SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest Commission File Number 1-8138
event reported): March 17, 1998
ALARMGUARD HOLDINGS, INC.
Incorporated in Delaware IRS Employee Identification Number:
33-0318116
Principal Executive Office: Telephone: (203) 795-9000
125 Frontage Road
Orange, CT 06477
<PAGE>
This Current Report on Form 8-K/A is filed by Alarmguard Holdings,
Inc. ("Alarmguard" or the "Company"), a Delaware corporation, as an
amendment to that certain Current Report on Form 8-K filed by Alarmguard on
April 1, 1998.
Item 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired.
The following audited financial statements of Sentry
Protective Systems, a division of Security Systems Inc.
("Sentry"), as of and for the year ended December 31, 1997 are
provided herein:
(1) Report of Independent Auditors
(2) Balance Sheet as of December 31, 1997
(3) Statement of Operations and Divisional Net Asset Deficiency
for the year ended December 31, 1997
(4) Statement of Cash Flows for the year ended December 31, 1997
(5) Notes to Financial Statements
(b) Pro Forma Financial Information.
The following unaudited pro forma condensed combined financial
information sets forth, for the respective periods and as of the dates
indicated, the results of operations and the financial position of
Alarmguard after giving effect to the acquisition of certain assets of
Sentry on March 17, 1998 as if the transaction was consummated as of the
respective dates indicated below. The pro forma information also gives
effect to the sale by the Company of 40,700 shares of Cumulative
Convertible Preferred Stock at $1,000 per share (the "Preferred Stock
Offering") in February 1998, generating net cash proceeds of approximately
$37.8 million. A portion of the cash proceeds from the Preferred Stock
Offering was used to complete the Sentry acquisition. The unaudited pro
forma financial information should be read in conjunction with Alarmguard's
audited historical consolidated financial statements and notes thereto as
of December 31, 1997 and 1996 and for each of the three years in the period
ended December 31, 1997.
The unaudited pro forma financial information is presented for
illustrative purposes only and is not necessarily indicative of the
operating results or financial position that actually would have occurred
if the Sentry acquisition and Preferred Stock Offering had been consummated
as of these dates indicated, nor is it necessarily indicative of future
operating results or financial position.
The unaudited pro forma condensed combined balance sheet as of
December 31, 1997 reflects the Sentry acquisition and Preferred Stock
Offering as if such transactions had occurred on December 31, 1997. The
unaudited pro forma condensed combined statement of operations for the year
ended December 31, 1997 reflects the Sentry acquisition and Preferred Stock
Offering as if the transactions had occurred on January 1, 1997.
<PAGE>
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, hereunto duly authorized.
ALARMGUARD HOLDINGS, INC.
Dated: May 29, 1998 By: /s/ David Heidecorn
------------------------
David Heidecorn
Chief Financial Officer and
Executive Vice President
<PAGE>
Item 7 (a) Financial Statements of Business Acquired
Audited Financial Statements of Sentry Protective Systems, a division of
Security Systems Inc. ("Sentry") as of and for the year ended
December 31, 1997.
Report of Independent Auditors
The Board of Directors and Stockholders
Security Systems, Inc.
We have audited the accompanying balance sheet of Sentry Protective Systems
(a division of Security Systems, Inc.) as of December 31, 1997, and the
related statements of operations and divisional net asset deficiency and
cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sentry Protective
Systems at December 31, 1997, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the financial statements, in 1997 the Company
changed its method of accounting for lease revenue and related direct
costs.
/s/ Ernst & Young LLP
Stamford, Connecticut
May 15, 1998
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Balance Sheet
December 31, 1997
(in thousands)
Assets
Current assets:
Cash $ 208
Accounts receivable, less allowance for doubtful 1,485
accounts of $1,155
Inventories 359
Prepaid expenses and other current assets 347
Total current assets 2,399
Property and equipment, net 634
Customer installation costs, net of accumulated 156
amortization of $353
Customer contracts, net of accumulated 1,918
amortization of $1,260
Other assets 29
Total assets $ 5,136
Liabilities and divisional net asset deficiency
Current liabilities:
Accounts payable $ 771
Accrued expenses 433
Customer deposits 357
Deferred revenue 1,562
Revolving loan facility 10,100
Note payable to stockholders, including accrued 462
interest of $12
Other current liabilities 368
Total current liabilities 14,053
Other liabilities 167
Commitments and contingencies (Note 9)
Divisional net asset deficiency (9,084)
Total liabilities and divisional net asset $ 5,136
deficiency
See accompanying notes.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Statement of Operations and Divisional Net Asset Deficiency
Year ended December 31, 1997
(in thousands)
Recurring revenue $ 6,832
Installation revenue 1,857
Service revenue 1,038
Total revenue 9,727
Monitoring expense (807)
Installation expense (4,245)
Service expense (1,204)
Total cost of revenue (6,256)
Gross profit 3,471
Selling, general and administrative expense (7,071)
Amortization and depreciation expense (1,014)
Total operating expenses (8,085)
Operating loss (4,614)
Other income (expense):
Interest expense (1,038)
Interest income 25
Gain on sale of customer contracts 1,289
Other, net 15
Loss before extraordinary item (4,323)
Extraordinary loss on refinancing of debt (102)
Net loss (4,425)
Divisional net asset deficiency, beginning of (5,511)
year
Divisional borrowings 852
Divisional net asset deficiency, end of year $(9,084)
See accompanying notes.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Statement of Cash Flows
Year ended December 31, 1997
(in thousands)
Operating activities:
Net loss $(4,425)
Adjustments to reconcile net loss to net cash used
in operating activities:
Gain on sale of customer contracts (1,289)
Amortization and depreciation 1,014
Provision for bad debts 864
Loss on refinancing of debt 102
Customer installation costs incurred (58)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,170)
Increase in inventories (104)
Increase in prepaid expenses and other current (192)
assets
Increase in accounts payable 285
Increase in accrued expenses 54
Increase in other liabilities 178
Increase in customer deposits 201
Increase in deferred revenue 231
Net cash used in operating activities (4,309)
Investing activities:
Purchases of property and equipment (108)
Acquisition of customer contracts (970)
Proceeds from sale of customer contracts 1,289
Net cash provided by investing activities 211
Financing activities:
Payments of long-term debt (1,105)
Proceeds from issuance of long-term debt 3,955
Divisional borrowings 852
Proceeds from officer/stockholder loans 450
Payments on note receivable from stockholder 200
Net cash provided by financing activities 4,352
Net increase in cash 254
Cash overdraft, beginning of year (46)
Cash, end of year $ 208
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 950
See accompanying notes.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements
December 31, 1997
1. Basis of Presentation
Description of Business
Sentry Protective Systems (the "Company" or the "Alarm Division"), a
division of Security Systems, Inc. conducts operations from its main office
in Malden, Massachusetts. The Company also has other offices in
Massachusetts and Maine. The Company sells and installs alarm systems and
provides alarm monitoring and maintenance services to commercial and
residential customers located throughout Massachusetts, Rhode Island,
Connecticut, Maine and New Hampshire. Management believes the Company
operates in one industry segment.
Basis of Presentation
Security Systems, Inc. is comprised of two divisions, the Alarm Division
and the Guard division ("Guard Division"). The accompanying financial
statements reflect the accounts of the Alarm Division including expense
allocations between the Alarm Division and the Guard Division based upon
methods which management believes to be a reasonable and equitable
allocation of such items (see Note 7). The Company is not a separate legal
entity and accordingly, the balance sheet and statement of operations and
divisional net asset deficiency reflect a net asset deficiency which
includes amounts owed to the Guard Division, contributed capital and
accumulated deficit.
Due to allocations associated with certain operating expenses, as discussed
in Note 7, the accompanying financial statements may not be indicative of
the costs that would have been incurred had the Company been operated as a
separate legal entity.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
Change in Accounting Method
In 1997, the Company recognized recurring lease payments and deferred
direct costs incurred in conjunction with the related leases (with
amortization over the estimated useful life), in accordance with the
operating lease provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases" ("SFAS No. 13"). Also, in accordance with
Statement of Financial Accounting Standards No. 51, "Financial Reporting by
Cable Television Companies" ("SFAS No. 51"), revenue from lease
installations were recognized to the extent that direct selling costs were
charged to expense with any excess revenue deferred and amortized over the
term of the lease. In all prior years, the Company recognized lease
payments and related expenses in accordance with the sales type lease
provisions of SFAS No. 13.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
The Company changed its method of accounting for leases and related costs
because it believes the operating lease provisions of SFAS No. 13 and SFAS
No. 51 more accurately display the economic benefits and risks related to
its leasing program than the sales type lease provisions of SFAS No. 13.
Also, the Company changed its method in conjunction with the anticipated
acquisition of substantially all of its assets by Alarmguard Holdings Inc.
(see Note 11) in order to conform to the accounting principles utilized by
Alarmguard Holdings Inc.
In accordance with the provisions of APB No. 20, Accounting Changes ("APB
No. 20"), the Company has elected to utilize the special exemption
provision which allows an entity that is issuing its financial statements
to the public for the first time in conjunction with a business combination
to retroactively restate its financial statements as if the newly adopted
accounting principle was utilized from inception. Management believes the
use of the newly adopted accounting principles, applied retroactively,
better portrays the results that can be expected in future periods. As
such, the divisional net asset deficiency at January 1, 1997 has been
retroactively restated, by a decrease of $311,000, to reflect accounting
for the Company's leasing program under the operating lease provisions of
SFAS No. 13 and in accordance with SFAS No. 51.
Revenue Recognition
Revenue from the sale of alarm systems is recognized upon completion of the
installation. Payments received prior to completion of an installation are
recorded in the accompanying balance sheet as customer deposits.
Revenue from installations relating to new subscriber accounts generated
under the Company's leasing program is recognized at the time the
installation is completed to the extent that related direct selling costs
are charged to expense. Any excess installation revenue is deferred and
amortized to income over the initial term of the related noncancelable
monitoring/equipment lease contract (5 years), adjusted to reflect
estimated subscriber attrition.
Revenue from alarm monitoring and service agreements is recognized as the
services are rendered. Advance billings are accounted for as deferred
revenue.
Accounts Receivable
Accounts receivable consist primarily of amounts due from customers in
Massachusetts, Rhode Island, Connecticut, Maine and New Hampshire. Credit
is extended based on an evaluation of the customer's financial condition;
collateral is not required. The Company maintains an allowance for doubtful
accounts at a level which management believes is sufficient to cover
potential losses.
Inventories
Inventories consist principally of alarm components and supplies and are
stated at the lower of cost (first-in, first-out method) or market.
Property and Equipment
Property and equipment is stated at cost and is being depreciated over the
estimated useful lives of the assets. Depreciation is computed using both
straight-line and accelerated methods. Costs of maintenance and repairs are
charged to expense when incurred and costs of improvements are capitalized.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Customer Installation Costs
Customer installation costs consist of materials and direct labor incurred
in connection with installing and activating new subscriber accounts under
the Company's leasing programs. Amortization is provided on a straight-line
basis over the term of the initial monitoring/equipment lease contract (5
years), adjusted to reflect estimated subscriber attrition. When an
installation is identified for disconnection, the remaining net book value
of the installation costs are fully written-off and charged to amortization
expense.
Customer Contracts
Customer contracts consist of purchased alarm customer lists which are
being amortized on the straight-line method over their estimated useful
lives of four years. Amortization expense related to customer contracts
amounted to $705,000 in 1997.
Advertising
Advertising and promotion costs are charged to operations when incurred.
The Company charged $171,000 to expense for advertising and promotion
during the year ended December 31, 1997.
Income Taxes
The Company, as a division of Security Systems, Inc., calculates its income
taxes as if it were a separate entity giving effect to Security Systems,
Inc.'s status as an S corporation in accordance with the Internal Revenue
Code. Accordingly, no provision has been made for federal income taxes
since the stockholders are responsible for reporting their share of the
Company's taxable income or loss on their individual income tax returns.
For state income tax purposes, S corporations with revenues in excess of $9
million are taxed at a 4.5% rate in Massachusetts.
Income taxes are determined under the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred taxes
result from temporary differences in the recognition of revenues and
expenses for tax and financial reporting purposes.
Fair Value of Financial Instruments
Cash, accounts receivable, accounts payable and accrued expenses are
carried at cost, which approximates fair value, due to the short-term
nature of these instruments. At December 31, 1997, the fair value of the
Company's long-term debt approximates its carrying value as such debt
generally bears interest at floating rates or its rate does not differ
significantly from the rate the Company would have to pay for similar debt
on the balance sheet date.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
New Accounting Pronouncements
During 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information". SFAS No. 130 is effective for the first quarter of 1998,
while SFAS No. 131 is effective for year end financial reporting in 1998
and on an interim basis thereafter. Also, in 1998, the FASB issued FASB No.
132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits". FASB No. 132 is effective for year end reporting in fiscal 1998.
All of these pronouncements require additional disclosure and the Company
expects no material impact upon adoption.
3. Property and Equipment
Property and equipment at December 31, 1997 consists of the following (in
thousands):
Furniture, fixtures and equipment (useful lives ranging $ 722
from five to ten years)
Vehicles (useful lives ranging from one to five years) 346
Leasehold improvements (useful lives ranging from nine to 299
ten years)
1,367
Less accumulated depreciation 733
$ 634
Depreciation expense was $289 for the year ended December 31, 1997.
4. Notes and Leases Payable
Notes payable included in other current liabilities and other liabilities
at December 31, 1997 consists of the following (in thousands):
Various leases, each collateralized by a
vehicle, with interest rates varying from 5.96%
to 11.32% and final payment dates ranging from
March 1999 to July 2000 $ 78
Various equipment leases, with interest rates
varying from 11.25% to 18.38% and final payment
dates ranging from May 1998 to January 2000 38
Note payable for alarm accounts acquired,
interest at 8% per annum and due in September 2000 138
Other notes payable 3
Total notes and leases payable 257
Less current portion 119
Long term portion $138
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
5. Revolving Loan Facility
On August 22, 1996, the Company entered into a revolving line of credit
which permitted borrowings of up to $1,000,000 for working capital purposes
(the "Revolving Loan") and a line of credit which permitted borrowings of
up to $9,000,000 to fund acquisitions (the "Acquisition Loan"). The
Revolving Loan and the Acquisition Loan are collectively referred to as the
"Loans".
On September 16, 1997, the loans were amended and restated whereby the
loans were consolidated into a Revolving Loan Facility (the "Facility")
permitting borrowings of up to $11,000,000, which was required to be
reduced to $10,000,000 by February 28, 1998. The Facility matures on June
30, 1998 at which date all outstanding principal, accrued interest and
unpaid fees are due and payable. Interest is payable at the bank's prime
rate plus 2% or 10.5% at December 31, 1997 (previously based on the bank's
prime plus 1.5%). The Facility is secured by substantially all of the
assets of the Company. In addition, the Company was required to maintain
key person life insurance policies, for the benefit of the bank, on two of
its stockholders in the amount of $2,000,000 and $300,000, respectively.
In connection with the refinancing, the Company wrote-off unamortized
deferred financing fees of $102,000, which is reflected as an extraordinary
loss in the Company's statement of operations. As of December 31, 1997,
$10,100,000 was outstanding under the Facility. For the year ended December
31, 1997, the Company incurred $990,000 in interest expense related to the
Loans and the Facility.
On March 18, 1998, the Company paid all amounts due on the Facility with
proceeds from the sale of substantially all of the Company's assets (see
Note 12).
6. Note Payable to Stockholders
During the period from August to October 1997, the Company issued various
promissory notes (the "Notes") to stockholders of the Company aggregating
$450,000. The Notes accrue interest monthly at 10% per annum, are payable
on demand and are subordinated to the Company's Revolving Loan Facility
(see Note 5).
7. Related Party Transactions
In August 1997, the Company collected an outstanding loan receivable and
all accrued interest thereon from a stockholder of the Company aggregating
approximately $200,000.
The Company leases office space in Malden, Massachusetts and Portland,
Maine from a stockholder of the Company. Rent expense charged to operations
in 1997 for these locations amounted to $106,000. The Malden, Massachusetts
lease requires monthly payments of $6,996 and expires on December 31, 2003.
The Portland, Maine lease requires monthly payments of $1,800 and expires
on October 1, 2002.
Divisional borrowings, included in the divisional net asset deficiency at
December 31, 1997 consist of non-interest bearing advances from the Guard
Division and are payable on demand. During the year ended December 31,
1997, the Company incurred $106,000 of operating expenses (generally, risk
management, professional fees and utilities) allocated by Security Systems,
Inc. among the Company and the Guard Division.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
8. Income Taxes
Differences between the tax basis of assets and liabilities and their
financial reporting amounts that give rise to significant portions of
deferred state income taxes are as follows as of December 31, 1997:
Deferred tax assets (liabilities):
Net operating losses $ 372,000
Allowance for doubtful accounts 50,000
Other assets 18,000
Other liabilities (26,000)
Valuation allowances (414,000)
Net deferred taxes $ -
The Company has net operating loss carryforwards for state income tax
purposes of approximately $8.6 million at December 31, 1997, which expire
from 1998 to 2002. The valuation allowance has been established until it is
more likely than not that the deferred tax assets will be realized.
9. Commitments and Contingencies
Various claims generally incidental to the conduct of its normal business
are pending or threatened against the Company from time to time. While
ultimate liability, if any, is presently not determinable, in the opinion
of management, these matters will have no material adverse effect on the
Company's financial position, results of operations or cash flows.
10. Retirement Plan
Security Systems, Inc.'s profit sharing plan was amended and restated,
effective January 1, 1995, to incorporate a 401(k) savings option.
Effective this same date, the name of the plan was changed to the Security
Systems, Inc. 401(k) Profit Sharing Plan. The plan covers all employees.
Participants may elect to make contributions to the plan pursuant to a
salary reduction agreement and subject to statutory limits. At the
discretion of the Board of Directors, Security Systems, Inc. may make a
matching contribution of electing participants' contributions, but not to
exceed 6% of the participant's compensation. There were no matching
contributions to the plan for the year ended December 31, 1997. In
addition, the plan allows for Security Systems, Inc., at the discretion of
the Board of Directors, to make further contributions to the plan based on
the participant's salary. No additional contributions were made to the plan
for the year ended December 31, 1997.
<PAGE>
Sentry Protective Systems
(A division of Security Systems, Inc.)
Notes to Financial Statements (continued)
11. Sale of Customer Contracts
In October 1997, the Company entered into an asset sale agreement with an
unrelated third party setting forth terms for the sale of certain of the
Company's alarm monitoring accounts and the related accounts receivable.
The sales price was approximately $1,300,000, subject to adjustments for
working capital. Proceeds from the sale were $1,289,000, all of which was
recorded as a gain in the Company's statement of operations as the alarm
monitoring accounts sold were recorded at zero book value at the time of
the sale. In conjunction with the sale, approximately $200,000 of proceeds
were placed in escrow subject to the satisfaction and settlement of certain
provisions of the sale agreement. This amount has been included in other
current assets at December 31, 1997 and was received by the Company in
1998.
12. Subsequent Events
On March 17, 1998, Alarmguard Holdings, Inc. ("Alarmguard") purchased
substantially all of the assets of the Company for approximately $26.5
million in cash, including $2.6 million held in escrow subject to the
finalization of certain post-closing adjustments. A portion of the proceeds
from the sale were used to pay all of the amounts due under the Company's
Revolving Loan Facility (see Note 5).
Prior to December 31, 1997, the Company received a $250,000 deposit from
Alarmguard. This amount is included in other current liabilities at
December 31, 1997.
13. Year 2000 Issues (Unaudited)
The Company has developed a plan to modify its information technology to be
ready for the year 2000. The Company does not expect this project to have a
significant effect on operations. The Company's Year 2000 modifications are
based on management's best estimates, which were derived utilizing numerous
assumptions of future events, including the continued availability of
certain resources and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct
all relevant computer codes, and similar uncertainties.
<PAGE>
Item 7 (b) Pro Forma Financial Information
Alarmguard Holdings, Inc.
Unaudited Pro Forma Condensed Combined Balance Sheet
As of December 31, 1997
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Pro forma
Proforma Alarmguard,
with Preferred
Preferred Preferred Stock
Stock Stock Pro forma Offering,
Alarmguard Offering Offering Sentry Adjustments and Sentry
Assets
Current assets:
Cash and cash
equivalents $698 $37,800(A) $38,498 $208 ($14,587)(B) $24,119
Restricted cash 1,931 1,931 0 2,608 (B) 4,539
Accounts
receivable, net 5,558 5,558 1,485 (537)(B) 6,506
Inventories 3,065 3,065 359 (64)(B) 3,360
Prepaid expenses 343 343 347 (347)(B) 343
Total current assets 11,595 37,800 49,395 2,399 (12,927) 38,867
Property and
equipment, net 2,133 2,133 634 (35)(B) 2,732
Customer installation
costs, net 8,868 8,868 156 (156)(B) 8,868
Customer contracts
and intangibles,
net 43,027 43,027 1,918 24,946 (B) 69,891
Other investments 2,245 2,245 0 0 2,245
Other assets 1,982 1,982 29 (29)(B) 1,982
Total assets $69,850 $37,800 $107,650 $5,136 $11,799 $124,585
Liabilities and
stockholders'
deficiency
Current liabilities:
Accounts payable $2,659 $2,659 $771 ($771)(B) $2,659
Accrued expenses 5,675 5,675 433 297 (B) 6,405
Current portion
of notes payable 2,462 2,462 357 (254)(B) 2,565
Revolving credit
facility 0 0 10,100 (10,100)(B) 0
Deferred revenue 6,231 6,231 1,562 (542)(B) 7,251
Other current
liabilities 4,061 4,061 830 2,252 (B) 7,143
Total current
liabilities 21,088 0 21,088 14,053 (9,118) 26,023
Notes payable, less
current portion 549 549 0 0 549
Credit facility 46,700 46,700 0 12,000 (B) 58,700
Subordinated debt 4,389 (675)(A) 3,714 0 0 (B) 3,714
Other liabilities 321 321 167 (167)(B) 321
Redeemable preferred
stock 38,500 (A) 38,500 0 0 (B) 38,500
Stockholders' deficiency
Common stock 1 1 0 0 (B) 1
Additional paid-in
capital 35,286 35,286 (9,084) 9,084 (B) 35,286
Accumulated
Deficit (38,484) (25)(A) (38,509) 0 0 (B) (38,509)
Total stockholders'
deficit (3,197) (25) (3,222) (9,084) 9,084 (3,222)
Total liabilities
and stockholders'
deficiency $69,850 $37,800 $107,650 $5,136 $11,799 $124,585
</TABLE>
Alarmguard Holdings, Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended December 31, 1997
Pro forma
Pro forma Alarmguard
Alarmguard Sentry Adjustments and Sentry
Recurring revenue $21,540 $6,832 $28,372
Installation revenue 10,470 1,857 12,327
Service revenue 2,250 1,038 3,288
Total revenue 34,260 9,727 0 43,987
Monitoring expense 2,692 807 3,499
Installation expense 7,543 4,245 11,788
Service expense 4,176 1,204 5,380
Total cost of revenue 14,411 6,256 0 20,667
Gross profit 19,849 3,471 0 23,320
Selling, general and
administrative expense 15,909 7,071 22,980
Acquisition integration
expense 349 0 349
Amortization and
depreciation expense 11,386 1,014 3,846 (C) 16,246
Total operating expenses 27,644 8,085 3,846 39,575
Operating loss (7,795) (4,614) (3,846) (16,255)
Other income (expense)
Interest expense, net (4,683) (1,013) (90)(D) (5,786)
Other, net 142 1,304 1,446
Loss from continuing
operations ($12,336) ($4,323) ($3,936) ($20,595)
Basis and diluted loss
from continuing operations
per common share ($2.61) ($4.36)
Number of basis and diluted
common shares used in
calculating loss from
continuing operations per
common share 4,726 4,726
Alarmguard Holdings, Inc.
Notes to Unaudited Pro Forma Financial Information
(A) Represents the net cash proceeds from the 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) in February 1998 at $1,000 per share. Alarmguard
issued 700 additional shares of Series A Preferred Stock in
exchange for $0.7 million of subordinated debt and wrote off
the unamortized discount associated with certain warrants
issued concurrently with the subordinated debt of
approximately $25,000. The Series A Preferred Stock pays
quarterly cash dividends at 5% per annum. The costs
incurred ($2.2 million) in the offering are reflected as a
reduction of the Preferred Stock's carrying value.
(B) Alarmguard purchased certain of the operating assets of
Sentry for $23.8 million in cash, of which $12.0 million was
financed with borrowings under the Company's expanded Credit
Facility. The Company also has committed to pay the sellers
up to an additional $3.0 million which represents an amount
to be determined based on certain post closing adjustments,
$2.6 million of which has been secured by a letter of credit
and is reflected as restricted cash. The acquisition was
accounted for using the purchase method of accounting and,
accordingly, the purchase price has been preliminarily
allocated to the assets acquired, principally customer
contracts of $26.5 million and a covenant not to compete of
$0.3 million, and liabilities assumed based on their
estimated fair values at the date of the acquisition. In
accordance with the terms of the agreement, $10.1 million of
the cash paid was used to repay the current debt of Sentry
concurrent with the closing.
(C) To record amortization expense of acquired customer
contracts (seven year life) and covenants not to compete
(five year life) resulting from the acquisition of Sentry
(see Note (B)).
(D) To record interest expense on the borrowings incurred to
finance the acquisition of Sentry, net of interest expense
recorded by Sentry on its debt that was repaid in connection
with the acquisition (see Note (B)). Interest is calculated
using Alarmguard's estimated borrowing rate of 9% per annum.
