<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
Form 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended
June 30, 2000
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file No. 0-20870
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 August 11, 2000, the Registrant had outstanding 7,679,381 shares of its
$.001 par value Common Stock.
<PAGE> 2
Security Associates International, Inc.
Quarter Ended June 30, 2000
INDEX
<TABLE>
<CAPTION>
Part I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1 Financial Statements...............................................................3
Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999..............................................................3
Consolidated Statements of Operations for the three months
ended June 30, 2000 and 1999.......................................................4
Consolidated Statements of Cash Flows for the three months
ended June 30, 2000 and 1999.......................................................5
Notes to Financial Statements......................................................6
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations..........................................................8
Item 3 Quantitative and Qualitative Disclosures About Market Risk........................10
Part II - OTHER INFORMATION
Item 1 Legal Proceedings.................................................................11
Item 2 Changes in Securities and Use of Proceeds.........................................11
Item 3 Defaults Upon Senior Securities...................................................13
Item 4 Submission of Matters to a Vote of Security Holders...............................13
Item 5 Other Information.................................................................13
Item 6 Exhibits and Reports on Form 8-K..................................................13
SIGNATURES .........................................................................................15
</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 JUNE 30, 2000 DECEMBER 31, 1999
<S> <C> <C>
Current Assets:
Cash $ 366,415 $ 631,521
Accounts receivable, net 2,323,040 1,828,895
Other current assets 734,043 550,009
--------------------------------
Total current assets 3,423,498 3,010,425
--------------------------------
FIXED ASSETS, net $ 3,669,359 $ 4,045,524
Goodwill $ 24,661,486 $ 25,911,332
Other assets, net 392,208 373,369
--------------------------------
Total other assets 25,053,694 26,284,701
--------------------------------
--------------------------------
TOTAL ASSETS $ 32,146,551 $ 33,340,650
================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable 724,616 $ 463,310
Current maturities of long-term notes payable 1,814,631 1,973,352
Accrued expenses 3,274,013 3,923,722
Unearned revenue 247,867 499,407
--------------------------------
Total current liabilities 6,061,127 6,859,791
--------------------------------
NOTES PAYABLE, net of current maturities 13,189,460 12,314,460
--------------------------------
Total liabilities $ 19,250,587 $ 19,174,251
--------------------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, $10 par value, 137,686 shares
authorized, 137,109 and 136,359 and shares outstanding on June 30, 2000 and
December 31, 1999, respectively, liquidation preference $350 per share 1,371,090 1,363,590
Common stock, $.001 par value; 50,000,000 shares
authorized; 7,506,100 and 7,145,287 shares outstanding on
June 30, 2000 and December 31, 1999, respectively 7,506 7,145
Warrants, net 137,159 111,689
Additional paid-in capital 36,227,932 34,955,971
Retained deficit (24,847,723) (22,271,996)
--------------------------------
Total stockholders' equity $ 12,895,964 $ 14,166,399
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 32,146,551 $ 33,340,650
================================
</TABLE>
The accompanying notes are an integral part of these statements.
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 SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C> <C> <C>
Net Revenue $ 5,579,817 $ 6,330,216 $ 11,267,325 $ 12,630,568
Operating Unit Expense 4,124,936 3,911,327 8,345,011 7,645,012
----------------------------------------------------------------------------
Direct Margin 1,454,881 2,418,889 2,922,314 4,985,556
----------------------------------------------------------------------------
Amortization and depreciation 1,221,244 2,041,835 2,428,179 3,680,562
General and administrative 503,135 642,600 1,034,094 1,344,530
Business development 634,602 614,974 1,292,948 1,230,463
----------------------------------------------------------------------------
Total expenses 2,358,981 3,299,409 4,755,221 6,255,555
----------------------------------------------------------------------------
Loss from operations (904,100) (880,520) (1,832,907) (1,269,999)
Gain from sale of owned
subscriber accounts -- 2,649,184 -- 2,649,184
Interest expense net (392,184) (914,404) (742,819) (1,797,024)
----------------------------------------------------------------------------
(Loss) income before taxes (1,296,284) 854,260 (2,575,726) (417,839)
PROVISION FOR INCOME TAXES -- -- -- --
----------------------------------------------------------------------------
Net (loss) income (1,296,284) 854,260 (2,575,726) (417,839)
----------------------------------------------------------------------------
DIVIDENDS ACCRUED ON PREFERRED STOCK -- (150,000) -- (300,000)
----------------------------------------------------------------------------
Net (loss) income available to
common stockholders $ (1,296,284) 704,260 $ (2,575,726) $ (717,839)
============================================================================
NET (LOSS) INCOME PER SHARE - Basic $ (.18) $ .10 $ (.36) $ (.11)
============================================================================
NET (LOSS) INCOME PER SHARE-Diluted $ (.18) $ .05 $ (.36) $ (.11)
============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - Basic 7,223,473 6,818,695 7,223,473 6,818,695
============================================================================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING - Diluted 7,223,473 14,118,522 7,223,473 6,818,695
============================================================================
</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)
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,575,726) $ (417,839)
Adjustments to reconcile net loss to net cash used
For operating activities-
Amortization and depreciation 2,231,214 3,680,562
Gain on sale of contract rights to monitor security systems -- (2,649,184)
Issuance of common stock for services 59,167 12,041
Warrants and stock issued under dealer stock incentive plan 110,414 114,072
Changes in assets and liabilities-
Accounts Receivables, net (494,145) 1,239,979
Other current assets (184,034) (107,005)
Other long-term assets (58,139) 92,322
Accounts payable 261,306 22,098
Accrued expenses (649,709) 1,204,630
Unearned revenue (251,540) (1,398,145)
-------------------------
Net cash provided by (used for) operating activities (1,551,192) 1,793,531
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of contract rights to monitor security
systems, net -- (1,528,800)
Proceeds from sale of contract
rights to monitor security systems -- 22,195,906
Purchase of fixed assets (428,249) (822,060)
Cash paid for acquisitions, net (39,194) --
-------------------------
Net cash provided by (used for) investing activities (467,443) 19,845,046
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of capital stock 1,037,250 25,000
Dividends earned on preferred stock -- (300,000)
Payment of notes payable (158,721) (20,476,485)
Proceeds from notes payable 875,000 1,500,000
-------------------------
Net cash provided by (used for) financing activities 1,753,529 (19,251,485)
-------------------------
INCREASE (DECREASE) IN CASH (265,106) 2,387,092
CASH, beginning of the period 631,521 1,480,869
-------------------------
CASH, end of period 366,415 $ 3,867,961
=========================
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
SECURITY ASSOCIATES INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
NOTE 1. BASIS OF PRESENTATION:
The accompanying financial statements have been prepared by Security
Associates International, Inc. (SAI) without an audit, in accordance with
generally accepted accounting principles for interim financial information and
in compliance 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 six-month period ended June 30, 2000,
are not necessarily indicative of the results that may be expected for the full
year. These financial statements should be read in conjunction with SAI's
financial statements and related notes in SAI's 1999 annual report on Form
10-KSB filed with the Securities and Exchange Commission.
The presentation of the statement of operations has been changed to
more clearly depict SAI's activities. Therefore prior period results have been
reclassified to conform to the new presentation.
NOTE 2. STATEMENTS OF CASH FLOWS
The supplemental schedule of non-cash activities for the six months
ended June 30, 2000 and 1999, includes the following:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Supplemental schedule of cash flow information-
Cash paid during the period for interest $ 691,035 $1,318,104
Supplemental schedule of noncash activities-
Acquisitions paid for with stock 98,460 33,273
Purchase of contract rights with notes -- 211,374
Purchase of contract rights with deferred revenue -- 149,710
Note payable from sale of contract rights -- 1,800,000
Accrued expenses incurred in sale of contract rights -- 2,347,728
Deferred revenue sold in sale of contract rights -- 604,094
</TABLE>
6
<PAGE> 7
NOTE 3. EARNINGS 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. Diluted earnings per share
is calculated by dividing net income by the weighted average number of shares
assuming dilutive stock options, warrants and convertible preferred stock
outstanding were exercised or converted during the year.
NOTE 4. SEGMENT REPORTING
SAI sold its Owned Accounts on June 30, 1999. SAI now has one line of
business which is to provide electronic alarm monitoring to residences and
businesses through agreements with alarm dealers which we invoice at wholesale
rates ("Central Stations"). SAI evaluates performance based upon operating
income (or loss) before interest and income taxes; and operating cash flow,
defined as operating income (or loss) plus depreciation and amortization. SAI
does not separately identify interest expense by operating segment, nor does it
allocate corporate general and administrative, selling and marketing expenses by
operating segment.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
OWNED CENTRAL CORPORATE AND
ACCOUNTS STATIONS INTERCOMPANY CONSOLIDATED
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Six months ended June 30, 1999
---------------------------------------------------------------------------------------------------
Revenues 3,720,169 9,702,368 (791,969) 12,630,568
---------------------------------------------------------------------------------------------------
Selling and marketing expense -- 556,369 442,297 1,035,285
---------------------------------------------------------------------------------------------------
Depreciation and amortization 2,319,183 1,361,379 -- 3,680,562
---------------------------------------------------------------------------------------------------
Operating income(loss) (338,779) 706,681 (1,637,901) (1,269,999)
---------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5. STOCK AND OPTIONS ISSUED
SAI issued 360,813 shares of common stock during the first six months
of 2000. Of these shares, 297,222 shares were issued upon the exercise of stock
options, 26,256 shares were issued for acquisitions, 11,622 shares were issued
under our dealer incentive program, 23,013 shares were issued as 1999
performance awards to employees under SAI's Management Incentive Plan and 2,700
shares were issued to an independent consultant as payment for services.
In January 2000 SAI issued options to purchase 815,000 shares of common
stock to its officers and directors under a stock option plan pending approval
by our stockholders. Options to purchase these shares have an exercise price of
$2.75 per share, vest over a two year period and expire 6 years from the date of
the grant. Additional options to purchase 100,000 shares at an exercise price of
$2.88 per share were issued to new officers of SAI and 123,000 options to
purchase shares at an exercise price of $3.13 per share were issued to key
employees. These options expire 6 years from the date of grant and vest over a
three year period. The options are valued at $1.62, $1.71 and $1.85, per share
respectively under the Black-Scholes option pricing model. Had compensation
costs for the options been determined based on the fair value at their grant
date, SAI's net loss for the three-month period would have been increased by
$1,718,850. As a result, the loss per share would have increased by $.24 per
share to $.42 per share.
In May 2000, SAI issued options to purchase 150,000 shares of common
stock at a strike price of $3.625 per share to a director in return for his
services in connection with the SAI's merger with KC Acquisition. These options
vest immediately and expire 60 days from the date of the grant. The options are
valued at $0.32 each under the Black-
7
<PAGE> 8
Scholes option pricing model. The aggregate value of the options ($56,000) will
be capitalized as part of the purchase price in SAI's merger with KC
Acquisition. The options were exercised in June 2000.
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Some of the information in this Quarterly Report may be forward-looking
statements under the federal securities laws. Such statements can be identified
by the use of words such as "anticipates," "intends," "seeks," "believes,"
"estimates," "plans" and "expects." These statements discuss expectations for
the future, contain projections concerning the results of our operations or our
future financial condition or state other forward-looking information. Such
statements are subject to a number of risks and uncertainties. Our actual
results, performance or achievements could differ substantially from the results
expressed in, or implied by, those statements. We assume no responsibility for
revising forward-looking statements in light of future events or circumstances.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
For the six months ended June 30, 2000, revenues were $11,267,325
compared to $12,630,568 for the same period in the prior year, a decrease of
10.8%. The change in revenue was due to an increase in revenues from central
station operations of $1,564,957 or 16.1% and a decrease in revenue from the
retail operation of $3,720,169. The increase in central station revenues is due
to acquisitions completed in 1999. The decrease in revenue from the retail
operation is due to the sale of the owned accounts that occurred on June 30,
1999.
Operating unit expenses increased by $699,999 from $7,645,012 to
$8,345,011 or 9.2%. The increase in operating unit cost attributable to central
station operations was $1,647,796 or 24.6%. The decrease in operating unit cost
attributable to retail operations was $947,797. The increase in central station
costs is due to acquisitions completed in 1999. The decrease in retail costs is
due to the sale of the owned accounts that occurred on June 30, 1999.
General and administrative expenses for the six months ended June 30,
2000, decreased by $310,436 or 23.1% over the same period in the prior year. The
decrease was primarily attributable to the sale of the owned accounts and a
realignment of management responsibilities in the central stations.
Business development expenses increased by $62,485 or 5.1% as
salespeople and related expenses were added to focus on bringing new dealers
into our central stations. Included in these expenses were non-cash expenses
related to the dealer stock incentive program of $110,414.
8
<PAGE> 9
The decrease of $1,252,383 in amortization and depreciation expenses is
related to the increased amortization of goodwill of $751,571 due to
acquisitions of central stations completed over the previous twelve months
combined with a decrease in amortization related to the retail operation of
$2,003,954.
The gain from the sale of the owned accounts of $2,649,184 reported for
the six months ended June 30, 1999 is the result of the sale of the owned
account portfolio, which occurred on June 30, 1999. The gain reflects the total
cash proceeds of $22,800,000 less the net book value of the account portfolio,
and net book value of goodwill related to the purchase of the owned accounts.
Interest expense decreased from $1,797,024 in the second quarter of
1999 to $742,819 in the second quarter of 2000. Debt decreased by approximately
$27,626,000 due to the reduction in the FINOVA debt of $20,000,000 and the
conversion of $10,000,000 of subordinated debt to preferred stock on September
30, 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since 1994, we have financed our operations and growth from a
combination of internally generated cash flow, borrowings under our credit
facilities and sales of equity securities. Our principal uses of cash are for
capital expenditures to support internal growth, the acquisition of central
monitoring stations and operating expenses.
On April 21, 2000, SAI entered into a letter of intent, which commits
SAI to combine with KC Acquisition Corp., subsequent to KC Acquisition Corp.'s
purchase of Monital Signal Corporation, both of which operate wholesale
monitoring stations in the United States. The consideration for this transaction
includes $5,000,000 cash, the equivalent of 4,500,000 shares of SAI common stock
and the assumption of approximately $35,000,000 of debt. The letter of intent
also calls for SAI to issue to SecurityVillage.com the equivalent of 2,500,000
shares of common stock and options to purchase approximately 2,800,000 shares of
SAI common stock at a $5 per share exercise price in exchange for cash, as a fee
in connection with the merger transactions, and for entering into a series of
put and call options between SAI and SecurityVillage.com. The issuance of stock
and options and the put and call agreement will require SAI to file a proxy and
obtain stockholder approval.
During the second quarter of 2000 we received $1,037,250 through the
exercise of options to purchase common stock. Of these options, $781,250 was
exercised by two directors and an officer/director and the balance by unrelated
parties. On August 9, 2000, we received an additional $250,000 from a director
in exchange for 100,000 shares of our common stock. These funds have been used
to pay approximately $370,000 for earn outs on acquisitions, repayment of
holdback notes, deferred acquisition costs and approximately $650,000 was used
for working capital. Additionally, in the third quarter we signed an agreement
to provide marketing and sales services to SecurityVillage for $85,000 per month
beginning in September 2000.
In August, we amended our loan with FINOVA. FINOVA agreed to waive all
covenant violations for March 31, 2000 and June 30, 2000. FINOVA also bought out
the portion of the loan extended by Citizens Bank of Massachusetts. The loan
facility was decreased from $45 million to $17.5 million. We currently have
$13.476 million
9
<PAGE> 10
outstanding under the FINOVA loan. Of the remaining $4.0 million available, $3.8
million is reserved for obligations related to the sale of our retail portfolio
and the remaining $200,000 is reserved for capital expenditures. Funding for
future acquisitions will be sought as needed. We have obligations to SAFE
ranging between $1.4 and $3.6 million which may come due in the third quarter.
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.
We currently do not invest excess funds in derivative financial
instruments or other market rate sensitive instruments for the purpose of
managing interest rate or foreign currency exchange rate risk or for any other
purpose.
We incur debt from three sources: dealers from whom we acquire
subscriber accounts, senior debt from FINOVA and a note related to the sale of
our retail account portfolio. Debt owed to dealers is in the form of a "holdback
note" which is collateral to a guaranty of the aggregate revenue produced by
subscriber accounts purchased from the dealer for a period of time. These notes
are non-interest bearing and comprise less than 0.5% of our total debt. At June
30, 2000 we had $13,189,460 in senior debt due to FINOVA at an interest rate of
prime (9.5%) plus 0.75%. We also have a note due currently of $1,800,000 at an
8% annual rate related to the sale of the owned account portfolio. There is a
referral transaction pending that will satisfy our obligations under the note if
SAFE closes the transaction. It cannot be determined when or if we will have to
pay the note. We do not have exposure to foreign currency fluctuations and do
not use derivatives for trading purposes.
Interest Rate Risk. The table below provides information about our debt
obligations that are sensitive to changes in interest rates. For these debt
obligations, the table presents principal cash flows and related average
interest rates by expected maturity dates.
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
(dollars in millions) Maturity Date
---------------------------------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Total Fair Value
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate Debt $1.8 $ 1.8 $ 1.80
---------------------------------------------------------------------------------------------------------------
Average Interest Rate 8% 8%
---------------------------------------------------------------------------------------------------------------
Variable Rate Debt $.725 $1.550 $2.077 $8.837 $ 13.189 $13.189
---------------------------------------------------------------------------------------------------------------
Average Interest Rate 9.5% 9.5% 9.5% 9.5% 9.5%
---------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
On September 10, 1999, a Writ of Summons was issued against SAI North
Central Command Center, Inc., a wholly owned subsidiary of SAI, and Blair
Communications, Inc. (First Evangelical Lutheran Church vs. Blair
Communications, Inc. et al, No. 1999-04689 (Blair County, Pennsylvania)). The
case involves damages resulting from a fire at the First Evangelical Lutheran
Church. In June 2000, a complaint was filed asserting that SAI North Central was
liable for the damage to the church based on the theory that the installing
dealer was acting as SAI North Central's agent. Damages sought exceed $4.0
million. SAI believes it has no liability in this matter and will vigorously
defend its position.
From time to time we experience routine litigation in the normal course
of our business. We do not believe that any pending litigation will have a
material adverse affect on our financial condition or results of operations.
Item 2. Changes in Securities and Use of Proceeds.
We do not receive cash from our Selling Stockholders when they sell
their shares of common stock, nor do we receive cash from dealers for common
stock or warrants issued to them in connection with our dealer incentive
programs. We receive cash only when the warrants are exercised. We expect to use
any cash proceeds received from the exercise of warrants for general corporate
purposes, including working capital. Pending such use, the net cash proceeds
from the exercise of warrants will be deposited into our company's bank accounts
or invested in short-term, investment grade, interest-bearing securities. We can
not be sure of the number of warrants that will be issued, or the number that
will be exercised when issued.
We issued the following securities during the second quarter of 2000
under our Registration Statement on Form S-8, File No. 333-77897, filed with the
Securities and Exchange Commission on May 6, 1999.
On April 19, 2000, we issued 25,000 shares of common stock pursuant to
the exercise of a stock option.
On May 10, 2000, we issued 25,000 shares of common stock pursuant to
the exercise of a stock option.
On June 27, 2000, we issued 25,000 shares of common stock pursuant to
the exercise of a stock option.
In addition to the securities listed above, on May 26, 2000, we issued
a total of 11,622 shares of common stock to seven alarm dealers pursuant to our
dealer partnership program under our current Registration Statement on Form S-1.
11
<PAGE> 12
In addition to the securities listed above, we issued the following
securities during the second quarter of 2000 under our Registration on Form S-8,
File No. 333-87833, filed with the Securities and Exchange Commission on
September 24, 1999.
On April 26, 2000, we issued common stock options to purchase 90,000
shares of common stock, exercisable within sixty (60) days at an exercise price
of $3.625 per share, to a director, in return for services as a key non-employee
under our Stock Option Plan.
On June 6, 2000, we issued 90,000 shares of common stock pursuant to
the exercise of the foregoing stock options by the foregoing key non-employee
under our Stock Option Plan.
On June 27, 2000, we issued 22,222 shares of common stock pursuant to
the exercise of stock options by a key employee under our Stock Option Plan.
In addition to the securities listed above, we issued the following
securities during the second quarter of 2000 under or Registration Statement on
Form S-8, File No. 333-78960, filed with the Securities and Exchange Commission
on June 9, 2000.
On April 26, 2000, subject to the approval of our stockholders at our
May 23, 2000 annual meeting, we issued options to purchase 60,000 shares of
common stock, exercisable within sixty (60) days at an exercise price of $3.625
per share, to a director and key-non employee under our Stock Option Plan.
On June 13, 2000, we issued 25,000 shares of common stock pursuant to
the exercise of a common stock option by a key non-employee under our Stock
Option Plan.
On June 27, 2000, we issued 85,000 shares of common stock pursuant to
the exercise of stock options by a key non-employee under our Stock Option Plan.
We did not receive any cash proceeds in exchange for the stock options
or the stock issued to dealers under our dealer partnership program. We received
$1,037,250 in aggregate cash proceeds, as the combined exercise price of the
options listed above.
In addition to the securities listed above, we issued the following
securities during the second quarter of 2000 that were not registered under the
Securities Act.
On June 15, 2000, we issued 750 shares of Series A Convertible
Preferred Stock pursuant to the exercise of standby options under a Standby
Option and Warrant Agreement between our company and the stockholder.
On June 30, 2000, we issued 1,200 shares of common stock to an
independent consultant in payment for services.
We did not receive any cash proceeds in exchange for the securities
issued to the independent consultant. We received $100,000 in cash proceeds in
exchange for the standby options. No underwriters were engaged in connection
with these securities. These sales was made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act. The securities
were issued to a very limited number of individuals.
12
<PAGE> 13
On February 9, 2000 and February 25, 2000, TJS advanced to us $125,000
in anticipation of the exercise of standby options to purchase 500 shares of
Series A Convertible Preferred Stock and $79,093 in anticipation of the exercise
of standby options to purchase 827 shares of Series A Convertible Preferred
Stock, respectively. On June 15, 2000, a standby option equivalent to 25,000
shares of our common stock, representing $75,000 became not exercisable, due to
the mirror option underlying it not being exercised before its expiration. As a
result, we will refund $75,000 to TJS.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
At our Annual Meeting of Stockholders held on May 23, 2000, SAI
presented to the stockholders the re-election of James S. Brannen, Douglas
Oberlander, Thomas J. Salvatore and Michael B. Jones as Directors, all of whom
were re-elected with 10,020,606 shares voted for each and 28,800 shares withheld
for each. Ronald I. Davis was reelected with 10,018,342 shares voted in his
favor and 31,064 shares withheld. SAI also presented to the stockholders the
following matters to be voted upon: 1) Ratification of the appointment of Arthur
Andersen LLP as the Company's independent public accountant for the 2000 fiscal
year; and 2) Approve an amendment to the Security Associates International, Inc.
Stock Option Plan increasing the number of shares of common stock available
under the plan from 1,800,000 shares to 2,800,000 shares. A total of 13,087,713
shares were eligible to vote on each matter presented at the Annual Meeting all
of which were approved by the following votes of the stockholders:
<TABLE>
<CAPTION>
NUMBER OF SHARES
<S> <C> <C> <C> <C>
Broker
For Against Abstain Non Votes
1) Appointment of --- ------- ------- ---------
Arthur Andersen LLP .......... 10,025,973 15,318 8,115 --
2) Increase in options under
Stock Option Plan ............ 8,766,945 248,662 23,688 1,010,111
</TABLE>
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(10.1) Fourth Amendment to Loan Instruments, dated August 1, 2000,
between Security Associates International, Inc. and FINOVA Capital
Corporation.
(10.2) Sales and Marketing Services Agreement, dated as of September
1, 2000, between Security Associates International, Inc. and
SecurityVillage.Com.
(27) Financial Data Schedule
13
<PAGE> 14
(b) Reports on Form 8-K.
We filed a Current Report on Form 8-K on May 17, 2000, dated April 21,
2000, which reported that SAI had entered into a letter of intent with KC
Acquisition Corp. (d/b/a King Central), TJS Partners, L.P., and
SecurityVillage.com. The letter of intent provides for, among other things, KC
Acquisition Corp., Monital Signal Corporation, SAI and SecurityVillage.com
joining forces, potentially as a combined entity.
14
<PAGE> 15
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: August 11, 2000 By: /s/ James S. Brannen
James S. Brannen
President and Chief Executive Officer
Date: August 11, 2000 By: /s/ Daniel S. Zittnan
Daniel S. Zittnan
Chief Financial Officer
15
