<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996 Commission File Number 0-13617
LIFELINE SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MASSACHUSETTS O4-2537528
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
640 MEMORIAL DRIVE
CAMBRIDGE, MASSACHUSETTS 02139
(Address of principal executive offices) (Zip Code)
(617) 679-1000
(Registrant's telephone number, including area code)
__________________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
Common stock $0.02 par value
----------------------------
(Title of Class)
Indicate by check mark whether the registrant (i) 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 (ii) has been subject to such filing
requirements for the past 90 days.
Yes ___X___ No ________
Number of shares outstanding of this issuer's class of common stock as of July
26, 1996: 5,691,909
<PAGE>
LIFELINE SYSTEMS, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets- June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three and six months
ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows - Six months
ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
ITEM 2.
Management's Discussion and Analysis of Results of
Operations and Financial Condition 7-10
PART II. OTHER INFORMATION
ITEM 4.
Submission of Matters to a Vote of Security Holders 10-11
ITEM 6.
Exhibits and Reports on Form 8-K 11
</TABLE>
-2-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,875 $ 3,490
Short-term investments 7,025 6,726
Accounts receivable, net 5,196 5,976
Inventories 1,901 1,394
Net investment in sales-type leases 1,593 1,992
Other current assets 519 624
Deferred income taxes 1,093 1,093
------- -------
Total current assets 22,202 21,295
Long-term investments 3,513 2,597
Property and equipment, net 5,347 4,648
Goodwill, net 1,818 2,018
Net investment in sales-type leases 2,013 1,208
Other assets 252 195
------- -------
Total assets $35,145 $ 31,961
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 5,002 $ 2,508
Accrued payroll and payroll taxes 694 1,702
Accrued income taxes 702 319
Deferred revenues 754 936
Current portion of obligations under capital lease 45 91
Product warranty 546 456
Other current liabilities 30 30
------- -------
Total current liabilities 7,773 6,042
Obligations under capital lease 29 32
Deferred income taxes 1,148 1,148
Deferred compensation 650 450
Commitments:
Stockholders' equity:
Common stock, $.02 par value, 10,000,000 shares
authorized, 6,181,257 and 6,132,457 shares
issued at June 30, 1996 and
December 31, 1995, respectively 124 123
Additional paid-in capital 15,364 15,161
Retained earnings 12,730 10,975
Less: treasury stock at cost, 495,348 shares
at June 30,1996 and 436,848 shares at
December 31, 1995 (2,323) (1,620)
Notes receivable - officers (350) (350)
------- -------
Total stockholders' equity 25,545 24,289
------- -------
Total liabilities and stockholders' equity $35,145 $31,961
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
-3-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except for per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues
Net product sales $6,980 $6,315 $12,446 $11,649
Services 5,807 4,435 11,226 8,426
Finance and rental income 256 330 527 716
------- ------- ------- -------
Total revenues 13,043 11,080 24,199 20,791
------- ------- ------- -------
Costs and expenses
Cost of sales 2,273 2,439 4,209 4,544
Cost of services 2,499 1,670 4,946 3,280
Selling, general, and administrative 6,185 5,447 11,465 10,281
Research and development 471 448 954 859
------ ------ ------- ------
Total costs and expenses 11,428 10,004 21,574 18,964
------ ------ ------- -------
Income from operations 1,615 1,076 2,625 1,827
------ ------ ------- -------
Other income (expense)
Interest income 185 209 353 370
Interest expense (2) (2) (4) (4)
------ ----- ------- -------
Total other income, net 183 207 349 366
------ ----- ------- -------
Income before income taxes 1,798 1,283 2,974 2,193
Provision for income taxes 733 539 1,219 922
------ ------ ------- -------
Net income $1,065 $ 744 $ 1,755 $ 1,271
====== ====== ======= =======
Net income per common share:
Primary $ 0.17 $ 0.12 $ 0.28 $ 0.21
====== ====== ======= =======
Fully diluted $ 0.17 $ 0.12 $ 0.28 $ 0.21
====== ====== ======= =======
Weighted average common and
common equivalent shares outstanding:
Primary 6,186 6,015 6,189 5,968
====== ====== ======= =======
Fully diluted 6,186 6,084 6,210 6,058
====== ====== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
-4-
<PAGE>
LIFELINE SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
-----------------
1996 1995
------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,755 $ 1,271
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 1,470 1,005
Deferred income taxes - (592)
Deferred compensation 200 -
Changes in operating assets and liabilities:
Accounts receivable 780 (397)
Inventories (507) 338
Net investment in sales-type leases (406) 1,691
Other current assets and other assets 48 (218)
Accounts payable and accrued expenses 2,494 1,154
Accrued payroll and payroll taxes (1,008) (315)
Deferred revenues, product warranty, and
other current liabilities (92) 127
Accrued income taxes 383 -
Accrued restructuring charge - (200)
------ -------
Net cash provided by operating activities 5,117 3,864
------ -------
Cash flows from investing activities:
Purchases of investments (7,495) -
Sales and maturities of investments 6,280 -
Additions to property and equipment (1,969) (1,309)
Payment for business acquisition - (904)
------ -------
Net cash used in investing activities (3,184) (2,213)
------ -------
Cash flows from financing activities:
Principal payments under capital
lease obligations (49) (173)
Proceeds from issuance of common stock 204 386
Purchase of treasury stock (709) -
Issuance of treasury stock 6 -
------ -------
Net cash (used in)/provided by financing (548) 213
------ -------
Net increase in cash and cash equivalents 1,385 1,864
Cash and cash equivalents at beginning of
period 3,490 9,555
------ -------
Cash and cash equivalents at end of period $4,875 $11,419
====== =======
The accompanying notes are an integral part of these consolidated financial
statements.
</TABLE>
-5-
<PAGE>
LIFELINE SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The information furnished has been prepared from the accounts without audit.
In the opinion of the Company, the accompanying consolidated financial
statements contain all adjustments necessary, consisting only of those of a
normal recurring nature, to present fairly its consolidated financial
position as of June 30, 1996 and the consolidated results of its operations
and cash flows for the six months ended June 30, 1996 and 1995.
While the Company believes that the disclosures presented are adequate to
make the information not misleading, these statements should be read in
conjunction with the consolidated financial statements and the related notes
included in the Company's audited financial statements for the year ended
December 31, 1995.
The results of operations for the six month period ended June 30, 1996 are
not necessarily indicative of the results expected for the full year.
2. Details of certain balance sheet captions are as follows (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Inventories:
Purchased parts and subassemblies $929 $602
Work-in-process 584 492
Finished goods 388 300
------- -------
$1,901 $1,394
======= =======
Property and equipment:
Equipment $8,642 $7,532
Furniture and fixtures 477 332
Equipment leased to others 3,473 2,661
Equipment under capital leases 1,035 1,035
Leasehold improvements 564 663
------- -------
14,191 12,223
Less accumulated depreciation and
amortization (8,844) (7,575)
------- -------
$5,347 $4,648
======= =======
</TABLE>
-6-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
This and other reports, proxy statements, and other communications to
stockholders, as well as oral statements by the Company's officers or its
agents, may contain forward-looking statements with respect to, among other
things, the Company's future revenues, operating income, or earnings per share.
There are a number of factors of which the Company is aware that may cause the
Company's actual results to vary materially from those forecast or projected in
any such forward-looking statement. A discussion of these risk factors is
included herein under the caption "Significant Risk Factors" which contains
certain, but not necessarily all, of the factors which the management of the
Company presently believes could cause the Company's actual operating results to
be materially different from that forecast or projected in any forward-looking
statement.
RESULTS OF OPERATIONS
Total revenues for the quarter ended June 30, 1996 were $13.0 million, an
increase of 18% compared with the total revenues of $11.0 million for the
quarter ended June 30, 1995. For the six months ended June 30, 1996, total
revenues were $24.2 million, up 16% as compared to revenues of $20.8 million
during the same period in 1995.
Service revenues grew 32% to $5.8 million for the second quarter of 1996 from
$4.4 million for the second quarter of 1995. For the six months ended June 30,
1996, the Company recorded a 33% increase in service revenues to $11.2 million,
from $8.4 million during the first half of 1995. Service revenues comprised 46%
of the Company's year-to-date revenues, up from 41% during the same period in
1995. The Company's continued service revenue growth was driven by an increase
in the number of subscribers monitored by Lifeline Central(TM) to over 137,000
at June 30, 1996 as compared to 107,000 subscribers at June 30, 1995. The
Company's ability to sustain the current level of service revenue growth in the
long run depends on its ability to expand the market for its personal response
services and convert additional locally monitored programs to service provided
by Lifeline Central. The Company believes that the high quality of its services
will be a factor in meeting this challenge.
Product sales increased 11%, to $7.0 million, for the three months ended June
30, 1996, from $6.3 million for the same period in 1995. For the six months
ended June 30, 1996, product sales totaled $12.4 million, up from $11.6 million
during the prior year, a 7% increase. The Company's ability to sustain the
current level of product sales in the long run depends on its ability to expand
the market for its personal response services. The Company believes the
CarePartner and other new products will be a factor in meeting this challenge.
Finance and rental income, representing revenue earned from the Company's
portfolio of sales-type leases, decreased $74,000, to $256,000 for the second
quarter of 1996 from $330,000 for the same period last year. For the six months
ended June 30, 1996, finance and rental income decreased $189,000 to $527,000,
from $716,000 for the six months ended June 30, 1995. In January, 1996 the
Company introduced an internally managed and funded leasing program to replace
its arrangement with a third-party leasing agent.
-7-
<PAGE>
This third-party arrangement had been in place since January, 1994, prior to
which the Company had offered its own leasing program. The effect of the decline
in finance income from leases generated by the Company prior to 1994 was offset
in part by finance income earned on leases generated by the Company during 1996
under the more recent internal leasing program. The Company believes its
customers will continue to take advantage of its new internal leasing program
thereby increasing finance income in future years.
Cost of sales was 33% of product sales for the three months ended June 30, 1996,
compared with 39% for the same period a year ago. For the six months ended June
30, 1996, cost of sales was 34% of product sales, compared with 39% during the
prior year. The significant improvement is largely attributable to
manufacturing process improvements which reduced product costs. The Company
expects to maintain cost of sales as a percentage of product sales at
approximately the same level for the remainder of the year.
As a percentage of service revenues, cost of services was 43% for the quarter
ended June 30, 1996, as compared to 38% for the same period last year. For the
six months ended June 30, 1996, cost of services was 44%, as compared to 39% for
the six months ended June 30, 1995. The Company's continued investments in
personnel and systems supporting its service infrastructure largely contributed
to the increase. These investments are expected to continue for the remainder
of the year and therefore, as a percentage of service revenues, cost of services
will remain at approximately this level through 1996.
Selling, general, and administrative expenses declined to 47% of total revenues
during the three and six months ended June 30, 1996, as compared to 49% for the
similar three and six month periods in 1995. The Company continues to leverage
its administrative infrastructure over a larger revenue base and expects
selling, general and administrative expenses to remain at approximately the same
level for the remainder of the year.
Research and development expenses remained constant as a percentage of total
revenues at 4% for the three and six month periods ended June 30, 1996 and 1995.
Research and development efforts are focused on ongoing product improvements and
developments. The Company expects to maintain these expenses at approximately a
consistent percentage of total revenues.
The Company's effective tax rate was 41% for the three and six months ended June
30, 1996, versus 42% for the comparable periods in 1995.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 30, 1996, cash and cash equivalents increased
$1.4 million to $4.9 million at June 30, 1996 from $3.5 million at December 31,
1995. The net increase in cash resulted from positive cash flows from
profitable operations. The Company also experienced a significant increase in
its accounts payable and accrued expenses, primarily as a result of the timing
of expenditures related to market development and referral programs, raw
material purchases to support increases in inventories, and expenses related to
the development of additional monitoring capacity. These cash flows were in
part offset by additional investments in property and equipment, the decline in
accrued payroll and payroll taxes from December 31, 1995, the purchase of 60,000
shares
-8-
<PAGE>
of the Company's common stock, and an increase in longer term investments
in the Company's portfolio of marketable securities.
In July, 1996, the Company acquired all of the outstanding stock of CareTel,
Inc., of Toronto, Ontario, Canada, through its subsidiary, Lifeline Systems
(Canada), Inc. for approximately $1,000,000 in cash. CareTel provides personal
emergency response service under the trade name ProtectAlert and operates a
response center in Toronto, Ontario, Canada. Approximately $55,000 of the
purchase price was paid in June, 1996, and the remainder paid for in July, 1996
at the time of the closing. The Company does not expect this acquisition to
have a material impact on its 1996 financial position or results of operations.
During 1995, the Company adopted a revised investment strategy for its cash and
temporary investments. The implementation of this policy continued during the
first six months of 1996 as the Company lengthened the maturity structure of its
portfolio and continued to increase its investment portfolio with net purchases
of $1.2 million in marketable securities.
In November, 1995 the Company secured a $4.0 million line of credit effective in
January, 1996. The credit agreement contains a number of covenants, including
requirements that the Company maintain certain levels of financial performance
and capital structure, limitations on the Company's capital and other
expenditures, and restrictions on the Company's capacity to secure additional
debt financing. There have been no borrowings under this line of credit.
In October, 1993, the Company's Board of Directors approved the repurchase of up
to 300,000 shares of the Company's stock from time to time in the open market
for general corporate purposes, including shares for use in connection with
employee stock option plans and stock purchase plans. Of the 300,000 shares
approved, the Company has purchased 257,000 shares through June 30, 1996,
including 60,000 shares of treasury stock purchased for $0.7 million during the
first six months of 1996.
Given the Company's current cash, marketable securities, and revenue levels,
funding requirements for operations and in support of future growth are expected
to be met primarily from existing cash and investment balances and funds
generated from operations. The Company currently believes that cash provided
from these sources and its available financing will be sufficient to meet its
operating and investing requirements, including funding its internally-managed
lease financing program, additional stock purchases, and any foreseeable
acquisitions through 1996.
-9-
<PAGE>
SIGNIFICANT RISK FACTORS
The ability of the Company to attain the financial or other results that may be
forecast or projected from time to time is subject to a number of risk factors,
including the ability of the Company to introduce new services and products and
enhancements at competitive prices and on a timely basis, the ability of the
Company to market its services directly to subscribers, the ability of the
Company to provide technologically advanced services and products in comparison
to those offered by competitors, the ability of the Company to make appropriate
acquisitions and to integrate the acquired companies successfully, and the risk
factors listed from time to time in the Company's other reports to the
Securities and Exchange Commission. The Company may fail to meet any such
forecast or projected results for reasons other than those set forth above.
PART II. OTHER INFORMATION
The annual meeting of the stockholders of the Company was held on May 15, 1996.
The stockholders of the Company elected members of the Board of Directors,
approved amendments to the Company's 1991 and 1994 Stock Option Plans, and
ratified the selection of Coopers and Lybrand L.L.P. as the Company's auditors
for 1996.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK
--------------------------------
BROKER
FOR ABSTAINED WITHHELD NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
L. Dennis Shapiro 4,284,500 -0- 35,257 N/A
Everett N. Baldwin 4,284,700 -0- 35,057 N/A
BROKER
FOR AGAINST ABSTAINED NON-VOTES
--------- --------- --------- ---------
Approval of an amendment to the
1994 Stock Option Plan increasing
the number of shares of common stock
available for issuance thereunder 2,517,325 384,905 10,150 1,407,377
BROKER
FOR AGAINST ABSTAINED NON-VOTES
--------- --------- --------- ---------
Approval of an amendment to the
1994 Stock Option Plan increasing
the number of shares of common
stock that may be issued to any
employee thereunder 2,580,547 372,687 17,795 1,348,728
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
BROKER
FOR AGAINST ABSTAINED NON-VOTES
--------- --------- --------- ---------
Approval of an amendment to the
1991 Stock Option Plan increasing
the number of shares of common
stock available for issuance to
non-employee directors thereunder 2,561,309 393,763 15,957 1,348,728
BROKER
FOR AGAINST ABSTAINED NON-VOTES
--------- --------- --------- ---------
Selection of Coopers & Lybrand L.L.P. 4,304,507 9,100 6,150 N/A
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K-No reports on Form 8-K were filed for the three
months ended June 30, 1996.
(b) Exhibits - The Exhibit which is filed with this Report or which is
incorporated herein by reference is set forth in the Exhibit Index which
appears on page 13 hereof.
-11-
<PAGE>
LIFELINE SYSTEMS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
August 8, 1996 LIFELINE SYSTEMS, INC.
- --------------- ----------------------
Date Registrant
/s/ Ronald Feinstein
--------------------
Ronald Feinstein
Chief Executive Officer
/s/ Dennis M. Hurley
--------------------
Dennis M. Hurley
Vice President of Finance and
Administration
Principal Financial and
Accounting Officer
-12-
<PAGE>
EXHIBIT INDEX
The following designated exhibits are, as indicated below, either filed
herewith or have heretofore been filed with the Securities and Exchange
Commission under the Securities Act of 1933 or the Securities and Exchange Act
of 1934 and are referred to and incorporated herein by reference to such
filings.
EXHIBIT NO. EXHIBIT SEC DOCUMENT REFERENCE
- ----------- ------- ----------------------
EXHIBIT 10. MATERIAL CONTRACTS
Filed Herewith:
10.60 Amended Employment Agreement between
Ronald Feinstein and the Registrant, dated
June 14, 1996
EXHIBIT 11. COMPUTATION RE EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------- -----------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
PRIMARY:
- --------
Weighted average shares outstanding 5,683 5,639 5,732 5,588
Net effect of dilutive common
stock equivalents based on the
treasury method 503 376 480 378
Effect of treasury shares purchased - - (24) 2
Effect of treasury shares issued - - 1 -
------ ------ ------ ------
Total 6,186 6,015 6,189 5,968
====== ====== ====== ======
Net income $1,065 $744 $1,755 $1,271
====== ======= ====== ======
Net income per common share $0.17 $0.12 $0.28 $0.21
======= ====== ====== ======
FULLY DILUTED:
- -------------
Weighted average shares
outstanding 5,683 5,639 5,732 5,588
Net effect of dilutive common
stock equivalents based on the
treasury method 503 445 501 468
Effect of treasury shares purchased - - (24) 2
Effect of treasury shares issued - - 1 -
------ ------ ------ ------
Total 6,186 6,084 6,210 6,058
====== ====== ====== ======
Net income $1,065 $744 $1,755 $1,271
====== ====== ====== ======
Net income per common share $0.17 $0.12 $0.28 $0.21
====== ====== ====== ======
</TABLE>
EXHIBIT 27. FINANCIAL DATA SCHEDULE FILED ELECTRONICALLY
-13-
<PAGE>
Exhibit 10.60
[LETTERHEAD OF LIFELINE APPEARS HERE]
June 14, 1996
Mr. Ronald Feinstein, President
Lifeline Systems, Inc.
640 Memorial Drive
Cambridge, Massachusetts 02139-4851
Re: Ronald Feinstein Employment Agreement dated August 27, 1992 as amended
February 1994 ("Employment Agreement")
Dear Ron:
This agreement is intended to amend your Employment Agreement in the
following respects:
1. Section 2.3 Reimbursement for Expenses, Etc. is amended by deleting
--------------------------------
the last sentence thereof and the following substituted therefor:
"At such time as Employee is no longer eligible for membership in
Young Presidents Organization, Lifeline will pay Employee's dues to
either the World Presidents Organization or Chief Executive Officers
Organization and one business university tuition. Lifeline will also
pay Employee's dues to the local chapter of Young President's
Organization (49'ers).
2. Section 4.1 Nonqualified Stock Option is amended by substituting ten
-------------------------
(10) in lieu of five (5) in subsection (i) thereof.
3. Section 4.2 Special Nonqualified Stock Options is amended by (a)
----------------------------------
substituting "seven (7)" for "five (5)" in clause (a) of the last sentence; and
(b) adding at the end thereof the following sentence: "All such options shall
in any event vest six (6) years from the Effective Date."
4. Section 4 Stock Options is amended by adding a new Section 4.4 as
-------------
follows:
"4.4 Stock Option Plans. On and after the Effective Date of the
------------------
amendment, the Employee shall be entitled to participate in options
thereafter granted by the Stock Option Plans Committee in an amount
comparable to those awarded to other senior executives."
5. Section 5.3 Change of Control is deleted, and the following is
-----------------
substitutedtherefor: "In the event of a Change of Control
as defined in Lifeline's 1994 Stock Option Plan, all
options provided for under this Agreement shall become
fully vested and exercisable in accordance with the
applicable Plan."
-14-
<PAGE>
Mr. Ronald Feinstein
June 14, 1996
Page 2
5. Section 12 Termination of Employment is amended by adding a new
-------------------------
subsection (iv) as follows:
"(iv) At the election of the Employee within two years following a
Change of Control as defined in Lifeline's 1994 Stock Option
Plan at such time as he shall no longer serve in the capacity
and perform the duties of Chief Executive Officer of Lifeline,
serving principally in the Boston, Massachusetts metropolitan
area or at such time as he shall no longer serve as a director
of Lifeline; provided that in the event of such election he
shall be paid an amount equal to three times his salary and
bonus for the preceding fiscal year, but in no event shall any
amount be paid which would constitute an excess parachute
payment as defined in Section 280G of the Internal Revenue Code,
with the Employee having the right to determine which specific
payment adjustment shall be made to eliminate any such excess
payment."
In all other respects the Employment Agreement, as amended, is ratified and
confirmed in all respects.
LIFELINE SYSTEMS, INC.
By: /s/Joseph E. Kasputys
---------------------
Chairman, Compensation Committee
-15-
[LETTERFOOT OF LIFELINE APPEARS HERE]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 4,875
<SECURITIES> 10,538
<RECEIVABLES> 5,353
<ALLOWANCES> 157
<INVENTORY> 1,901
<CURRENT-ASSETS> 22,202
<PP&E> 14,191
<DEPRECIATION> 8,844
<TOTAL-ASSETS> 35,145
<CURRENT-LIABILITIES> 7,773
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 25,421
<TOTAL-LIABILITY-AND-EQUITY> 35,145
<SALES> 12,446
<TOTAL-REVENUES> 24,199
<CGS> 4,209
<TOTAL-COSTS> 9,155
<OTHER-EXPENSES> 12,419
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4
<INCOME-PRETAX> 2,974
<INCOME-TAX> 1,219
<INCOME-CONTINUING> 1,755
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,755
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
</TABLE>
