UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1997
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: 5,212,596 shares of $.008 par value common stock as of
February 10, 1998.
Response USA, Inc. and Subsidiaries
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets for December 31, 1997
and June 30, 1997 1-2
Consolidated Statements of Operations for the Six
Months and Three Months ended December 31,
1997 and 1996 3
Consolidated Statement of Stockholders' Equity for
December 31, 1997 4
Consolidated Statements of Cash Flows for the Six
Months and Three Months ended December 31, 1997
and 1996 5-8
Notes to Consolidated Financial Statements 9-13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 14-18
PART II. OTHER INFORMATION 19-21
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
------------ ---------
(Unaudited)
ASSETS
------
CURRENT ASSETS
Cash $429,379 $698,551
Marketable securities 18,750 75,000
Accounts receivable - Current portion
Trade - Net of allowance for
doubtful accounts of $415,568 and
$437,208, respectively 1,488,314 1,443,203
Net investment in sales-type leases 79,784 89,124
Inventory 1,069,388 798,814
Prepaid expenses and other current assets 721,589 271,087
---------- ----------
Total current assets 3,807,204 3,375,779
---------- ----------
MONITORING CONTRACT COSTS - Net of accumulated
amortization of $6,548,118 and $5,217,345,
respectively 18,583,839 18,433,133
----------- -----------
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization of $2,614,088
and $2,363,067, respectively 1,565,627 1,512,077
----------- -----------
OTHER ASSETS
Accounts receivable - Noncurrent portion
Trade 25,159 49,046
Net investment in sales-type leases 159,998 179,752
Deposits 51,505 45,310
Investment in joint venture 2,804,974 3,139,484
Deferred compensation expense 487,500 892,500
Deferred financing costs - Net of
accumulated amortization of $857,841
and $254,654, respectively 3,015,935 3,612,727
----------- -----------
6,545,071 7,918,819
----------- -----------
$30,501,741 $31,239,808
============ ============
See notes to consolidated financial statements
-1-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
------------ ----------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Current portion of long-term debt
Notes payable $121,035 $100,329
Capitalized lease obligations 49,990 57,453
Accounts payable - Trade 814,871 556,205
Purchase holdbacks 667,958 415,765
Accrued expenses and other current
liabilities 1,187,432 1,288,332
Deferred revenue 1,999,472 1,981,500
----------- -----------
Total current liabilities 4,840,758 4,399,584
----------- -----------
LONG-TERM LIABILITIES - Net of current portion
Long-term debt
Notes payable 14,658,422 12,435,287
Capitalized lease obligations 60,458 85,435
Deferred compensation expense 1,950,000 2,550,000
---------- -----------
16,668,880 15,070,722
---------- -----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Preferred stock - Series A - Par value $1,000;
Series B - Par value $.01
Authorized 250,000 shares
Series A issued and outstanding 6,890 shares
- June 30, 1997 and 5,301 shares -
December 31, 1997 6,208,178 7,757,783
Series B issued and outstanding 3069.58 31
Common stock - Par value $.008
Authorized 37,500,000 shares
Issued and outstanding 1,769,736 shares -
June 30, 1997 and 2,212,596 shares -
December 31, 1997 17,701 14,158
Additional paid-in capital 38,174,874 35,439,510
Unrealized holding losses on available-for-
sale securities (56,250)
Accumulated deficit (35,352,431) (31,441,949)
------------ ------------
8,992,103 11,769,502
------------ ------------
$30,501,741 $31,239,808
============ ============
See notes to consolidated financial statements
-2-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Six Months Three Months
Ended December 31, Ended December 31,
1997 1996 1997 1996
---------- ---------- -------- --------
OPERATING REVENUES
Product sales $1,345,905 $1,278,042 $683,059 $621,914
Monitoring and service 5,168,020 4,707,931 2,582,982 2,321,692
--------- --------- --------- ---------
6,513,925 5,985,973 3,266,041 2,943,606
--------- --------- --------- ---------
COST OF REVENUES
Product sales 801,818 872,995 403,376 421,460
Monitoring and service 1,453,053 1,325,919 684,314 669,941
--------- --------- -------- --------
2,254,871 2,198,914 1,087,690 1,091,401
--------- --------- --------- ---------
GROSS PROFIT 4,259,054 3,787,059 2,178,351 1,852,205
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, general and
administrative 3,326,454 3,576,950 1,710,819 2,063,919
Compensation - Options/
Employment contracts (195,000) 967,284 255,000 104,784
Depreciation and
amortization 1,701,846 1,335,812 864,307 673,093
Interest 1,316,189 1,048,919 672,409 545,449
--------- --------- -------- --------
6,149,489 6,928,965 3,502,535 3,387,245
--------- --------- --------- ---------
LOSS FROM OPERATIONS (1,890,435) (3,141,906)(1,324,184)(1,535,040)
OTHER INCOME
Interest income 3,162 10,058 1,454 2,119
Joint venture loss (247,011) (116,873)
----------- --------- ---------- ---------
(243,849) 10,058 (115,419) 2,119
----------- --------- ---------- ---------
LOSS BEFORE EXTRAORDINARY
ITEM (2,134,284) (3,131,848)(1,439,603)(1,532,921)
EXTRAORDINARY ITEM
Loss on debt extinguishment 2,549,708
----------- ---------- --------- ----------
NET LOSS (2,134,284) (5,681,556)(1,439,603)(1,532,921)
Dividends and accretion
on preferred stock (1,776,197) (6,343,727)(1,440,925) (218,178)
----------- ---------- --------- ---------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS ($3,910,481)($12,025,283)($2,880,528)($1,751,099)
========== ========== ========== ==========
Loss per common share
Loss before extraordinary
item ($0.98) ($2.34) ($0.65) ($1.12)
Extraordinary item 0.00 (1.91) 0.00 0.00
------ ------- ------- ------
Net loss ($0.98) ($4.25) ($0.65) ($1.12)
====== ====== ======= ======
Net loss applicable to
common shareholders ($1.80) ($9.00) ($1.31) ($1.28)
======= ======= ======= ======
Weighted average number of
shares outstanding 2,169,597 1,336,851 2,201,098 1,369,427
========= ========= ========= =========
See notes to consolidated financial statements
-3-
<TABLE>
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
Unrealized
<CAPTION> Holding
Preferred Stock Preferred Stock Losses on
Series - A Series - B Common Stock Additional Available-
Number Number Number Paid-In For-Sale Accumulated
of Shares Amount of Shares Amt of Shares Amount Capital Securities Deficit Total
----- --------- ---- ---- -------- ------- ---------- ------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - June 30, 1997
(see Note 5) 6,890 $7,757,783 - $ - 1,775,292 $14,202 $35,439,466 $ - $(31,441,949) $11,769,502
Exercise of stock
options 23,639 189 165,240 165,429
Exercise of warrants
to lender 3069.58 31 107,263 858 (889) 0
Discount on and
deemed dividends on
preferred stock 370,545 (370,545) 0
Conversion of
preferred stock (1,000) (1,125,000) 300,000 2,400 1,272,600 (150,000) 0
Redemption of
preferred stock (589) (795,150) (795,150)
Issuance of warrants
to preferred
shareholders 1,255,653 (1,255,653) 0
Issuance costs
incurred in connection
with the preferred
stock settlement (16,081) (16,081)
Acquisitions 5,068 41 48,896 48,937
Employee bonus 1,334 11 9,989 10,000
Unrealized holding
losses on available-for-
sale securities (56,250) (56,250)
Net loss (2,134,284) (2,134,284)
----- --------- ------- -- --------- ------ ---------- ------ ---------- ---------
Balance-December 31,1997 5,301 $6,208,178 3069.58 $31 2,212,596 $17,701 $38,174,874 $(56,250) $(35,352,431) $8,992,103
===== ========= ======= == ========= ====== ========== ====== ========== =========
</TABLE>
See notes to consolidated financial statements
-4-
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months Ended December 31,
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($2,134,282) ($5,681,556)
Adjustments to reconcile net loss
to net cash used in operating
activities
Amortization of monitoring contract costs 1,330,770 1,085,825
Depreciation and amortization of
property and equipment 283,574 249,989
(Gain)Loss on sale of property and equipment (2,489) 8,319
Amortization of deferred financing costs
and debt discount 603,187 691,978
Amortization of goodwill 87,500
Loss on joint venture 247,011
Issuance of common stock and warrants
for consulting fees 689,000
Compensation expense (benefit) in connection
with the issuance of stock options and
employment contracts (195,000) 967,284
(Increase) decrease in accounts receivable
Trade (21,223) (312,620)
Net investment in sales-type leases 29,093 (11,007)
Increase in inventory (270,574) (212,477)
Increase in prepaid expenses and other
current assets (428,690) (289,897)
Decrease in deposits 2,180 1,895
Increase in accounts payable - Trade 45,672 67,356
Increase (decrease) in accrued expenses
and other current liabilities 2,433 (1,149,015)
Increase in deferred revenues 17,973 132,838
--------- ----------
Net cash used in operating activities (402,865) (3,762,088)
--------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of monitoring contracts
(net of purchase holdbacks) (1,060,684) (1,201,926)
Proceeds from the sale of property
and equipment 23,000
Purchase of property and equipment (264,082) (352,667)
---------- ----------
Net cash used in investing activities (1,324,766) (1,531,593)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of
preferred stock 7,500,000
Redemption of preferred stock (795,150)
Costs incurred in connection with the
preferred stock issuance (16,081) (1,012,449)
Deferred financing costs incurred (6,396) 22,761
Proceeds from long-term debt
Notes payable 2,597,711 11,950,000
Principal payments on long-term debt
Notes payable (424,426) (15,116,701)
Capitalized lease obligations (32,441) (42,573)
Net proceeds from the exercise of stock
options and warrants 135,241 443,500
---------- -----------
Net cash provided by financing activities 1,458,458 3,744,538
---------- -----------
NET DECREASE IN CASH (269,173) (1,549,143)
CASH - BEGINNING 698,552 1,926,766
---------- ----------
CASH - ENDING $429,379 $377,623
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $669,754 $440,812
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 six months ended December 31, 1996 and 1997,
long-term notes payable of $51,363 and $70,552,
respectively, were incurred for the purchase of property and
equipment. In July 1996, capitalized lease obligations of
$143,100 were incurred for the acquisition of property and
equipment.
During the six months ended December 31, 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 six months ended December 31, 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.
During the six months ended December 31, 1996 and 1997,
the Company recorded deemed dividends and accretion on such
deemed dividends totaling $448,727 and $185,272,
respectively, in connection with the preferred stock
issuance, with a corresponding charge to accumulated
deficit.
During the six months ended December 31, 1996 and 1997,
$610,000 and $1,000,000 of preferred stock, and $8,738 and
$100,000 in deemed dividends were converted into 63,446 and
300,000 shares of common stock, respectively.
During the six months ended December 31, 1997, the
Company recorded additional paid-in capital of $1,255,653,
with a corresponding charge to accumulated deficit, to
reflect the fair value of the additional warrants issued to
the preferred shareholders (see Note 4).
During the six months ended December 31, 1996, the
Company increased the put obligation payable associated with
warrants issued to the Company's lender and the
corresponding charge to deferred financing costs by
$856,703, in connection with the refinancing at June 30,
1996. On June 24, 1997, the Company, in return for the
holder of the warrants forgiving the put obligation feature,
reduced the exercise price of such warrants from $9.75 to
$4.50. On August 13, 1997, the Holder exercised the warrants
and received 107,263 shares of common stock and blank check
preferred stock convertible into 102,319 shares of common
stock (see Note 3).
During the six months ended December 31, 1997, the
Company increased monitoring contract costs and the
corresponding transition costs liability (included in
accrued expenses and other current liabilities) in the
amount of $119,665.
During the six months ended December 31, 1997, the
Company issued 4,834 shares of its common stock, valued at
$48,938, in connection with an acquisition (see Note 2).
During the six months ended December 31, 1997, the
Company issued 2,900 shares of its common stock and canceled
2,666 shares of its common stock pursuant to guarantees of
stock valuations, in connection with past acquisitions of
monitoring contracts.
During the six months ended December 31, 1996, the
Company reduced amounts receivable and recorded monitoring
contract costs in the amount of $154,570, in connection with
the purchase of monitoring contracts.
-7-
RESPONSE USA, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS (continued)
Supplemental Disclosures of Noncash Investing and Financial
Activities (continued)
During the six months ended December 31, 1996, the
Company reduced monitoring contracts and the corresponding
purchase holdbacks in the amount of $108,764.
During the six months ended December 31, 1997, the
Company issued 1,334 shares of its common stock, valued at
$10,000, as an employee bonus.
-8-
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim balance sheet as of December
31, 1997, 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 1996 quarterly and six month
financial statements have been reclassified to conform to
the 1997 presentation.
These financial statements should be read in
conjunction with the Company's annual financial statements.
2. Acquisitions and Pending Acquisitions
Acquisitions
------------
During the six months ended December 31, 1997, the
Company purchased monitoring contracts for an aggregate of
$1,481,479. As consideration, the Company paid $1,091,613 in
cash, including acquisition and assimilation costs of
$153,917, issued 4,834 shares of the Company's common stock
valued at $48,938, and recorded purchase holdbacks of
$340,928 (which are payable over periods of up to eighteen
months based on performance guarantees of the seller).
Pending Acquisitions
--------------------
On September 30, 1997, the Company, entered into an
agreement with Triple A Security Systems, Inc. ("Triple A"),
a Pennsylvania corporation, and Robert L. May, an
individual, to acquire substantially all of the assets of
Triple A Security Systems, Inc. Triple A is engaged in the
installation, servicing and monitoring of electronic
security systems. On February 11, 1998, the Company acquired
Triple A. In consideration of the acquisition of
approximately 14,000 subscriber accounts, the Company paid
Triple A an aggregate of $14,011,709, consisting of
$10,000,000 in cash and $2,995,073 in shares of its common
stock; additionally the Company will assume certain
liabilities totaling $1,016,636.
In October 1997, the Company entered into an agreement
to acquire all of the outstanding stock of The Jupiter
Group, Inc., dba Triple A Patrol ("Jupiter"), a patrol
service company. Jupiter's patrol services are principally
supplied in areas in which the Company believes that Triple
A is a substantial provider of security systems services.
The patrol service supplements the Company's alarm
monitoring service by providing routine patrol of a
subscriber's premises and neighborhood, response to alarm
system activations and "special Watch" services, such as
picking up mail and newspapers and increased surveillance
when the customer is on vacation. On February 11, 1998, the
Company acquired Jupiter. In consideration of the
acquisition, the Company issued 161,051 shares of its common
stock, valued at $1,046,828.
In February 1998, the Company entered into an agreement
to acquire all of the outstanding stock of O.E.C., Inc.
("O.E.C."), a Massachusetts corporation. O.E.C. provides
technological support services to help elderly or medically-
at-risk individuals live independently, without the need of
supervised care, through the use of personal emergency
response systems (PERS). In consideration of the acquisition
of approximately 2,500 subscriber accounts, the Company will
pay O.E.C. an aggregate of approximately $1.8 million,
consisting of $1,200,000 in cash, a note payable in the
amount of $200,000 payable over two years, and $400,000 in
shares of its common stock.
-9-
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. 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 $ 14,410,000
Equipment Financing
-------------------
Payable in monthly installments aggregating
$5,982 including interest at rates ranging from
2.94% to 11.83%; final payments due October,
1998 through August, 2002; collateralized by
related equipment 157,791
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% ($86,817)
each year -- 1998 through 2000; interest imputed
at 14%; net of imputed interest of $58,894 201,557
Federal priority tax claims payable in annual
installments of $2,211 through March, 1999, and
$1,896 thereafter 10,109
----------
14,779,457
Less Current Portion 121,035
----------
$14,658,422
==========
On June 30, 1996, the Company entered into a four-year
$15,000,000 revolving bank line of credit agreement, which
was increased to $15,500,000 on January 14, 1998 and
increased to $18,000,000 on February 13, 1998 (see below).
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 December
31, 1997 and February 13, 1998, the Company has available on
its revolving credit facility the amount of $590,000 and
$2,590,000, respectively.
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, which were
subsequently modified (see below), included the following:
(i) number of shares, 344,045; (ii) exercise price, $9.75 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 344,045 shares.
On June 24, 1997, the Company, in return for the holder
of the Warrant forgiving the put obligation feature, reduced
the exercise price of the Warrant to $4.50.
-10-
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM NOTES PAYABLE (CONTINUED)
On August 13, 1997 the Holder exercised the Warrant and
received 107,263 shares of common stock and blank check
preferred stock convertible into 102,319 shares of common
stock, taking advantage of its noncash conversion feature
whereby the number of shares issued was reduced from 344,045
to 209,582 and no cash was paid by the Warrant holder.
On October 1 and November 13, 1997, Mellon Bank amended
certain financial covenants in the Loan and Security
Agreement dated June 30, 1996, as follows: (i) ratio of cash
flow to interest expense; (ii) ratio of senior funded debt
to cash flow; (iii) net income (loss); and (iv) capital
expenditures.
On February 13, 1998, the Company entered into an
amended and restated Loan and Security Agreement with Mellon
Bank, N.A. increasing the Credit Line to $18,000,000.
Pursuant to the restated Loan and Security Agreement, the
amended amortization on the outstanding loan balance is
interest only for one year, and the reduction of principal
in the amount of $250,000 per quarter, thereafter. In
connection with the Company's amended and restated Loan and
Security Agreement, the Company issued 40,000 shares of its
common stock to APT Holdings Corporation (an affiliate of
Mellon Bank, N.A.).
4. PREFERRED STOCK
During July, 1997, 1,000 shares of Series A Preferred
Stock and deemed dividends with a total book value of
$1,125,000 were converted into 300,000 shares of the
Company's common stock. As a result, the Company recorded
common stock of $2,400, additional paid-in capital of
$1,272,600, charged accumulated deficit $150,000, and
reduced the preferred stock account for $1,125,000, which
included a reduction of the discount on the outstanding
preferred stock in the amount of $25,000.
During the six months ended December 31, 1997, deemed
convertible preferred stock dividends totaling $296,921 were
recorded relating to the preferred shares. As a result of
the beneficial conversion feature contained within the
preferred stock dividend, the Company recorded a discount on
preferred stock in the amount of $73,624.
Prior to June 30, 1997, certain holders of the
Preferred Stock commenced litigation against the Company,
challenging, among other things, the Company's decision to
suspend conversion rights and seeking, among other things,
specific performance under the Certificate of Designations
to convert their Preferred Stock to Common Stock of the
Company. The Company reached an agreement, which was
subsequently amended pursuant to an amendment dated November
30, 1997 (as amended, the "Settlement Agreement") with the
holders (the "Holders") of the Preferred Stock (other than
Halifax Fund, LP ("Halifax")), pursuant to which the Holders
agreed to refrain from all conversions of the Preferred
Stock for specified periods, and the Company agreed to issue
to the Holders of the Preferred Warrants as described below
and to amend the terms of the Preferred Stock by the filing
of an Amended Certificate of Designation (the "Amendment").
Pursuant to the terms of the Settlement Agreement, on
June 26, 1997, each Holder received 5,000 Preferred Warrants
for each 100 shares of Preferred Stock held as of June 26,
1997, an aggregate of 114,833 Preferred Warrants. The
Preferred Warrants, which are not redeemable by the Company,
are exercisable at a price per share of $6.00 and entitle
the holder thereof to purchase one share of Common Stock per
Preferred Warrant. Of such Preferred Warrants, 50% are
exercisable after June 30, 1998 and the remaining 50% of the
Preferred Warrants are exercisable after June 30, 1999. The
Preferred Warrants expire after June 30, 2006. In connection
with the amendment executed on November 30, 1997, each Holder
received an additional 7,500 Warrants (the "Additional Warrants")
for each 100 shares of Preferred Stock held as of November 30,
1997, an aggregate of 147,250 Additional Warrants. The Additional
-11-
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PREFERRED STOCK (CONTINUED)
Warrants, which are redeemable by the Company, are
exercisable at a price per share of $10.125 and entitle the
holder thereof to purchase one share of Common Stock per
Additional Warrant. Of such Additional Warrants, fifty
percent (50%) are exercisable after December 1, 1998 and
fifty percent (50%) are exercisable after December 1, 1999.
The Additional Warrants expire after November 30, 2007.
In consideration of the issuance of the Preferred
Warrants as amended, and subject to the terms and conditions
set forth in the Settlement Agreement, each Holder agreed
(a) to give its proxy and its consent in favor of the
Amendment and (b) to refrain from any and all conversions of
such Holder's Preferred Stock, pursuant to the terms of the
original Certificate of Designation, until the earlier of
February 12, 1998 or upon the occurrence of defaults on
certain dates. On February 10, 1998, all outstanding shares
of 1996 Series A Preferred Stock were redeemed.
5. COMMON STOCK AND ADDITIONAL PAID-IN CAPITAL
In January 1998, the Board of Directors and
Stockholders authorized and approved a one-for-three reverse
stock split (the "Reverse Stock Split"). The Reverse Stock
Split became effective on the 9th of January 1998. The
Reverse Stock Split reduced the number of issued and
outstanding shares of common stock from 6,637,787 to
2,212,596. The Company recorded additional paid-in capital
of $35,402 and reduced common stock for the same amount. The
Company amended its Certificate of Incorporation to increase
the authorized number of shares of Common Stock from
12,500,000 to 37,500,000. The financial statements give
effect to this transaction effective as of July 1, 1997.
During the six months ended December 31, 1997, the
following stock options were exercised: (i) 2,734 nonqualified
stock options with an exercise price of $.30; (ii) 20,571
nonqualified stock options with an exercise price of $7.875;
and (iii) 334 incentive stock options with an exercise price of
$7.875. As a result, the Company recorded common stock of $189
and additional paid-in capital of $165,240.
During the six months ended December 31, 1997, the
Company issued 4,834 shares of its common stock, valued at
$48,937, in connection with an acquisition (see Note 2).
During the six months ended December 31, 1997, the
Company issued 2,900 shares of its common stock and canceled
2,666 shares of its common stock pursuant to a guarantee of
stock valuation in connection with past acquisitions.
During the six months ended December 31, 1997, the
Company issued 1,334 shares of its common stock, valued at
$10,000, as an employee bonus.
The following is a summary of stock option activity:
Number Option Price Weighted Average
of Shares Per Share(Range) Exercise Price
---------- ---------------- ----------------
Options outstanding
at June 30, 1997 679,655 $.03 - $13.35 $2.06
Options granted -- $ -- $ --
Options exercised (23,639) $.30 - $7.875 $7.00
Options canceled or expired -- $ -- $ --
--------- ------------ -------
Options outstanding
at December 31, 1997 656,016 $.03 - $13.35 $1.88
========= ============ =====
Options exercisable
at December 31, 1997 656,016 $.03 - $13.35 $1.88
========= ============ =====
-12-
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. 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, 1997 1,722,222 $4.50 - $24.00
Warrants granted to preferred shareholders 147,250 $10.13
Warrants exercised in connection with
refinancing (209,583) $4.50
Warrants canceled in connection with
refinancing (134,462) $4.50
---------- --------------
Warrants outstanding at December 31, 1997 1,525,427 $6.00 - $24.00
========== ==============
6. COMMITMENTS AND CONTINGENCIES
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 December 31, 1996 and 1997 the increase in net alarm
systems exceeded 15,000 accounts. As a result, the Company
recorded compensation expense (benefit) and a deferred
compensation liability at December 31, 1996 and 1997 of
$825,000 and $(195,000), respectively. Increases in the
Company's stock price result in a decreasing obligation on
behalf of the Company and also are the cause for the
compensation benefit in 1997.
The Company entered into a one-year renewable
consulting agreement commencing on February 1, 1998, with a
director of the Company, in which the director of the
Company will receive $4,000 per month in consideration for
providing certain consulting services to the Company.
7. SUBSEQUENT EVENTS
In October, 1997, the Company filed a Form SB-2
Registration Statement under the Securities Act of 1933,
offering 3,000,000 shares of Common Stock, par value $.008
per share. The Company has granted the Underwriters a 45-day
option to purchase up to an additional 450,000 shares of
Common Stock solely to cover over-allotments, if any.
In connection with the offering, the Underwriters received
warrants to purchase up to an aggregate of 300,000 shares of
Common Stock, at an exercise price of $9.10, from the Company.
On February 10, 1998, the Company received net
proceeds from such offering of approximately $17.3 million,
after payment of estimated expenses in connection with the
offering,. The net proceeds from the sale of Stock was used
for the acquisition of Triple A (see Note 2), and the
reduction of amounts outstanding under the Credit Line,
which were subsequently used to redeem the Company's 1996
Series A Preferred Stock.
-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 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.
General Overview
The Company is a fully-integrated security systems
provider engaged in the monitoring, sale, installation, and
maintenance of residential and commercial security systems
and personal emergency response systems ("PERS"). The
Company is a regional provider of security alarm monitoring
services for residential and small business subscribers
operating in the states of New York, New Jersey,
Pennsylvania, Delaware, and Connecticut. The Company is also
a nationwide provider of PERS products which enable
individual users, such as elderly or disabled persons, to
transmit a distress signal using a portable transmitter.
The Company's electronic security systems business
utilizes electronic devices installed in businesses and
residences to provide (i) detection of events such as
intrusion or fire, (ii) surveillance, and (iii) control of
access to property. The monitoring station personnel verify
the nature of the emergency and contact the appropriate
emergency authorities in the user's area. In some instances,
commercial customers may monitor these devices at their own
premises or the devices may be connected to local fire or
police departments. The products and services marketed in
the electronic security services industry range from
residential systems that provide basic entry and fire
protection to more sophisticated commercial systems.
The Company's PERS is an electronic device which is
designed to monitor, identify and electronically report
emergencies requiring medical, fire or police assistance, to
help elderly, disabled and other individuals. When activated
by the pressing of a button, or automatically, in the case
of certain environmental temperature fluctuations, the
transmitter sends a radio signal to a receiving base
installed in the user's home. The receiving base relays the
signal over telephone lines to a monitoring station which
provides continuous monitoring services. In addition, this
signal establishes two-way voice communication between the
user and the monitoring station personnel directly through
the PERS unit, thereby avoiding any need for the user to
access a telephone.
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., which was increased to $15.5 million on January
14, 1998 and increased to $18 million on February 13, 1998
(see below), 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
-14-
RESPONSE USA, INC. AND SUBSIDIARIES
Liquidity and Capital Resources (Continued)
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 in Fiscal 1997.
As of December 31, 1997 and February 13, 1998, the Company
has available on its revolving credit facility the amount of
$590,000 and $2,590,000, respectively. The credit facility
bears interest at the Prime Rate, plus 1 3/4%. On February
13, 1998, the Company entered into an amended and restated
Loan and Security Agreement with Mellon Bank, N.A.
increasing the Credit Line to $18,000,000. Pursuant to the
restated Loan and Security Agreement, the amended
amortization on the outstanding loan balance is interest
only for one year, and the reduction of principal in the
amount of $250,000 per quarter, thereafter. The increase in
the line of credit was conditional upon net proceeds
received, after the redemption of preferred shareholders and
expenses, from the planned secondary offering (see Note 3 of
Notes to Consolidated Financial Statements). The Company's
working capital decreased by $9,749 from a working capital
deficiency of $1,023,805 at June 30, 1997, to a working
capital deficiency of $1,033,554 at December 31, 1997. 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 six
months ended December 31, 1997 was $402,865. A net loss of
$2,134,282 including noncash transactions totaling
$2,354,553, provided cash from operating activities in the
amount of $220,271. The noncash transactions are as follows:
(i) depreciation and amortization of $2,305,031; (ii)
compensation benefit in connection with employment
agreements of $195,000; (iii) a loss on joint venture of
$247,011; and (iv) a gain on sale of equipment of $2,489.
Cash used in operating activities included changes in
inventory, and prepaid expenses and other current assets
totaling $699,264. The increase in inventory of $270,574 is
primarily attributable to the purchase of WanderWatch
systems, a monitoring device designed to provide around-the-
clock monitoring of patients that suffer from Alzheimer's
disease and other diseases or injuries which may involve
memory loss, in preparation of the anticipated distribution
of this new product. Prepaid expenses and other current
assets increased by $428,690, due primarily to expenditures in
connection with the secondary offering and security
deposits on pending acquisitions.
Net cash used in investing activities for the six
months ended December 31, 1997 was $1,324,766. Purchases of
monitoring contracts (including purchase holdback payments)
accounted for $1,060,684 of the cash used in investing
activities. Other investing activity included the purchase
of property and equipment of $264,082 (including equipment
used for rentals in the amount of $126,050).
Net cash provided by financing activities was
$1,458,458 for the six months ended December 31, 1997.
Proceeds from the exercise of stock options and warrants
totaled $135,241. Net proceeds received from a line of
credit of $2,175,000 were used primarily for the acquisition
of monitoring contracts, and expenses incurred in connection
with the secondary offering. Costs incurred in connection
with the prior years refinancing totaled $22,477. Principal
payments on long-term debt totaling $56,867 were made during
the six months ended December 31, 1997.
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.
In October, 1997, the Company filed a Form SB-2
Registration Statement under the Securities Act of 1933,
offering 3,000,000 shares of Common Stock, par value $.008
per share. The Company has granted the Underwriters a 45-day
option to purchase up to an additional 450,000 shares of
Common Stock solely to cover over-allotments, if any. In
connection with the offering, the Underwriters will receive
warrants to purchase up to an aggregate of 300,000 shares of
Common Stock, at an exercise price of $9.10, from the Company.
On February 10, 1998, the Company received net proceeds from
such offering of
-15-
RESPONSE USA, INC. AND SUBSIDIARIES
Liquidity and Capital Resources (Continued)
approximately $17.3 million, after payment of estimated
expenses in connection with the offering,. The net proceeds
from the sale of Stock was used for the acquisition of
Triple A (see Note 2 of Notes to Consolidated Financial
Statements), and the reduction of amounts outstanding under
the Credit Line, which were subsequently used to redeem the
Company's 1996 Series A Preferred Stock.
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 $527,952 or 9% and
$322,435 or 11% for the six months and three months ended
December 31, 1997 as compared to the same periods ended
December 31, 1996. Product sales accounted for an increase
of $67,863 or 5% and an increase of $61,145 or 10% for the
six months and three months ended December 31, 1997 as
compared to the same periods ended December 31,
1996. Sales of electronic security systems increased by
approximately $77,000 for the six months ended December 31,
1997 as compared to the same period ended December 31, 1996.
This increase was offset by a slight decrease in revenues
from the sale of PERS to private label wholesalers and home
healthcare agencies totaling approximately $10,000, for the
same period. The increase in product sales for the quarter
ended December 31, 1997 as compared to the quarter ended
December 31, 1996, was due to the increase in sales of PERS
to private label wholesalers and home healthcare agencies
totaling $30,000, and an increase in sales of electronic
security systems of $31,000. The significant growth in
monitoring and service revenues of $460,089 or 10% and
$261,290 or 11% for the six and three month periods ended
December 31, 1997 as compared to the same periods ended
December 31, 1996, were due to the acquisition of
approximately 5,000 monitoring contracts during the past
twelve months and the success of the Company's extended
warranty program.
Gross Profit for the six months ended December 31,
1997 was $4,259,054, which represents an increase of
$471,995, or 12%, from the $3,787,059 of gross profit
recognized for the comparable period ended December 31,
1996. The increase was due primarily to an increase in
monitoring and service revenues, and the success of the
extended warranty program, which is concurrent with the
increase in the Company's subscriber base. The Gross Profit
Margin (GPM), as a percentage of sales, was 63% for the six
and three months ended December 31, 1996, as compared to 65%
and 67% for the six and three months ended December 31,
1997. The GPM on product sales rose from 32% during the six
months ended December 31, 1996 to 40% for the six months
ended December 31, 1997. The increase is due to increased
revenues derived from the installation of electronic
security systems to commercial customers as opposed to
residential customers and the utilization of in-house labor
in lieu of subcontractors for the installation of electronic
security systems. The GPM on monitoring and service revenues
remained at 72% for the six month periods ended December 31,
1996 and 1997.
-16-
RESPONSE USA, INC. AND SUBSIDIARIES
Results of Operations (Continued)
Selling, general and administrative expenses
(excluding consulting fees resulting from the issuance of
warrants in connection with obtaining the line of credit of
$689,000 and $583,000 for the six and three months ended
December 31, 1996) grew to $3,326,454 and $1,710,819 for the
six and three months ended December 31, 1997, which
represents increases of $438,504 or 15% and $229,900 or 16%,
over selling, general and administrative expenses for the
six and three months ended December 31, 1996. Selling,
general and administrative expenses, as a percentage of
total operating revenues, increased from 48% to 51% for the
six months ended December 31, 1996 and 1997, respectively.
The slight 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 3%, monitoring and service revenues increased
by 10% 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 six months and three months ended
December 31, 1997 and 1996, the Company recorded a deferred
compensation liability (asset) with a corresponding charge
(benefit) to operating expenses in the amount of ($195,000),
$255,000, $825,000, and ($37,500), respectively, pursuant to
employment contracts (see Note 6 of Notes to Consolidated Financial
Statements). Increases in the Company's stock price result
in a decreasing obligation on behalf of the Company and also
are the cause for the compensation benefits recorded during
the six months ended December 31, 1997 and the three months
ended December 31, 1996. The Company, in December 1996,
granted Non-Qualified Stock Options to employees at an
exercise price below market price, as a result the Company
recorded compensation expense of $142,284.
Amortization and depreciation expenses increased by
$366,034 or 27% and $191,214 or 28% for the six and three
months ended December 31, 1997, as compared to the same
periods ended December 31, 1996. This increase in
amortization and depreciation expense is the result of the
Company's acquisition of approximately 5,000 monitoring
contracts and the purchase of property and equipment of
approximately $548,000 (including equipment used for
rentals) during the past twelve months.
Interest expense increased by $267,270 or 25%,
and $126,960 or 27% for the six and three months ended
December 31, 1997, as compared to the same periods ended
December 31, 1996. The increase in interest expense is due
to an increase in borrowings of approximately $5.3 million
during the past twelve months, which was used primarily for
acquisitions and other capital expenditures.
On March 4, 1997, the Company entered into a joint
venture agreement with BKR, Inc. to acquire a 50% interest
in HealthLink Ltd. Healthlink Ltd. subcontracts its
production of the HealthLink System to a third-party foreign
manufacturer. The HealthLink System, a low cost PERS
product, is distributed nationally through retail stores.
For the six months ended and quarter ended December 31,
1997, the Company has realized non-cash losses from joint
venture of $247,011 and $116,873, respectively.
The net losses for the six and three months ended
December 31, 1997 were $2,134,284 or ($.98) per share based
on 2,169,597 shares outstanding; and $1,439,603 or ($.65)
per share based on 2,201,098 shares outstanding; as compared
to net losses of $5,681,556 or ($4.25) per share based on
1,336,851 shares outstanding, and $1,532,921 or ($1.12) per
share based on 1,369,427 shares outstanding for the six and
three months ended December 31, 1996. The net losses
applicable to common shareholders (net losses adjusted for
dividends and accretion on preferred stock) for the six and
three months ended December 31, 1997 were $3,910,481 or
($1.80) per share based on 2,169,597 shares outstanding, and
$2,880,528 or ($1.31) per share based on 2,201,098 shares
outstanding; as compared to net losses applicable to common
-17-
RESPONSE USA, INC. AND SUBSIDIARIES
Results of Operations (Continued)
shareholders of $12,025,283 or ($9.00) per share based on
1,336,851 shares outstanding, and $1,751,099 or ($1.28) per
share based on 1,369,427 shares outstanding for the six and
three month periods ended December 31, 1996, respectively.
Earnings before interest, taxes, depreciation and
amortization (EBITDA), excluding charges for the loss on
debt extinguishment, loss on joint venture, compensation
expense - options/employment agreements, and consulting fees
from the issuance of warrants were $932,600 and $467,532 for
the six months and three months ended December 31, 1997 as
compared to $899,109 and $371,286 for the six months and
three months ended December 31, 1996.
-18-
RESPONSE USA, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities -
The Company amended its Certificate of Incorporation
to increase the authorized number of shares of Common
Stock from 12,500,000 to 37,500,000.
Prior to June 30, 1997, certain holders of the Preferred
Stock commenced litigation against the Company, challenging,
among other things, the Company's decision to suspend
conversion rights and seeking, among other things,
specific performance under the Certificate of Designations
to convert their Preferred Stock to Common Stock of the
Company. The Company reached an agreement, which was
subsequently amended pursuant to an amendment dated
November 30, 1997 (as amended, the "Settlement Agreement")
with the holders (the "Holders") of the Preferred Stock
(other than Halifax Fund, LP ("Halifax")),pursuant to
which the Holders agreed to refrain from all conversions
of the Preferred Stock for specified periods, and the
Company agreed to issue to the Holders of the Preferred
Warrants as described below and to amend the terms of the
Preferred Stock by filing ofan Aended Certificate of
Designation (the "Amendment"). In connection with the
amendment executed on November 30, 1997, each Holder
received an additional 7,500 Warrants (the "Additional
Warrants") for each 100 shares of Preferred Stock held
as of November 30, 1997, an aggregate of 147,250 Additional
Warrants. The Additional Warrants, which are redeemable
by the Company, are exercisable at a price per share of
$10.125 and entitle the holder thereof to purchase one share
of Common Stock per Additional Warrant. Of such Additional
Warrants, fifty percent (50%) are exercisable after
December 1, 1998 and fifty percent (50%) are exercisable
after December 1, 1999. The Additional Warrants expire
after November 30, 2007.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
An Annual meeting of the Stockholders was held on
January 6, 1998. The Stockholders of the Company voted
on the following: (i) to elect nine members to the Board
of Directors of the Company; (ii) to authorize the Board
of Directors of the Company to effect a one-for-three
reverse stock split of the issued and outstanding shares
-19-
RESPONSE USA, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders (Continued)-
of common stock, $.008 par value per share; (iii) to
authorize an amendment to the Company's Certificate of
Incorporation to amend the terms of the Company's 1996
Series A Convertible Preferred Stock; (iv) to authorize
an amendment to the Company's Certificate of Incorporation
to increase the authorized number of shares of Common
Stock from 12,500,000 to 37,500,000; (v) to adopt the
Company's 1997 stock option plan; and (vi) to ratify the
selection by the Company of Deloitte & Touche LLP,
independent public accountants, to audit the fiancial
statements of the Company for the year ended June 30, 1997.
For Against Abstain
---------- ------- ---------
Election to the Board of Directors -
Richard M. Brooks 6,161,752 0 434,510
Ronald A. Feldman 6,161,752 0 434,510
Robert L. May 6,161,752 0 434,510
A. Clinton Allen 6,161,752 0 434,510
Todd E. Herman 6,161,752 0 434,510
Robert M. Rubin 6,161,752 0 434,510
Stuart Levin 6,161,752 0 434,510
Bruce H. Luehrs 6,161,752 0 434,510
Stuart R. Chalfin 6,161,752 0 434,510
One-for-three reverse stock split
of the outstanding shares of
common stock 6,116,177 63,368 409,042
Amend the terms of the Company's
1996 Series A Convertible
Preferred Stock 6,214,301 49,949 2,792,247
Increase the authorized number
of shares of Common Stock 3,749,918 57,193 2,781,476
Adopt the Company's 1997 stock
option plan 3,716,955 80,109 2,791,523
Ratify Deloitte & Touche LLP
to audit the financial statements 6,174,516 4,555 409,516
-20-
RESPONSE USA, INC. AND SUBSIDIARIES
PART II. OTHER INFORMATION (CONTINUED)
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
-21-
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. February 14, 1998
------------------ -----------------
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
EARNINGS PER SHARE COMPUTATIONS:
MODIFIED TREASURY STOCK METHOD:
THREE MONTHS ENDED DECEMBER 31,1997
Total exercise proceeds $15,315,267
----------
Period - end outstanding shares 2,212,596
----------
20% of period - end outstanding shares 442,519
x
Average share price during period $10.2500
----------
Proceeds used to purchase shares $4,535,822
----------
Remaining proceeds $10,779,445
----------
Proceeds used to retire average debt $14,095,974
----------
Remaining proceeds to be invested ($3,316,529)
==========
Adjusted Income (Loss):
Net income(loss) ($1,439,603)
Dividends and accretion to preferred stock ($1,440,925)
----------
Adjusted Income (Loss) ($2,880,528)
Interest expense on retired debt (10.25%) 361,209
Interest income on proceeds invested (2.5%) 0
Tax effect of interest adjustments (40%) (144,484)
---------
Net income (loss) for E.P.S. purposes ($2,663,802)
---------
Shares:
Weighted average shares outstanding 2,201,098
Weighted average equivalent shares outstanding 2,109,109
20% of period - end outstanding shares (442,519)
---------
Total shares for E.P.S. purposes 3,867,687
---------
Net income (loss) per share ($0.69)
=========
Maximum income (minimum loss) per share:
Adjusted Income (Loss) ($2,880,528)
divide by
Weighted average shares outstanding 2,201,098
---------
Net income (loss) per share ($1.31)
======
EARNINGS PER SHARE COMPUTATIONS:
MODIFIED TREASURY STOCK METHOD:
SIX MONTHS ENDED DECEMBER 31,1997
Total exercise proceeds $15,493,116
----------
Period - end outstanding shares 2,212,596
----------
20% of period - end outstanding shares 442,519
x
Average share price during period $10.2813
----------
Proceeds used to purchase shares $4,549,651
----------
Remaining proceeds $10,943,465
----------
Proceeds used to retire average debt $13,504,984
----------
Remaining proceeds to be invested ($2,561,519)
==========
Adjusted Income (Loss):
Net income(loss) ($2,134,284)
Dividends and accretion to preferred stock ($1,776,197)
------------
Adjusted Income (Loss) ($3,910,481)
Interest expense on retired debt (10.25%) 346,065
Interest income on proceeds invested (2.5%) 0
Tax effect of interest adjustments (40%) (138,426)
----------
Net income (loss) for E.P.S. purposes ($3,702,842)
----------
Shares:
Weighted average shares outstanding 2,169,597
Weighted average equivalent shares outstanding 2,192,436
20% of period - end outstanding shares (442,519)
----------
Total shares for E.P.S. purposes 3,919,513
----------
Net income (loss) per share ($0.94)
=======
Maximum income (minimum loss) per share:
Adjusted Income (Loss) ($3,910,481)
divide by
Weighted average shares outstanding 2,169,597
----------
Net income (loss) per share ($1.80)
========
<TABLE> <S> <C>
<ARTICLE> 5
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0
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