<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1998
Commission file No. 0-20870
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Security Associates International, Inc.
(Exact name of Registrant as specified in its charter)
Delaware 87-0467198
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2101 South Arlington Heights Road, Suite 100,
Arlington Heights, Illinois 60005-4142
(Address of principal executive office, including zip code)
(847) 956-8650
(Registrant's telephone number, including area code)
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 [ ]
As of November 11, 1998 the Registrant had outstanding 6,419,161 shares of
its $.001 par value Common Stock.(1)
- ---------------------
(1) Does not include 162,265 shares which were awarded or paid for but for which
certificates have not yet been issued.
<PAGE> 2
Security Associates International, Inc.
Quarter Ended September 30, 1998
INDEX
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION PAGE
----
<S> <C> <C>
Item 1 Financial Statements. .................................................... 3
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997 .................................................... 3
Consolidated Statements of Operations for the three and nine months
ended September 30, 1998 and 1997 ........................................ 4
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1997 ........................................ 5
Notes to Financial Statements ............................................ 6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations. ............................................... 7
Item 3 Quantitative and Qualitative Disclosures About Market Risk ............... 10
Part II - OTHER INFORMATION
Item 1 Legal Proceedings ....................................................... 10
Item 2 Changes in Securities and Use of Proceeds ............................... 10
Item 3 Defaults Upon Senior Securities ......................................... 12
Item 4 Submission of Matters to a Vote of Security Holders ..................... 12
Item 5 Other Information ....................................................... 12
Item 6 Exhibits and Reports on Form 8-K ........................................ 13
SIGNATURES ............................................................ 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(UNAUDITED)
ASSETS SEPTEMBER 30, DECEMBER 31,
1998 1997
---------------- --------------
<S> <C> <C>
Current Assets:
Cash $ 3,204,104 $ 5,521,633
Accounts receivable, net 3,226,933 2,626,717
Notes receivable - 50,000
Other current assets 297,903 182,671
---------------------------------------
Total current assets 6,728,940 8,381,021
---------------------------------------
FIXED ASSETS, net $ 1,813,558 $ 855,631
Contract rights to monitor security systems, net 13,054,342 13,908,478
Goodwill, net 20,753,886 11,919,949
Other assets, net 968,623 943,624
---------------------------------------
Total other assets 34,776,851 26,772,051
---------------------------------------
---------------------------------------
Total assets $ 43,319,349 $ 36,008,703
=======================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 596,204 $ 676,162
Current maturities of long-term notes payable 1,703,878 897,453
Accrued expenses 2,883,476 2,135,658
Unearned revenue 3,531,421 3,046,926
---------------------------------------
Total current liabilities 8,714,979 6,756,199
---------------------------------------
NOTES PAYABLE, net of current maturities 23,852,079 16,521,813
Subordinated Debt 5,500,000 5,500,000
---------------------------------------
Total liabilities $ 38,067,058 $ 28,778,012
---------------------------------------
STOCKHOLDERS' EQUITY
Convertible Preferred Stock, $10.00 par value;
66,410 shares outstanding on September 30, 1998 and 64,585 at
December 31, 1997, respectively (liquidation value of
$16,602,500 at September 30, 1998
and $16,146,138 at December 31, 1997) 664,097 645,846
12% Redeemable Preferred Stock, $10.00 par value; 500,000 and 344,165
shares outstanding on September 30, 1998 and December 31, 1997 5,000,000 3,441,650
Common Stock, $.001 par value; 50,000,000 shares
authorized; 6,546,226 and 6,272,295 shares outstanding on
September 30, 1998 and December 31, 1997, respectively 6,546 6,272
Warrants 40,687 -
Additional paid-in capital 16,507,371 14,564,311
Retained deficit (16,966,410) (11,427,388)
---------------------------------------
Total stockholders' equity $ 5,252,291 $ 7,230,691
---------------------------------------
Total liabilities and stockholders' equity $ 43,319,349 $ 36,008,703
=======================================
</TABLE>
The accompanying notes are an integral part of these balance sheets.
3
<PAGE> 4
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
THREE MONTHS ENDED THREE MONTHS ENDED NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
Revenues:
Monitoring fees $ 5,472,589 $ 2,646,427 $ 14,018,659 $ 7,323,247
Membership fees and other 19,704 14,670 102,951 93,767
-------------------------------------------------------------------------------
Total revenues 5,492,293 2,661,097 14,121,610 7,417,014
-------------------------------------------------------------------------------
Expenses:
General, selling and administrative 4,563,293 2,008,856 11,669,440 5,701,088
Amortization and depreciation 1,763,679 1,145,646 4,643,945 2,787,193
Deferred compensation expense 290,000 - 1,010,000 -
-------------------------------------------------------------------------------
Total expenses 6,616,972 3,154,502 17,323,385 8,488,281
-------------------------------------------------------------------------------
Loss from operations (1,124,679) (493,405) (3,201,775) (1,071,267)
Interest expense net 781,475 494,295 1,965,162 1,313,857
-------------------------------------------------------------------------------
Loss before taxes (1,906,154) (987,700) (5,166,937) (2,385,124)
PROVISION FOR INCOME TAXES - - - -
-------------------------------------------------------------------------------
Net loss (1,906,154) (987,700) (5,166,937) (2,385,124)
DIVIDENDS ACCRUED ON PREFERRED
STOCK 150,000 103,250 372,082 309,749
-------------------------------------------------------------------------------
Net loss available to common stockholders $ (2,056,154) $ (1,090,950) $ (5,539,019) $ (2,694,873)
===============================================================================
NET LOSS PER SHARE ($0.33) ($0.27) ($0.88) ($0.67)
===============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 6,323,891 4,034,292 6,323,891 4,034,292
===============================================================================
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
SECURITY ASSOCIATES INTERNATIONAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED) (UNAUDITED)
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (5,166,937) $ (2,385,124)
Adjustments to reconcile net loss to net cash used
For operating activities-
Amortization and depreciation 4,643,945 2,787,193
Deferred compensation expense 1,010,000 -
Issuance of Common Stock for services 10,598 -
Changes in assets and liabilities-
Accounts Receivables, net (234,346) (676,496)
Other current assets 76,892 19,729
Other long-term assets (15,048) (94,704)
Accounts payable (128,856) (179,714)
Accrued expenses 404,964 1,037,083
Unearned revenue (14,960) 350,403
Other current liabilities - (9,322)
------------- -------------
Net cash provided by operating activities 586,252 849,048
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract rights to monitor security
systems, net (1,449,862) (6,084,417)
Purchase of fixed assets (852,381) (284,904)
Cash paid for acquisitions, net (9,899,416) (896,590)
------------- -------------
Net cash used for investing activities (12,201,659) (7,265,911)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock 1,949,754 441,559
Dividends earned on preferred stock (372,082) (309,749)
Proceeds from notes receivable from stockholders 50,000 25,180
Payment of notes payable to related parties - (136,000)
Proceeds from notes payable to related parties - 4,450,000
Payment of notes payable (344,767) (4,675,485)
Proceeds from notes payable 8,014,973 6,516,236
------------- -------------
Net cash provided by financing activities 9,297,878 6,311,741
------------- -------------
(DECREASE) IN CASH (2,317,529) (105,122)
CASH, beginning of the period 5,521,633 632,355
------------- -------------
CASH, end of period $ 3,204,104 $ 527,233
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SECURITY ASSOCIATES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1. BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by the Company,
without audit, in accordance with generally accepted accounting principles for
interim financial information and in conjunction with the rules and regulations
of the Securities and Exchange Commission. Accordingly they do not include all
of the information and footnotes required by generally accepted accounting
principles for financial statements. In the opinion of management, all
adjustments (consisting only of normal recurring matters) considered necessary
for a fair presentation have been included.
The results of operations for the nine-month period ended September 30,
1998 are not necessarily indicative of the results that may be expected for the
full year. These financial statements should be read in conjunction with the
Company's financial statements and related notes in the Company's 1997 Annual
Report on Form 10-K filed with the Securities and Exchange Commission.
NOTE 2. STATEMENTS OF CASH FLOWS
The supplemental schedule of noncash activities for the nine months
ended September 30, 1998 and 1997 includes the following:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Supplemental schedule of cash flow information-
Cash paid during the period for interest $1,470,162 $ 445,207
Supplemental schedule of noncash activities-
Purchase of acquisitions for notes payable - 1,053,000
Purchase of acquisitions with stock 549,583 -
Purchase of contract rights with notes 383,653 629,217
Purchase of contract rights with deferred revenue 178,894 326,307
</TABLE>
NOTE 3. ACQUISITIONS
During the third quarter, the Company acquired a third party central
monitoring station, Reliance Protection, Ltd. for $1,400,000. During October,
the Company acquired World Security Services Corp. in an all cash transaction
for $1,520,000 and Alarm Central Monitoring, Inc. for $1,397,000 in cash plus
35,000 shares of the Company's Common Stock (which was valued at $144,000). The
acquisitions were financed through general corporate funds, borrowings under the
Company's existing line of credit with FINOVA Capital Corporation and the
issuance of Common Stock and were accounted for using the purchase method for
financial reporting purposes.
6
<PAGE> 7
NOTE 4. NET LOSS PER SHARE
Basic earnings per share are calculated using the weighted average
number of shares outstanding during each period. Stock options, warrants and
Convertible Preferred Stock have not been included in the calculation of net
loss per share as their effect would be antidilutive.
NOTE 5. WARRANTS
The Company granted 35,000 warrants to purchase Common Stock to a
director and a company controlled by the director on January 6, 1998. These
warrants have an exercise price of $6.00 per share and expire in 2001. Had
compensation costs for the warrants been determined based on the fair value at
their grant date consistent with the method of FASB Statement No. 123 ("SFAS
123"), the Company's net income for the first nine months would have been
reduced by $88,200. As a result, the loss per share would have increased by
$.01 per share to $ .89 per share.
As of October 1, 1998, the Company issued 114,424 warrants to dealers
under its dealer incentive program during the third quarter, 28,606 of these
warrants were exercisable upon issuance. These warrants have an exercise price
of $6.00 per share. The warrants vest over a three year period; 25% upon
issuance and the remaining 75% over three years provided the dealer uses the
Company's central station services during that period. The warrants were valued
at $1.78 per share using the Black-Scholes model. The warrants expire four
years from the date of issuance.
NOTE 6. STOCK ISSUED
The Company sold 155,835 shares of $10 par value Redeemable Preferred
Stock for $1,558,350 to TJS Partners, L.P. in June 1998. Additionally, during
the third quarter, options to purchase 160,000 shares of Common Stock were
exercised by an officer of the Company (40,000 shares) and a limited partnership
which is owned by officers of the Company (120,000 shares). The Company
received $160,000 as a result of these options being exercised. TJS Partners,
L.P. exercised mirror options to purchase 1,825 shares of Convertible Preferred
Stock. The Company received $195,000 as a result of these mirror options being
exercised.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Certain statements contained in this Quarterly Report that are not
historical facts constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995, Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. In addition, when used in the Quarterly Report the
words "anticipates," "intends," "seeks," "believes," "estimates," and "expects"
and similar expressions as they relate to the Company or its
7
<PAGE> 8
management are intended to identify such forward-looking statements. Such
statements are subject to a number of risks and uncertainties. The Company's
actual results, performance or achievements could differ materially from the
results expressed in, or implied by, these forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited
to, general industry and economic conditions, crime rates, availability and
costs of capital, costs of acquiring central stations and monitoring accounts
and governmental regulations effecting the alarm industry. The Company
undertakes no obligation to revise these forward-looking statements to reflect
any future events or circumstances.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
For the nine months ended September 30, 1998, revenues of the Company were
$14,121,610 compared to $7,417,014 for the same period of the prior year. This
represents an increase of $6,704,596 or 90.39%. The increase is primarily a
result of acquisitions of central stations and an increase of over 8,000
subscribers in the Company's owned Account portfolio over the last twelve
months.
General, selling and administrative expenses for the nine months ended
September 30, 1998, increased by $5,968,352 or 104.69% over the same period in
the prior year. The increase was primarily caused by increases in salary and
related expenses attributable to the expansion of central station operations and
the Company hiring additional personnel to manage the Company's rapid growth.
The increase of $1,816,065 in amortization and depreciation expenses is
related to the increase in contract rights purchased and the increased
amortization of goodwill due to acquisitions completed over the previous twelve
months. The net attrition rate related to contract rights purchased has
remained constant at approximately 8% in both periods.
Deferred compensation expense of $1,010,000 for the nine months ended
September 30, 1998, represents management's estimate of deferred compensation
expense assuming the maximum awards that can be earned in 1998 under the
Company's stock based Deferred Compensation Plan are awarded.
Interest expense increased from $1,313,857 to $1,965,162 between periods as
the Company increased its debt level by over $11,000,000 to finance central
station acquisitions and the purchase of Accounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and growth from a combination of
borrowings under the Company's credit facilities and sales of stock. The
Company's principal uses of cash are financing the Company's operations, the
acquisition of subscriber Account portfolios and the acquisition of central
monitoring stations. The Company acquired five central stations during the nine
months ended September 30, 1998. Two additional central stations located in
Portland, Oregon and Dallas, Texas were purchased in October for $1,520,000 cash
and the equivalent of $1,541,000 ($1,397,000
8
<PAGE> 9
cash and 35,000 shares of the Company's Common Stock), respectively. The Company
purchased subscriber Accounts for approximately $3,200,000 in September and
October. The Company has approximately $2 million of remaining availability on
its existing line of credit with FINOVA Capital Corporation for future
acquisitions. Additional subordinated debt of $3,000,000 was borrowed from TJS
Partners, L.P. in October. An additional $500,000 will be borrowed from TJS
Partners, L.P. in December. This additional funding will provide the Company
capital to implement its computer system upgrade and to finance acquisitions.
The Company is currently evaluating additional sources of funding in order to
provide the capital needed to execute its long-term strategy. Financial
covenants on the existing line of credit with FINOVA Capital Corporation were
modified to provide the Company more favorable availability of credit on a
current basis.
The Company issued 155,835 shares of $10 par value Redeemable Preferred
Stock to TJS Partners, L.P. for $1,558,350 in June 1998. Additionally, during
the third quarter, options to purchase 160,000 shares of Common Stock were
exercised by an officer of the Company (40,000 shares) and a limited partnership
which is owned by officers of the Company (120,000 shares). The Company
received $160,000 as a result of these options being exercised. TJS Partners,
L.P. exercised mirror options to purchase 1,825 shares of Convertible Preferred
Stock. The Company received $195,000 as a result of these mirror options being
exercised. See- Note 6 of Item 1.
The Company is executing its strategy to attract new dealers to its central
station monitoring facilities. The Company intends to issue shares of Common
Stock and warrants throughout the remainder of the year consistent with its
Registration Statement on Form S-1, which was declared effective in April 1998.
The number of shares of Common Stock and warrants to be issued can not be
estimated at this time, but may not exceed a combination of 2,000,000 shares and
warrants. To date, the Company has increased its monitored account base by
approximately 5,000 Accounts as a result of Dealers moving Accounts into the
Company's central monitoring stations pursuant to this program. There are an
additional 35,000 Accounts owned by dealers who have agreed in principle to move
their monitoring business to the Company.
The Company is in the process of upgrading its central station alarm
monitoring, financial, billing and administrative systems. This upgrade will
also ensure that all computer systems are ready to process the Year 2000 date
change without disruption. The Company is confident that most of its systems
already satisfy Year 2000 requirements and expects that all internal systems
will be in full compliance prior to January 1, 2000. The total cost of this
upgrade is expected to range from $1,500,000 to $2,000,000. The Company's Board
of Directors has approved the necessary capital expenditures in 1998 and 1999 to
complete the program.
In addition to verifying its internal compliance, the Company will formally
survey outside vendors whose systems pose a significant Year 2000 risk. These
companies include the principal telephone companies serving the Company's
central station command centers, central station software vendors, telephone
hardware and software vendors, financial institutions and payroll companies.
Vendors with material Year 2000 compliance issues will be replaced. The target
date for completing all upgrades and vendor reviews is June 30, 1999.
9
<PAGE> 10
INFLATION
Management does not believe that inflation had a significant impact on
the Company's results of operations for the periods presented.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
The Company currently does not invest excess funds in derivative
financial instruments or other market rate sensitive instruments for the purpose
of managing its foreign currency exchange rate risk or for any other purpose.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The Company from time to time experiences routine litigation in the
normal course of its business. The Company does not believe that any pending
litigation will have a material adverse effect on the financial condition or
results of operations of the Company.
Item 2. Changes in Securities and Use of Proceeds.
The Company has issued the following securities pursuant to the Company's
Registration Statement on Form S-1, File No. 33-49897, as declared effective on
April 22, 1998:
On September 21, 1998 the Company issued warrants to Dealers to purchase
21,576 shares, in the aggregate, of the Company's Common Stock at an exercise
price of $6.00 per share. Twenty-five percent of these warrants vested upon
issuance, with the remainder vesting at the rate of one-third per year over a
three year period.
On September 28, 1998 the Company issued warrants to Dealers to purchase
69,856 shares, in the aggregate, of the Company's Common Stock at an exercise
price of $6.00 per share. Twenty-five percent of these warrants vested upon
issuance, with the remainder vesting at the rate of one-third per year over a
three year period.
On October 7, 1998 the Company issued warrants to Dealers to purchase
22,992 shares, in the aggregate, of the Company's Common Stock at an exercise
price of $6.00 per share. Twenty-five percent of these warrants vested upon
issuance, with the remainder vesting at the rate of one-third per year over a
three year period.
10
<PAGE> 11
The Company does not receive cash proceeds from the issuance of shares of
Common Stock or Warrants issued to Dealers pursuant to its dealer incentive
program (except those issued upon exercise of the Warrants as described below)
or from the sale of Common Stock by the Selling Stockholders.
The Company anticipates that any proceeds from the sale of shares of Common
Stock upon the exercise of Warrants (payable in cash upon the exercise of the
Warrants) will be used for general corporate purposes, including working
capital. Pending such use, the net proceeds from the exercise of the Warrants
will be deposited in the Company's bank accounts or invested in short-term,
investment grade, interest-bearing securities. There can be no assurance as to
the amount of Warrants that will be issued, or when issued, exercised.
On August 31, 1998 the Company issued 31,674 shares of Common Stock to two
Dealers in connection with the purchase of substantially all of their assets.
The Company received no cash consideration in connection with these issuances.
On September 30, 1998 the Company issued 3,334 shares of Common Stock to one of
the aforementioned Dealers in connection with a secondary closing for the
purchase of assets. The Company received no cash consideration in connection
with these issuances.
Additionally, on October 22, 1998, 35,000 shares of Common Stock were
issued as partial consideration in connection with the purchase of all the
outstanding capital stock of Alarm Central Monitoring, Inc. The Company
received no cash in connection with this issuance of Common Stock and the
properties so acquired will be used in the Company's business operations in the
future. These shares were registered pursuant to the Company's Registration
Statement on Form S-1, File No. 33-49897, as declared effective on April 22,
1998.
In addition to those listed above, since July 1, 1998, the Company has
issued the following securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act"):
On July 21, 1998 options to purchase 225 shares of Convertible Preferred
Stock were exercised by TJS Partners, L.P. The Company received $35,000 as a
result of these options being exercised.
On August 12, 1998 options to purchase 40,000 shares of Common Stock were
exercised by Steven Rubin. The Company received $40,000 as a result of these
options being exercised.
On August 17, 1998 options to purchase 120,000 shares of Common Stock were
exercised by JS&R, Ltd., a partnership owned by certain officers of the Company.
The Company received $120,000 as a result of these options being exercised.
On August 18, 1998 options to purchase 1,600 shares of Convertible
Preferred Stock were exercised by TJS Partners, L.P. The Company received
$160,000 as a result of these options being exercised.
On November 5, 1998 the Company issued 623 shares of Common Stock to an
independent consultant in connection with his services. The Company received
no cash consideration in connection with this issuance.
11
<PAGE> 12
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
Acquisition of the Assets of World Security Services Corp.
On October 13, 1998, the Company purchased all of the assets of World
Security Services Corp., an Oregon corporation ("World"). World was unaffiliated
with SAI.
The purchase price, which was based primarily on the recurring monthly
revenue of World and arrived at by arm's length negotiations between the
parties, was $1,520,000, which was paid in cash at closing. The purchase price
was financed by drawing on SAI's existing credit facility with FINOVA Capital
Corporation. The acquisition will be accounted for under the purchase method for
financial reporting purposes.
World is a third-party alarm monitoring company serving approximately
20,000 alarm monitoring subscribers and approximately 180 independent alarm
dealers from a central monitoring station located in Portland, Oregon.
Acquisition of Alarm Central Monitoring, Inc.
On October 23, 1998, the Company purchased all of the outstanding capital
stock of Alarm Central Monitoring, Inc., a Texas corporation ("ACM") from Joseph
M. Graves and Joseph M. Graves III, who were unaffiliated with SAI and were the
sole stockholders of ACM.
The purchase price, which was based primarily on the recurring monthly
revenue of ACM and arrived at by arm's length negotiations between the parties,
was $1,397,000 in cash plus 35,000 thousand shares of the Company's Common Stock
which was paid at closing. The cash portion of the purchase price was paid from
subordinated debt borrowed from TJS Partners, L.P. The acquisition will be
accounted for under the purchase method for financial reporting purposes.
ACM is a third-party alarm monitoring company serving approximately
13,000 alarm monitoring subscribers and approximately 50 independent alarm
dealers from a central monitoring station located in Dallas, Texas.
12
<PAGE> 13
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K.
A report on Form 8-KA was filed by the Company on August 31, 1998 including
the required financial statements from a report on Form 8-K (which was filed on
July 2, 1998).
13
<PAGE> 14
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.
Security Associates International, Inc.
Date: November 13, 1998 By: /s/ James S. Brannen
-----------------------------------
James S. Brannen
President and
Chief Executive Officer
Date: November 13, 1998 By: /s/ Daniel S. Zittnan
----------------------------------
Daniel S. Zittnan
Chief Financial Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SECURITY
ASSOCIATES INTERNATIONAL, INC.'S BALANCE SHEET AS JUNE 30, 1998 AND STATEMENTS
OF OPERATION FOR SIX MONTHS ENDED JUNE 30, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,204,104
<SECURITIES> 0
<RECEIVABLES> 3,840,647
<ALLOWANCES> 613,714
<INVENTORY> 0
<CURRENT-ASSETS> 6,728,940
<PP&E> 2,357,873
<DEPRECIATION> 544,315
<TOTAL-ASSETS> 43,319,349
<CURRENT-LIABILITIES> 8,714,979
<BONDS> 0
0
5,664,097
<COMMON> 6,546
<OTHER-SE> (418,352)
<TOTAL-LIABILITY-AND-EQUITY> 43,319,349
<SALES> 14,121,610
<TOTAL-REVENUES> 14,121,610
<CGS> 0
<TOTAL-COSTS> 17,323,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,965,162
<INCOME-PRETAX> (5,166,937)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,166,937)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,166,937)
<EPS-PRIMARY> (.88)
<EPS-DILUTED> 0
</TABLE>
