IASG Integrated Alarm Services Grp (MM)

Integrated Alarm Services Group, Inc. (NASDAQ: IASG) a total solution provider to independent security alarm dealers located throughout the United States announced results for the fourth quarter and fiscal year 2006 ended December 31, 2006. Revenue for the fourth quarter ending December 31, 2006 was $24.1 million down 6 percent from fiscal 2005 fourth quarter revenue of $25.6 million. The net loss for the fourth quarter was $4.7 million, or $0.19 per share, compared to a net loss of $8.0 million, or $0.32 per share, in the fourth quarter of 2005. Revenue for fiscal 2006 was $94.4 million down 5 percent from fiscal 2005 revenue of $99.2 million. The net loss for fiscal 2006 was $83.9 million, or $3.44 per share compared to a net loss of $22.3 million, or $0.91 per share for 2005. For the full year 2006 the aggregate owned portfolio annualized attrition rate was 12.9 percent versus 13.7 percent for fiscal 2005. During the third quarter of fiscal 2006 IASG, as it has in past years, performed its annual impairment test under Statement of Financial Accounting Standards No. 142 Goodwill and Other Intangible Assets. After evaluating financial forecasts, operating trends, and comparison of IASG�s third quarter common share price to the Company�s book value per share, the Company determined that goodwill was impaired at September 30, 2006. As a result, a non-cash goodwill charge of $65 million was recorded in the third quarter of 2006 and is included in the full-year fiscal 2006 net loss. In announcing the fourth quarter and year-end results, Charles May, President and Chief Executive Officer said, �The major event of the fourth quarter and for that matter fiscal 2006 was the December 20th announced agreement for IASG to merge with Protection One, Inc. Under the terms of the merger agreement, IASG shareholders will receive shares representing ownership of approximately 28% of the merged company outstanding.� May continued, �Our ability to enter into the merger agreement with Protection One is in large part a result of IASG�s good operating progress made in 2006. IASG is a much better alarm company than it was this time last year. Excluding the non-cash goodwill impairment charge, the 2006 net loss decreased by 15% from 2005. This is the result of effective work by a diligent group of employees operating in challenging times.� May concluded, �The proposed merger agreement which carries the unanimous endorsement of the IASG Board of Directors is slated for vote of IASG shareholders on March 27, 2007. I encourage all shareholders to vote in this important matter for our Company.� At December 31, 2006, IASG had $13.7 million in cash, $12.3 million of secured notes receivable from dealers� and stockholders� equity of $36.6 million. The Company had $125.8 million of debt and capital leases at December 31, 2006. IASG had no outstanding balance on the $30 million senior credit facility at the end of 2006. IASG Portfolio Data: � Annualized Attrition Rate � IASG Owned Portfolio 1st Qtr 2006 2nd Qtr 2006 3rd Qtr 2006 4th Qtr 2006 Full Year 2006 Legacy Portfolio 12.1% 11.8% 16.3% 16.9% 13.5% Residential since IPO 12.1% 11.9% 21.0% 15.4% 14.3% Total Residential 12.1% 11.9% 19.6% 15.8% 14.1% Commercial since IPO 5.3% 12.5% 11.1% 7.6% 8.8% Total Retail 10.6% 12.0% 17.6% 14.0% 12.9% � Annualized Growth Rate�excluding acquisitions � Wholesale MonitoringAccts (4.8%) 14.7% (5.6%) 9.3% 2.9% IASG ended fiscal 2006 with an owned portfolio of approximately 145,000 contract equivalents generating RMR of approximately $4.3 million and wholesale monitoring of approximately 765,000 alarms (including IASG�s owned portfolio accounts) generating approximately $3.1 million in RMR ($.5 million from owned accounts). Revenue from the owned portfolio is split approximately 77 percent residential and 23 percent commercial. The Company employed 682 employees at December 31, 2006 down from 837 a year earlier. See the attached financial highlights for the fourth quarter of 2006 and the year ended December 31, 2006. About IASG Integrated Alarm Services Group provides total integrated solutions to independent security alarm dealers located throughout the United States to assist them in serving the residential and commercial security alarm market. IASG�s services include alarm contract financing including the purchase of dealer alarm contracts for its own portfolio and providing loans to dealers collateralized by alarm contracts. IASG, with approximately 4,000 independent dealer relationships, is also the largest wholesale provider of alarm contract monitoring and servicing. For more information about IASG please visit our web site at http://www.iasg.us. This press release may contain statements, which are not historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements contain projections of IASG�s future results of operations, financial position or state other forward-looking information. In some cases you can identify these statements by forward looking words such as �anticipate�, �believe�, �could�, �estimate�, �expect�, �intend�, �may�, �should�, �will�, and �would� or similar words. You should not rely on forward-looking statements because IASG�s actual results may differ materially from those indicated by these forward looking statements as a result of a number of important factors. These factors include, but are not limited to: general economic and business conditions; our business strategy for expanding our presence in our industry; anticipated trends in our financial condition and results of operation; the impact of competition and technology change; existing and regulations effecting our company and business, and other risks and uncertainties discussed under the heading �Risks Related to our Business� in IASG�s Form 10-K report for the period ending December 31, 2006 as filed with the Securities and Exchange Commission on March 16, 2007, and other reports IASG files from time to time with the Securities and Exchange Commission. IASG does not intend to and undertakes no duty to update the information contained in this press release. INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES � CONSOLIDATED BALANCE SHEETS � As of December 31, � 2005� � 2006� � (in thousands, except for share data) Assets Current assets: Cash and cash equivalents $ 16,239� $ 13,664� Current portion of notes receivable 6,108� 4,154� Accounts receivable less allowance for doubtful accounts of $847 in 2005 and $483 in 2006 5,158� 5,673� Inventories 1,477� 1,378� Prepaid expenses 1,084� 1,533� Due from related parties � 87� � 159� Total current assets 30,153� 26,561� Property and equipment, net 7,843� 8,094� Notes receivable net of current portion and allowance for doubtful accounts of $246 in 2005 and $302 in 2006 10,085� 6,333� Dealer relationships, net 33,000� 28,475� Customer contracts, net 80,532� 70,003� Deferred customer acquisition costs, net 7,874� 8,314� Goodwill 94,919� 26,233� Debt issuance costs, net 4,596� 3,630� Assets of business transferred -� 7,687� Other identifiable intangibles, net 2,790� 2,154� Restricted cash 758� 1,063� Other assets � 524� � 169� Total assets $ 273,074� $ 188,716� � Liabilities and Stockholders' Equity Current liabilities: Current portion of capital lease obligations $ 350� $ 321� Accounts payable 2,306� 1,190� Accrued expenses 9,256� 9,223� Current portion of deferred revenue 7,693� 6,399� Current portion of deferred revenue - bundled arrangements 1,031� 1,200� Other liabilities 390� 593� Due to related parties � 61� � 110� Total current liabilities 21,087� 19,036� � Long-term debt 125,000� 125,000� Capital lease obligations, net of current portion 461� 515� Deferred revenue, net of current portion 84� 37� Deferred revenue - bundled arrangements, net of current portion 4,746� 5,312� Liabilities of business transferred -� 1,043� Advance payment -� 762� Deferred income taxes 1,582� 426� Other liabilities � -� � -� Total liabilities � 152,960� � 152,131� � Commitments and Contingencies � Stockholders' equity: Preferred stock, $0.001 par value, authorized 3,000,000 shares, none issued and outstanding -� -� Common stock, $0.001 par value, authorized 100,000,000 shares, 24,681,462 shares issued 25� 25� Paid-in capital 207,162� 207,548� Accumulated deficit (86,073) (169,988) Treasury stock - common, at cost, 312,626 shares in 2005 and 2006 � (1,000) � (1,000) Total stockholders' equity � 120,114� � 36,585� Total liabilities and stockholders' equity $ 273,074� $ 188,716� INTEGRATED ALARM SERVICES GROUP, INC. AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF OPERATIONS � � For the Three Months EndedDecember 31, For the Years EndedDecember 31, � � � � � � � 2005� � 2006� � 2005� � 2006� (in thousands, except share and per share data) � (unaudited) Revenue: Monitoring fees $ 8,020� $ 8,058� $ 31,441� $ 31,854� Revenue from customer accounts 13,607� 13,073� 56,843� 52,096� Related party monitoring fees 25� 25� 122� 100� Service, installation and other revenue � 3,935� � 2,939� � 10,828� � 10,314� Total revenue � 25,587� � 24,095� � 99,234� � 94,364� � Expenses: Cost of revenue (excluding depreciation and amortization) 11,852� 9,737� 43,381� 38,165� Selling and marketing 1,235� 1,355� 4,977� 5,298� Depreciation and amortization 7,702� 6,312� 28,572� 27,166� (Gain) loss on sale or disposal of assets 257� (19) 1,032� (124) Loss on business transferred -� 513� -� 1,013� General and administrative 9,196� 8,276� 29,790� 29,975� Impairment of goodwill � -� � -� � -� � 65,000� Total expenses � 30,242� � 26,174� � 107,752� � 166,493� � Income (loss) from operations (4,655) (2,079) (8,518) (72,129) Other income (expense): Amortization of debt issuance costs (242) (245) (1,080) (973) Interest expense (4,208) (3,756) (17,009) (16,244) Interest income � 1,314� � 1,110� � 4,838� � 4,418� Income (loss) before income taxes (7,791) (4,970) (21,769) (84,928) Income tax expense (benefit) � 187� � (256) � 563� � (1,013) Net income (loss) $ (7,978) $ (4,714) $ (22,332) $ (83,915) Basic and diluted income (loss) per share $ (0.32) $ (0.19) $ (0.91) $ (3.44) Weighted average number of common shares outstanding � 24,605,035� � 24,368,836� � 24,662,198� � 24,368,836� INTEGRATED ALARM SERVICE GROUP, INC. AND SUBSIDIARIES � CONSOLIDATED STATEMENTS OF CASH FLOWS � � Years ended December 31, � 2004� � 2005� � 2006� � (in thousands) Cash flows from operating activities: Net income (loss) $ (11,717) $ (22,332) $ (83,915) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 23,013� 28,572� 27,166� Amortization of deferred customer acquisition costs , net 197� 589� 784� Amortization of debt issuance costs 1,750� 1,080� 973� Interest expense - non-cash, notes 876� 569� -� Stock options issued to consultant 13� -� -� Stock-based compensation -� -� 386� Provision for bad debts 1,390� 1,191� 393� Deferred income taxes 353� 470� (1,156) Earned discount on notes receivable (151) (1,350) (924) Loss on business transferred -� -� 1,013� (Gain) loss on sale of customer contracts and accounts receivable -� 132� (50) (Gain) loss on sale or disposal of assets (135) 900� (68) Gain on settlement of notes receivable (49) -� -� Goodwill impairment -� -� 65,000� Changes in assets and liabilities, net of effects of acquisitions and non-cash transactions: Accounts receivable (1,158) 171� (899) Prepaid expenses Inventories (57) (243) 49� Prepaid expenses 465� 44� (449) Other assets (193) (254) 211� Deferred customer acquisition costs (6,351) (3,631) (2,767) Due from/to related parties 12� 41� (23) Accounts payable and accrued expenses 2,252� 1,098� (804) Deferred revenue (1,006) (1,404) (1,024) Deferred revenue-bundled arrangements 4,997� 2,226� 2,268� Other liabilities � (352) � 230� � 203� Net cash provided by operating activities � 14,149� � 8,099� � 6,367� Cash flows from investing activities: Purchase of property and equipment (3,150) (2,873) (2,704) Proceeds from sale of property and equipment 177� 57� 84� Purchase of customer contracts and dealer relationships (14,713) (13,635) (13,303) Proceeds from sale of customer contracts and accounts receivable 4,596� 473� 370� Financing of dealer loans (4,670) (6,016) (6,996) Repayment of dealer loans 5,559� 29,580� 13,889� Decrease (increase) in restricted cash 343� (1) (305) Proceeds from net assets of business transferred -� -� 385� Reimbursement of attrition guarantee withhold related to PSI acquisition -� (1,427) -� Business acquisitions, net of cash acquired � (64,908) � (22,506) � (33) Net cash used in investing activities � (76,766) � (16,348) � (8,613) Cash flows from financing activities: Proceeds of borrowing on line of credit -� 3,000� -� Proceeds of long-term debt 125,000� -� -� Proceeds of borrowing from related party -� 2,500� -� Repayment of borrowing on line of credit -� (3,000) -� Repayment of long-term debt (60,242) (5,225) -� Repayment of borrowing from related party -� (2,500) -� Payments of obligations under capital leases (718) (488) (329) Debt issuance costs (5,304) (354) -� Purchase of treasury stock � -� � (1,000) � -� Net cash provided by (used in) financing activities � 58,736� � (7,067) � (329) � Net increase (decrease) in cash and cash equivalents for the year (3,881) (15,316) (2,575) Cash and cash equivalents at beginning of year � 35,436� � 31,555� � 16,239� Cash and cash equivalents at end of year $ 31,555� $ 16,239� $ 13,664� � Supplemental disclosure of cash flow information: Interest paid $ 5,486� $ 15,991� $ 16,492� Income taxes paid $ 417� $ 12� $ 145� � Supplemental disclosure of non-cash items: Net assets of business transferred $ -� $ -� $ 6,267� Debt converted to common stock $ 275� $ -� $ -� Notes receivable converted to customer contracts $ 2,441� $ 3,511� $ 725� Equipment financed under capital lease obligations $ 868� $ 264� $ 519�