<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: June 30, 1996
-------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________to________
Commission file number: 69270-NY
--------
MACE SECURITY INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 030311630
- ---------------------------------------- -----------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
160 Benmont Avenue, Bennington, Vermont 05201
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 802-447-1503
------------
Indicate by check mark 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 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
INDEX
Page No.
--------
PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Income and Accumulated Deficit-
Three Months and Six Months Ended June 30, 1996 and 1995 1
Balance Sheets - June 30, 1996 and December 31, 1995 2
Statements of Cash Flows - Six Months Ended
June 30, 1996 and June 30, 1995 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 7
Item 6 - Exhibits and Reports on Form 8-K 8
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1996 1995 1996 1995
---- ---- ---- ----
<C> <C> <S> <C> <C>
$ 2,709,142 $3,133,127 Net Sales $ 5,712,227 $7,023,237
1,671,021 1,781,074 Cost of Sales 3,293,754 4,026,749
----------- ---------- ----------- ----------
1,038,121 1,352,053 Gross Profit 2,418,473 2,996,488
Operating expenses:
596,353 718,517 General and Administrative 1,236,151 1,543,402
417,874 662,283 Selling 1,054,580 1,455,862
----------- ---------- ----------- ----------
23,894 (28,747) Operating income (loss) 127,742 (2,776)
Other expense (income):
(10,431) (9,324) Interest income (13,617) (17,565)
22,626 16,379 Interest expense 46,517 33,695
(11,717) (18,376) Other income (28,230) (34,545)
----------- ---------- ----------- ----------
478 (11,321) 4,670 (18,415)
23,416 (17,426) Income (loss) before income 123,072 15,639
tax expense
2,576 (6,919) Income tax expense (benefit) 13,538 6,308
----------- ---------- ----------- ----------
20,840 (10,507) Net income (loss) 109,534 9,331
Accumulated (deficit),
(1,201,859) $ (686,362) beginning of period $(1,290,553) $ (706,200)
----------- ---------- ----------- ----------
Accumulated (deficit),
$(1,181,019) $ (696,869) end of period $(1,181,019) $ (696,869)
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Income per share
$ 0.00 $ 0.00 of common stock $ 0.02 $ 0.00
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
Weighted average number
of common shares
6,824,560 6,805,000 outstanding 6,814,780 6,805,000
----------- ---------- ----------- ----------
----------- ---------- ----------- ----------
</TABLE>
The accompanying notes are an integral part
of the financial statements.
1
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited)
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 373,744 $ 505,638
Accounts receivable, less allowance for
doubtful accounts
($46,664, 1996; $48,600, 1995) . . . . . . . . . . 1,527,722 1,089,982
Inventories:
Finished goods . . . . . . . . . . . . . . . . . . 1,452,614 1,926,932
Work in process. . . . . . . . . . . . . . . . . . 1,440,424 1,574,505
Raw material and supplies. . . . . . . . . . . . . 2,599,790 2,427,311
Prepaid expenses . . . . . . . . . . . . . . . . . . 294,876 416,005
----------- -----------
Total current assets . . . . . . . . . . . . . . . 7,689,170 7,940,373
Property and equipment, net. . . . . . . . . . . . . . 2,991,558 3,079,446
Intangibles, net . . . . . . . . . . . . . . . . . . . 2,915,542 3,041,440
Other assets . . . . . . . . . . . . . . . . . . . . . 127,972 132,500
----------- -----------
Total Assets $13,724,242 $14,193,759
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . $ 38,610 $ 127,797
Current maturities of long-term debt . . . . . . . . 681,602 542,248
Accounts payable . . . . . . . . . . . . . . . . . . 368,397 618,653
Accrued liabilities. . . . . . . . . . . . . . . . . 463,847 534,916
----------- -----------
Total current liabilities. . . . . . . . . . . . . 1,552,456 1,823,614
Long-term debt . . . . . . . . . . . . . . . . . . . . 231,484 567,177
----------- -----------
Total liabilities. . . . . . . . . . . . . . . . . 1,783,940 2,390,791
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 2,000,000 shares; no shares issued
Common stock, par value $.01 per share;
authorized 18,000,000 shares; issued
6,825,000 in 1996 and 6,805,000 in 1995. . . . . . 68,250 68,050
Additional paid in capital. . . . . . . . . . . . . 13,053,071 13,025,471
Retained deficit. . . . . . . . . . . . . . . . . . (1,181,019) (1,290,553)
----------- -----------
Total stockholders' equity . . . . . . . . . . . 11,940,302 11,802,968
----------- -----------
Total Liabilities and Stockholders' equity $13,724,242 $14,193,759
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of the financial statements.
2
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH
<TABLE>
<CAPTION>
Six Months Ended June 30,
------------------------------
1996 1995
---- ----
<S> <C> <C>
Operating activities:
Net income $ 109,534 $ 9,331
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 223,365 210,787
Amortization 132,617 132,573
Allowance for bad debt (1,936) ---
Loss on sale of assets 2,571 ---
Changes in operating assets and liabilities:
Accounts receivable (435,804) (16,341)
Other receivable - related party --- 32,978
Inventories 435,920 (407,728)
Prepaid expenses 148,929 (170,997)
Accounts payable (250,256) 8,718
Accrued liabilities (71,069) (228,336)
Corporate income tax payable --- (5,699)
Other assets (2,192) (80,680)
---------- ----------
Net cash provided by (used in) operating activities 291,679 (515,394)
---------- ----------
Investing activities:
Purchase of property and equipment (149,597) (490,933)
Proceeds from sale of property and equipment 11,550 ---
---------- ----------
Net cash used in investing activities (138,047) (490,933)
---------- ----------
Financing activities:
Payment of principal of long-term debt (196,339) (148,577)
Proceeds from issuance of note payable --- 339,656
Payment of notes payable (89,187) ---
---------- ----------
Net cash (used in) provided by financing activities (285,526) 104,473
---------- ----------
Net decrease in cash (131,894) (901,854)
Cash:
Beginning of period 505,638 984,877
---------- ----------
End of period $ 373,744 $ 83,023
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part
of the financial statements.
3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
________
1. MANAGEMENT OPINION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of only normal, recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. The results of any
interim period are not necessarily indicative of results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The financial statements should
be read in conjunction with the financial statements and notes thereto for
the year ended December 31, 1995.
2. EARNINGS PER SHARE
Earnings per share on common stock are computed using the weighted average
number of shares of common stock outstanding during each period presented.
3. STOCKHOLDER'S EQUITY
On April 3, 1996 the Company issued 20,000 shares of Common Stock to Robert
D. Norman, President and CEO, in accordance with an employment agreement
dated January 16, 1996 as disclosed on the Company's 1995 Form 10-KSB. The
shares were valued at $1.39 per share and the cost is being amortized over
a two year period. This non-cash transaction has been excluded from
proceeds from issuance of common stock as well as changes in prepaid
expenses on the Statement of Cash Flows for the six months ended June 30,
1996.
4. INCOME TAXES
The Company's effective tax rate for the year ended December 31, 1995 was
(5%) as compared to the 11% for the three and six months ended June 30,
1996 which approximates the anticipated effective tax rate for the full
fiscal year 1996.
4
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto.
RESULTS OF OPERATIONS:
Net sales for the three and six month periods ended June 30, 1996 decreased
13.5% and 18.7% respectively in comparison to the same periods in 1995. These
decreases are principally due to lower sales in the Federal Laboratories
division. In the three and six month periods ended June 30, 1996, the Federal
Laboratories-Registered Trademark- product line generated net sales of
$1,131,525 and $2,121,005 as compared to $1,547,717 and $3,804,989 during the
like periods in 1995. Management believes that this fluctuation is consistent
with the nature of the Federal Laboratories-Registered Trademark- division,
which sells its products primarily to law enforcement and military agencies
through lengthy bidding processes. Agencies generally place orders which are
expected to cover their crowd control requirements for several years.
Consequently, sales orders in this division range from several thousand dollars
to close to one million dollars, thus yielding significant quarterly
fluctuations.
For the three month period ended June 30, 1996, the Consumer division realized
net sales of $1,068,155 a decline of 7% or $80,171 compared to the same period
in 1995. For the six months ended June 30, 1996, Consumer division sales were
$2,646,947 an increase of $282,423 compared to the same period in 1995.
Historically, the Company experiences lower sales in the second quarter.
Management believes that retailers do not place large orders in the second
quarter because sales to consumers are not anticipated to be as strong during
months of longer daylight hours.
Gross profit was 38.3% and 42.3% of net sales respectively for the three and six
month periods ended June 30, 1996 as compared to 43.2% and 42.7% for the
identical periods in 1995. The principal reason for the decrease in gross
profit margin in the second quarter of 1996 as compared to the like period in
1995 is due to the sales mix within the Consumer product line. The sales mix
shifted by 10% from higher margin Consumer defense sprays to lower margin non-
aerosol Consumer products.
Operating expenses for the three and six month periods ended June 30, 1996 were
37.4% and 40.1% of net sales as compared to 44.1% and 42.7% for the
corresponding periods in 1995.
General and administrative expenses for the three month period ended June 30,
1996 were $596,353 representing 22% of net sales as compared to $718,517
representing 22.9% of net sales in the same quarter in 1995. General and
administrative expenses for the six month period ended June 30, 1996 were
$1,236,151 representing 21.6% of net sales compared to $1,543,402 representing
22% for the corresponding period in 1995. These decreases are the result of the
aggressive cost cutting program initiated in January 1996.
Selling expenses for the three and six month periods ended June 30, 1996 were
15.4% and 18.5% of net sales as compared to 21.1% and 20.7% for the same periods
in 1995. The decline in second quarter 1996 selling expenses as compared to
1995, is primarily due to management's cost reduction measures including a more
focused advertising program which resulted in decreased personnel and related
costs and advertising expenses. These expenses were further reduced by
commissions as a result of lower sales.
Other expense (income), net for the three and six month periods ended June 30,
1996, were $478 and $4,670 as compared to ($11,321) and ($18,415) for the
identical periods in 1995. The primary reason for this increase in expense is
the additional interest expense associated with the term loan signed by the
Company on December 22, 1995.
5
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's line of credit with Vermont National Bank terminated on April 30,
1996. Application for a line of credit has been made with another financial
institution. Subject to a field examination, such institution has proposed to
provide a Revolving Line of Credit in addition to a Term Loan to be
collateralized by an interest in all assets of the Company, with a maximum
credit available based upon a percentage of accounts receivable, inventory and
fixed assets, excluding leasehold improvements.
Inventories decreased $435,920 during the six months ended June 30, 1996. This
reduction reflects the sale of Federal Laboratories-Registered Trademark-
finished goods produced in 1995 to fill orders placed in late 1995 and shipped
in 1996.
The Company anticipates consolidating its administrative offices to one wing of
its headquarters and sub-leasing the unused space. The Company anticipates
incurring capital expenses of approximately $60,000 during the remainder of 1996
to complete its office consolidation.
The Company anticipates additional capital expenditures for 1996 to approximate
$286,000 to finance the construction of an indoor testing facility, updating the
sprinkler system and improvements to the aerosol filling facility. These
capital expenditures are expected to be financed with cash from operations and
advances from the line of credit currently being negotiated.
For the six months ended June 30, 1996 capital expenditures were $149,597
compared to $490,933 for the first six months of 1995. The major components of
the 1996 expenditures to date were for the purchase and installation of an air
filtration system in its manufacturing facility and for leasehold improvements
necessary for the planned sub-lease of a portion of its office space.
Long-term debt decreased by $196,339 during the six month period ended June 30,
1996 as scheduled payments were made on notes relating to the purchase of
certain assets and liabilities constituting the Company's Federal Laboratories
division and the term loan with Vermont National Bank.
Accounts receivable increased $435,804 for the six months ended June 30, 1996
principally due to higher sales for the quarter ended June 30, 1996 of
$2,709,142 as compared to sales of $2,220,464 for the fourth quarter of 1995.
At June 30, 1996 accounts payable has declined $250,256 from $618,653 primarily
due to management's successful efforts to reduce operating expenses.
6
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of recent of incidents
in which, for example, defense spray products 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. Incidents of
this type, or others, could give rise to product liability or other claims; or
to claims that past or future advertising, packaging or other practices should
be, or should have been, modified, or that regulation of products of this nature
should be extended or changed.
Other than the foregoing, the Company is not aware of any new claim filed or
threatened against it during the quarter ended June 30, 1996.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (11) Schedule of Computation of
Per Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K None
7
<PAGE>
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.
Date: August 12, 1996 /s/ Richard A. Galt
----------------------------------
Richard A. Galt
Executive Vice President
Date: August 12, 1996 /s/ Brian L. Kelley
-----------------------------------
Brian L. Kelley, Treasurer
Principal Financial Officer
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
Exhibit 11
Schedule of Computation of Primary Net Income
Per Share
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<C> <C> <S> <C> <C>
6,825,000 6,805,000 Common stock outstanding at 6,825,000 6,805,000
end of period
Adjustment to ending shares to
arrive at weighted average for
the period: Shares issued to
Robert D. Norman in accordance
440 --- with Employment Agreement(1) 10,220 ---
---------- ---------- --------- ---------
6,824,560 6,805,000 6,814,780 6,805,000
---------- ---------
------- --- ---------
$ 20,840 $ (10,507) Net income (loss) $ 109,534 $ 9,331
---------- --------- --------- ---------
---------- --------- --------- ---------
$ 0.00 $ (0.00) Net income (loss) per share $ 0.02 $ 0.00
---------- --------- --------- ---------
---------- --------- --------- ---------
</TABLE>
(1)Calculated as follows:
Number of shares outstanding multiplied by the reciprocal of the number of
days outstanding divided by the number of days in the period.
Shares offered for the six months:
June 30, 1996 20,000 x (93/182) 10,220
Shares offered for the three months: 20,000 x (2/91) 440
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 373,744
<SECURITIES> 0
<RECEIVABLES> 1,574,386
<ALLOWANCES> 46,664
<INVENTORY> 5,492,828
<CURRENT-ASSETS> 7,689,170
<PP&E> 4,107,230
<DEPRECIATION> 1,115,672
<TOTAL-ASSETS> 13,724,242
<CURRENT-LIABILITIES> 1,552,456
<BONDS> 231,484
0
0
<COMMON> 68,250
<OTHER-SE> 11,872,052
<TOTAL-LIABILITY-AND-EQUITY> 13,724,242
<SALES> 5,712,227
<TOTAL-REVENUES> 5,712,227
<CGS> 3,293,754
<TOTAL-COSTS> 5,584,485
<OTHER-EXPENSES> 4,670
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 46,517
<INCOME-PRETAX> 123,072
<INCOME-TAX> 13,538
<INCOME-CONTINUING> 109,534
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,534
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
