UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the quarterly period ended September 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE EXCHANGE ACT
For the transition period from ______ to _______
Commission File Number 0-28490
GUARDIAN INTERNATIONAL, INC.
(Exact name of small business issuer as specified in its charter)
Florida 58-1799634
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3880 N. 28 Terrace (954) 926-5200
Hollywood, Florida 33020 (Issuer's telephone number)
(Address of principal executive offices)
As of November 15, 1999, there were 8,384,441 shares of Class A Voting
Common Stock, par value $.001 per share ("Class A Common Stock"), and 634,035
shares of Class B Nonvoting Common Stock, par value $.001 per share, immediately
convertible into shares of Class A Common Stock on a one for one basis, of the
issuer outstanding.
Transitional Small Business Disclosure Format (Check one):
YES ____ NO _X__
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<CAPTION>
GUARDIAN INTERNATIONAL, INC.
Table of Contents
Page No.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 1
Consolidated Statements of Operations for the Three and Nine
Months Ended September 30, 1999 and 1998 2
Consolidated Statement of Changes in Shareholders' Equity
for the Nine Months Ended September 30, 1999 3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis 8
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 19
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<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
1999 1998
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 452,048 $ 865,857
Accounts receivable, net of allowance for doubtful accounts of $639,095 and
$488,793, respectively 2,241,289 1,994,795
Current portion of notes receivable 93,581 146,210
Inventory 430,174 393,982
Other 358,410 173,102
----------------- ---------------
Total current assets 3,575,502 3,573,946
Property and equipment, net 3,600,348 2,438,854
Customer accounts, net 29,447,537 31,552,324
Goodwill and other intangible assets, net 1,758,375 2,063,256
Notes receivable, less current portion 49,502 52,042
Deposits and other assets 83,167 98,564
----------------- ---------------
Total assets $38,514,431 $39,778,986
================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued expenses $ 3,486,198 $ 2,727,058
Current portion of unearned revenue 3,120,488 2,744,462
Current portion of long term obligations 687,520 683,838
----------------- ---------------
Total current liabilities 7,294,206 6,155,358
Unearned revenue, less current portion 1,539,538 1,311,480
Long term obligations, less current portion 7,926,167 6,799,655
----------------- ---------------
Total liabilities 16,759,911 14,266,493
Redeemable preferred stock, 16,397 shares issued and outstanding 16,397,000 16,397,000
Shareholders' equity:
Preferred stock, $.001 par value, 30,000,000 shares authorized:
Series D preferred stock, 10,120 shares issued and outstanding 10 10
Class A voting common stock, $.001 par value, 100,000,000 shares authorized, 8,468,841
and 11,569,241 shares issued; and 8,468,841 and 8,582,241 shares outstanding in 1999
and 1998, respectively 8,469 11,569
Class B non-voting common stock, $.001 par value, 1,000,000 shares authorized, 634,035
shares issued and outstanding 634 634
Additional paid-in capital 19,526,390 23,336,470
Accumulated deficit (14,177,983) (6,164,596)
Treasury shares, at cost (8,068,594)
----------------- ---------------
-
Total shareholders' equity 5,357,520 9,115,493
----------------- ---------------
Total liabilities and shareholders' equity $38,514,431 $39,778,986
================= ===============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- -------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Monitoring $2,919,553 $ 2,478,262 $ 8,555,627 $ 6,472,840
Installation and service 1,688,006 1,911,866 4,929,588 4,149,185
-------------- ------------- ----------- ------------
Total revenues 4,607,559 4,390,128 13,485,215 10,622,025
-------------- ------------- ----------- ------------
Operating expenses:
Monitoring 547,705 551,822 1,579,633 1,430,165
Installation and service 1,375,242 1,417,942 3,891,467 2,905,824
Selling, general and administrative 1,790,815 1,393,995 5,347,427 3,655,458
Amortization of customer accounts 1,269,733 1,128,165 3,685,038 2,830,868
Depreciation and amortization 208,978 153,896 580,722 417,240
-------------- ------------- ----------- ------------
Total operating expenses 5,192,473 4,645,820 15,084,287 11,239,555
-------------- ------------- ----------- ------------
Operating loss (584,914) (255,692) (1,599,072) (617,530)
Interest and other 224,595 441,340 740,811 1,023,494
-------------- ------------- ----------- ------------
Net loss (809,509) (697,032) (2,339,883) (1,641,024)
Preferred stock dividends 444,118 209,776 1,320,527 546,778
-------------- ------------- ----------- ------------
Net loss applicable to common stock $(1,253,627) $ (906,808) $(3,660,410) $ (2,187,802)
============= ============= =========== ============
Loss per common share $ (0.14) $ (0.08) $ (0.40) $ (0.19)
============= ============= =========== ============
Weighted average shares outstanding 9,136,588 12,061,192 9,189,421 11,495,113
============= ============= =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(Unaudited)
Series D Common Stock Common Stock Additional
Preferred Stock Class A Class B Paid-in
Shares Amount Shares Amount Shares Amount Capital
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1998 10,120 $ 10 11,569,241 $11,569 634,035 $ 634 $23,336,470
Series C Preferred Stock Dividends - - - - - - -
Series D Preferred Stock Dividends - - - - - - -
Retirement of treasury shares (3,100,400) (3,100) (3,806,941)
Equity issuance costs - - - - - - (3,139)
Net loss -
--------- --------- ----------- ------- ------- ----- -----------
- - - - - -
Balance September 30, 1999 10,120 $ 10 8,468,841 $ 8,469 634,035 $ 634 $19,526,390
========= ======== =========== ======= ======= ===== ===========
(RESTUBBED TABLE)
Accumulated Treasury
Deficit Shares Total
------- ------ -----
Balance December 31, 1998 $(6,164,596) $(8,068,594) $ 9,115,493
Series C Preferred Stock Dividends (857,654) - (857,654)
Series D Preferred Stock Dividends (462,873) - (462,873)
Retirement of treasury shares (4,352,977) 8,068,594 (94,424)
Equity issuance costs - - (3,139)
Net loss (2,339,883) (2,339,883)
------------- ---------- ------------
-
Balance September 30, 1999 $(14,177,983) $ - $ 5,357,520
============ ========== ============
</TABLE>
The accompanying notes are an integral part of this consolidated financial
statement.
3
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<TABLE>
<CAPTION>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(Unaudited)
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,339,883) $ (1,641,024)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 580,722 417,240
Amortization of customer accounts 3,685,038 2,830,868
Amortization of capitalized installation costs 730,207 472,075
Amortization of deferred financing costs 133,177 193,442
Provision for doubtful accounts 366,550 379,834
Provision for inventory losses 30,000 -
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (613,044) (796,626)
Deposits and other assets (220,416) (656,368)
Accounts payable and accrued expenses 237,942 892,114
Unearned revenue 604,084 539,738
------------- ------------
Net cash provided by operating activities 3,194,377 2,631,293
------------- ------------
Cash flows from investing activities:
Purchase of fixed assets (1,513,123) (1,087,963)
Business acquisitions, net of cash acquired - (16,629,340)
Purchase and placement of customer accounts (2,310,458) (2,223,231)
------------- ------------
Net cash used in investing activities (3,823,581) (19,940,534)
------------- ------------
Cash flows from financing activities:
Payments of long term obligations (514,471) (1,750,095)
Proceeds from line of credit 1,627,694 15,505,144
Issuance of preferred stock, net of issuance costs (3,139) 3,963,005
Payment of Series C Preferred Stock cash dividends (800,265) -
Purchase of treasury shares (94,424) -
------------- ------------
Net cash provided by financing activities 215,395 17,718,054
------------- ------------
Net increase (decrease) in cash and cash equivalents (413,809) 408,813
Cash and cash equivalents, beginning of period 865,857 94,313
------------- ------------
Cash and cash equivalents, end of period $ 452,048 $ 503,126
============= ============
Supplemental disclosures:
Interest paid $595,823 $639,453
Non cash investing and financing activities:
Issuance of Class A common stock in consideration for business - 5,705,157
acquisitions
Stock dividends on Series A and Series B preferred stock - 546,778
Contract holdbacks applied against accounts written off 21,104 152,585
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited financial statements of Guardian International,
Inc. ("the Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain adjustments (consisting only of normal and recurring adjustments)
necessary to present fairly the Company's financial position and the
results of operations for the periods presented and the disclosures herein
are adequate to make the information presented not misleading. Operating
results for interim periods are not necessarily indicative of the results
that can be expected for a full year. These interim financial statements
should be read in conjunction with the Company's audited consolidated
financial statements and notes thereto for the year ended December 31,
1998, included in the Company's Form 10-KSB.
Reclassifications
-----------------
Certain 1998 amounts in the consolidated statements of operations and cash
flows have been reclassified to conform to the 1999 presentation.
2. PROPERTY AND EQUIPMENT, NET
During the nine months ended September 30, 1999, the Company expended
approximately $1.5 million for the purchase of fixed assets, including
subscriber premises equipment approximating $1.2 million and additional
system hardware and software of approximately $136,000.
3. CUSTOMER ACCOUNTS
The following is an analysis of the changes in acquired customer
accounts:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Balance, beginning of period $31,552,324 $8,048,495
Purchase of customer accounts from dealers 1,076,099 2,605,647
Customer accounts acquired in acquisitions - 23,588,827
Internally generated accounts 1,255,463 2,088,537
Charges against contract holdbacks (21,104) (156,397)
Amortization of capitalized installation costs (730,207) (650,210)
Amortization of customer accounts (3,685,038) (3,972,575)
----------- -----------
Balance, end of period $29,447,537 $31,552,324
=========== ===========
</TABLE>
In conjunction with certain purchases of customer contracts and accounts,
the Company withholds a portion of the price as a credit to offset
qualifying attrition of the acquired customer accounts and for purchase
price settlements of assets acquired and liabilities assumed. The Company
had a total balance withheld of $131,170 and $95,596 at September 30, 1999
and December 31, 1998, respectively, as contract holdbacks in connection
with the acquisition of customer accounts which are included in "Accounts
payable and accrued expenses" in the accompanying consolidated balance
sheets.
5
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4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
Amortization September 30, December 31,
Period 1999 1998
------ ---- ----
<S> <C> <C> <C>
At cost:
Goodwill 10 years $1,798,100 $1,798,101
Deferred financing costs 3 years 812,667 812,667
Covenant not to compete and other 5 - 10 years 468,492 500,837
------------ ------------
3,079,259 3,111,605
Accumulated amortization (1,320,884) (1,048,349)
------------ ------------
$1,758,375 $2,063,256
============ ============
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Trade accounts payable $1,120,104 $749,621
Contract holdbacks 131,170 95,596
Preferred dividends payable 749,819 229,558
Accrued expenses 1,485,105 1,652,283
---------------- ----------------
$3,486,198 $2,727,058
================ ================
</TABLE>
6. LONG TERM OBLIGATIONS
<TABLE>
<CAPTION>
Long term obligations consist of the following:
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Credit facility with financial institution $7,621,688 $5,993,992
Capital lease obligations 149,080 110,682
Equipment notes payable and other 842,919 1,378,819
---------------- ----------------
8,613,687 7,483,493
Less-current portion (687,520) (683,838)
----------------- ----------------
$7,926,167 $6,799,655
================ ================
</TABLE>
In October 1998, the Company amended its $20 million credit facility (the
"Renewed Credit Facility") with Heller Financial, Inc., the Company's
senior lender ("Heller"). Under the Renewed Credit Facility, borrowings
bear interest at floating rates, either at Prime plus 1 3/4% or, at the
Company's election, LIBOR plus 3 1/2%. At September 30, 1999, the debt was
bearing interest at varying rates. The Renewed Credit Facility expires in
May 2001. Availability under the Renewed Credit Facility is subject to
certain "Borrowing Base" limitations (as defined in the Renewed Credit
Facility). At September 30, 1999, $6 million was available. In connection
with the October 1998 investment by Protection One, Inc. ("Protection One")
(see Part I, Item I "1998 Developments" in the Company's 1998 Form 10-KSB
for the fiscal year ended December 31, 1998), Heller made other amendments
to the Renewed Credit Facility to conform the agreement with the
transactions. The Renewed Credit Facility includes customary covenants,
including, but not limited to, restrictions related to the incurrence of
other debt, the encumbrance or sale of the Company's assets and the payment
of dividends or making of other distributions to the Company's
shareholders. The Company believes it was in compliance with all such
covenants as of September 30, 1999.
6
<PAGE>
7. SHAREHOLDERS' EQUITY
In accordance with the Stock Repurchase Program authorized by the Board of
Directors in October 1998, the Company purchased 113,400 shares of its
Class A Voting Common Stock, par value $.001, during the three months ended
September 30, 1999. In accordance with Florida law, the shares were
subsequently retired. The treasury shares acquired in connection with the
October 1998 investment by Protection One (see Part I, Item I "1998
Developments" in the Company's 1998 Form 10-KSB for the fiscal year ended
December 31, 1998) were also retired. The excess of the cost of the
treasury shares over issuance price of the retired shares resulted in a
charge to accumulated deficit.
7
<PAGE>
Item 2. Management's Discussion and Analysis
Introductory Note
FORWARD-LOOKING STATEMENTS.
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby providing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in forward-looking statements
made herein. Any statements that express, or involve discussions as to,
expectations, beliefs, plans, objectives, assumptions or future events or
performance (often, but not always, identified through the use of words or
phrases such as the Company or management "believes," "expects," "anticipates,"
"hopes," words or phrases such as "will result," "are expected to," "will
continue," "is anticipated," "estimated," "projection" and "outlook," and words
of similar import) are not historical facts and may be forward-looking. Such
forward-looking statements involve risks and uncertainties, and, accordingly,
actual results could differ materially from those expressed in the
forward-looking statements. Information with respect to these risks and
uncertainties is included in the Company's Form 10-KSB for the fiscal year ended
December 31, 1998 filed with the Securities and Exchange Commission on March 31,
1999.
Overview
The majority of the Company's revenue is derived from recurring
payments for the monitoring, maintenance and leasing of security and fire
systems, pursuant to contracts with initial terms typically ranging from one to
five years. The remainder of the Company's revenue is derived from the sale and
installation of security and fire systems and the servicing and upgrades of such
installed systems. Monitoring and service revenues are recognized as the service
is provided. On installations for which the Company retains title to the
electronic security systems, the excess of installation revenue over estimated
selling costs is amortized over the initial term of the related
service/monitoring contract (generally five years). All other installation
revenues are recognized in the period in which installation occurs. All direct
installation costs, which include materials, labor and installation overhead are
capitalized and amortized over a five year period. When the Company maintains
ownership of the equipment, the costs of such equipment are capitalized to
property and equipment and amortized over seven years.
The Company has never had any net income and has a history of
consistent and sometimes significant net losses. The Company has two core
strategies; (1) generating monitoring contracts through its own sales and
installation efforts and (2) acquiring alarm monitoring contracts. The first
core strategy requires a cost infrastructure that results in lower operating
margins than are achievable by companies that only acquire and service alarm
monitoring contracts. In order to pursue the second core strategy of acquiring
alarm monitoring contracts the Company has chosen to issue yield-bearing
instruments (such as senior debt or preferred stock). The Company's present
amortization policy for those acquired contracts results in significant
amortization costs. The issuance of yield-bearing instruments results in related
interest and dividend expense. The Company believes that these strategies, which
emphasize creating long-term value over short-term net income, will result in
the Company's recording of net losses until such time as (i) the Company's cash
flow from its increased customer base allows it to reduce significantly its
indebtedness and related interest costs; and (ii) the Company's amortization
expense, through the passage of time and recognition of account losses, is
reduced.
Alarm monitoring revenues generate favorable gross margins.
Historically, installation and service activity generated unfavorable gross
margins because such activity was necessary for the
8
<PAGE>
generation and retention of residential and mid-market commercial alarm
monitoring customers. With the February 1998 acquisition of Mutual Central Alarm
Services, Inc. ("Mutual"), a New York City-based provider to high-end commercial
customers, however, approximately 40% of the Company's installation activity now
generates favorable gross margins because competition in the high-end commercial
market is based less on price and more on the ability of competitors to design,
deliver and maintain sophisticated security systems.
The Company's objective is to provide residential and commercial
security services to an increasing number of subscribers. The Company's growth
strategy is to enhance its position in the security alarm monitoring industry in
Florida and in the Metropolitan New York City area by increasing the number and
density of subscribers for whom it provides services. The Company is pursuing
this strategy through a balanced growth plan involving incorporating
acquisitions of portfolios of subscriber accounts in existing and contiguous
markets and growth of the Company's core business through referrals and
traditional local marketing. The Company believes that increasing the number and
density of its subscribers will help it to achieve economies of scale and
enhance its results of operations. The Company also regularly reviews
opportunities for expanding its operations into other large metropolitan
markets.
Key Operating Measures
The Company believes that EBITDA, MRR, and MRR attrition are key
measurements of performance in the security monitoring industry.
EBITDA. Earnings before interest, taxes, depreciation and amortization
("EBITDA") does not represent cash flow from operations as defined by generally
accepted accounting principles, should not be construed as an alternative to
operating income and is indicative neither of operating performance nor cash
flows available to fund the cash needs of the Company. Items excluded from
EBITDA are significant components in understanding and assessing the financial
performance of the Company. The Company believes presentation of EBITDA enhances
an understanding of financial condition, results of operations and cash flows
because EBITDA is used by the Company to satisfy its debt service obligations
and its capital expenditure and other operational needs, as well as to provide
funds for growth. In addition, EBITDA is used by senior lenders and the
investment community to determine the current borrowing capacity and to estimate
the long-term value of companies with recurring cash flows from operations. The
Company's computation of EBITDA may not be comparable to other similarly titled
measures of other companies. In the nine months ended September 30, 1999, the
Company incurred certain legal and other professional expenses related to
terminated acquisition activity as well as other related fees in the amount of
$66,128, which are of a non-recurring nature. EBITDA for the nine months ended
September 30, 1999 would have been $2,732,816 without these expenses. The
following table provides a calculation of EBITDA for the three and nine months
ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
Net loss $ (809,509) $(697,032) $(2,339,883) $(1,641,024)
Plus:
Amortization of customer contracts 1,269,733 1,128,165 3,685,038 2,830,868
Depreciation and amortization 208,978 153,896 580,722 417,240
Interest expense and other 224,595 441,340 740,811 1,023,494
------------- ------------ ------------- -------------
EBITDA $893,797 $1,026,369 $ 2,666,688 $2,630,578
============= ============ ============= ==============
</TABLE>
9
<PAGE>
Monthly Recurring Revenue ("MRR"). MRR is revenue that the Company is
entitled to receive under monitoring and service contracts in effect at the end
of the period. Because the Company has grown rapidly, often by acquiring
security alarm companies and portfolios of customer accounts which are included
in revenues only from the date of acquisition, the Company's revenues are not
proportional to the level of its investment of capital reported to the end of
the period upon which a return must be earned. Management believes MRR enhances
an investor's understanding of the Company's financial condition, results of
operations and cash flows because it provides a measure of the Company's revenue
that can be used to derive estimated annual revenues acquired in acquisitions
for a full year of operations. As a result, MRR can be compared to the level of
investment in the statement of financial condition at the end of the period. By
comparing MRR to cash, debt and equity balances at the end of a period, an
investor can assess the Company's investment track record. Further, management
believes an investor's consideration of MRR relative to the Company's customer
base helps identify trends in MRR per customer. MRR does not measure
profitability or performance, and does not include any allowance for future
losses of customers or allowance for doubtful accounts. The Company does not
have sufficient information as to the losses of acquired customers accounts to
predict with absolute certainty the amount of acquired MRR that will be realized
in future periods or the impact of the loss of acquired accounts on our overall
rate of customer loss. Our computation of MRR may not be comparable to other
similarly titled measures of other companies and MRR should not be viewed by
investors as an alternative to actual monthly revenue as determined in
accordance with generally accepted accounting principles. MRR at September 30,
1999 and 1998 was approximately $978,000 and $862,000, respectively.
MRR Attrition. The Company experiences customer cancellations, i.e.,
attrition, of monitoring and related services as a result of subscriber
relocation, the cancellation of acquired accounts during the process of
integrating such accounts into the Company's operations, unfavorable economic
conditions and other reasons. This attrition is offset to a certain extent by
revenues from the sale of additional services to existing subscribers, the
reconnection of premises previously occupied by subscribers, the conversion of
accounts previously monitored by other alarm companies and guarantees provided
by the sellers of such accounts. The Company defines attrition numerically for a
particular period as a quotient, the numerator of which is equal to the
difference between gross MRR lost as the result of canceled subscriber accounts
and MRR lost that was replaced pursuant to guarantees from sellers of accounts
purchased by the Company, and the denominator of which is the expected month-end
MRR calculated at the end of such period. Net MRR attrition of the Company's
customers during the nine months ended September 30, 1999 and 1998 was less than
10%, on an annualized basis.
Results of Operations
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated for consolidated operations.
10
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Monitoring 63.4 56.5 63.4 60.9
Installation and service 36.6 43.5 36.6 39.1
-------- ------- -------- --------
Total revenues 100.0 100.0 100.0 100.0
Operating expenses
Monitoring 11.9 12.6 11.7 13.5
Installation and service 29.8 32.3 28.9 27.4
General and administrative 38.9 31.8 39.7 34.4
-------- ------- -------- --------
80.6 76.7 80.3 75.3
-------- ------- -------- --------
Income before interest expense, amortization and
depreciation 19.4 23.3 19.7 24.7
-------- ------- -------- --------
Interest expense 4.9 10.1 5.5 9.6
Amortization of customer contracts 27.6 25.7 27.3 26.7
Depreciation and amortization 4.5 3.5 4.3 3.9
-------- ------- -------- --------
37.0 39.3 37.1 40.2
-------- ------- -------- --------
Net loss (17.6) (16.0) (17.4) (15.5)
======== ======= ======== ========
</TABLE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended
September 30, 1998
Revenue. Total revenues for the nine months ended September 30, 1999
increased 27% to approximately $13.5 million from approximately $10.6 million
during the corresponding period in the prior year. Monitoring revenues for the
nine months ended September 30, 1999 increased to approximately $8.6 million, or
32%, from approximately $6.5 million during the corresponding period of the
prior year. Installation and service revenues for the nine months ended
September 30, 1999 increased by 19% to approximately $4.9 million, compared to
approximately $4.1 million during the corresponding period of the prior year.
Total retail subscribers approximated 23,700 at September 30, 1999, compared to
20,100 at September 30, 1998, a net increase of 18%. The increase in monitoring
revenues and number of subscribers in 1999 over 1998 is primarily attributable
to the Company's 1998 acquisitions (see Note 2 to the Company's Consolidated
Financial Statements contained in the Company's Form 10-KSB for the fiscal year
ended December 31, 1998) and to increased efforts in the Company's internal
installation operations.
Operating Expenses. Total operating expenses, excluding depreciation
and amortization, for the nine months ended September 30, 1999 increased 35% to
approximately $10.8 million, compared to approximately $8.0 million during the
corresponding period in the prior year. Monitoring expenses increased 10% to
approximately $1.6 million, compared to approximately $1.4 million during the
corresponding period in the prior year. As a percentage of monitoring revenues
during the nine months ended September 30, 1999, monitoring expenses were 18%,
compared to 22% during the corresponding period in the prior year. The increase
in monitoring costs in absolute terms was a result of the increase in monitoring
revenues and number of subscriber accounts, as well as the acquisition of
Mutual, which operates its own central monitoring station. Installation and
service costs during the nine months ended September 30, 1999 increased by 34%
to approximately $3.9 million, compared to approximately $2.9 million during the
corresponding period in the prior year. The increase in total installation and
service costs in 1999 from 1998 was a result of increases in related revenues in
1999 from 1998. As a percentage of installation and service revenue,
installation and service costs were 79% during the nine
11
<PAGE>
months ended September 30, 1999, compared to 70%, during the corresponding
period in the prior year. Costs as a percentage of sales increased because the
Company derived a larger percentage of sales from lower revenue / higher cost
sales to homeowners and builders in the nine months ended September 30, 1999
compared to the nine months ended September 30, 1998.
Gross Profit. Total gross profit, defined as total revenues less
monitoring and installation and service costs, increased by 28% to approximately
$8.0 million during the nine months ended September 30, 1999, compared to
approximately $6.3 million during the corresponding period in the prior year.
Gross profit from monitoring revenues increased by 38% to approximately $7.0
million during the nine months ended September 30, 1999, compared to
approximately $5.0 million during the corresponding period in the prior year.
The increase in gross profit from monitoring revenues is primarily attributable
to the Company's 1998 acquisitions and the benefits of economies of scale
inherent in alarm monitoring. Gross profit from installation and service
activities decreased to approximately $1.0 million during the nine months ended
September 30, 1999, from approximately $1.2 million during the corresponding
period in the prior year, partly due to the costs associated with the increased
efforts in the Company's internal installations operations in residential and
new home construction markets.
Selling, General and Administrative. Selling, general and
administrative costs ("SG&A") increased by 46% to approximately $5.3 million
during the nine months ended September 30, 1999, compared to approximately $3.7
million during the corresponding period in the prior year. The increase in SG&A
costs in 1999 from 1998 is related primarily to increases in selling expenses
related to direct sales efforts, additional personnel and resources necessary to
service the Company's growing customer base and to recognition of certain legal
and other professional expenses related to terminated acquisition activity and
other related expenses.
Amortization of Customer Contracts. Amortization of customer contracts
increased by 30% to approximately $3.7 million during the nine months ended
September 30, 1999, compared to approximately $2.8 million during the
corresponding period in the prior year. The increase in such costs is primarily
attributable to the 1998 acquisitions. Amortization for 1999 includes a full
nine months of amortization on the contracts acquired in 1998 and the
amortization for 1998 includes only the period from the date which the contracts
were acquired.
Depreciation and Amortization. Depreciation and amortization increased
by 39% to approximately $581,000 during the nine months ended September 30,
1999, compared to approximately $417,000 during the corresponding period in the
prior year. Such costs include depreciation of property and equipment (the gross
balance of which increased to approximately $4.7 million at September 30, 1999
from approximately $2.9 million at September 30, 1998 as a result of (i) the
Company's continued expansion activities and (ii) the Company's 1998
acquisitions (which resulted in additional property and equipment being
acquired)), goodwill amortization (a gross balance of approximately $1.4 million
in goodwill was recorded in connection with the 1998 acquisitions, which is
being amortized over 10 years), and amortization of certain other intangible
assets.
Interest Expense. Interest expense decreased 28% to approximately
$741,000 during the nine months ended September 30, 1999, compared to
approximately $1.0 million during the corresponding period in the prior year.
The decrease in interest expense resulted from reduced borrowings under the
Renewed Credit Facility. Total borrowings under the Renewed Credit Facility
decreased to approximately $7.6 million at September 30, 1999 from approximately
$14.6 million at September 30, 1998, due to the October 1998 repayment of a
portion of the debt, as a result of the investment by Protection One, discussed
in Note 11 to the Company's Consolidated Financial Statements contained in the
Company's Form 10-KSB for the fiscal year ended December 31, 1998.
12
<PAGE>
Net Loss. Net loss applicable to common stock for the nine months ended
September 30, 1999 was approximately $3.7 million, or $(0.40) per share,
compared to a net loss of approximately $2.2 million, or $(0.19) per share,
during the corresponding period of the prior year.
The increase in net loss for the nine months is primarily attributable
to increased selling, general, and administrative expenses and amortization
expenses associated with the Company's growth and prior-period acquisition
initiatives, as well as to higher preferred stock dividends associated with
financing used to fund internal growth and acquisitions.
The increase in net loss per share was attributable in part to the
decrease in the weighted average number of common shares outstanding to
9,189,421 for the nine months ended September 30, 1999, a 20% decrease from the
11,495,113 weighted average common shares outstanding for the nine months ended
September 30, 1998.
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Revenue. Total revenues for the three months ended September 30, 1999
increased 5.0% to approximately $4.6 million from approximately $4.4 million
during the corresponding period in the prior year. Monitoring revenues for the
three months ended September 30, 1999 increased to approximately $2.9 million,
or 18%, from approximately $2.5 million during the corresponding period of the
prior year. Installation and service revenues for the three months ended
September 30, 1999 decreased by 12% to approximately $1.7 million, compared to
approximately $1.9 million during the corresponding period of the prior year.
Total retail subscribers approximated 23,700 at September 30, 1999, compared to
20,100 at September 30, 1998, a net increase of 18%. The increase in monitoring
revenues and number of subscribers in the third quarter of 1999 from the third
quarter of 1998 is primarily attributable to the Company's 1998 acquisitions
(see Note 2 to the Company's Consolidated Financial Statements contained in the
Company's Form 10-KSB for the fiscal year ended December 31, 1998). The decrease
in installation and service revenues in the third quarter of 1999 compared to
the prior year's quarter is impacted by the timing of deferred installation
revenue. Although installation billings increased for the period due to emphasis
on growth by internal sales efforts, revenue on installations is deferred over
the initial term of the customer's monitoring/service contract, as discussed in
"Overview" above.
Operating Expenses. Total operating expenses, excluding depreciation
and amortization, for the three months ended September 30, 1999 increased 10% to
approximately $3.7 million, compared to approximately $3.4 million during the
corresponding period in the prior year. Monitoring expenses decreased 1% to
approximately $548,000, compared to approximately $552,000 during the
corresponding period in the prior year. As a percentage of monitoring revenues
during the three months ended September 30, 1999, monitoring expenses were 19%,
compared to 22% during the corresponding period in the prior year. The decrease
in monitoring costs was a result of decreased payroll costs in the central
monitoring station. Installation and service costs during the three months ended
September 30, 1999 decreased by 3% to approximately $1.38 million, compared to
approximately $1.42 million during the corresponding period in the prior year.
Installation and service costs in 1999 compared to 1998 decreased less than
related revenues. Installation and service costs were 82% of related revenues
during the three months ended September 30, 1999, compared to 74% during the
corresponding period in the prior year, because the Company derived a larger
percentage of sales from lower revenue / higher cost sales to homeowners and
builders in the quarter ended September 30, 1999 compared to the quarter ended
September 30, 1998.
Gross Profit. Total gross profit, defined as total revenues less
monitoring and installation and service costs, increased by 11% to approximately
$2.7 million during the three months ended September
13
<PAGE>
30, 1999, compared to approximately $2.4 million during the corresponding period
in the prior year. Gross profit from monitoring revenues increased by 23% to
approximately $2.4 million during the three months ended September 30, 1999,
compared to approximately $1.9 million during the corresponding period in the
prior year. The increase in gross profit from monitoring revenues is primarily
attributable to the Company's 1998 acquisitions and more efficient operations.
Gross profit from installation and service activities decreased to approximately
$313,000 during the three months ended September 30, 1999, from approximately
$494,000 during the corresponding period in the prior year, partly due to the
costs associated with the increased efforts in the Company's internal
installations operations.
Selling, General and Administrative. Selling, general and
administrative costs ("SG&A") increased by 28% to approximately $1.8 million
during the three months ended September 30, 1999, compared to approximately $1.4
million during the corresponding period in the prior year. The increase in SG&A
costs in 1999 from 1998 is related primarily to additional personnel and
resources necessary to service the Company's growing customer base, to the
acquisition of Stat-Land in August 1998 and to recognition of certain legal and
other professional expenses related to terminated acquisition activity and
related expenses.
Amortization of Customer Contracts. Amortization of customer contracts
increased by 12% to approximately $1.3 million during the three months ended
September 30, 1999, compared to approximately $1.1 million during the
corresponding period in the prior year. Amortization for 1999 includes a full
three months of amortization on the Stat-Land contracts acquired in 1998 and the
amortization for 1998 includes only the period from the date which the contracts
were acquired.
Depreciation and Amortization. Depreciation and amortization increased
by 36% to approximately $209,000 during the three months ended September 30,
1999, compared to approximately $154,000 during the corresponding period in the
prior year. Such costs include depreciation of property and equipment (the gross
balance of which increased to approximately $4.7 million at September 30, 1999
from approximately $2.9 million at September 30, 1998 as a result of (i) the
Company's continued expansion activities and (ii) the Company's 1998
acquisitions (which resulted in additional property and equipment being
acquired)), goodwill amortization (a gross balance of approximately $1.4 million
in goodwill was recorded in connection with the acquisitions, which is being
amortized over 10 years), and amortization of certain other intangible assets.
Interest Expense. Interest expense decreased 49% to approximately
$225,000 during the three months ended September 30, 1999, compared to
approximately $441,000 during the corresponding period in the prior year. The
decrease in interest expense resulted from reduced borrowings under the Renewed
Credit Facility. Total borrowings under the Renewed Credit Facility decreased to
approximately $7.6 million at September 30, 1999 from approximately $14.6
million at September 30, 1998, due to the October 1998 repayment of a portion of
the debt, as a result of the investment by Protection One, as discussed in Note
11 to the Company's Consolidated Financial Statements contained in the Company's
Form 10-KSB for the fiscal year ended December 31, 1998.
Net Loss. Net loss applicable to common stock for the three months
ended September 30, 1999 was approximately $1.3 million, or $(0.14) per share,
compared to a net loss of approximately $907,000, or $(0.08) per share, during
the corresponding period of the prior year.
The increase in net loss for the quarter and the nine months is
primarily attributable to increased selling, general, and administrative
expenses and amortization expenses associated with the Company's growth and
prior-period acquisition initiatives, as well as to higher preferred stock
dividends associated with financing used to fund internal growth and
acquisitions.
14
<PAGE>
The increase in net loss per share was attributable in part to the
decrease in the weighted average number of common shares outstanding to
9,136,588 for the three months ended September 30, 1999, a 24% decrease from the
12,061,192 weighted average common shares outstanding for the three months ended
September 30, 1998.
Liquidity and Capital Resources
As of September 30, 1999, the Company believes it will maintain the
ability to generate sufficient cash to fund future operations of the business.
Generally, cash flow will be generated from a combination of (1) the Company's
existing $20.0 million Renewed Credit Facility with Heller, subject to
compliance with the provisions of the debt covenants in the Renewed Credit
Facility, and (2) recurring revenue from its security monitoring customer base,
which generated $2.7 million of EBITDA in the nine months ended September 30,
1999. At September 30, 1999, there was $6.0 million of availability under the
Renewed Credit Facility. Cash flow from operating activities was $3.2 million
for the nine months ended September 30, 1999.
Capital Resources. In May 1997, the Company refinanced its existing
credit facility with Heller. Under the Renewed Credit Facility, the maximum
credit facility available to the Company was increased from an existing $7.0
million to $15.0 million. In connection with the acquisition of Mutual, the
Renewed Credit Facility was further amended to increase the maximum available to
$20.0 million. The Renewed Credit Facility expires in May 2001. Availability
under the Renewed Credit Facility is subject to certain "Borrowing Base"
limitations (as defined in the Renewed Credit Facility). In relation to the
October 1998 investment by Protection One (see Note 11 to the Company's
Consolidated Financial Statements contained in the Company's Form 10-KSB for the
fiscal year ended December 31, 1998), Heller consented to increase the Company's
borrowing base and made other amendments to conform the agreement with the
transactions. The Renewed Credit Facility includes customary covenants,
including, but not limited to, restrictions related to the incurrence of other
debt, the encumbrance or sale of the Company's assets, and the payment of
dividends or making of other distributions to the Company's shareholders and
other financial performance covenants. The Company believes it was in compliance
with all such covenants as of September 30, 1999.
The Renewed Credit Facility will be used primarily for acquisitions of
subscriber accounts. The Company's continued plan of growth through acquisitions
of subscriber accounts is contingent upon its ability to borrow under the
Renewed Credit Facility.
In accordance with the Stock Repurchase Program authorized by the Board
of Directors in October 1998, the Company purchased 113,400 shares of its Class
A Voting Common Stock, par value $.001, during the three months ended September
30, 1999. In accordance with Florida law, the shares were subsequently retired.
The treasury shares acquired in connection with the October 1998 investment by
Protection One (see Part I, Item I "1998 Developments" in the Company's 1998
Form 10-KSB for the fiscal year ended December 31, 1998) were also retired. The
excess of the cost of the treasury shares over issuance price of the retired
shares resulted in a charge to accumulated deficit.
Liquidity. Net cash provided by operating activities during the nine
months ended September 30, 1999 was approximately $3.2 million. The Company
incurred a net loss of approximately $2.3 million during such period; however,
included in such loss was non-cash depreciation and amortization expense,
amortization of customer contracts expense, amortization of capitalized
installation costs and amortization of deferred financing costs totaling
approximately $5.1 million and bad debt and inventory provisions of
approximately $397,000. Other operating cash flows included cash outflows of
approximately $833,000 related to increases in accounts receivable and other
assets offset by cash inflows of approximately $842,000 related to net increases
in liabilities.
15
<PAGE>
Net cash used in investing activities was approximately $3.8 million
during the nine months ended September 30, 1999 and was comprised of
approximately $2.3 million used in the purchase and placement of customer
accounts and the purchases of fixed assets of approximately $1.5 million which
includes equipment under lease at customer premises of approximately $1.2
million.
Net cash provided by financing activities was approximately $215,000
during the nine months ended September 30, 1999, consisting of proceeds under
borrowings from Heller of approximately $1.6 million, reduced by repayments to
Heller and other long-term debt of approximately $514,000, costs related to the
1998 preferred stock issuance of approximately $3,000, payment of cash dividends
on preferred stock of approximately $800,000 and open market purchases of the
Company's stock of approximately $94,000. The Company's cash balance was
$452,048 as of September 30, 1999.
Total shareholders' equity was $5,357,520 at September 30, 1999,
decreasing by a net amount of $3,757,973 during the nine months ended September
30, 1999. The net decrease resulted from the payment and accrual of dividends on
the Company's preferred stock of approximately $1.3 million and the net loss of
approximately $2.3 million.
Affiliation with Western Resources, Inc. As discussed in the Company's
1998 Form 10-KSB, in Part I, Item I "1998 Developments", Western Resources, Inc.
indirectly holds a significant investment in the Company.
The Company does not currently have any significant commitments for
capital outlays.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of trade receivables from a
large number of customers, including both residential and commercial customers.
The Company extends credit to its customers in the normal course of business,
performs periodic credit evaluations and maintains allowances for potential
credit losses.
Year 2000 Compliance
General
The Company faces the same Year 2000 problem that other participants in
the security and alarm monitoring industry face given the high reliance on
computer-based monitoring and electronic customer site equipment. The Year 2000
problem is a result of prior computer programming limiting the use of the year
placeholder to a two digit number, such as "98" (rather than a four digit), so
that when the year 2000 arrives, many systems could interpret the year date "00"
as being of the turn of a prior century. This is generally referred to as the
"Year 2000 Issue." Accordingly, unless corrective action is taken to ensure that
such systems are "Year 2000 Ready," many systems may fail or the processes which
those systems control may malfunction due to the inappropriate year
interpretation.
The Company does not believe that the Year 2000 problem will have a
significant impact on the Company or on its continuing ability to deliver
installation and alarm monitoring goods and services to its present installed
customer base and/or prospective customers.
State of Readiness
- ------------------
The Company's primary business process is the act of monitoring
electronic signals from equipment placed at residential and commercial customer
premises, which are generally sent over
16
<PAGE>
standard analog telephone lines. The Company conducts this primary process,
including secondary processes of accounting and financial reporting, through the
use of systems acquired from Monitoring Automation Systems ("MAS"). In a recent
technical bulletin received from MAS, the Company was informed that all of the
MAS monitoring, database and billing systems are Year 2000 compliant, however,
its legacy general ledger and accounts payable programs are no longer being
offered. The Company implemented Year 2000 ready general ledger and accounts
payable software during 1999. The Company's other significant monitoring station
resides at its Mutual subsidiary in New York. Testing of the New York site MAS
software for Year 2000 readiness was successfully completed in July 1999.
Certain non-information technology-related ("IT") processes are of
critical importance to the Company's business, but are largely beyond the
Company's ability to control. These non-IT processes encompass the Company's
interaction with providers of local and long-distance telephony, local police
and fire response, utilities including, but not limited to, electricity and
water, and both public and private transportation.
Readiness Program
- -----------------
In order to address the remainder of what the Company believes to be
its Year 2000 risk, it has developed a multi-phase plan to identify, assess and
remediate the Year 2000 problem from its business processes. Accordingly, the
Company has categorized the following phases through which it intends to
progress in the near future:
<TABLE>
<CAPTION>
Phase Estimated Completion Date
----- -------------------------
<S> <C> <C>
I. Identification Completed
o Establish readiness program and methodology
o Identify all computer programs and collect manufacturers' statements
o Identify and evaluate all equipment with embedded programs
II. Assessment and Inventory Completed
o Awareness assessment (vendors) and inventory phase
III. Contingency Plans
o Develop written contingency plan and policy Completed
o Update contingency plan November 1999
IV. Remediation and Testing Completed
o Corrective application and sample testing
o Completion of MAS software testing - Hollywood
V. Post-Evaluation March 2000
o Post Y2K evaluation of life safety systems (implementation of full testing field services)
</TABLE>
While the Company believes that its critical internal business systems are Year
2000 ready, testing will still continue.
17
<PAGE>
Costs
- -----
The Company estimates that the total cost to remediate its controllable
Year 2000 risks will be approximately $30,000. These costs will primarily be
incurred on IT upgrades. As of September 30, 1999, approximately $4,500 had been
expended.
Risks
- -----
The Company believes that its most reasonably likely worst case
scenario is a limited failure of some portion of its customer premise equipment
leased by the Company. As a general rule, such equipment is Year 2000 ready
either as a result of recent vendor updates and upgrades, new equipment, or
equipment that is not date dependent. However, the Company does not believe that
it will be able to physically visit, assess, test and potentially remediate all
of its thousands of leased systems that are currently in operation. The Company
intends to work in concert with its equipment vendors to ensure that the risk of
the most reasonable likely worst case scenario actually occurring is reduced to
a minimum level.
Contingency Plans
- -----------------
As of September 30, 1999, the Company had developed a contingency plan.
An updated contingency plan will be created by November 1999, which will
incorporate the findings from the testing. In the event of failure of the
Company's primary monitoring process, the Company is currently capable of
performing the monitoring of electronic signals on a manual basis, as required
by its Underwriters Laboratory certification. However, as the Company works
through the planned testing phases described above, revisions may be necessary.
The Company acquires other companies from time to time as part of its
business development strategy, and it anticipates that acquisitions will
continue through the Year 2000. The Company has established procedures in its
due diligence investigations of acquisition candidates to ascertain whether or
not their products or services, or those of their critical suppliers, are Year
2000 ready, and whether or not such suppliers and key customers, if any, will be
adversely affected by the Year 2000 issue. While acquisition candidates may
provide certain information or make representations and warranties regarding
Year 2000 readiness, in some cases, the Company may be unable to verify same
until the acquisition is completed and the steps outlined herein as part of the
Company's Year 2000 program are undertaken.
The preceding "Year 2000 Readiness Disclosures" contain forward-looking
statements of the Company's expectations regarding the ability of its products
and systems to be Year 2000 ready, as well as its ability to assess the
readiness of its suppliers and customers, and related risks. These statements
relate to future events, the outcome of which is uncertain, and should be read
in conjunction with the cautionary factors listed in the Introductory Note to
this report.
18
<PAGE>
Item 6. Exhibits And Reports On Form 8-K
(a) Exhibits
Exhibit No. Description
- ----------- -----------
3(i) Articles of Incorporation dated July 7, 1999 incorporated by
reference to Exhibits 3(i) of the Company's Form 10-QSB filed
August 13, 1999.
3(ii) Amended and Restated By-Laws of the Company incorporated by
reference to Exhibit 3(ii) of the Company's Quarterly Report
on Form 10-QSB filed as of November 14, 1997
4(a) Specimen Stock Certificate incorporated by reference to
Exhibit 4(a) of the Company's Form 10-QSB Filed August 13,
1999.
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
1. No reports were filed on Form 8-K during the three months ended September
30, 1999.
19
<PAGE>
SIGNATURES
----------
In accordance with Section 12 of the Exchange Act, the registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GUARDIAN INTERNATIONAL, INC.
By: /s/ DARIUS G. NEVIN
-----------------------
Darius G. Nevin
Chief Financial Officer and Vice President
Date: November 15, 1999
20
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule (for SEC use only)
21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 452,048
<SECURITIES> 0
<RECEIVABLES> 2,973,965
<ALLOWANCES> 639,095
<INVENTORY> 0
<CURRENT-ASSETS> 3,575,502
<PP&E> 4,735,127
<DEPRECIATION> 1,134,779
<TOTAL-ASSETS> 38,514,431
<CURRENT-LIABILITIES> 7,294,206
<BONDS> 7,926,167
0
10
<COMMON> 9,103
<OTHER-SE> 5,348,407
<TOTAL-LIABILITY-AND-EQUITY> 38,514,431
<SALES> 4,929,588
<TOTAL-REVENUES> 13,485,215
<CGS> 3,891,467
<TOTAL-COSTS> 5,471,100
<OTHER-EXPENSES> 4,980,877
<LOSS-PROVISION> 366,550
<INTEREST-EXPENSE> 740,811
<INCOME-PRETAX> (2,339,883)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,339,883)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,339,883)
<EPS-BASIC> (0.40)
<EPS-DILUTED> 0
</TABLE>
