UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 1O-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarter ended March
31, 1998 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Commission File Number 1-8138
Alarmguard Holdings, Inc.
Incorporated In Delaware IRS Identification No: 33-0318116
Principal Executive Offices: Telephone (203) 795-9000
125 Frontage Road
Orange, Connecticut 06477
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares of Alarmguard Holdings, Inc.'s common stock,
$.0001 par value, outstanding as of April 30, 1998 was 5,593,948.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
ALARMGUARD HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(In thousands)
March 31 December 31
1998 1997
(unaudited)
ASSETS:
Current assets:
Cash and cash equivalents $13,311 $698
Restricted cash 2,608 1,931
Accounts receivable, net 8,442 5,558
Inventories 3,817 3,065
Other current assets 474 343
Total current assets 28,652 11,595
Property and equipment, net 3,252 2,133
Customer installation costs, net 9,169 8,868
Customer contracts and
intangibles, net 79,757 43,027
Other investments 2,097 2,245
Other assets 1,692 1,982
Total assets $124,619 $69,850
<PAGE>
ALARMGUARD HOLDINGS, INC.
Condensed Consolidated Balance Sheets (continued)
(In thousands)
March 31 December 31
1998 1997
(unaudited)
LIABILITIES AND STOCKHOLDERS' DEFICIENCY:
Current liabilities:
Accounts payable $2,105 $2,659
Accrued expenses 7,994 5,675
Current portion of notes payable 505 2,462
Deferred revenue 9,456 6,231
Other current liabilities 5,306 4,061
Total current liabilities 25,366 21,088
Notes payable, less current portion 696 549
Credit facility 63,500 46,700
Subordinated debt 3,756 4,389
Other liabilities 325 321
Cumulative Convertible Preferred
Stock, Redeemable at $1,000
par value:
Series A, 5% dividends, 35,700
shares issued and outstanding at
March 31, 1998 33,835 -
Series B, 5,000 shares issued and
outstanding at March 31, 1998 4,738 -
Stockholders' deficiency:
Common Stock, $.0001 par value,
25,000,000 shares authorized,
5,593,396 shares issued and
outstanding at March 31, 1998 and
December 31, 1997 1 1
Additional paid in capital 35,019 35,286
Accumulated deficit (42,617) (38,484)
Total stockholders' deficiency (7,597) (3,197)
Total liabilities and stockholders'
deficiency $124,619 $69,850
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ALARMGUARD HOLDINGS, INC.
Condensed Consolidated Statements of Operations
(Unaudited, in thousands, except per share data)
For The Three Months
Ended March 31
1998 1997
Revenue $10,913 $6,597
Cost of revenue 5,008 2,673
Gross profit 5,905 3,924
Selling, general and
administrative expense 4,440 3,203
Acquisition integration expense 328 -
Amortization and depreciation
expense 3,524 2,371
Total operating expense 8,292 5,574
Operating loss (2,387) (1,650)
Other income (expense):
Interest expense, net (1,435) (844)
Other, net 35 -
Net loss (3,787) (2,494)
Dividend requirement on preferred
stock (346) (171)
Loss applicable to common shares $(4,133) $(2,665)
Basic and diluted loss per common
share $(0.74) $(0.87)
Weighted average number of basic and
diluted common shares 5,593 2,877
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ALARMGUARD HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited, in thousands)
For The Three Months
Ended March 31
1998 1997
Operating activities:
Net loss $(3,787) $(2,494)
Adjustments to reconcile net loss to net
cash used in operating activities:
Amortization and depreciation 3,524 2,371
Accretion on preferred stock 73 -
Customer installation costs
incurred (1,205) (1,154)
Changes in operating assets and
liabilities, net of effects of
acquisitions 424 632
Net cash used in operating activities (971) (645)
Investing activities:
Acquisition of businesses, net of
cash acquired (36,992) -
Increase in restricted cash (677) -
Purchases of property and equipment (540) (50)
Net cash used in investing activities (38,209) (50)
Financing activities:
Net proceeds from issuance of
preferred stock 37,800 -
Proceeds from term loan 17,600 800
Proceeds from bridge loan - 500
Payments of term loan (800) -
Financing fees paid (346) -
Payments of other notes payable (2,341) (513)
Payments of capital leases (120) -
Net cash provided by financing
activities 51,793 787
Increase in cash and cash equivalents 12,613 92
Cash and cash equivalents at beginning
of period 698 230
Cash and cash equivalents at end of
period $13,311 $322
Cash paid for interest $1,222 $855
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ALARMGUARD HOLDINGS, INC.
Notes To Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Alarmguard Holdings, Inc. ("Alarmguard" or the "Company") is
the successor-in-interest to Security Systems Holdings, Inc.
("SSH") and Triton Group Ltd. ("Triton"), following the merger
("Merger") of SSH and Triton on April 15, 1997. Alarmguard,
through its wholly-owned subsidiaries, sells and installs burglar
and fire alarm systems and provides monitoring and security
system repair and maintenance services to homeowners and
businesses, principally in the Northeast and Mid-Atlantic regions
of the United States.
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the three month period ended
March 31, 1998 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1998. The
condensed consolidated balance sheet as of December 31, 1997 has
been derived from the audited consolidated balance sheet as of
that date. The unaudited interim financial information of
Alarmguard should be read in conjunction with the audited
consolidated financial statements of Alarmguard as of and for the
year ended December 31, 1997.
2. Acquisitions
On February 2, 1998, Alarmguard purchased all of the issued
and outstanding shares of capital stock of Detect, Inc.
("Pelletier"), a company located in Danbury, Connecticut, with
approximately 7,200 subscribers and Monthly Recurring Revenue
("MRR") of approximately $0.2 million, for a total purchase price
of approximately $10.4 million. The total purchase price
consisted of $9.5 million paid at closing, the assumption of $0.5
million of notes payable and $0.4 million representing an amount
due to the sellers of Pelletier based on certain post closing
adjustments. The acquisition was accounted for under the
purchase method of accounting and, accordingly, the purchase
price was preliminarily allocated to the assets acquired and
liabilities assumed based on their estimated fair values at the
date of acquisition. In connection with this acquisition, the
Company received current assets of $0.6 million, property and
equipment of $0.2 million, customer contracts of $10.8 million
and other intangibles of $0.4 million and assumed current
liabilities of $1.6 million.
During the first quarter of 1998, Alarmguard also acquired
certain operating assets of Security System Inc. ("Sentry"), of
Malden, Massachusetts and Protech Security, Inc. of New York for
an aggregate of $24.5 million in cash and $3.1 million
representing an amount due to the sellers based on certain post
closing adjustments. The acquisitions added approximately $0.6
million of MRR and approximately 20,000 customers. The
acquisitions were accounted for under the purchase method of
accounting and, accordingly, the purchase price has been
preliminarily allocated to the assets acquired and liabilities
assumed based on their estimated fair values at the respective
dates of acquisition. In connection with the acquisitions,
Alarmguard received current assets of $1.2 million, customer
contracts of $27.4 million, other intangibles of $0.4 million and
property and equipment of $0.6 million and assumed current
liabilities of $2.0 million.
Accrued expenses at March 31, 1998 include $2.2 million of
estimated costs expected to be incurred as a result of the 1997
and 1998 acquisitions. The results of operations of the acquired
companies have been included in the consolidated statements of
operations from the respective dates of acquisitions.
The following unaudited pro forma information shows the
results of the Company's operations as though the acquisitions
consummated during the first three months of 1998 had been made
as of January 1, l998 and January 1, 1997, and the acquisitions
consummated during the fiscal year of 1997 had been made as of
January 1, 1997 (in thousands, except per share data):
For The Three Months Ended
March 31,
1998 1997
Pro forma revenue $12,798 $11,979
Pro forma net loss $(5,865) $(6,814)
Pro forma basic and diluted per
share: $(1.05) $(1.22)
Shares used in computations 5,593 5,593
The pro forma results are not necessarily indicative of the
actual results of operations that would have been obtained had
the acquisitions taken place at the beginning of the respective
periods or the results that may occur in the future and do not
give effect to cost savings which are expected to occur as a
result of the consolidation of the acquired companies.
3. Inventories
Inventories consist principally of alarm components and
supplies which are carried at the lower of cost or market value.
4. Customer Installation Costs
During each of the three months ended March 31, 1998 and
1997, Alarmguard incurred approximately $1.2 million of customer
installation costs primarily attributable to the operations of
its dealer and direct marketing programs. Alarmguard added
approximately 2,100 and 2,000 customers, respectively, through
its dealer and direct marketing programs during these periods.
5. Customer Contracts and Intangibles
Customer contracts and intangibles (at cost) consist of the
following (in thousands):
March 31, December 31,
1998 1997
Acquired customer contracts $88,063 $49,807
Covenants not to compete 13,713 12,944
Goodwill 2,493 2,493
104,269 65,244
Less accumulated amortization (24,512) (22,217)
$79,757 $43,027
6. Other Investments
Other investments are comprised of certain assets held by
Triton at the time of the Merger in April 1997, which are in the
process of being liquidated (in thousands).
March 31, December 31,
1998 1997
Ridgewood Hotels, Inc. Series A
Preferred Stock $2,009 $2,009
Other 88 236
$2,097 $2,245
Alarmguard owns 450,000 shares of Series A Preferred Stock
of Ridgewood Hotels, Inc. ("Ridgewood") with a face value of $3.6
million. Alarmguard currently receives a 10% quarterly dividend
of $90,000 on this investment and the preferred stock is
redeemable at any time by Ridgewood at its face value plus
accrued dividends. The preferred stock is convertible by
Alarmguard at any time into 1,350,000 Ridgewood common shares,
which would represent approximately 47% of the Ridgewood common
shares then outstanding, or 40% fully diluted. Alarmguard
accounts for the Ridgewood investment using the cost method of
accounting.
7. Long Term Debt
On February 3, 1998, in connection with the offering of
Convertible Preferred Stock (see Note 10), Alarmguard, Inc. (the
"Borrower"), a wholly owned subsidiary of the Company, increased
the availability under the Third Amended and Restated Term Loan
and Acquisition Credit Agreement (the "Credit Facility") from $60
million to $90 million. The Credit Facility provides for
interest only advances until January 31, 2000 and amortization
thereafter. Borrowings under the Credit Facility are secured by
substantially all of the properties and assets of the Borrower
including accounts receivable, inventory, leasehold interests,
customer contracts and the capital stock of all of the
subsidiaries of the Company. Interest on the Credit Facility
accrues and is payable at the option of the Borrower at either
prime plus 1-1/2% or LIBOR plus 2.75% (approximately 8.7% at
March 31, 1998), however the Company has fixed the interest rate
on $40.0 million of its outstanding borrowings at 8.84% for three
years through an interest rate swap agreement. At March 31,
1998, outstanding borrowings under the Credit Facility were $63.5
million.
8. Stock Options
On March 10, 1998, the Board of Directors issued 365,000
additional stock options to the senior management of Alarmguard
which vest over a four-year period from the date of grant. The
exercise price for all options granted was $10.00 per share, the
quoted market value of the common stock on the date of grant.
9. Commitments and Contingencies
The Company experiences routine litigation in the normal
course of its business. Management does not believe that any
pending or threatened litigation will have a material adverse
effect on the financial condition or results of operations of the
Company.
10. Sale of Cumulative Convertible Preferred Stock
On February 3, 1998, the Company completed an offering of
40,000 shares of Cumulative Convertible Preferred Stock (35,000
shares of Series A Preferred and 5,000 shares of Series B
Preferred) are redeemable at $1,000 per share, five years from
the date of issuance, yielding gross proceeds totaling $40
million. The Company issued 700 additional shares of the Series
A Preferred Stock in exchange for $0.7 million of the Company's
subordinated debt. Net proceeds of the offering, after the
payment of investment banking fees and legal expenses, amounted
to approximately $37.8 million. The costs incurred for
completing the February 1998 offering are being amortized to the
dividend requirement on Preferred Stock over the five-year life
of the security with the unamortized balance reflected as a
reduction of the Preferred Stock's carrying value.
The Series A Preferred Stock pays quarterly cash dividends
at 5% per annum. Under the terms of the securities, holders of
the Series A and Series B Preferred Stock have the right to
convert their shares at any time, into 4,972,434 shares of the
Company's common stock at the conversion price of $8.25 per share
and $7.75 per share, respectively, subject to certain anti-
dilution provisions. The holders of the newly issued preferred
stock have the right to elect two additional members to the
Company's Board of Directors. The net proceeds from the offering
and the increased credit facility discussed in Note 7 are
intended to finance acquisitions and expand the Company's Dealer
and Direct Marketing Programs.
11. Earnings per Share
The 1997 calculation of basic and diluted loss per common
share excludes the dividend requirement on preferred stock as a
result of the conversion of the Preferred Stock and related
accrued dividends into Alarmguard Common Stock at the time of the
Merger.
All dilutive securities (stock options, warrants and
convertible preferred stock) have been excluded from the diluted
loss per common share calculation as such instruments are
antidilutive.
12. Recent FASB Pronouncements
In 1998, the FASB issued SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information." The Company
will adopt SFAS No. 131 effective for year end financial
reporting in 1998 and expects no material impact upon adoption.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Certain matters in this section constitute "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors
which may cause the actual results of Alarmguard Holdings, Inc.
(the "Company" or "Alarmguard") to be materially different from
historical results or from any results expressed or implied by
such forward looking statements. These factors are discussed
under the caption "Risk Factors" in a Registration Statement on
Form S-4 (File No. 333-23307) filed with the Securities and
Exchange Commission on March 14, 1997.
General Overview
For an overview of the Company's accounting policies, see
the Company's audited consolidated financial statements as of and
for the year ended December 31, 1997.
Alarmguard sells and installs burglar and fire alarm systems
and provides security monitoring services and security system
repair and maintenance services to homeowners and businesses,
principally in the Northeast and Mid-Atlantic regions of the
United States. Alarmguard provides its security alarm systems
and services primarily under its trademark "Alarmguard". As of
March 31, 1998, Alarmguard had approximately $2.9 million of
Monthly Recurring Revenue ("MRR") and approximately 92,000
subscribers.
On April 15, 1997, SSH completed a merger with Triton
pursuant to an Agreement and Plan of Merger dated December 23,
1996, as amended March 6, 1997. The combined company was renamed
Alarmguard Holdings, Inc., the common shares of which are listed
for trading on the American Stock Exchange under the symbol
"AGD".
Alarmguard's objective is to provide residential and
commercial security services to an increasing number of
subscribers. Alarmguard's growth strategy is to enhance its
position in the security alarm monitoring industry in the
Northeastern and Mid-Atlantic United States by increasing the
number and density of subscribers for whom it provides services.
Alarmguard is pursuing this strategy through a balanced growth
plan involving: (1) incorporating acquisitions of portfolios of
subscriber accounts in existing and contiguous markets; (2)
internal growth through direct marketing to obtain new
subscribers (the "Direct Marketing Program"); (3) acquiring
credit-approved monitoring contracts from Alarmguard authorized
dealers (the "Dealer Program"); (4) growth of Alarmguard's core
business through referrals and traditional local marketing; and
(5) acquisition of new multi-locational commercial subscribers
from its National Accounts Program. Alarmguard believes that
increasing the number and density of its subscribers will help it
to achieve economies of scale and enhance results of operations.
During the three months ended March 31, 1998, Alarmguard
acquired three companies in the security alarm installation and
monitoring business for an aggregate of $37.5 million in cash,
notes payable and amounts due to sellers based on certain post
closing adjustments. The acquisitions added approximately $0.8
million of MRR and approximately 27,000 subscribers.
Key Operating Measures
The Company employs three internal measurements to assess
the performance of its operations: Adjusted EBITDA, MRR and Gross
MRR Attrition.
Adjusted EBITDA. Adjusted EBITDA is derived by adding
Dealer and Direct Marketing Program and acquisition integration
expenses incurred, net of Dealer and Direct Marketing Program
revenues earned, to EBITDA (Earnings Before Interest, Taxes,
Depreciation and Amortization). This calculation provides a
basis for comparison of Alarmguard's results to those of other
security alarm companies that grow through the acquisition of
subscriber accounts rather than those that grow both internally
and through acquisitions. An amount similar to Adjusted EBITDA
is used by lenders in extending credit to Alarmguard. Adjusted
EBITDA does not represent cash flows from operations as defined
by generally accepted accounting principals and should not be
construed as an alternative to net income. Adjusted EBITDA was
$1.9 million for the three months ended March 31, 1998 compared
to $1.3 million for the three months ended March 31, 1997, a 51%
increase.
For The Three Months
Ended March 31
1998 1997
(in thousands)
EBITDA $1,137 $721
Less Dealer and Direct Marketing
Program revenue (348) (353)
Plus Dealer and Direct Marketing
Program expense 784 889
Plus acquisition integration expense 328 -
Adjusted EBITDA $1,901 $1,257
Monthly Recurring Revenue. MRR represents revenue that a
company in the security alarm industry is entitled to receive
under contracts (monitoring, leasing, and maintenance) in effect
at the end of such period. MRR is a term commonly used in the
security alarm industry as a measure of the size of a company.
It does not measure profitability or performance, and does not
include any allowance for future subscriber attrition or
uncollectible accounts receivable.
Gross MRR Attrition. Gross MRR attrition has an adverse
effect on the Company's financial position and results of
operations, since it affects the Company's recurring revenues.
Gross MRR attrition, generally expressed on an annualized basis,
can be measured in terms of decreased MRR resulting from canceled
subscriber accounts. Gross MRR attrition is defined by the
Company for a particular period as a quotient, the numerator of
which is equal to gross MRR lost as the result of canceled
subscriber accounts during such period and the denominator of
which is the average month end MRR during such 12 month period.
The following table sets forth the Company's MRR additions,
cancellations, and gross MRR attrition for the periods indicated
(in thousands):
Three Months Twelve Months
Ended March 31, Ended December 31,
MRR 1998 1997
Beginning of period $2,087 $1,392
Dealer and Direct Marketing
Program additions 55 193
Acquisition additions 777 586
Other additions (1) 47 134
Canceled MRR (2) (72) (218)
End of period $2,894 $2,087
Gross MRR attrition (3) 11.9% 11.8%
____________________
(1) MRR primarily generated through traditional non-investment
sales programs.
(2) Includes canceled MRR of subscribers who have moved from
homes or businesses in which an existing alarm system has already
been installed.
(3) Calculated on a trailing twelve-month basis.
Results of Operations
Three Months Ended March 31, 1998 Compared to Three Months Ended
March 31, 1997
Revenue. Revenues for the three months ended March 31, 1998
were $10.9 million, an increase of $4.3 million, or 65.4%, over
the comparable period in 1997. This increase was primarily the
result of a 63.2% increase of recurring revenue to $6.8 million
from $4.2 million and a 68.8% increase in installation revenue to
$3.4 million from $2.0 million. A significant portion of the
revenue growth was related to acquisition activity in 1997 and
1998.
Gross Profit. Gross profit increased to $5.9 million,
or 54.1% of total revenue, for the first quarter of 1998 compared
to $3.9 million, or 59.5% of total revenue, in the first quarter
of 1997. The decrease in gross profit as a percentage of total
revenue was primarily the result of several larger commercial
installations in the traditional business which had lower gross
profit margins than the Company's traditional business as well as
lower per-unit revenue for installations through the Direct
Marketing Program.
Selling, General and Administrative. Selling, general and
administrative expense for the first quarter of 1998 increased
approximately $1.2 million, or 38.6%, over the comparable period
in 1997. The increase was primarily the result of the
acquisitions as well as increased staffing requirements at the
corporate level required to facilitate the Company's growth plan
and additional expenses of operating as a public company, costs
which were not incurred during the first quarter of 1997. As a
percent of total revenue, selling, general and administrative
expense for the first quarter of 1998 decreased to 40.7% from
48.6% in the comparable 1997 period, reflecting economies of
scale resulting from incremental revenue growth.
Acquisition Integration Expenses. During the first three
months of 1998, the Company incurred $328,000 of costs associated
with the integration of acquired subscriber accounts into the
Company's system. These costs were not material in the first
quarter of 1997. Management expects to continue to incur such
costs in the future, principally relating to the acquisition and
integration of subscriber account portfolios acquired in the
first quarter of 1998 and future acquisitions.
Amortization and Depreciation. Amortization and
depreciation for the first quarter of 1998 increased by
approximately $1.2 million, or 48.6%, compared to the same period
in 1997. This increase was primarily the result of the
acquisition activity in 1997 and 1998.
Operating Loss. The operating loss for the first quarter of
1998 increased to approximately $2.4 million from $1.7 million in
the comparable 1997 period. As a percent of total revenue, the
operating loss decreased to 21.9% for the first quarter of 1998
compared to 25.0% for the same period in 1997. This improvement
reflects the increased profitability derived from incremental
revenues.
Interest Expense. Interest expense, net of interest income,
for the three months ended March 31, 1998 was $1.4 million,
compared to $0.8 million in the comparable period in 1997. This
increase is primarily the result of an increased outstanding
balance under the Company's credit facility in the first quarter
of 1998 compared to the first quarter of 1997, reflecting the
Company's growth through acquisitions combined with subscriber
additions through the Dealer and Direct Marketing Programs.
Dividend Requirement on Preferred Stock. The dividend
requirement on preferred stock during the first quarter of 1998
reflects the 5% per annum dividend on the Cumulative Convertible
Preferred Stock issued in February 1998. In the comparable
period in the prior year, this amount reflects the dividends
accrued on the Redeemable Preferred Stock of the predecessor
company that were converted to Common Stock of the Company in
connection with the Triton Merger in April 1997. The costs
incurred for completing the February 1998 offering are being
amortized to the dividend requirement on Preferred Stock over the
five-year life of the security with the unamortized balance
reflected as a reduction of the Preferred Stock's carrying value.
Liquidity and Capital Resources
Capital Resources. The Company has financed its operations
and growth since May 1992 with a combination of borrowings under
credit facilities, issuance of subordinated debentures, sale of
common and preferred stock, the 1997 Merger with Triton, and
internally generated cash flows. The Company's principal uses of
cash have been for the acquisition of subscriber accounts, costs
associated with the Dealer and Direct Marketing Programs and
interest payments on borrowings under the Credit Facility. A
substantial portion of the Company's future operating cash flow
will be used to fund the Dealer and Direct Marketing Programs and
to service borrowings under the Credit Facility and other company
debt. There can be no assurance that the Company will continue
to have the ability to meet its borrowing requirements to fund
its acquisition strategies and Dealer and Direct Marketing
Programs.
In February 1998, the Company completed an offering of
40,000 shares of Cumulative Convertible Preferred Stock (35,000
shares of Series A and 5,000 shares of Series B) at $1,000 per
share yielding gross proceeds totaling $40 million.
Concurrently, the Company issued 700 additional shares of the
Series A Preferred Stock in exchange for $0.7 million of the
company's subordinated debt. The Series A Preferred Stock pays
quarterly dividends at 5% per annum. Under the terms of the
securities, holders of the Series A and Series B Preferred Stock
have the right to convert their shares at any time, into shares
of the Company's Common Stock at the conversion price of $8.25
per share and $7.75 per share, respectively, subject to certain
anti-dilution provisions. Concurrent with the offering, the
Company increased its credit facility from $60 million to $90
million. The proceeds from the offering and borrowings from the
expanded Credit Facility are being used to finance acquisitions
and expand the company's Dealer and Direct Marketing Programs.
As of March 31, 1998, the Company had $13.3 million in cash.
This represents the net proceeds from the Preferred Stock
offering that were not used to fund first quarter acquisitions
and operations. Additionally, the Company had $63.5 million
outstanding under its Credit Facility with approximately $1.6
million of availability at the end of the quarter. The Company's
ability to borrow under the Credit Facility is limited by certain
representations and financial covenants.
The Credit Facility is a non-amortizing loan which converts
to a five-year amortizing term loan on April 30, 2000.
Borrowings under the Credit Facility are secured by substantially
all of the properties and assets of the Borrower including
accounts receivable, inventory, leasehold interests, customer
contracts and the capital stock of all of the subsidiaries of the
Company.
Alarmguard has subordinated debentures of $3.9 million
bearing interest at 15%, which are due in April 1999. In
connection with the subordinated debt, Alarmguard issued warrants
to purchase 215,939 shares of Alarmguard Common Stock at an
exercise price of $11.11 per share, the value of which was
accounted for as a discount to the subordinated debt and is being
amortized over the two year life of the underlying debt
instrument. The Company also has a total of $3.8 million due to
sellers of previous acquisitions, a portion of which is secured
by various notes. A portion of the amounts due to sellers
requires the Company to make periodic principal and interest
payments.
The Company intends to continue to use its existing cash
balances, cash flows from operations, the liquidation of its
other investments and borrowings under the credit facility to
finance the addition of subscriber accounts, primarily through
acquisitions and the Dealer and Direct Marketing Programs.
Additionally, the Company, depending on future needs and the
cost and availability of various financing alternatives, may from
time to time seek additional debt or equity financing in the
public or private markets in order to continue to support the
growth of subscriber accounts. There can be no assurance that
the Company will be able to obtain such capital on acceptable
terms or at all.
If cash flows from operations, combined with borrowings
under the credit facility and other borrowings are insufficient
to fund the Company's growth strategies, management would curtail
the Dealer and Direct Marketing Programs and implement a cost
reduction strategy to the extent necessary to satisfy its
obligations.
Liquidity. During the first three months of 1998 and 1997,
the Company's net cash used in operating activities was
approximately $1.0 million and $0.6 million, respectively. The
increase was primarily the result of the increased interest costs
and acquisition integration expenses, partially offset by
improved operating margins due to incremental revenue growth and
resulting economies of scale.
For the first quarter of 1998 and 1997, the Company's net
cash used in investing activities was approximately $38.2 million
and $50,000, respectively. This significant increase reflects
the acquisitions in the first quarter of 1998.
Net cash provided by financing activities was approximately
$51.8 million in the first quarter of 1998 as compared to $0.8
million in the year ago period. The increase reflects the cash
generated from the Preferred Stock offering and increased
borrowings under the credit facility discussed above.
The Company incurred net losses of approximately $3.8
million and $2.5 million for the first quarter of 1998 and 1997,
respectively. The Company expects to incur losses for the
foreseeable future, the result of its continuing growth strategy.
Recent FASB Pronouncements. In 1998, the FASB issued SFAS
No. 131, "Disclosure about Segments of an Enterprise and Related
Information." The Company will adopt SFAS No. 131 effective for
year end financial reporting in 1998 and expects no material
impact upon adoption.
The Company continues to review "Year 2000" issues. Based
on its review to date, it does not anticipate incurring any
significant costs associated with this issue.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits are filed with this quarterly report
on Form l0-Q:
Exhibits
Number Exhibit
27 Financial data schedule
(b) Reports on Form 8-K
The Company filed a current report on Form 8-K dated April
1, 1998, in which the Company reported under Item 2. Acquisition
or Disposition of Assets, the acquisition of certain assets of
Security Systems, Inc. (dba "Sentry") completed on March 17,
1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALARMGUARD HOLDINGS, INC.
DATE: May 15, 1998 By: /s/ David Heidecorn
-------------------------
David Heidecorn
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,919
<SECURITIES> 0
<RECEIVABLES> 10,349
<ALLOWANCES> 1,907
<INVENTORY> 3,817
<CURRENT-ASSETS> 28,652
<PP&E> 24,512
<DEPRECIATION> 12,091
<TOTAL-ASSETS> 124,619
<CURRENT-LIABILITIES> 25,366
<BONDS> 0
40,700
0
<COMMON> 1
<OTHER-SE> (7,598)
<TOTAL-LIABILITY-AND-EQUITY> 124,619
<SALES> 1,210
<TOTAL-REVENUES> 10,913
<CGS> 1,210
<TOTAL-COSTS> 5,008
<OTHER-EXPENSES> 8,257
<LOSS-PROVISION> 243
<INTEREST-EXPENSE> 1,435
<INCOME-PRETAX> (3,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,787)
<EPS-PRIMARY> (0.74)
<EPS-DILUTED> (0.74)
</TABLE>
