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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 2004 COMMISSION FILE NO. 0-22810
MACE SECURITY INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 03-0311630
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1000 Crawford Place, Suite 400, Mt. Laurel, NJ 08054
(Address of Principal Executive Offices)
Registrant's Telephone No., including area code: (856) 778-2300
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 ("the
Exchange Act") during the preceding 12 months (or for such shorter period that
the registrant was required to file such report), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock:
As of May 3, 2004 there were 13,286,056 Shares of Registrant's Common Stock, par
value $.01 per share, outstanding.
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Mace Security International, Inc.
Form 10-Q
Quarter Ended March 31, 2004
Contents
Page
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets - March 31, 2004 (Unaudited)
and December 31, 2003 2
Consolidated Statements of Operations (Unaudited) for the three
months ended March 31, 2004 and 2003 4
Consolidated Statement of Stockholders' Equity
for the three months ended March 31, 2004 (Unaudited) 5
Consolidated Statements of Cash Flows (Unaudited) for
the three months ended March 31, 2004 and 2003 6
Notes to Consolidated Financial Statements (Unaudited) 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3 - Quantitative and Qualitative Disclosures about Market Risk 25
Item 4 - Controls and Procedures 25
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings 25
Item 6 - Exhibits and Reports on Form 8-K 25
Signatures 26
1
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
Mace Security International, Inc.
Consolidated Balance Sheets
(In thousands except share information)
March 31, December 31,
ASSETS 2004 2003
---------------- ---------------
(Unaudited)
Current assets:
Cash and cash equivalents $ 3,651 $ 3,414
Accounts receivable, less allowance for doubtful
accounts of $292 and $263 in 2004 and 2003,
respectively 1,555 1,531
Inventories 3,295 3,780
Deferred income taxes 265 266
Prepaid expenses and other current assets 2,089 1,878
---------------- ---------------
Total current assets 10,855 10,869
Property and equipment:
Land 31,391 31,391
Buildings and leasehold improvements 34,917 34,871
Machinery and equipment 10,267 10,172
Furniture and fixtures 447 447
---------------- ---------------
Total property and equipment 77,022 76,881
Accumulated depreciation (11,226) (10,738)
---------------- ---------------
Total property and equipment, net of accumulated
depreciation 65,796 66,143
Goodwill 10,623 10,623
Other intangible assets, net of accumulated
amortization of $1,388 and $1,373 in 2004 and 2003,
respectively 1,006 991
Deferred income taxes 1,708 1,820
Other assets 143 156
---------------- ---------------
Total assets $ 90,131 $ 90,602
================ ===============
See accompanying notes.
2
March 31, December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 2004 2003
--------------- ---------------
(Unaudited)
Current liabilities:
Current portion of long-term debt and capital lease
obligations $ 5,404 $ 5,520
Accounts payable 2,055 2,658
Income taxes payable 248 172
Deferred revenue 346 402
Accrued expenses and other current liabilities 2,375 1,847
--------------- ---------------
Total current liabilities 10,428 10,599
Long-term debt, net of current portion 25,085 25,591
Capital lease obligations, net of current portion 138 175
Other liabilities 12 25
Stockholders' equity:
Preferred stock, $.01 par value:
Authorized shares - 10,000,000
Issued and outstanding shares - none - -
Common stock, $.01 par value:
Authorized shares - 100,000,000
Issued and outstanding shares of 12,478,350 and
12,451,771 in 2004 and 2003, respectively 125 125
Additional paid-in capital 69,824 69,785
Accumulated deficit (15,481) (15,698)
--------------- ---------------
Total stockholders' equity 54,468 54,212
-------------- ---------------
Total liabilities and stockholders' equity $ 90,131 $ 90,602
=============== ===============
See accompanying notes.
3
Mace Security International, Inc.
Consolidated Statements of Operations
(Unaudited)
(In thousands except share information)
Three Months Ended
March 31,
----------------------------
2004 2003
------------- -------------
Revenues:
Car wash and detailing services $ 8,910 $ 9,545
Lube and other automotive services 930 1,021
Fuel and merchandise sales 959 920
Security products sales 1,876 1,125
------------- -------------
12,675 12,611
Cost of revenues:
Car wash and detailing services 6,287 6,705
Lube and other automotive services 705 777
Fuel and merchandise sales 826 795
Security products sales 1,180 654
------------- -------------
8,998 8,931
Selling, general and administrative expenses 2,471 2,220
Depreciation and amortization 500 485
------------- -------------
Operating income 706 975
Interest expense, net (479) (522)
Other income 112 82
------------- -------------
Income before income taxes 339 535
Income tax expense 122 193
------------- -------------
Net income $ 217 $ 342
============= =============
Per share of common stock (basic and diluted):
Net income $ 0.02 $ 0.03
============= =============
Weighted average shares outstanding:
Basic 12,461,029 12,410,279
Diluted 12,618,837 12,416,564
See accompanying notes.
4
Mace Security International, Inc.
Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands except share information)
Number of Par Value Additional
Common of Common Paid-in Accumulated
Shares Stock Capital Deficit Total
----------- ----------- ------------- ------------ ------------
Balance at December 31,
2003 12,451,771 $ 125 $ 69,785 $ (15,698) $ 54,212
Exercise of common stock
options 20,000 - 26 - 26
Common stock issued in
purchase
acquisition 6,579 - 13 - 13
Net income - - - 217 217
----------- ----------- ------------- ------------ ------------
Balance at March 31, 2004 12,478,350 $ 125 $ 69,824 $ (15,481) $ 54,468
=========== =========== ============= ============ ============
See accompanying notes.
5
Mace Security International, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
---------------------
2004 2003
---------- ----------
Operating activities
Net income $ 217 $ 342
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 500 485
Provision for losses on receivables 32 9
Deferred income taxes 112 173
Changes in operating assets and liabilities:
Accounts receivable (56) (266)
Inventories 484 (661)
Accounts payable (603) (419)
Deferred revenue (56) (36)
Accrued expenses 529 123
Income taxes 77 17
Prepaid expenses and other assets (195) 254
---------- ----------
Net cash provided by operating activities 1,041 21
Investing activities
Purchase of property and equipment (141) (149)
Payments for intangibles (29) (7)
---------- ----------
Net cash used in investing activities (170) (156)
Financing activities
Payments on long-term debt and capital lease
obligations (660) (591)
Proceeds from issuance of common stock 26 -
Payments to purchase stock - (2)
---------- ----------
Net cash used in financing activities (634) (593)
---------- ----------
Net increase (decrease) in cash and cash
equivalents 237 (728)
Cash and cash equivalents at beginning of
period 3,414 6,189
---------- ----------
Cash and cash equivalents at end of period $ 3,651 $ 5,461
========== ==========
See accompanying notes.
6
Mace Security International, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation and Principles of Consolidation
The accompanying unaudited consolidated financial statements include the
accounts of Mace Security International, Inc. and its wholly owned subsidiaries
(collectively "the Company" or "Mace"). All significant intercompany
transactions have been eliminated in consolidation. These consolidated interim
financial statements reflect all adjustments (including normal recurring
accruals), which in the opinion of management, are necessary for a fair
presentation of results of operations for the interim periods presented. The
results of operations for the three month period ended March 31, 2004 are not
necessarily indicative of the operating results for the full year. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted
in the United States have been condensed or omitted. Certain amounts in the 2003
financial statements have been reclassified to conform to the 2004 presentation.
These consolidated interim financial statements should be read in conjunction
with the audited consolidated financial statements and notes contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 2003.
2. New Accounting Standards
In January 2003, the Financial Accounting Standards Board ("FASB") released
Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46")
which requires that all primary beneficiaries of Variable Interest Entities
("VIE") consolidate those entities. FIN 46 is effective immediately for VIEs
created after January 31, 2003 and to VIEs in which an enterprise obtains an
interest after that date. It applies in the first fiscal year or interim period
beginning after June 15, 2003 to VIEs in which an enterprise holds a variable
interest it acquired before February 1, 2003. In December 2003, the FASB
published a revision to FIN 46 ("FIN 46R") to clarify some of the provisions of
the interpretation and to defer the effective date of implementation for certain
entities. Under the guidance of FIN 46R, entities that do not have interests in
structures that are commonly referred to as special purpose entities are
required to apply the provisions of the interpretation in financial statements
for periods ending after March 14, 2004. The Company does not have interests in
special purpose entities and the adoption of FIN 46R did not have an impact on
the Company's consolidated financial position, results of operations, or cash
flows.
3. Other Intangible Assets
The following table reflects the components of intangible assets, excluding
goodwill (in thousands):
March 31, 2004 December 31, 2003
---------------------------- -------------------------
Gross Gross
Carrying Accumulated Carrying Accumulated
Amount Amortization Amount Amortization
------------- -------------- ---------- --------------
Amortized intangible assets:
Non-compete agreement $ 88 $ 9 $ 65 $ 7
Customer list 62 29 62 23
Deferred financing costs 397 165 390 158
------------- -------------- ---------- --------------
Total amortized intangible assets 547 203 517 188
Non-amortized intangible assets:
Trademarks - Security Products
Segment 1,731 1,175 1,731 1,175
Service mark - Car and Truck Wash
Segment 116 10 116 10
------------- -------------- ---------- --------------
Total non-amortized intangible
assets 1,847 1,185 1,847 1,185
------------- -------------- ---------- --------------
Total intangible assets $ 2,394 $ 1,388 $ 2,364 $ 1,373
============= ============== ========== ==============
7
The following sets forth the estimated amortization expense on intangible assets
for the fiscal years ending December 31 (in thousands):
2004 $69
2005 50
2006 35
2007 32
2008 24
4. Business Combinations
From April 1, 1999 through July 26, 2000, the Company acquired 62 car care
facilities and five truck wash facilities through the acquisition of 17 separate
businesses including: 42 full service facilities, one self service facility, 11
exterior only facilities and one lube center in Pennsylvania, New Jersey,
Delaware, Texas, Florida, and Arizona; 11 facilities were subsequently divested
or closed. The five full service truck wash facilities are located in Arizona,
Indiana, Ohio, and Texas. Additionally, on August 12, 2002, the Company entered
the electronic surveillance equipment and device business by acquiring the
inventory, certain other assets and the operations of Micro-Tech Manufacturing,
Inc. ("Micro-Tech").
On September 26, 2003, a wholly owned subsidiary within the Company's Security
Products Segment acquired the inventory, certain other assets and the operations
of Vernex, Inc., a manufacturer and retailer of electronic security monitors.
Total consideration under the agreement was $213,000 cash. The agreement also
provides for additional cash consideration based on sales performance for a
twelve-month period subsequent to closing. This transaction was accounted for
using the purchase method of accounting in accordance with SFAS 141, Business
Combinations.
5. Stock Based Compensation
The Company accounts for stock options under Statement of Financial Accounting
Standards ("SFAS") 123, Accounting for Stock-Based Compensation, as amended by
SFAS 148, which contains a fair value-based method for valuing stock-based
compensation that entities may use, which measures compensation cost at the
grant date based on the fair value of the award. Compensation is then recognized
over the service period, which is usually the vesting period. Alternatively,
SFAS 123 permits entities to continue accounting for employee stock options and
similar equity instruments under Accounting Principles Board ("APB") Opinion 25,
Accounting for Stock Issued to Employees. Entities that continue to account for
stock options using APB Opinion 25 are required to make pro forma disclosures of
net income and earnings per share as if the fair value-based method of
accounting defined in SFAS 123 had been applied.
At March 31, 2004, the Company had two stock based employee compensation plans.
The Company accounts for the plans under the recognition and measurement
principles of APB 25, Accounting for Stock Issued to Employees, and related
interpretations. Stock-based employee compensation costs are not reflected in
net income, as all options granted under the plan had an exercise price equal to
the market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net income and earnings per share as
if the Company had applied the fair value recognition provisions of SFAS 123 to
stock-based employee compensation (in thousands, except per share amounts):
Three Months Ended
March 31,
-------------------------
2004 2003
------------ ============
Net income, as reported $ 217 $ 342
Less: Stock-based compensation costs
under fair value based method for all
awards (88) (75)
------------ ------------
Pro forma net income $ 129 $ 267
============ ============
Earnings per share - basic and diluted
As reported $ 0.02 $ 0.03
Pro forma $ 0.01 $ 0.02
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted average
assumptions for grants in the quarter ended March 31, 2003: expected volatility
of 61%; risk-free interest rate of 4.07%; and expected life of 10 years. In the
quarter ended March 31, 2004, 170,000 options were granted with an expected
volatility of 20%, risk-free interest rates ranging from 3.80% to 4.05%; and
expected life of 10 years.
8
6. Commitments and Contingencies
In December 1999, the Company was named as a defendant in a suit filed in the
Supreme Court of the State of New York by Janeen Johnson et. al. The litigation
concerns a claim that a self-defense spray manufactured by the Company and used
by a law enforcement officer contributed to the suffering and death of
Christopher Johnson. This suit has been settled within the limits of our
insurance coverage.
In 2000, the Company was named as a defendant in a suit filed in the United
States District Court for the District of Colorado by Robert Rifkin. The suit
alleges that the Company and its transfer agent delayed in the removal of a
restrictive legend from certain shares of Company common stock owned by the
plaintiff, and that the delay caused the plaintiff to incur a loss in excess of
$335,000. Though the outcome of litigation is always uncertain, the Company
believes that there was no delay in the removal of the legend from the shares.
In July 2001, the Company filed a lawsuit in the Supreme Court of New York
County of the State of New York against LTV Networks, Inc. ("LTV") to collect
upon a promissory note in the amount of $100,000. In January 2002, defendant LTV
filed an answer to the suit denying liability under the promissory note and
making counterclaims. The counterclaims allege that the Company had agreed to
lend LTV $500,000 and that LTV has been damaged in the amount of $10 million
because the Company only lent $100,000 to LTV. The Company has filed a summary
judgment motion which requests a judgment on the promissory note and a dismissal
of the defendant's counterclaims. On August 29, 2003, LTV filed a Voluntary
Petition for Chapter 11 Reorganization in the United States Bankruptcy Court,
Southern District of New York (the "Petition"). The Petition had the effect of
operating as a stay on the State Court proceedings. The Bankruptcy Court lifted
the stay in the first quarter of 2004, enabling the Company to proceed with its
summary judgment motion. Though the outcome of litigation is always uncertain,
the Company currently believes that the counterclaims are without merit and
intends to assert its claims in the Bankruptcy proceedings.
In May 2002, the Company was named as one of three defendants in a suit filed by
Timothy Gamradt and Carla Gamradt in the United States District Court for the
District of Minnesota. The litigation alleges that the plaintiffs are entitled
to damages against the Company due to injuries allegedly sustained by Mr.
Gamradt when a pyrotechnic smoke device known as the "Black Smoke Device" was
discharged by Mr. Gamradt's superior during a training exercise at a federal
prison facility at which Mr. Gamradt was employed as a guard. Mr. Gamradt
alleges that when the device was activated, he suffered injuries to his lungs.
We have forwarded the suit to our insurance carrier for defense. We do not
anticipate that this claim will result in the payment of damages in excess of
our insurance coverage.
In July 2002, the Company and its former president, Jon Goodrich, were named as
defendants in a lawsuit in the Supreme Court of New York County of the State of
New York filed by Armor Holdings, et al. The suit alleges that the Company and
Mr. Goodrich had violated the non-compete terms of various agreements entered
into in April 1998, which transferred certain of the Company's then lines of
business to the plaintiffs. The suit also alleges that the Company violated a
right of first refusal on sale granted to plaintiffs when the Company entered
into a Management Agreement with Mark Sport, Inc.("Mark Sport") to operate the
Company's Security Products Segment. The lawsuit requests $15 million in
damages. Though the outcome of litigation is always uncertain, the Company
believes that all of the claims are without merit.
In December 2003, one of the Company's car wash subsidiaries was named as a
defendant in a suit filed by Kristen Sellers in the Circuit Court of the Twelfth
Judicial Circuit in and for Sarasota County, Florida. The suit alleges that the
plaintiff is entitled to damages due to psychological injury and emotional
distress sustained when an employee of the car wash allegedly assaulted Ms.
Sellers with sexually explicit acts and words. The Company's subsidiary is
alleged to have been negligent in hiring, retaining and supervising the
employee. The Company forwarded the suit to its insurance carrier for defense.
We do not anticipate that this claim will result in the payment of damages in
excess of the Company's insurance coverage.
The Company has produced documents requested in a subpoena issued in connection
with an investigation being conducted by the United States Securities and
Exchange Commission of possible securities law violations. The subpoena was
issued on October 27, 2003. The subpoena requested documents and information
which would identify persons who knew of two transactions involving the Company
prior to Mace's public announcement of the transactions. The transactions were
announced by Mace on March 29, 1999 and were consummated in July of 1999. The
subpoena also requested documents relating to Mace' s dealings with two
investment banking firms and certain of their employees. Mace intends to fully
cooperate with the United States Securities and Exchange Commission's
investigation.
The Company is a party to various other legal proceedings related to its normal
business activities. In the opinion of the Company's management, none of these
proceedings is material in relation to the Company's results of operations,
liquidity, cash flows or financial condition.
9
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of reports of incidents
in which, among other things; defense sprays have been mischievously or
improperly used, in some cases by minors; have not been instantly effective; or
have been ineffective against enraged or intoxicated individuals.
The Company is subject to federal and state environmental regulations, including
rules relating to air and water pollution and the storage and disposal of oil,
other chemicals and waste. The Company believes that it complies, in all
material respects, with all applicable laws relating to its business.
Certain of the Company's executive officers have entered into employee stock
option agreements whereby options issued to them shall be entitled to immediate
vesting upon a change in control of the Company. Additionally, the employment
agreement of the Company's Chief Executive Officer, Louis D. Paolino, Jr.,
entitles Mr. Paolino to receive a fee of $2.5 million upon termination of
employment under certain conditions. The employment agreement also provides for
a bonus of $2.5 million upon a change in control.
7. Subsequent Events
On April 16, 2004, we received approximately $9.0 million in cash from Price
Legacy Corporation in exchange for the Company removing a contractual
restriction that prohibited Price Legacy Corporation from selling 1,750,000
shares of the Company's common stock without the Company's approval. Price
Legacy Corporation (formerly Excel Legacy Holdings, Inc.) purchased 125,000
restricted shares in July of 1999 and received 1,750,000 shares in October of
1999 in a transaction in which the Company purchased the car wash assets of
Millennia Car Wash, LLC (Millennia). The assets consisted of 17 full service car
washes, five lube and repair centers, eight fuel sales operations, and 17
convenience stores in the Phoenix, Arizona and San Antonio, Texas markets. The
proceeds will be used as part of working capital.
On April 20, 2004, the Company purchased a 20,000 square foot facility in Fort
Lauderdale, Florida, to serve as its regional headquarters for the Electronic
Surveillance Products Division. Consideration for the facility consisted of
250,000 registered shares of the Company's common stock.
The Master Facility Agreement between the Company and Fusion Capital Fund II,
LLC ("Fusion") and the Equity Purchase Agreement between the Company and Fusion
is terminated. Under the Master Facility Agreement, the Company had entered into
an Equity Purchase Agreement on April 17, 2000. Under the Equity Purchase
Agreement, Fusion had the right and obligation to purchase up to $10,000,000 of
the Company's common stock under certain conditions. On April 21, 2004, the
Company and Fusion entered into a termination and release agreement to resolve a
dispute that arose between the Company and Fusion. The dispute arose out of
Fusion's claim that it was entitled to purchase approximately 690,000 shares of
the Company's common stock at a price of $2.32 per share under the terms of the
Equity Purchase Agreement. The Company's position was that Fusion did not have
the right to purchase the 690,000 shares. On April 21, 2004, the dispute was
resolved by the Company and Fusion entering into an agreement that provided (i)
the Company sell to Fusion 150,000 registered shares of common stock at $2.32
per share, (ii) the Master Facility Agreement and Equity Purchase Agreement are
terminated, and (iii) the Company has the unilateral right exercisable through
May 31, 2004 to enter into a new common stock purchase agreement with Fusion for
$10,000,000 of common stock. The new agreement would have a provision
prohibiting Fusion from purchasing shares below a minimum purchase price to be
selected by the Company. On April 22, 2004, Fusion purchased 150,000 shares of
the Company's common stock at $2.32 per share, in accordance with the
termination and release agreement.
10
8. Business Segments Information
The Company currently operates in two segments: the Car and Truck Wash Segment,
supplying complete car care services (including wash, detailing, lube, and minor
repairs), fuel, and merchandise sales; and the Security Products Segment. The
Security Products Segment is comprised of two operating divisions; the
Electronic Surveillance Products Division and Consumer Products Division. The
Consumer Products Division designs, markets and sells consumer products for use
in home and automobile and for personal protection. The Electronic Surveillance
Products Division designs, markets and sells cameras, digital video recorders
(DVR's), and monitors.
Financial information regarding the Company's segments is as follows (in
thousands):
Car and Security Corporate
Truck Wash Products Functions *
------------ ------------- -------------
Three months ended March 31, 2004
Revenues from external customers $ 10,799 $ 1,876 $ -
Intersegment revenues $ - $ 3 $ -
Segment operating income (loss) $ 1,456 $ (1) $ (749)
Segment assets $ 82,841 $ 7,290 $ -
Goodwill $ 10,381 $ 242 $ -
Capital Expendiutres $ 136 $ 6 $ -
Three months ended March 31, 2003
Revenues from external customers $ 11,486 $ 1,125 $ -
Intersegment revenues $ - $ - $ -
Segment operating income (loss) $ 1,680 $ (27) $ (678)
Capital Expenditures $ 138 $ 11 $ -
* Corporate functions include the corporate treasury, legal, financial
reporting, information technology, corporate tax, corporate insurance, human
resources, investor relations, and other typical centralized administrative
functions.
9. Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, as well as the disclosure of contingent
assets and liabilities at the date of its financial statements. The Company
bases its estimates on historical experience, actuarial valuations and various
other factors that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other sources. Some of
those judgments can be subjective and complex, and consequently, actual results
may differ from these estimates under different assumptions or conditions. We
must make these estimates and assumptions because certain information that we
use is dependent on future events and cannot be calculated with a high degree of
precision from the data currently available. Such estimates include the
Company's estimates of reserves such as the allowance for doubtful accounts,
inventory valuation allowances, insurance losses and loss reserves, valuation of
long-lived assets, estimates of realization of income tax net operating loss
carryforwards, as well as valuation calculations such as the Company's goodwill
impairment calculations under the provisions of SFAS 142, Goodwill and Other
Intangible Assets.
10. Income Taxes
The Company recorded income tax expense of $122,000 and $193,000 for the three
months ended March 31, 2004 and 2003, respectively. Income tax expense reflects
the recording of income taxes on income at an effective rate of approximately
36% in both 2004 and 2003. The effective rate differs from the federal statutory
rate for each year primarily due to state and local income taxes, non-deductible
costs related to intangibles, fixed asset adjustments and changes to the
valuation allowance.
11. Related Party Transactions
Effective August 1, 2000, Mace entered into a five-year lease with Bluepointe,
Inc., a corporation controlled by Louis D. Paolino, Jr., Mace's Chairman, Chief
Executive Officer and President, for Mace's executive offices in Mt. Laurel, New
11
Jersey. The lease terms were subject to a survey of local real estate market
pricing and approval by the Company's Audit Committee and provide for an initial
monthly rental payment of $15,962, which increases by 5% per year in the third
through fifth years of the lease. Mace believes that the terms of this lease
(based on an annual rate of $19.00 per square foot) are competitive when
compared to similar facilities in the Mt. Laurel, New Jersey area.
The Company purchased charter airline services from Air Eastern, Inc., and LP
Learjets, LLC, charter airline companies owned by Louis D. Paolino, Jr., the
Company's Chairman, Chief Executive Officer and President. On November 6, 2001,
the Audit Committee approved an arrangement subject to quarterly review under
which the Company prepaid LP Learjets, LLC $5,109 per month for the right to use
a Learjet 31A for 100 hours per year. The prepayments ceased in July, 2002. When
the Learjet 31A is used, the prepaid amount is reduced by the hourly usage
charge as approved by the Audit Committee, and the Company pays to third parties
unaffiliated with Louis D. Paolino, Jr., the direct costs of the Learjet's
per-hour use, which include fuel, pilot fees, engine insurance and landing fees.
The balance of unused prepaid flight fees total $31,659 at March 31, 2004.
From February 2000 through April 2002, the Company and Mark Sport, Inc. ("Mark
Sport") were parties to a Management Agreement. Mark Sport is a Vermont
corporation controlled by Jon E. Goodrich, a former director and current
employee of the Company. Mr. Goodrich was a director from December 1987 through
December 2003. Under the Management Agreement, as amended, Mark Sport operated
the Company's Security Products Segment and received all profits or losses from
January 1, 2000 to April 30, 2002 in exchange for certain payments to the
Company. At March 31, 2004, Mark Sport owed the Company $127,000 in payments
under the Management Agreement. Subsequent to March 31, 2004, the outstanding
balance owed by Mark Sport to the Company was paid in full.
The Company's Consumer Products Division leases manufacturing and office space
under a five-year lease with Vermont Mill, Inc. ("Vermont Mill"), which provides
for monthly lease payments of $9,167 through November 2004. The Company has
exercised an option to continue the lease through November 2009. The rent will
increase by a CPI factor in November 2004. Vermont Mill is controlled by Jon E.
Goodrich, a former director and current employee of the Company. The Company
believes that the lease rate is lower than lease rates charged for similar
properties in the Bennington, Vermont area. On July 22, 2002, the lease was
amended to provide Mace the option and right to cancel the lease with proper
notice and a payment equal to six months of the then current rent for the leased
space occupied by Mace. On March 1, 2004, Vermont Mill agreed to pay the
$127,000 that Mark Sport owed the Company by giving the Company a monthly rent
reduction of $1,700. Subsequent to March 31, 2004, the outstanding balance owed
by Mark Sport to the Company was paid in full.
Vermont Mill borrowed a total of $228,671 from the Company through December 31,
2001. On February 22, 2002, Vermont Mill executed a three year promissory note
with monthly installments of $7,061 including interest at a rate of 7%. The
Company's Lease Agreement with Vermont Mill provides for a right of offset of
lease payments against this promissory note in the event monthly payments are
not made by Vermont Mill. At March 31, 2004, the balance owed on this promissory
note was $82,100. Subsequent to March 31, 2004, the balance on the promissary
note was paid in full.
From January 1, 2003 through March 31, 2004, the Company's Electronic
Surveillance Products Division sold approximately $51,000 of electronic security
equipment to DSS, Inc. and approximately $69,600 to Security Systems and
Installations, Inc. Louis Paolino, III, the son of the Company's CEO, Louis D.
Paolino, Jr., is a one-third owner of DSS, Inc. and a fifty percent owner of
Security Systems and Installations Inc. Security Systems and Installations, Inc.
has taken over the business of DSS, Inc. The pricing extended to DSS, Inc. and
Security Systems and Installations, Inc. is no more favorable than the pricing
given to third party customers who purchase in similar volume. Additionally,
DSS, Inc. was hired by the Company to install security cameras in four of the
Company' s car washes at an installation fee of $6,800. At March 31, 2004, DSS,
Inc. and Security Systems and Installations, Inc. owed the Company approximately
$16,000 and $7,600 respectively.
12
12. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share (in thousands, except per share data):
Three Months Ended
-----------------------------
3/31/04 3/31/03
-------------- --------------
Numerator:
Net income $ 217 $ 342
============== ==============
Denominator:
Denominator for basic income
per share - weighted average
shares 12,461,029 12,410,279
Dilutive effect of options and
warrants 157,808 6,285
-------------- ------------
Denominator for diluted
income per share - weighted
average shares 12,618,837 12,416,564
============== ==============
Basic and diluted income per
share:
Net income $ 0.02 $ 0.03
============== ==============
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion of the financial condition and results of operations
should be read in conjunction with the financial statements and the notes
thereto included in this Form 10-Q.
Forward-Looking Statements
This report includes forward looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended ("Forward-Looking Statements"). All statements
other than statements of historical fact included in this report are
Forward-Looking Statements. Although we believe that the expectations reflected
in such Forward-Looking Statements are reasonable, we can give no assurance that
such expectations will prove to have been correct. Generally, these statements
relate to business plans or strategies, projected or anticipated benefits or
other consequences of such plans or strategies, number of acquisitions, and
projected or anticipated benefits from acquisitions made by or to be made by us,
or projections involving anticipated revenues, earnings, levels of capital
expenditures or other aspects of operating results. All phases of our operations
are subject to a number of uncertainties, risks, and other influences, many of
which are outside our control and any one of which, or a combination of which,
could materially affect the results of our operations and whether
Forward-Looking Statements made by us ultimately prove to be accurate. Such
important factors that could cause actual results to differ materially from our
expectations are disclosed in this section and elsewhere in this report. All
subsequent written and oral Forward-Looking Statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the important factors described below that could cause actual
results to differ from our expectations. The Forward-Looking Statements made
herein are only made as of the date of this filing, and we undertake no
obligation to publicly update such Forward-Looking Statements to reflect
subsequent events or circumstances.
Summary of Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
are based upon the Company's consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements requires
the Company to make estimates and judgments that affect the reported amounts of
assets and liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities at the date of the Company's financial
statements. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily
apparent from other sources. Actual results may differ from these estimates
under different assumptions or conditions.
13
Critical accounting policies are defined as those that are reflective of
significant judgments and uncertainties, and potentially result in materially
different results under different assumptions and conditions. The Company's
critical accounting policies are described below.
Revenue Recognition
Revenues from the Company's Car and Truck Wash Segment are recognized, net of
customer coupon discounts, when services are rendered or fuel or merchandise is
sold. The Company records a liability for gift certificates, ticket books, and
seasonal and annual passes sold at its car care locations but not yet redeemed.
The Company estimates these unredeemed amounts based on gift certificate and
ticket book sales and redemptions throughout the year as well as utilizing
historical sales and tracking of redemption rates per the car washes'
point-of-sale systems. Seasonal and annual passes are amortized on a
straight-line basis over the time during which the passes are valid.
Revenues from the Company's Security Products Segment are recognized when
shipments are made, or for export sales when title has passed. Shipping and
handling charges are included in revenues and cost of goods sold.
Deferred Revenue
The Company records a liability for gift certificates, ticket books, and
seasonal and annual passes sold at its car care locations but not yet redeemed.
The Company estimates these unredeemed amounts based on gift certificate and
ticket book sales and redemptions throughout the year as well as utilizing
historical sales and tracking of redemption rates per the car washes' point- of-
sale systems. Seasonal and annual passes are amortized on a straight-line basis
over the time during which the passes are valid.
Impairment of Long-Lived Assets
In accordance with SFAS 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, we periodically review the carrying value of our long-lived
assets held and used, and assets to be disposed of, when events and
circumstances warrant such a review. If significant events or changes in
circumstances indicate that the carrying value of an asset or asset group may
not be recoverable, we perform a test of recoverability by comparing the
carrying value of the asset or asset group to its undiscounted expected future
cash flows. Cash flow projections are sometimes based on a group of assets,
rather than a single asset. If cash flows cannot be separately and independently
identified for a single asset, we will determine whether an impairment has
occurred for the group of assets for which we can identify the projected cash
flows. If the carrying values are in excess of undiscounted expected future cash
flows, we measure any impairment by comparing the fair value of the asset group
to its carrying value. If the fair value of an asset or asset group is
determined to be less than the carrying amount of the asset or asset group, an
impairment in the amount of the difference is recorded in the period that the
impairment indicator occurs.
Goodwill
In accordance with SFAS 142, the Company completed annual impairment tests as of
November 30, 2003, and 2002, and will be subject to an impairment test each year
thereafter and whenever there is an impairment indicator. Significant estimates
and assumptions are used in assessing the fair value of the reporting units and
determining impairment to goodwill. Significant estimates and assumptions
include future cash flows, growth rates, discount rates, weighted average cost
of capital, and estimates of market valuations of the identifiable assets of
each reporting unit. Estimating cash flows requires significant judgment
including factors beyond our control and our projections may vary from cash
flows eventually realized. The Company cannot guarantee that there will not be
impairments in subsequent years.
Other Intangible Assets
Other intangible assets consist primarily of deferred financing costs,
trademarks, and establishing a registered national brand name. Prior to 2002,
our trademarks and brand name were amortized on a straight line basis over 15
years. In accordance with SFAS 142, Goodwill and Other Intangible Assets, our
trademarks and brand name are considered to have indefinite lives, and as such,
are no longer subject to amortization. These assets are tested for impairment
using discounted cash flow methodology annually and whenever there is an
impairment indicator. Estimating future cash flows requires significant judgment
and projections may vary from cash flows eventually realized. Several impairment
indicators are beyond our control, and cannot be predicted with any certainty
whether or not they will occur. Deferred financing costs are amortized on a
straight-line basis over the terms of the respective debt instruments. Customer
lists and non-compete agreements are amortized on a straight-line basis over
their respective estimated useful lives.
14
Income Taxes
Deferred income taxes are determined based on the difference between the
financial accounting and tax bases of assets and liabilities. Deferred income
tax expense (benefit) represents the change during the period in the deferred
income tax assets and deferred income tax liabilities. Deferred income tax
assets include tax loss and credit carryforwards and are reduced by a valuation
allowance if, based on available evidence, it is more likely than not that some
portion or all of the deferred income tax assets will not be realized.
Introduction
Revenues
Car and Truck Wash Services
We own full service, exterior only and self-service car wash locations in New
Jersey, Pennsylvania, Delaware, Texas, Florida and Arizona, as well as truck
washes in Arizona, Indiana, Ohio and Texas. We earn revenues from washing and
detailing automobiles; performing oil and lubrication services, minor auto
repairs, and state inspections; selling fuel; and selling merchandise through
convenience stores within the car wash facilities. Revenues generated for the
three months ended March 31, 2004 for the Car and Truck Wash Segment were
comprised of approximately 82% car wash and detailing, 9% lube and other
automotive services, and 9% fuel and merchandise.
The majority of revenues are collected in the form of cash or credit card
receipts, thus minimizing customer accounts receivable.
Weather can and has had a significant impact on volume at the individual
locations. We believe that the geographic diversity of our operating locations
helps mitigate the risk of adverse weather-related influence on our volume.
Security Products
Prior to the acquisition of Micro-Tech, the Company operated its Security
Products Segment solely as the Consumer Products Division. The Company's
Consumer Products operations manufacture and market personal safety, and home
and auto security products which are sold through retail stores, major discount
stores, domestic and international distributors, and at the Company's car care
facilities.
With the acquisition on August 12, 2002 of certain of the assets and operations
of Micro-Tech, a manufacturer and retailer of electronic security and
surveillance devices, the Company added an additional division to its Security
Products Segment. The Company has added security cameras, closed-circuit
monitors, digital video recording devices and related electronic security
components to its line of well-known personal security products. The Company's
electronic security products are manufactured to our specifications principally
in Korea, China, and other foreign countries, and are labeled, packaged, and
shipped ready for sale, to our warehouse in Hollywood, Florida.
Cost of Revenues
Car and Truck Wash Services
Cost of revenues consists primarily of direct labor and related taxes and
benefits, certain insurance costs, chemicals, wash and detailing supplies, rent,
real estate taxes, utilities, car damages, maintenance and repairs of equipment
and facilities, as well as the cost of the fuel and merchandise sold.
Security Products
Cost of revenues within the Security Products Segment consists primarily of
costs to purchase or manufacture the security products including direct labor
and related taxes and benefits, and raw material costs. Product return and
warranty costs related to the new electronic security surveillance product
business have been minimal in that the majority of customer product warranty
claims are reimbursed by the manufacturer.
15
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of management,
clerical and administrative salaries, professional services, insurance premiums,
sales commissions, and other costs relating to marketing and sales.
We capitalize direct incremental costs associated with acquisitions. Indirect
acquisition costs, such as executive salaries, corporate overhead, public
relations, and other corporate services and overhead are expensed as incurred.
The Company also charges as an expense any capitalized expenditures relating to
proposed acquisitions that will not be consummated.
Depreciation and Amortization
Depreciation and amortization consists primarily of depreciation of buildings
and equipment, and amortization of certain intangible assets. Buildings and
equipment are depreciated over the estimated useful lives of the assets using
the straight-line method. Intangible assets, other than goodwill or intangible
assets with indefinite useful lives, are amortized over their useful lives
ranging from three to 15 years, using the straight-line method. With the
adoption of SFAS 142 on January 1, 2002, we no longer amortize goodwill and
certain intangible assets, namely trademarks and service marks, determined to
have indefinite useful lives.
Other Income
Other income consists primarily of rental income received on renting out excess
space at our car wash facilities and includes gains and losses on the sale of
equipment.
Income Taxes
Income tax expense is derived from tax provisions for interim periods that are
based on the Company's estimated annual effective rate. Currently, the effective
rate differs from the federal statutory rate primarily due to state and local
income taxes, non-deductible costs related to acquired intangibles, fixed asset
adjustments and changes to the valuation allowance.
Liquidity and Capital Resources
Liquidity
Cash and cash equivalents were $3.7 million at March 31, 2004. The ratio of our
total debt to total capitalization, which consists of total debt plus
stockholders' equity, was 36% at March 31, 2004, and 37% at December 31, 2003.
Our business requires a substantial amount of capital, most notably to pursue
our expansion strategies. We have been expanding our electronic surveillance
products business by increasing its inventories of merchandise, hiring
personnel, and purchasing office and warehouse facilities. We also require
capital for car wash equipment purchases for our Car and Truck Wash Segment. We
plan to meet these capital needs from various financing sources, including
borrowings, internally generated funds, and the issuance of common stock.
As of March 31, 2004, we had working capital of approximately $427,000. Working
capital at March 31, 2004 included the classification of approximately $3.2
million of 15 year amortization loans as current liabilities as a result of
these loans being up for renewal in June through October 2004. The Company
intends to renew these loans with the current lender. Although the Company has
been successful in renewing similar loans with the current lender in the past,
there can be no assurance that our lender will continue to provide us with
renewals or with renewals at favorable terms. At December 31, 2003, working
capital was $270,000.
16
We estimate aggregate capital expenditures for our Car and Truck Wash Segment
and the Security Products Segment, exclusive of acquisitions of businesses and
the building purchased in April 2004 for 250,000 registered shares of the
Company's common stock, of approximately $500,000 to $1 million for the
remainder of the year ending December 31, 2004.
In October 2002, we purchased a building as a warehouse, production and
administrative facility for our electronic surveillance products operations. In
October 2003, we purchased additional warehouse and office space adjacent to the
original facility. We financed a portion of the $885,000 total purchase price of
this facility with a long-term mortgage of approximately $728,000. On April 20,
2004 we purchased a building in exchange for 250,000 registered shares of the
Company's common stock. We intend to sell our existing warehouse facility and
use the recently purchased building as a warehouse and office facility for the
electronic surveillance products operations. We have expended cash of
approximately $900,000 since the inception of the electronic surveillance
equipment division for capital expenditures and the acquisition costs of
Micro-Tech and Vernex. Additionally, the inventory balance of the electronic
surveillance equipment division at March 31, 2004 is $1.4 million. We will
continue to expend significant cash for the purchasing of inventory as we
introduce new electronic surveillance products in the future. While the Company
believes that existing working capital may be adequate to fund the Company's
current cash requirements, the Company may need to raise additional debt or
equity financing in the future. If successful in raising additional financing,
the Company may not be able to do so on terms that are not dilutive to existing
stockholders or less costly than existing sources of financing. Failure to
secure additional financing in a timely manner and on favorable terms in the
future could have a material adverse impact on the Company' s financial
performance and stock price and require the Company to implement certain cost
reduction initiatives and curtail its operations.
Debt Capitalization and Other Financing Arrangements
At March 31, 2004, we had borrowings, including capital lease obligations, of
approximately $30.6 million. We had three letters of credit outstanding at March
31, 2004, totaling $1,103,000 as collateral relating to workers' compensation
insurance policies. We maintain a $500,000 revolving credit facility to provide
financing for additional electronic surveillance product inventory purchases.
There were no borrowings outstanding under the revolving credit facility at
March 31, 2004.
Several of our debt agreements, as amended, contain certain affirmative and
negative covenants and require the maintenance of certain levels of tangible net
worth, maintenance of certain unencumbered cash and marketable securities
balances, and the maintenance of certain debt coverage ratios on a consolidated
level. At March 31, 2004, we were not in compliance with our consolidated debt
coverage ratios related to our GMAC notes payable and Bank One notes payable.
With respect to the GMAC notes payable, the Company has received a waiver of
acceleration of the notes through April 1, 2005. Additionally, the Company has
entered into amendments to the Bank One term loan agreements effective March 31,
2004. The Company is currently in compliance with these Bank One covenants as
amended. The amended debt coverage ratio with Bank One requires the Company to
maintain a consolidated earnings before interest, income taxes, depreciation and
amortization ("EBITDA") to debt service (collectively " the debt coverage
ratio") of 1.05 to 1 at March 31, 2004; 1.03 to 1 at June 30, 2004; and 1.05 to
1 at September 30, 2004 and December 31, 2004. The Bank One amendment also
requires the maintenance of a minimum total unencumbered cash and marketable
securities balance of $5 million. This cash balance requirement will be lowered
to $1 million upon the Company returning to a debt coverage ratio of at least
1.10 to 1. The Company initiated certain temporary cost savings measures in
March of 2004, including reductions in payroll expense and certain operating
costs. These savings through March 31, 2004 totaled approximately $100,000.
Additionally, the Company sold or closed three unprofitable car wash facilities
and a lube facility in 2003 and increased its prices in March 2004 within the
Car and Truck Wash Segment to help improve cash flows for fiscal 2004. If our
future cash flows are less than expected or debt service including interest
expense increase more than expected and we default on any of the Bank One
covenants or the GMAC covenant in the future, the Company will need to obtain
further amendments or waivers from these lenders. If the Company is unable to
obtain waivers or amendments in the future, Bank One debt totaling $14.3 million
and GMAC debt totaling $11.4 million, including debt recorded as long-term debt
at March 31, 2004, would become payable on demand.
The Company's ongoing ability to comply with its debt covenants under its credit
arrangements and refinance its debt depends largely on the achievement of
adequate levels of cash flow. Our cash flow has been and could continue to be
adversely affected by weather patterns and economic conditions. In the event
that non-compliance with the debt covenants should reoccur, the Company would
pursue various alternatives to attempt to successfully resolve the
non-compliance, which might include, among other things, seeking additional debt
covenant waivers or amendments, or refinancing debt with other financial
17
institutions. There can be no assurance that further debt covenant waivers or
amendments would be obtained or that the debt would be refinanced with other
financial institutions at favorable terms. If we are unable to obtain renewals
on maturing loans or refinancing of loans on favorable terms, our ability to
operate would be materially and adversely affected. The Company is obligated
under various operating leases, primarily for certain equipment and real estate
within the Car and Truck Wash Segment. Certain of these leases contain purchase
options, renewal provisions, and contingent rentals for our proportionate share
of taxes, utilities, insurance, and annual cost of living increases.
The following are summaries of our contractual obligations and other commercial
commitments at March 31, 2004 (in thousands):
Payments Due By Period
------------------------------------------------------------------
Less than Two to Three Four to Five More Than Five
Contractual Obligations Total One Year Years Years Years
----------------------- ------------ ------------ ------------ ------------ --------------
Long-term debt $ 30,336 $ 5,252 $ 4,870 $ 11,039 $ 9,175
Capital leases 290 152 122 16 -
Minimum operating lease
payments 4,524 1,216 1,454 784 1,070
------------ ------------ ------------ ------------ --------------
$ 35,150 $ 6,620 $ 6,446 $ 11,839 $ 10,245
============ ============ ============ ============ ==============
Amounts Expiring Per Period
------------------------------------------------------------------
Other Commercial Less Than Two to Three Four to Five More Than
Commitments Total One Year Years Years Five Years
---------------- ------------ ------------ ------------ ------------ --------------
Line of Credit $ 500 $ 500 $ - $ - $ -
Standby Letters of
Credit 1,103 1,103 - - -
------------ ------------ ------------ ------------ --------------
$ 1,603 $ 1,603 $ - $ - $ -
============ ============ ============ ============ ==============
(1) There were no borrowings outstanding under the Company's line of credit at
March 31, 2004.
The Master Facility Agreement between the Company and Fusion Capital Fund II,
LLC ("Fusion") and the Equity Purchase Agreement between the Company and Fusion
is terminated. Under the Master Facility Agreement, the Company had entered into
an Equity Purchase Agreement on April 17, 2000. Under the Equity Purchase
Agreement, Fusion had the right and obligation to purchase up to $10,000,000 of
the Company's common stock under certain conditions. On April 21, 2004, the
Company and Fusion entered into a termination and release agreement to resolve a
dispute that arose between the Company and Fusion. The dispute arose out of
Fusion's claim that it was entitled to purchase approximately 690,000 shares of
the Company's common stock at a price of $2.32 per share under the terms of the
Equity Purchase Agreement. The Company's position was that Fusion did not have
the right to purchase the 690,000 shares. On April 21, 2004, the dispute was
resolved by the Company and Fusion entering into an agreement that provided (i)
the Company sell Fusion 150,000 registered shares of common stock at $2.32 per
share, (ii) the Master Facility Agreement and Equity Purchase Agreement are
terminated, and (iii) the Company has the unilateral right exercisable through
May 31, 2004 to enter into a new common stock purchase agreement with Fusion for
$10,000,000 of common stock. The new agreement would have a provision
prohibiting Fusion from purchasing shares below a minimum purchase price to be
selected by the Company. On April 22, 2004, Fusion purchased 150,000 shares of
the Company's common stock at $2.32 per share, in accordance with the
termination and release agreement.
Cash Flows
Operating Activities. Net cash provided by operating activities totaled $1.0
million for the three months ended March 31, 2004. Cash provided by operating
activities in 2004 was primarily due to positive operating results and a
reduction of inventory within the Company's Electronic Surveillance Products
Division.
Investing Activities. Cash used in investing activities totaled $170,000 for the
three months ended March 31, 2004 which includes $135,000 for capital
expenditures relating to ongoing car care operations, and $6,000 for the
Security Products Segment.
Financing Activities. Cash used in financing activities was $634,000 for the
three months ended March 31, 2004 which includes routine principal payments on
debt of $660,000 partially offset by $26,000 of proceeds from the issuance of
common stock.
18
Seasonality and Inflation
The Company believes that its car washing and detailing operations are adversely
affected by periods of inclement weather. In particular, long periods of rain
and cloudy weather adversely affects our car wash volumes and related lube and
other automotive services as people typically do not wash their cars during such
periods. Additionally, extended periods of warm, dry weather, usually
encountered during the Company's third quarter, may encourage customers to wash
their cars themselves which also can adversely affect our car wash business. The
Company has attempted to mitigate the risk of unfavorable weather patterns by
having operations in diverse geographic regions. The Company also experiences a
seasonal reduction in volume during the third quarter within the Company's
Arizona and Florida regions as a result of a migration of a significant portion
of those areas' populations to cooler climates.
The Company believes that inflation and changing prices have not had, and are
not expected to have, a material adverse effect on its results of operations in
the near future.
Results of Operations for the Three Months Ended March 31, 2004
Compared to the Three Months Ended March 31, 2003
The following table presents the percentage each item in the consolidated
statements of operations bears to total revenues:
Three Months Ended
March 31,
------------------------------
2004 2003
----------- ------------
Revenues 100.0 % 100.0 %
Cost of revenues 71.0 70.8
Selling, general and administrative
expenses 19.5 17.6
Depreciation and amortization 3.9 3.9
----------- ------------
Operating income 5.6 7.7
Interest expense, net (3.8) (4.1)
Other income 0.9 0.6
----------- ------------
Income before income taxes 2.7 4.2
Income tax expense 1.0 1.5
----------- ------------
Net income 1.7 % 2.7 %
=========== ============
Revenues
Car and Truck Wash Services
Revenues for the three months ended March 31, 2004 were $10.8 million as
compared to $11.5 million for the three months ended March 31, 2003, a decrease
of $0.7 million or 6%. This decrease was primarily attributable to a decrease in
wash and detail services. Of the $10.8 million of revenues for the three months
ended March 31, 2004, $8.9 million or 82% was generated from car wash and
detailing, $0.9 million or 9% from lube and other automotive services, and $1.0
million or 9% from fuel and merchandise sales. Of the $11.5 million of revenues
for the three months ended March 31, 2003, $9.6 million or 83% was generated
from car wash and detailing, $1.0 million or 9% from lube and other automotive
services, and $0.9 million or 8% from fuel and merchandise sales. The decrease
in wash and detailing revenues was principally due to closing or divesting of
three of our car wash locations and a lube facility during 2003; the temporary
closure of a car wash location in Arizona due to fire damage; continued
unfavorable weather trends within the Northeast and Texas regions; and the
impact of a slower economy. Overall car wash volumes declined 10.6% in the first
quarter of 2004 as compared to the first quarter of 2003, including 5.1% from
the closing or divesting of the three car wash locations noted above. Partially
offsetting this decline in volume, the Company experienced an increase in
average wash and detailing revenue per car to $14.42 in 2004, from $13.84 in
2003. This increase in average wash and detailing revenue per car was the result
of management's continued focus on aggressively selling detailing and additional
on-line car wash services. The increase in fuel and merchandise revenues is
primarily the result of the addition of higher quality merchandise in our car
wash lobbies.
19
Security Products
Revenues for the three months ended March 31, 2004 were $1.9 million comprised
of approximately $1.2 million from the Electronic Surveillance Products Division
and approximately $672,000 from the Consumer Products Division. Revenues for the
three months ended March 31, 2003 were approximately $1.1million, comprised of
$400,000 from the Electronic Surveillance Products Division and $700,000 from
the Consumer Products Division. The increase in revenues within the Electronic
Surveillance Products Division is due principally to growth in sales to security
systems installers and sales generated by Vernex, which was acquired in
September 2003.
Cost of Revenues
Car and Truck Wash Services
Cost of revenues for the three months ended March 31, 2004 were $7.8 million, or
72% of revenues, with car washing and detailing costs at 71% of respective
revenues, lube and other automotive services costs at 76% of respective
revenues, and fuel and merchandise costs at 86% of respective revenues. Cost of
revenues for the three months ended March 31, 2003 were $8.3 million, or 72% of
revenues, with car washing and detailing costs at 70% of respective revenues,
lube and other automotive services costs at 76% of respective revenues, and fuel
and merchandise costs at 86% of respective revenues.
Security Products
During the three months ended March 31, 2004 cost of revenues were $1.2 million
or 63% of revenues as compared to $654,000 or 58% of revenues for the three
months ended March 31, 2003. The increase in cost of revenues in 2004 is
principally due to the growth in the Electronic Surveillance Products Division
which has gross profit margins typically lower than the Consumer Products
Division. Additionally, with the acquistion of Vernex, a manufacturer and
retailer of electronic security monitors, the Company increased its sales of
monitors which are typically sold at lower profit margins than other electronic
surveillance equipment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended March
31, 2004 were $2.5 million compared to $2.2 million for the same period in 2003.
SG&A expenses as a percent of revenues were 19.5% for the three months ended
March 31, 2004 as compared to 17.6% in the first quarter of 2003. The increase
in SG&A costs is primarily the result of the growth in the Electronic
Surveillance Products Division which added an additional $195,000 of SG&A costs
in 2004. The Company also incurred approximately $43,000 of legal fees through
March 31, 2004 related to the investigation being conducted by the United States
Securities and Exchange Commission ( See Note 6 of the accompanying notes to
consolidated financial statements.) These increases in costs were partially
offset by certain temporary cost saving measures initiated in March of 2004,
including reductions in payroll and other administrative costs.
Depreciation and Amortization
Depreciation and amortization totaled $500,000 for the three months ended March
31, 2004 as compared to $485,000 for the same period in 2003.
Interest Expense, Net
Interest expense, net of interest income, for the three months ended March 31,
2004 was $479,000 compared to $522,000 for the three months ended March 31,
2003. This decrease in interest expense was the result of a decrease in interest
rates on approximately 50% of our long term debt which has interest rates tied
to the prime rate, and a reduction in our outstanding debt as a result of normal
principal payments.
Other Income
Other income for the three months ended March 31, 2004 was $112,000 compared to
$82,000 for the three months ended March 31, 2003.
20
Income Taxes
The Company recorded tax expense of $122,000 and $193,000 for the three months
ended March 31, 2004 and 2003, respectively. Tax expense reflects the recording
of income taxes at an effective rate of approximately 36% in both 2004 and 2003.
The effective rate differs from the federal statutory rate for each year
primarily due to state and local income taxes, non-deductible costs related to
intangibles, fixed asset adjustments and changes to the valuation allowance.
Risk Factors
This report includes forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended ("Forward-Looking Statements"). All statements
other than statements of historical fact included in this report are
Forward-Looking Statements. Although we believe that the expectations reflected
in such Forward-Looking Statements are reasonable, we can give no assurance that
such expectations will prove to have been correct. These risks and uncertainties
are set forth herein and in the Company's 2003 Form 10-K and as may be set forth
in the Company's subsequent press releases and/or Forms 10-Q, 8-K, and other
filings with the United States Securities and Exchange Commission. All phases of
our operations are subject to a number of uncertainties, risks and other
influences, many of which are outside our control and any one of which, or a
combination of which, could materially affect the results of our operations and
whether Forward- Looking Statements made by us ultimately prove to be accurate.
Such important factors that could cause actual results to differ materially from
our expectations are disclosed in this section and elsewhere in this report. All
subsequent written and oral Forward-Looking Statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the important factors described below that could cause actual
results to differ from our expectations.
Our business plan poses risks for us. Our business objectives include expanding
our Electronic Surveillance Products Division. We may also acquire additional
car washes, if we can do so under advantageous terms. We have expended cash of
approximately $900,000 since the inception of the electronic surveillance
equipment division for capital expenditures and the acquisition costs of
Micro-Tech and Vernex. Additionally, the inventory balance of the electronic
surveillance equipment division at March 31, 2004 is $1.4 million. Our strategy
involves a number of risks, including:
i. risks associated with growth;
ii. risks associated with acquisitions and their integration into our
Company;
iii. risks associated with the recruitment and development of management
and operating personnel;
iv. risks of not being able to sell the electronic surveillance products
in the quantities we have ordered from OEM manufacturers; and
v. risks associated with the rapid product cycles and obsolescence of
inventory in the electronic surveillance business.
If we are unable to manage one or more of these associated risks effectively, we
may not fully realize our business plan.
Risk related to borrowings. Our borrowings as of March 31, 2004 were $30.6
million. Of the borrowings, $5.4 million is classified as current as it is due
in less than twelve months. Our business plan is dependent on refinancing the
debt as it becomes due. Several of our debt agreements, as amended, contain
certain affirmative and negative covenants and require the maintenance of
certain levels of tangible net worth maintenance of certain unencumbered, cash
and marketable securities balances, and the maintenance of certain debt coverage
ratios on a consolidated level. At March 31, 2004, we were not in compliance
with our consolidated debt coverage ratios related to our GMAC notes payable and
Bank One notes payable. With respect to the GMAC notes payable, the Company has
received a waiver of acceleration of the notes through April 1, 2005.
Additionally, the Company has entered into amendments to the Bank One term loan
agreements effective March 31, 2004. The Company is currently in compliance with
these Bank One covenants as amended. The amended debt coverage ratio with Bank
One requires the Company to maintain a consolidated earnings before interest,
income taxes, depreciation and amortization ("EBITDA") to debt service
(collectively " the debt coverage ratio") of 1.05 to 1 at March 31, 2004; 1.03
to 1 at June 30, 2004; and 1.05 to 1 at September 30, 2004 and December 31,
2004. The Bank One amendment also requires the maintenance of a minimum total
unencumbered cash and marketable securities balance of $5 million. This cash
balance requirement will be lowered to $1 million upon the Company returning to
21
a debt coverage ratio of at least 1.10 to 1. The Company initiated certain
temporary cost savings measures in March of 2004, including reductions in
payroll expense and certain operating costs. These savings through March 31,
2004 totaled approximately $100,000. The Company sold or closed three
unprofitable car wash facilities and a lube facility in 2003 and increased its
prices in March 2004 within the Car and Truck Wash Segment to help improve cash
flows for fiscal 2004. If our cash flows are less than expected or debt service
including interest expense increases more than expected and we default on any of
the Bank One covenants or the GMAC covenant in the future, the Company will need
to obtain further amendments or waivers from these lenders. If the Company is
unable to obtain waivers or amendments in the future, Bank One debt totaling
$14.3 million and GMAC debt totaling $11.4 million, including debt recorded as
long-term debt at March 31, 2004, would become payable on demand.
The Company's ongoing ability to comply with its debt covenants under its credit
arrangements and refinance its debt depend largely on the achievement of
adequate levels of cash flow. Our cash flow has been and can continue to be
adversely affected by weather patterns and the economic climate. In the event
that non-compliance with the debt covenants should reoccur, the Company would
pursue various alternatives to successfully resolve the non-compliance, which
might include, among other things, seeking additional debt covenant waivers or
amendments, or refinancing debt with other financial institutions. There can be
no assurance that further debt covenant waivers or amendments would be obtained
or that the debt would be refinanced with other financial institutions on
favorable terms. If we are unable to obtain renewals on maturing loans or
refinancing of loans on favorable terms, our ability to operate would be
materially and adversely affected.
Our operations are dependent substantially on the services of our executive
officers. If we lose one or more of our executive officers and do not replace
them with experienced personnel, the loss could have a material adverse effect
on our business and results of operations. We do not maintain key-man life
insurance policies on our executive officers. The primary terms of the
employment agreements of Robert M. Kramer, Gregory M. Krzemien, and Ronald R.
Pirollo expired on March 26, 2003. Louis D. Paolino, Jr. and the Company have
executed an employment agreement which has a term through August 12, 2006.
Messrs. Kramer and Krzemien are working on a month-to-month at-will basis. Mr.
Pirollo or the Company may terminate Mr. Pirollo's employment at any time. Mr.
Paolino is the Company's Chief Executive Officer; Mr. Kramer is the Company's
Chief Operating Officer, General Counsel and Secretary; Mr. Krzemien is the
Company's Chief Financial Officer and Treasurer; and Mr. Pirollo is the
Company's Chief Accounting Officer and Corporate Controller.
We have reported net losses. We have reported net losses and working
capital deficits, and we have expended substantial funds for acquisitions,
equipment, and new business development. With the adoption of SFAS 142, Goodwill
and Other Intangible Assets , on January 1, 2002, we no longer amortize goodwill
and certain intangible assets determined to have indefinite useful lives.
Additionally, SFAS 142 requires annual fair value based impairment tests of
goodwill and other intangible assets identified with indefinite useful lives.
The Company cannot guarantee that there will not be impairments in subsequent
reporting periods that will have a material impact on earnings and equity of the
Company.
We have a limited operating history regarding our Electronic Surveillance
Products Division. We are expanding our line of electronic surveillance security
products. We are incurring expenses to develop new products without having
extensively tested the size or possible profitability of the market for such
products. There are numerous risks associated with the new Electronic
Surveillance Products Division that may prevent the Company from selling them
profitably, including, among others: risks associated with unanticipated
problems in the acquired companies; risks inherent with our management having
limited experience in electronic security product market; risks relating to the
size and number of competitors in the electronic security product market, many
of whom may be more experienced or better financed; risks associated with the
costs of planned entry into new markets and expansion of product lines in old
markets; risks associated with rapidly evolving technology and having inventory
become obsolete; risks associated with purchasing inventory prior to having
orders for the inventory; risks related to locating and maintaining reliable
sources of OEM products and component supplies in the electronic surveillance
industry; risks related to retaining key employees involved in future technology
development and communications with OEM suppliers; risks associated with
developing and introducing new products in order to maintain competitiveness in
a rapidly changing marketplace; and risk related to the cost of product returns,
warranties and customer support.
We may not be able to manage growth. If we succeed in growing, it will
place significant burdens on our management and on our operational and other
resources. We will need to attract, train, motivate, retain, and supervise our
senior managers and other employees. If we are unable to do this, we will not be
able to realize our business objectives.
Our car wash business may suffer under certain weather conditions. Seasonal
trends in some periods may affect our car wash business. In particular, long
periods of rain and cloudy weather can adversely affect our car wash business as
people typically do not wash their cars during such periods. Additionally,
extended periods of warm, dry weather may encourage customers to wash their cars
themselves which also can adversely affect our car wash business.
22
We face significant competition. The extent and kind of competition that we
face varies. The car care industry is highly competitive. Competition is based
primarily on location, facilities, customer service, available services and
price. Because barriers to entry into the car care industry are relatively low,
competition may be expected to continually arise from new sources not currently
competing with us. We also face competition from outside the car care industry,
such as gas stations and convenience stores that offer automated car wash
services. In some cases, these competitors may have greater financial and
operating resources than do we. In our car wash business, we face competition
from a number of sources, including regional and national chains, gasoline
stations, gasoline companies, automotive companies and specialty stores, both
regional and national.
Consumer demand for our car wash services is unpredictable. Our financial
condition and results of operations will depend substantially on continued
consumer demand for car wash services. Our car wash business depends on
consumers choosing to employ professional services to wash their cars rather
than washing their cars themselves or not washing their cars at all. We cannot
give assurance that consumer demand for car wash services will increase in the
future, nor can we give assurance that consumer demand will maintain its current
level.
We must maintain and replace our car wash equipment. Although we undertake
to keep our car wash equipment in proper operating condition, the operating
environment in car washes results in frequent mechanical problems. If we fail to
properly maintain and replace the equipment, any car wash could become
inoperable or operate inefficiently resulting in a loss of revenue. Many of our
car washes have older equipment which requires frequent repair or replacement.
We must operate our locations safely. Our Consumer Products Division and
Car and Truck Wash Segment utilize harsh chemicals in their operations. Though
we train our personnel in safety, there is a risk of injury to our employees.
We face risks associated with significant insurance claims. We maintain
various insurance coverages for our assets and operations. These coverages
include Property coverages including business interruption protection for each
location. We maintain commercial general liability coverage in the amount of $1
million per occurrence and $2 million in the aggregate with an umbrella policy
which provides coverage up to $25 million. We also maintain workers'
compensation policies in every state in which we operate. Commencing July 2002,
as a result of increasing costs of the Company 's insurance program, including
auto, general liability, and workers' compensation coverage, we are insured
through participation in a captive insurance program with other unrelated
businesses. The Company maintains excess coverage through occurrence-based
policies. With respect to our auto, general liability, and workers' compensation
policies, we are required to set aside an actuarial determined amount of cash in
a restricted "loss fund" account for the payment of claims under the policies.
We expect to fund these accounts annually as required by the insurance company.
Should funds deposited exceed claims incurred and paid, unused deposited funds
are returned to us with interest on the third anniversary of the policy
year-end. The captive insurance program is further secured by a letter of credit
in the amount of $803,000 at March 31, 2004. If our loss experience is worse
than expected, our cash assessments to the captive may be increased in the
future. The Company records a monthly expense for losses up to the reinsurance
limit per claim based on the Company's tracking of claims and the insurance
company's reporting of amounts paid on claims plus their estimate of reserves
for possible future payments. There can be no assurance that our insurance will
provide sufficient coverage in the event a claim is made against us, or that we
will be able to maintain in place such insurance at reasonable prices. An
uninsured or under insured claim against us of sufficient magnitude could have a
material adverse effect on our business and results of operations.
Our car and truck wash operations face governmental regulations. We are
governed by federal, state and local laws and regulations, including
environmental regulations, that regulate the operation of our car wash centers
and other car care services businesses. Other car care services, such as
gasoline and lubrication, use a number of oil derivatives and other regulated
hazardous substances. As a result, we are governed by environmental laws and
regulations dealing with, among other things:
i. transportation, storage, presence, use, disposal, and handling of
hazardous materials and wastes;
ii. discharge of storm water; and
iii. underground storage tanks.
If uncontrolled hazardous substances were found on our property, including
leased property, or if we were found to be in violation of applicable laws and
regulations, we could be responsible for clean-up costs, property damage, and
fines or other penalties, any one of which could have a material adverse effect
on our financial condition and results of operations.
We face risks associated with our consumer safety products. We face claims
of injury allegedly resulting from our defense sprays. For example, we are aware
of allegations that defense sprays used by law enforcement personnel resulted in
deaths of prisoners and of suspects in custody. In the event a lawsuit is
brought against us, we cannot give assurance that our insurance coverage will be
sufficient to cover any judgments won. If our insurance coverage is exceeded, we
will have to pay the excess liability directly.
23
Listing on the Nasdaq National Market. Our common stock is listed on the
Nasdaq National Market with a bid price of $3.07 at the close of the market on
May 3, 2004. The high and low sale prices per share for our common stock ranged
from $1.78 to $2.29 during the first quarter ending March 31, 2004. If the price
of our common stock falls below $1.00 and for 30 consecutive days remains below
$1.00, we are subject to being delisted from the Nasdaq National Market. Upon
delisting from the Nasdaq National Market, our stock would be traded on the
Nasdaq SmallCap Market until we maintain a minimum bid price of $1.00 for 30
consecutive days at which time we can regain listing on the Nasdaq National
Market. If our stock fails to maintain a minimum bid price of $1.00 for 30
consecutive days during a 180 day grace period on the Nasdaq SmallCap Market or
a 360 day grace period if compliance with certain core listing standards are
demonstrated, we could receive a delisting notice from the Nasdaq SmallCap
Market. Upon delisting from the Nasdaq SmallCap Market, our stock would be
traded over-the-counter, more commonly known as OTC. OTC transactions involve
risks in addition to those associated with transactions in securities traded on
the Nasdaq National Market or the Nasdaq SmallCap Market (together
"Nasdaq-Listed Stocks"). OTC companies may have limited product lines, markets
or financial resources. Many OTC stocks trade less frequently and in smaller
volumes than Nasdaq-Listed Stocks. The values of these stocks may be more
volatile than Nasdaq-Listed Stocks. If our stock is traded in the OTC market and
a market maker sponsors us, we may have the price of our stock electronically
displayed on the OTC Bulletin Board, or OTCBB. However, if we lack sufficient
market maker support for display on the OTCBB, we must have our price published
by the National Quotations Bureau LLP in a paper publication known as the "Pink
Sheets." The marketability of our stock will be even more limited if our price
must be published on the "Pink Sheets."
Our stock price is volatile. Our common stock's market price has been
volatile. Factors like fluctuations in our quarterly revenues and operating
results, our acquisition program, market conditions, and economic conditions
generally may impact significantly our common stock's market price. In addition,
if we make an acquisition, we may agree to issue common stock that will become
available for resale and may have an impact on our common stock's market price.
Our preferred stock may affect the rights of the holders of our common
stock; it may also discourage another entity from acquiring control of Mace. Our
Certificate of Incorporation authorizes the issuance of up to 10 million shares
of preferred stock. No shares of preferred stock are currently outstanding. It
is not possible to state the precise effect of preferred stock upon the rights
of the holders of our common stock until the Board of Directors determines the
respective preferences, limitations and relative rights of the holders of one or
more series or classes of the preferred stock. However, such effect might
include: (i) reduction of the amount otherwise available for payment of
dividends on common stock, to the extent dividends are payable on any issued
shares of preferred stock, and restrictions on dividends on common stock if
dividends on the preferred stock are in arrears, (ii) dilution of the voting
power of the common stock to the extent that the preferred stock has voting
rights, and (iii) the holders of common stock not being entitled to share in our
assets upon liquidation until satisfaction of any liquidation preference granted
to the preferred stock.
The preferred stock may be viewed as having the effect of discouraging an
unsolicited attempt by another entity to acquire control of us and may therefore
have an anti-takeover effect. Issuances of authorized preferred stock can be
implemented, and have been implemented by some companies in recent years with
voting or conversion privileges intended to make an acquisition of a company
more difficult or costly. Such an issuance could discourage or limit the
stockholders' participation in certain types of transactions that might be
proposed (such as a tender offer), whether or not such transactions were favored
by the majority of the stockholders, and could enhance the ability of officers
and directors to retain their positions.
Some provisions of Delaware law may prevent us from being acquired. We are
governed by Section 203 of the Delaware General Corporation Law, which prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an entity who is an "interested stockholder" for a period of three years,
unless approved in a prescribed manner. This provision of Delaware law may
affect our ability to merge with, or to engage in other similar activities with,
some other companies. This means that we may be a less attractive target to a
potential acquirer who otherwise may be willing to pay a price for our common
stock above its market price.
We do not expect to pay cash dividends on our common stock. We do not
expect to pay cash dividends on our common stock in the foreseeable future. We
will reinvest in our business any cash otherwise available for dividends.
There are additional risks set forth in the incorporated documents. In
addition to the risk factors set forth above, you should review the financial
statements and exhibits incorporated into this report. Such documents may
contain, in certain instances and from time to time, additional and supplemental
information relating to the risks set forth above and/or additional risks to be
considered by you, including, without limitation, information relating to losses
24
experienced by us in certain historical periods, working capital deficits at
particular dates, information relating to pending and recently completed
acquisitions, descriptions of new or changed federal or state regulations
applicable to Mace, data relating to remediation and the actions taken by Mace,
and estimates at various times of Mace's potential liabilities for compliance
with environmental laws or in connection with pending litigation.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There has been no material change in our exposure to market risks arising from
fluctuations in foreign currency exchange rates, commodity prices, equity prices
or market interest rates since December 31, 2003 as reported on our Form 10-K
for the year ended December 31, 2003.
Item 4. Controls and Procedures
The Company's management conducted an evaluation, under the supervision and with
the participation of the Company's Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of the Company's
disclosure controls and procedures as of March 31, 2004. Based on this
evaluation and as of the date of the evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective in alerting them in a timely manner to material
information required to be included in the Company's SEC reports. There have
been no significant changes in the Company's internal control over financial
reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the Company's most recent fiscal quarter that have
materially affected, or are reasonablely likely to materially affect, the
Company's internal control over financial reporting.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Information regarding our legal proceedings can be found in Note 6 Commitments
and Contingencies.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
10.159 Amendment to Credit Agreement dated April 27, 2004,
effective as of March 31, 2004 between Mace Security
International, Inc., and Bank One Texas, N.A. (Pursuant to
instruction 2 to Item 601 of Regulation S-K, four additional
credit agreements which are substantially identical in all
material respects, except as to borrower being the Company's
subsidiaries, Mace Car Wash-Arizona, Inc., Colonial Full
Service Car Wash, Inc., Mace Security Products, Inc. and
Eager Beaver Car Wash, Inc., are not being filed.)
10.160 Termination Agreement dated April 21, 2004, between Mace
Security International, Inc. and Fusion Capital Fund II,
LLC.
10.161 Stock Restriction Removal Agreement dated April 12, 2004,
between Mace Security International, Inc. and Price Legacy
Corporation.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
(b) Current Reports on Form 8-K or 8-K/A:
On March 12, 2004, the Company filed a report on Form 8-K dated March
12, 2004, under Item 7 and Item 12, to report the issuance of a press
release announcing the Company's financial results for the fiscal
quarter and year ended December 31, 2003.
25
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, thereunto duly authorized.
Mace Security International, Inc.
BY: /s/ Louis D. Paolino, Jr.
--------------------------
Louis D. Paolino, Jr., Chairman,
Chief Executive Officer and President
BY: /s/ Gregory M. Krzemien
----------------------
Gregory M. Krzemien, Chief Financial Officer
BY: /s/ Ronald R. Pirollo
--------------------
Ronald R. Pirollo, Controller (Principal
Accounting Officer)
DATE: May 5, 2004
26
EXHIBIT INDEX
Exhibit No. Description
----------- ------------
10.159 Amendment to Credit Agreement dated April 27, 2004,
effective as of March 31, 2004 between Mace Security
International, Inc., and Bank One Texas, N.A. (Pursuant to
instruction 2 to Item 601 of Regulation S-K, four additional
credit agreements which are substantially identical in all
material respects, except as to borrower being the Company's
subsidiaries, Mace Car Wash-Arizona, Inc., Colonial Full
Service Car Wash, Inc., Mace Security Products, Inc. and
Eager Beaver Car Wash, Inc., are not being filed.)
10.160 Termination Agreement dated April 21, 2004, between Mace
Security International, Inc. and Fusion Capital Fund II,
LLC.
10.161 Stock Restriction Removal Agreement dated April 12, 2004,
between Mace Security International, Inc. and Price Legacy
Corporation.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.