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 March 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: 5,349,490 shares of $.008 par value common stock as of
April 30, 1997.
Response USA, Inc. and Subsidiaries
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets for March 31, 1997
and June 30, 1996 1-2
Consolidated Statements of Operations for the Nine
Months and Three Months ended March 31, 1997
and 1996 3
Consolidated Statement of Stockholders' Equity for
March 31, 1997 4
Consolidated Statements of Cash Flows for the Nine
Months ended March 31, 1997 and 1996 5-8
Notes to Consolidated Financial Statements 9-16
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17-21
PART II. OTHER INFORMATION 22-23
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 June 30,
1997 1996
----------- ----------
(Restated)
ASSETS
CURRENT ASSETS
Cash $601,741 $1,926,766
Marketable securities 93,750 100,000
Accounts receivable - Current portion
Trade - Net of allowance for
doubtful accounts of $648,984 and
$327,072, respectively 1,400,653 1,461,911
Net investment in sales-type leases 87,203 125,385
Preferred stock subscription receivable 6,525,000
Inventory 832,255 652,551
Prepaid expenses and other current assets 221,841 118,689
_________ __________
Total current assets 3,237,443 10,910,302
--------- ----------
MONITORING CONTRACT COSTS - Net of accumulated
amortization of $4,504,278 and $2,838,374,
respectively 18,545,239 16,950,387
---------- ----------
PROPERTY AND EQUIPMENT - Net of accumulated
depreciation and amortization of $2,206,321
and $1,862,915, respectively 1,557,985 1,261,007
---------- ----------
OTHER ASSETS
Accounts receivable - Noncurrent portion
Trade 60,327 29,421
Net investment in sales-type leases 202,482 323,817
Deposits 48,289 48,008
Deferred compensation expense 1,065,000
Deferred financing costs - Net of
accumulated amortization of $624,271
and $111,945, respectivel 2,668,086 3,411,803
Investment in Joint Venture 3,276,186
---------- ----------
7,320,370 3,813,049
---------- ----------
$30,661,037 $32,934,745
========== ==========
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31 June 30,
1997 1996
---------- ---------
(Restated)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt
Notes payable $166,009 $194,914
Capitalized lease obligations 61,876 51,064
Accounts payable - Trade 639,472 424,921
Purchase holdbacks 300,604 646,976
Accrued expenses and other current
liabilities 1,124,700 2,033,701
Deferred revenue 1,933,425 1,591,103
---------- ----------
Total current liabilities 4,226,086 4,942,679
---------- ----------
LONG-TERM LIABILITIES - Net of current portion
Long-term debt
Notes payable 11,509,632 12,374,607
Capitalized lease obligations 98,111 31,189
Deferred compensation expense 2,662,500
---------- ----------
14,270,243 12,405,796
---------- ----------
PUT OBLIGATION PAYABLE 2,265,183 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 6,890 shares
- March 31, 199 7,542,943 1,605,000
Common stock - Par value $.008
Authorized 12,500,000 shares
Issued and outstanding 3,854,944
shares - June 30, 1996 and 5,304,356
shares - March 31, 1997 42,435 30,840
Additional paid-in capital 30,601,286 24,951,240
Unrealized holding losses on
available-for-sale securities (199,593) (193,343)
Accumulated deficit (28,087,546) (13,387,805)
------------ ------------
9,899,525 13,005,932
------------ ------------
$30,661,037 $32,934,745
============ ============
<TABLE>
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Nine Months Ended March 31, Three Months Ended March 31,
1997 1996 1997 1996
(Restated) (Restated)
<S> <C> <C> <C> <C>
OPERATING REVENUES
Product sales $2,138,229 $1,984,146 $860,187 $507,803
Monitoring and service 7,176,841 6,050,894 2,468,910 2,027,032
--------- --------- --------- ---------
9,315,070 8,035,040 3,329,097 2,534,835
--------- --------- --------- ---------
COST OF REVENUES
Product sales 1,526,201 1,409,579 653,206 412,158
Monitoring and service 2,215,760 1,787,319 727,138 658,216
--------- --------- --------- ---------
3,741,961 3,196,898 1,380,344 1,070,374
--------- --------- --------- ---------
GROSS PROFIT 5,573,109 4,838,142 1,948,753 1,464,461
--------- --------- --------- ---------
OPERATING EXPENSES
Selling, general and
administrative 5,970,522 3,639,792 2,556,275 1,168,654
Compensation - Options/
Employment contracts 1,739,784 772,500
Depreciation and amortization 2,055,268 1,602,071 719,456 576,028
Interest 1,384,622 2,282,864 335,703 817,021
--------- --------- --------- ---------
11,150,196 7,524,727 4,383,934 2,561,703
---------- --------- --------- ---------
LOSS FROM OPERATIONS (5,577,087) (2,686,585) (2,435,181) (1,097,242)
---------- --------- --------- ---------
OTHER INCOME/(EXPENSE)
Interest 12,177 18,512 2,119 5,839
Joint Venture (28,442) (28,442)
---------- --------- --------- ---------
(16,265) 18,512 (26,323) 5,839
---------- --------- --------- ---------
LOSS BEFORE EXTRAORDINARY
ITEM (5,593,352) (2,668,073) (2,461,504) (1,091,403)
EXTRAORDINARY ITEM
Loss on debt extinguishment 2,549,708
--------- ---------- --------- ----------
NET LOSS (8,143,060) (2,668,073) (2,461,504) (1,091,403)
Dividends and accretion on
preferred stock (6,556,681) (212,954)
---------- ---------- ---------- ----------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS ($14,699,741) ($2,668,073) ($2,674,458) ($1,091,403)
=========== ========== ========== ==========
Loss per common share
Loss before extraordinary
item ($1.35) ($2.37) ($0.55) ($0.72)
Extraordinary item (0.61) 0.00 0.00 0.00
------ ------ ------ ------
Net loss ($1.96) ($2.37) ($0.55) ($0.72)
====== ====== ====== ======
Net loss applicable to
common shareholders ($3.54) ($2.37) ($0.60) ($0.72)
====== ====== ====== =======
Weighted average number of
shares outstanding 4,152,348 1,123,536 4,442,241 1,521,176
========= ========= ========= =========
</TABLE>
<TABLE>
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (RESTATED)
(Unaudited)
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 $5,068 11,110 89 44,843 44,932
Issuance of warrants
to consultants 689,000 689,000
Exercise of stock
options and warrants 162,100 1,297 440,390 441,687
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 661,681 (661,681) 0
Conversion of preferred
stock (610) (618,738) 190,338 1,522 617,216 0
Issuance of warrants
in connection with
obtaining lines of credit 350,000 350,000
Issuance of stock options 142,284 142,284
Stock issued in connection
with acquisitions 41,700 334 74,666 75,000
Cancellation of common
stock held in escrow (50,000) (400) 400 0
Unrealized holding
losses on available-for-
sale securities (6,250) (6,250)
Investment in Joint Venture 1,094,164 8,753 3,291,247 3,300,000
Net loss (8,143,060) (8,143,060)
----- --------- --------- ------ ---------- ------- ---------- ---------
Balance - March 31, 1997 6,890 $7,542,943 5,304,356 $42,435 $30,601,286 ($199,593) ($28,087,546) $9,899,525
===== ========= ========= ====== ========== ======= ========== =========
</TABLE>
RESPONSE USA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
"Nine Months Ended March 31,"
1997 1996
(Restated)
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss ($8,143,060) ($2,668,073)
Adjustments to reconcile net loss to net
cash used in operating activities
Amortization of monitoring contract costs 1,665,903 1,239,398
Depreciation and amortization of property
and equipment 389,366 326,272
Loss on sale of property and equipment 16,743
Gain on sale of monitoring contracts (91,663)
Amortization of deferred financing costs
and debt discount 750,734 98,993
Loss on Joint Venture investment 28,442
Issuance of common stock and warrants
for consulting fees 689,000 8,125
Compensation expense in connection with
the issuance of stock options and
employment contracts 1,739,784
(Increase) decrease in accounts receivable
Trade 2,266 (696,098)
Net investment in sales-type leases 33,034 21,618
Increase in inventory (179,704) (77,935)
Increase in prepaid expenses and other
current assets (103,151) (116,905)
(Increase) decrease in deposits (282) 24,487
Increase in accounts payable - Trade 213,939 42,596
Decrease in accrued expenses and other
current liabilities (876,513) (356,756)
Increase in deferred revenues 342,321 236,891
--------- --------
Net cash used in operating activities (3,431,178) (2,009,050)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of monitoring contracts (net of
purchase holdbacks) (3,377,559) (2,455,389)
Acquisitions (3,157,478)
Proceeds from the sale of monitoring
contracts 233,548
Proceeds from the sale of property and
equipment 39,864
Purchase of property and equipment (525,823) (304,835)
Investment in Joint Venture (4,629)
--------- ---------
Net cash used in investing activities (3,868,147) (5,684,154)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the issuance of preferred stock 7,500,000
Costs incurred in connection with the preferred
stock issuance (1,012,449)
Proceeds from private placement 1,960,000
Deferred financing costs incurred 22,761 (286,750)
Proceeds from long-term debt
Notes payable 14,300,000 6,924,809
Capitalized lease obligations 43,933
Principal payments on long-term debt
Notes payable (15,217,908) (1,430,599)
Capitalized lease obligations (65,364) (36,037)
Net proceeds from the exercise of stock
options and warrants 447,260 1,198,500
---------- ---------
Net cash provided by financing activities 5,974,300 8,373,856
---------- ---------
NET INCREASE (DECREASE) IN CASH (1,325,025) 680,652
CASH - BEGINNING 1,926,766 159,445
---------- ---------
CASH - ENDING $601,741 $840,097
========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest $776,156 $1,982,828
Cash paid during the year for income taxes -- --
RESPONSE USA, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Supplemental Disclosures of Noncash Investing and Financial
Activities
During the nine months ended March 31, 1997 and 1996,
convertible subordinated promissory notes of $50,000 and
$1,075,000, respectively, 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 and
$176,554 for the nine months ended March 31, 1997 and 1996,
respectively.
During the nine months ended March 31, 1997 and 1996,
long-term notes payable of $74,028 and $63,933,
respectively, were incurred for the purchase of property and
equipment.
During the nine months ended March 31, 1997,
capitalized lease obligations of $143,100 were incurred for
the acquisition of property and equipment.
During the nine months ended March 31, 1997 and 1996,
the Company issued 25,000 and 152,858 shares of its common
stock, valued at $75,000 and $750,276, respectively, in
connection with the purchase of monitoring contracts.
During the nine months ended March 31, 1997, the
Company reduced amounts receivable and increased monitoring
contract costs in the amount of $154,570, in connection with
the purchase of monitoring contracts.
During the nine months ended March 31, 1997 and 1996,
the Company reduced monitoring contract costs and the
corresponding purchase holdbacks in the amount of $294,652
and $776,038, respectively. The Company issued 14,500 shares
of its common stock valued at $70,282, as payment for
purchase holdback liabilities for 1996.
During the nine months ended March 31, 1997 and 1996,
the Company issued 16,700 and 61,941 shares of its common
stock, respectively, in connection with its acquisition of
monitoring contracts, pursuant to a guarantee of stock
valuation.
During the nine months ended March 31, 1997, the
Company decreased the put obligation payable and the
corresponding charge to deferred financing costs by
$315,155, in connection with the refinancing at June 30,
1996 (see Note 6).
During the nine months ended March 31, 1997, 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 7).
During the nine months ended March 31, 1997, the
Company recorded deemed dividends and accretion on such
deemed dividends totaling $661,681 in connection with the
preferred stock issuance, with a corresponding charge to
accumulated deficit (see Note 7).
During the nine months ended March 31, 1997, $610,000
of preferred stock and $8,738 in deemed dividends were
converted into 190,338 shares of common stock.
In March 1997, the Company issued 1,094,164 shares of
its common stock, valued at $3.3 million in connection with
a Joint Venture (see Note 5).
RESPONSE USA, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
Supplemental Disclosures of Noncash Investing and Financial
Activities (Continued)
During the nine months ended March 31, 1996, the
Company issued 2,000 shares of its common stock, valued at
$8,125, as payment for consulting services.
During the nine months ended March 31, 1996, the
Company issued 32,000 shares of its common stock, valued at
$147,200 as payment on a note payable incurred in connection
with its acquisition of ERS.
RESPONSE USA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying interim balance sheet as of March 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 financial
statements have been reclassified to conform with the 1997
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 March 31, 1997, from those previously reported
relating to the following matters:
Financial Amount
Statement Previously Restated
Caption Reported Amount
------- -------- ------
1)Deemed Dividends and $169,891 $212,954
dividends and accretion on
accretion on preferred
preferred stock
stock
2)Bonus agreement Compensation - 0 772,500
with management Employment
contracts
3)Acquisition
payroll previously Selling, general 2,454,342 2,556,275
capitalized and administrative
Depreciation and 724,174 719,456
amortization
4)Valuation of Warrant Interest expense 4,640 335,703
with Put Obligation and a
consulting fee paid with
the issuance of warrants
in connection with obtaining
the line of credit
2. Restatements (Continued)
The Company has restated the year-to-date results, for
the nine months ended March 31, 1997, from those previously
reported relating to the following matters:
Financial Amount
Statement Previously Restated
Caption Reported Amount
--------- --------- --------
1)Deemed Dividends and $2,875,094 $6,556,681
dividends and accretion on
accretion on preferred
preferred stock
stock
2)Bonus agreement with Compensation 142,284 1,739,784
management; and -Options/Employment
compensation in connection contracts
with the issuance of stock
options
3)Consulting agreements Selling, general 5,056,556 5,970,522
paid through the issuance and administrative
of warrants; and acquisition Depreciation and
payroll previously amortization 2,062,515 2,055,268
capitalized
4)Valuation of Warrant Interest expense 894,275 1,384,622
with Put Obligation and a
consulting fee paid with
the issuance of warrants
in connection with obtaining
the line of credit
5)Bonus agreement with Deferred compensation 0 1,065,000
management expense (Asset)
Deferred compensation 0 2,662,500
expense (Liability)
6)Acquisition paroll Monitoring Contract 18,762,958 18,545,239
previously capitalized Costs
7)Valuation of Warrant Put obligation payable 0 2,265,183
with Put Obligation and a
consulting fee paid with Deferred financing 543,250 2,668,086
the issuance of warrants costs
in connection with obtaining
the line of credit
8)Deemed dividends and Dividends payable 523,755 0
accretion on preferred Preferred stock 9,232,600 7,542,943
stock Additional paid-in 23,667,286 30,601,286
capital
9)Impact of all entries Accumulated (21,411,393) (28,087,546)
above deficit
2. Restatements (Continued)
As a result of the above restatements net loss per
common share has changed as follows:
Nine Months Three Months
March 31, 1997 March 31, 1997
Amount Amount
Previously Amount Previously Amount
Reported Restated Reported Restated
-------- -------- -------- --------
Loss per common share
Loss before ($.63) ($1.35) ($.28) ($.55)
extraordinary item
Extraordinary (.61) (.61) - -
item
Net loss (1.24) (1.96) (.28) (.55)
Net loss
applicable to (1.93) (3.54) (.32) (.60)
common
shareholders
3. Inventory
March 31, June 30,
1997 1996
(Unaudited)
Parts Inventory $ 559,142 $ 500,437
Finished Goods 273,113 152,114
------- -------
$ 832,255 $ 652,551
======= =======
4. Acquisitions
During the nine months ended March 31, 1997, the
Company purchased monitoring contracts for an aggregate of
$3,780,374. As consideration, the Company paid $3,280,958 in
cash, including acquisition costs of $294,045, issued 25,000
shares of its Common Stock valued at $75,000, recorded
purchase holdbacks of $269,846 (which are payable over
periods of up to eighteen months based on performance
guarantees of the seller), and reduced amounts receivable by
$154,570.
5. Investment in Joint Venture
On March 4, 1997, the Company entered into a purchase
agreement with BKR, Inc. (BKR), a Nevada corporation and
Healthlink, Ltd. (HL), a Nevada limited liability company.
The parties agreed to the purchase by the Company of a 50%
interest in the assets of BKR, the contribution of BKR's
remaining 50% interest in the assets to HL, and the
contribution of the Company's 50% interest in BKR's assets
to HL. HL is engaged in the sale and monitoring of PERS to
the general public primarily through national retail and
pharmacy chains. In consideration of the HL joint venture,
the Company issued 364,721 shares of its common stock,
valued at $3.3 million, to BKR for their 50% interest in HL
At the date of the Company's investment in HL, the
investment in HL exceeded the Company's share of the
underlying net assets by $1,500,000. The excess is being
amortized by the straight line method over 10 years.
The Company accounts for its investment in HL under the
equity method.
5. Investment in Joint Venture (Continued)
BKR, as part of the purchase agreement, is entitled to
exercise warrants to purchase shares of the Company's common
stock subject to the following provisions: (i) for each
10,000 PERS placed on-line by HL, 30,000 shares of common
stock may be purchased at an exercise price of $3.00 per
share, and (ii) in no event shall such warrant be
exercisable for more than 450,000 shares of common stock.
This warrant may be exercised in whole or in part at any
time, or from time to time, commencing on March 4, 1997 and
expiring om March 3, 2002.
6. 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 $ 11,300,000
Equipment Financing
-------------------
Payable in monthly installments aggregating
$5,329 including interest at rates ranging from
3.90% to 11.83%; final payments due April, 1997,
through March, 2000; collateralized by related
equipment 101,475
Convertible Subordinated Promissory Notes
-----------------------------------------
5% convertible subordinated promissory notes
due on November 30, 1996 62,500
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 $58,894 266,742
Federal priority tax claims payable in annual
installments of $2,211 through March, 1999, and
$ 1,896 thereafter 12,321
---------
11,675,641
Less Current Portion 166,009
----------
$11,509,632
==========
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
March 31, 1997, the Company has available on its revolving
credit facility the amount of $3,700,000.
6. Long-Term Notes Payable (Continued)
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 March 31, 1997, the value of
those same warrants were estimated to be $2,265,183. As a
result, the Company decreased the put obligation payable and
the corresponding deferred financing costs by $315,155.
With the proceeds received from the issuance of
preferred stock (see Note 7) 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.
7. 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 nine months ended March 31, 1997,
recorded deemed dividends and accretion on such deemed
dividends totaling $661,681 in connection with the preferred
stock issuance.
During the nine months ended March 31, 1997, 610 shares
of Series A Convertible Preferred Stock, with a value of
$610,000, and $8,738 in deemed dividends were converted to
190,338 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 10 -- Subsequent Events).
8. Common Stock and Additional Paid-in Capital
During the nine months ended March 31, 1997,
convertible subordinated promissory notes of $50,000, were
converted into 11,110 shares of common stock.
During the nine months ended March 31, 1997, 162,100
shares of common stock were issued as a result of the
exercise of warrants and stock options. The Company recorded
common stock of $1,297 and additional paid-in capital of
$440,390.
The Company on December 10, 1996, cancelled 50,000
shares of common stock held in escrow, in connection with an
acquisition.
On December 16, 1996, the Company granted 56,350 Non-
Qualified Stock Options at $.10 per share, expiring on
November 27, 2001 to key employees. As a result, the Company
recorded compensation expense and increased additional paid-
in capital in the amount of $142,284. In addition , the
Company granted 20,500 Non-Qualified Stock Options and 8,500
Incentive Stock Options to employees at $2.625 per share,
the prevailing market price, expiring on November 27, 2001.
During March 1997, the Company issued 25,000 shares of
its common stock in connection with an acquisition of
monitoring contracts. As a result, the Company recorded
common stock of $200 and additional paid-in capital of
$74,800.
The Company, in March 1997, issued 16,700 shares of its
common stock pursuant to a guarantee of stock valuation in
connection with an acquisition.
In March 1997, the Company issued 1,094,164 shares of
its common stock, valued at $3.3 million in connection with
a Joint Venture (see Note 5 -- Investment in Joint Venture).
The following is a summary of stock option activity:
Weighted
Average
Number Option Price Exercise
of Shares Per Share(Range) Price
--------- --------------- --------
Options outstanding at June 30, 1996 2,008,183 $2.50 - $35.00 $2.637
Options granted 85,350 $ .10 - $2.625 $ .958
Options exercised (40,100) $ .10 - $3.75 $ .296
Options canceled or expired -- $ -- $ --
--------- ------------- -----
Options outstanding at March 31, 1997 2,053,433 $ .10 - $35.00 $2.613
========= ============= =====
Options exercisable at March 31, 1997 2,053,433 $ .10 - $35.00 $2.613
========= ============= =====
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 (92,000) $3.25
---------- -------------
Warrants outstanding at March 31, 1997 3,828,697 $2.50 - $8.00
========== =============
9. 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 March 31, 1997 the increase in net alarm systems exceeded
15,000, as a result, the Company recorded compensation
expense and a deferred compensation liability at March 31,
1997 in the amount of $1,597,500.
Contingencies
-------------
As part of certain acquisitions, the Company has
guaranteed the value of its common stock at various prices
ranging from $3.01 to $17.34 for periods expiring at various
dates through March 2000. As of March 31, 1997, the Company's
contingent liabilities under these agreements aggregated
approximately $196,200, 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.
10. 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.
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
10. Subsequent Events (Continued)
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.
On November 30, 1997 an amendment was executed, in
which each Holder received an additional 7,500 Warrants (the
"Additional Warrants") for each 100 shares of Preferred
Stock held as of November 30, 1997. The Additional Warrants,
which are redeemable by the Company, are exercisable at a
price per share of $3.375 and entitle the holder thereof to
purchase one share of Common Stock per Additional Warrant.
Fifty percent (50%) of the Additional Warrants 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 Warrants and Additional Warrants each
Holder agreed to refrain from any conversions until February
2, 1998.
In February 1998, all outstanding shares of Preferred
Stock were redeemed by the Company.
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.
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.
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
Results of Operations (Continued)
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 $1,280,030 or 16% and
$794,262 or 31% for the nine months and three months ended
March 31, 1997 as compared to the same periods ended March
31, 1996. Product sales accounted for an increase of
$154,083 or 8% and $352,384 or 69% for the nine months and
three months ended March 31, 1997 as compared to the same
periods ended March 31, 1996. The increase in product sales
for the nine months was primarily due to the increase in
revenues from the sale of personal emergency response
systems (PERS) to private label wholesalers and home
healthcare agencies totaling approximately $408,000. This
increase in product sales was offset by a decrease in sales
of electronic security systems of $240,000. The increase in
product sales for the quarter ended March 31, 1997 as
compared to the same period ended March 31, 1996 was
primarily due to the increase in sales of PERS to both home
healthcare agencies and private label wholesalers totaling
$169,000 and an increase in sales of electronic security
systems of $189,000. The significant growth in monitoring
and service revenues of $1,125,947 or 19% and $441,878 or
22% for the nine and three month periods ended March 31,
1997 as compared to the same periods ended March 31, 1996,
were due to the acquisition of approximately 5,200
monitoring contracts during the past twelve months 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.
The Gross Profit Margin ("GPM"), as a percentage
of sales, increased from 60% to 62% and from 58% to 65% for
the nine months and three months ended March 31, 1997 as
compared to the same periods ended March 31, 1996,
respectively. To calculate the gross profit margin as a
percentage of revenues, the Company added back an inventory
adjustment of $217,000 for 1997. The inventory adjustment
was primarily due to the reduction of the valuation of parts
used in the repair of outdated electronic security systems
acquired from other alarm dealers. Services and rental costs
of sales decreased slightly, (excluding the inventory
adjustment), for both the nine and three month periods ended
March 31, 1997 as compared to 1996, due to an increase in
revenues generated from service calls and the success of the
Company's extended warranty program. The increase in GPM's
on product sales, of 1% and 5% for the same nine and three
month periods ended March 31, 1997 and 1996, respectively,
were due to increased revenues derived from the installation
of electronic security systems to commercial accounts as
opposed to residential customers and the utilization of in-
house labor in lieu of subcontractors for the installation
of electronic security systems.
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 for the nine months ended March 31, 1997; and
nonrecurring charges totaling $900,000 for the nine and
three months ended March 31, 1997) grew to $4,381,522 and
$1,656,275 for the nine and three month periods ended March
31, 1997, which represents increases of $741,730 or 20% and
$487,621 or 42%, over selling, general and administrative
expenses for the same periods ended March 31, 1996. The
nonrecurring charges include
Results of Operations (Continued)
(i) direct write-offs of accounts receivable of $228,000;
(ii) an increase in the allowance for doubtful accounts of
$322,000; (iii) engineering, development and licensing costs
of $50,000; (iv) approximately $200,000 in professional
fees and legal fees attributable primarily to the litigation
involving the Company's 1996 Series A Preferred Stock (see
Part II Item 1. Legal Proceedings); (v) and $100,000 in due
diligence costs associated with loss from acquisition
terminations and amortized transition costs. Transition
costs amortized for the nine and three month periods ended
March 31, 1997 and 1996, decreased by $452,000 and $293,000,
respectively. Selling, general and administrative expenses,
as a percentage of total operating revenues, increased from
45% and 46%, to 47% and 50% for the nine and three months
ended March 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 2%
during the nine month period ended March 31, 1997,
monitoring and service revenues increased by 19% between the
comparable period, 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 nine months and three months ended
March 31, 1997, the Company recorded a deferred
compensation liability with a corresponding charge to
operating expenses in the amount of $1,597,500 and $772,500,
pursuant to employment contracts. The Company, in December
1996, granted Non-Qualified Stock Options to key 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
$453,197 or 28% and $143,428 or 25% for the nine and three
months ended March 31, 1997, as compared to the same periods
ended March 31, 1996. The increases in amortization and
depreciation expense is due to the Company's acquisition of
monitoring contracts, totaling approximately $8 million,
during the fiscal year ended June 30, 1996 and the
acquisition of approximately 5,200 monitoring contracts
during the current fiscal year.
Interest expense decreased by $898,242 or 39% and
$481,318 or 59% for the nine and three months ended March
31, 1997, as compared to the same periods ended March 31,
1996. In July, 1996, the Company paid off notes payable with
balances aggregating $12,072,688 with proceeds from the
issuance of preferred stock and an advance from the line of
credit, resulting in a substantial decrease in the Company's
borrowing costs (see Notes 6 and 7 of Notes to Consolidated
Financial Statements).
The net losses for the nine and three months ended
March 31, 1997 (excluding an extraordinary
item for early extinguishment of debt of $2,549,708) were
$5,593,352 or ($1.35) per share based on 4,152,348 shares
outstanding, and $2,461,504 or ($.55) per share based on
4,442,241 shares outstanding; as compared to net losses of
$2,668,073 or ($2.37) per share based on 1,123,536 shares
outstanding; and $1,091,403 or ($.72) per share based on
1,521,176 shares outstanding for the nine and three months
ended March 31, 1996. The net losses applicable to common
shareholders (net losses adjusted for dividends and
accretion on preferred stock) for the nine and three months
ended March 31, 1997 were $14,699,741 or ($3.54) per share
based on 4,152,348 shares outstanding, and $2,674,458 or
($.60) per share based on 4,442,241 shares outstanding; as
compared to net losses of $2,668,073 or ($2.37) per share
based on 1,123,536 shares outstanding, and $1,091,403 or
($.72) per share based on 1,521,176 shares outstanding for
the nine and three month periods ended March 31, 1996,
respectively. Earnings before interest, taxes, depreciation
and amortization (EBITDA), excluding charges for the loss on
debt extinguishment, compensation expense -
options/employment agreements, consulting fees from the
issuance of warrants, and the nonrecurring charges were
$1,191,587 and $292,478 for the nine months and three months
Results of Operations (Continued)
ended March 31, 1997 as compared to $1,198,350 and $295,807
for the comparable periods ended March 31, 1996.
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 during the quarter ended September
30, 1996. As of March 31, 1997, the Company has available on
its revolving credit facility the amount of $3,700,000. The
credit facility bears interest at the Prime Rate, plus 1
3/4%.
The Company's working capital decreased by $6,956,266
from $5,967,623 at June 30, 1996, to a working capital
deficiency of $988,643 at March 31, 1997. 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 6 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 nine
months ended March 31, 1997 was $3,431,178. A net loss of
$8,143,060 including noncash transactions totaling
$5,279,972, accounted for $2,863,088 of the cash used in
operating activities. The noncash transactions are as
follows: (i) depreciation and amortization of $2,806,003;
(ii) compensation expense - options/employment agreements of
$1,739,784; (iii) consulting fees through the issuance of
warrants of $689,000; (iv) loss on sale of equipment of
$16,743 and (v) loss on joint venture investment of $28,442.
Other significant changes included changes in inventory,
prepaid expenses and other current assets, accounts payable
and accrued expenses, and deferred revenues totaling
$603,108. The increase in inventory of $179,704 is
attributable to an increase in future orders for PERS by
both private label wholesalers and home healthcare agencies.
Prepaid expenses and other current assets increased by
$103,151. The net decrease in accounts payable and accrued
expenses of $662,574 was primarily due to liabilities
accrued at June 30, 1996, in connection with obtaining the
line of credit and the sale of preferred stock, being paid
from the proceeds of such refinancing. Accrued assimilation
costs amortized over the nine months and a decrease in the
balance of an accrued litigation settlement accounted for
the balance of the decrease in accrued expenses. Deferred
revenues increased by $342,321 due to the acquisition of
approximately 5,200 monitoring contracts over the past
twelve months and the continued success of the Company's
extended warranty program.
Net cash used in investing activities for the nine
months ended March 31, 1997 was $3,868,147. The purchases of
monitoring contracts (including purchase holdback payments)
accounted for $3,377,559 of the cash used in investing
activities. Other investing activity included the purchase
of property and equipment of $525,823, which was offset by
the proceeds from the sale of equipment of $39,864; and
$4,629 for cost incurred in connection with the joint
venture.
Liquidity and Capital Resources (Continued)
Net cash provided by financing activities was
$5,974,300 for the nine months ended March 31, 1997.
Proceeds from the exercise of stock options and warrants
totaled $447,260. Net proceeds received from the line of
credit and the preferred stock issuance totaling $20,810,312
were used primarily to pay off notes payable totaling
$12,072,668, prepayment fees on the early extinguishment of
debt of $2,549,708, 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, totaled $3,079,876 were made during the nine
months ended March 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.
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.
Response USA, Inc. and Subsidiaries
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Response USA, Inc. (the "Company"), effective September
30, 1996, suspended conversion of its 1996 Series A
Convertible Preferred Stock ("Preferred Stock").
On January 2, 1997, Lake Management LDC and KA
Investments LDC, each holders of the Preferred Stock, filed
a complaint in the Court of Chancery of the State of
Delaware against the Company challenging among other things,
the Company's decision to suspend conversion and seeking,
among other things, specific performance under a Certificate
of Designation to convert their Preferred Stock to Common
Stock of the Company. The case is captioned Lake Management
LDC and KA Investments LDC v. Response USA, Inc., Civil
Action No. 15449. On February 10, 1997, the Company
responded to the complaint by filing an Answer, Defenses and
Counterclaim. A Reply to the Counterclaim was filed on March
3, 1997.
On February 18, 1997, Halifax Fund, L.P., a holder of
the Preferred Stock, filed a Complaint, a Motion for a
Preliminary Injunction and a Motion for Expedited
Proceedings in the Court of Chancery of the State of
Delaware against the Company also challenging, among other
things, the Company's decision to suspend conversion and
seeking, among other things, specific performance under a
Certificate of Designation to convert its Preferred Stock to
Common Stock, No.15553. On March 5, 1997, the court held a
conference and denied plaintiffs request for a hearing on
plaintiff's motion for a preliminary injunction. On March
11, 1997, plaintiff filed a second Motion for a Prelirninary
Injunction. The Court held a telephonic conference on March
12, 1997 and denied plaintiffs request on its second
preliminary injunction motion. Plaintiff has filed a motion
for summary judgment, and the Court held a hearing on that
motion on May 13, 1997.
On May 13, 1997, the Delaware Court of Chancery granted
partial summary judgment to Halifax solely with respect to
their right to convert Preferred Stock into Common Stock.
Subsequent to the hearings, the Company, reached an
agreement in principle with Halifax Fund, L.P., a holder of
1,000 shares of the Company's Series A Convertible Preferred
Stock (14.5% of the outstanding shares), which provides for
the conversion of the Preferred Stock and orderly sale of
the underlying common stock to certain unaffiliated
purchasers. The agreement with Halifax is subject to the
completion of satisfactory documentation and performance of
all obligations thereunder.
On May 13, 1997, the Company also announced that
Holders of the requisite number of shares of Preferred Stock
(other than Halifax), have expressed agreement, either
orally or in writing, with the Company's proposed
modification to the terms of the Preferred Stock, which
provides that the Company shall have the right to redeem the
Preferred Stock at any time through November 30, 1997, for
cash in an amount equal to 135% of the original purchase
price, together with interest at the rate of 12% per annum
for the period from May 12, 1997, through the date of
repayment. According to the terms of the proposal, after
November 30, 1997, any outstanding shares of Preferred Stock
may be converted in the discretion of the holder based upon
a value of the Preferred Stock equal to 120% of the holder's
investment. The Company believes that a formal consent and
approval of the modification to the terms of the Preferred
Stock (which includes the foregoing terms), will be achieved
and will be binding upon all holders of Preferred Stock.
In February 1998, all outstanding shares of Preferred
Stock were redeemed by the Company.
Response USA, Inc. and Subsidiaries
PART II. OTHER INFORMATION (Continued)
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
(b) Report on Form 8-K - Filed on March 20, 1997
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. May 11, 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 MARCH 31,1997
Total exercise proceeds 9,701,420
Period - end outstanding shares 5,304,356
20% of period - end outstanding shares 1,060,871
x
Average share price during period $3.57
Proceeds used to purchase shares 3,787,309
Remaining proceeds 5,914,111
Proceeds used to retire average debt 10,451,669
Remaining proceeds to be invested (4,537,558)
Adjusted Income (Loss):
Net income(loss) (2,461,504)
Dividends and accretion to preferred stock (212,954)
Adjusted Income (Loss) (2,674,458)
Interest expense on retired debt (10.25%) 267,824
Interest income on proceeds invested (2.5%) 0
Tax effect of interest adjustments (40%) (107,130)
Net income (loss) for E.P.S. purposes (2,513,764)
Shares:
Weighted average shares outstanding 4,442,241
Weighted average equivalent shares outstanding 5,114,863
20% of period - end outstanding shares 1,060,871
Total shares for E.P.S. purposes 8,496,233
Net income (loss) per share ($0.30)
=======
Maximum income (minimum loss) per share:
Adjusted Income (Loss) (2,674,458)
divide by
Weighted average shares outstanding 4,442,241
Net income (loss) per share ($0.60)
=====
EARNINGS PER SHARE COMPUTATIONS:
MODIFIED TREASURY STOCK METHOD:
NINE MONTHS ENDED MARCH 31,1997
Total exercise proceeds 29,801,422
Period - end outstanding shares 5,304,356
20% of period - end outstanding shares 1,060,871
x
Average share price during period $4.51
Proceeds used to purchase shares 4,784,528
Remaining proceeds 25,016,894
Proceeds used to retire average debt 9,693,469
Remaining proceeds to be invested 15,323,425
Adjusted Income (Loss):
Net income(loss) (8,143,060)
Dividends and accretion to preferred stock (6,556,681)
Adjusted Income (Loss) (14,699,741)
Interest expense on retired debt (10.25%) 745,185
Interest income on proceeds invested (2.5%) 287,314
Tax effect of interest adjustments (40%) (183,148)
Net income (loss) for E.P.S. purposes (13,850,390)
Shares:
Weighted average shares outstanding 4,152,348
Weighted average equivalent shares outstanding 5,090,369
20% of period - end outstanding shares (1,060,871)
Total shares for E.P.S. purposes 8,181,846
Net income (loss) per share ($1.69)
=====
Maximum income (minimum loss) per share:
Adjusted Income (Loss) (14,699,741)
divide by
Weighted average shares outstanding 4,152,348
Net income (loss) per share ($3.54)
======
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<S> <C>
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<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
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<CURRENT-ASSETS> 3237
<PP&E> 3764
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0
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<COMMON> 42
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<CGS> 1526
<TOTAL-COSTS> 3742
<OTHER-EXPENSES> 9765
<LOSS-PROVISION> (98)
<INTEREST-EXPENSE> 1385
<INCOME-PRETAX> (5594)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5594)
<DISCONTINUED> 0
<EXTRAORDINARY> (2550)
<CHANGES> 0
<NET-INCOME> (8143)
<EPS-PRIMARY> (1.96)
<EPS-DILUTED> (1.96)
</TABLE>
