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 March 31, 2000
[ ] 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 May 14, 2000, 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__
<PAGE>
GUARDIAN INTERNATIONAL, INC.
Table of Contents
<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2000 and
December 31, 1999 1
Consolidated Statements of Operations for the Three Months
Ended March 31, 2000 and 1999 2
Consolidated Statement of Changes in Shareholders' Equity
for the Three Months Ended March 31, 2000 3
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 2000 and 1999 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 15
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 378,607 $ 578,034
Accounts receivable, net of allowance for doubtful accounts of
$575,046 and $549,356, respectively 2,624,230 2,896,317
Current portion of notes receivable 72,260 73,564
Inventory 530,467 458,385
Other 177,401 237,697
------------ ------------
Total current assets 3,782,965 4,243,997
Property and equipment, net 4,299,159 4,101,810
Customer accounts, net 29,238,378 30,230,816
Goodwill and other intangible assets, net 1,725,328 1,789,014
Notes receivable, less current portion 64,130 51,683
Deposits and other assets 89,863 90,273
------------ ------------
Total assets $ 39,199,823 $ 40,507,593
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,532,083 $ 3,632,094
Current portion of unearned revenue 3,279,186 3,230,957
Current portion of long term obligations 707,487 807,421
------------ ------------
Total current liabilities 7,518,756 7,670,472
Unearned revenue, less current portion 1,640,183 1,656,852
Long term obligations, less current portion 10,545,408 10,608,280
------------ ------------
Total liabilities 19,704,347 19,935,604
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,
8,384,441 shares issued and outstanding 8,385 8,385
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 19,510,194 19,516,784
Accumulated deficit (16,420,747) (15,350,824)
------------ ------------
Total shareholders' equity 3,098,476 4,174,989
------------ ------------
Total liabilities and shareholders' equity $ 39,199,823 $ 40,507,593
============ ============
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
1
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
----------------------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Revenues:
Monitoring $ 3,117,339 $ 2,781,516
Installation and service 1,795,133 1,548,373
----------- -----------
Total revenues 4,912,472 4,329,889
----------- -----------
Operating expenses:
Monitoring 512,152 533,233
Installation and service 1,455,058 1,198,319
Selling, general and administrative 1,807,509 1,669,882
Amortization of customer accounts 1,232,234 1,234,917
Depreciation and amortization 230,113 190,680
----------- -----------
Total operating expenses 5,237,066 4,827,031
----------- -----------
Operating loss (324,594) (497,142)
Interest and other 296,438 255,696
----------- -----------
Net loss (621,032) (752,838)
Preferred stock dividends 448,891 434,627
----------- -----------
Net loss applicable to common stock $(1,069,923) $(1,187,465)
=========== ===========
Loss per common share $ (0.12) $ (0.13)
=========== ===========
Weighted average shares outstanding 9,018,476 9,216,276
=========== ===========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
2
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Series D Common Stock Common Stock
Preferred Stock Class A Class B
--------------- ------- -------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance December 31, 1999 10,120 $ 10 8,384,441 $ 8,385 634,035 $ 634
Equity issuance costs -- -- -- -- -- --
Series C Preferred Stock Dividends -- -- -- -- -- --
Series D Preferred Stock Dividends -- -- -- -- -- --
Net loss -- -- -- -- -- --
-------- -------- ------------ ------- --------- -------
Balance March 31, 2000 10,120 $ 10 8,384,441 $ 8,385 634,035 $ 634
======== ======== ============ ======= ========= =======
</TABLE>
[RESTUBBED TABLE]
<TABLE>
<CAPTION>
Additional
Paid-in Accumulated
Capital Deficit Total
------- ------- -----
<S> <C> <C> <C>
Balance December 31, 1999 $ 19,516,784 $(15,350,824) $ 4,174,989
Equity issuance costs (6,590) -- (6,590)
Series C Preferred Stock Dividends -- (286,948) (286,947)
Series D Preferred Stock Dividends -- (161,943) (161,944)
Net loss -- (621,032) (621,032)
------------ ------------ ------------
Balance March 31, 2000 $ 19,510,194 $(16,420,747) $ 3,098,476
============ ============ ============
The accompanying notes are an integral part of this consolidated financial statement.
</TABLE>
3
<PAGE>
GUARDIAN INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended
-------------------------------
March 31, March 31,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (621,032) $ (752,838)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 230,113 190,680
Amortization of customer accounts 1,232,234 1,234,917
Amortization of capitalized installation costs 301,316 222,839
Amortization of deferred financing costs 17,862 64,431
Provision for doubtful accounts 129,028 118,850
Provision for inventory losses -- 15,000
Changes in assets and liabilities, net of acquisitions:
Accounts receivable 143,059 (163,791)
Deposits and other assets (26,044) (58,542)
Accounts payable and accrued expenses (261,954) 89,780
Unearned revenue 31,560 137,228
----------- -----------
Net cash provided by operating activities 1,176,142 1,098,554
----------- -----------
Cash flows from investing activities:
Purchase of fixed assets (378,113) (536,688)
Purchase and placement of customer accounts (541,112) (611,977)
----------- -----------
Net cash used in investing activities (919,225) (1,148,665)
----------- -----------
Cash flows from financing activities:
Payments of long term obligations (795,701) (175,752)
Proceeds from line of credit 632,895 425,517
Payment of equity issuance costs (6,590) (3,141)
Payment of Series C Preferred Stock cash dividends (286,948) (229,558)
----------- -----------
Net cash provided by (used in) financing activities (456,344) 17,066
----------- -----------
Net decrease in cash and cash equivalents (199,427) (33,045)
Cash and cash equivalents, beginning of period 578,034 865,857
----------- -----------
Cash and cash equivalents, end of period $ 378,607 $ 832,812
=========== ===========
Supplemental disclosures:
Interest paid $ 437,557 $ 231,689
Non cash investing and financing activities:
Contract holdbacks applied against accounts written off 3,972 13,290
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
4
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Basis of Presentation
---------------------
The accompanying unaudited consolidated 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, 1999, included in the Company's Annual Report on Form 10-KSB.
Revenue Recognition
-------------------
Installation Revenue. Prior to 1998, installation revenues were recognized
when installations of security alarm systems were performed. Costs of
providing installations were charged to income in the period when the
installation occurred, except in cases where the Company maintained
ownership of the equipment installed, in which case the Company capitalized
the cost of the equipment to property and equipment and depreciated the
amount over a seven year period. Net margins on installation activities
prior to 1998 were not material to the Company's operations.
In 1998, as a result of the acquisition of Mutual, the Company adopted a
new accounting policy related to installation activity due to the nature of
the high-end commercial installations performed by Mutual. The Company
defers the excess of installation revenue over estimated selling costs and
amortizes such difference over the initial term of the non-cancelable
customer monitoring/service contract (generally over five years). Costs
attributed to providing the installations, which include direct labor,
direct materials and direct overhead, are capitalized and amortized over a
five year period. All other costs associated with the installation are
charged to income in the period when the installation occurs.
Monitoring/Service Revenue. Customers are billed for monitoring and
maintenance services primarily on a monthly or quarterly basis in advance
of the period in which such services are provided. Unearned revenues result
from billings in advance of performance of services. Contracts for
monitoring services are generally for an initial non-cancelable term of
three to five years with automatic renewal on an annual basis thereafter,
unless terminated by either party. A substantial number of contracts are on
an automatic renewal basis.
Reclassification
----------------
Certain 1999 amounts in the consolidated financial statements have been
reclassified to conform to the 2000 presentation.
2. PROPERTY AND EQUIPMENT, NET
During the three months ended March 31, 2000, the Company expended
approximately $378,000 for the purchase of fixed assets, including
subscriber premises equipment approximating $253,000.
5
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. CUSTOMER ACCOUNTS, NET
The following is an analysis of the changes in acquired customer
accounts:
<TABLE>
<CAPTION>
Three Months Ended Year Ended
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Balance, beginning of period $30,230,816 $ 31,552,324
Purchase of customer accounts from dealers 209,079 2,819,205
Internally generated accounts 336,005 1,774,330
Charges against contract holdbacks (3,972) (25,076)
Amortization of capitalized installation costs (301,316) (1,016,836)
Amortization of customer accounts (1,232,234) (4,873,131)
----------- ------------
Balance, end of period $29,238,378 $ 30,230,816
=========== ============
</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 $322,873 and $297,881 at March 31, 2000 and
December 31, 1999, 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.
4. GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill and other intangible assets, net, consist of the following:
<TABLE>
<CAPTION>
Amortization March 31, December 31,
Period 2000 1999
------ ---- ----
<S> <C> <C> <C>
At cost:
Goodwill 10 years $ 1,943,211 $ 1,943,211
Deferred financing costs 3 years 812,667 812,667
Covenant not to compete and other 5 - 10 years 446,094 442,569
----------- -----------
3,201,972 3,198,447
Accumulated amortization (1,476,644) (1,409,433)
----------- -----------
$ 1,725,328 $ 1,789,014
=========== ===========
</TABLE>
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
March 31, December 31,
2000 1999
---- ----
Trade accounts payable $ 783,119 $ 578,660
Contract holdbacks 322,873 297,881
Preferred dividends payable 1,054,323 892,380
Accrued expenses 1,371,768 1,863,173
---------- ----------
$3,532,083 $3,632,094
========== ==========
6
<PAGE>
GUARDIAN INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. LONG TERM OBLIGATIONS
Long term obligations consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---- ----
<S> <C> <C>
Credit facility with financial institution $10,355,629 $10,338,757
Capital lease obligations 312,630 348,648
Equipment notes payable and other 584,636 728,296
----------- -----------
11,252,895 11,415,701
Less-current portion (707,487) (807,421)
----------- -----------
$10,545,408 $10,608,280
=========== ===========
</TABLE>
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 March 31, 2000, 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). 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 March 31, 2000. At March 31, 2000, $5 million was
available under the Renewed Credit Facility.
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, 1999 filed with the Securities and Exchange Commission on March 30,
2000.
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 Company
is exploring a third core strategy of direct investments in companies offering
related and unrelated technology and services. 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.
8
<PAGE>
Alarm monitoring revenues generate favorable gross margins.
Historically, installation and service activity generated unfavorable gross
margins because such activity was necessary for the 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 growth plan involving incorporating acquisitions of
portfolios of subscriber accounts in existing and contiguous markets and growth
in the Company's existing markets 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 of 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. The following table provides a calculation of
EBITDA for the three months ended March 31, 2000 and 1999:
Three Months Ended
------------------
March 31,
---------
2000 1999
---- ----
(Unaudited)
Net loss $ (621,032) $ (752,838)
Plus:
Amortization of customer contracts 1,232,234 1,234,917
Depreciation and amortization 230,113 190,680
Interest expense and other 296,438 255,696
---------- -----------
EBITDA $1,137,753 $ 928,455
========== ===========
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 March 31, 2000
and 1999 was approximately $1,063,000 and $935,000, 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 twelve months ended March 31, 2000 and 1999 was less than
10%, on an annualized basis.
10
<PAGE>
Results of Operations
The following table sets forth certain operating data as a percentage
of total revenues for the periods indicated for consolidated operations.
Three Months Ended
March 31,
---------
2000 1999
---- ----
Revenues
Monitoring 63.5 64.2
Installation and service 36.5 35.8
----- -----
Total revenues 100.0 100.0
Operating expenses
Monitoring 10.4 12.3
Installation and service 29.6 27.7
Selling, general and administrative 36.8 38.6
----- -----
76.8 78.6
Income before interest expense, amortization and
depreciation
Interest expense and other 6.0 5.9
Amortization of customer contracts 25.1 28.5
Depreciation and amortization 4.7 4.4
----- -----
35.8 38.8
Net loss (12.6) (17.4)
===== =====
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
Revenue. Total revenues for the three months ended March 31, 2000
increased 13.5% to approximately $4.9 million from approximately $4.3 million
during the corresponding period in the prior year. Monitoring revenues for the
three months ended March 31, 2000 increased to approximately $3.1 million, or
12%, from approximately $2.8 million during the corresponding period of the
prior year. Installation and service revenues for the three months ended March
31, 2000 increased by 16% to approximately $1.8 million, compared to
approximately $1.5 million during the corresponding period of the prior year.
Total retail subscribers approximated 26,200 at March 31, 2000, compared to
22,700 at March 31, 1999, a net increase of 15%. The increase in monitoring
revenues and number of subscribers in the first quarter of 2000 from the first
quarter of 1999 is attributable to the Company's installation activity and to
the purchase of accounts in the latter part of 1999. The increase in
installation and service revenues in the first quarter of 2000 compared to the
prior year's quarter is a result of the Company's increased efforts in internal
installation activity.
Operating Expenses. Total operating expenses, excluding depreciation
and amortization, for the three months ended March 31, 2000 increased 11% to
approximately $3.8 million, compared to approximately $3.4 million during the
corresponding period in the prior year. Monitoring expenses decreased 4% to
approximately $512,000, compared to approximately $533,000 during the
corresponding period in the prior year. As a percentage of monitoring revenues
during the three months ended March 31, 2000, monitoring expenses were 16%,
compared to 19% during the corresponding period in the prior year. The decrease
in monitoring costs was a result of cost efficiencies which
11
<PAGE>
included the transfer of outside monitored accounts to the Company's monitoring
facilities. Installation and service costs during the three months ended March
31, 2000 increased by 21% to approximately $1.5 million, compared to
approximately $1.2 million during the corresponding period in the prior year.
Installation and service costs were 81% of related revenues during the three
months ended March 31, 2000, compared to 77% 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 March 31, 2000 compared to the quarter ended March 31, 1999.
Gross Profit. Total gross profit, defined as total revenues less
monitoring and installation and service costs, increased by 13% to approximately
$2.9 million during the three months ended March 31, 2000, compared to
approximately $2.6 million during the corresponding period in the prior year.
Gross profit from monitoring revenues increased by 16% to approximately $2.6
million during the three months ended March 31, 2000, compared to approximately
$2.2 million during the corresponding period in the prior year. The increase in
gross profit from monitoring revenues is primarily attributable to the Company's
1999 acquisitions of monitored accounts for which the incremental costs to
monitor are lower than the Company's average cost in 1999, as well as more
efficient operations. Gross profit from installation and service activities
decreased to approximately $340,000 during the three months ended March 31,
2000, from approximately $350,000 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 8% to approximately $1.8 million
during the three months ended March 31, 2000, compared to approximately $1.7
million during the corresponding period in the prior year. The increase in SG&A
costs in 2000 from 1999 is related primarily to additional personnel and
resources necessary to service the Company's growing customer base.
Amortization of Customer Contracts. Amortization of customer contracts
decreased by less than 1%, remaining at approximately $1.2 million during the
three months ended March 31, 2000, compared to the corresponding period in the
prior year. This steady amortization expense can be mostly attributed to the
fact that account portfolio purchases have been in proportion to account
write-offs. Costs of acquired contracts are amortized over 10 years, unless a
contract is canceled and not replaced by the corresponding independent alarm
company, in which case the remaining unamortized balance is written off as a
charge to amortization expense.
Depreciation and Amortization. Depreciation and amortization increased
by 21% to approximately $230,000 during the three months ended March 31, 2000,
compared to approximately $191,000 during the corresponding period in the prior
year. Such costs include depreciation of property and equipment (the gross
balance of which increased to approximately $5.8 million at March 31, 2000 from
approximately $5.4 million at March 31, 1999) and the amortization of certain
other intangible assets.
Interest Expense and Other. Interest expense and other increased 16% to
approximately $296,000 during the three months ended March 31, 2000, compared to
approximately $256,000 during the corresponding period in the prior year. The
increase in interest expense resulted from increased borrowings under the
Renewed Credit Facility. Total borrowings under the Renewed Credit Facility
increased to approximately $10.4 million at March 31, 2000 from approximately
$6.4 million at March 31, 1999.
12
<PAGE>
Net Loss. Net loss applicable to common stock for the three months
ended March 31, 2000 was approximately $(1.1) million, or $(0.12) per share,
compared to a net loss of approximately $(1.2) million, or $(0.13) per share,
during the corresponding period of the prior year.
Liquidity and Capital Resources
As of March 31, 2000, 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 $1.1 million of EBITDA in the three months ended March 31, 2000.
At March 31, 2000, there was $5.0 million of availability under the Renewed
Credit Facility. Cash flow from operating activities was $1.2 million for the
three months ended March 31, 2000.
Capital Resources. 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 connection to
the October 1998 investment by Protection One Investments, Inc. (see Note 10 to
the Company's Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999),
Heller consented to 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 March 31, 2000.
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.
Liquidity. Net cash provided by operating activities during the three
months ended March 31, 2000 was approximately $1.2 million. The Company incurred
a net loss of approximately $621,000 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 $1.8 million and
a bad debt provision of approximately $129,000. Other operating cash flows
included cash inflows of approximately $175,000 related to increases in accounts
receivable and unearned revenue and cash outflows of approximately $288,000
related to other assets and net decreases in liabilities.
Net cash used in investing activities was approximately $919,000 during
the three months ended March 31, 2000 and was comprised of approximately
$541,000 used in the purchase and placement of customer accounts and the
purchases of fixed assets of approximately $378,000 which includes equipment
under lease at customer premises of approximately $253,000.
13
<PAGE>
Net cash used in financing activities was approximately $456,000 during
the three months ended March 31, 2000, consisting primarily of repayments to
Heller and other long-term debt of approximately $796,000, payment of cash
dividends on preferred stock of approximately $287,000, and costs related to the
issuance of equity securities of approximately $7,000. These payments were
offset by proceeds under borrowings from Heller of approximately $612,000. The
Company's cash balance was $378,607 as of March 31, 2000.
Total shareholders' equity was $3,098,476 at March 31, 2000, decreasing
by a net amount of $1,076,513 during the three months ended March 31, 2000. The
net decrease resulted from the payment and accrual of dividends on the Company's
preferred stock of approximately $449,000 and the net loss of approximately
$621,000.
Affiliation with Western Resources, Inc. As discussed in the Company's
1999 Form 10-KSB, in Part I, Item I "1999 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.
14
<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 Exhibit 3(i) of the Company's Form 10-QSB filed
August 13, 1999.
3(ii) Amended and Restated By-Laws of the Company dated March 2,
2000 incorporated by reference to Exhibit 3(ii) of the
Company's Form 10-KSB filed March 30, 2000.
3(iii) Articles of Amendment to Articles of Incorporation of
Guardian International, Inc. as filed with the Florida
Secretary of State on March 9, 2000 incorporated by reference
to Exhibit 3(iii) of the Company's Form 10-KSB filed March
30, 2000.
4(a) Specimen Stock Certificate incorporated by reference to
Exhibit 4(a) of the Company's Form 10-QSB filed August 13,
1999.
10(a) Amended and Restated Loan and Security Agreement with Heller
Financial, Inc. dated as of February 23, 1998, incorporated
by reference to Exhibit 10(j) of the Company's Form 10-KSB
filed March 31, 1998.
10(b) Stock Purchase Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(a) of the Company's
Form 8-K filed as of March 10, 1998.
10(c) Registration Rights Agreement dated as of February 23, 1998
incorporated by reference to 10(b) of the Company's Form 8-K
filed as of March 10, 1998.
10(d) Escrow and Pledge Agreement dated as of February 23, 1998
incorporated by reference to Exhibit 10(c) of the Company's
Form 8-K filed as of March 10, 1998.
10(e) Employment Agreement with Joel A. Cohen dated as of February
1, 1998 incorporated by reference to Exhibit 10(d) of the
Company's Form 8-K filed as of March 10, 1998.
10(f) Employment Agreement with Raymond L. Adams dated as of
February 1, 1998 incorporated by reference to Exhibit 10(e)
of the Company's Form 8-K filed as of March 10, 1998.
10(g) Asset Purchase Agreement effective as of March 9, 1998
incorporated by reference to Exhibit 10(a) of the Company's
Form 8-K filed as of March 24, 1998.
10(h) Warranty Bill of Sale dated as of March 5, 1998 incorporated
by reference to Exhibit 10(b) of the Company's Form 8-K filed
as of March 24, 1998.
10(i) Assignment and Assumption Agreement dated as of March 5, 1998
incorporated by reference to Exhibit 10(c) of the Company's
Form 8-K filed as of March 24, 1998.
10(j) Guaranty Agreement dated as of March 9, 1998 incorporated by
reference to Exhibit 10(d) of the Company's Form 8-K filed as
of March 24, 1998.
10(k) Escrow Agreement date March 9, 1998 incorporated by reference
to Exhibit 10(e) to the Company's Form 8-K filed as of March
24, 1998.
10(l) Employment Agreement with Dan Lawrence dated March 9, 1998
incorporated by reference to Exhibit 10(f) of the Company's
Form 8-K filed as of March 24, 1998.
15
<PAGE>
10(m) Amendment to Registration Rights Agreement dated as of
February 23, 1998, incorporated reference to Exhibit 10(gg)
to the Company's Form 10-KSB filed as of March 31, 1998.
10(n) Stock Subscription Agreement dated as of February 23, 1998,
incorporated by reference to Exhibit 10(hh) to the Company's
Form 10-KSB filed as of March 31, 1998.
10(o) Stock Purchase Agreement dated as of April 27, 1998,
incorporated by reference to Exhibit 10(a) to the Company's
Form 10-QSB filed as of August 14, 1998.
10(p) Employment Agreement with David Weston between Precision and
the Company dated as of April 27, 1998, incorporated by
reference to Exhibit 10(b) to the Company's Form 10-QSB filed
as of August 14, 1998.
10(q) Indemnification Agreement between sellers of Precision and
the Company dated April 27, 1998, incorporated by reference
to Exhibit 10(c) to the Company's Form 10-QSB filed as of
August 14, 1998.
10(r) Confidentiality, Noncompetition and Nonsolicitation Agreement
with Alan Dubow dated April 27, 1998, incorporated by
reference to Exhibit 10(d) to the Company's Form 10-QSB filed
as of August 14, 1998.
10(s) Confidentiality, Noncompetition and Nonsolicitation Agreement
with Richard Clark dated April 27, 1998, incorporated by
reference to Exhibit 10(e) to the Company's Form 10-QSB filed
as of August 14, 1998.
10(t) Confidentiality, Noncompetition and Nonsolicitation Agreement
with Jeff Chivers dated April 27, 1998, incorporated by
reference to Exhibit 10(f) to the Company's Form 10-QSB filed
as of August 14, 1998.
10(u) Stock Purchase Agreement dated as of August 13, 1998,
incorporated by reference to Exhibit 10(a) to the Company's
Form 10-QSB filed as of November 16, 1998.
10(v) Escrow Agreement dated as of August 13, 1998, incorporated by
reference to Exhibit 10(b) to the Company's Form 10-QSB filed
as of November 16, 1998.
10(w) Employment Agreement between Vincent Monardo and the Company
dated August 13, 1998, incorporated by reference to Exhibit
10(c) to the Company's Form 10-QSB filed as of November 16,
1998.
10(x) Employment Agreement between Kevin Killea and the Company
dated August 13, 1998, incorporated by reference to Exhibit
10(d) to the Company's Form 10-QSB filed as of November 16,
1998.
10(y) Employment Agreement between Michael Assenza and the Company
dated August 13, 1998, incorporated by reference to Exhibit
10(e) to the Company's Form 10-QSB filed as of November 16,
1998.
10(z) Employment Agreement between Paul Ferrara and the Company
dated August 13, 1998, incorporated by reference to Exhibit
10(f) to the Company's Form 10-QSB filed as of November 16,
1998.
10(aa) 1999 Stock Option Plan incorporated by reference to Exhibit A
to the Company's Schedule 14-A filed as of May 27, 1999.
10(bb) Severance Agreement between Darius G. Nevin and the Company
dated January 19, 2000.
10(cc) Severance Agreement between Richard Ginsburg and the Company
dated January 19, 2000.
10(dd) Non-Qualified Stock Option Agreement between Douglas T. Lake
and the Company, effective April 28, 1998.
16
<PAGE>
10(ee) Non-Qualified Stock Option Agreement between David Heidecorn
and the Company, effective May 12, 1999.
10(ff) Non-Qualified Stock Option Agreement between William
Remington and the Company, effective September 13, 1999.
10(gg) Stock Option Agreement between Richard Ginsburg and the
Company, effective October 15, 1997.
10(hh) Stock Option Agreement between Darius G. Nevin and the
Company, effective October 15, 1997.
10(ii) Stock Option Agreement between Joel Cohen and the Company,
effective February 23, 1998.
10(jj) Stock Option Agreement between Raymond Adams and the Company,
effective February 23, 1998.
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
March 31, 2000.
17
<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: May 15, 2000
18
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule (for SEC use only)
19
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<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 378,607
<SECURITIES> 0
<RECEIVABLES> 3,271,536
<ALLOWANCES> 575,046
<INVENTORY> 0
<CURRENT-ASSETS> 3,782,965
<PP&E> 5,768,851
<DEPRECIATION> 1,469,692
<TOTAL-ASSETS> 39,199,823
<CURRENT-LIABILITIES> 7,518,756
<BONDS> 10,545,408
0
10
<COMMON> 9,019
<OTHER-SE> 3,089,447
<TOTAL-LIABILITY-AND-EQUITY> 39,199,823
<SALES> 1,795,133
<TOTAL-REVENUES> 4,912,472
<CGS> 1,455,058
<TOTAL-COSTS> 1,967,210
<OTHER-EXPENSES> 1,678,481
<LOSS-PROVISION> 129,028
<INTEREST-EXPENSE> 296,438
<INCOME-PRETAX> (621,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (621,032)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (621,032)
<EPS-BASIC> (0.12)
<EPS-DILUTED> 0
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