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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: March 31, 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
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MACE SECURITY INTERNATIONAL, INC.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Income and Accumulated Deficit
Three Months Ended March 31, 1996 and 1995 1
Balance Sheets - March 31, 1996 and December 31, 1995 2
Statements of Cash Flows - Three Months Ended
March 31, 1996 and March 31, 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 7
SIGNATURES
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
(UNAUDITED)
Three Months Ended March 31,
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1996 1995
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Net Sales $3,003,085 $3,890,110
Cost of sales 1,622,733 2,245,675
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Gross profit 1,380,352 1,644,435
Operating expenses:
General and administrative 639,798 824,885
Selling 636,706 793,579
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Operating income 103,848 25,971
Other (income) expense:
Interest income (3,186) (8,241)
Interest expense 23,891 17,316
Other income (16,513) (16,169)
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4,192 (7,094)
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Income before income
tax expense 99,656 33,065
Income tax expense 10,962 13,227
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Net income 88,694 19,838
Accumulated deficit, beginning
of period (1,290,553) (706,200)
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Accumulated deficit,
end of period (1,201,859) (686,362)
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Income per share
of common stock $ 0.01 $ 0.00
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Weighted average number
of common shares outstanding 6,805,000 6,805,000
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The accompanying notes are an integral part
of the financial statements.
1
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MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
(UNAUDITED)
March 31, December 31,
1996 1995
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ASSETS
Current assets:
Cash and cash equivalents $ 122,760 $ 505,638
Accounts receivable, less allowance for
doubtful accounts
($58,548, 1996; $48,600, 1995) 1,775,761 1,089,982
Inventories:
Finished goods 2,340,704 1,926,932
Work in process 1,317,186 1,574,505
Raw material and supplies 2,039,572 2,427,311
Prepaid expenses 330,802 416,005
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Total current assets 7,926,785 7,940,373
Property and equipment, net 2,985,463 3,079,446
Intangibles, net 2,978,491 3,041,440
Other assets 127,620 132,500
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Total Assets $14,018,359 $14,193,759
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 83,552 $ 127,797
Current maturities of long-term debt 513,905 542,248
Accounts payable 487,568 618,653
Accrued liabilities 533,533 534,916
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Total current liabilities 1,618,558 1,823,614
Long-term debt 508,139 567,177
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Total liabilities 2,126,697 2,390,791
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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
6,805,000 in 1996 and 1995 68,050 68,050
Additional paid in capital 13,025,471 13,025,471
Accumulated deficit (1,201,859) (1,290,553)
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Total stockholders' equity 11,891,662 11,802,968
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Total Liabilities and Stockholders' equity $14,018,359 $14,193,759
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The accompanying notes are an integral part
of the financial statements.
2
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MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
INCREASE (DECREASE) IN CASH
Three Months Ended March 31,
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1996 1995
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Operating activities:
Net income $ 88,694 $ 19,838
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Depreciation 111,209 104,150
Amortization 66,309 66,265
Allowance for bad debts 9,948 ---
Loss on sale of assets 687 ---
Changes in operating assets and liabilities:
Accounts receivable (695,727) 314,569
Other receivable - related party --- 19,978
Inventories 231,286 250,223
Prepaid expenses 85,203 (151,542)
Accounts payable (131,085) (29,213)
Accrued liabilities (1,383) (141,569)
Corporate income tax payable --- 3,406
Other assets 1,520 (4,350)
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Net cash (used in) provided by
operating activities (233,339) 451,755
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Investing activities:
Purchase of property and equipment (19,763) (259,871)
Proceeds from sale of property and
equipment 1,850 ---
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Net cash used in investing activities (17,913) (259,871)
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Financing activities:
Payment of principal of long-term debt (87,381) (40,042)
Proceeds from issuance of note payable --- 139,656
Payment of notes payable (44,245) (27,693)
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Net cash (used in) provided by
financing activities (131,626) 71,921
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Net (decrease) increase in cash (382,878) 263,805
Cash:
Beginning of period 505,638 984,877
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End of period $ 122,760 $1,248,682
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The accompanying notes are an integral part
of the financial statements.
3
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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. COMMITMENTS AND CONTINGENCIES
As previously disclosed on the Company's 1995 Form 10-KSB, on March 22, 1996,
the Company signed Letters of Intent to acquire all of the outstanding shares
of capital stock of three separate companies: Gould & Goodrich Leather,
Inc., Howard Uniform Company and Balco Uniform Cap Corp. On May 3, 1996, the
Company received notice of termination of the Letters of Intent regarding the
purchase of Howard Uniform Company and Balco Uniform Cap Corp. due to, among
other things, unsatisfactory results of their due diligence review of Gould &
Goodrich Leather, Inc., the third of the Company's three acquisition
candidates. The purchase by the Company of Howard Uniform Company and Balco
Uniform Cap Corp. was contingent upon the simultaneous purchase of Gould &
Goodrich Leather, Inc. Consequently, on May 9, 1996, the Company terminated
its Letter of Intent to purchase Gould & Goodrich Leather, Inc.
4. INCOME TAX
The Company's effective tax rate for the year ended December 31, 1995 was
(5%) as compared to the 11% for the three months ended March 31, 1996 which
approximates the anticipated effective tax rate for the full fiscal year 1996.
4
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
For the three months ended March 31, 1996.
The following discussion should be read in conjunction with the
accompanying financial statements and notes thereto.
RESULTS OF OPERATIONS:
Net sales for the three month period ended March 31, 1996 decreased $887,025
or 22.8% compared to the same period in 1995. This decrease is principally
due to lower Federal Laboratories-Registered Trademark-product line sales,
partially offset by an increase in consumer division revenues. The Federal
Laboratories-Registered Trademark- product line generated sales of $989,480
in the first quarter of 1996 as compared to $2,257,272 in 1995. Federal
Laboratories-Registered Trademark- products are sold to law enforcement and
military agencies through lengthy bidding processes. The Company believes
that the sales decline from the corresponding quarter in 1995 is primarily a
result of sporadic large orders yielding quarterly fluctuations, rather than
an overall softness in the market. For the three months ended March 31,
1996, consumer division sales increased $362,594 as compared to the
corresponding period in 1995, principally due to the addition of two
national customers, WalMart and AFES.
Gross profit was 46.0% of net sales for the three months ended March 31, 1996
as compared to 42.3% for the similar period in 1995. Strong first quarter
sales of the higher margin consumer division product line is primarily the
reason for the increase in gross margin. This product line represented 52.6%
of the total net sales and produced a gross margin of 52.2%.
Operating expenses were 42.5% of net sales for the three months ended March
31, 1996 as compared to 41.6% for the corresponding period in 1995.
General and administrative expenses decreased 22.4% to $639,798 for the three
months ended March 31, 1996 as compared to the same period in 1995. This
decrease is principally due to an aggressive cost cutting program initiated
in January 1996, as well as personnel-streamlining. Selling expenses for the
three months ended March 31, 1996 decreased 19.8% to $636,706 as compared to
the like period in 1995. Reduced commission expense related to the decline
in sales is the primary reason for this decrease. For the three months ended
March 31, 1996, selling expenses as a percentage of net sales increased to
21.2% as compared to 20.4% for the same period in 1995. This increase is
primarily due to intensive marketing efforts made in California as a direct
result of a recent change in legislation easing restrictions on the sale of
less-lethal defense sprays.
Other (income) expense, net was $4,192 and ($7,094) for the three month
periods ended March 31, 1996 and 1995 respectively. This expense increase is
primarily due to the interest expense associated with the term loan signed by
the Company on December 22, 1995.
5
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LIQUIDITY AND CAPITAL RESOURCES:
Accounts receivable increased $695,727 during the three months ended March
31, 1996 principally due to higher sales for the quarter ended March 31, 1996
of $3,003,085 as compared to the sales of $2,220,464 for the fourth quarter
of 1995.
During the quarter ended March 31, 1996 cash decreased $382,878. The use of
cash is a combination of increased accounts receivable and payments of trade
accounts payable partially offset by a decrease in inventories.
During the quarter ended March 31, 1996, accounts payable decreased $131,085
primarily due to reduced inventory purchases resulting from the Company's
improved purchasing controls, as well as the aggressive cutting of operating
expenses.
Inventories decreased $231,286 during the three month period ended March 31,
1996. This reduction reflects the use of Federal Laboratories division raw
material and work in process inventories built during 1995 at the Federal
Laboratories plant location in Pennsylvania prior to its relocation to
Vermont.
Capital expenditures for the three month period ended March 31, 1996 were
$19,763 as compared to $259,871 for the same quarter in 1995. The major
component of the 1996 expenditures was the purchase and installation of a new
manufacturing software package. Major components of the expenditures made in
the corresponding quarter in 1995 included facility improvements and new
equipment required for the relocation of the Federal Laboratories operation
from Pennsylvania to Vermont.
The Company has a line of credit with a maximum draw of $1,000,000 with
Vermont National Bank. The availability of funds which can be borrowed is
calculated using accounts receivable and inventories as a loan availability
base. As of March 31, 1996 no amounts were outstanding on this line. The
line expired on April 30, 1996. The Company is in negotiations for a new
line of credit. The Company expects the line of credit will be renewed under
substantially similar terms.
The Company expects the remaining estimated fiscal year 1996 capital
expenditures to approximate $300,000, which will include air filtration
equipment, an indoor testing facility and leasehold improvements. These
expenditures are expected to be financed with cash from operations and the
line of credit once renewed.
6
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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 reports of
incidents in which, for example, defense spray products have been
mischievously or improperly used, in some case 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.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (11) Schedule of Computation of Per
Share Earnings
(b) Reports on Form 8-K Report on Form 8-K filed
January 29, 1996 relating to the
Change in Control
7
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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: May 9, 1996 /s/ Robert D. Norman
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Robert D. Norman, President
Date: May 9, 1996 /s/ Brian L. Kelley
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Brian L. Kelley, Treasurer
Principal Financial Officer
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MACE SECURITY INTERNATIONAL, INC.
Exhibit 11
Schedule of Computation of Primary Net Income
Per Share
For the three months ended March 31,
1996 1995
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Common stock outstanding at
end of period 6,805,000 6,805,000
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Net income $ 88,694 $ 19,838
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Net income per share $ 0.01 $ 0.00
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