FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended: March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number: 69270-NY
MACE SECURITY INTERNATIONAL, INC.
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 030311630
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
160 Benmont Avenue, Bennington, Vermont 05201
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 802-447-1503
Show by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
MACE SECURITY INTERNATIONAL, INC.
INDEX
Page No.
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PART I FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Operations and Retained Earnings-
Three Months Ended March 31, 1997 and 1996 1
Balance Sheets - March 31, 1997 and December 31, 1996 2
Statements of Cash Flows - Three Months Ended
March 31, 1997 and March 31, 1996 3
Notes to Financial Statements 4
Item 2 - Management's Discussion and Analysis of Financial 5
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1 - Legal Proceedings 7
Item 6 - Exhibits and Reports on Form 8-K 8
SIGNATURES
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
-----------
Three Months Ended March 31,
----------------------------
1997 1996
----------- -----------
Net Sales ................................... $ 2,338,558 $ 3,003,085
Cost of sales ............................... 1,460,232 1,622,733
----------- -----------
Gross profit .............................. 878,326 1,380,352
Operating expenses:
General and administrative ................ 791,102 639,798
Selling ................................... 358,950 636,706
---------- -----------
Operating (loss)income ................ (271,726) 103,848
Other (income) expense:
Interest income ........................... (2,756) (3,186)
Interest expense .......................... 23,763 23,891
Other income .............................. (17,663) (16,513)
----------- -----------
3,344 4,192
----------- -----------
(Loss) Income before
income tax expense .............. (275,070) 99,656
Income tax expense .......................... 1,956 10,962
---------- -----------
Net (loss) income ..................... (277,026) 88,694
Deficit, beginning
of period ................................. (1,542,901) (1,290,553)
----------- -----------
Deficit, end of period ...................... $(1,819,927) $(1,201,859)
=========== ===========
(Loss) income per share
of common stock ....................... $ (0.04) $ 0.01
=========== ===========
Weighted average number
of common shares outstanding .............. 6,825,000 6,805,000
=========== ===========
The accompanying notes are an integral part of the
financial statements.
1
MACE SECURITY INTERNATIONAL, INC.
BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 454,940 $ 345,554
Accounts receivable, less allowance for
doubtful accounts
($113,076; 1997; $101,603; 1996)................. 1,637,067 2,567,920
Inventories:
Finished goods................................... 2,009,181 1,729,882
Work in process.................................. 976,986 1,184,590
Raw material and supplies........................ 2,317,421 2,311,407
Prepaid expenses................................... 198,645 171,271
----------- -----------
Total current assets............................. 7,594,240 8,310,624
Property and equipment, net.......................... 2,830,818 2,919,230
Intangibles, net..................................... 2,698,807 2,761,193
Other assets......................................... 160,243 131,543
----------- -----------
Total Assets $13,284,108 $14,122,590
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt............... 868,645 949,827
Accounts payable................................... 569,642 1,012,777
Accrued liabilities................................ 365,744 411,233
Corporate income taxes payable..................... 8,000 ------
----------- -----------
Total current liabilities.......................... $ 1,812,031 2,373,837
Long-term debt....................................... 143,621 143,271
----------- -----------
Total liabilities................................ 1,955,652 2,517,108
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.01 per share;
authorized 2,000,000 shares; no shares issued
Common stock, par value $.01 per share; authorized
18,000,000 shares; issued
6,825,000 and 6,825,000 shares
in 1997 and 1996, respectively.................... 68,250 68,250
Additional paid in capital......................... 13,080,133 13,080,133
Deficit............................................ (1,819,927) (1,542,901)
----------- -----------
Total stockholders' equity....................... 11,328,456 11,605,482
----------- -----------
Total Liabilities and Stockholders' equity....... $13,284,108 $14,122,590
=========== ===========
The accompanying notes are an integral part of the
financial statements.
2
MACE SECURITY INTERNATIONAL, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
-----------
INCREASE (DECREASE) IN CASH
Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Operating activities:
Net (loss) income ................................ $(277,026) $ 88,694
Adjustments to reconcile net (loss) income to
net cash provided by (used in) operating
activities:
Depreciation ................................... 110,962 111,209
Amortization ................................... 65,746 66,309
Allowance for bad debts ........................ 11,473 9,948
Loss on sale of assets ......................... ------ 687
Changes in operating assets and liabilities:
Accounts receivable ............................ 919,380 (695,727)
Inventories .................................... (77,709) 231,286
Prepaid expenses ............................... (27,374) 85,203
Accounts payable ............................... (443,135) (131,085)
Accrued liabilities ............................ (45,489) (1,383)
Corporate income tax payable ................... 8,000 ------
Other assets ................................... (32,060) 1,520
--------- ---------
Net cash provided by (used in) operating
activities ................................. 212,768 (233,339)
--------- ---------
Investing activities:
Purchase of property and equipment ............... (22,550) (19,763)
Proceeds from sale of property and equipment ..... ------ 1,850
--------- ---------
Net cash used in investing activities .......... (22,550) (17,913)
Financing activities:
Payment of principal of long-term debt ........... (80,832) (87,381)
Payment of notes payable ......................... ------ (44,245)
--------- ---------
Net cash used in financing
activities .................................. (80,832) (131,626)
--------- ---------
Net increase (decrease) in cash .................... 109,386 (382,878)
Cash:
Beginning of period .............................. 345,554 505,638
--------- ---------
End of period .................................... $ 454,940 $ 122,760
========= =========
The accompanying notes are an integral part of the
financial statements.
3
MACE SECURITY INTERNATIONAL, INC.
NOTES TO FINANCIAL STATEMENTS
--------
1. MANAGEMENT OPINION
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments, consisting of only normal, recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. The results of any
interim period are not necessarily indicative of results for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The financial statements should
be read in conjunction with the financial statements and notes thereto for
the year ended December 31, 1996.
2. EARNINGS PER SHARE
Earnings per share on common stock are computed using the weighted average
number of shares of common stock outstanding during each period presented.
Effective December 15, 1997, the Company is required to adopt Financial
Accounting Standard No. 128, "Earnings per Share". This Standard requires
both basic and diluted earnings per share to be reported for all periods
presented. When income/(loss) per common share is calculated in accordance
with this Standard, for the three months ended March 31, 1997 and 1996,
basic and diluted income/(loss) per common share do not significantly differ
from reported amounts.
3. LONG TERM DEBT
As previously disclosed on the Company's 1996 Form 10-KSB, on April 14,
1997, the Company's President and the Chairman of the Board supplied the
Company with lines-of-credit for up to $375,000 each ($750,000 in total)
with interest at prime plus 1.25%. The lines-of-credit expire in April 1998
at which time all accrued interest and unpaid principal will be due and
payable. The lines-of-credit will be payable at an earlier date if the
Company obtains a bank line-of-credit or similar financing in the amount of
at least $750,000. The Company believes that these lines-of-credit will be
adequate to meet its operating needs over the next twelve months and to
repay the KeyBank National Association term loan if payment is demanded
after June 30, 1997. No amounts were outstanding on these lines as of May
14, 1997.
4. INCOME TAXES
The Company's income tax expense for the three months ended March 31, 1997
represents corporate franchise taxes.
4
5. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a lawsuit which alleges breach of contract,
fraud and negligent misrepresentations by the Company as a result of the
actions of a Company employee in facilitating the sale of an airplane
formerly leased by the Company from an affiliated entity. The plaintiff
seeks damages in the amount of $200,000 as well as punitive damages and
attorneys' fees. Management does not expect that the outcome of this case
will have a material-adverse effect on the financial position of the
Company, although it could have an effect on annual operation results in the
period in which it is resolved. The Company has not accrued any liabilities
in the financial statements as of March 31, 1997. The Companies believes it
has strong defenses against the lawsuit.
6. GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses for the three months ended March 31,
1997 included $130,000 of bonus and severance payments and related costs
paid to the Company's former President/CEO and former executive vice
president and general counsel.
5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The following can be interpreted as including forward looking statements under
the Private Securities Litigation Reform Act of 1995. Such statements are
typically identified by the words "intends", "plans", "effort", "anticipates",
"believes", "expects", or words of similar support. Various important factors
that could cause actual results to differ materially from those expressed in the
forward looking statements are identified below and may vary significantly based
on a number of factors including, but not limited to, marketing success, product
development, production, manufacturing costs, competitive conditions and the
change in economic conditions of the various markets the Company serves. Actual
future results may differ materially from those suggested in the following
statements.
For the three months ended March 31, 1997.
The following discussion should be read in conjunction with the accompanying
financial statements and notes thereto.
RESULTS OF OPERATIONS:
Net sales for the three-month period ended March 31, 1997 decreased $664,527 or
22.1% compared to the same period in 1996. This decrease is principally due to
lower Consumer division sales partially offset by an increase in Law Enforcement
division revenues. Consumer division sales decreased by $918,369 for the three
months ended March 31, 1997 as compared to the same period in 1996. Law
Enforcement division sales increased by $253,842 over the three months ended
March 31, 1997 as compared to the same period in 1996. The primary reason for
the Consumer division sales decrease is due to the first quarter 1996 large
initial purchases by two major national accounts. There were no large initial
orders from national accounts during the first quarter of 1997. The primary
reason for the increase in Law Enforcement division sales is the result of
continuing increases in sales of defense sprays to the Law Enforcement market.
Gross profit was 37.6% of net sales for the three months ended March 31, 1997 as
compared to 46.0% for the similar period in 1996. Lower first quarter sales of
the higher margin Consumer division product line is primarily the reason for the
decrease in gross margin. Consumer division net sales, as a percentage of total
net sales, decreased from 53.3% for the quarter ended March 31, 1996 to 29.2%
for the quarter ended March 31, 1997. Consumer division gross margin was 48.7%
and the Law Enforcement divisions' gross margin was 33.0% for the first quarter
of 1997.
Operating expenses were 49.2% of net sales for the three months ended March 31,
1997 as compared to 42.5% for the corresponding period in 1996.
6
General and administrative expenses increased 23.6% to $791,102 for the three
months ended March 31, 1997 as compared to the same period in 1996. This
increase is principally due to severance and bonus payments and related costs
paid to the Company's former President/CEO and former executive vice president
and general counsel. These payments amounted to approximately $130,000.
Selling expenses for the three months ended March 31, 1997 decreased 43.6% to
$358,950 as compared to the like period in 1996. As a percentage of net sales,
these expenses declined to 15.3% for the three months ended March 31, 1997 from
21.2% for the same period in 1996. A reduction in advertising and commission
expenses is the primary reason for the decrease. The Company is continuing the
effort to match selling expenses with sales.
Other expense, net was $3,344 and $4,192 for the three month periods ended March
31, 1997 and 1996 respectively.
LIQUIDITY AND CAPITAL RESOURCES:
Cash increased by $109,386 during the quarter ended March 31, 1997 as a result
of accounts receivable collections, partially offset by decreases in accounts
payable, accrued expenses and long-term debt.
Accounts receivable decreased $919,380 during the three months ended March 31,
1997 principally due to a reduction in net sales of $1,071,360 from the fourth
quarter of 1996 as compared to the first quarter of 1997.
Accounts payable and accrued expenses were reduced by $488,624 principally due
to the application of accounts receivable collections to these liabilities.
As previously disclosed on the Company's 1996 Form 10-KSB, on April 14, 1997,
the Company's President and the Chairman of the Board supplied the Company with
lines-of-credit for up to $375,000 each ($750,000 in total) with interest at
prime plus 1.25%. The lines-of-credit expire in April 1998 at which time all
accrued interest and unpaid principal will be due and payable. The
lines-of-credit will be payable at an earlier date if the Company obtains a bank
line-of-credit or similar financing in the amount of at least $750,000. The
Company believes that these lines-of-credit will be adequate to meet its
operating needs over the next twelve months and to repay the KeyBank National
Association term loan if payment is demanded after June 30, 1997.
Effective December 15, 1997, the Company is required to adopt Financial
Accounting Standard No. 128, "Earnings per Share". This Standard requires both
basic and diluted earnings per share to be reported for all periods presented.
When income/(loss) per common share is calculated in accordance with this
Standard, for the three months ended March 31, 1997 and 1996, basic and diluted
income/(loss) per common share do not significantly differ from reported
amounts.
7
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Company is not aware of any legal proceedings other than those disclosed in
the Company's Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996. There have been no material changes or activity in any of the
proceedings disclosed in such Annual Report.
Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of recent reports of
incidents in which, for example, defense spray products have been mischievously
or improperly used, in some case by minors, have not been instantly effective or
have been ineffective against enraged or intoxicated individuals. Incidents of
this type, or others, could give rise to product liability or other claims; or
to claims that past or future advertising, packaging or other practices should
be, or should have been, modified, or that regulation of products of this nature
should be extended or changed.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits (11) Schedule of Computation of Per
Share Earnings
(27) Financial Data Schedule
(b) Reports on Form 8-K None
8
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MACE SECURITY INTERNATIONAL, INC.
Date: May 14, 1997 /s/ Jon E. Goodrich
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Jon E. Goodrich, President
Date: May 14, 1997 /s/ Timothy D. Smith
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Timothy D. Smith, Treasurer
Principal Financial Officer