112,357, or 32%. As a percentage of revenues,  development costs
decreased  from 12% in 1995 to 11% in 1996.  The  Company  expects  to  continue
development  efforts  in 1997 at  about  the same  level  as in  1996,  with the
majority of the development effort focused on its new modular products.



                                      -4-

<PAGE>



SELLING, GENERAL AND ADMINISTRATIVE


   
         Selling, general and administrative expenses increased to $4,547,990 in
1996 from  $3,839,581 in 1995,  representing a 18% increase.  As a percentage of
revenues,  these expenses were 108% in 1996 and 135% in 1995, which reflects the
substantial increase in revenues in 1996.
    


         The  principal  components  of the  increase  in  selling,  general and
administrative, in 1996 as compared to 1995 are described below:

         Sales and  marketing  expenses  increased  to  $1,273,751  in 1996 from
$1,036,506 in 1995, representing a 23% increase. This increase was attributed to
increased salaries,  benefits, and commissions of $467,213,  associated with the
Company's additions to the sales force, offset by a reduction of $234,715 in the
amount paid to independent contractors who performed similar functions in 1995.

   
         General and  administrative  expenses  increased to  $3,274,239 in 1996
from $2,803,075 in 1995,  representing a 12% increase.  The principal components
of the  increases  are increase in  shareholder  relations  expenses,  executive
compensation, employee wages, legal fees, and bad debt expense.
    

WRITE DOWN OF CAPITALIZED SOFTWARE COSTS

         In 1996, the Company decided to offer its products in a modular fashion
and  the  Company   commenced  the  development  of  the  new  modular  product.
Accordingly, the Company wrote down the value of capitalized software $1,075,000
under the net realizable value determination  provisions of SFAS No. 86 Computer
Software to be Sold, Leased, or Otherwise Marketed. (See Note 7 to the financial
statements). In 1995, there was no write down of assets.

OTHER INCOME (EXPENSE)

         Interest  expense was $45,061 in 1995.  Due to the funds  received from
the private  offering in June 1996,  the Company  paid off its debt and invested
the remaining funds, earning net interest income in 1996 of $53,577.

         Net other  income/(expense)  represented  $67,674 of expense in 1996 as
compared  to $93,775 of income in 1995.  The  decrease is  primarily  due to the
results of operations of the Company's  joint venture in Australia with P.M.S.I.
Group  Pty.   Limited.   The  company's   share  of  the  joint   venture's  net
earnings/(loss)  from operations was a $77,790 loss in 1996 compared to earnings
of $48,060 in 1995.

INCOME TAXES

         The Company currently has a substantial net operating loss carryforward
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

 
                                      -5-

<PAGE>


          Net loss increased to $4,997,962 in 1996 from  $4,206,782 in 1995. The
Company's  operations  were affected by various  factors as discussed above with
the largest component being a one-time write down of capitalized software in the
amount of $1,075,000.


NET LOSS PER SHARE

         In March, 1997 the Securities  and Exchange  Commission (SEC) announced
its position on accounting for the issuance of convertible  preferred stock with
a nondetachable  conversion feature that is deemed "in the money" at the date of
issue (a "beneficial conversion feature").The Company's preferred stock has such
features.  As a result,  the Company has restated the  financial  statements  to
recognize the intrinsic  value of  beneficial  conversion  features of preferred
stock as  dividends  to preferred  shareholders  (see Note 17).  The  accounting
described herein for the intrinsic value of beneficial  conversion features does
not  affect the  financial  statements,  including  the  reported  net loss and,
stockholders' equity (including retained earnings),  with the exception that the
reported  net loss per  common  share has been  increased  by the  amount of the
preferred  dividends.  After  recognizing  dividends of $2,836,353  for 1996 and
$1,534,445  for 1995,  the net loss per  common  share is  $(1.29)  for 1996 and
$(1.90) for 1995.


NEW ACCOUNTING PRONOUNCEMENTS ADOPTED

         SFAS No. 123,  Accounting for Stock  Based Compensation was implemented
during 1996. The affect upon the Company's financial statements was immaterial.

         SFAS No. 121,  Accounting for the  Impairment of Long-Lived  Assets and
for Long-Lived Assets to Be Disposed Of was implemented  during 1996. The effect
upon the Company's financial statements was immaterial.

FINANCIAL CONDITION: 1996 COMPARED TO 1995

         Total assets remained relatively constant at $6,436,945 on December 31,
1996, from $6,406,236 on December 31, 1995, representing an increase of $30,709,
or less than 1%. This  includes an increase in cash of $1,268,319 as a result of
two  private  placements  and a  decrease  in  systems  and  software  costs  of
$1,173,928, primarily due to a write-down of these costs.

         Total  liabilities  decreased to $3,320,392 on December 31, 1996,  from
$4,719,465 on December 31, 1995, representing a decrease of $1,399,073,  or 30%.
The  principal  contributing  factors to the decrease are the repayment of notes
payable  of  $300,000  and the  repayment  of the  promissory  notes  payable to
stockholders  with  conversion  futures,  which  had  a  balance  of  $2,324,335
partially offset by increases in deferred  revenue,  accrued warranty costs, and
accrued  expenses.  (See Note 4 to the  financial  statements  and Liquidity and
Capital Resources below).

LIQUIDITY AND CAPITAL RESOURCES

         The following  table  presents a summary of the Company's cash flow for
1996 and 1995:




                                      -6-

<PAGE>



                                                     1996           1995
                                                     ----           ----
 Net cash used in operating activities           $(2,282,971)      $(2,833,237)
 
 Net cash used in investing activities              (228,663)         (708,917)

 Net cash provided by financing activities         3,779,953         2,608,823

 Net increase (decrease) in cash and cash        $ 1,268,319       $  (933,331)
 equivalents

         The  Company used cash of $2,282,971 in 1996 and $2,833,237 in 1995 for
operating  activities.  From its inception in October 1985 through  December 31,
1996, the Company has incurred cumulative losses of $16,783,318,  with a loss of
$4,997,962  for the year ended December 31, 1996. The company's net loss in 1996
was due primarily to expenditures  related to the factors  referred to under the
caption Results of Operations:  1996 Compared to 1995 above. Included in the net
loss for 1996 were non-cash expenses totaling  $2,006,626,  which included (I) a
write-down    of    capitalized    software    costs   of    $1,075,000;    (ii)
depreciation/amortization   expenses  of  $513,153;   and  (iii)  equity-related
transactions totaling $229,686 of compensation expense recognized as a result of
the issuance of stock in 1996 and the grant of stock options in 1994.  Cash that
was used to purchase items  classified as current  assets totaled  $426,428 with
accounts receivable increasing by $540,617, investment in inventories decreasing
by $70,763, and prepaid expenses decreasing by $43,426.  These uses of cash were
offset by an increase in accounts payable and accrued  expenses of $764,362,  an
increase  in accrued  warranty  costs of  $273,919,  and an increase in deferred
revenue of $180,110.

         The Company used cash in investing activities in the amount of $228,663
in 1996,  which was used for  additions  to  property,  equipment,  and software
costs, and used cash in investment activities in the amount of $708,917 in 1995,
principally related to the loan to GIS stockholders of $559,000.

         The Company was provided cash by financing  activities of $3,779,953 in
1996 and  $2,608,823 in 1995. The Company relied on net proceeds from public and
private  offerings  and loans and  advances  from  related  parties  to fund its
operations  during 1996 and 1995.  Two private  offerings  in 1996 and a private
offering in 1995 provided $6,623,082 and $1,870,976, respectively.

         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 February 1995, the Company acquired  substantially all of the assets
of GIS for an aggregate consideration of approximately $3,700,000.  The purchase
price  consisted  of 109,333  shares of the  Company's  Common  Stock  valued at
$765,331,  111,800  shares of the company's  Series B Preferred  Stock valued at
$559,000, and the Company's unsecured,  non-interest-bearing promissory notes in
the aggregate  amount of $2,324,335.  In addition,  the Company agreed to assume
certain  liabilities of GIS and loaned GIS $559,000 as evidenced by a promissory
note from GIS due March 31, 1996, which was secured by the pledge to the Company
of the 111,800 shares of the Company's Series B Preferred Stock.



                                      -7-

<PAGE>


         On March 11,  1996,  the Company and GIS  Systems  Limited  Partnership
executed an agreement whereby the parties agreed,  among other things, to settle
the remaining  obligation to GIS totaling  $2,324,335,  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 the
Company's  newly  established  Series E Preferred  Stock at $10.00 per share and
completed  the private  placement  as of April 22,  1996.  The Company  received
$1,450,582,  net of commissions and offering  expenses,  for the sale of 162,500
shares of preferred  stock. As of June 28, 1996,  150,000 shares of the Series E
Preferred Stock had been converted into 2,453,686 shares of the Company's Common
Stock.

         On  June 10, 1996, the Company  commenced a Private  Placement of 8,000
shares, at $750 a share, of the Company's newly established Series F Convertible
Preferred Stock. On June 27, 1996, the Private Placement closed with the Company
receiving $5,172,500,  net of commissions and offering expenses, for the sale of
8,000 such  shares.  Also,  on June 27, 1996,  the Company used  $300,000 of the
proceeds of the Series F Preferred Stock Private  Placement to pay off the notes
payable to related  parties and on June 28, 1996, the Company used $1,000,000 of
the proceeds to redeem  95,950 shares of Series A  Convertible  Preferred  Stock
held by the same party.  These preferred  shares were convertible into 1,879,837
shares of Common  Stock and  potentially  convertible  into as many as 2,590,650
shares of Common Stock had they not been redeemed  (plus  additional  shares for
any dividends which would have accrued).

         Each share of Series F  Preferred  Stock is also  convertible  into the
Company's  Common Stock, at a conversion price that is tied to the trading price
of the Company's Common Stock at the time of conversion; provided, however, that
for  purposes  of such  conversion,  a trading  price that is less than $.45 per
share, will be deemed to be $.45 and a trading price that is more than $1.00 per
share will be deemed to be $1.00.  On January 27, 1997, 55 Series  F convertible
preferred  shares  were  converted  into  100,000  shares of  common  stock at a
conversion  price of $.55 a share.  The  conversion  price was  calculated as of
September 30, 1996, the conversion request date.

         Upon  payment  of the  $300,000  note and  redemption  of  the Series A
Convertible  Preferred  Stock,  each  of  which  was  held by the  same  private
investors,  three members of the Company's board of directors  (Stewart L. Krug,
Lawrence  W.  Umstadter,  and Timothy E.  Mahoney)  who were  nominated  by such
private  investors and served at their  request,  resigned  from the board.  The
company filled the vacancies  created by such  resignations by appointing  three
new directors. (Bruce D. Barrington, John J. Chluski, and Philip P. Signore)

         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 1996,  and  that  income  from
operations  should continue to progress  throughout 1997, such that the net loss
in 1997 should be less than the net loss in 1996.


                                      -8-

<PAGE>



ITEM 7. FINANCIAL STATEMENTS

         Following this page are the Company's financial statements for the year
ended December 31, 1996 which include the following items:

                                                                        Page
                                                                        ----

         Report of Independent Certified Public Accountants              F-1

         Consolidated Balance Sheets as of
                  December 31, 1996 and December 31, 1995                F-2

         Consolidated Statements of Operations for the years ended
                  December 31, 1996 and December 31, 1995                F-3

         Consolidated Statements of Stockholders' Equity for the
                  years ended December 31, 1996 and December 31, 1995    F-4

         Consolidated Statements of Cash Flows for the years
                  ended December 31, 1996 and December 31, 1995          F-5

         Notes to Consolidated Financial Statements                      F-7



                                      -9-

<PAGE>

                                     PART IV

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

(a)        Exhibits

3.1        Amended and  Restated  Articles  of  Incorporation  (incorporated  by
           reference  to  Exhibit  3.1  of  Amendment  No.  1 to  the  Company's
           Quarterly  Report on Form 10-QSB,  File No. 0-15873,  for the quarter
           ended June 30, 1996).

3.2        By-laws, as amended  (incorporated by reference to Exhibit 3.4 of the
           Company's Annual Report on Form 10-K, File No. 0-15878,  for the year
           ended December 31, 1994).

4.1        Form  of   Subscription   Agreement  for  Series  D  Preferred  Stock
           (incorporated  by  reference to Exhibit 4.1 of the  Company's  Annual
           Report on Form 10-KSB, File No. 0-15873,  for the year ended December
           31, 1995).

4.2        Form  of   Subscription   Agreement  for  Series  E  Preferred  Stock
           (incorporated  by  reference to Exhibit 4.2 of the  Company's  Annual
           Report on Form 10-KSB, File No. 0-15873,  for the year ended December
           31, 1995).

4.3        Form  of   Subscription   Agreement  for  Series  F  Preferred  Stock
           (incorporated by reference to Exhibit 4.1 of the Company's  Quarterly
           Report on Form 10-QSB,  File No. 0-15873,  for the quarter ended June
           30, 1996).

4.4        Form of Registration Rights Agreement with Respect to the Purchase of
           Shares of Series F Preferred  Stock  (incorporated  by  reference  to
           Exhibit 4.2 of the  Company's  Annual  Report on Form 10-K,  File No.
           0-15873, for the year ended December 31, 1995).

10.1       Lease,  dated as of February 20, 1995,  between the Company and 28050
           Corporate  Square  Associates,  L.P.  (incorporated  by  reference to
           Exhibit 10.2 of the  Company's  Annual Report on Form 10- K, File No.
           0-15873, for the year ended December 31, 1994).

10.2       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).

10.3       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).

10.4       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).

10.5       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-

<PAGE>



10.6       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).

10.7       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).

10.8       The Series B Preferred  Stock Pledge and Call  Agreement by and among
           the Company,  GIS Systems  Limited  Partnership  and  NationsBank  of
           Florida,  N.A.  (incorporated  by  reference  to Exhibit  99.4 to the
           Company's Form 8-K dated February 15, 1995, File No. 0-15873).

10.9       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).

10.10      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).

10.11      Letter Agreement among the Company,  GIS Systems Limited Partnership,
           Nicholas  Flaskay,  and Fred Maglione  (incorporated  by reference to
           Exhibit  10.17 of the  Company's  Annual Report on Form 10- KSB, File
           No. 0-15873, for the year ended December 31, 1995).

10.12      Employment  Agreement of  Jacqueline  E.  Soechtig  (incorporated  by
           reference to Exhibit  10.17 of the  Company's  Annual  Report on Form
           10-K, File No. 0-15873, for the year ended December 31, 1994).

21.1       Subsidiaries  of the Company  (incorporated  by  reference to Exhibit
           21.1 of the Company's  Annual Report on Form 10-K,  File No. 0-15873,
           for the year ended December 31, 1994).



27.1*      Financial Data Schedule

-----------------
* Filed herewith.

         For the Company's  financial  statements  for the period ended December
31, 1996, see Part II, Item 7 of this Report on Form 10-KSB.

(b) Reports on Form 8-K.

         None

                                       -11-
<PAGE>


                        CONSOLIDATED FINANCIAL STATEMENTS
                            AND REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS

                             LASERGATE SYSTEMS, INC.
                                AND SUBSIDIARIES

                           December 31, 1996 and 1995
















                                      -i-

<PAGE>


                                TABLE OF CONTENTS

                                                                    Page
                                                                    ----

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

Consolidated Balance Sheets as of December 31, 1996 and 1995.......  F-2

Consolidated Statement of Operations for the Years
  Ended December 31, 1996 and 1995.................................  F-3

Consolidated Statement of Stockholders' Equity for the
  Years Ended December 1996 and 1995...............................  F-4

Consolidated Statements of Cash Flows for the Years
  Ended December 31, 1996 and 1995.................................  F-5

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













                                     -ii-

<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, 1996, and 1995, and
the related consolidated statements of operations, stockholders' equity and cash
flows  for  the  years  then  ended.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating an overall financial statement  presentation.
We believe our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly, in all material  respects,  the financial position of Lasergate Systems,
Inc. and  Subsidiaries  at December 31, 1996, and 1995, 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 $4,997,962 during the year ended
December 31, 1996, and, as of that date, the Company has an accumulated  deficit
of $16,783,318.  The Company has historically relied on net proceeds from public
and private  offerings and loans and advances  from related  parties to fund its
operations.  Management  believes that additional monies from these sources will
not be  necessary  to fund  its  operations  in  1997.  However,  the  Company's
operating loss history raises  substantial  doubt about the Company's ability to
continue as a going concern.  Management's  plans in regard to these matters are
described in Note 3. The  financial  statements  do not include any  adjustments
that might result from the outcome of this uncertainty.

         As described in  Note 17 to the  financial  statements,  the  Company's
previously  issued financial  statements for 1996 and 1995 have been restated to
account for preferred  stock dividends which are based on the intrinsic value of
the beneficial conversion features of the Company's preferred stock.



                                                     /s/ Grant Thornton LLP


                                                     GRANT THORNTON LLP



   
Tampa, Florida
March 28, 1997
(Except for Note 17 as to which the date is February 13, 1998)
    



                                       F-1

<PAGE>


<TABLE>
<CAPTION>

                    Lasergate Systems, Inc. and Subsidiaries

                           CONSOLIDATED BALANCE SHEETS

                                  December 31,


                                                                                           1996           1995
                                                                                           ----           ----
<S>                                                                                        <C>            <C>
                                          ASSETS
Current assets:
   Cash and cash equivalents                                                           $1,924,825      $656,506
   Accounts receivable, net of allowance for
    doubtful accounts of $147,000 and $36,000                                             868,931       439,311
   Account receivable, related party                                                            -       199,359
   Inventories                                                                            254,901       325,664
   Prepaid expenses                                                                        40,966        84,392
                                                                                           ------        ------
                  Total current assets                                                  3,089,623     1,705,232
                                                                                        ---------     ---------

Property and equipment, net                                                               304,024       246,568
Systems and software costs, net of write down and amortization
    of $1,525,856 and $283,333                                                            242,739     1,416,667
Goodwill, net of amortization of $265,568 and $132,579                                  2,382,705     2,515,694
Customer lists and support contracts, net of amortization of $141,667 and $70,833         283,333       354,167
Other assets, net                                                                         134,521       167,908
                                                                                          -------       -------
                  Total assets                                                         $6,436,945    $6,406,236
                                                                                       ==========    ==========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Notes payable, related parties                                                 $               -  $  300,000
   Notes payable, other                                                                    28,628        21,757
   Accounts payable, trade                                                                542,671       634,863
   Deferred revenues                                                                      909,516       729,406
   Accrued warranty costs                                                                 570,919       297,000
   Accrued expenses                                                                     1,128,658       272,104
                                                                                        ---------       -------
                  Total current liabilities                                             3,180,392     2,255,130

Promissory notes payable, stockholders with conversion futures                                  -     2,324,335
Obligations to issue common stock                                                         140,000       140,000
                                                                                          -------       -------
                  Total liabilities                                                     3,320,392     4,719,465

Commitments and contingencies                                                                   -             -

Stockholders' equity:
   Preferred stock, $.03 par value, 2,000,000 shares
     authorized, 8,000 and 387,750 shares issued and
     outstanding at December 31, 1996 and 1995, respectively                                  240        11,633
   Common stock, $.03 par value, 20,000,000 shares authorized,
     7,362,061 and 3,125,013 issued and outstanding at
     December 31, 1996 and 1995, respectively                                             220,862        93,751
   Additional paid-in capital                                                          19,818,769    14,065,743
   Less: Common stock, $.03 par value, 20,000 shares
     at December 31, 1996 and 1995, respectively,
     subject to put options                                                             (140,000)     (140,000)
    Notes receivable, stockholders                                                              -     (559,000)
   Accumulated deficit                                                               (16,783,318)  (11,785,356)
                                                                                     -----------   ----------- 
                  Total stockholders' equity                                            3,116,553     1,686,771
                                                                                        ---------     ---------
                  Total liabilities and stockholders' equity                        $   6,436,945    $6,406,236
                                                                                    =============    ==========



        The accompanying notes are an integral part of these statements.

</TABLE>


                                       F-2

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

                      CONSOLIDATED STATEMENT OF OPERATIONS

                            Years ended December 31,
                             Restated (see Note 17)

                                                         1996           1995
                                                     -----------    -----------


Revenues                                             $ 4,204,626    $ 2,835,206


Operating Expenses:
  Cost of revenues                                     3,104,792      2,902,769
  Development                                            460,709        348,352
  Selling, general and administrative                  4,547,990      3,839,581
  Write down of capitalized software costs             1,075,000           --
                                                     -----------    -----------
         Operating loss                               (4,983,865)    (4,255,496)


Other income (expense)
         Interest income (expense)                        53,577        (45,061)
Other, net                                               (67,674)        93,775
                                                     -----------    -----------

         Loss before income taxes                     (4,997,962)    (4,206,782)

Income taxes                                                --             --
         Net loss                                    $(4,997,962)   $(4,206,782)



Dividends to preferred shareholders
(intrinsic value of beneficial conversion
features - see Note 17)                               (2,836,353)    (1,534,445)
                                                      ----------     ---------- 
Net loss available to common shareholders            $(7,834,315)   $(5,741,227)
                                                      ==========     ========== 
Net loss per Common Share                            $     (1.29)   $     (1.90)
                                                     ===========    =========== 

Weighted Average Common Stock Outstanding              6,063,633      3,023,346
                                                     ===========    ===========






        The accompanying notes are an integral part of these statements.



                                       F-3

<PAGE>


<TABLE>



                    Lasergate Systems, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                     Years ended December 31, 1996 and 1995
<CAPTION>




                                                Preferred Stock      Common Stock
                                                ---------------      ------------
                                                                                                    Common
                                                                                                    Stock     Notes
                                                                                       Additional   Subject  Receivable
                                                           Par                 Par       Paid-In    to Put    Stock-   Accumulated
                                               Shares     Value     Shares    Value      Capital    Option    holders    Deficit
                                               ------     -----     ------    -----      -------    ------    -------    -------

<S>                                            <C>        <C>     <C>         <C>      <C>         <C>        <C>      <C>

   
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 and Series B 
  preferred stock 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 Series D  preferred stock less
  offering expenses of $215,024                 208,600     6,258                        2,987,949
Preferred stock dividend, Series D (intrinsic
  value of beneficial conversion features)                                              (1,123,231)
    
Grants of stock options for executive
  compensation                                                                             937,250
Conversion of Series D preferred to common
 stock                                          (28,600)     (858)  110,000     3,300      (2,442)

   
Issuance of Newly Designated Series A
 preferred stock in satisfaction of note
  payable, related party                         79,950     2,400                       1,099,749
Preferred stock dividend, Series A (intrinsic
  value of beneficial conversion features)                                                (342,643)
    
Exchange of newly designated Series A for
 previously designated Series A  preferred
  stock:
    Previously Designated Series A Shares
     redeemed                                   (36,364)   (1,091)
    Newly Designated Series A Shares issued      16,000       480                          69,182
   
Preferred stock dividend, Series A (intrinsic
  value of beneficial conversion features)                                                 (68,571)
    
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) $(559,000)$(11,785,356)
                                                -------   ------- ---------   ------- ----------- ---------  --------- ------------ 

   
Retirement of Common Stock and Series B
 preferred stock in settlement of acquisition
  obligations                                  (111,800)   (3,355) (109,333)   (3,279)     22,609              559,000
Issuance of Series E preferred stock            162,500     4,875                       2,142,136
Preferred stock dividend, Series E (intrinsic
  value of beneficial conversion features)                                               (696,429)
    
Issuance of Series F preferred stock              8,000       240                       7,312,184
   
Preferred stock dividend, Series F (intrinsic
  value of beneficial conversion features)                                             (2,139,924)
    
Redemption of Series A  preferred stock         (95,950)   (2,878)                       (997,121)
Conversion of Series D preferred to common
 stock                                         (180,000)   (5,400) 1,673,479   50,204     (44,804)
Conversion of Series E preferred to common
 stock                                         (162,500)   (4,875) 2,627,902   78,836     (73,961)
Issuance of common stock as compensation                              45,000    1,350      40,836
Grant of stock options for
  Executive compensation                                                                  187,500
Net loss                                                                                                                 (4,997,962)
                                                -------   -------  ---------  ------- ----------- ---------  --------- ------------ 
   
BALANCE, DECEMBER 31, 1996                        8,000   $   240  7,362,061 $220,862 $19,818,769 $(140,000) $       - $(16,783,318)
                                                =======   =======  =========  ======= =========== =========  ========= ============ 
    



        The accompanying notes are an integral part of these statements.
</TABLE>

                                       F-4
<PAGE>


<TABLE>

                                             Lasergate Systems, Inc. and Subsidiaries

                                               CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                      Years ended December 31,

<CAPTION>

                                                                                        1996           1995
                                                                                       ------         ------

Cash flows from operating activities:
<S>                                                                                <C>             <C>
   Net loss                                                                        $(4,997,962)   $(4,206,782)
   Adjustments to reconcile net loss to cash used in operating activities:
      Depreciation and amortization                                                    513,153        575,985
      Write down of capitalized software costs                                       1,075,000              -
      (Gain) loss in joint venture                                                      77,790        (48,060)
      Increase in allowance for doubtful accounts                                      110,997         19,000
      Obligations to issue options granted as                                                -        (75,000)
        compensation for services
      Compensation recognized from issuance  of stock and grand of stock options       229,686        562,250
      Decrease (increase) in:
         Accounts receivable, trade                                                   (540,617)      (305,782)
         Accounts receivable, related party                                               --         (199,359)
         Inventories                                                                    70,763       (115,022)
         Prepaid expenses                                                               43,426         53,028
         Other                                                                         (83,598)        87,025
      Increase (decrease) in:
         Accounts payable and accrued expenses                                         764,362        136,149
         Accrued warranty costs                                                        273,919         15,925
         Deferred revenue                                                              180,110        667,406
                                                                                    ----------     ---------- 
                  Net cash used in operating activities                             (2,282,971)    (2,833,237)
                                                                                    ----------     ---------- 


Cash flows from investing activities:
   Net additions to property, equipment, and software costs                           (228,663)      (121,772)
   Loans to GIS stockholders related to GIS acquisition                                      -       (559,000)
   Other acquisition costs                                                                   -        (28,145)
                                                                                    ----------     ---------- 
                  Net cash used in investing activities                               (228,663)      (708,917)
                                                                                    ----------     ---------- 

Cash flows from financing activities:
   Proceeds from secondary public or private offering, net of                        6,623,082      1,870,976
     offering costs
   Proceeds from exercise of warrants/stock options                                          -          2,000
   Repurchase of common stock subject to put option                                          -        (70,000)
   Redemption of preferred stock                                                    (1,000,000)             -
   Settlement of acquisition obligations                                            (1,550,000)             -
   Proceeds from loans, other                                                           30,200         36,924
   Repayment of loans, other                                                           (23,329)       (90,077)
   Proceeds from loans, related parties                                                      -        859,000
   Repayment of loans, related parties                                                (300,000)             -
                                                                                    ----------     ---------- 
                  Net cash provided by financing activities                          3,779,953      2,608,823
                                                                                    ----------     ---------- 

Net increase (decrease) in cash and cash equivalents                                 1,268,319       (933,331)
                                                                                    ----------     ---------- 

Cash and cash equivalents, beginning of year                                           656,506      1,589,837
                                                                                    ----------     ---------- 

Cash and cash equivalents, end of year                                             $ 1,924,825     $  656,506
                                                                                   ===========    ===========



        The accompanying notes are an integral part of these statements.
</TABLE>

                                       F-5

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

                CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

                     Years ended December 31, 1996 and 1995


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

INTEREST AND INCOME TAXES PAID:


                                                   Year ended December 31,
                                                   -----------------------
                                                    1996             1995
                                                    ----             ----
Interest                                          $17,494          $31,155
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 (see Note 4).

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


         The Company recognized $1,534,445 of preferred dividends for 1995 based
on the intrinsic value of beneficial conversion features (see Note 17).



1996:

         In March 1996, the Company settled its acquisition  obligation with GIS
(see Note 10) as follows:


Promissory notes payable, stockholders                     $2,324,335
Less:
         Cash payment                                       1,550,000
                                                            ---------
         Accounts receivable canceled                         199,359
         Note receivable canceled                             559,000
         Retirement of common and preferred stock              15,976
                                                            ---------
                                                           $        -
                                                            ========= 


         The  Company  recognized  $2,836,353  of  preferred  dividends for 1996
based on the intrinsic value of beneficial conversion features (see Note 17).


        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, 1996 and 1995


NOTE 1 - DESCRIPTION OF BUSINESS

         Lasergate Systems,  Inc. (the "Company") was organized and incorporated
in the State of Florida  in 1985.  The  Company  is engaged in the  development,
assembly, marketing, servicing and installation of admission control and revenue
accounting  systems for both  general  admission  and  reserved  seating.  These
systems are used  primarily  at  amusement  parks,  theme  parks,  water  parks,
museums,   aquariums,   zoos,  casinos,  ski  resorts,  night  clubs,  theaters,
professional and university athletic and multi-purpose  arenas, and other public
facilities, including state, county and local fairs, movie theaters, race tracks
and golf courses.

         The Company's principal products "Select-a-Seat", "Admits Platinum" and
"Admits  Gold",  represent  approximately  33%, 35% and 16% of revenues in 1996,
respectively, and 42%, 30%, and 12% of revenues in 1995, respectively.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

         The accompanying consolidated financial statements include the accounts
of the Company and its wholly owned subsidiaries.  All significant  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.  These
estimates are a major factor in providing for warranty costs,  doubtful accounts
valuation  of  intangibles  litigation,  and  certain  taxes  which are  further
described  herein.  While  actual  results  could  differ from those  estimates,
management  does not expect the variances,  if any, to have a material effect on
the financial statements.

CASH EQUIVALENTS

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

ACCOUNTS RECEIVABLE, NET

         Accounts   receivable  are  reported  net  of  allowance  for  doubtful
accounts.  At least quarterly,  management  reviews the collection status of its
accounts and provides an  appropriate  allowance,  if necessary.  Based on these
reviews, management believes that its accounts at December 31, 1996 and 1995 are
reasonably stated.




                                       F-7

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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
(3-5 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 Delta and GIS in December 1994 and
January  1995 (see Note 4) as adjusted by a one-time  write-down  of  $1,075,000
during 1996. Such costs are amortized on a product-by-product  basis. The annual
amortization  expense is the greater of the amount computed using the ratio that
current  gross  revenues  for each  product  bear to the  total of  current  and
anticipated  future gross revenues for that product or the straight-line  method
over the remaining estimated economic life (6 years) of the product.


   
         All development  costs are capitalized once  technological  feasibility
has been  achieved on a product  until the product is released for general sale,
at which time,  only the costs of  development  of  significant  additions  to a
product's features and functions are capitalized.  Technological  feasibility is
determined on a project by project basis.  For the software which the Company is
reporting  upon,  technological  feasibility  is defined to be the creation of a
working  model  which  was  created  by  December  1996.   Thus,  the  Company's
expenditures  related to the  development  of its systems and software  prior to
December 1996,  along with the cost to integrate GIS and Delta products with the
Company's  products  in 1996 and  1995,  have  been  expended  and  included  in
development  costs. No amounts have been  capitalized by the Company during 1996
and 1995,  except those recorded as a result of the GIS and Delta  acquisitions,
and approximately  $25,000 during the fourth quarter of 1996 (See Note 7), 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.
    

         During  1996,  the  Company  decided to convert all of their  products
into one modular Windows(R) based product.  Accordingly,  the softwares carrying
values were written down $1,075,000 to approximately $200,000,  representing the
software's  estimated net realizable value. (See Note 7.) Amortization of system
and  software  costs in 1996 and 1995,  exclusive  of the write  down  discussed
above,  was  $167,523,  and  $283,333  and is included in Cost of  Revenues.  In
previous  financial  statements,  these costs were  included  as a component  of
Selling,  General, and Administrative Expense, and accordingly,  those financial
statement amounts have been reclassified.





                                       F-8

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



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 (exclusive of software) for 1996 and 1995 was
$232,156 and $231,745,  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 1996 and 1995,  no
impairment  was  identified  exclusive  of the  write  down  of  software  costs
discussed above.


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, 1996 and 1995,
and for the years  then  ended,  the joint  venture's  assets,  liabilities  and
results of operations  are not  significant.  The  Company's  share of the joint
venture's  net  (loss)  from  operations  for 1996 and  1995 was  ($77,790)  and
$48,060,  respectively,  and  was  classified  in  other  income/expense  in the
accompanying  consolidated  financial  statements  for  1996 and  1995.  The net
carrying value of the Company's  investment  in/advances to the joint venture at
December  31,  1996,  and  1995,  was  $0 and  $77,790,  respectively,  and  was
classified  in other  assets.  The Company has not  guaranteed  any of the joint
venture's  liabilities  nor does the Company  have any  commitments  to fund its
operations.  The Company  intends to dissolve  this joint venture as of June 30,
1997.

WARRANTY COSTS AND WARRANTY LIABILITY (ALLOWANCE)

         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 into 1996.  Effective June 1, 1996 the
Company  returned to its original 90-day warranty  period.  This warranty period
primarily  relates to  telephone  support of  customers.  The related  costs are
charged to cost of revenues as incurred.

         At December 31,  1995,  the Company had an accrued  warranty  liability
(warranty  allowance) of $297,000,  which had been provided to cover the cost of
enhancements to be made (free of charge) to systems  installed in prior periods.
However, some of these modifications were more costly to perform than originally
estimated,  and the Company  has  committed  to make  similar  enhancements  for
additional  customers.  As a result,  an additional  $487,000 was accrued during
1996 in order to provide for the cost of completing all known  warranty  claims.
In addition, during 1996, management reviewed all warranty costs incurred within
the past year,  which had been  provided for by estimating  and recording  known
warranty  liabilities  each  quarter.  Based  on this  review  and  management's
expectation  that  the  number  of  installations  will  continue 

                                       F-9

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

to grow and,  therefore,  make it more  difficult  to review  all  installations
individually,  management  began  providing  for  warranty  costs by  accruing a
warranty allowance of 5% of revenues. During 1996, this amounted to $81,000. The
balance of the accrued  warranty  allowance at December 31, 1996,  was $571,000.
Management  believes 5% is a  conservative  estimate  of these costs  (which are
unknown at time of sale) but will  continue  to monitor  them to ensure they are
provided for on a current  basis in order to match the cost with the  associated
revenue.

         Provisions  for  the  warranty  allowance  are  classified  as  cost of
revenues.

         While warranty  modifications are often enhancements that may result in
future product and service revenues,  no absolute assurance can be given at this
time.

FAIR VALUE OF FINANCIAL INSTRUMENTS

         At December 31, 1996,  and  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 maintenance are recognized
ratably over the maintenance period if collectibility is probable.

         Revenues include product sales and service  revenues.  Service revenues
represent approximately 14% and 11%, respectively, of total revenues in 1996 and
1995.

         Deferred  revenues include  customer  deposits of $335,467 and $384,731
and advanced billings in accordance with contract terms of $418,063 and $344,675
at December 31, 1996 and 1995, respectively.

         Cost of revenues  includes the costs  associated  with the hardware and
software  acquired for the  Company's  customers  and the  estimated  full costs
associated with the engineering (mostly software customization) and installation
of the system. Cost of revenues also includes the estimated full cost related to
support and  maintenance.  The Company  refined its procedures for capturing and
reporting such information in 1996. This refinement  affected the  comparability
of the information being reported.  Thus, cost of revenues,  development  costs,
and selling,  general and  administrative  expenses were  reclassified for 1995,
using the same  basis as that  used for  1996.  The  Company  believes  that the
estimated  full costs are  reasonably  stated  and  classified  in all  material
respects.



                                      F-10

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

         During  1996  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 those  customers.  The  resulting  cost of those  products is
included  in  development  costs  versus  cost  of  revenues  along  with  other
development  costs related to  enhancement  of the Company's  existing  products
during 1996 and 1995.


RECLASSIFICATIONS

         Certain reclassifications of accounts and amounts have been made to the
1995 financial statements to conform to the 1996 presentation.

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  antidilutive.  The net loss
used in the calculation is the net loss available to common  shareholders  which
reflects  preferred stock dividends  (intrinsic  value of beneficial  conversion
features - see Note 17).


NEW ACCOUNTING PRONOUNCEMENTS ADOPTED

         Effective  January 1, 1996, the Company adopted  Statement of Financial
Accounting Standards (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  requires  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.  The  adoption of SFAS No.
121 had an insignificant effect on the Company's financial statements.

         Effective   January  1,  1996,  the  Company   adopted  SFAS  No.  123,
Accounting for Stock Based  Compensation.  For employee stock awards, as allowed
by SFAS No. 123, the Company has elected to continue using the accounting method
promulgated by the Accounting  Principals  Board Opinion No. 25.  Accounting for
Stock  Issued to Employees to measure  compensation.  As a result,  SFAS No. 123
proforma disclosures are required in these financial statements. The adoption of
SFAS No. 123's accounting and reporting  provisions had an insignificant  effect
on the Company's financial statements (see Note 13).




                                      F-11

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 3 - OPERATIONAL AND FUNDING MATTERS

         The  Company has a  net loss for 1996 of  $4,997,962,  and a history of
operating losses that have accumulated to $16,783,318,  at December 31, 1996. In
view of these matters,  recoverability  of a major portion of the recorded asset
amounts  shown in the  accompanying  balance sheet is dependent  upon  continued
operation of the Company,  which in turn is dependent upon the Company's ability
to succeed in its future operations. The financial statements do not include any
adjustments  relating to the recoverability and classification of recorded asset
amounts or amounts and  classification  of  liabilities  that might be necessary
should the Company be unable to continue in existence.  The following commentary
addresses  the  Company's  operations  for 1996 and its plan to  improve  future
results.

         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 the majority of the Board of
Directors  during 1996 and over the course of 1995 and 1996 all of the Company's
senior executives, including the President/CEO (October 1994) as well as most of
its other personnel.  They also included two acquisitions (Delta and GIS Systems
Limited  Partnership (GIS)) with a combined customer base of over 200 sites, and
various product integration and development efforts.

         These  changes  required  more than two years of  sustained  effort and
substantial  amounts of capital.  At the beginning of 1996, the Company had very
little working  capital.  This situation grew worse during the first half of the
year, resulting in shipments to customers falling behind schedule because orders
for their product were not placed with vendors, in that the Company had utilized
all credit extended to it by its vendors. Given these circumstances, the Company
undertook two private placements of convertible preferred stock during that time
period,  for which the Company  received a combined total of $6,623,082,  net of
commissions and offering expenses.  That capital infusion allowed the Company to
initiate two basic programs  designed to move the Company toward  profitability.
First was development of a new modular product (Admits)  allowing the product to
be customized  more easily and installed  more  efficiently.  Second  committing
additional funds to marketing  efforts,  including a doubling of the sales force
aimed at substantially  increasing  revenues and potentially  moving the Company
beyond the break-even point and towards profitability in the future.

         The  development  effort  was  immediately  focused  upon  the  general
admission  product  since it would most  likely  yield the  fastest  and largest
payback.  The core of the product was developed  earlier than planned and was in
Beta testing by November 1996. The  experience of the  development  team and the
ability to forego the creation of a detailed  program  design by  utilizing  the
software   programs  of  legacy  products  as  a  production  plan   accelerated
development.  With the  Company's  efforts to satisfy new and existing  customer
demands for programming changes to the Delta and GIS products (see discussion of
warranty  costs and warranty  liability in Note 2 of the financial  statements),
required keeping a substantial  portion of the Company's  resources dedicated to
the legacy products in all areas: development,  installation,  customer support,
training,  documentation,  and marketing.  However, the Company kept the general
admission  development  effort on  schedule.  At the  present  time,  management
believes  the  Company  will  have  the new  Admits  general  admission  product
available for general release by June 1997.



                                      F-12

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 3 - OPERATIONAL AND FUNDING MATTERS (continued)

         For  most of 1996  the  Company  employed  three  or four  field  sales
representatives.  During the fourth quarter of 1996, two systems  engineers were
dedicated to providing  pre-sales  support and an inside  sales  department  was
organized with two inside sales representatives hired initially. During February
and March of 1997,  two  additional  field  sales  representatives  were  hired,
bringing the total to six sales  personnel.  Thus, for most of 1997, the Company
plans to have ten employees dedicated to sales efforts compared to three or four
during 1996.

         The  result for the Company  expanding  its sales force and  delivering
the new Admits general  admission  product on schedule should  favorably  impact
upon  revenue  during the latter part of 1997.  Management  believes it can thus
achieve  a  reduction  of the  operating  loss by the  end of  1997  and lay the
foundation  for  future  profitability.  Although  no  assurance  can be  given,
management believes that sustained expenditure and cash controls, would maintain
adequate  working capital through 1997,  based upon the further premise that the
new general  admission Admits product will be completed as planned by June 1997.
Nevertheless,  the  Company  intends  to seek and  actively  pursue  a  possible
relationship with a strategic partner,  which would include an equity investment
in the Company and may review other financing opportunities.

         Although  revenues  increased to $4,204,626 in 1996 from  $2,835,206 in
1995, increased costs more than offset the increased revenues, such that the net
loss  increased  from  $4,206,782  in 1995 to  $4,997,962  in 1996.  The largest
component of the increase was a one-time  write-down of capitalized  software in
the amount of $1,075,000.

         Although  no  assurances  can be given,  based on actual  sales for the
first  three  months of 1997  (unaudited)  and  committed  sales  orders to date
(unaudited),  revenues for 1997 will be at least at the level  achieved in 1996,
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.

         The  Company  continues  to incur net losses and  negative  cash flows.
However,  management  still  expects to realize the  carrying  value of goodwill
($2,382,705  at  December  31,  1996)  through  the receipt of future cash flows
(undiscounted).  The elements of goodwill  still remain.  These are the value of
the  acquired  market  share,  market  acceptance,   product  name,  proprietary
knowledge,  and  industry  expertise  which the  Company  has  acquired  and has
substantially  maintained.  Management's  last  quarterly  review of intangibles
indicated no new events which would  necessitate  changes to the carrying values
or useful lives of any intangible assets.

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  


                                      F-13

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 4 - ACQUISITION OF BUSINESSES (continued)

paragraph below).  Direct  acquisition costs  aggregating  $82,744  (principally
legal and accounting fees) were incurred in connection with the acquisition. The
promissory notes, totaling $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 was 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 was presented as a reduction of stockholders' equity.

         See Note 9 for  discussion  about  the  settlement  of the  acquisition
obligations.

         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
                                                           ============


   
         On December 22, 1994,  Lasergate  Systems Canada Company a wholly-owned
subsidiary  of the  Company,  acquired  the capital  stock of Delta  Information
Services,  Inc., a Canadian  company  ("Delta") 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 unregistered shares of the Company's
Common Stock valued at $7.00 per 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  on
resale  and the size of the  block of  Common  Stock.  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.
However,  the Delta product was a well-known general admission  ticketing system
within the ski industry and the technical "know-how" included in the product was
considered relatively valuable.
    





                                      F-14

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


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
                                                                    ============

         In connection with the acquisition of Delta, the sellers were granted 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 had 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.  During 1996,  an  additional
10,000  options were  presented by the option holders in order to exercise them.
However,  the Company did not allow them to be exercised  due to a  disagreement
with the sellers regarding the stock purchase agreement. (See Note 12.)

NOTE 5 - INVENTORIES

         Inventories as of December 31, consist of the following:



                                                         1996             1995
                                                         ----             ----

Installations-in-process                              $199,561         $172,411
Parts and systems                                       55,340          153,253
                                                        ------          -------
                                                      $254,901         $325,664
                                                      ========         ========




                                      F-15

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995





NOTE 6 - PROPERTY AND EQUIPMENT

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


                                                       1996             1995
                                                       ----             ----

Furniture and equipment                            $507,311         $357,346
Purchased software                                   19,244           12,231
Test equipment                                       52,902           49,812
                                                     ------           ------
                                                    579,457          419,389
Less accumulated depreciation                       275,433          172,821
                                                    -------          -------
                                                   $304,024         $246,568
                                                   ========         ========

NOTE 7 - SYSTEMS AND SOFTWARE COSTS

         The  Company  markets  products  that  typically  require   substantial
customization in order to meet the customers' particular  requirements.  In June
1996, the Company  commenced an assessment of its marketing  strategy related to
the Company's current software products.  While the Company has reduced the cost
of installing, customizing, and servicing (maintaining) the customized software,
these costs have remained higher than desired levels. With anticipated increased
revenues,  though no assurances are given, the company continues to believe that
it would  successfully  generate profits from the current software.  The Company
commissioned an assessment to determine whether the Company's  computer products
could be  modified in order to provide  more  product  options to its  customers
without  incurring  substantial  customization  costs.  Although the  assessment
principally  focused on the conceptual  design of the products to be offered and
was not an inquiry  as to whether  any  technological  innovations  needed to be
implemented in order for the Company to competitively  market its products,  the
Company's  marketing and  development  personnel  confirmed  that the ticketing,
access control,  and other  technologies that define the current products remain
competitive in the marketplace.

         The Company  concluded as a result of the  assessment,  that instead of
marketing products that require substantial  customization,  to design and offer
its products in a modular  fashion.  They will consist of a primary product with
optional  pre-developed  modules  and a  configuration  layer  to meet  specific
customer needs that would require  limited or no  customization  by the Company.
Additionally,  the  implementation  of this  project will afford the Company the
opportunity to use the same development tool (high level  programming  language)
for each module,  thus providing a certain degree of consistency  and efficiency
in the  product  development  process.  Although  no  assurances  can be  given,
management  expects that applying the Company's  proprietary  technology in this
fashion will be a highly effective method of providing business solutions to the
entertainment industry.

         Accordingly,  the Company has  commenced  the  development  of this new
marketing approach and expects the new general admission products, incorporating
the modular  concept,  will be available for sale by the second quarter of 1997.
As of March 1997, the Company has installed  limited  functionality  versions of
the new product in four different  sites.  The current software will continue to
be marketed  and the Company will  continue to support the present  software for
some period beyond the  introduction  of the new general  admission  product for
those customers who intend to continue using the current software.



                                      F-16

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 7 - SYSTEMS AND SOFTWARE COSTS (continued)

         Because of the recent strategic  decision  described above, the Company
reviewed the valuation of the current  software cost  (pre-write-down  amortized
balance of $1,275,000 at June 30, 1996) in  accordance  with the net  realizable
value  determination  provisions under SFAS No. 86 Computer Software to be Sold,
Leased, or Otherwise Marketed.  As a result, a write-down of $1,075,000 has been
made to the software's  carrying value. The software's  estimated net realizable
value as  adjusted  of $200,000  at June 30,  1996,  principally  relates to the
Company's  engineers'  estimate of the recoverable value of the current products
proven  program  and product  design,  which will be  incorporated  into the new
product  concept  and is  expected to be fully  realized  (recoverable)  through
future revenues.

         The Company  estimates the cost of developing the new general admission
products  incorporating the modular concept will total approximately $400,000 to
$500,000  by the second  quarter of 1997.  To date,  the  Company  has  incurred
approximately  $131,000  in  development  costs  for  these  products,  of which
approximately $25,000 has been capitalized at December 31, 1996.

NOTE 8 - OTHER ASSETS

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


                                                         1996             1995
                                                         ----             ----

Non-competition agreement net of
 amortization $56,667 and $28,333                    $ 28,333         $ 56,667
Investment in and advances to joint venture                 -           77,790
Other                                                 106,188           33,451
                                                      -------           ------
                                                     $134,521         $167,908
                                                     ========         ========

NOTE 9 - NOTES PAYABLE

         At December 31, 1995, the Company had an outstanding balance of $21,757
under a premium  financing  agreement,  which was paid off  during  1996,  at an
annual interest rate of 9.25%.

         At December 31, 1996, the Company had an outstanding balance of $28,628
due to a bank. The note matures on August 23, 2001, has an annual  interest rate
of 10% and is collateralized with office equipment.




                                      F-17

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 10 - ACQUISITION OBLIGATIONS

         At December 31, 1995, the "promissory notes payable,  stockholders with
conversion  features"  totaling  $2,324,335,  which was 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, was 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 were not used to satisfy the promissory
notes.

         In order to simplify the Company's capital and debt structure, on March
11,  1996,  the  Company  and GIS  agreed,  among  other  things,  to settle the
remaining  obligation to GIS totaling  $2,324,335  by the Company  making a cash
payment to GIS of $1,550,000,  canceling the $559,000 note  receivable from GIS,
and canceling  the $199,359  account  receivable  from GIS, and with the Company
redeeming for  retirement  the 109,333 shares of Common Stock and 111,800 shares
of Series B Preferred  Stock  previously  issued to GIS. On April 12, 1996,  the
transactions  contemplated by the March 11 agreement were  consummated.  Because
the promissory notes included conversion features and had other  characteristics
similar to capital stock, the settlement had no income effect and was recognized
through the related balance sheet accounts, including stockholders' equity. (See
Statements of Stockholders' Equity and Cash Flows).

         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-18

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 11 - INCOME TAXES

         The Company has a net  operating  loss (NOL) for income tax purposes of
approximately  $12,000,000  at December 31, 1996,  which begins to expire in the
year 2000.  The  deferred  tax  benefit is  determined  based on the  difference
between  the  financial  reporting  and tax bases of assets and  liabilities  as
measured by the enacted tax rate which will be in effect when these  differences
are realized.  The Company cannot reasonably predict when it can utilize the NOL
carry forward and, therefore, the Company has recognized an equivalent valuation
allowance against the deferred tax benefit.

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


                                                           December 31,
                                                           ------------
                                                     1996                1995
                                                     ----                ----
Basis difference in intangible assets          $   53,000         $    70,000
Warranty costs                                    211,000             110,000
Bad debt allowance, employee
 vacation pay, and other accruals                 326,000              80,000
Compensation related to stock options             415,000             350,000
Net operating loss carry forward (1)            4,310,000           3,340,000
                                               ----------          ---------- 
                                                5,315,000           3,950,000
Less valuation allowance                       (5,315,000)         (3,950,000)
                                               ----------          ---------- 
                                               $        -          $        -
                                               ==========          ==========

(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 carry
         forward 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:


                                                              1996         1995
                                                              ----         ----

Federal statutory rate                                        34 %         34 %
Effect of net operating losses (NOL) or NOL carry forward    (34)%        (34)%
                                                             ---          ---  
Effective tax rate, after the effect of NOL                    0 %          0 %
                                                             =====        =====




                                      F-19

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 12 - COMMITMENTS AND CONTINGENCIES

OPERATING LEASE

         The Company leases its office and warehouse  facilities as well as some
office equipment under operating leases.

         Future minimum payments under these operating leases are as follows:


1997                                                        148,564
1998                                                        187,573
1999                                                         64,270
2000                                                          7,026
2001                                                              -
                                                           --------
                                                           $407,433
                                                           ========

          Total lease  payments  for the years ended  December 31, 1996 and 1995
were $144,569 and $89,027, respectively.

LEGAL PROCEEDINGS

         On June 15, 1995, the Company's  founder and former President and Chief
Executive Officer, Donald Turner, has commenced an action against the Company in
the Circuit  Court for Pinellas  County,  Florida,  Civil  Division.  Mr. Turner
alleges,  among  other  things,  that  he was  wrongfully  terminated  from  his
employment and 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.

          In January  1997,  Derek  Betty and James  Potter  instituted  actions
against the Company arising  pursuant to agreements  entered into at the time of
the sale of Delta Information Services, Inc. ("Delta") to the Company. The first
action is entitled Derek Betty v. Lasergate  Systems,  Inc. (the "Betty Action")
and the second action is entitled  James Potter v. Lasergate  Systems,  Inc. and
1103065 Ontario,  Inc. ( the "Potter  Action").  Both actions are pending in the
Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida.
The Betty  Action  alleges  that the Company has failed to return  shares of the
Company's  stock which are being held in escrow  pursuant to a Collateral  Stock
Pledge  Agreement  executed  in  connection  with the sale of Delta  Information
Services,  Inc. ("Delta") to the Company. The Betty Action also alleges a breach
of the terms and  conditions of a Registration  Rights and Put Option  Agreement
executed in connection  with the sale of Delta to the Company.  The Betty Action
seeks  damages  in an amount in excess  of  $15,000,  which is the  jurisdiction
amount,  but it is anticipated  that damages could be in excess of $25,000.  The
Potter  Action also alleges a breach of the  Registration  Rights and Put Option
Agreement.  Moreover,  the Potter Action includes  allegations  concerning James
Potter's Consulting Agreement with the Company and a Non-Compete Agreement.  The
Potter  Action seeks a  declaratory  judgment  determining  that the Company and
1103065  Ontario  Inc  ("Ontario")  are in  material  breach of the  Non-Compete
Agreement  and that Potter is relieved of all  obligations  to perform under the
Non-Compete  Agreement.  The  Company has moved to dismiss  both  actions and to
compel  arbitration  pursuant to an arbitration  provision in the Stock Purchase
Agreement  relating to the  acquisition of Delta. A hearing on the motion in the
Potter Action is scheduled for April 1, 1997, and a hearing on the motion in the
Betty Action is scheduled  for May 2, 1997.  The Company  intends to  vigorously
defend both actions.



                                      F-20

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 12 -COMMITMENTS AND CONTINGENCIES  (continued)

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

OTHER MATTERS

         Management is presently  reviewing the methods and procedures  used for
determining  its  sales  tax  reporting  obligations.  Management  believes  the
reported sales tax liability as of December 31, 1996, is reasonably adequate.

NOTE 13  - STOCKHOLDERS' EQUITY

COMMON STOCK

         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, D, E, and F convertible preferred stock.


                                         Series of Preferred Stock
                        -------------------------------------------------------
                             A         B         C        D        E       F
Total Authorized shares
   December 31, 1996      200,000   230,000     ---    350,000     ---    8,000


Outstanding shares
   December 31, 1996          ---       ---     ---        ---     ---    8,000
   December 31, 1995       95,950   111,800     ---    180,000     ---      ---

Outstanding share amounts
   December 31, 1996          ---       ---     ---        ---     ---     $240
   December 31, 1995       $2,879    $3,354     ---     $5,400     ---      ---

           All series contain  specific  provisions as to conversion into shares
of common stock (see Note 17) 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).  None  of the
preferred stock above have or had mandatory redeemable provisions.





                                      F-21

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 13 -STOCKHOLDERS EQUITY  (continued)


         The 95,950 Series A Shares issued were  convertible into fully paid and
nonassessable   shares  of  the  Corporation's  Common  Stock,  upon  the  terms
hereinafter set forth at the rate (the "conversion Rate") of one share of Common
Stock for each Conversion Factor Dollar Amount (as defined below) of Liquidation
Value represented by the shares of Series A Preferred Stock being converted. The
per share  Liquidation  Value was equal to $10.00  plus any  accrued  and unpaid
dividends on such share, subject to reduction if thereafter paid. The Conversion
Factor Dollar Amount was the lesser of (i) 70% of the average of the closing bid
prices of the  Corporation's  Common  Stock as  quoted  on  NASDAQ  for the five
trading days immediately  preceding  conversion,  (ii) 70% of the average of the
closing bid prices of the Corporation's Common Stock as quoted on NASDAQ for the
five trading  days of June 26, 1995 through June 30, 1995,  and (iii) the lowest
price at which shares of Common Stock were sold to third party investors  during
the period from July 1, 1995 to June 30,  1996.  On June 28,  1996,  the Company
used  $1,000,000  of the proceeds of Series F Shares to redeem all 95,950 shares
of Series A  Preferred  Stock which was  convertible  into  1,879,837  shares of
Common Stock.

         On February 15, 1995, the Company issued all 111,800 shares of Series B
Preferred Stock to GIS in connection with that  acquisition (see Note 4). Series
B Preferred Shares were  immediately  convertible into an equal number of Common
Shares.  On April 12, 1996, all 111,800 shares of Series B Preferred  Stock were
redeemed by the  Company as part of the  settlement  of the related  acquisition
obligation. (See Note 10).


         In October 1995,  the Company  completed  the private  placement of all
208,600 shares of Series D Convertible Preferred Stock. As of December 31, 1996,
all  208,600  Series D shares have  converted  into  1,664,463  shares of common
stock.

         For discussion of Series E and F shares see Issuance of  Stock--Private
Placements.

ISSUANCE OF COMMON STOCK FOR SERVICES

         In June 1996,  the Company  issued 45,000  shares of restricted  common
stock to non-employee  directors as compensation for past services as directors.
Compensation  for the  services  totaled  approximately  $42,000  based upon the
market  value of the  Company's  common  stock which  approximated  the value of
services rendered.

ISSUANCE OF STOCK--PRIVATE PLACEMENTS

         On March 27, 1996, the Company  commenced a private placement of shares
of the Company's newly established Series E Preferred Stock at $10.00 per share.
On April 22, 1996,  162,500 shares of the Series E Preferred Stock  successfully
closed  with the  Company  receiving  total  proceeds,  net of  commissions  and
offering costs,  of $1,450,582.  As of July 3, 1996, all 162,500 Series E shares
converted into 2,627,902 shares of common stock.

         On June 10, 1996,  the Company  commenced a private  placement of 8,000
shares, at $750 a share, of the Company's newly established Series F Convertible
Preferred  Stock.  On June 27,  1996,  the  placement  closed  with the  Company
receiving $5,172,500,  net of commissions and offering expenses, for the sale of
8,000 shares of preferred stock. Each Series F share has a face value of $1,000,
and is  convertible  into  shares of common  stock  after  August 7,  1996,  at,
generally,  the  average  market  price  for the  five  trading  days  preceding
conversion.  However,  for any conversion effected on or after June 6, 1997, but
prior to June 6, 

                                      F-22

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 13 -STOCKHOLDERS EQUITY  (continued)

1998, the conversion  price shall be 96% of such average market price, and on or
after June 6, 1998,  the  conversion  price shall be 94% of such average  market
price, but if such average market price is more than $1.00, the conversion price
will be $1.00,  and one preferred share will convert into 1,000 shares of common
stock; and if such average market price is less than $0.45, the conversion price
will be $0.45,  and one preferred share will convert into 2,222 shares of common
stock.  Thus, the 8,000 Series F shares are convertible  into between  8,000,000
and 17,777,778  shares of common stock. The entire Series F is redeemable at the
price of $1.00  per share  any time on or after  June 7,  1999 at the  Company's
option  upon  giving 30 days  notice to the  holders of the  Series F  Preferred
Stock.  Series F shares have a liquidation value of $1,000 per share. On January
27, 1997, 55 Series F convertible  preferred  shares were converted into 100,000
shares of common stock at a conversion  price of $0.55 a share.  The  conversion
price was calculated as of September 30, 1996, the conversion request date.

RESERVATION AND AUTHORIZATION OF COMMON STOCK

         Upon the sale of 8,000 shares of Series F Convertible  Preferred Stock,
the  Company  reserved  8,000,000  shares of common  stock to provide  for their
conversion.  If the average  market price of the Company's  common stock for the
five  trading  days  prior to  conversion  is less than  $1.00  per share  (thus
permitting the holders of the Company's Series F Preferred Stock to convert such
shares into more than 8,000,000  shares of common stock),  the Company would not
have a  sufficient  number  of  authorized  shares  of  common  stock to  permit
conversion to all the Series F Preferred  Stock. The Board of Directors plans to
recommend  to  the  Company's   stockholders  at  the  1996  Annual  Meeting  of
Stockholders  than they  approve  an  amendment  to the  Company's  Articles  of
Incorporation to increase the number of authorized  shares of common stock. Upon
approval of this amendment by the stockholders of the Company,  the Company will
reserve 9,777,778 additional shares to allow for the possibility of the Series F
shares converting into as many as 17,777,778 common shares.

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.

         At the 1995  annual  meeting  of  shareholders,  shareholders  approved
changes to the 1994 Stock Option Plan (the "Plan")  which  authorized  grants of
5,000  options per term year,  at an exercise  price of 85% of the market value,
for each  outside  Director.  The options  vest at the rate of 5,000  shares per
year,  at the  beginning  of each term year.  Accordingly,  Frank W. Swacker (an
outside Director) was granted 15,000 options on December 21, 1995 at an exercise
price of $2.76 of which 5,000 shares  vested on December 21, 1995,  5,000 vested
on December 21, 1996 and 5,000 will vest on December 21, 1997.

         The Company  granted 37,500 options outside of the Plan to each of John
J. Chluski (an outside  Director) and Bruce D. Barrington (an outside  Director)
shortly after their  appointment  to the Board of Directors as an inducement for
them to join the Board in  addition  to the  automatic  grants of 5,000  options
each. Their options are exercisable for 10 years at exercise prices ranging from
$0.425 to $0.65625 and were immediately vested.



                                      F-23

<PAGE>



                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995




NOTE 13 -STOCKHOLDERS EQUITY  (continued)

NON-QUALIFIED STOCK OPTIONS

         In October 1994, the Board of Directors authorized the grant of 375,000
non-qualified stock options at an exercise price of $2.00 per share were granted
to the Company's  President  and Chief  Executive  Officer in connection  with a
three year  employment  agreement.  Of the total options  granted,  125,000 were
granted as a signing  bonus  effective  October  31,  1994 and were  immediately
exercisable  since their issuance was not  contingent on future  services as are
the remaining  250,000 options.  Accordingly,  compensation  expense of $375,000
representing  the  difference   between  the  fair  value  of  $5.00  per  share
(determined  by  the  Board  of  Directors   considering   various   factors  as
restrictions,  etc.) and the exercise  price,  was recorded in the  consolidated
statement of operations for 1994. In addition,  the corresponding  obligation to
issue (grant)  common stock options also has been reflected in the balance sheet
as of December 31, 1994. Of the remaining  balance of 250,000  options,  125,000
options  vested on October 31, 1995 and  125,000  options  vested on October 31,
1996.  In  accordance  with  accounting  provisions  of APB No. 25, the  Company
recorded compensation expense in 1995 of $562,500 and $187,500 in 1996.

         The Company granted options to purchase  120,000 shares of common stock
to an executive  officer for services rendered during 1996. These options vested
on October 31, 1996. This consisted of an option to purchase 20,000 shares at an
exercise  price of $2.00 which is exercisable  through  December 31, 1997 and an
option  to  purchase  100,000  shares  at an  exercise  price of $0.66  which is
exercisable  until  the later of: a)  December  31,  1997 or; b) one year  after
registration  of the  underlying  stock  (the  underlying  stock  has  not  been
registered as of March 31, 1997).

         A summary of the status of the Company's  outstanding  stock options as
of December 31,  1996,  and 1995,  and changes  during the years ending on those
dates is presented below:


                                                            Weighted Average
                                                 Shares      Exercise Price
                                                 ------      --------------

Options outstanding, December 31,  1994          428,300         $1.88

Options granted                                   15,000         $2.76

Options canceled or forfeited                   (29,800)         $1.09
                                                -------          -----

Options outstanding, December 31, 1995           413,500         $1.97

Options granted                                  205,000        $  .78

Options canceled or forfeited                   (17,500)         $1.00
                                                -------          -----


Options outstanding, December 31, 1996           601,000         $1.59
                                                 =======         =====



                                      F-24

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 13 -STOCKHOLDERS EQUITY  (continued)

         The  following  table  summarizes   information   concerning  currently
outstanding and exercisable stock options:


                                                    Weighted Average   Weighted
                         Range of       Number     Remaining Contract  Average
                      Exercise Prices Outstanding     Life (Years)     Exercise
                      --------------- -----------     ------------     --------

Outstanding Options:
--------------------
                       $0.425-$0.66     185,000         5.1            $  0.64
                           $1.00          6,000         2.5            $  1.00
                        $2.00-$2.76     410,000         7.6            $  2.03
Exercisable Options:
--------------------
                       $0.425-$0.66     185,000         5.1            $  0.64
                           $1.00          6,000         2.5            $  1.00
                        $2.00-$2.76     405,000         7.6            $  2.02


         The Company has adopted  only the  disclosure  provisions  of Financial
Accounting  Standard No. 123  Accounting  for  Stock-Based  Compensation,  as it
relates to  employment  awards.  It applies APB Opinion No. 25,  Accounting  for
Stock Issued to Employees,  and related  interpretations  in accounting  for its
plans  and  does  not  recognize   compensation   expense  for  its  stock-based
compensation  plans other than for restricted  stock. If the Company had elected
to recognize  compensation  expense  based upon the fair value at the grant date
for awards under these plans consistent with the methodology  prescribed by SFAS
123, the Company's net loss per common share would be increased to the pro forma
amounts indicated below for the years ended December 31:


                                                   1996                1995
                                                   ----                ----

Net loss               As reported              $4,997,562        $4,206,782
                       Pro forma (unaudited)    $5,092,962        $4,221,782

Net loss available to  As reported              $7,834,315        $5,741,227
common shareholders    Pro forma (unaudited)    $7,929,715        $5,756,227

Loss per common share  As reported              $        1.29     $        1.90
                       Pro forma (unaudited)    $        1.31     $        1.90


         The fair value of each option  grant is  estimated on the date of grant
using the Binomial  options-pricing  model with the  following  weighted-average
assumptions  used for grants in 1996 and 1995,  respectively,  no dividend yield
for all years,  expected  volatility of approximately  112%;  rick-free interest
rates of approximately  6.0%, and expected lives of approximately 2.5 years. The
Company's common stock activity has had an extremely  volatile history since and
including  1994.  Because of the  insignificant  effect on the pro forma amounts
presented  above,  the Company has elected not to attempt to adjust  (lower) the
volatility factor used. Such adjustment would account for the various factors or
conditions  that probably  impacted the Company's  common stock prices and which
are possibly non-recurring.  Such an adjustment which would lower the volatility
factor used would further reduce the calculated fair value of the options.



                                      F-25
<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 13 -STOCKHOLDERS EQUITY  (continued)

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.

         In  connection  with the  private  placement  of  Series F  Convertible
Preferred Stock  completed in June 1996, the Company issued 500,000  warrants to
the placement  agent.  These warrants  expire on September 30, 2001, and entitle
the holder to purchase  one share of the  Company's  common stock at an exercise
price of the  lower of $1.00 or the  average  conversion  price of the  Series F
Convertible Preferred Stock (currently $0.55).

         The  estimated  fair value of these  warrants for the  placement  agent
services rendered,  based on SFAS No. 123 provisions is approximately  $190,000,
determined by using a binomial  option-pricing  model with assumed volatility of
122%,  risk-free rate of 6.0%, and expected  holding period of three years.  For
financial  statement  purposes,  the  value of the  services  (compensation)  is
reflected  as a reduction  to the  proceeds  received  from the related  private
placement and,  accordingly,  a reduction to paid-in capital.  In addition,  the
value  assigned to the warrants is  reflected as an addition to paid-in  capital
(Stockholders'  Equity).  Because the reduction and increase to paid-in  capital
are offsetting  amounts of $190,000,  the Company has chosen not to reflect them
separately in the Statement of Stockholders' Equity.



                                      F-26

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 13 -STOCKHOLDERS EQUITY  (continued)

         A summary of the status of the  Company's  outstanding  warrants  as of
December 31, 1996,  and 1995, and changes during the years ending on those dates
is presented below:


                                                            Weighted Average
                                           Shares            Exercise Price
                                           ------            --------------

Warrants outstanding, December 31, 1994     2,121,067             $5.90
Warrants granted                                   --                --
Warrants canceled or forfeited                     --                --
Warrants outstanding, December 31, 1995     2,121,067             $5.90

Warrants granted                              500,000            $  .55
Warrants canceled or forfeited                     --                --
Warrants outstanding, December 31, 1996     2,621,067             $4.88


The following table summarizes  information concerning currently outstanding and
exercisable warrants:


                                                    Weighted Average    Weighted
                          Range of       Number    Remaining Contract    Average
                      Exercise Prices  Outstanding    Life (Years)      Exercise
                      ---------------  -----------    ------------      --------
Outstanding Warrants:
---------------------
                           $0.55          500,000          4.5          $ 0.55
                        $3.75-$5.50     1,845,067          2.8          $ 5.50
                           $9.08          276,000          2.8          $ 9.08
Exercisable Warrants:
---------------------
                           $0.55          500,000          4.5          $ 0.55
                        $3.75-$5.50     1,845,067          2.8          $ 5.50
                           $9.08          276,000          2.8          $ 9.08



                                      F-27

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995



NOTE 14 - SALES TO MAJOR CUSTOMERS


         In 1996, one customer,  Bayindir Insaat Turizm Ticaret (a large, indoor
amusement park in Istanbul, Turkey) represented 12% of revenues.


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

NOTE 15 - EMPLOYEE BENEFITS

         Effective  July 1, 1995,  the Lasergate  Systems,  Inc.  Profit Sharing
401(k) Plan was established  covering  substantially all employees.  The Company
made no contribution to the Plan during 1995 or 1996.

         In order to reduce its  overhead  costs,  the Company  entered  into an
employee leasing agreement  effective January 1, 1996, with a firm that provides
all  administrative  services  relating  to  payroll,   personnel  and  employee
benefits.  The Company signed an agreement with a new employee  leasing  company
effective  December 16, 1996.  Management  continues to hire,  dismiss,  set pay
rates, and supervise the employees.

NOTE 16 - RELATED PARTY TRANSACTIONS

         During  1996,  the Company made a cash payment of $14,000 to an outside
Director of the Company for extensive business consulting services.  The Company
also paid  approximately  $20,000 to a vendor in which another outside  Director
has a financial interest for programming services.



NOTE 17 - RESTATEMENT

In March,  1997 the  Securities  and Exchange  Commission  (SEC)  announced  its
position on accounting  for the issuance of convertible  preferred  stock with a
nondetachable  conversion  feature  that is deemed "in the money" at the date of
issue (a "beneficial conversion feature").  The beneficial conversion feature is
initially recognized and measured by allocating a portion of the preferred stock
proceeds   equal  to  the   intrinsic   value  of  that  feature  to  additional
paid-in-capital.  The intrinsic  value is calculated at the date of issue as the
difference of the conversion  price and the quoted market price of the Company's
common stock,  into which the security is convertible,  multiplied by the number
of shares into which the security is  convertible.  The discount  resulting from
the allocation of proceeds to the beneficial  conversion feature is treated as a
dividend and is recognized as a return to the  preferred  shareholders  over the
minimum period in which the preferred shareholders can realize that return (i.e.
from the date the securities are issued to the date they are first convertible).
The  accounting  for the beneficial  conversion  feature  requires the use of an
unadjusted quoted market price (i.e. no valuation discounts allowed) as the fair
value used in order to determine the intrinsic  value dividend.  However,  since
the  proceeds  of some  series  of  preferred  stock  have  been  used to redeem
previously  issued preferred stock, the intrinsic value is reduced by the amount
of any previously recognized dividend on the redeemed shares.

Prior to  conforming  to the  accounting  described  above,  the Company had not
previously  recognized an intrinsic value dividend on its preferred  stock.  The
discounted  conversion  feature  of its  preferred  stock  (generally  a  30-35%
discount)  was provided to its holders,  in essence to avail them of a valuation
discount (e.g.  large block discount)  against the Company's quoted market price
of its common stock on the date the preferred  stock  converts.  This  valuation
discount is similar to that  provided  when the  Company has issued  other large
blocks of its common stock associated with acquisitions and other transactions.




                                      F-28

<PAGE>


                    Lasergate Systems, Inc. and Subsidiaries

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

                           December 31, 1996 and 1995


NOTE 17 - RESTATEMENT (continued)

The  Company's  preferred  stock has been issued in various  series,  as further
described in Note 13. During 1995,  Series A and D were issued  resulting in the
recognition of preferred  dividends  (intrinsic  value of beneficial  conversion
features) of $411,214 and $1,123,231  respectively.  During 1996, Series E and F
were issued resulting in the recognition of preferred dividends (intrinsic value
of beneficial conversion features) of $696,429 and $2,139,924 respectively.

The restatement of the previously issued 1996 and 1995 financial statements,  in
order to conform to the accounting  described  herein for the intrinsic value of
beneficial  conversion  features  does  not  affect  the  financial  statements,
including the reported net loss and,  stockholders'  equity (including  retained
earnings),  with the  exception  that the reported net loss  available to common
shareholders  has been increased by $2,836,353 in 1996 and $1,534,445 in 1995 to
reflect the intrinsic value of the preferred stock dividend as described herein:



                              Loss per Common Share

                                              1996                      1995
                                              ----                      ----

         As previously reported            $( .82)                   $(1.39)
         Preferred Stock dividend effect   $( .47)                   $( .51)
                                           -------                   ------- 
         As Adjusted                       $(1.29)                   $(1.90)


   
From the statement of stockholders'  equity standpoint,  the initial recognition
of the beneficial  conversion feature is an increase in paid-in-capital  and the
recognition  (amortization)  of the  dividend  being  recorded is an  equivalent
decrease in additional paid-in-capital.
    



                                      F-29


<PAGE>


                                   SIGNATURE

         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.




   
                                            By: /s/ Jacqueline E. Soechtig
                                                -----------------------------
                                                JACQUELINE E. SOECHTIG
                                                Chairman, President and Chief 
                                                Executive Officer.

                                            Date: February 13, 1998
    






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