-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EQFB1PrPDVrb4+Rh4aZYtK0n6rolzI46insheINWXp3cGcQxPhdbWs4q6+HmHlE5 QD1XZDd7ZpbyWL9yuj4R/g== 0000912057-97-021507.txt : 19970623 0000912057-97-021507.hdr.sgml : 19970623 ACCESSION NUMBER: 0000912057-97-021507 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19970501 ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19970620 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALARMGUARD HOLDINGS INC CENTRAL INDEX KEY: 0000319250 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS RETAIL [5900] IRS NUMBER: 330318116 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-08138 FILM NUMBER: 97627763 BUSINESS ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 BUSINESS PHONE: 6192311818 MAIL ADDRESS: STREET 1: 125 FRONTAGE ROAD STREET 2: STE 1880 CITY: ORANGE STATE: CT ZIP: 06477 FORMER COMPANY: FORMER CONFORMED NAME: TRITON GROUP LTD DATE OF NAME CHANGE: 19950328 8-K/A 1 8-K/A SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------- FORM 8-K/A AMENDMENT NO. 1 CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest Commission File Number 0-21882 event reported): MAY 1, 1997 ALARMGUARD HOLDINGS, INC. Incorporated in Delaware IRS Employee Identification Number: 33-0318116 Principal Executive Office: Telephone: (203) 795-9000 125 Frontage Road Orange, CT 06477 This Current Report on Form 8-K/A is filed by Alarmguard Holdings, Inc. ("Alarmguard"), a Delaware corporation, formerly Triton Group Ltd. ("Triton"), as an amendment to that certain Current Report on Form 8-K filed by Alarmguard on May 15, 1997. Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired The following audited financial statements of Protective Alarms, Inc. as of and for the years ended September 30, 1996 and 1995 are provided herein: (1) Independent Auditors' Report (2) Balance Sheets as of September 30, 1996 and 1995 (3) Statements of Operations and Retained Earnings for the years ended September 30, 1996 and 1995 (4) Statements of Cash Flows for the years ended September 30, 1996 and 1995 (5) Notes to Financial Statements for the years ended September 30, 1996 and 1995 (b) Pro Forma Financial Information. The following unaudited pro forma condensed combined financial information sets forth, for the respective periods and as of the dates indicated, the results of operations and the financial position of Alarmguard after giving effect to the merger ("Merger") on April 15, 1997 of Security Systems Holdings, Inc., a Delaware corporation ("SSH"), and Triton Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of Alarmguard ("Merger Sub"), and the acquisition (the "Pro Acquisition") on May 1, 1997 by SSH of all of the outstanding capital stock of Protective Alarms, Inc., a Connecticut corporation, as if the transactions were consummated as of the respective dates indicated below. The unaudited pro forma financial information should be read in conjunction with Alarmguard's audited historical consolidated financial statements and notes thereto as of December 31, 1996 and 1995 and each of the three years in the period ended December 31, 1996. The unaudited pro forma financial information is presented for illustrative purposes only and is not necessarily indicative of the operating results or financial position that actually would have occurred if the Merger and the Pro Acquisition had been consummated as of such dates in accordance with the assumptions set forth below, nor is it necessarily indicative of future operating results or financial position. The unaudited pro forma condensed combined balance sheet as of March 31, 1997 reflects the Merger and the Pro Acquisition as if such transactions had occurred on March 31, 1997. The unaudited pro forma condensed combined statement of operations for the year ended December 31, 1996 and the three-month interim period ended March 31, 1997 reflects the Merger and Pro Acquisition as if the transactions had occurred on January 1, 1996. 2 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, hereunto duly authorized. ALARMGUARD HOLDINGS, INC. Dated: June 20, 1997 By: /s/ David Heidecorn ------------------------------- David Heidecorn Executive Vice President & Chief Financial Officer 3 ITEM 7. (a) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED INDEPENDENT AUDITORS' REPORT To the Shareholders of Protective Alarms, Inc. Greenwich, Connecticut We have audited the accompanying balance sheets of Protective Alarms, Inc. (the "Company") as of September 30, 1996 and 1995, and the related statements of operations and retained earnings and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 1996 and 1995, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule listed in the table of contents is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This schedule is the responsibility of the Company's management. Such schedule has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole. /s/ Deloitte & Touche LLP December 20, 1996 (except for Notes 3, 4 and 9, for which the date is April 30, 1997) 4 PROTECTIVE ALARMS, INC. BALANCE SHEETS SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
ASSETS 1996 1995 CURRENT ASSETS: Cash and cash equivalents $ 243,305 $ 117,245 Investment in marketable securities - 28,060 Accounts receivable (net of allowance for doubtful accounts of $71,064 and $77,244 in 1996 and 1995, respectively) 1,378,064 1,498,898 Income taxes receivable 130,000 104,385 Inventories 289,642 300,132 Notes receivable 34,351 35,299 Prepaid expenses and other current assets 133,100 152,636 ---------- ---------- Total current assets 2,208,462 2,236,655 ---------- ---------- PROPERTY AND EQUIPMENT: Equipment, furniture and fixtures 419,043 373,495 Leasehold improvements 620,093 616,893 Leased equipment 564,827 495,224 Vehicles 142,933 130,192 ---------- ---------- 1,746,896 1,615,804 Less accumulated depreciation and amortization 986,638 828,550 ---------- ---------- Net property and equipment 760,258 787,254 DEBT ISSUANCE COSTS - Net 53,016 79,525 CUSTOMER LISTS - Net 1,081,322 1,651,602 OTHER ASSETS 7,500 7,500 ---------- ---------- TOTAL ASSETS $4,110,558 $4,762,536 ---------- ---------- ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Note payable $ 16,676 $ 6,066 Accounts payable 332,870 322,436 Accrued expenses 462,394 293,669 Short-term debt 286,550 100,000 Current portion of long-term debt 1,433,042 566,222 Deferred revenues 1,071,282 1,274,350 ---------- ---------- Total current liabilities 3,602,814 2,562,743 LONG-TERM DEBT 13,551 1,444,687 ---------- ---------- Total liabilities 3,616,365 4,007,430 ---------- ---------- COMMITMENTS AND CONTINGENCIES (See Notes) SHAREHOLDERS' EQUITY: Common stock, no par value; 5,000 shares authorized, 100 shares issued and outstanding 5,000 5,000 Retained earnings 489,193 750,106 ---------- ---------- Total shareholders' equity 494,193 755,106 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $4,110,558 $4,762,536 ---------- ---------- ---------- ----------
See notes to financial statements. 5 PROTECTIVE ALARMS, INC. STATEMENTS OF OPERATIONS AND RETAINED EARNINGS YEARS ENDED SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
1996 1995 REVENUE $7,221,632 $7,427,719 COST OF GOODS SOLD 3,501,805 3,688,278 ---------- ---------- Gross profit 3,719,827 3,739,441 ---------- ---------- OPERATING EXPENSES: Selling, general and administrative 2,857,734 3,017,349 Depreciation and amortization 651,410 608,291 Loss on disposal of asset 217,500 - ---------- ---------- Total operating expenses 3,726,644 3,625,640 ---------- ---------- (LOSS) INCOME FROM OPERATIONS (6,817) 113,801 OTHER INCOME (EXPENSE): Interest expense (223,119) (234,497) Management fees (165,960) (165,157) Other income 2,766 3,173 ---------- ---------- LOSS BEFORE INCOME TAX BENEFIT (393,130) (282,680) INCOME TAX BENEFIT 132,217 84,737 ---------- ---------- NET LOSS (260,913) (197,943) RETAINED EARNINGS , BEGINNING OF YEAR 750,106 948,049 ---------- ---------- RETAINED EARNINGS, END OF YEAR $ 489,193 $ 750,106 ---------- ---------- ---------- ----------
See notes to financial statements. 6 PROTECTIVE ALARMS, INC. STATEMENTS OF CASH FLOWS YEARS ENDED SEPTEMBER 30, 1996 AND 1995 - --------------------------------------------------------------------------------
1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (260,913) $ (197,943) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 651,410 608,291 Provision for losses on accounts receivable 90,309 135,200 Gain on sale of marketable securities (3,940) - Writedown of marketable securities 12,000 2,508 Decrease (increase) in deferred tax assets 2,580 (28,650) Loss on disposal of asset 217,500 - Changes in assets and liabilities: Decrease (increase) in accounts receivable 30,525 (861,395) Decrease (increase) in notes receivable 948 (35,299) Increase in income taxes receivable (25,615) (104,385) Decrease in inventory 10,490 187,442 Increase (decrease) in prepaid expenses 16,956 (26,756) Increase in accounts payable 10,434 68,004 Increase in accrued expenses 168,725 120,525 (Decrease) increase in deferred revenues (203,068) 606,884 ---------- ---------- Net cash provided by operating activities 718,341 474,426 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (131,091) (284,311) Purchase of marketable securities - (7,500) Increase in customer lists (114,034) (17,678) Proceeds from sale of marketable securities 20,000 - ---------- ---------- Net cash used in investing activities (225,125) (309,489) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from short-term debt and note payable 203,226 100,000 Proceeds from long-term debt - 28,932 Principal payments on long-term debt (564,316) (582,077) Principal payments on note payable (6,066) (38,381) ---------- ---------- Net cash used in financing activities (367,156) (491,526) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 126,060 (326,589) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 117,245 443,834 ---------- ---------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 243,305 $ 117,245 ---------- ---------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Income taxes (refund) paid $ (91,431) $ 6,406 ---------- ---------- ---------- ---------- Interest paid $ 225,829 $ 234,497 ---------- ---------- ---------- ----------
See notes to financial statements. 7 PROTECTIVE ALARMS, INC. NOTES TO FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1996 AND 1995 - -------------------------------------------------------------------------------- 1. ORGANIZATION Protective Alarms, Inc. (the "Company"), was incorporated under the laws of the State of Connecticut on October 21, 1977 with operations throughout the tri-state area (primarily Connecticut and New York), and is engaged in the business of selling, installing, servicing and monitoring residential and commercial security systems. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ALLOWANCE FOR DOUBTFUL ACCOUNTS - The allowance for doubtful accounts is based on management's analysis of the net realizable value of accounts receivable. INVENTORIES - Inventories consist of security equipment and related protection items and is stated at the lower of cost (determined on an average cost method) or market. PROPERTY AND EQUIPMENT - Property and equipment are stated at cost and are depreciated for book purposes using the straight-line method over the estimated useful lives of the assets. The modified accelerated cost recovery system is used for tax purposes. Leasehold improvements are amortized over the shorter of their useful lives or the related lease life. The estimated useful lives by class of assets are as follows: LIFE Equipment, furniture and fixtures 5 to 7 years Leasehold improvements 10 to 30 years Leased equipment 5 years Vehicles 5 years Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures which materially increase value, improve capacities, or extend useful lives are capitalized. Upon sale or retirement, the costs and related accumulated depreciation or amortization are eliminated from the respective accounts and any resulting gain or loss is included in operations. INTANGIBLES - Debt issuance costs are amortized over five years, the life of the related debt agreement. Customer lists are stated at cost and are amortized using the straight-line method over ten years, their estimated useful life. During the year ended September 30, 1996 the Company terminated an exclusive agreement to distribute fireproof clothing. As a result, the remaining net costs of $217,500 which was expended in obtaining the agreement was written off. The Company periodically evaluates the recoverability of its intangible assets by assessing whether the unamortized asset can be recovered over its remaining life through estimated future cash flows. Except as noted above, the years ended September 30, 1996 and 1995, there were no adjustments to the carrying values of the intangible assets resulting from these evaluations. 8 REVENUE RECOGNITION - Revenue from sales and installation is recognized to the extent service has been rendered. When the Company bills customers in advance for maintenance agreements and monitoring fees, deferred revenue is credited and recorded in income over the life of the agreement. INCOME TAXES - The Company has adopted Financial Accounting Standards Board Statement No. 109, ACCOUNTING FOR INCOME TAXES ("FASB 109"). Under FASB 109, the deferred tax provision is determined under the liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between the book and tax basis of assets and liabilities using presently enacted tax rates. MANAGEMENT ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. CONCENTRATIONS OF CREDIT RISK - Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of accounts receivable. RECLASSIFICATIONS - Certain reclassifications have been made to the prior year financial statements to conform to the current year's presentation. 3. SHORT-TERM DEBT At September 30, 1996 and 1995, the Company had a line of credit facility of up to $200,000 with a financial institution. The line of credit bears interest at 2% above the bank's base rate (10.25% at September 30, 1996) and was collateralized by substantially all of the assets of the Company. Also included in short-term debt at September 30, 1996 is a demand note for $96,550 payable to an investment company and bearing interest at the rate equal to the greater of 12.5% and the prime rate of a certain financial institution plus 3.5%. The line of credit facility expires and all amounts outstanding are due on March 31, 1999. Unused line of credit facilities at September 30, 1996 and 1995 amounted to approximately $10,000 and $100,000, respectively. On April 30, 1997, all amounts outstanding under the lines of credit were repaid (see Note 9). 9 4. LONG-TERM DEBT Long-term debt, including current portions consisted of the following, at September 30, 1996 and 1995:
1996 1995 State Street Bank and Trust Co. - with interest at the Bank's prime rate plus 2% (prime rate at September 30, 1996 was 8.25%), payable in monthly installments to March 1999. $1,425,000 $1,974,996 Truck Loan - Ford Motor Company - with interest at 9.75%, payable monthly to November 1996. 3,752 12,824 Truck Loan - General Motors Acceptance Company - with interest at 15.5%, payable monthly to February 2000. 17,841 23,089 ---------- ---------- Total long-term debt including current portion 1,446,593 2,010,909 Less current portion (including State Street Bank and Trust Co. loan) 1,433,042 566,222 ---------- ---------- Total long-term debt $ 13,551 $1,444,687 ---------- ---------- ---------- ----------
The State Street Bank and Trust Company loan is secured by the corporate assets of the Company as well as the personal guarantee of the directors. At September 30, 1996, the Company was not in compliance with certain covenants of the State Street Bank and Trust Company loan. On April 30, 1997, all amounts outstanding under the State Street Bank and Trust Company loan were repaid in connection with the sale of the Company (see Note 9). The State Street Bank and Trust Company loan has been included in current maturities in the September 30, 1996 financial statements. Truck loans are secured by the related assets. 10 5. INCOME TAXES The benefit for income taxes consists of the following: September 30, 1996 1995 Federal: Current $ 129,062 $ 39,341 Deferred (2,580) 28,650 ---------- ---------- 126,482 67,991 State: Current 5,735 16,746 Deferred - - ---------- ---------- $ 132,217 $ 84,737 ---------- ---------- ---------- ---------- Deferred taxes resulted from temporary differences in the recognition of revenue and expense for tax and financial statement purposes. The sources of the temporary differences are primarily depreciation, accounts receivable, and inventories . A valuation allowance of $14,612 and $21,040 at September 30, 1996 and 1995, respectively, was recognized for timing differences which are not considered probable of realization. At September 30, 1996 and 1995, a current deferred tax asset of $26,070 and $28,650, respectively, was included in other current assets net of the valuation allowance. 6. EMPLOYEE BENEFIT PLAN The Company maintains a Section 401(k) employee benefit plan. All employees are eligible to participate after completing the earlier of 250 hours of service during a three-month consecutive period of employment or at least 1,000 hours of service in a twelve-month period of employment and having attained age 21. Employees may contribute up to 15% of their salary to the plan. Under the plan, the Company matches a portion of the contributions made by the participating employees. The Company's cost of matching contributions under the plan totaled $14,045 and $15,337 for the years ended September 30, 1996 and 1995, respectively. 7. RELATED PARTY TRANSACTIONS The Company operates from a property which is leased from a real estate partnership which has common ownership (see Note 8). Total rent expense for the years ended September 30, 1996 and 1995 amounted to $163,943 and $181,182, respectively. The Company believes that this transaction has been on terms no less favorable to the Company than would have been available from nonaffiliated parties. For the years ended September 30, 1996 and 1995, a management fee of $165,960 and $165,157, respectively, was paid to a director of the Company for services rendered. Outstanding balances on loans to and from directors at September 30, 1996 and 1995 were as follows: 11 1996 1995 Loans to a director and shareholder $31,608 $20,507 ------- ------- ------- ------- Loans from a director $ - $20,000 ------- ------- ------- ------- 8. CONTINGENCIES AND COMMITMENTS The Company has various pending lawsuits arising in the ordinary course of its business. Management believes that the ultimate liabilities, if any, of these lawsuits will not have a material adverse effect on the financial position or results of operations of the Company. Operating Leases - The Company leases office space at its Greenwich, Connecticut Headquarters under a noncancelable operating lease which expires in June 1997 from the principal shareholder (see Note 7). The Company also leases a sales office from an unrelated party. Total rent expense was $167,377 and $181,182 at September 30, 1996 and 1995, respectively. In addition the Company is obligated for various noncancelable operating leases which expire at various dates through 2002. Future minimum payments under noncancelable operating leases as of September 30, 1996 are as follows: 1997 $ 245,524 1998 117,249 1999 80,131 2000 27,127 2001 4,225 Thereafter 1,056 ---------- $ 475,312 ---------- ---------- 9. SUBSEQUENT EVENTS On April 30, 1997, 100% of the outstanding common stock of the Company was sold to Security Systems Holdings, Inc. A portion of the proceeds from the sale were used to repay the outstanding debt under the Company's existing line of credit (Note 3) and the State Street Bank and Trust Co. loan (Note 4). * * * * * * 12 ITEM 7. (b) PRO FORMA FINANCIAL INFORMATION ALARMGUARD HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET (P) AS OF MARCH 31, 1997
SECURITY SYSTEMS TRITON HOLDINGS GROUP LTD. INC. PRO FORMA ("TRITON") ("SSH") ADJUSTMENTS ---------- ------- ----------- ASSETS Current assets: Cash and cash equivalents $15,155 $322 ($5,051) (A,B,C,D) Accounts receivable, net 627 3,884 (500) (E) Inventories 1,906 Prepaid expenses 42 294 Other current assets 250 ---------- ---------- ---------- Total current assets 15,824 6,656 (5,551) Property and equipment, net 8 2,231 Customer installation costs, net 8,081 Acquired customer contracts, net 15,592 Covenants not to compete, net 2,567 Goodwill, net 2,026 Investment in Mission West Properties 1,700 (F) Other assets 2,250 1,160 335 (A) ---------- ---------- ---------- Total assets $18,082 $38,313 ($3,516) ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable $97 $1,933 Accrued expenses 374 1,833 $140 (B,G) Current portion of term loan 4,169 (4,169) (A) Current portion of notes payable 2,501 (900) (B,E) Deferred revenue 4,691 Other current liabilities 912 ---------- ---------- ---------- Total current liabilities 471 16,039 (4,929) Term loan, less current portion 27,267 4,169 (A) Subordinated debt 4,951 (678) (B) Notes payable, less current portion 876 Other liabilities 2,546 299 Redeemable preferred stock 16,444 (16,444) (D) Stockholders' equity (deficit): Common stock 2 237 (238) (D) Additional paid-in capital 21,774 35 7,893 (A,B,C,D,F,G) Accumulated deficit (6,711) (27,800) 6,676 (D) Notes receivable from officers (35) 35 ---------- ---------- ---------- Total stockholders' equity (deficit): 15,065 (27,563) 14,366 ---------- ---------- ---------- Total liabilities and stockholders' equity (deficit): $18,082 $38,313 ($3,516) ---------- ---------- ---------- ---------- ---------- ----------
PRO FORMA TRITON, PRO FORMA SSH AND TRITON AND PROTECTIVE PRO FORMA AND PROTECTIVE SSH ALARMS ADJUSTMENTS ALARMS --- ------ ----------- ------ ASSETS Current assets: Cash and cash equivalents $10,426 ($26) ($9,608) (H) $792 Accounts receivable, net 4,011 1,393 5,404 Inventories 1,906 301 2,207 Prepaid expenses 336 262 176 (H) 774 Other current assets 250 (250) (H) ---------- ---------- ---------- ---------- Total current assets 16,929 1,930 (9,682) 9,177 Property and equipment, net 2,239 788 3,027 Customer installation costs, net 8,081 867 8,948 Acquired customer contracts, net 15,592 15,462 (H) 31,054 Covenants not to compete, net 2,567 5,000 (H) 7,567 Goodwill, net 2,026 2,026 Investment in Mission West Properties 1,700 1,700 Other assets 3,745 47 (40) (H) 3,752 ---------- ---------- ---------- ---------- Total assets $52,879 $3,632 $10,740 $67,251 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities: Accounts payable $2,030 $619 $2,649 Accrued expenses 2,347 368 $950 (H) 3,665 Current portion of term loan 0 778 (778) (H) 0 Current portion of notes payable 1,601 9 2,396 (H) 4,006 Deferred revenue 4,691 1,172 5,863 Other current liabilities 912 912 ---------- ---------- ---------- ---------- Total current liabilities 11,581 2,946 2,568 17,095 Term loan, less current portion 31,436 550 8,650 (H) 40,636 Subordinated debt 4,273 4,273 Notes payable, less current portion 876 876 Other liabilities 2,845 8 2,853 Redeemable preferred stock Stockholders' equity (deficit): Common stock 1 5 (5) (H) 1 Additional paid-in capital 29,702 0 29,702 Accumulated deficit (27,835) 123 (473) (H) (28,185) Notes receivable from officers ---------- ---------- ---------- ---------- Total stockholders' equity (deficit): 1,868 128 (478) 1,518 ---------- ---------- ---------- ---------- Total liabilities and stockholders' equity (deficit): $52,879 $3,632 $10,740 $67,251 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
See accompanying notes to unaudited pro forma condensed combined financial statements. 13 ALARMGUARD HOLDINGS, INC. UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (P) FOR THE THREE MONTHS ENDED MARCH 31, 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
SECURITY PRO FORMA SYSTEMS TRITON, TRITON HOLDINGS, PRO FORMA SSH AND GROUP LTD. INC. PRO FORMA TRITON AND PROTECTIVE PRO FORMA PROTECTIVE ("TRITON") ("SSH") ADJUSTMENTS SSH ALARMS ADJUSTMENTS ALARMS -------- ----- ----------- --- ------ ----------- ------ Recurring revenue $4,173 $4,173 $1,146 $5,319 Installation revenue 2,031 2,031 810 2,841 Service revenue 393 393 47 440 ---------- -------- ---------- ---------- ---------- ---------- ---------- Total revenue 6,597 6,597 2,003 8,600 Monitoring expense 595 595 236 831 Installation expense 1,313 1,313 579 1,892 Service expense 765 765 279 1,044 ---------- -------- ---------- ---------- ---------- ---------- ---------- Total cost of revenue 2,673 2,673 1,094 3,767 Gross profit 3,924 3,924 909 4,833 Sales and marketing expense 1,016 1,016 335 1,351 General and administrative expense $261 2,187 2,448 518 2,966 Depreciation and amortization expense 2,371 2,371 140 $636 (L) 3,147 ---------- -------- ---------- ---------- ---------- ---------- ----------- Total operating expenses 261 5,574 5,835 993 636 7,464 ---------- -------- ---------- ---------- ---------- ---------- ----------- Operating loss (261) (1,650) (1,911) (84) (636) (2,631) Other income (expense) (N) 3,154 (844) ($3,219) (J,O) (909) (38) (222) (M) (1,169) ---------- -------- ---------- ---------- ---------- ---------- ----------- Income (loss) from operations $2,893 ($2,494) ($3,219) ($2,820) ($122) ($858) ($3,800) ---------- -------- ---------- ---------- ---------- ---------- ----------- ---------- -------- ---------- ---------- ---------- ---------- ----------- Income (loss) from operations per common share $1.34 ($0.87) ($0.56) ($0.76) Number of shares used in calculating income (loss) from operations per common share 2,155 2,877 5,032 5,032
See accompanying notes to unaudited pro forma condensed combined financial statements. 14
SECURITY PRO FORMA SYSTEMS TRITON, TRITON HOLDINGS PRO FORMA SSH AND GROUP LTD. INC. PRO FORMA TRITON AND PROTECTIVE PRO FORMA PROTECTIVE ("TRITON") ("SSH") ADJUSTMENTS SSH ALARMS ADJUSTMENTS ALARMS ---------- ------- ----------- --- ------ ----------- ------ Recurring revenue $15,011 $15,011 $4,067 $19,078 Installation revenue 7,613 7,613 3,110 10,723 Service revenue 1,528 1,528 322 1,850 ------ ------- ------- ------- ----- ------- -------- Total revenue 24,152 24,152 7,499 31,651 Monitoring expense 2,258 2,258 662 2,920 Installation expense 4,685 4,685 2,209 6,894 Service expense 2,837 2,837 975 3,812 ------ ------- ------- ------- ----- ------- -------- Total cost of revenue 9,780 9,780 3,846 13,626 Gross profit 14,372 14,372 3,653 18,025 Sales and marketing expense 3,732 3,732 1,104 4,836 General and administrative expense $1,528 8,435 9,963 2,230 12,193 Depreciation and amortization expense 8,142 8,142 640 $2,544 (L) 11,326 ------ ------- ------- ------- ----- ------- -------- Total operating expenses 1,528 20,309 21,837 3,974 2,544 28,355 Operating loss (1,528) (5,937) (7,465) (321) (2,544) (10,330) Other income (expense) (N) 3,970 (3,051) ($3,676) (J,K) (2,757) (214) (888) (M) (3,859) ------ ------- ------- ------- ----- ------- -------- Income(loss) before income taxes 2,442 (8,988) (3,676) (10,222) (535) (3,432) (14,189) Income tax benefit 377 0 377 95 472 ------ ------- ------- ------- ----- ------- -------- Income (loss) from continuing operations $2,819 ($8,988) ($3,676) ($9,845) ($440) ($3,432) ($13,717) ------ ------- ------- ------- ----- ------- -------- ------ ------- ------- ------- ----- ------- -------- Income (loss) from continuing operations per common share $1.31 ($3.12) ($1.96) ($2.73) Number of shares used in calculating income (loss) from continuing operations per common share 2,155 2,877 5,032 5,032
See accompanying notes to unaudited pro forma condensed combined financial statements. 15 ALARMGUARD HOLDINGS, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (A) Concurrent with the Merger, SSH refinanced its existing credit facility. The costs incurred in this effort (approximately $1.1 million) were deferred and will be amortized over the term of the respective underlying debt. In addition, the unamortized costs related to the prior credit facility and subordinated debt (approximate book value of $800,000) were charged to expense in connection with the early extinguishment of debt. Pursuant to the terms of the new credit facility, no principal payments are due for two years. Therefore, the $4.2 million current portion of the term loan under the old credit facility at the time of the Merger was reclassified to non-current. (B) In connection with the Merger, SSH refinanced its existing subordinated debt which accrued interest at 10% (8% through September 30, 1996) and was due in 1998. The new subordinated debt matures two years after the consummation of the Merger, and accrues interest at 15%. In addition, $650,000 of SSH's existing subordinated debt was repaid from cash on hand. Additionally, a certain seller of a previously acquired company received both cash ($300,000) and $100,000 of the new subordinated debt for a note payable which was outstanding on March 31, 1997. In connection with the refinancing, the subordinated debtholders were issued warrants. The estimated fair value of such warrants (approximately $327,000) was offset against the proceeds of the subordinated debt and is being amortized as interest expense over the two-year life of such debt. (C) In connection with the Merger, SSH and Triton incurred approximately $4.0 million in transaction costs (including $1.1 million relating to the new credit facility, see Note A), consisting primarily of legal, accounting, printing, and investment banking fees. (D) Pursuant to the Merger Agreement, SSH became a wholly-owned subsidiary of Triton through the merger of a wholly owned subsidiary of Triton ("Merger Sub") with and into SSH and the conversion and exchange of shares of SSH Common and Preferred Stock for shares of Triton Common Stock, thus making SSH the legal acquiree and Triton the legal acquiror. (Triton's name was changed to Alarmguard in connection with the Merger.) However, because pursuant to the Merger Agreement, the SSH stockholders received approximately 57% of the outstanding Triton Common Stock, the Merger was accounted for as a "reverse acquisition." Triton was designated the accounting acquiree and SSH the accounting acquiror. As such, the net assets (principally cash) of Triton (the issuing company) were recorded at net book value and the pre-Merger financial statements of SSH, the accounting acquiror (i.e., the legal acquiree), became the historical financial statements of the combined company. In addition, pre-Merger stockholders' deficiency and loss per share were retroactively restated for the equivalent number of shares received by the accounting acquiror (SSH) in the combination, with differences between the par value of the issuer's (Triton) and accounting acquiror's (SSH) stock recorded as an adjustment to paid-in capital of Alarmguard. The shares issued in connection with the merger were allocated among the SSH stockholders as follows: (i) the shares of SSH Common Stock were converted into approximately 874,683 shares of Triton Common Stock; (ii) the shares of SSH Series A Preferred Stock, together with all dividends thereon that have accrued and remain unpaid through January 31, 1997, were converted into approximately 752,649 shares of Triton Common Stock; and (iii) the shares of SSH Series B Preferred Stock, together with all dividends thereon that have accrued and remain unpaid through January 31, 1997, were converted into approximately 1,250,036 shares of Triton Common Stock. Dividends which accrued and remained unpaid from February 1, 1997 through April 15,1997 (consummation of the Merger) in the amount of $140,000 were paid in cash to the holders of the SSH Preferred Stock. Accordingly, this adjustment was recorded to reflect the issuance of the new common shares for the outstanding SSH Common Stock and SSH Preferred Stock. (E) Per the terms of the Merger Agreement, SSH had available a $1.5 million bridge loan from Triton pursuant to which SSH borrowed $500,000. The respective receivable and payable have been eliminated. 16 (F) Triton owns 44% of Mission West Properties. The carrying value of this investment has been adjusted to reflect the expected net realizable value of this investment following the sale of Mission West's remaining real estate assets. (G) Per the Merger Agreement, Triton Group Management, Inc. ("TGM"), agreed to facilitate the disposition of the remaining Triton investments during the twelve months following the Merger. For services provided, TGM will receive a management fee of approximately $200,000. (H) On May 1, 1997, Alarmguard purchased all of the issued and outstanding stock of Protective Alarms for an initial purchase price of approximately $17.1 million in cash. Up to $4.2 million in additional consideration will be paid to the sellers of Protective Alarms upon (i) the installation of national account contracts pending on May 1, 1997; and (ii) certain other obligations being met during the year following the acquisition. The acquisition was accounted for under the purchase method of accounting and accordingly, the purchase price was allocated to the assets acquired (acquired customer contracts of $15.8 million and covenants not to compete of $5.0 million) and liabilities assumed based on their relative fair values at the date of acquisition. In accordance with the terms of the agreement, Alarmguard made an initial payment of $250,000 and paid $9.6 million in cash, of which a portion was used to pay off the current ($778,000) and long-term debt ($550,000) of Protective Alarms concurrent with the closing of the transaction. Alarmguard also wrote off the deferred costs ($40,000) related to this debt. In addition, $9.2 million in borrowings under the new credit facility and a note payable due to the sellers partially secured by a letter of credit as a purchase price holdback ($1.8 million) was used to pay for the remaining balance of the purchase price. Also, approximately $1.0 million of transaction related expenses were incurred including $400,000 relating to severance and termination costs to be paid in connection with the assimilation of the acquired business. (I) The pro forma information is based on the historical financial statements of Triton for the years ended March 31, 1996 and March 31, 1997, the historical financial statements of SSH for the year ended December 31, 1996 and the three months ended March 31, 1997, and the historical financial statements of Protective Alarms for the year ended September 30, 1996 and the six months ended March 31, 1997. The historical financial statements of Triton and Protective Alarms have been adjusted to conform with SSH's December 31 year-end. (J) To record as interest expense, the amortization of the estimated fair value of the warrants issued in connection with the refinancing of SSH's existing subordinated debt and the interest expense that would have been incurred on the new subordinated debt (see Note B) as if they were outstanding during the periods presented. (K) The historical statement of operations of Triton for the twelve months ended December 31, 1996 (as derived) includes a non-recurring gain of $3.2 million resulting from the reconsolidation of La Jolla Insurance company, Ltd., a wholly owned subsidiary of Triton, which has been eliminated. (L) To record amortization expense of acquired customer contracts (ten-year life) and covenants not to compete (five-year life) resulting from the acquisition of Protective Alarms (see Note H). (M) To record interest expense on the borrowings incurred to finance the acquisition of Protective Alarms (see Note H). Interest is calculated at Alarmguard's estimated borrowing rate (9% per annum) at December 31, 1996 and March 31, 1997. (N) Principally interest expense, net, for SSH and Protective Alarms. (O) The historical statement of operations of Triton for the three months ended March 31, 1997 (as derived) includes a non-recurring gain of $3.1 million which represents Triton's share of the gain recognized by Mission West following the sale by Mission West of the majority of its real estate assets. 17 (P) The pro forma balance sheet as of March 31, 1997 and pro forma statements of operations for the year ended December 31, 1996 and three months ended March 31, 1997 do not include the operations of an acquisition (aggregate purchase price of approximately $200,000) completed by Alarmguard on April 22, 1997 as this acquisition did not have a material effect on the pro forma financial information. 18 -----END PRIVACY-ENHANCED MESSAGE-----