UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number 0-20770
RESPONSE USA, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
#22-3088639
(State or other jurisdiction
(I.R.S. Employer
of incorporation or organization)
Identification Number)
11-H Princess Road, Lawrenceville, New Jersey 08648
(Address of principal executive offices)(Zip code)
(609) 896-4500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has 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 ___
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practical
date: 4,141,625 shares of $.008 par value common stock as of
October 31, 1996.
Response USA, Inc. and Subsidiaries
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets for September 30, 1996
and June 30, 1996 1-2
Consolidated Statements of Operations for the Three
Months ended September 30, 1995 and 1996 3
Consolidated Statement of Stockholders' Equity for
September 30, 1996 4
Consolidated Statements of Cash Flows for the Three
Months ended September 30, 1995 and 1996 5-7
Notes to Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-17
PART II. OTHER INFORMATION 18-19
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited
September 30, June 30,
1996 1996
------------ ------------
(Restated)
ASSETS
------
CURRENT ASSETS
Cash $394,830 $1,926,766
Marketable securities 68,750 100,000
Accounts receivable - Current portion
Trade - Net of allowance for doubtful
accounts of $355,508 and $327,072,
respectively 1,919,576 1,461,911
Net investment in sales-type leases 134,748 125,385
Preferred stock subscription receivable 6,525,000
Inventory 808,263 652,551
Prepaid expenses and other current assets 790,159 118,689
--------- ----------
Total current assets 4,116,326 10,910,302
--------- ----------
MONITORING CONTRACT COSTS - Net of accumulated
amortization of $3,384,398 and $2,838,374,
respectively 16,675,237 16,950,387
---------- ----------
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization of $1,955,594
and $1,862,915, respectively 1,395,869 1,261,007
---------- ----------
OTHER ASSETS
Accounts receivable - Noncurrent portion
Trade 21,348 29,421
Net investment in sales-type leases 317,460 323,817
Deposits 51,710 48,008
Deferred compensation expense 862,500
Deferred financing costs - Net of
accumulated amortization of $274,804
and $111,945, respectively 3,940,535 3,411,803
---------- ----------
5,193,553 3,813,049
---------- ----------
$27,380,985 $32,934,745
========== ==========
See notes to consolidated financial statements
-1-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1996 1996
------------- ------------
(Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt
Notes payable $194,803 $194,914
Capitalized lease obligation 78,238 51,064
Accounts payable - Trade 563,740 424,921
Purchase holdbacks 464,667 646,976
Accrued expenses and other current
liabilities 1,414,419 2,033,701
Deferred revenue 1,518,828 1,591,103
---------- ----------
Total current liabilities 4,234,695 4,942,679
---------- ----------
LONG-TERM LIABILITIES - Net of current portion
Long-term debt
Notes payable 8,006,945 12,374,607
Capitalized lease obligation 125,888 31,189
Deferred compensation expense 1,725,000
---------- ----------
9,857,833 12,405,796
---------- ----------
PUT OBLIGATION PAYABLE 3,165,403 2,580,338
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Preferred stock - Series A - Par value $1,000
Authorized 250,000 shares
Issued and outstanding 7,500 shares -
June 30, 1996 and 6,990 shares -
September 30, 199 7,215,782 1,605,000
Common stock - Par value $.008
Authorized 12,500,000 shares
Issued and outstanding 3,854,944 shares -
June 30, 1996 and 4,063,625 shares -
September 30, 199 32,509 30,840
Additional paid-in capita 26,761,345 24,951,240
Unrealized holding losses on available-
for-sale securities (224,593) (193,343)
Accumulated deficit (23,661,989) (13,387,805)
---------- ----------
10,123,054 13,005,932
---------- ----------
$27,380,985 $32,934,745
========== ==========
See notes to consolidated financial statements
-2-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three months ended September 30,
--------------------------------
1995 1996
---------- ----------
(Restated)
OPERATING REVENUES
Product sales $909,054 $656,128
Monitoring and service 2,092,160 2,386,239
---------- ----------
3,001,214 3,042,367
---------- ----------
COST OF REVENUES
Product sales 533,625 451,535
Monitoring and service 472,905 747,025
---------- ----------
1,006,530 1,198,560
---------- ----------
GROSS PROFIT 1,994,684 1,843,807
---------- ----------
OPERATING EXPENSES
Selling, general and administrativ 1,232,272 2,284,484
Depreciation and amortization 541,631 662,719
Interest 700,375 503,470
---------- ----------
2,474,278 3,450,673
---------- ----------
LOSS FROM OPERATIONS (479,594) (1,606,866)
INTEREST INCOME 6,795 7,939
---------- ----------
LOSS BEFORE EXTRAORDINARY ITEM (472,799) (1,598,927)
EXTRAORDINARY ITEM
Loss on debt extinguishment 2,549,708
---------- ----------
NET LOSS (472,799) (4,148,635)
Dividends and accretion on preferred stock (6,125,549)
---------- ----------
NET LOSS APPLICABLE TO COMMON SHAREHOLDER ($472,799) ($10,274,184)
========== ==========
Loss per common share
Loss before extraordinary item ($0.58) ($0.41)
Extraordinary item 0.00 (0.65)
---- ----
Net loss ($0.58) ($1.06)
==== ====
Net loss applicable to common shareholders $0.58 ($2.63)
==== ====
Weighted average number of shares outstanding 819,709 3,906,851
======= =========
See notes to consolidated financial statements
-3-
<TABLE>
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (RESTATED)
(Unaudited)
<CAPTION>
Unrealized
Holding
Preferred Stock Losses on
Series - A Common Stock Additional Available-
---------- ------------
Number Number Paid-In For-Sale Accumulated
of Shares Amount of Shares Amount Capital Securities Deficit Total
--------- ------ --------- ------ ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1996 7,500 $1,605,000 3,854,944 $30,840 $24,951,240 ($193,343) ($13,387,805) $13,005,932
Conversion of convertible
subordinated promissory
notes - Net of related
costs of $5,06 11,110 89 44,843 44,932
Issuance of warrants to
consultants 689,000 689,000
Exercise of stock options
and warrants 46,500 372 212,703 213,075
Accretion on preferred
stock due to intrinsic
value of conversion feature 5,895,000 (5,895,000) 0
Discount on and deemed
dividends on preferred
stock 230,549 (230,549) 0
Conversion of preferred
stock (510) (514,767) 151,071 1,208 513,559 0
Issuance of warrants in
connection with obtaining
lines of credit 350,000 350,000
Unrealized holding losses
on available-for-sale
securities (31,250) (31,250)
Net loss (4,148,635) (4,148,635)
----- ---------- --------- ------- ----------- ---------- ------------- -----------
Balance - September 30, 1996 6,990 $7,215,782 4,063,625 $32,509 $26,761,345 ($224,593) ($23,661,989) $10,123,054
===== ========== ========= ======= =========== ========== ============= ===========
</TABLE>
See notes to consolidated financial statements
-4-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended September 30,
--------------------------------
1995 1996
------ ------
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($472,799) ($4,148,635)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization of monitoring contract costs 88,307 546,024
Depreciation and amortization of property
and equipment 99,834 116,695
Loss on sale of property and equipmen 11,319
Amortization of deferred financing costs
and debt discount 67,747 401,264
Issuance of common stock and warrants for
consulting fee 8,125 106,000
Compensation expense in connection with
employment contracts 862,500
(Increase) decrease in accounts receivable
Trade (611,952) (445,179)
Net investment in sales-type leases 5,825 (3,006)
(Increase) decrease in inventory 40,248 (155,712)
(Increase) decrease in prepaid expenses and
other current assets (43,112) 3,869
(Increase) decrease in deposits 20,933 (3,702)
Increase in accounts payable - Trade 223,712 101,575
Increase (decrease) in accrued expenses and
other current liabilities (134,806) 200,477
Increase (decrease) in deferred revenues 15,445 (46,005)
--------- ---------
Net cash used in operating activities (392,493) (2,452,516)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of monitoring contracts (net of
purchase holdbacks) (2,140,709) (482,183)
Proceeds from the sale of property and
equipment 20,000
Purchase of property and equipment (80,523) (120,730)
--------- --------
Net cash used in investing activities (2,221,232) (582,913)
--------- -------
See notes to consolidated financial statements
-5-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three months ended September 30,
--------------------------------
1995 1996
------- --------
(Restated)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
preferred stock 7,500,000
Costs incurred in connection with
the preferred stock issuance (1,146,924)
Proceeds from private placement 145,000
Deferred financing costs incurred (27,441) (691,377)
Proceeds of long-term notes payable 2,792,500 10,750,000
Principal payments on long-term debt
Notes payable (326,541) (15,076,982)
Capitalized lease obligations (6,999) (21,224)
Net proceeds from the exercise of
stock options and warrants 190,000
--------- ----------
Net cash provided by financing activities 2,576,519 1,503,493
--------- ----------
NET DECREASE IN CASH (37,206) (1,531,936)
CASH - BEGINNING 159,445 1,926,766
--------- ----------
CASH - ENDING $122,239 $394,830
========= ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $637,031 $199,857
Cash paid during the year for income taxes -- --
See notes to consolidated financial statements
-6-
RESPONSE USA, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Supplemental Disclosures of Noncash Investing and Financial Activities
During the three months ended September 30, 1996,
convertible subordinated promissory notes of $50,000 were
converted to common stock. As a result, the Company reduced
deferred financing costs and additional paid-in capital in
the amount of $5,068.
During the three months ended September 30, 1996, the
Company increased the put obligation payable and the
corresponding charge to deferred financing costs by
$585,065, in connection with the refinancing at June 30,
1996 (see Note 5).
During the three months ended September 30, 1996, the
Company recorded accretion to preferred stock in the amount
of $5,895,000 with a corresponding charge to accumulated
deficit. The accretion represents the intrinsic value of the
beneficial conversion feature contained within the preferred
stock (see Note 6).
During the three months ended September 30, 1996, the
Company recorded deemed dividends and accretion on such
deemed dividends totaling $230,549 in connection with the
preferred stock issuance, with a corresponding charge to
accumulated deficit (see Note 6).
During the three months ended September 30, 1996,
$510,000 of preferred stock and $4,767 in deemed dividends
were converted into 151,071 shares of common stock.
During the three months ended September 30, 1996,
capitalized lease obligations of $143,100 were incurred for
the acquisition of property and equipment.
During the three months ended September 30, 1996, long-
term notes payable of $19,049 were incurred for the purchase
of property and equipment.
During the three months ended September 30, 1995, the
Company issued 25,000 shares of its common stock, valued at
$110,937, in connection with the purchase of monitoring
contracts.
During the three months ended September 30, 1995, the
Company issued 2,000 shares of its common stock, valued at
$8,125, as payment for consulting services.
During the three months ended September 30, 1995, the
Company reduced monitoring contract costs and the
corresponding purchase holdbacks in the amount of $306,977.
See notes to consolidated financial statements
-7-
RESPONSE USA, INC. AND SUBSIDIARIES
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. Basis of Presentation
The accompanying interim balance sheet as of September
30, 1996, and the related statements of operations,
stockholders' equity and cash flows have been prepared by
management of the Company and are in conformity with
generally accepted accounting principles. In the opinion of
management, all adjustments, comprising normal recurring
accruals necessary for a fair presentation of the results of
the Company's operations, are included.
Certain amounts in the 1995 quarterly financial
statements have been reclassified to conform with the 1996
presentation.
These financial statements should be read in
conjunction with the Company's annual financial statements.
2. Restatements
The Company has restated the quarterly results, for the
quarter ended September 30, 1996, from those previously
reported as a result of correcting errors relating to the
following matters:
Financial Amount
Statement Previously Restated
Caption Reported Amount
------------ ---------- --------
1)Deemed Dividends and $2,564,086 $6,125,549
dividends and accretion on
accretion on preferred
preferred stock
stock
2)Bonus agreement Selling, general $1,315,984 $2,284,484
with management and administrative
and consulting
agreements paid
through the
issuance of warrants
3)Valuation of Warrant Interest Expense $481,595 $503,470
with Put Obligation
and a consulting fee
paid with the issuance
of warrants in connec-
tion with obtaining the
line of credit
4)Bonus agreement with Deferred compensation $0 $862,500
management expense (Asset)
Deferred compensation
expense (Liability) $0 $1,725,000
5)Valuation of Warrant Put obligation payable $1,490,403 $3,165,403
with Put Obligation
and a consulting fee Deferred financing cost $1,937,410 $3,940,535
paid with the issuance
of warrants in connec-
tion with obtaining the
line of credit
6)Impact of all entries Accumulated deficit $19,110,151 $23,661,989
above
-8-
2. Restatements(Continued)
As a result of the above restatements net loss per
common share has changed as follows:
Amount
Previously Restated
Reported Amount
---------- --------
Loss per common share
Loss before extraordinary item ($.16) ($.41)
Extraordinary item (.65) (.65)
Net loss (.81) (1.06)
Net loss applicable
to common shareholders (1.46) (2.63)
3. Inventory
September 30, June 30,
1996 1996
--------- --------
(Unaudited)
Parts Inventory $ 569,229 $ 500,437
Finished Goods 239,034 152,114
--------- ---------
$ 808,263 $ 652,551
========= =========
4. Acquisitions
During the three months ended September 30, 1996,
the Company purchased monitoring contracts for an aggregate
of $359,502. As consideration, the Company paid $348,677 in
cash, including acquisition costs of $24,476, and recorded
purchase holdbacks of $10,825 (which are payable over
periods of up to eighteen months based on performance
guarantees of the seller).
5. Long-Term Notes Payable
Line of Credit Agreement
------------------------
Note payable with interest only due through
June 30, 2000 at prime plus 1-3/4% on the
outstanding loan balance; a commitment fee
of .5% is payable on the average daily unused
credit; collateralized by all assets of the
Company $ 7,750,000
Equipment Financing
-------------------
Payable in monthly installments aggregating
$5,986 including interest at rates ranging
from 6.95% to 11.83%; final payments due
January, 1997, through December, 1999;
collateralized by related equipment 105,874
-9-
5. Long-Term Notes Payable (Continued)
Convertible Subordinated Promissory Notes
-----------------------------------------
5% convertible subordinated promissory notes
due on November 30, 1996 75,000
Reorganization Debt
-------------------
As part of the 1990 plan of reorganization of a
1987 bankruptcy, the U.S. Bankruptcy Court
approved a 30.5% settlement on the total
unsecured claims submitted; payments are due
March 1 of each year, as follows: 3.5% ($101,286)
-- 1997, and 3% ($86,817) each year -- 1998
through 2000; interest imputed at 14%; net of
imputed interest of $94,995 266,742
Federal priority tax claims payable in annual
installments of $2,211 through March, 1999,
and $ 1,896 thereafter 12,321
---------
8,201,748
Less Current Portion 194,803
---------
$8,006,945
=========
On June 30, 1996, the Company entered into a four-year
$15,000,000 revolving bank line of credit agreement. Loans
outstanding bear interest at prime plus 1-3/4%, are
collateralized by all assets of the Company, and are subject
to certain restrictive covenants. The agreement also
provides for a commitment fee payable monthly in arrears, of
.5% based on the average daily unused credit. As of
September 30, 1996, the Company has available on its
revolving credit facility the amount of $7,250,000.
On June 30, 1996, in connection with obtaining a line
of credit, the Company issued a stock purchase warrant (the
Warrant) to an affiliate of the bank which provided the line
of credit. The terms of this Warrant included the following:
(i) number of shares, 1,032,135; (ii) exercise price, $3.25
per share; (iii) expiration date, June 30, 2006; and (iv)
put obligation feature, which the Holder of the warrant can
require, during the period between July 1, 2000 and June 30,
2001 upon 10 days notice, the Company to purchase the
Warrant for the difference between the market price of the
Company's common stock and the exercise price times
1,032,135 shares. At June 30, 1996, the value of the
warrants were estimated at $5.75 per share of common stock
based upon a discounted market value of the average price of
the Company's common stock, resulting in a put obligation
payable of $2,580,338, with a corresponding charge to
deferred financing costs. At September 30, 1996, the value
of the warrants were estimated at $7.37 per share of common
stock. As a result, the Company increased the put obligation
payable and the corresponding deferred financing costs by
$1,675,000.
With the proceeds received from the issuance of
preferred stock (see Note 6) and a $10,500,000 advance on
July 1, 1996, from the line of credit, the Company paid off
notes payable with balances aggregating $12,072,668 at June
30, 1996 plus a prepayment penalty. The prepayment penalty
of $2,415,877 and unamortized deferred financing costs of
$133,831 associated with notes paid have been recorded as an
extraordinary item during the quarter ended September 30,
1996.
-10-
6. Preferred Stock (Restated)
On July 2, 1996, the Company issued 7,500 shares of
1996 Series A Convertible Preferred Stock with a par value
of $1,000 per share. (The Company recorded a preferred stock
subscription receivable of $6,525,000 at June 30, 1996;
which was received on July 2, 1996). The holders of the
preferred stock are not entitled to receive dividends and
have no voting rights. The preferred shares are convertible
into a number of common shares determined by using a formula
of " the premium plus $1,000, divided by the conversion
price." The premium as defined equates to an annual 10%
deemed dividend and the conversion price is equal to the
lesser of $5.00 or 80% of the average closing bid price of
the Company's common stock for the five days immediately
preceding the date of conversion. Up to 50% of the preferred
stock may be converted beginning 45 days after closing and
the balance may be converted beginning 70 days after
closing. After June 1, 1999, the Company may require
conversion.
The Company, during the quarter ended September 30,
1996, recorded accretion to preferred stock in the amount of
$5,895,000, with a corresponding charge to accumulated
deficit. The accretion represents the intrinsic value of the
beneficial conversion feature contained within the preferred
stock.
The Company, for the three months ended September 30,
1996, recorded deemed dividends and accretion on such deemed
dividends totaling $230,549 in connection with the preferred
stock issuance.
During the months August 1996 and September 1996, 510
shares of Series A Convertible Preferred Stock, with a value
of $510,000, and $4,767 in deemed dividends were converted
to 151,071 shares of common stock.
On September 30, 1996, the Company suspended conversion
of its 1996 series A Convertible Preferred Stock. The
Company renegotiated the terms and conditions of the
preferred stock (see Note 9 -- Subsequent Events).
7. Common Stock and Additional Paid-in Capital
During the quarter ended September 30, 1996,
convertible subordinated promissory notes of $50,000, were
converted into 11,110 shares of common stock.
During the three months ended September 30, 1996,
46,500 shares of common stock were issued as a result of the
exercise of warrants and stock options. The Company recorded
common stock of $372 and additional paid-in capital of
$221,503.
The following is a summary of stock option activity:
Option Weighted
Price Average
Number Per Share Exercise
of Shares (Range) Price
--------- --------- ---------
Options outstanding at June 30, 1996 2,008,183 $2.50 - $35.00 $2.637
Options granted -- $ -- $ --
Options exercised (2,500) $ 3.75 $ 3.75
Options canceled or expired -- $ -- $ --
--------- -------------- --------
Options outstanding and exercisable
at September 30, 1996 2,005,683 $2.50 - $35.00 $2.637
========= ============== =======
-11-
7. Common Stock and Additional Paid-in Capital (Continued)
The following is a summary of warrant activity:
Number Exercise Price
of Shares Per Share
--------- --------------
Warrants outstanding at June 30, 1996 3,950,697 $2.50 - $8.00
Warrants exercised in connection with
10% notes - Class C (30,000) $3.875 - $6.00
Warrants exercised in connection with
12% notes - Class A (14,000) $3.25
--------- -------------
Warrants outstanding at September 30, 1996 3,906,697 $2.50 - $8.00
========= =============
8. Commitments and Contingencies
Employment Agreements (Restated)
--------------------------------
The Company has employment contracts with certain key
personnel of USS for terms expiring March, 1999. The
contracts provide for initial base salaries aggregating
$240,000 which are subject to incremental increases as
determined by the Board of Directors. Additional
compensation is due provided the following conditions are
realized: (i) if the Company increases its net alarm system
subscriber accounts by at least 10,000 accounts before March
1999, the Company shall pay each employee $1.0 million less the
gross proceeds from the sale or exercise of their options;
(ii) if the Company increases its net alarm system
subscriber accounts by at least 15,000 accounts before
March, 1999, the Company shall pay each employee $1.5
million less the gross proceeds from the sale or exercise of
their options; (iii) any increases in net alarm systems
between 10,000 and 15,000 accounts shall entitle certain
employees to a pro rated amount between $1.0 million and
$1.5 million as determined in provisions (i) and (ii) above.
At September 30, 1996 the increase in net alarm systems
exceeded 15,000, as a result, the Company recorded
compensation expense and a deferred compensation liability
at September 30, 1996 in the amount of $862,500.
Contingencies
-------------
As part of certain acquisitions, the Company has
guaranteed the value of its common stock at various prices
ranging from $3.75 to $17.34 for periods expiring at various
dates through February 1997. As of September 30, 1996, the
Company's contingent liabilities under these agreements
aggregated approximately $104,100, which may be settled in
cash or by the issuance of common stock; to the extent that
settlement is in common stock, the holders are entitled to
piggy-back registration rights and the Company has filed a
registration statement for 94,402 shares of common stock
which are expected to be sufficient to satisfy the Company's
obligation.
9. Subsequent Events
In January and February 1997, three groups of preferred
shareholders (Halifax Fund, L.P., Lake Management L.D.C. and
KA Investments, L.D.C.) commenced legal action to force the
company to resume conversion of the preferred stock. In
order to settle the matters of litigation, the Company
reached two separate agreements with the complainants.
On June 26, 1997, all preferred shareholders, other
than Halifax Fund, L.P. received five thousand warrants (the
"Warrants") to purchase common stock of the Company for
$2.00 per share for each 100 shares of Preferred Stock held.
Fifty percent (50%) of the Warrants are exercisable after
one (1) year from issuance and the remaining fifty
percent (50%) are exercisable after two (2) years from
issuance. In return for the filing by the Company of a
registration statement with the SEC for the primary issuance
by the Company of securities to generate approximately
$8,750,000 of net proceeds for use by the Company to redeem
all of the Preferred Stock (the "Registration Statement"), on
or before October 11, 1997, the preferred shareholders agreed to
refrain from all conversions of the preferred shares until
November 30, 1997.
-12-
9. Subsequent Events (Continued)
On June 30, 1997, the Company reached an agreement
with Halifax Fund, L.P. where the Company agreed to convert
1,000 shares of preferred stock owned by this group into
900,000 shares of the company's common stock and assisted in
locating a purchaser for the 900,000 shares from the
preferred shareholders for a total of $1,500,000, which
included the reimbursement of legal fees of $150,000. The
Company also issued to these former preferred shareholders
5,000 Warrants to purchase common stock of the company for
$2.00 per share for each 100 shares of preferred stock held.
Fifty percent (50%) of the Warrants are exercisable after
one (1) year from issuance and the remaining fifty percent
(50%) are exercisable after two (2) years from issuance.
In the event that the Company settles with any other
preferred shareholder on terms which these shareholders,
in their sole discretion, believe are better than those
they have received, these shareholders have the right to
elect the alternative settlement.
-13-
Response USA, Inc. and Subsidiaries
-----------------------------------
Item 6. Management's Discussion and Analysis of
______ Financial Condition and Results of Operations
The following discussion should be read in
conjunction with the Consolidated Financial Statements and
related notes thereto.
Forward Looking Information.
The Private Securities Litigation Reform Act of 1995
(the "Reform Act") provides a "safe harbor" for forward-
looking statements to encourage companies to provide
prospective information about their companies, so long as
those statements are identified as forward-looking and are
accompanied by meaningful cautionary statements identifying
important factors that would cause actual results to differ
materially from those discussed in the statement. The
Company desires to take advantage of the "safe harbor"
provisions of the Reform Act. Except for the historical
information contained herein, the matters discussed in this
Form 10-QSB/A quarterly report are forward-looking
statements which involve risks and uncertainties. Although
the Company believes that the expectations reflected in such
forward-looking statements are based upon reasonable
assumptions, it can give no assurance that its expectations
will be achieved. Important factors that can cause actual
results to differ materially from the Company's expectations
are disclosed in conjunction with the forward-looking
statements or elsewhere herein.
Liquidity and Capital Resources
On June 30, 1996 through July 3, 1996, the Company
completed a restructuring of its long-term debt. The Company
obtained a $15 million revolving credit facility from Mellon
Bank, N.A. and issued $7.5 million of its 1996 Series A
Convertible Preferred Stock to institutional and individual
domestic and foreign investors. The proceeds of the
financing were utilized to repay the Company's existing long-
term indebtedness and resulted in a substantial decrease in
the Company's borrowing costs. The restructuring resulted in
an extraordinary charge of $2,549,708 for early
extinguishment of debt for the quarter ended September 30,
1996. As of September 30, 1996, the Company has available on
its revolving credit facility the amount of $7,250,000. The
credit facility bears interest at the Prime Rate, plus 1 3/4%.
The Company's working capital decreased by $6,085,992
from $5,967,623 at June 30, 1996, to a working capital
deficiency of $118,369 at September 30, 1996. On June 30,
1996, the Company recorded a preferred stock subscription
receivable for $6,525,000, from Series A Convertible
Preferred Stock subscribed with a par value of $7,500,000,
net of related placement fees of $975,000 paid from the
proceeds at the closing. On July 1, 1996, the Company
entered into a four-year $15 million revolving bank line of
credit agreement (see Note 5 of Notes to the Consolidated
Financial Statements). With the proceeds received from the
issuance of preferred stock on July 2, 1996 and $10,500,000
from the revolving line of credit, the Company paid off
notes payable used to finance its growth through
acquisitions, with balances aggregating approximately $12.1
million. The Company believes its cash flows from operations
will be sufficient to fund the Company's interest payments
on its debt and capital expenditures, which are the
Company's principal uses of cash other than the acquisitions
of portfolios of subscriber accounts.
Net cash used in operating activities for the
three months ended September 30, 1996 was $2,452,516. A net
loss of $4,148,635 including noncash transactions totaling
$2,032,483, accounted for $2,116,152 of the cash used in
operating activities. The noncash transactions are as
follows: (i) depreciation and amortization of $1,063,983;
(ii) deferred compensation expense in connection with
employment agreements of $862,500; and (iii) consulting fees
through the issuance of warrants of $106,000. Other
significant changes included changes in accounts receivable,
inventory, and accounts payable and accrued expenses
totaling $301,845. The increase in accounts receivable of
$448,185 was primarily due to the increase in monthly
monitoring and service billings, as a result of the
acquisition of approximately 8,000 subscriber accounts
during the past twelve months. Increases in product sales of
personal emergency response systems (PERS) to both private
label wholesalers and home healthcare
-14-
Liquidity and Capital Resources (Continued)
agencies, resulted in higher accounts receivable too. The
provision for doubtful accounts increased to $355,508 at
September 30, 1996, from $327,072 at September 30, 1995. The
increase reflects an increase in the Company's average
subscriber base and the Company's willingness to work with
subscribers experiencing credit difficulties in order to
maintain long-term subscriber relationships. The increase in
inventory of $155,712 is attributable to an increase in
future orders for PERS by both private label wholesalers and
home healthcare agencies. The increase in accounts payable
and accrued expenses totaling $302,052 was due to both the
additional finished goods inventory required to meet future
orders and other operating expenses related to the
acquisitions of approximately 8,000 monitoring contracts.
Net cash used in investing activities for the three
months ended September 30, 1996 was $582,913. The purchases
of monitoring contracts (including purchase holdback
payments) accounted for $482,187 of the cash used in
investing activities. Other investing activity included the
purchase of property and equipment of $120,730, which was
offset by the proceeds from the sale of equipment of
$20,000.
Net cash provided by financing activities was
$1,503,493 for the three months ended September 30, 1996.
Proceeds from the exercise of stock options and warrants
totaled $190,000. Net proceeds received from the line of
credit and the preferred stock issuance totaling $17,103,076
were used primarily to pay off notes payable totaling
$12,072,668 and the acquisition of monitoring contracts.
Principal payments on long-term debt, excluding notes
payable paid off with the line of credit and preferred stock
proceeds, totalled $3,025,538 were made during the three
months ended September 30, 1996.
The Company has no material commitments for
capital expenditures during the next twelve months and
believes that its current cash and working capital position
and future cash flow from operations will be sufficient to
meet its working capital needs for twelve months.
The Company intends to use borrowings under the
revolving bank line of credit together with the remaining
cash flow from operations to continue to acquire monitoring
contracts. Additional funds beyond those currently available
will be required to continue the acquisition program, and
there can be no assurance that the Company will be able to
obtain such financing.
Results of Operations
A majority of the Company's revenues are derived
from monthly recurring payments for the monitoring, rental
and servicing of both electronic security systems and PERS,
pursuant to contracts with initial terms up to five years.
Service revenues are derived from payments under extended
warranty contracts and for service calls performed on a time
and material basis. The remainder of the Company's revenues
are generated from the sale and installation of security
systems and PERS. Monitoring and service revenues are
recognized as the service is provided. Sale and installation
revenues are recognized when the required work is completed.
All direct installation costs, which include materials, labor
and installation overhead, and selling and marketing costs are
expensed in the period incurred. Alarm monitoring and rental
services generate significantly higher gross margins than do
the other services provided by the Company.
Operating revenues increased by $41,153 or 1% for the
quarter ended September 30, 1996 ("Fiscal 1997") as compared
to the quarter ended September 30, 1995 ("Fiscal 1996").
Product sales decreased by $252,926 or 28% for Fiscal 1997
as compared to Fiscal 1996. The decrease in product sales
was due to the Company's primary strategy to expand through
the acquisition of monitoring contracts, as opposed to
direct sales of security systems. Sales of electronic
security systems decreased by approximately $295,000 for the
three months ended September 30, 1996 as compared to the
same period ended September 30, 1995. Revenues from the sale
of PERS to private label wholesalers and home healthcare
agencies increased by approximately $42,000, for the same
comparable periods. The significant
-15-
Results of Operations (Continued)
growth in monitoring and service revenues of $294,079 or 14%
for Fiscal 1997 as compared to Fiscal 1996, was due to the
acquisition of monitoring contracts and the success of the
Company's extended warranty program.
The Company is in the process of developing additional
cooperative marketing programs in which the Company's PERS
products are distributed in conjunction with another
vendor's products or utilizing other marketing methods
developed by a co-participant specializing in direct sales
to the consumer or home healthcare agency. The Company
currently distributes its PERS through approximately 3,000
pharmacy departments of national retail chains. The Company
will continue to acquire monitoring customers from other
security system companies. The Company believes the
foregoing will result in a substantial increase in
monitoring and service revenues.
Gross Profit for Fiscal 1997 was $1,843,807, which
represents a decrease of $150,877, or 8%, from the
$1,994,684 of gross profit recognized in Fiscal 1996. The
Gross Profit Margin (GPM), as a percentage of sales, was 66%
for the quarter ended September 30, 1995, as compared to 61%
for the quarter ended September 30, 1996. The decline is
primarily attributable to the sale of PERS to homehealthcare
agencies, as a percentage of total revenues, decreasing from
81% to 51%; and the sale of PERS to private label
wholesalers, as a percentage of total revenues, increasing
from 13% to 47%, for the periods ended September 30, 1995
and 1996, respectively. Gross profit margins recognized on
the sale of PERS to private wholesalers are substantially
lower than GPM's recognized on all other operating revenues.
Gross profit margins significantly decreased from 32% to 7%
on sales of electronic security systems from Fiscal 1996 to
Fiscal 1997. An increase in competition, including the
advertisement of free security systems, resulted in a lower
average selling price of such security systems.
Selling, general and administrative expenses
(excluding deferred compensation expense in connection with
employment agreements of $862,500 and consulting fees
resulting from the issuance of warrants of $106,000) grew to
$1,315,984 for the quarter ended September 30, 1996, which
represents an increase of $83,712 or 7%, over selling,
general and administrative expenses for the three months
ended September 30, 1995. Selling, general and
administrative expenses, as a percentage of total operating
revenues, increased from 41% to 43% for the period ended
September 30, 1995 and 1996, respectively. The increase in
selling, general and administrative expenses was primarily
due to increases in corporate overhead expenses incurred to
assimilate newly acquired customers into the Company's
customer base, and to support the larger subscriber base.
While selling, general and administrative expenses, as a
percentage of revenues, increased by 7%, monitoring and
service revenues increased by 14% between comparable
periods, reflecting efficiencies realized in the Company's
corporate offices. The Company anticipates that its current
level of selling, general and administrative expenses, as a
percentage of sales, will decrease as a result of the
Company's operating revenues growing substantially due to
increases in monitoring and service revenues from ongoing
acquisitions.
During the quarter ended September 30, 1996, the
Company recorded a deferred compensation liability with a
corresponding charge to selling, general and administrative
expense in the amount of $862,500, pursuant to employment
contracts.
Amortization and depreciation expenses increased by
$121,088, from $541,631 to $662,719 for the three months
ended September 30, 1995 and 1996, respectively. This
increase in amortization and depreciation expense is the
result of the Company's acquisition of approximately $8
million of monitoring contracts during the fiscal year ended
June 30, 1996.
Interest expense decreased by $196,905 or 28% from
$700,375 for the quarter ended September 30, 1995, to
$503,470 for the same period ended September 30, 1996. In
July, 1996, the Company paid off notes payable with balances
aggregating $12,072,688 with proceeds from the issuance of
preferred stock
-16-
Results of Operations (Continued)
and an advance from the line of credit, resulting in a
substantial decrease in the Company's borrowing costs (see
Notes 5 and 6 of Notes to Consolidated Financial
Statements).
The net loss for the three months ended September
30, 1996 was $1,598,927 (excluding an extraordinary item for
early extinguishment of debt of $2,549,708) or ($.41) per
share based on 3,906,851 shares outstanding, as compared to
a net loss of $472,799 or ($.58) per share based on 819,709
shares outstanding for the three months ended September 30,
1995. The net loss applicable to common shareholders (net
loss adjusted for dividends and accretion on preferred
stock) for the periods ended September 30, 1995 and 1996
were $472,799 or ($.58) per share based on 819,709 shares
outstanding; and $10,274,184 or ($2.63) per share based on
3,906,851 shares outstanding, respectively. Earnings before
interest, taxes, depreciation and amortization (EBITDA),
excluding charges for the loss on debt extinguishment,
deferred compensation expense - employment agreements, and
consulting fees from the issuance of warrants was $762,412
for the quarter ended September 30, 1995 as compared to
$527,823 for the quarter ended September 30, 1996.
-17-
Response USA, Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
(11) Computation of Loss per Common Share
(27) Financial Data Schedule
(b) Report on Form 8-K - None
-18-
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this
report to be signed on its behalf by the undersigned,
thereunto duly authorized.
RESPONSE USA, INC. November 13, 1997
------------------ -----------------
Registrant
By: /s/ Richard M. Brooks
----------------------
Richard M. Brooks
President, Chief Executive and Financial Officer
Principal Financial Officer
Principal Accounting Officer
By:/s/ Ronald A. Feldman
---------------------
Ronald A. Feldman
Chief Operating Officer
Vice President, Secretary
Treasurer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 395
<SECURITIES> 69
<RECEIVABLES> 2,393
<ALLOWANCES> 355
<INVENTORY> 808
<CURRENT-ASSETS> 4,116
<PP&E> 3,350
<DEPRECIATION> 1,956
<TOTAL-ASSETS> 27,381
<CURRENT-LIABILITIES> 4,235
<BONDS> 0
0
7,216
<COMMON> 33
<OTHER-SE> 2,874
<TOTAL-LIABILITY-AND-EQUITY> 27,381
<SALES> 656
<TOTAL-REVENUES> 3,042
<CGS> 451
<TOTAL-COSTS> 1,199
<OTHER-EXPENSES> 2,868
<LOSS-PROVISION> 80
<INTEREST-EXPENSE> 503
<INCOME-PRETAX> (1,598)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,598)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,550)
<CHANGES> 0
<NET-INCOME> (4,149)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (2.63)
</TABLE>
EARNINGS PER SHARE COMPUTATIONS:
MODIFIED TREASURY STOCK METHOD:
TOTAL EXERCISE PROCEEDS $20,070,960
---------
PERIOD-END OUTSTANDING SHARES 4,063,625
---------
20% OF PERIOD-END OUTSTANDING SHARES 812,725
---------
AVERAGE SHARE PRICE DURING PERIOD $5.88
---------
PROCEEDS USED TO PURCHASE SHARES 4,778,823
---------
REMAINING PROCEEDS 15,292,137
---------
PROCEEDS USED TO RETIRE AVERAGE DEBT 12,385,109
---------
REMAINING PROCEEDS INVESTED $2,907,028
=========
ADJUSTED INCOME (LOSS):
NET INCOME (LOSS) ($4,148,635)
DIVIDENDS AND ACCRETION TO PREFERRED STOCK (6,125,549)
------------
ADJUSTED INCOME (LOSS) (10,274,184)
INTEREST (EXPENSE) ON RETIRED DEBT (10.25%) 317,368
INTEREST INCOME ON PROCEEDS INVESTED (2.5%) 18,169
TAX EFFECT OF INTEREST ADJUSTMENTS (40%) (134,215)
---------
NET INCOME (LOSS) FOR EARNINGS
PER SHARE PURPOSES (10,072,862)
---------
SHARES:
WEIGHTED AVERAGE SHARES OUTSTANDING 3,906,851
WEIGHTED AVERAGE EQUIVALENT SHARES OUTSTANDING 5,091,379
20% OF PERIOD-END OUTSTANDING SHARES 812,725
---------
TOTAL SHARES FOR EARNINGS PER SHARE PURPOSES 9,810,956
---------
NET INCOME (LOSS) PER SHARE ($1.03)
=========
MAXIMUM INCOME (MINIMUM LOSS) PER SHARE:
ADJUSTED INCOME (LOSS) ($10,274,184)
---------
WEIGHTED AVERAGE SHARES OUTSTANDING 3,906,851
---------
NET INCOME (LOSS) PER SHARE ($2.63)
=========
