<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1999 COMMISSION FILE NO. 0-22810
MACE SECURITY INTERNATIONAL, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of incorporation or organization)
03-0311630
(I.R.S. Employer Identification No.)
1000 CRAWFORD PLACE, SUITE 400, MOUNT LAUREL, NJ 08054
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NO., INCLUDING AREA CODE: (856) 778-2300
160 BENMONT AVENUE, BENNINGTON, VT 05201
(Former Address of Principal Executive Offices)
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 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 the number of shares outstanding of each of the issuer's classes of
Common Stock:
As of November 9, 1999 21,712,942 Shares of Common Stock
<PAGE>
Mace Security International, Inc.
Form 10-QSB
Quarter Ended September 30, 1999
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - September 30, 1999
and December 31, 1998 (Restated) 2
Condensed Consolidated Statements of Operations for the three
months ended September 30, 1999 and 1998 (Restated) 4
Condensed Consolidated Statements of Operations for the nine
months ended September 30, 1999 and 1998 (Restated) 5
Condensed Consolidated Statement of Stockholders' Equity
for the nine months ended September 30, 1999 6
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1999 and 1998 (Restated) 7
Notes to Condensed Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
PART II - OTHER INFORMATION
Item 2 - Changes in Securities 25
Item 5 - Other Information 26
Item 6 - Exhibits and Reports on Form 8-K 27
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
MACE SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 1999 1998
-------------- -------------
(Restated)
Current assets:
<S> <C> <C>
Cash and cash equivalents (including escrow of $120,000
in 1999 and $610,800 in 1998) $ 3,911,692 $ 4,672,695
Accounts receivable, less allowance for doubtful
accounts of $79,500 and $123,200 1,836,600 1,522,709
Inventory 2,360,116 1,761,618
Deferred income taxes 730,376 -
Prepaid expenses and other current assets 1,074,868 299,873
-------------- -------------
Total current assets 9,913,652 8,256,895
Property and equipment:
Land 21,250,425 2,129,855
Buildings and leasehold improvements 16,873,460 3,930,558
Machinery and equipment 4,159,730 2,626,072
Furniture and fixtures 323,242 236,864
-------------- -------------
Total property and equipment 42,606,857 8,923,349
Accumulated depreciation (3,572,149) (3,378,974)
-------------- -------------
39,034,708 5,544,375
Net assets of discontinued operations 33,000 326,835
Excess cost over fair market value of net assets acquired,
net of $100,000 accumulated amortization 11,415,965 -
Other intangible assets, net of $1,115,000 and
$1,014,000 accumulated amortization 1,048,203 1,020,702
Notes receivable from shareholders/officers 61,900 543,985
Other assets 1,961,684 233,190
-------------- -------------
TOTAL ASSETS $63,469,112 $15,925,982
============== =============
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
-------------- -------------
(Restated)
Current liabilities:
<S> <C> <C>
Accounts payable $ 1,532,033 $ 644,021
Accrued expenses and other current liabilities 2,675,380 571,820
Income taxes payable 151,663 -
Current portion of long-term debt 10,416,965 1,035,894
Current portion of capital lease obligations 24,954 -
Note payable to shareholder 252,923 8,063
Deferred revenue 240,601 235,604
-------------- -------------
Total current liabilities 15,294,519 2,495,402
Deferred income taxes 1,826,877 -
Long-term debt, net of current portion 4,647,781 4,114,457
Capital lease obligations, net of current portion 2,279 -
Other liabilities 3,104,998 -
Stockholders' equity:
Common stock, $.01 par value:
Authorized shares - 200,000,000
Issued and outstanding shares 17,517,942 and 8,179,620 175,179 81,796
Additional paid-in capital 46,277,398 14,272,243
Accumulated deficit (7,807,531) (4,985,528)
-------------- -------------
38,645,046 9,368,511
Less treasury stock at cost - 256,666 common shares (52,388) (52,388)
-------------- -------------
Total stockholders' equity 38,592,658 9,316,123
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $63,469,112 $15,925,982
============== =============
</TABLE>
See accompanying notes.
3
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1999 1998
---------------- -----------
<S> <C> <C>
(Restated)
Revenues:
Car wash and detailing services $ 5,133,542 $ 804,400
Lube and other automotive services 1,024,880 13,877
Fuel and merchandise sales 642,329 54,360
Security product sales 692,413 718,871
Computer products and services 786,137 585,020
Operating agreements 46,199 -
---------------- -----------
8,325,500 2,176,528
Cost of revenues:
Car wash and detailing services 3,415,808 553,205
Lube and other automotive services 693,983 11,517
Fuel and merchandise sales 529,722 36,110
Security product sales 345,228 346,725
Computer products and services 457,865 359,547
---------------- -----------
5,442,606 1,307,104
Selling, general and administrative expenses 1,725,409 697,458
Depreciation and amortization 322,469 168,418
Merger costs 1,875,000 -
Restructuring and change in control charges - -
---------------- -----------
Operating (loss) income (1,039,984) 3,548
Interest expense, net (352,300) (45,327)
Other income 132,578 67,594
---------------- -----------
(Loss) income from continuing operations before income taxes (1,259,706) 25,815
Income tax (benefit) expense (334,875) 302
---------------- -----------
(Loss) income from continuing operations (924,831) 25,513
Income from discontinued operations, net of
$0 applicable income taxes 95,786 60,799
---------------- -----------
Net (loss) income $ (829,045) $ 86,312
================ ===========
Basic (loss) income per share
From continuing operations $ (0.05) $ -
From discontinued operations - 0.01
---------------- -----------
Total $ (0.05) $ 0.01
================ ===========
Weighted average number of shares outstanding 17,245,702 8,317,880
================ ===========
Diluted (loss) income per share
From continuing operations $ (0.05) $ -
From discontinued operations - 0.01
---------------- -----------
Total $ (0.05) $ 0.01
================ ===========
Weighted average number of shares outstanding 17,245,702 8,327,890
================ ===========
</TABLE>
See accompanying notes.
4
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
(Restated)
Revenues:
Car wash and detailing services $ 8,923,466 $3,206,576
Lube and other automotive services 1,566,581 47,667
Fuel and merchandise sales 971,866 202,831
Security product sales 2,298,411 2,079,981
Computer products and services 2,399,341 1,113,479
Operating Agreements 480,838 -
----------- ----------
16,640,503 6,650,534
Cost of revenues:
Car wash and detailing services 5,623,225 1,902,772
Lube and other automotive services 1,151,600 40,621
Fuel and merchandise sales 780,634 128,589
Security product sales 1,189,570 933,913
Computer products and services 1,427,418 559,945
----------- ----------
10,172,447 3,565,840
Selling, general and administrative expenses 4,204,790 2,221,415
Depreciation and amortization 645,399 559,115
Merger costs 1,875,000 -
Restructuring and change in control charges 1,519,000 -
----------- ----------
Operating (loss) income (1,776,133) 304,164
Interest expense, net (547,726) (285,240)
Other (expense) income 147,913 154,229
----------- ----------
(Loss) income from continuing operations before
income taxes (2,175,946) 173,153
Income tax (benefit) expense (684,875) 4,198
----------- ----------
(Loss) income from continuing operations (1,491,071) 168,955
Income (loss) from discontinued operations,
net of $0 applicable income taxes 24,032 (498,296)
----------- ----------
Net loss $(1,467,039) $ (329,341)
=========== ==========
Basic (loss) income per share:
From continuing operations $(0.13) $ 0.02
From discontinued operations - (0.06)
----------- ----------
Total $(0.13) $ (0.04)
=========== ==========
Weighted average number of shares outstanding 11,652,009 8,396,384
=========== ==========
Diluted (loss) income per share:
From continuing operations $(0.13) $ 0.02
From discontinued operations - (0.06)
----------- ----------
Total $(0.13) $ (0.04)
=========== ==========
Weighted average number of shares outstanding 11,652,009 8,403,998
=========== ==========
</TABLE>
See accompanying notes.
5
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED TREASURY
STOCK CAPITAL DEFICIT STOCK TOTAL
-------- ----------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998.......................... $ 81,796 $14,272,243 $(4,985,528) $(52,388) $ 9,316,123
Exercise of common stock
options and warrants....................... 6,104 813,905 820,009
Proceeds from sale of 5,965,952 shares of
common stock net of issuance expense of
$75,334.................................... 59,660 13,500,631 13,560,291
Common stock issued in
purchase acquisitions...................... 27,361 12,483,261 12,510,622
Warrants issued in purchase acquisition.... 4,369,000 4,369,000
Effect of variable option vesting on change
in control................................ 587,000 587,000
Stock issued to satisfy debt obligation.... 258 251,358 251,616
Net loss................................... (1,467,039) (1,467,039)
Transactions of pooled company............. (76,732) (76,732)
Dividends paid to former stockholders of
pooled companies.......................... (1,278,232) (1,278,232)
-------- ----------- ----------- -------- -----------
Balance at September 30, 1999 $175,179 $46,277,398 $(7,807,531) $(52,388) $38,592,658
======== =========== =========== ======== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1999 1998
------------ -----------
<S> <C> <C>
(Restated)
OPERATING ACTIVITIES
Net loss $ (1,467,039) $ (329,341)
Adjustments to reconcile net loss
to net cash (used in) provided by operating activities:
Depreciation and amortization 645,399 559,115
Provision for losses on receivables 126,797 33,719
Deferred income taxes (534,875) -
Non-cash portion of restructuring and change in
control charges 1,267,000 -
Changes in operating assets and liabilities:
Accounts receivable (414,410) 146,836
Inventory (365,374) (161,986)
Accounts payable (542,330) 59,305
Accrued expenses 183,704 (87,153)
Income taxes (168,383) (6,405)
Prepaid expenses and other current assets (775,539) 76,473
Discontinued operations 293,835 4,901,105
Other 160,760 492,999
------------ -----------
Net cash (used in) provided by operating activities (1,590,455) 5,684,667
INVESTING ACTIVITIES
Acquisition of businesses, net of cash acquired (8,364,008) -
Purchase of property and equipment (748,329) (207,204)
Payments for intangibles (125,718) (41,054)
Payments received on notes receivable from shareholder 891,916 241,835
Deposits and other prepaid costs on future acquisitions (1,721,374) -
------------ -----------
Net cash used in investing activities (10,067,513) (6,423)
FINANCING ACTIVITIES
Proceeds from revolving line of credit, long term debt and
capital lease obligations 76,836 203,115
Payments on revolving line of credit, long-term debt
and capital lease obligations (2,526,799) (1,911,634)
Proceeds from issuance of common stock, net of
offering costs 14,380,300 1,170
Net borrowings (payments) on note payable
to shareholder 244,860 (3,163)
Dividends paid to former stockholders of pooled companies (1,278,232) (500,241)
------------ -----------
Net cash provided by (used in) financing activities 10,896,965 (2,210,753)
------------ -----------
Net (decrease) increase in cash and cash equivalents (761,003) 3,467,491
Cash and cash equivalents at beginning of period 4,672,695 1,531,806
------------ -----------
Cash and cash equivalents at end of period $ 3,911,692 $ 4,999,297
============ ===========
</TABLE>
See accompanying notes.
7
<PAGE>
MACE SECURITY INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Mace Security International, Inc. and its wholly owned
subsidiaries (the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation. These condensed
consolidated financial statements reflect all adjustments (consisting of 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 Company has restated previous financial information for the three and nine
months ending September 30, 1998 to reflect the acquisitions of Innovative
Control Systems, Inc. ("ICS") on July 9, 1999, 50's Classic Car Wash of Lubbock,
Inc. and CRCD, Inc. ("50's Classic") on August 25, 1999, and Eager Beaver Car
Wash, Inc. ("Eager Beaver") on September 9, 1999, all accounted for as poolings
of interests. Additionally, the balance sheet at December 31, 1998 has been
restated to reflect the ICS, 50's Classic, and Eager Beaver acquisitions. The
fiscal year end of Eager Beaver was January 31. The consolidated results of
operations of the Company for the nine months ended September 30, 1999 and 1998
include the results of operations of Eager Beaver for the same period while the
restated December 31, 1998 balance sheet includes the accounts of Eager Beaver
at January 31, 1999. A net decrease to equity of $76,732 has been made to
reflect the activity of Eager Beaver for the month of January 1999. The results
of operations for the three and nine month periods ended September 30, 1999 are
not necessarily indicative of the operating 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. These interim financial statements should be read in
conjunction with the audited financial statements and notes contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1998.
2. SIGNIFICANT ACCOUNTING POLICIES
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosures about Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 establishes
standards for reporting information about operating segments in annual financial
statements that requires that those enterprises report selected information
about operating segments in the interim financial reports issued to
shareholders. Statement 131 is effective for fiscal years beginning after
December 15, 1997. The Company adopted Statement 131 effective January 1, 1998.
3. BUSINESS COMBINATIONS
The Company has been a well known producer of less-lethal defense sprays for the
consumer market and a marketer of consumer safety and security products. The
Company has recently undergone a change in control (discussed elsewhere in these
notes), and has implemented a strategic plan to enter the car care industry
through acquisitions of existing and well-managed car care facilities
nationwide.
Since April 1, 1999, and including the consummation of the Millennia acquisition
on October 29, 1999, the Company has acquired 58 car care facilities through the
acquisition of 13 separate businesses, including 45 full service facilities, one
self service facility, and 13 exterior only facilities in Pennsylvania, New
Jersey, Delaware, Texas, Florida and Arizona. Additionally, the Company is
managing, under an operating agreement, one full serve facility in Arizona which
includes a lube and repair center.
Of the total 11 acquisitions completed through September 30, 1999, eight were
accounted for using the purchase method of accounting. Accordingly, assets
acquired and liabilities assumed have been recorded at their estimated fair
values at the dates of acquisition and their results of operations are included
in the accompanying condensed consolidated statements of operations since the
date of acquisition. The excess of purchase price over the estimated fair
market value of identifiable net assets acquired is being amortized on a
straight-line basis over twenty-five years
8
<PAGE>
from the date of acquisition. The purchase price allocations are based on
preliminary estimates as of the acquisition dates and will be finalized within
one year from the date of acquisition.
ACQUISITIONS ACCOUNTED FOR UNDER THE PURCHASE METHOD
On May 17, 1999, the Company acquired all of the outstanding stock of Colonial
Full Service Car Wash, Inc. ("Colonial") in exchange for 1,250,991 unregistered
shares of the Company's common stock and the assumption of debt and negative
working capital of approximately $6,734,000. This transaction has been
accounted for using the purchase method of accounting.
On May 18, 1999, the Company acquired certain assets of Genie Car Wash Inc. of
Austin, Genie Car Care Center, Inc., and Genie Car Service Center, Inc.
(collectively, "Genie"). Consideration under the Agreement consisted of 533,333
unregistered shares of common stock of the Company, $1,000,000 of cash, and the
issuance of a $4,750,000 promissory note. The assets acquired consist of
substantially all of the real estate, equipment, and inventories utilized in the
car wash businesses. This transaction has been accounted for using the purchase
method of accounting.
On June 1, 1999, the Company acquired substantially all of the assets of Gabe's
Plaza Car Wash, Inc. ("Gabe's") in exchange for $210,000 in cash and delivery of
a promissory note for $717,000. The transaction has been accounted for using
the purchase method of accounting.
On June 22, 1999, the Company acquired substantially all of the assets of the
Moorestown Car Wash in exchange for $225,000 and the issuance of 20,930
unregistered shares of common stock of the Company. This transaction has been
accounted for using the purchase method of accounting.
On July 1, 1999, the Company completed, pursuant to a Merger Agreement dated
March 26, 1999, its merger with American Wash Services, Inc. ("AWS"), a car wash
company controlled by Mr. Paolino, pursuant to which AWS was merged with and
into a wholly-owned subsidiary of the Company. Mr. Paolino and Red Mountain
Holdings, Ltd., AWS's other shareholder, received in exchange for all of the
shares of AWS, $4,687,500, in cash, and 628,362 unregistered shares of Common
Stock, of which Mr. Paolino received 470,000 shares and Red Mountain received
158,362 shares. Mr. Paolino and Mr. Robert M. Kramer, the current Executive Vice
President and General Counsel of the Company, received additional consideration
in connection with this merger:
.Mr. Paolino received a warrant to purchase 1,500,000 shares of Common Stock
at a purchase price of $1.375 per share;
.Mr. Paolino received a warrant to purchase 250,000 shares of Common Stock at
a purchase price of $2.50 per share; and
.Mr. Kramer received a warrant to purchase 75,000 shares of Common Stock at a
purchase price of $1.375 per share.
The transaction has been accounted for as a purchase.
On July 1, 1999, the Company acquired substantially all the assets of Stephen
Bulboff and Stephen B. Properties, Inc. (collectively, "Shammy Shine" or
"Stephen Bulboff") in exchange for 860,000 unregistered shares of common stock
of the Company and cash consideration of $1,900,000. Stephen Bulboff owns and
operates a total of ten exterior only car washes in Pennsylvania, New Jersey and
Delaware. This transaction has been accounted for as a purchase.
On August 24, 1999, the Company acquired, through a wholly owned subsidiary,
substantially all of the assets of Shammy Man Car Wash ("Shammy Man") in
exchange for 62,649 unregistered shares of common stock cash consideration of
$475,000 and the assumption of approximately $400,000 of debt. This transaction
has been accounted for using the purchase method of accounting.
On September 9, 1999, the Company acquired all of the assets of Quaker Car Wash,
Inc. ("Quaker") in exchange for 224,072 unregistered shares of common stock and
approximately $1,055,000 of cash consideration. This has been accounted for
using the purchase method of accounting.
9
<PAGE>
ACQUISITIONS ACCOUNTED FOR UNDER THE POOLING OF INTERESTS METHOD
On July 9, 1999, the Company acquired all of the outstanding shares of
Innovative Control Systems, Inc. ("ICS"). Approximately 604,000 shares of
unregistered shares of common stock of the Company were issued in exchange for
all of the outstanding shares of ICS. Additionally, the Company assumed
approximately $750,000 of ICS's debt. ICS is the premier supplier and developer
of computerized management control systems for the car wash, lube center and
convenience store industries. The transaction has been accounted for using the
pooling of interests method of accounting; and accordingly, the accompanying
consolidated financial statements include the accounts of ICS for all periods
presented.
On August 25, 1999, the Company acquired all of the outstanding shares of 50's
Classic Car Wash of Lubbock, Inc. and CRCD, Inc. (collectively, "50's Classic").
Approximately 91,700 shares of unregistered shares of common stock of the
Company were issued in exchange for all of the outstanding shares of 50's
Classic. Additionally, the Company assumed at closing approximately $617,000 of
50's Classic debt. 50's Classic owns and operates a full service car wash in
Lubbock, Texas. The transaction has been accounted for using the pooling of
interests method of accounting; and accordingly, the accompanying consolidated
financial statements include the accounts of 50's Classic for all periods
presented.
On September 9, 1999, the Company acquired all of the outstanding shares of
Eager Beaver Car Wash, Inc. ("Eager Beaver") for consideration of approximately
659,200 unregistered shares of common stock of the Company issued in exchange
for all of the outstanding shares of Eager Beaver. Additionally, the Company
assumed approximately $3.8 million of debt. Eager Beaver owns and operates five
full service car washes on the west coast of Florida that provide a complete
line of car care services including washing, waxing, and lubrication services.
The transaction has been accounted for using the pooling of interests method of
accounting; and accordingly, the accompanying consolidated financial statements
include the accounts of Eager Beaver for all periods presented.
Combined and separate results of operations of the Company, ICS, 50's Classic,
and Eager Beaver for the nine months ended September 30, 1999 and 1998 are as
follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1999
REVENUES NET INCOME
-------- ----------
<S> <C> <C> <C>
(In Thousands)
Mace Security International, Inc. $10,602 $ (786)
Innovative Control Systems, Inc. 2,399 (25) (1)
50's Classic Car Wash 628 (58) (1)
Eager Beaver Car Wash 3,012 (598) (1)
-------- ----------
Combined $16,641 $(1,467)
======== ==========
NINE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES NET INCOME
-------- ----------
(In Thousands)
Mace Security International, Inc. $ 2,080 $ (798)
Innovative Control Systems, Inc. 1,113 32
50's Classic Car Wash 606 76
Eager Beaver Car Wash 2,851 361
-------- ----------
Combined $ 6,650 $ (329)
======== ==========
</TABLE>
(1) Includes merger costs and related tax provision.
10
<PAGE>
4. OPERATING AGREEMENTS
Currently, the Company is managing several car wash locations under operating
agreements, under which the Company is entitled to all profits generated from
the operation of those locations. These operating agreements generally arise
from pending acquisitions that will be closed pending completion of certain
conditions. The pretax income earned under these operating agreements is
presented in the accompanying statements of operations as revenue from operating
agreements net of all operating expenses.
The results of operations subject to operating agreements in the three and nine
months ended September 30, 1999 were as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30 SEPTEMBER 30
------------- ------------
REVENUES
<S> <C> <C>
Car wash and detailing services $3,424,199 $7,321,825
Lube and other automotive services 280,345 566,296
Fuel and merchandise sales 406,615 908,746
------------- ------------
4,111,159 8,796,867
COST OF REVENUES
Car wash and detailing services 2,408,622 5,016,466
Lube and other automotive services 287,090 530,356
Fuel and merchandise sales 386,577 811,139
------------- ------------
3,082,289 6,357,961
Selling, general, and administrative expenses 419,380 785,156
Depreciation and amortization 305,759 631,756
------------- ------------
Operating income 303,731 1,021,994
Interest expense, net (311,997) (650,331)
Other income 54,465 109,175
------------- ------------
Income earned under operating agreements $ 46,199 $ 480,838
============= ============
</TABLE>
5. DISCONTINUED OPERATIONS
On July 14, 1998, the Company sold substantially all of the assets of its Law
Enforcement division within its security products segment for cash of
$4,985,651. In conjunction with the sale of assets, the Company licensed to the
purchaser the use of Mace(R) and related trademarks and a patent for use by the
purchaser in the Law Enforcement market and received a one-time license fee of
$650,000. The Company retained the cash and customer accounts receivable from
the Law Enforcement division at closing. The Company utilized a portion of the
purchase price, $1,725,202, to pay off all outstanding bank debt to FNB under
its term loan agreements.
A portion of the purchase price, $600,000, was retained by the purchaser in
escrow to secure, among other things, the Company's obligations under the
representations and warranties in the purchase agreement. On January 20, 1999,
$480,000 of the escrow was returned to the Company. The remainder is pending
release upon agreement that no claim exists against the Company for which the
purchaser is entitled to set off against the escrow funds. Notwithstanding the
sale of the Law Enforcement division, the Company continues to fulfill its
obligation under a nonassignable Department of Defense contract which is
expected to be completed in the fourth quarter of 1999. Accordingly, this
contract is included in discontinued operations in the accompanying statements
of operations for the three and nine months ending September 30, 1999 and 1998.
In the three months ended September 30, 1998, the Company disposed of two
wholly-owned subsidiaries, MSP, Inc. (a Colorado distributor) and MSP Retail,
Inc. (Colorado retail stores which were operated as Mace Security
11
<PAGE>
Centers(TM)). The contracts between the Company and the former owners of the
distributorship and retail stores allowed the Company to put back the shares of
MSP, Inc. and MSP Retail, Inc. to the former owners if certain pre-tax earnings
targets were not met within one year following the Company's acquisition. In
both cases, the aforementioned subsidiaries failed to make their pre-tax
earnings targets. The Company put back the shares of MSP, Inc. to the former
owner in exchange for 80,000 shares of the Company that were tendered as
consideration in the acquisition of MSP, Inc. In a modified version of the put
with respect to MSP Retail, Inc., the Company transferred the net assets of MSP
Retail, Inc. to a corporation owned by the former owner in exchange for 176,666
shares of the Company that were tendered as consideration in the acquisition of
MSP Retail, Inc. Further, both contracts called for repayment of working
capital loaned by the Company to MSP, Inc. and MSP Retail, Inc. The repayment
amount as defined by the contracts is the money loaned by the Company reduced by
operating losses incurred by the respective subsidiaries during the twelve-month
period each was owned by the Company. As a result of the disposition of these
subsidiaries, the Company incurred losses of $67,013 and $47,317 related to MSP,
Inc. and MSP Retail, Inc., respectively.
6. CHANGE IN MANAGEMENT
On May 24, 1999, the Company appointed Louis D. Paolino, Jr., Robert M. Kramer
and Gregory M. Krzemien to serve as the Company's President and Chief Executive
Officer, Executive Vice President, Secretary and General Counsel, and Chief
Financial Officer and Treasurer, respectively. Louis D. Paolino, Jr. and
Constantine N. Papadakis also were appointed to the Board of Directors of the
Company to fill the vacancies resulting from the resignations of three
directors.
7. COMMITMENTS AND CONTINGENCIES
As disclosed in the Company's 1994 Form 10-KSB, on January 25, 1994 a suit was
filed by Carmeta Gentles on her own behalf and as a personal representative of
the estate of Robert Gentles in Ontario Court (General Division), Ontario,
Canada, claiming intentional or negligent manufacture and distribution of the
Mark V Mace(R) brand defense spray unit and that its contents contributed to the
suffering and death of Robert Gentles while in the Kingston Penitentiary in
October 1993. The Company was added as a third party defendant on February 8,
1995. The plaintiff seeks five million dollars in damages. The Company
forwarded this suit to its insurance carrier for defense. Based on discussions
with the Company's counsel and insurance carrier, the Company does not
anticipate that this claim will result in the payment of damages in excess of
the Company's insurance coverage.
On July 27, 1998, the Company was added as a defendant in a suit filed in the
state of West Virginia by Susan H. Jackman, et. al. The litigation concerns an
attack on Mrs. Jackman by two dogs and the alleged failure of a "Muzzle(R)"
product distributed by the Company to repel the dogs. The suit claims product
liability and negligence and seeks one million dollars in damages. The Company
forwarded this suit to its insurance carrier for defense. The Company does not
anticipate that this claim will result in the payment of damages in excess of
the Company's insurance coverage.
8. BUSINESS SEGMENTS INFORMATION
The Company currently operates in three separate business segments: (1) the Car
Care segment, supplying complete car care services (including wash, detailing,
lube, and minor repairs), fuel and merchandise sales, (2) the Security Products
sales segment, producing and marketing defense sprays, and marketing and
retailing consumer safety and security products, and (3) the Computer Hardware
and Software Products and Services segment. Financial information regarding
these three segments is as follows:
12
<PAGE>
<TABLE>
<CAPTION>
COMPUTER
CAR SECURITY PRODUCTS
CARE PRODUCTS AND SERVICES
------ -------- ------------
(In Thousands)
THREE MONTHS ENDED SEPTEMBER 30, 1999
<S> <C> <C> <C>
Revenues from external customers $ 6,848 $ 692 $ 786
Intersegment revenues $ - $ 10 $ 291
Segment loss $ (721) $ (88) $ (20)
NINE MONTHS ENDED SEPTEMBER 30, 1999
Revenues from external customers $11,944 $ 2,298 $2,399
Intersegment revenues $ - $ 10 $ 291
Segment income (loss) $ 247 $(1,782) $ 68
Segment assets $58,405 $ 4,382 $ 682
THREE MONTHS ENDED SEPTEMBER 30, 1998
Revenues from external customers $ 873 $ 719 $ 585
Intersegment revenues $ - $ - $ -
Segment (loss) income $ (20) $ 48 $ 58
NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenues from external customers $ 3,457 $ 2,080 $1,113
Intersegment revenues $ - $ - $ -
Segment income (loss) $ 437 $ (798) $ 32
------- ------- ------
</TABLE>
9. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements. Actual results could
differ from those estimates. Such estimates include the Company's estimates of
reserves such as the allowance for doubtful accounts receivable, inventory
valuation allowances, and the Company's estimate of restructuring and change in
control charges.
10. INCOME TAXES
The Company recorded a tax benefit of $685,000 for the nine months ended
September 30, 1999. The net benefit is comprised of a benefit of approximately
$1.0 million of Federal and State taxes at statutory rates, and a $330,000 one-
time tax expense related to non-deductible merger costs and the establishment of
deferred income tax liabilities for pooled companies acquired during the nine
months ended September 30, 1999, which were S Corporations prior to the date of
merger. The tax benefit reflects the recording of Federal and State taxes at a
rate of 32%. An effective rate lower than the Federal and State statutory rate
for the nine months ended September 30, 1999 is primarily due to the use of net
operating loss carryforwards, income from pooled companies which were taxed as S
Corporations, and the one-time effect of the charge from the pooled company
acquisitions.
13
<PAGE>
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- -------------------------------
<S> <C> <C> <C> <C>
9/30/99 9/30/98 9/30/99 9/30/98
------------- ---------- ----------- ----------
Numerator:
(Loss) income from continuing operations $ (924,831) $ 25,513 $(1,491,071) $ 168,955
Income (loss) from discontinued operations 95,786 60,799 24,032 (498,296)
------------- ---------- ----------- ----------
Net(loss) income $ (829,045) $ 86,312 $(1,467,039) $ (329,341)
============= ========== =========== ==========
Denominator:
Denominator for basic loss (income)
per share - weighted average shares 17,245,702 8,317,880 11,652,009 8,396,384
Dilutive effect of options and warrants - 10,010 - 7,614
------------- ---------- ----------- ----------
Denominator for diluted (loss) income
per share - weighted average shares 17,245,702 8,327,890 11,652,009 8,403,998
============= ========== =========== ==========
Basic (loss) income per share:
From continuing operations $ (0.05) $ - $ (0.13) $ 0.02
From discontinued operations - 0.01 - (0.06)
------------- ---------- ----------- ----------
Total $ (0.05) $ 0.01 $ (0.13) $ (0.04)
============= ========== =========== ==========
Diluted (loss) income per share:
From continuing operations $ (0.05) $ - $ (0.13) $ 0.02
From discontinued operations - 0.01 - (0.06)
------------- ---------- ----------- ----------
Total $ (0.05) $ 0.01 $ (0.13) $ (0.04)
============= ========== =========== ==========
</TABLE>
The Company has outstanding stock options and warrants. However, because both
the three and nine month periods ending September 30, 1999 resulted in losses
from continuing operations, the effect of the options and warrants would be
anti-dilutive.
12. RESTRUCTURING AND CHANGE IN CONTROL CHARGES
In conjunction with the Company's recent change in control, the Company
restructured certain of its security products operations and incurred certain
other change in control related costs. A restructuring and change in control
charge of $1,519,000 was recorded in the second quarter ending June 30, 1999.
Of this charge, $1,267,000 is non-cash in nature consisting of a $218,000 write-
off of certain assets and inventories as a result of management exiting certain
product lines within the Company's security products segment; a $462,000 write-
off of certain deposits and leasehold improvements related to the Company's plan
to abandon a portion of its currently leased facilities in Vermont; and a
$587,000 non-cash compensation charge relating to the vesting of variable
options to certain previous directors of the Company upon the Company's recent
change in control. The remaining charge of approximately $252,000 includes
certain severance costs accrued as well as legal, accounting and other
transaction costs related to the Company's change in control.
13. MERGER COSTS
Merger costs include transaction related expenses, contractual costs, severance
and other termination benefits and certain other direct incremental costs
incurred in connection with acquisitions accounted for under the pooling of
14
<PAGE>
interests method. Transition costs, principally related to integrating the
operations, are recorded as merger costs when incurred. A charge of $1,875,000
was recorded for merger costs during the quarter ended September 30, 1999. As
of September 30, 1999, approximately $1,425,000 of this amount has been paid and
approximately $450,000 is included in accrued expenses and other current
liabilities on the consolidated balance sheet.
14. SUBSEQUENT EVENTS
On October 18, 1999, the Company, through a wholly owned subsidiary, acquired
all of the car wash related assets of White Glove Car Wash ("White Glove")
located in Tempe, Arizona. Consideration consisted of 38,095 unregistered
shares of common stock of the Company, $130,000 of cash, and the issuance of a
$345,000 promissory note. The transaction will be accounted for using the
purchase method of accounting.
On October 29, 1999, the Company acquired certain real estate and car wash
equipment from Ince Car Wash, Inc. for cash consideration of approximately
$200,000 and the assumption of $2.1 million of long-term debt. The assets will
be used by the Company to operate a full service car wash, fuel center and
convenience store in Lubbock, Texas.
Additionally, on October 29, 1999, the Company consummated the acquisition of
Millennia Car Wash L.L.C. ("Millennia") which the Company has operated under an
operating agreement since March 31, 1999. Millennia consists of 11 full service
car washes in the Phoenix, Arizona market and six full service car washes in the
San Antonio, Texas market as well as a total of five lube and repair centers,
eight fuel sales operations, and 17 convenience stores. Consideration under the
agreement, as amended, consisted of 3,500,000 unregistered shares of common
stock of the Company and the assumption of approximately $15.0 million of long-
term debt. The transaction will be accounted for using the purchase method of
accounting.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
DISCLOSURE REGARDING FORWARD LOOKING STATEMENTS
This quarterly 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 section,
are Forward Looking Statements. Although the Company believes that the
expectations reflected in such Forward Looking Statements are reasonable, it 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 the Company, or projections involving anticipated revenues,
earnings, levels of capital expenditures or other aspects of operating results.
All phases of the Company's operations are subject to a number of uncertainties,
risks and other influences, many of which are outside the control of the Company
and any one of which, or a combination of which, could materially affect the
results of the Company's operations and whether Forward Looking Statements made
by the Company ultimately prove to be accurate. Such important factors
("Important Factors") that could cause actual results to differ materially from
the Company's 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 the Company's expectations. The forward-looking
statements made herein are only made as of the date of this filing and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
Ongoing Capital Requirements. To the extent that internally generated cash is
not sufficient to provide the cash required for future operations, capital
expenditures, acquisitions and debt repayment obligations, the Company will
require additional equity and/or debt financing in order to provide such cash.
The Forward Looking Statements assume that the Company will be able to raise the
capital necessary to finance such requirements at rates that are as good as or
better than those it is currently experiencing. There can be no assurance,
however, that such financing will be available or, if available, will be
available on terms satisfactory to the Company.
Availability of Acquisition Targets. The Company's ongoing acquisition program
is a key element of its expansion strategy. There can be no assurance that the
Company will succeed in locating appropriate acquisition candidates that can be
acquired at price levels that the Company considers appropriate. The Forward
Looking Statements assume that a number of acquisition candidates sufficient to
meet the Company's goals will be available for purchase and that the Company
will be able to complete the acquisitions at prices comparable to those that the
Company has experienced in the past quarter.
Integration. The Company's financial position and results of operations depend
to a large extent on the integration of recently acquired businesses. The
Forward Looking Statements assume that integration of acquired companies will
require from three to six months from the date the acquisition closes. Failure
to achieve effective integration in the anticipated time period could have
adverse effect on the Company's future results of operations.
Economic Conditions. The Company's business is affected by general economic
conditions. The Forward Looking Statements assume that the Company will be able
to achieve internal volume and price growth which are not impacted by an
economic downturn. There can be no assurance that an economic downturn will not
result in a reduction in the volume of business generated at the Company's
operations and/or the price that the Company can charge for its services.
Weather Conditions. Protracted periods of inclement weather adversely affect
the Company's operations by interfering with car washing and detailing. The
Forward Looking Statements assume that such weather conditions will not occur or
that they will be mitigated by the Company's geographic diversification of its
operations.
16
<PAGE>
Dependence on Senior Management. The Company is highly dependent upon its
senior management team. In addition, as the Company continues to grow, its
requirements for operations management with car care industry experience will
also increase. The Forward Looking Statements assume that experienced
management will be available when needed by the Company at compensation levels
that are within the industry norms. The loss of the services of any member of
senior management or the inability to hire experienced operations management
could have a material adverse effect on the Company.
Year 2000 Systems Modifications. The Company expects to be Year 2000 compliant
in a timely manner and expects to have no material exposure with respect to
information technology-related systems. With respect to non-information
technology areas, it is uncertain what risks are associated with the Year 2000
issue and any risks that may be identified could have a material, adverse effect
on the Company's business, financial condition, and results of operations and
cash flows. There can be no assurances that the systems of customers and
vendors on which the Company relies will be converted in a timely manner and
will not have an adverse effect on the Company's systems or operations. The
Forward-Looking Statements assume that there will be no material adverse effect
on the Company's systems or operations related to the Year 2000 issue.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE NINE MONTHS ENDED SEPTEMBER 30, 1998.
REVENUES
The Company currently operates in three separate business segments: (1) the Car
Care segment, supplying complete car care services (including wash, detailing,
lube, and minor repairs), fuel and merchandise sales, (2) the Security Products
sales segment, producing and marketing defense sprays, and marketing and
retailing consumer safety and security products, and (3) the Computer Hardware
and Software Products and Services segment, developing and manufacturing
specialty point of sale and control software for principally the car care
industries.
CAR CARE SERVICES
The Company owns or operates pursuant to operating agreements full service,
exterior only and self-service car wash locations in New Jersey, Pennsylvania,
Delaware, Texas, Florida and Arizona. The Company earns 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
nine months ended September 30, 1999 for the car care segment were comprised of
approximately 75% car wash and detailing, 13% lube and other automotive
services, 8% fuel and merchandise, and 4% from operating agreements.
The majority of revenues are collected in the form of cash or credit card
receipts, thus minimizing customer accounts receivable.
Weather can have a significant impact on volume at the individual locations.
However, the Company believes that the geographic diversity of its operating
locations minimizes weather-related influence on its volume.
SECURITY PRODUCTS
The Company operates its security products segment in two main divisions, the
Consumer Division and the Mace Anti-Crime Bureau Division. The Company's
Consumer Division manufactures and markets personal safety, and home and auto
security products. These products are sold through retail stores, major
discount stores, and at the Company's car care facilities. The Mace Anti-Crime
Bureau Division provides expertise in developing and producing criminal
deterrent systems for government and law enforcement agencies, and financial
institutions.
17
<PAGE>
COMPUTER PRODUCTS AND SERVICES
The Company's computer products and service segment is a developer, manufacturer
and retailer of specialty point of sale and control software for principally the
car care industries. Its primary product, a software package called "Tunnel
Master", provides car wash equipment control, point of sale and management
information and a software product which provides management and control of lube
operations. The software is usually sold as a package with computer hardware,
car wash tunnel controller equipment and customer service support contracts.
Another software product being marketed is called "Vision Master" which allows
users to access cameras and view operations remotely using a personal computer
from anywhere in the world. These products and services are sold direct and
through independent distributors.
COST OF REVENUES
CAR CARE SERVICES
Cost of revenues consists primarily of direct labor and related taxes and
benefits, chemicals, wash and detailing supplies, rent, real estate taxes,
utilities, maintenance and repairs of equipment and facilities, as well as the
cost of the fuel and merchandise sold.
SECURITY PRODUCTS
Cost of revenues consists primarily of costs to manufacture the security
products including direct labor and related taxes and benefits, and raw material
costs.
COMPUTER PRODUCTS AND SERVICES
Cost of revenues consists primarily of costs to develop, manufacture or purchase
the computer software and equipment, including direct labor and related taxes
and benefits, and raw material costs as well as computer support staff salaries
and related taxes and benefits.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses consist primarily of management,
clerical and administrative salaries, professional services, insurance premiums,
and costs relating to marketing and sales.
The Company capitalizes direct incremental costs associated with purchase
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.
At September 30, 1999, capitalized costs related directly to proposed
acquisitions that were not yet consummated were approximately $436,000. The
Company periodically reviews the future likelihood of these acquisitions and
records appropriate provisions against capitalized costs associated with
projects that are not likely to be completed.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization consists primarily of depreciation of buildings
and equipment, and amortization of goodwill and other intangible assets.
Buildings and equipment are depreciated over the estimated useful lives of the
assets using the straight line method. Goodwill and other intangibles are
amortized over their useful lives using the straight line method.
MERGER, RESTRUCTURING AND CHANGE IN CONTROL CHARGES
Merger related costs of $1,875,000 were recorded in the third quarter ending
September 30, 1999 relating to the Company's acquisitions of ICS, 50's Classic
and Eager Beaver all of which were accounted for as pooling of interests
18
<PAGE>
transactions. Merger costs include transaction related expenses, contractual
costs, severance and other termination benefits and certain other direct
incremental costs incurred in connection with acquisitions accounted for under
the pooling of interests method. Transition costs, principally related to
integrating the operations, are recorded as merger costs when incurred.
Additionally, in conjunction with the Company's recent change in control, the
Company restructured certain of its security products operations and incurred
certain other change in control related costs. A restructuring and change in
control charge of $1,519,000 was recorded in the second quarter ending June 30,
1999. Of this charge, $1,267,000 is non-cash in nature consisting of a $218,000
write-off of certain assets and inventories as a result of management exiting
certain product lines within the Company's security products segment; a $462,000
write-off of certain deposits and leasehold improvements related to the
Company's plan to abandon a portion of its currently leased facilities in
Vermont; and a $587,000 non-cash compensation charge relating to the vesting of
variable options to certain previous directors of the Company upon the
Company's recent change in control. The remaining charge of approximately
$252,000 includes certain severance costs accrued as well as legal, accounting
and other transaction costs related to the Company's change in control.
OTHER INCOME AND EXPENSE
Other income and expense includes gains and losses on the sale of equipment,
asset write-downs, and rental income largely from subletting at the Company's
Vermont leased facility.
TAXES
The Company recorded a tax benefit of $685,000 for the nine months ended
September 30, 1999. The net benefit is comprised of a benefit of approximately
$1.0 million of Federal and State taxes at statutory rates, and a $330,000 one-
time tax expense related to non-deductible merger costs and the establishment of
deferred income tax liabilities for pooled companies acquired during the nine
months ended September 30, 1999, which were S Corporations prior to the date of
merger. The tax benefit reflects the recording of Federal and State taxes at a
rate of 32%. An effective rate lower than the Federal and State statutory rate
for the nine months ended September 30, 1999 is primarily due to the use of net
operating loss carryforwards, income from pooled companies which were taxed as S
Corporations, and the one-time effect of the charge from the pooled company
acquisitions.
19
<PAGE>
The following table presents the percentage each item in the consolidated
statements of operations bears to total revenues:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1999 1998
------- ------
<S> <C> <C>
Revenues 100.0% 100.0%
Cost of revenues 61.1 53.6
Selling, general and administrative expenses 25.3 33.4
Depreciation and amortization 3.9 8.4
Merger costs 11.3 -
Restructuring and change in control charges 9.1 -
------- -----
Operating (loss) income (10.7) 4.6
Interest expense, net (3.3) (4.3)
Other income 0.9 2.3
------- -----
(Loss) income from continuing operations before income taxes (13.1) 2.6
Income tax (benefit) expense (4.1) -
------- -----
(Loss) income from continuing operations (9.0) 2.6
Income (loss) from discontinued operations 0.2 (7.5)
------- -----
Net loss (8.8)% (4.9)%
======= =====
</TABLE>
REVENUES
Car Care Services
Revenues for the nine months ended September 30, 1999 totaled $11.9 million, of
which $8.9 million, or 75%, was generated from car wash and detailing, $1.6
million, or 13%, from lube and other automotive services, $1.0 million, or 8%,
from fuel and merchandise sales, and $481,000, or 4%, from income earned under
operating agreements. For the nine months ended September 30, 1998, revenues
totaled $3.5 million with $3.2 million generated from car wash and detailing,
$50,000 from lube services and $203,000 from fuel and merchandise sales.
Currently, the Company is managing several car wash locations under operating
agreements, under which the Company is entitled to all profits generated from
the operation of those locations. The income earned under these agreements is
shown as revenues net of related operating expenses. Revenue including gross
revenue generated by locations under operating agreements was $20.3 million
consisting of $16.2 million, or 80%, from car wash and detailing, $2.2 million,
or 11%, from lube and other automotive services, and $1.9 million, or 9%, from
fuel and merchandise sales.
SECURITY PRODUCTS
Revenues for the nine months ended September 30, 1999 were $2.3 million as
compared to $2.1 million for the nine months ended September 30, 1998, an
increase of $0.2 million, or 10%. This increase is primarily attributable to
increased sales to the sporting goods market and major discount stores. This
increase was partially offset by the elimination of sales in the Company's
independent Mace retail stores in the third quarter of 1998.
20
<PAGE>
COMPUTER PRODUCTS AND SERVICES
Revenues for the nine months ended September 30, 1999 were $2.4 million compared
to $1.1 million for the nine months ended September 30, 1998, an increase of
$1.3 million, or 115%. This increase is attributable to an increase in demand
for and sales of the "Tunnel Master" system which continues to expand its
functionality and versatility based on customers' demands.
COST OF REVENUES
CAR CARE SERVICES
Cost of revenues for the nine months ended September 30, 1999 were $7.6 million,
or 64% of revenues. However, because income earned under operating agreements
is shown as a net figure in revenue, already reduced by cost of revenues, the
cost of revenue percentage for this segment is better analyzed on a gross
method.
With revenues and cost of revenues for locations under operating agreement shown
on a gross basis, total cost of revenues was 68% of revenues for this segment,
with car wash and detailing costs at 65% of respective revenues, lube and other
automotive services costs at 79% of respective revenues, and fuel and
merchandise costs at 85% of respective revenues.
Cost of revenues for the nine months ended September 30, 1998 were $2.1 million
or 60% of revenues.
SECURITY PRODUCTS
Cost of revenues for the nine months ended September 30, 1999 were $1.2 million
compared to $934,000 for the nine months ended September 30, 1998. Cost of
revenues as a percentage of revenues for the nine months ended September 30,
1999, was 52% as compared to 45% for the same period in 1998. The increase in
cost of sales as a percentage of revenues is primarily due to the effect on
revenues of promotional discounts given during 1999.
COMPUTER PRODUCTS AND SERVICES
Cost of revenues for the nine months ended September 30, 1999 were $1.4 million
compared to $560,000 for the nine months ended September 30, 1998. Cost of
revenues for the nine months ended September 30, 1999 was 59% as compared to 50%
for the same period in 1998. The increase in cost of sales as a percentage of
revenues is primarily due to an increase in certain computer hardware components
and increases in labor costs, especially in the area of support services.
Selling, general and administrative expenses for the nine months ended September
30, 1999 were $4.2 million compared to $2.2 million for the nine months ended
September 30, 1998, an increase of $2.0 million, or 89%. The primary reason for
this increase is the infrastructure established during the six months ended
September 30, 1999 in order to effectively enter the Car Care Industry and
execute the Company's growth strategy. These increased costs included
accounting, finance, legal and administrative costs necessary to integrate the
acquisitions consummated. This increase is partially offset by cost controls
placed on previously private companies and favorable pricing for supplies,
insurance, and other indirect costs due to economies of scale.
Depreciation and amortization totaled $645,000 for the nine months ended
September 30, 1999 as compared to $559,000 for the same period in 1998. This
increase is the result of entering the Car Care industry, which required a
substantial investment in property and equipment. Additionally, certain
acquisitions resulted in the recording of goodwill, which increased amortization
expense.
TAXES
The Company recorded a tax benefit of $685,000 for the nine months ended
September 30, 1999. The net benefit is comprised of a benefit of approximately
$1.0 million of Federal and State taxes at statutory rates, and a $330,000
21
<PAGE>
one-time tax expense related to non-deductible merger costs and the
establishment of deferred income tax liabilities for pooled companies acquired
during the nine months ended September 30, 1999, which were S Corporations prior
to the date of merger. The tax benefit reflects the recording of Federal and
State taxes at a rate of 32%. An effective rate lower than the Federal and
State statutory rate for the nine months ended September 30, 1999 is primarily
due to the use of net operating loss carryforwards, income from pooled companies
which were taxed as S Corporations, and the one-time effect of the charge from
the pooled company acquisitions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO
THE THREE MONTHS ENDED SEPTEMBER 30, 1998
REVENUES
CAR CARE SERVICES
-----------------
Revenues for the three months ended September 30, 1999 totaled $6.8 million, of
which $5.1 million, or 75%, was generated from car washing and detailing, $1.0
million, or 15%, from lube and other automotive services, $642,000, or 9%, from
fuel and merchandise sales, and $46,000, or 1%, from income earned under
operating agreements.
Currently, the Company is managing several car wash locations under operating
agreements, under which the Company is entitled to all profits generated from
the operation of those locations. The income earned under these agreements is
shown as revenues net of related operating expenses. Revenues including gross
revenue generated by locations under operating agreements was $10.9 million
consisting of $8.6 million, or 79%, from car wash and detailing, $1.3 million,
or 12%, from lube and other automotive services, and $1.0 million, or 9%, from
fuel and merchandise sales.
For the three months ended September 30, 1998, revenues were $873,000 with
$805,000 from car washing and detailing, $14,000 from lube services and $54,000
from fuel and merchandise sales.
SECURITY PRODUCTS
Revenues for the three months ended September 30, 1999 were $692,000 as compared
to $719,000 for the three months ended September 30, 1998, a decrease of
$27,000, or 4%. This decrease is primarily attributable to the discontinuance
of sales in the Company's retail stores in the third quarter of 1998, as well as
promotional discounts given in 1999, partially offset by increased sales to the
sporting goods market and major discount stores.
COMPUTER PRODUCTS AND SERVICES
Revenues for the three months ended September 30, 1999 were $786,000 compared to
$585,000 for the three months ended September 30, 1998, an increase of $201,000
or 34%. This increase is attributable to an increase in demand for and sales of
the "Tunnel Master" system which continues to expand its functionality and
versatility based on customers' demands.
COST OF REVENUES
CAR CARE SERVICES
Cost of revenues for the three months ended September 30, 1999 were $4.6
million, or 68% of revenues. However, because income earned under operating
agreements is shown as a net figure in revenue, already reduced by cost of
revenues, the cost of revenue percentage for this segment is better analyzed on
a gross method.
With revenues and cost of revenues for locations under operating agreement shown
on a gross basis, total cost of revenues was 71% of revenues for this segment,
with car wash and detailing costs at 68% of respective revenues, lube and other
automotive services costs at 75% of respective revenues, and fuel and
merchandise costs at 92% of respective revenues.
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Cost of revenues for the three months ended September 30, 1998 were $601,000 or
69% of revenues.
SECURITY PRODUCTS
Cost of revenues for the three months ended September 30, 1999 was 50% as
compared to 48% for the same period in 1998.
COMPUTER PRODUCTS AND SERVICES
Cost of revenues for the three months ended September 30, 1999 were $458,000
compared to $360,000 for the three months ended September 30, 1998. Cost of
revenues for the three months ended September 30, 1999 was 58% as compared to
61% for the same period in 1998. The decrease in cost of sales as a percentage
of revenues is primarily due to a decrease in certain computer hardware
components achieved by volume discounts the Company was able to achieve in the
quarter ending September 30, 1998.
Selling, general and administrative expenses for the three months ended
September 30, 1999 were $1.7 million compared to $697,000 for the three months
ended September 30, 1998, an increase of $1.0 million, or 147%. The primary
reason for the increase is the infrastructure established during the three
months ended September 30, 1999 in order to effectively enter the Car Care
Industry and execute the Company's growth strategy. These increased costs
included accounting, finance, legal and administrative costs necessary to
integrate the acquisitions consummated. This increase is partially offset by
cost controls placed on previously private companies and favorable pricing for
supplies, insurance, and other indirect costs due to economies of scale.
Depreciation and amortization totaled $322,000 for the three months ended
September 30, 1999 as compared to $168,000 for the same period in 1998. This
increase is the net result of increased depreciation expense from entering the
Car Care industry, which required a substantial investment in property and
equipment, and the recording of goodwill associated with acquisitions, which
increased amortization expense.
TAXES
The Company recorded a tax benefit of $335,000 for the three months ended
September 30, 1999. The net benefit is comprised of a benefit of approximately
$665,000 million of Federal and State taxes at statutory rates, and a $330,000
one-time tax expense related to non-deductible merger costs and the
establishment of deferred income tax liabilities for pooled companies acquired
during the quarter ended September 30, 1999, which were S Corporations prior to
the date of merger. The tax benefit reflects the recording of Federal and State
taxes at a rate of 29%. An effective rate lower than the Federal and State
statutory rate for the three months ended September 30, 1999 is primarily due to
the use of net operating loss carryforwards income from pooled companies which
were taxed as S Corporation and the one-time effect of the charge from the
pooled company acquisitions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business requires substantial amounts of capital, most notably to
pursue the Company's acquisition strategies and for equipment purchases and
upgrades. The Company plans to meet these capital needs from various financing
sources, including borrowings, internally generated funds, and the issuance of
common stock.
As of September 30, 1999, the Company had a working capital deficit of $5.4
million, including cash and cash equivalents of $3.9 million. For the nine
months ended September 30, 1999, net cash used in operations was approximately
$1.6 million, net cash provided by financing activities was approximately $10.9
million and net cash used in investing activities was approximately $10.1
million resulting in a decrease in cash and cash equivalents of 761,000. Capital
expended during the period included $8.4 million relating to acquisitions, $1.7
million of deposits and prepaid costs on future acquisitions, and $748,000 for
the purchase of operating equipment and real estate.
The Company's acquisition program and operations to date have required
substantial amounts of working capital, and the Company expects to expend
substantial funds to support its acquisition program and capital needs for
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equipment. The Company estimates aggregate capital expenditures, exclusive of
acquisitions of businesses, of approximately $500,000 for the remainder of the
year ending December 31, 1999. Additionally, on September 30, 1999, the
Company's debt totaled approximately $15.1 million consisting primarily of a
$4.75 million promissory note related to the acquisition of Genie and
approximately $4.8 million of debt with Bank One, Texas N.A. ("Bank One")
assumed by the Company in connection with the Colonial acquisition. The Company
reached an agreement in principle with the sellers of Genie to extend the
repayment of the $4.75 million promissory note from November 18, 1999 to
February 18, 2000. Additionally, the Bank One debt assumed in the Colonial
acquisition matures on January 31, 2000. Although the Company has initiated
discussions regarding restructuring and extending the Bank One debt, there is no
assurance this will occur. The Company has currently addressed this capital
need through the completion of several private placements of the Company's
common stock and the consummation of a Stock Purchase Agreement. On June 23,
1999, the Company completed its sale of 392,857 shares pursuant to a Stock
Purchase and Sale Agreement with the Environmental Opportunities Fund II, L.P.
and the Environmental Opportunities Fund II (Institutional), L.P. which provided
proceeds of $3.3 million. On July 1, 1999, the Company, pursuant to a Stock
Purchase Agreement, sold 3,735,000 shares of the Company's common stock at a
price of $1.375 per share to Louis D. Paolino, Jr. and certain individuals
designated by Mr. Paolino. Also, on July 1, 1999, the Company consummated a
private placement of 1,600,000 shares of its common stock at $2.00 per share to
certain accredited investors designated by Mr. Paolino. Finally, on September
8, 1999, the Company consummated a private placement of 238,095 shares of the
Company's common stock at a price of $8.40 per share to Park Equity Partners
which provided proceeds of $2 million to the Company. Total additional net
proceeds from the July 1, 1999 Stock Purchase Agreement and the July 1 and
September 9 private placements were $10,336,000. The shares sold pursuant to
the above Stock Purchase Agreement and private placement are unregistered and
thus restricted for one year and are subject to certain selling limitations in
the second year. The Company is also actively working with several parties to
raise additional funds including a national commercial lending institution with
respect to securing a revolving credit facility as well as additional equity or
debt placements. No assurance can be given that additional financing will be
available, or if available, that it will be available at acceptable terms.
SEASONALITY AND INFLATION
The Company believes that its car washing and detailing operations are adversely
affected by periods of inclement weather. The Company has mitigated and intends
to continue to mitigate the impact of inclement weather through geographic
diversification of its operations.
The Company believes that inflation and changing prices have not had, and are
not expected to have any material adverse effect on its results of operations in
the near future.
YEAR 2000
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed at a time when data
storage was expensive, and the impact of the upcoming century change was not
considered. As a result of this dating limitation, many programs, if not
corrected, may fail or may provide inaccurate results at and after the turn of
the century. We use information systems and systems imbedded in some of our
equipment that carry two digit dating and are thus susceptible to partial or
total failure on, before and after December 31, 1999.
To assess and address our internal information systems, we have established a
Year 2000 remediation plan consisting of the following phases:
1. Inventorying our systems and devices, including information technology and
non-information technology systems, that are vulnerable to the Year 2000
problem;
2. Assessing the criticality of our inventoried items;
3. Remediating our non-compliant items; and
4. Testing the corrections we have applied.
We have completed phases 1 and 2 and are in the process of completing phases 3
and 4 with an expected completion
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date of November 30, 1999. To date, the Company has spent approximately
$125,000 on the remediation plan. The Company does not anticipate spending more
than an additional $75,000 on remediating currently owned internal information
systems. The amount of remediation effort has not been and is not anticipated to
be extensive due to our use of readily available, off-the-shelf software and
hardware products, manufacturers' support, and in-house expertise. All costs
related to Year 2000 compliance are expensed as incurred.
Additionally, we are surveying our major suppliers as to their Year 2000
compliance and readiness to ensure that we will not experience any interruption
in service or other adverse effects as a result of their possible non-compliant
computer systems. We will develop contingency plans, if necessary, to address
any third party non-compliance.
Although we believe our Year 2000 remediation plan will be adequate to address
the Year 2000 issue, because the Company is continually acquiring new businesses
and locations, it is an on-going process to convert, assess, and if necessary,
remediate newly acquired systems. This issue is part of our standard due
diligence when evaluating potential acquisitions so that remedial efforts, if
any, can be evaluated and scheduled.
The Company believes that the combination of our remediation plan, vendor
surveys, due diligence in acquisitions, and contingency plans are adequate to
address internal and third party Year 2000 non-compliance. However, if we fail
to make the required remediation efforts, if we do not complete them on time, or
if our major suppliers experience Year 2000 problems in their own operations,
the advent of the Year 2000 could have a material adverse impact on our
operations and financial condition.
Additionally, the Company's Computer Products and Services operations develop
specialty point of sale and control software for principally the car care
industry. Its primary products are: "Tunnel Master", which provides car wash
equipment control, point of sales, and management information; "Clout", which
provides point of sales and service controls to the quick lube industry; and
"Vision Master", which allows users to access cameras and view operations
remotely using a personal computer. Based on our current assessment, we believe
the current versions of our software products are Year 2000 compliant - that is,
they are capable of adequately distinguishing 21st century dates from 20th
century dates. However, our products are generally integrated into other third
party company systems involving hardware and software products that we cannot
adequately evaluate for Year 2000 compliance. Although we have not been a party
to any claims involving our products or services related to Year 2000 compliance
issues, we may in the future be required to defend our products or services in
such claims proceedings, or to negotiate resolutions of claims based on Year
2000 issues.
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(c) Private Placements:
On July 1, 1999, Mr. Paolino, along with certain of his affiliates,
acquired a majority of the outstanding shares of Common Stock of the
Company and thus acquired control of the Company. The first transaction
involved the purchase of an aggregate of 3,735,000 unregistered shares of
Common Stock for $1.375 per share; 1,935,000 by Mr. Paolino and an
aggregate of 1,800,000 by certain members of his management team and
certain other individuals designated by Mr. Paolino. These purchases were
made pursuant to a Stock Purchase Agreement dated March 26, 1999 (as
amended) between the Company and Mr. Paolino. Additional related purchases
were also made on July 1, 1999 pursuant to this Stock Purchase Agreement:
.Mr. Paolino purchased 1,000,000 shares of Common Stock directly from
Jon E. Goodrich, the Company's former President, for $1.375 per share
and 100,000 shares of Common Stock directly from each of two other
stockholders of Mace for $1.375 per share;
.Mr. Kramer purchased 50,000 shares of Common Stock directly from Mr.
Goodrich for $1.375 per share; and
.Ten individuals designated by Mr. Paolino purchased an aggregate of
1,850,000 shares of Common Stock for $2.00 per share.
The second transaction involved the merger of American Wash Services, Inc.,
a car wash facility company controlled by Mr. Paolino, with and into a
wholly-owned subsidiary of the Company. The merger was completed on July 1,
1999. Mr. Paolino and Red Mountain Holdings, Ltd., American Wash's other
shareholder, received in exchange for all of the shares of American Wash,
$4,687,500, in cash, and 628,362 unregistered shares of Common Stock, of
which Mr. Paolino received 470,000 shares and Red Mountain received 158,362
shares. Mr. Paolino and Mr. Kramer received additional consideration in
connection with this merger:
.Mr. Paolino received a warrant to purchase 1,500,000 shares of Common
Stock at a purchase price of $1.375 per share;
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.Mr. Paolino received a warrant to purchase 250,000 shares of Common
Stock at a purchase price of $2.50 per share (which has subsequently
been assigned); and
.Mr. Kramer received a warrant to purchase 75,000 shares of Common
Stock at a purchase price of $1.375 per share.
On July 1, 1999, the Company acquired substantially all the assets of
Stephen B. Properties Inc. in exchange for 200,000 unregistered shares of
common stock of the Company issued to Stephen Bulboff and cash
consideration of $1,900,000. An additional issuance of the Company's
common stock of up to 660,000 shares may be completed pending the
resolution of certain post-closing matters.
On July 9, 1999, the Company acquired all of the outstanding shares of
Innovative Control Systems, Inc. ("ICS") in exchange for 603,721 shares of
unregistered shares of common stock of the Company issued to the
shareholders of ICS and the assumption of approximately $750,000 of ICS's
debt.
On August 24, 1999, the Company acquired, through a wholly owned
subsidiary, substantially all of the assets of Shammy Man Car Wash in
exchange for 62,649 unregistered shares of the Company's common stock
issued to the Manus Group, Inc., cash consideration of $475,000 and the
assumption of approximately $400,000 of debt.
On August 25, 1999, the Company acquired all of the outstanding shares of
50's Classic Car Wash of Lubbock, Inc. and CRCD, Inc. ("50's Classic") in
exchange for 91,700 shares of unregistered shares of the Company's common
stock issued to the shareholders of 50's Classic and the assumption of
approximately $617,000 of 50's Classic debt.
On September 8, 1999, the Company sold 238,095 shares of common stock to
Park Equity Partners pursuant to a Stock Purchase and Sale Agreement. The
purchase price per share was $8.40 providing aggregate proceeds of $2
million to the Company.
On September 9, 1999, the Company acquired all of the assets of Quaker Car
Wash, Inc. in exchange for 224,072 unregistered shares of common stock
issued to Patrick Simek, and approximately $1,055,000 of cash
consideration. An additional issuance of the Company's common stock of up
to 12,804 shares may be completed pending the resolution of certain post-
closing obligations.
On September 9, 1999, the Company acquired all of the outstanding shares of
Eager Beaver Car Wash, Inc. in exchange for 659,222 unregistered shares of
the Company's common stock issued to the shareholders of Eager Beaver and
the assumption of approximately $3.8 million of debt.
Under the private placement and acquisitions described above, the Company
has agreed under certain circumstances to register certain of the shares
for the above transactions for resale under the Securities Act of 1933 (the
"Act"). The sale of the shares in the private placement and the issuance
of the shares in the aforementioned acquisitions were exempt from the
registration provisions of the Act pursuant to Section 4(2) of the Act
and/or Regulation D promulgated under the Act for transactions not
involving a public offering, based on the fact that the sales and issuances
were made to accredited investors who had access to financial and other
relevant data concerning the Company, its financial condition, business
and assets. The securities sold in the private placement and issued in
the acquisitions may not be reoffered or resold absent registration under
the Act or available exemptions from such registration requirements.
ITEM 5. OTHER INFORMATION
The Company historically has operated its business as a well-known producer of
less-lethal defense sprays for the consumer market and a marketer of consumer
safety and security products.
On March 26, 1999, the Company entered into a series of agreements with Louis D.
Paolino, Jr., the Company's current Chairman, President and Chief Executive
Officer, and certain affiliates of Mr. Paolino, that would result in
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a change of control of the Company and the issuance of greater than twenty
percent (20%) of the outstanding shares of Common Stock of the Company.
Prior to the closing of the aforementioned transactions, on May 24, 1999, Mr.
Paolino was appointed as the Company's President and Chief Executive Officer
and, along with Constantine N. Papadakis, was appointed to the Board of
Directors. Also on May 24, 1999, Robert M. Kramer was appointed the Company's
Secretary, Executive Vice President and General Counsel and Gregory M. Krzemien
was appointed the Company's Chief Financial Officer and Treasurer. Mr. Kramer
and Mr. Krzemien are members of Mr. Paolino's management team. Mr. Paolino
immediately implemented a program to acquire car wash facilities, resulting in a
change in the business focus of the Company from personal security products to
the acquisition, operation and consolidation of car wash facilities throughout
the United States.
In connection with the aforementioned transactions, the Company issued through a
private placement and a stock purchase agreement unregistered shares of common
stock of the Company to Mr. Paolino, certain members of his management team and
certain other individuals designated by Mr. Paolino as more fully described
above under Item 2(c) "Private Placements".
In connection with these transactions, the Company's Board of Directors was
restructured. Mr. Paolino was appointed as the Company's Chairman, effective
July 1, 1999. The members of the Board of Directors, other than Mr. Goodrich,
Mr. Paolino and Dr. Papadakis, resigned and were replaced by Mr. Kramer, Matthew
J. Paolino and Rodney R. Proto, effective July 1, 1999.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
*10.90 Merger Agreement dated as of March 26, 1999 between Louis D.
Paolino, Jr. and Red Mountain Holding, Ltd. on the one hand, and Mace
Security International, Inc. on the other hand. (Exhibit 2.1 to the
Company's Current Report on Form 8-K dated July 1, 1999 (the " July 1, 1999
AWS Form 8-K")) +
*10.91 Amendment No. 1 to the Merger Agreement dated as of April 13,
1999. (Exhibit 2.2 to the July 1, 1999 AWS Form 8-K)
*10.92 Amendment No. 2 to the Merger Agreement dated as of May 24,
1999. (Exhibit 2.3 to the July 1, 1999 AWS Form 8-K)
*10.93 The Stock Purchase Agreement dated as of March 26, 1999 between
Louis D. Paolino, Jr. and Mace Security International, Inc. (Exhibit 2.4 to
the July 1, 1999 AWS Form 8-K) +
*10.94 Amendment No. 1 to the Stock Purchase Agreement dated as of
April 13, 1999. (Exhibit 2.5 to the July 1, 1999 AWS Form 8-K)
*10.95 Amendment No. 2 to the Stock Purchase Agreement dated as of
May 24, 1999 (Exhibit 2.6 to the July 1, 1999 AWS Form 8-K)
*10.96 The Real Estate and Asset Purchase Agreement dated as of March
8, 1999, among Stephen B. Properties, Inc., Stephen Bulboff, and American
Wash Services, Inc. (Exhibit 2.1 to the Company's Current Report on Form
8-K dated July 1, 1999 (the " July 1, 1999 Form 8-K")) +
*10.97 Lease Assignment and Assumption Agreement dated July 1, 1999
among Mace Wash, Inc., a wholly-owned subsidiary of Mace Security
International, Inc., Stephen B. Properties, Inc., Stephen Bulboff and
American Wash Services, Inc. (Exhibit 2.2 to the July 1, 1999)
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*10.103 Stock Purchase Agreement and Plan of Reorganization dated as
of June 1, 1999, by and between Kevin Detrick, Brian Bath, Michael Ruiz,
and Francis Janoski on the one hand, and Mace Security International, Inc.
on the other hand. (Exhibit 2.1 to the Company's Current Report on Form 8-K
dated July 9, 1999) +
*10.104 Stock Exchange Agreement dated as of August 13, 1999, by and
between Joe Crawford, Ron Clark, Robert Duggan, Jr., and First National
Bank of Abilene, as Trustee of the Wayne V. Ramsey, Jr., and Mira Marie
Ramsey Family Trust No. 2 on the one hand, and Mace Security International,
Inc. on the other hand. (Exhibit 2.1 to the Company's Current Report on
Form 8-K dated August 25, 1999) +
* 10.105 Car Wash Asset Purchase/Sale Agreement dated as of May 11,
1999, between The Manus Group, Inc. and Mace Car Wash, Inc. (Exhibit 2.1 to
the Company's Current Report on Form 8-K dated August 24, 1999) +
*10.106 Car Wash Asset Purchase/Sale Agreement dated as of August 26,
1998, between Quaker Car Wash, Inc. and Millennia Car Wash, LLC. (Exhibit
2.1 to the Company's Current Report on Form 8-K dated September 9, 1999
(the "September 9, 1999 Form 8-K")) +
*10.107 Amendment one of the Car Wash Asset Purchase/Sale Agreement
dated as of November 23, 1998. (Exhibit 2.2 to the September 9, 1999 Form
8-K)
*10.108 Amendment two of the Car Wash Asset Purchase/Sale Agreement
dated as of January 6, 1999. (Exhibit 2.3 to the September 9, 1999 Form
8-K)
*10.109 Amendment three of the Car Wash Asset Purchase/Sale Agreement
dated as of February 26, 1999. (Exhibit 2.4 to the September 9, 1999 Form
8-K)
*10.110 Amendment four of the Car Wash Asset Purchase/Sale Agreement
dated as of April 7, 1999. (Exhibit 2.5 to the September 9, 1999 Form 8-K)
*10.111 Amendment five of the Car Wash Asset Purchase/Sale Agreement
dated as of May 10, 1999. (Exhibit 2.6 to the September 9, 1999 Form 8-K)
*10.112 Amendment six of the Car Wash Asset Purchase/Sale Agreement
dated as of June 25, 1999. (Exhibit 2.7 to the September 9, 1999 Form
8-K)
*10.113 Amendment seven of the Car Wash Asset Purchase/Sale Agreement
dated as of August 13, 1999. (Exhibit 2.8 to the September 9, 1999 Form
8-K)
*10.114 Amendment eight of the Car Wash Asset Purchase/Sale Agreement
dated as of August 27, 1999. (Exhibit 2.9 to the September 9, 1999 Form
8-K)
*10.115 Stock Purchase Agreement dated as of June 21, 1999, by and
between Ken H. Bachman, as Trustee under the Kenneth H. Bachman Revocable
Trust under agreement dated September 12, 1994, Claudia Bachman, as Trustee
under the Claudia Bachman Revocable Trust under agreement dated September
12, 1994, Carolyn Schmidt, Daniel Warmbier, and Diane Warmbier on the one
hand, and Mace Security International, Inc. on the other hand. (Exhibit 2.1
to the Company's Current Report on Form 8-K dated September 9, 1999) +
10.116 Stock Purchase Agreement and Sale Agreement dated September 8,
1999 among Mace Security International, Inc. and Park Equity Partners.
27 Financial Data Schedules (Electronic filed only).
_____________________________________________________________________
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* Incorporated by reference as indicated to the Company's
Current Reports on Form
8-K.
+ Schedules and other attachments to the indicated exhibit
have been omitted. The Company agrees to furnish
supplementally to the Commission upon request a copy of any
omitted schedules or attachments.
(b) Current Reports on Form 8-K or 8-K/A:
On July 2, 1999, the Company filed a report on Form 8-K dated June 22,
1999, under Item 2 to report the acquisition of the assets of the car
wash facility having the address of 215 West Camden Avenue,
Moorestown, New Jersey (the "Moorestown Car Wash"). Historic
financial statements of the Moorestown Car Wash and pro forma
financial information of the Company required under "Item 7: Financial
Statements and Exhibits" are not required to be filed.
On July 14, 1999, the Company filed a report on Form 8-K dated July 1,
1999, under Item 1 to report a change in control. On July 1, 1999,
Mace Security International, Inc. sold 3,735,000 shares of the
Company's common stock at a price of $1.375 per share to Louis D.
Paolino, Jr. and certain individuals designated by Mr. Paolino.
Pursuant to the terms and conditions of the Stock Purchase Agreement,
Mr. Paolino, the Company's President and CEO, immediately became
Chairman of the Board. In connection with the Stock Purchase
Agreement, two members of the Board resigned and were replaced by
three additional members. The Company also filed this 8-K report
under Item 2 to report the Company's merger, through a wholly owned
subsidiary with American Wash Services, Inc. ("AWS"). Historic
financial statements of the American Wash Services, Inc. and pro forma
financial information of the Company required under "Item 7: Financial
Statements and Exhibits" were filed on Form 8-K/A September 13, 1999.
On July 14, 1999, the Company filed a report on Form 8-K dated July 1,
1999, under Item 2 to report the acquisition of all the car wash
related assets of Stephen B. Properties, Inc. ("Bulboff"). Historic
financial statements of Bulboff and pro forma financial information of
the Company required under "Item 7: Financial Statements and Exhibits"
were filed on Form 8-K/A on September 13, 1999.
On July 22, 1999, the Company filed a report on Form 8-K dated July 9,
1999, under Item 2 to report the acquisition of all the outstanding
shares of stock of Innovative Control Systems, Inc. ("ICS"). Historic
financial statements of ICS and pro forma financial information of the
Company required under "Item 7: Financial Statements and Exhibits"
were filed on Form 8-K/A on September 22, 1999.
On July 30, 1999, the Company filed a report on Form 8-K/A dated May
17, 1999, under Item 7 to provide audited financial statements for the
two years ended December 31, 1998 and 1997, the unaudited financial
statements for the three months ended March 31, 1999 and 1998, and the
unaudited pro forma consolidated financial statements for the year
ended December 31, 1998 and March 31, 1999 with respect to the
acquisition of Colonial Full Service Car Wash, Inc.
On August 2, 1999, the Company filed a report on Form 8-K/A dated May
18, 1999, under Item 7 to provide audited combined financial
statements for the two years ended December 31, 1998 and 1997 and the
unaudited combined financial statements for the three months ended
March 31, 1999 and 1998, and the pro forma consolidated financial
statements for the year ended December 31, 1998 and the three months
ended March 31, 1999 with respect to the acquisition of Genie Car Wash
Inc. of Austin, Genie Car Care Center, Inc. and Genie Car Services
Center, Inc.
On August 16, 1999, the Company filed a report on Form 8-K/A dated
June 1, 1999, under Item 7 stating that historical financial
statements of Gabe's Plaza Car Wash, Inc. are not required to be
filed.
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On August 27, 1999, the Company filed a report on Form 8-K/A dated
June 22, 1999, under Item 7 stating that historical financial
statements of the car wash facility having the address of 215 West
Camden Avenue, Moorestown, New Jersey are not required to be filed.
On September 7, 1999, the Company filed a report on Form 8-K dated
August 25, 1999, under Item 2 to report the acquisition of the
outstanding stock of 50's Classic Car Wash of Lubbock, Inc. ("50's
Classic") and CRCD, Inc. Historic financial statements of 50's Classic
and CRCD, Inc. and pro forma financial information of the Company
required under "Item 7: Financial Statements and Exhibits" will be
filed on Form 8-K/A within the time period required in accordance with
applicable regulations and the Securities and Exchange Act of 1934.
On September 7, 1999, the Company filed a report on Form 8-K dated
August 24, 1999, under Item 2 to report the acquisition of all of the
car wash related assets of Shammy Man Car Wash ("Shammy Man").
Historic financial statements of Shammy Man and pro forma financial
information of the Company required under "Item 7: Financial
Statements and Exhibits" will be filed on Form 8-K/A within the time
period required in accordance with applicable regulations and the
Securities and Exchange Act of 1934.
On September 13, 1999, the Company filed a report on Form 8-K/A dated
July 1, 1999, under Item 7 to provide audited combined financial
statements for the years ended December 31, 1998 and 1997 and the
unaudited combined financial statements for the six months ended June
30, 1999, and the unaudited pro forma consolidated financial
statements for the year ended December 31, 1998 and the six months
ended June 30, 1999 with respect to the acquisition of Stephen Bulboff
and Stephen B. Properties, Inc.
On September 13, 1999, the Company filed a report on Form 8-K/A dated
July 1, 1999, under Item 7 to provide audited consolidated financial
statements for the short fiscal year ended December 31, 1998 and the
six months ended June 30, 1999, and unaudited pro forma consolidated
financial statements for the year ended December 31, 1998 and the six
months ended June 30, 1999 with respect to the acquisition of American
Wash Services, Inc.
On September 22, 1999, the Company filed a report on Form 8-K/A dated
July 9, 1999, under Item 7 to provide audited financial statements for
the years ended December 31, 1998 and 1997 and the unaudited financial
statements for the six months ended June 30, 1999 and 1998, and
unaudited pro forma consolidated financial statements for the year
ended December 31, 1998 and the six months ended June 30, 1999 with
respect to the acquisition of Innovative Control Systems, Inc.
On September 23, 1999, the Company filed a report on Form 8-K dated
September 9, 1999, under Item 2 to report the acquisition of all of
the car wash related assets of Quaker Car Wash, Inc. ("Hanna Car
Wash"). Historic financial statements of Hanna Car Wash and pro forma
financial information of the Company required under "Item 7: Financial
Statements and Exhibits" will be filed on Form 8-K/A within the time
period required in accordance with applicable regulations and the
Securities and Exchange Act of 1934.
On September 24, 1999, the Company filed a report on Form 8-K dated
September 9, 1999, under Item 2 to report the acquisition of all the
outstanding stock of Eager Beaver Car Wash, Inc. ("Eager Beaver").
Historic financial statements of Eager Beaver and pro forma financial
information of the Company required under "Item 7: Financial
Statements and Exhibits" will be filed on Form 8-K/A within the time
period required in accordance with applicable regulations and the
Securities and Exchange Act of 1934.
30
<PAGE>
SIGNATURES
In accordance with 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
BY: /s/ Gregory M. Krzemien
------------------------------------------------------------
Gregory M. Krzemien, Chief Financial Officer
BY: /s/ Ronald R. Pirollo
------------------------------------------------------------
Ronald R. Pirollo, Controller (Principal Accounting Officer)
DATE: November 12, 1999
31
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.116 Stock Purchase Agreement and Sale Agreement dated September 8,
1999 among Mace Security International, Inc. and Park Equity
Partners.
27 Financial Data Schedules (Electronic filed only)
32
<PAGE>
Exhibit 10.116
STOCK PURCHASE AND SALE AGREEMENT
STOCK PURCHASE AND SALE AGREEMENT ("Agreement") dated September 8,
1999 among Mace Security International, a Delaware Corporation ("Seller"), and
Park Equity Partners, a New Jersey general partnership ("Purchaser").
W I T N E S E T H:
-----------------
WHEREAS, Seller has common stock with a par value $.0001 per share in
the amount of 238,095 shares available for sale at a price of Eight Dollars and
Forty Cents ($8.40) per share (the "Shares"); and
WHEREAS, Seller wishes to sell, and Purchaser wishes to purchase the
Shares for the purchase price and upon the terms and subject to the conditions
described below;
NOW, THEREFORE, in reliance on the representations, warranties and
agreements and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. SALE AND PURCHASE OF SHARES. Upon the execution of this
Agreement, Seller shall sell, deliver and transfer to Purchaser, and Purchaser
shall purchase from Seller Two Hundred Thirty Eight Thousand Ninety Five
(238,095) Shares for a total purchase price of Two Million ($2,000,000) Dollars,
free and clear of all liens, encumbrances or claims of any kind.
2. PURCHASE PRICE. In full consideration for the Shares, Purchaser
shall pay to Sellers, upon execution of this Agreement, $2,000,000 to Seller by
wire transfer or other good funds.
3. DELIVERIES OF SELLER. Seller shall deliver to Purchaser
certificates evidencing the Shares no latter than three days after the purchase
price of $2,000,000 is paid. Upon execution of this Agreement, Seller shall:
(i) deliver, or shall cause to be delivered to Purchaser, a copy of the
resolutions of the Boards of Directors of Seller authorizing the execution and
delivery of this Agreement and the consummation of the transactions contemplated
herein and (ii) execute and deliver such other documents as Purchaser may
reasonable request. The Shares represented by the Certificates shall be
delivered to Purchaser free and clear of all Claims (as hereinafter defined in
Section 4(h)).
4. REPRESENTATIONS AND WARRANTIES OF SELLER. The Seller represents,
warrants and agrees that:
(a) Organization and Qualification. Seller is a corporation duly
------------------------------
incorporated and existing in good standing under the laws of the State of
Delaware and has the requisite corporate power to own its properties and to
carry on its business as now being conducted. Seller and each of its
subsidiaries, if any, is duly qualified as a foreign corporation to do business
and is in good standing
1
<PAGE>
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary other than those in which the
failure so to qualify would not have a Material Adverse Effect. "Material
Adverse Effect", for purposes of this Agreement, means any adverse effect on the
business, operations, properties, prospects, or financial condition of the
entity with respect to which such term is used and which is material to such
entity and other entities controlled by such entity taken as a whole.
(b) Authorization; Enforcement.
--------------------------
(i) Seller has the requisite corporate power and authority to enter
into and perform this Agreement and to issue the Shares, in accordance with the
terms hereof, (ii) the execution and delivery of this Agreement by Seller and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action, and no further consent or
authorization of Seller or its Board of Directors or stockholders is required,
(iii) this Agreement has been duly executed and delivered by Seller, (iv) this
Agreement constitutes a valid and binding obligation of Seller enforceable
against Seller in accordance with its terms (except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application) and (v) prior to the Closing Date, any necessary amendment to
Seller's Articles of Incorporation authorizing Company to issue all of the
Shares will be in full force and effect, enforceable against Seller in
accordance with the terms of such amended Articles of Incorporation.
(c) Issuance of Shares. The issuance of the Shares has been duly authorized
------------------
and, when paid for and issued in accordance with the terms hereof, the Shares
shall be validly issued, fully paid and non-assessable.
(d) No Conflicts. Seller has furnished or made available to the Purchaser
------------
true and correct copies of Seller's Articles of Incorporation as in effect on
the date hereof (the "Articles"), and Seller's By-Laws, as in effect on the date
hereof (the "By-Laws"). The execution, delivery and performance of this
Agreement by Seller and the consummation by Seller of the transactions
contemplated hereby do not and will not (i) result in a violation of Seller's
Articles or By-Laws or (ii) conflict with, or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which Seller or any
of its subsidiaries is a party, or result in a violation of any federal, state,
local or foreign law, rule, regulation, order, judgment or decree (including
Federal and state securities laws and regulations) applicable to Seller or any
of its subsidiaries or by which any property or assets of Seller or any of its
subsidiaries is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not, individually or in the aggregate, have a material adverse effect); provided
that, for purposes of such representation as to Federal, state, local or foreign
law, rule or regulation, no representation is made herein with respect to any of
the same applicable solely to the Purchaser and not to Seller. To the best of
Seller's knowledge, the business of Seller is not being conducted in violation
of any law, ordinance or regulations of any governmental entity, except
2
<PAGE>
for violations which either singly or in the aggregate do not and will not have
a material adverse effect. Seller is not required under Federal, state or local
law, rule or regulation in the United States to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Shares in accordance with
the terms hereof (other than any SEC, NASD, NASDAQ or state securities filings
which may be required to be made by Seller subsequent to the Closing, and any
registration statement which may be filed pursuant hereto); provided that, for
purposes of the representation made in this sentence, Seller is assuming and
relying upon the accuracy of the relevant representations and agreements of the
Purchaser herein.
(e) SEC Documents, Financial Statements. The Common Stock of Seller is
-----------------------------------
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Seller has filed on a timely basis all reports,
schedules, forms, statements and other documents required to be filed by it with
the Securities and Exchange Commission ("SEC") pursuant to the reporting
requirements of the Exchange Act, including material filed pursuant to Section
13(a) or 15(d), in addition to one or more registration statements and
amendments thereto heretofore filed by Seller with the SEC under the Securities
Act (all of the foregoing including filings incorporated by reference therein
being referred to herein as the "SEC Documents"). Seller has delivered to the
Purchaser true and complete copies of the SEC Documents except for the exhibits
and incorporated documents. Seller has not provided to the Purchaser any
information which, according to applicable law, rule or regulation, should have
been disclosed publicly by Seller but which has not been so disclosed, other
than with respect to the transactions contemplated by this Agreement.
As of their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act as the
case may be and the rules and regulations of the SEC promulgated thereunder and
other federal, state and local laws, rules and regulations applicable to such
SEC Documents, and neither the Memorandum nor any of the SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of Seller included in the SEC Documents
comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except (i)
as may be otherwise indicated in such financial statements or the notes thereto
or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of Seller as of the dates
thereof and the results of operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end audit
adjustments).
(f) No General Solicitation. Neither Seller, nor any of its affiliates, or,
-----------------------
to the best of its knowledge, any person acting on its or their behalf, has
engaged in any form of general solicitation or general advertising (within the
meaning of Regulation D under the Securities Act) in connection with the offer
or sale of the Shares.
3
<PAGE>
(g) No Integrated Offering. Neither Seller, nor any of its affiliates, nor
----------------------
any person acting on its or their behalf has, directly or indirectly, made any
offers or sales of any of Seller's securities or solicited any offers to buy any
of such securities, under circumstances that would require registration of the
Shares under the Securities Act.
(h) Ownership of the Shares, Absence of Claims. The Seller has the legal
------------------------------------------
authority to issue the Shares, and the Shares are free and clear of any and all
liens, pledges, security interests, options, encumbrances, charges, agreements
or claims of any kind whatsoever (collectively, the "Claims").
(i) Commission Filings. Purchaser has delivered to Seller current (for the
------------------
quarter ending March 30, 1999) and all historical filings made by Seller on
Forms 8-K, 10-K, 10-Q and Proxy Statements timely filed with the SEC for fiscal
year ending December 31, 1998 (the "Public Reports"). The Public Reports
accurately and completely describe, in all material respects, Seller's financial
status, business operations and prospects as of the date of such filings and as
of the date hereof, and do not omit any material facts necessary to make the
information contained in the filings not misleading.
(j) Nasdaq Status. The principal market on which the Shares are currently
-------------
traded is Nasdaq National Market. The Seller is in conformance with all
listing requirements of the Nasdaq Stock Market, Inc. ("Nasdaq"), and has
received no notices of non-compliance from Nasdaq in the twenty-four months
prior to the date of this Agreement.
(k) Capitalization. All of the outstanding shares of the Seller's common
---------------
stock have been validly issued and are full paid and non-assessable. Except for
shares reserved for issuance under the Seller's stock option plan, shares to be
issued in contemplation of this Agreement and contracts requiring Seller to
issue additional shares upon the closing of certain acquisitions currently under
agreement, there are no other scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
exchangeable or convertible into, any shares of capital stock of Seller, or
contracts, commitments, understandings or arrangements by which Seller or
options, warrants, scrip, rights to subscribe to, or commitments to purchase or
acquire, any shares, or securities or rights convertible into shares, of capital
stock of Seller.
(l) No Material Adverse Change. Since December 31, 1998 the date of the
--------------------------
most recent annual report of Seller on Form 10KSB has been prepared and filed
with the SEC, a copy of which has been supplied to Purchaser, no event which had
or is likely to have a material adverse effect has occurred or exists with
respect to Seller, except as otherwise disclosed or reflected in press releases
or other SEC Documents prepared through or as of a date subsequent to December
31, 1998.
(m) No Litigation. Except as set forth in SEC Documents or otherwise
-------------
disclosed prior to the date of this Agreement, no litigation or claim (including
those for unpaid taxes) against Seller is pending or, to Seller's knowledge
threatened. Seller believes that any litigation or claims that may currently
exist are in the normal course of business and will not have a material adverse
effect upon Seller or effect the transactions contemplated hereby.
4
<PAGE>
(n) Contravention; Consents and Approvals. No filing, action, consent or
-------------------------------------
approval of any person, entity or governmental body is required by the Seller
for the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents, warrants and agrees that:
(a) Execution and Effect of Agreement. Purchaser has the full right,
---------------------------------
power and authority to enter into and perform this Agreement. This Agreement
has been duly executed and delivered by Purchaser and is a legal, valid and
binding obligation of Purchaser enforceable in accordance with its terms.
(b) Access to Seller by Purchaser. Purchaser and their
-----------------------------
representatives and advisers have had free and full access during normal
business hours to the Seller's assets, premises, books and records, key
employees and accountants, and have had the opportunity to ask questions and
receive answers about the past performance and current and future prospects of
the Seller's business and assets.
(c) Purchase for Investment. The Purchaser understands and represents
-----------------------
that: (i) the Purchaser must bear the economic risk of an investment in the
Shares for an indefinite period of time because the Shares have not been
registered under the Securities Act of 1933, as amended (the "1933 Act"), or
under any state securities laws and, therefore, cannot be resold unless they are
subsequently registered under the 1933 Act and the pertinent state securities
laws or unless an exemption from such registration is available; (ii) the
Purchaser is purchasing the Shares for investment for the account of the
Purchaser, not for the account of any other person, and not with any present
view toward resale or other "distribution" thereof within the meaning of the
1933 Act; and (iii) the Purchaser agrees not to resell or otherwise dispose of
all or any part of the Shares, except as permitted by law, including, without
limitation, any and all applicable provisions of this Agreement and any
regulations under the 1933 Act.
(d) Risks of Investment. The Purchaser is aware that an investment in
-------------------
the Shares is highly speculative and subject to substantial risks. The
Purchaser is capable of bearing the high degree of economic risk and burdens of
this investment, including the possibility of a complete loss of his investment
and the lack of a public market and limited transferability of the Shares, which
may make the liquidation of this investment impossible for an indefinite period
of time. The financial condition of the Purchaser is such that it is under no
present or contemplated future need to dispose of any of the Shares to satisfy
any existing or contemplated undertaking, need or indebtedness.
(e) Contravention; Consents and Approvals. No filing, action,
-------------------------------------
consent or approval of any person, entity or governmental body is required by
the Purchaser for the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
6. BROKERS. Each party represents to the other that it has had no
dealings with any broker or finder in connection with the transactions
contemplated by this Agreement. Should
5
<PAGE>
any claim be made for a broker's, finder's or similar fee, on account of any
actions or dealings by a party or its agents, such party shall indemnify and
hold the other party harmless from and against any and all liability and
expenses, including reasonable attorneys' fees incurred by reason of any claim
made by such broker.
7. FURTHER ASSURANCES. The parties shall cooperate and take such
actions, and execute such other documents, as either may reasonably request in
order to carry out the provisions or purpose of this Agreement, including
without limitation the execution and delivery by Sellers of additional stock
powers duly executed in blank with respect to the Shares. The parties have
executed even date hereof a Registration Rights Agreement, and a Sales
Restriction Agreement with respect to the Shares.
8. REGISTRATION RIGHTS. The Shares delivered at Closing will not be
registered under the Securities and Exchange Act of 1934 ("Act"). Seller has
provided registration rights pursuant to the Registration Rights Agreement
executed even date with this Agreement.
9. PREEMPTIVE RIGHTS
(a) Seller hereby grants to the Purchaser a first and prior right to
purchase any and all shares of Common Stock, or securities convertible into
Common Stock or containing an option or warrant to purchase Common Stock
("Derivative Securities"), as may hereafter be issued from time to time by
Seller subsequent to the date hereof, except as to Derivative Securities issued
to the Environmental Opportunities Fund II, L.P. and the Environmental
Opportunities Fund II (Institutional), L.P. under a prior preemptive right
contained in a Stock Purchase And Sale Agreement dated June 23, 1999. For
purposes of this Section 9 "Derivative Securities" do not include options or
warrants issued alone and not in combination with another security. Such right
shall exist with respect to all shares of Common Stock and Derivative Securities
originally authorized, shares hereafter authorized, or treasury shares, but
shall not exist with respect to: (i) shares of Common Stock issued by Seller in
a firm commitment or best efforts underwritten offering to the public, (ii)
shares of Commons Stock issued by Seller upon the exercise or conversion of
currently outstanding Derivative Securities, (iii) shares of Common Stock issued
by Seller upon the exercise of stock options or warrants granted to officers,
directors, consultants and employees of Seller, whether or not granted, pursuant
to a stock option plan approved by the stockholders of Seller, (iv) options,
warrants or shares of Common Stock issued by Seller in connection with the
acquisition of the properties, assets, or business of another Person, or (v)
options, warrants or shares of Common Stock issued in connection with bank
financing or equipment leases or similar financing transactions.
(b) The time for exercising the foregoing rights in Section 9(a) may
be established by the Company's Board of Directors but the Purchaser shall have
a minimum of 15 days in which to consider exercising its right.
(c) The foregoing right in Section 9(a) shall terminate on the
earlier of (i) September 8, 2000 or (ii) the date on which the Purchaser has
purchased shares of Common
6
<PAGE>
Stock or Derivative Securities with an aggregate purchase price of $2,000,000.
10. CONDITIONS OF PURCHASER
The obligations of Purchaser to effect the transaction contemplated by this
Agreement shall be subject to the fulfillment at or prior to the time of Closing
of each of the following items which are conditions to the Closing:
(a) Compliance by Seller. The Seller shall have performed and
--------------------
complied with all of the obligations and conditions required by this Agreement
to be performed or complied with by the Seller at or prior to the Closing Date.
All representations and warranties of Seller contained in this Agreement shall
be true and correct at and as of the Closing Date, with the same force and
effect as though made at and as of the Closing Date, except for changes
expressly permitted by this Agreement.
(b) Litigation Affecting This Transaction. There shall be no actual
-------------------------------------
or threatened action by or before any court which seeks to restrain, prohibit or
invalidate the transaction contemplated by this Agreement or which might affect
the right of Purchaser to own the Shares, as a result of the transaction
contemplated by this Agreement, might affect such right as to Purchaser or any
affiliate thereof subsequent to the Closing Date and which, in the judgment of
the Purchaser, made in good faith and based upon advice of their counsel, makes
it inadvisable to proceed with the transaction contemplated by this Agreement.
(c) Registration Rights Agreement. The Seller and the Purchaser
-----------------------------
shall have executed and delivered the Registration Rights Agreement and a Sales
Restriction Agreement.
11. CONDITIONS OF SELLER
The obligations of the Seller to transfer the Shares in accordance with
this Agreement shall be subject to the fulfillment at or prior to the time of
Closing of each of the following conditions:
(a) Compliance by Purchaser. The Purchaser shall have performed and
-----------------------
complied with all of the obligations and conditions required by this Agreement
to be performed or complied with by it at or prior to or at the Closing Date.
All representations and warranties of Purchaser contained in this Agreement
shall be true and correct at and as of the Closing Date, with the same force and
effect as though made at and as of the Closing Date, except for changes
expressly permitted by this Agreement.
(b) Litigation Affecting This Transaction. There shall be no actual
-------------------------------------
or threatened action by or before any court which seeks to restrain, prohibit or
invalidate the transaction contemplated by this Agreement or which might affect
the rights of Seller as a result of the transaction contemplated by this
Agreement, might affect such right as to Seller or any affiliate thereof
subsequent to the Closing Date and which, in the judgment of the Seller, made in
good faith and based upon advice of its counsel, makes it inadvisable to proceed
with the transaction
7
<PAGE>
contemplated by this Agreement.
(c) Registration Rights Agreement. The Seller and the Purchaser
-----------------------------
shall have executed and delivered the Registration Rights Agreement, and a Sales
Restriction Agreement.
12. NOTICES. All notices or other communications in connection with
this Agreement shall be in writing and shall be considered given when personally
delivered or when mailed by registered or certified mail, postage prepaid,
return receipt requested, as follows:
If to Seller:
Mace Security International, Inc.
Attn: Robert M. Kramer, Executive Vice President and General Counsel
Suite 400
1000 Crawford Road
Mt., Laurel, New Jersey 08054
856-778-2300
Telecopy: 856-439-1723
If to Purchaser:
Park Equity Partners
at an address to be supplied in writing at a latter date
13. ENTIRE AGREEMENT. This Agreement, together with the Registration
Rights Agreement and the Stock Sale Restriction Agreement, sets forth the
parties' final and entire agreement with respect to its subject matter and
supersedes any and all prior understandings and agreements. This Agreement may
be amended, supplemented or changed, and any provision hereof may be waived,
only by a written instrument making specific reference to this Agreement signed
by the party against whom enforcement of any such amendment, supplement, change
or waiver is sought.
14. GOVERNING LAW. This Agreement shall be governed by and construed
and interpreted in accordance with the internal laws of the State of Delaware
(without reference to its rules as to conflicts of law).
15. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which taken
together shall constitute one and the same instrument.
16. FEES AND EXPENSES. Upon Closing, the Seller shall pay the
reasonable fees and disbursements of one counsel to the Purchaser, in connection
with the review of this Agreement, the Registration Rights Agreement, the Sales
Restriction Agreement, and the transaction contemplated hereby and thereby, and
the costs and out-of-pocket expenses of the Purchaser in connection with its due
diligence investigation of the Seller; provided that the total amount payable
8
<PAGE>
to the Purchaser or their counsel and representatives hereunder shall not exceed
$5,000.
17. SURVIVAL OF AGREEMENTS. The representations and warranties,
covenants, and agreements made herein in the Registration Rights Agreement and
the Sales Restriction Agreement, as well as in each certificate delivered to the
Purchaser pursuant hereto, shall survive the Closing and remain in effect so
long as the Purchaser own any of the Shares. The Seller agrees to indemnify and
hold the Purchaser harmless from and against and will pay to the Purchaser the
full amount of any loss, damage, liability, cost or expense (including amounts
paid in settlement and reasonable attorneys' fees and expenses) to the Purchaser
resulting either directly or indirectly from any breach of the representations
and warranties, covenants, or agreements of the Seller contained in this
Agreement or the Registration Rights Agreement or the Sales Restriction
Agreement or in any certificate delivered to the Purchaser pursuant hereto or
thereto or in connection herewith or therewith. The Purchaser agrees to
indemnify and hold the Seller harmless from and against and will pay to the
Seller the full amount of any loss, damage, liability, costs, or expense
(including amounts paid in settlement and reasonable attorneys' fees and
expenses) to the Seller resulting either directly or indirectly, from any breach
of the representations, warranties, covenants, or agreements of the Purchaser
contained in this Agreement or the Registration Rights Agreement or in the Sales
Restriction Agreement.
18. SEVERABILITY. Each provision of this Agreement shall be treated
as a separate and independent clause, and the unenforceability of any one clause
shall in no way impair the enforceability of any of the other clauses herein.
If one or more of the provisions contained in this Agreement shall for any
reason be held unenforceable, such provision or provisions shall be construed by
the appropriate judicial body by limiting or reducing it or them, so as to be
enforceable to the maximum extant compatible with applicable law, and no other
provision shall be affected by such holding, limitation, or reduction.
9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first above written.
SELLER:
Mace Security International, Inc.
/s/ Robert M. Kramer
--------------------
Robert M. Kramer, Exec. Vice President and General
Counsel
Purchaser:
Park Equity Partners
By: William Miller, its General Partner,
/s/ William Miller
------------------
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 3,912 3,912
<SECURITIES> 0 0
<RECEIVABLES> 1,916 1,916
<ALLOWANCES> 80 80
<INVENTORY> 2,360 2,360
<CURRENT-ASSETS> 9,914 9,914
<PP&E> 42,607 42,607
<DEPRECIATION> 3,572 3,572
<TOTAL-ASSETS> 63,469 63,469
<CURRENT-LIABILITIES> 15,295 15,295
<BONDS> 4,650 4,650
0 0
0 0
<COMMON> 175 175
<OTHER-SE> 38,417 38,417
<TOTAL-LIABILITY-AND-EQUITY> 63,469 63,469
<SALES> 2,121 5,670
<TOTAL-REVENUES> 8,326 16,641
<CGS> 1,332 3,398
<TOTAL-COSTS> 5,443 10,172
<OTHER-EXPENSES> 3,790 8,096
<LOSS-PROVISION> (19) 127
<INTEREST-EXPENSE> 352 548
<INCOME-PRETAX> (1,260) (2,176)
<INCOME-TAX> (335) (685)
<INCOME-CONTINUING> (925) (1,491)
<DISCONTINUED> 96 24
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (829) (1,467)
<EPS-BASIC> (.05) (.13)
<EPS-DILUTED> 0 0
</TABLE>
