<PAGE> 1
As filed with the Securities and Exchange Commission on August 31, 1998
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
NO. 1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Date of Report: May 8, 1998
(Date of earliest event reported)
SECURITY ASSOCIATES INTERNATIONAL, INC.
(Exact name of registrant as specified in the charter)
Delaware 000-20870 87-0467198
(State or other Jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
2101 South Arlington Heights Road, Suite 100
Arlington Heights, Illinois 60005-4142
(Address of Principal Executive Offices)
(847) 956-8650
(Registrant's telephone number including area code)
n/a
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.*
Cover Page F1
Report of Independent Public Accountants F2
Texas Security Central, Inc. Balance Sheet F3
Texas Security Central, Inc. Statement of Operations F4
Texas Security Central, Inc. Statement of Cash Flows F5
Texas Security Central, Inc. Notes to Financial Statement F6
(b) Pro forma financial information.
Pro Forma Statement of Income Year Ended 1997 F9
Pro Forma Statement of Income June 1998 F10
(c) Exhibits.
2.1 Stock Purchase Agreement between Security Associates International,
Inc., as Purchaser, and The Willis Tate, Jr. Charitable Remainder Unitrust for
Southern Methodist University and Ray Hooker, as Selling Stockholders, and
Willis Tate, Jr., dated June 17, 1998. **
* Information required to be included under Item 2 with respect to Texas
Security Central, Inc. was previously filed by Registrant on an initial report
on Form 8-K made on July 2, 1998 and dated May 8, 1998.
** Previously filed by Registrant on an initial report on Form 8-K made on
July 2, 1998 and dated May 8, 1998.
2
<PAGE> 3
SIGNATURE
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.
Security Associates International, Inc.
(Registrant)
By: /s/ Daniel S. Zittnan
---------------------------------------
Daniel S. Zittnan
Vice President, Chief Financial Officer
Date: August 31,1998
3
<PAGE> 4
TEXAS SECURITY CENTRAL, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH AUDITORS' REPORT
F-1
<PAGE> 5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Texas Security Central, Inc.:
We have audited the accompanying balance sheet of TEXAS SECURITY CENTRAL, INC.
(a Texas corporation) as of December 31, 1997, and the related statements of
operations 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 Texas Security Central, Inc.
as of 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.
Chicago, Illinois
July 29, 1998
F-2
<PAGE> 6
TEXAS SECURITY CENTRAL, INC.
BALANCE SHEET
AS OF DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Accounts receivable, net $525,942
Receivable from related party 92,149
Prepaid expenses 156,417
--------
Total current assets 774,508
FURNITURE AND EQUIPMENT, net 150,806
--------
Total assets $925,314
========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $134,790
Checks not yet presented for payment 78,866
Accrued expenses 167,710
Line of credit, interest at 10.5% 23,520
Current maturities of notes payable 62,124
Unearned revenue 362,881
--------
Total current liabilities 829,891
NOTES PAYABLE, net of current portion 46,593
--------
Total liabilities 876,484
--------
STOCKHOLDERS' EQUITY:
Common stock, $1 par value, 100,000
shares authorized, 1,000 shares issued
and outstanding 1,000
--------
Retained earnings, beginning of year 74,533
Net loss for the year (26,703)
--------
Retained earnings, end of year 47,830
--------
Total stockholders' equity 48,830
--------
Total liabilities and stockholders' equity $925,314
========
</TABLE>
The notes to financial statements are an integral part of this balance
sheet.
F-3
<PAGE> 7
TEXAS SECURITY CENTRAL, INC.
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
REVENUES FROM MONITORING FEES $4,325,398
----------
OPERATING EXPENSES:
Payroll and related expenses 2,585,394
General and administrative 1,637,896
Amortization and depreciation 122,541
----------
Total operating expenses 4,345,831
----------
Loss from operations (20,433)
INTEREST EXPENSE, net 6,270
----------
Net loss before income taxes (26,703)
----------
PROVISION FOR INCOME TAXES 0
----------
Net loss $(26,703)
==========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-4
<PAGE> 8
TEXAS SECURITY CENTRAL, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(26,703)
Adjustments to reconcile net loss to cash
provided by operating activities-
Depreciation and amortization 122,541
Changes in current assets and liabilities-
Accounts receivable (33,482)
Receivable from related party 85,246
Prepaid expenses (83,120)
Accounts payable 76,188
Checks not yet presented for payment 60,430
Accrued expenses (13,483)
Unearned revenue 28,071
--------
Net cash provided by operating activities 215,688
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (30,756)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of debt (124,197)
Repayment of note to shareholders (60,735)
--------
Net cash used in investing activities (184,932)
--------
Total change in cash 0
CASH, beginning of year 0
--------
CASH, end of year $ 0
========
CASH PAID FOR INTEREST $ 48,765
========
</TABLE>
The notes to financial statements are an integral part of this statement.
F-5
<PAGE> 9
TEXAS SECURITY CENTRAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF THE BUSINESS
Company Background
Texas Security Central, Inc. (the "Company") (a Texas corporation) owns and
operates central monitoring stations in Dallas, Houston and San Antonio to
provide security monitoring for security dealers throughout the continental
United States.
2. SUMMARY OF MAJOR ACCOUNTING POLICIES
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
Revenues
Monitoring fee revenue is recognized as earned over the related contract
period. Services may be billed in advance on a monthly, quarterly or
annual basis, and any amounts not earned are included as unearned revenue.
Cash
For purposes of the statement of cash flows, cash includes bank deposits
and petty cash funds of the Company.
Accounts Receivables
The Company grants unsecured trade credit to its customers in the normal
course of business. Receivables in the accompanying balance sheet are net
of reserves of $150,000.
Furniture, Equipment and Depreciation
Property and equipment are recorded at cost. Maintenance and repairs are
charged to operations as incurred. When property, equipment and
improvements are disposed of, the costs and accumulated depreciation or
amortization are removed from the accounts and any resulting gains or
losses are reflected in income. Depreciation and amortization is provided
for financial reporting purposes using accelerated methods over five to
seven years.
Furniture and equipment at December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Equipment $836,006
Furniture and fixtures 20,933
Leasehold improvements 5,370
--------
862,309
Accumulated depreciation 711,503
--------
$150,806
========
</TABLE>
F-6
<PAGE> 10
Leases
The Company operates primarily in leased facilities. Total rent expense
related to these facilities for the year ended December 31, 1997, was
approximately $258,000 of which approximately $216,000 was paid to a
related party. The facilities in Dallas and Houston are owned by a related
party. As of December 31, 1997, the Company had prepaid rent for the
facilities to the related party of approximately $150,000. Lease terms for
these facilities are month to month. The facility in San Antonio is leased
from an unrelated third party. Terms of this lease are also month to
month.
Accrued Expenses
Accrued expenses are comprised of the following:
<TABLE>
<S> <C>
Accrued profit sharing $100,000
Accrued payroll 50,000
Other 17,710
--------
$167,710
========
</TABLE>
Unearned Revenue
Unearned revenue consists primarily of prebilled monitoring fees to
customers. Monitoring services are billed on monthly, quarterly,
semi-annual and annual bases.
Income Taxes
The Company has a net operating loss carryforward for tax purposes of
$13,413 at December 31, 1997. During the year, a net operating loss
carryforward of $26,304 was utilized to offset taxable income. Timing
differences arise between income for financial statement purposes and
taxable income due to reserves and certain accruals that are not deductible
for tax purposes until realized or paid. An allowance account of
approximately $65,400 is recorded against the tax assets as utilization of
the tax assets is not certain. The Company's deferred tax assets and
related valuation allowance are comprised of the following:
<TABLE>
<S> <C>
Net operating loss carryforward $5,400
Nondeductible reserves 60,000
-------
Deferred tax asset 65,400
Valuation allowance (65,400)
-------
Effect on tax provision $0
=======
</TABLE>
Fair Value of Financial Instruments
The fair value of the Company's long-term debt, which approximates the
carrying value, is estimated based on the current rates offered to the
Company for debt of the same remaining maturities.
F-7
<PAGE> 11
3. NOTES PAYABLE
Debt at December 31, 1997, consists of the following:
<TABLE>
<S> <C>
Note payable, interest at 11.5% payable in monthly
installments of $5,177, maturing in March, 2000 $108,717
Current maturities 62,124
-------
Total long-term debt $46,593
=======
</TABLE>
Debt matures as follows:
<TABLE>
<S> <C>
1998 $62,124
1999 46,593
======
</TABLE>
The Company has periodically prepaid the above loan and expects to retire the
debt in September, 1999.
4. BENEFIT PLANS
The Company has a 401(k) and profit sharing plan. The 401(k) plan matches 50%
of participant contributions up to 5% of the participant's salary. Participants
vest over a seven-year period in employer contributions for both plans as
follows:
<TABLE>
<S> <C>
Years 0-2 0%
Year 3 20
Year 4 40
Year 5 60
Year 6 80
Year 7 100
===
</TABLE>
Employer contributions to the 401(k) plan during 1997 were $25,604. The Company
made a discretionary contribution to the profit sharing plan of $100,000 during
1997.
5. SUBSEQUENT EVENT
On June 17, 1998, the Company was acquired by Security Associates International,
Inc., a public company, for total consideration, in notes payable and cash, of
approximately $6,800,000. These financial statements do not include any
adjustments that might result from this transaction.
F-8
<PAGE> 12
PRO FORMA STATEMENT OF INCOME
(in thousands, except per share data)
The following unaudited Pro Forma Combined Statement of Income for the year
ended December 31, 1997 was prepared to illustrate the estimated effects of
Security Associates International, Inc.'s (the Company) acquisition of
Texas Security Central, Inc. (TSC) (a central monitoring station) as if it
had occurred on January 1, 1997. The Pro Forma Statement of Income does
not purport to represent what the Company's results of operations would
actually have been if the acquisition had occurred on the dates indicated
or to predict the Company's results of operations for any future period.
The following financial information should be read in conjunction with the
audited Financial Statements and the related Notes thereto of TSC.
<TABLE>
<CAPTION>
THE TSC(2) PRO FORMA PRO FORMA
COMPANY(1) ADJUSTMENT COMBINED
---------- ------ ----------- ----------
<S> <C> <C> <C> <C>
Monitoring fees and other
revenues $10,814 $4,325 -- $15,139
General, selling and
administrative expenses 8,910 3,644 -- 12,554
Payroll expense related to
employees terminated upon the
sale of the company -- 578 -- 578
Amortization and depreciation 3,704 123 456 (3) 4,283
Deferred compensation expense 862 -- -- 862
------ ----- --- ---------
Loss from operations (2,662) (20) (456) (3,138)
Interest expense, net 1,863 6 467 (4) 2,336
------ ----- --- ---------
Net income (loss) before income taxes (4,525) (26) (923) (5,474)
Income tax expense -- -- -- --
------ ----- --- ---------
Net income (loss) (4,525) (26) (923) (5,474)
Dividends accrued on preferred stock 413 -- -- 413
------ ----- --- ---------
Net income (loss) available to common
Stockholders $(4,938) $(26) $(923) $(5,887)
------ ----- --- ---------
Net loss per share $(1.38)
Weighted average shares outstanding 4,266,151
</TABLE>
(1.) Data for the Company is for the year ended December 31, 1997.
(2.) Data for the TSC is for the year ended December 31, 1997.
(3.) Provides for the pro forma increase in amortization expense for the year
ended December 31, 1997 related to the acquisition of TSC.
(4.) Adds interest expense of $467 related to the TSC acquisition based on
additional borrowings of $4,450,000 needed to acquire TSC.
F-9
<PAGE> 13
PRO FORMA STATEMENT OF INCOME
(in thousands, except per share data)
The following unaudited Pro Forma Combined Statement of Income for
the year six month period from January 1, 1998 through June 30, 1998 was
prepared to illustrate the estimated effects of Security Associates
International, Inc.'s (the Company) acquisition of Texas Security
Central, Inc. (TSC) (a central monitoring station) as if it had occurred
on January 1, 1998. The Pro Forma Statement of Income does not purport
to represent what the Company's results of operations would actually have
been if the acquisition had occurred on the dates indicated or to predict
the Company's results of operations for any future period. The following
financial information should be read in conjunction with the audited
Financial Statements and the related Notes thereto of TSC.
<TABLE>
<CAPTION>
THE PRO FORMA PRO FORMA
COMPANY(1) TSC(2) ADJUSTMENT COMBINED
---------- ------ ---------- ---------
<S> <C> <C> <C> <C>
Monitoring fees and other revenues $8,629 $1,876 -- $10,505
General, selling and administrative
expenses 7,106 1,572 -- 8,678
Payroll expense related to employees
terminated upon the sale of the
company -- 352 -- 352
Non-recurring bonus expense -- 867 -- 867
Amortization and depreciation 2,880 32 210 (3) 3,122
Deferred compensation expense 720 -- 720
------- ----- ----- ---------
Loss from operations (2,077) (947) (210) (3,234)
Interest expense, net 1,184 1 214 (4) 1,399
------- ----- ----- ---------
Net income (loss) before income taxes (3,261) (948) (424) (4,633)
Income tax expense -- -- -- --
------- ----- ----- ---------
Net income (loss) (3,261) (948) (424) (4,633)
Dividends accrued on preferred stock 222 -- -- 222
------- ----- ----- ---------
Net income (loss) available to common
Stockholders $(3,483) $(948) $(424) $(4,855)
------- ----- ----- ---------
Net loss per share $(.77)
Weighted average shares outstanding 6,294,129
</TABLE>
(5.) Data for the Company is for the six month period ended June 30, 1998.
(6.) Data for the TSC is for the period from January 1, 1998 through June 17,
1998.
(7.) Provides for the pro forma increase in amortization expense for the
period from January 1, 1998 through June 17, 1998 related to the
acquisition of TSC.
(8.) Adds interest expense of $214 related to the TSC acquisition based on
additional borrowings of $4,450,000 needed to acquire TSC.
F-10
