SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: October 29, 1999
(Date of Earliest Event Reported)
MACE SECURITY INTERNATIONAL, INC.
(Exact name of Registrant as Specified in its Charter)
Delaware
(State of Incorporation)
0-22810
(Commission File Number)
03-0311630
(IRS Employer Identification No.)
1000 Crawford Place, Suite 400, Mount Laurel, New Jersey 08054
(Address of Principal Executive Offices)
(856) 778-2300
(Registrant's Telephone Number)
Item 2. Acquisition of Millennia Car Wash, Inc.
On October 29, 1999, Mace Security International, Inc., a Delaware
corporation (the "Company" or "Registrant"), through a wholly owned subsidiary,
acquired all of the car wash related assets of Millennia Car Wash, LLC
("Millennia Car Wash") pursuant to the terms of a Real Estate and Asset Purchase
Agreement dated March 30, 1999 (collectively the "Agreement"), by and among the
Registrant, Millennia Car Wash, LLC, and Excel Legacy Corporation and G II
Ventures, LLC (the "Sellers"). Pursuant to the terms and conditions of the
Agreement, the Registrant purchased all of the assets of the Sellers used in the
business of operating several full service car washes Arizona and Texas. Sellers
are not affiliated with the Registrant nor with any of the Registrant's
subsidiaries. The description of the acquisition transaction set forth herein is
qualified in its entirety by reference to the Agreement which is incorporated as
Exhibit 2.1.
Pursuant to the Real Estate and Asset Purchase Agreement, Registrant
purchased the assets for a consideration of 3,500,000 unregistered shares of the
Company's common stock and warrants to purchase 62,500 shares of the Company's
common stock. The Registrant also assumed approximately $15,000,000 of
the Sellers indebtedness. The acquisition is to be accounted for using the
"purchase" method of accounting.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired.
Report of Independent Auditors
Balance Sheet as of December 31, 1998
Statement of Operations for the period April 2, 1998 (date of inception)
through
December 31, 1998
Statement of Members' Equity for the period April 2, 1998 (date of
inception) through
December 31, 1998
Statement of Cash Flows for the period April 2, 1998 (date of inception)
through
December 31, 1998
Notes to Financial Statements
Balance Sheet as of September 30, 1999 (Unaudited)
Statements of Operations for the Nine Months Ended September 30, 1999 and
for the period April 2, 1998 (date of inception) through September 30,
1998 (Unaudited)
Statements of Cash Flows for the Nine Months Ended September 30, 1999 and
for the period April 2, 1998 (date of inception) through September 30,
1998 (Unaudited)
Selected Notes to Financial Statements (Unaudited)
(b) Pro Forma Financial information
Pro forma Consolidated Statement of Operations for the Year Ended
December 31,1998 (Unaudited)
Pro forma Consolidated Statement of Operations for the Nine Months Ended
September 30, 1999 (Unaudited)
Pro forma Consolidated Balance Sheet as of September 30, 1999 (Unaudited)
(c) Exhibits
*2.1 Real Estate and Asset Purchase Agreement dated March 30, 1999, by and among
Millennia Car Wash, LLC, Excel Legacy Corporation and G II Ventures, LLC,
and Mace Security International, Inc.
*2.2 Amendment No. 1 dated as of March 30, 1999 by and among Millennia Car Wash,
LLC, Excel Legacy Corporation and G II Ventures, LLC, and Mace Security
International, Inc.
*99 Press Release dated September 9, 1999.
23.1 Consent of Ernst & Young LLP
- --------------------------------------------------------------------------------
* Incorporated by reference
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 hereunto duly authorized.
Date: December 21, 1999 MACE SECURITY INTERNATIONAL, INC.
By:/s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien
Chief Financial Officer and Treasurer
Millennia Car Wash, L.L.C.
Financial Statements
For the period April 2, 1998 (date of inception) to December 31, 1998
Contents
Report of Independent Auditors.................................. 1
Audited Financial Statements
Balance Sheet................................................... 2
Statement of Operations......................................... 3
Statement of Member's Equity.................................... 4
Statement of Cash Flows......................................... 5
Notes to Financial Statements................................... 6
Report of Independent Auditors
The Member
Millennia Car Wash, L.L.C.
We have audited the accompanying balance sheet of Millennia Car Wash, L.L.C. as
of December 31, 1998, and the related statements of operations, member's equity
and cash flows for the period from April 2, 1998 (date of inception) to December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Millennia Car Wash, L.L.C., at
December 31, 1998 and the results of its operations and its cash flows for the
period April 2, 1998 (date of inception) to December 31, 1998 in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
August 27, 1999,
Except for Note 7, as to which the date is
October 29, 1999
1
Millennia Car Wash, L.L.C.
Balance Sheet
December 31, 1998
Assets
Current assets:
Cash $ 610,415
Accounts receivable 66,180
Inventories 183,399
Prepaid expenses and other current assets 185,473
-------------
Total current assets 1,045,467
Property and equipment:
Land 6,356,995
Buildings and leasehold improvements 24,480,817
Machinery and equipment 2,802,449
-------------
33,640,261
Accumulated depreciation (534,323)
-------------
33,105,938
Purchases in progress 935,924
Debt issuance costs (net of accumulated
amortization of $8,182) 359,988
Other assets 29,491
-------------
Total assets $ 35,476,808
=============
Liabilities and Member's Equity
Current liabilities:
Accounts payable $ 361,664
Deferred revenue 420,000
Accrued expenses 332,956
Current portion of long-term debt 546,971
-------------
Total current liabilities 1,661,591
Long-term debt, less current portion 14,602,695
Member's equity:
Paid-in capital 19,900,986
Accumulated deficit (688,464)
-------------
Total member's equity 19,212,522
-------------
Total liabilities and member's equity $ 35,476,808
=============
See accompanying notes.
2
Millennia Car Wash, L.L.C.
Statement of Operations
For the period April 2, 1998 (date of inception)
through December 31, 1998
Revenues $7,230,028
Operating expenses:
Payroll costs 3,110,510
Other operating expenses 2,841,572
Selling, general and administrative 1,073,207
Depreciation 534,323
----------
7,559,612
----------
(329,584)
Interest expense (434,334)
Other income 75,454
----------
Net loss $ (688,464)
==========
See accompanying notes.
3
Millennia Car Wash, L.L.C.
Statement of Member's Equity
Accumulated
Paid-in Capital Deficit Total
--------------------------------------------------------
Balance at April 2, 1998 (date of
inception) $ - $ - $ -
Cash contributions by member 903,180 - 903,180
Non cash capital contributions
(property and equipment and
purchases in progress) by member
(see Notes 2 and 3) 18,997,806 - 18,997,806
Net loss - (688,464) (688,464)
--------------------------------------------------------
Balance at December 31, 1998 $19,900,986 $ (688,464) $19,212,522
========================================================
See accompanying notes.
4
Millennia Car Wash, L.L.C.
Statement of Cash Flows
For the period April 2, 1998 (date of inception)
through December 31, 1998
Operating Activities
Net loss $ (688,464)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Depreciation and amortization 542,505
Changes in operating assets and liabilities:
Accounts receivable (66,180)
Inventories (183,399)
Prepaid and other assets (214,964)
Accounts payable 361,664
Deferred revenue 420,000
Accrued expenses 332,956
------------
Net cash provided by operating activities 504,118
Investing Activities
Acquisition of businesses (15,578,379)
------------
Net cash used in investing activities (15,578,379)
Financing Activities
Cash capital contributions 903,180
Payments on loan payable (100,334)
Proceeds from issuance of loan payable (net of debt issuance costs
of $368,170) 14,881,830
------------
Net cash provided by financing activities 15,684,676
------------
Net increase in cash 610,415
Cash at beginning of period -
------------
Cash at end of period $ 610,415
============
Supplemental Disclosures
Cash paid for interest $ 327,888
Property and equipment and purchases in progress received as capital
contributions $ 18,997,806
See accompanying notes.
5
Millennia Car Wash, L.L.C.
Notes to Financial Statements
December 31, 1998
1. Description of Business
Organization and Purpose
Millennia Car Wash, L.L.C. (the "Company"), a limited liability company, was
formed on April 2, 1998, under the laws of the state of Delaware. The latest
date on which the Company is to dissolve is December 31, 2048. The Company was
formed to own and operate car washes. At December 31, 1998 the Company owned and
operated car washes in Phoenix, Arizona and San Antonio, Texas. Certain of the
facilities also sell gasoline and provide automotive lubrication services.
The Company is wholly owned by Excel Legacy Corporation ("Excel"), which is also
the Company's sole member. Certain executive services of the Company are
managed by another party who may earn up to 50% ownership in the Company based
upon operating results exceeding a 35% return on Excel's investment. The
accounts of the Company are consolidated with Excel.
Limitation of Liability
All debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company. None of the members or the manager shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being a member or the manager.
2. Summary of Significant Accounting Policies
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
6
Millennia Car Wash, L.L.C.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Sales revenue is recognized and received at the time services are performed.
Credit is extended to certain businesses and municipalities who have multiple
vehicles for which services are performed based upon evaluation of the
customer's financial condition, and generally collateral is not required.
Consideration received prior to services being performed is recorded as deferred
revenue and is amortized to revenues as earned.
Inventories
Inventories are stated at cost which is not in excess of market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist of
gasoline and small auto accessories such as air freshners and floor mats.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the respective lives of the assets. The ranges of
estimated useful lives are as follows:
Years
-------
Buildings and leasehold improvements 25
Machinery and equipment 5 - 10
Computer software 5
Purchases in Progress
The Company has capitalized approximately $936,000 of costs related directly to
proposed acquisitions which have not been consummated at December 31, 1998. The
Company periodically reviews the future realization of these capitalized costs
and makes provisions against capitalized costs that are associated with projects
that are not probable of completion.
In March of 1999, the Company decided to abandon certain of these acquisitions.
Accordingly, the Company recorded a charge to operations of $518,500 during the
first quarter of 1999 related to the write-off of these costs.
7
Millennia Car Wash, L.L.C.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Start-up Costs
The Company expenses the costs of all start-up activities, including
organization costs, in the period in which these costs are incurred.
Advertising Expenses
Advertising costs are expensed as incurred and are included in selling, general,
and administrative expenses in the accompanying statement of operations. Total
advertising expenses approximated $79,000 for the period April 2, 1998 (date of
inception) to December 31, 1998.
Income Taxes
The Company is a limited liability company and is treated as a sole
proprietorship for U.S. federal and state income tax purposes. The Company is
not subject to income taxes. Any taxable income or loss is reported by the
member on its income tax return.
3. Acquisitions
In June 1998, the Company acquired eight car washes in the vicinity of Phoenix,
Arizona for approximately $17.7 million. The Company subsequently acquired three
more locations in the Phoenix area in September 1998 for $5.5 million and six
locations in Texas in August 1998 for $9.7 million. These acquisitions were paid
for with either cash from the Company, cash from the member of the Company which
is reflected as a non-cash capital contribution from the member of the Company
and with proceeds from the issuance of debt. All acquisitions have been
accounted for using the purchase method; accordingly, the results of their
operations are included in the accompanying financial statements since the date
of each respective acquisition.
8
Millennia Car Wash, L.L.C.
Notes to Financial Statements (continued)
4. Long-Term Debt
Long-term debt consists of the following at December 31, 1998:
Seven notes payable to a bank, all bearing interest at 8.52%.
Principal and interest are due in monthly installments through
October 2013. The notes are collateralized by substantially all
assets located at each facility for which the notes were borrowed. $11,137,975
Two notes payable to a bank, both bearing interest at 8.53%.
Principal and interest are due in monthly installments through
September 2013. The notes are collateralized by substantially all
assets located at each facility for which the notes were borrowed. 3,570,016
Note payable to the seller of one car wash location, bearing interest
at 8%. Principal and interest are due in monthly installments
through November 2000. The note is collateralized by all assets of
the location acquired. 391,675
Note payable to an individual, bearing interest at 8%. Principal and
interest are due upon maturity in October 2000. 50,000
-----------
15,149,666
Less current portion 546,971
$14,602,695
===========
The Company's loan agreements contain various restrictive covenants including,
but not limited to, debt to equity ratio, fixed charge coverage ratio and
limitations on distributions.
Aggregate maturities of long-term debt for the five years subsequent to December
31, 1998, are as follows:
1999 $ 546,971
2000 977,422
2001 613,498
2002 667,875
2003 727,071
Thereafter 11,616,829
9
Millennia Car Wash, L.L.C.
Notes to Financial Statements (continued)
5. Commitments and Contingencies
The Company leases certain of its facilities and equipment under noncancelable
operating leases. The lease agreements provide for monthly rents, with one
agreement providing for basic monthly rents plus contingent rentals based on
$.50 multiplied by the number of cars washed at the premises during such
preceding calendar month in excess of 5,300 cars. The lease agreements have
terms from five to twenty-two years, with renewal options which provide for
renewals of up to 30 years from the original lease term. Rent expense, including
contingent rentals, for facilities and equipment was approximately $312,000 for
the period April 2, 1998 (date of inception) to December 31, 1998. Future
minimum lease commitments for each of the following five years are as follows:
1999 $ 462,000
2000 348,000
2001 328,000
2002 313,000
2003 215,000
Thereafter 1,895,000
----------
$3,561,000
==========
The Company is subject to federal and state environmental regulations, including
rules relating to air and water pollution and the storage and disposal of
gasoline, oil, other chemicals, and waste. The Company believes that it complies
with all applicable laws relating to its business.
6. Year 2000 Issue (Unaudited)
The Company has developed a plan to modify its information technology to be
ready for the Year 2000 and has begun converting critical data processing
systems. The Company currently expects the project to be substantially complete
by late 1999 and does not expect this project to have a significant effect on
operations.
7. Subsequent Event
Effective April 1, 1999, Mace Car Wash, Inc., a wholly-owned subsidiary of the
Company ("Mace"), entered into an Operating Agreement with Millennia Car Wash,
LLC, Excel Legacy Corporation, and GII Ventures, LLC. According to the terms of
the Agreement, Mace would operate the locations and earn, as a management fee,
any profit realized from the operations of those locations during the term of
the Agreement.
10
Effective October 29, 1999, Mace Security International, Inc. acquired all of
the car wash related assets of the Company pursuant to the terms of a Real
Estate and Asset Purchase Agreement dated March 30, 1999.
11
Millennia Car Wash, L.L.C.
Balance Sheet
September 30, 1999
(Unaudited)
Assets
Current assets:
Cash $ 489,431
Accounts receivable 60,790
Inventories 168,120
Prepaid expenses and other current assets 269,517
------------------
Total current assets 987,858
Property and equipment:
Land 6,356,995
Buildings and leasehold improvements 24,844,707
Machinery and equipment 2,843,451
------------------
34,045,153
Accumulated depreciation (1,467,819)
------------------
32,577,334
Purchases in progress 359,852
Debt issuance costs (net of accumulated
amortization of $14,813) 353,852
Other assets 37,218
------------------
Total assets $34,316,114
==================
Liabilities and Member's Equity
Current liabilities:
Accounts payable $ 305,890
Accrued expenses 942,524
Current portion of long-term debt 583,171
Deferred revenue 286,753
------------------
Total current liabilities 2,118,338
Long-term debt, less current portion 14,134,126
Member's equity:
Paid-in capital 19,900,986
Accumulated deficit (1,837,336)
------------------
Total member's equity 18,063,650
------------------
Total liabilities and member's equity $34,316,114
==================
See accompanying selected notes.
1
Millennia Car Wash, L.L.C.
Statement of Operations
(Unaudited)
For the period
April 2, 1998
Nine Months (date of inception)
Ended through
September 30, 1999 September 30, 1998
-------------------- --------------------
Revenues $11,979,984 $3,240,828
Operating expenses:
Payroll costs 5,097,044 1,314,978
Other operating expenses 4,336,215 1,216,795
Selling, general and administrative 1,080,760 674,860
Depreciation 926,893 228,697
----------------- -----------------
11,440,912 3,435,330
----------------- -----------------
Interest expense (941,148) (169,240)
Other (expense) income (746,795) 55,361
----------------- -----------------
Net loss $(1,148,871) $ (308,381)
================= =================
See accompanying selected notes.
2
Millennia Car Wash, L.L.C.
Statement of Cash Flows
(Unaudited)
For the period
April 2, 1998
Nine Months (date of inception)
Ended through
September 30, 1999 September 30, 1998
-------------------- --------------------
Operating Activities
Net loss $(1,148,871) $ (308,381)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 939,632 228,697
Write-off of purchases in progress 898,860 -
Changes in operating assets and liabilities:
Accounts receivable 5,390 (60,545)
Inventories 15,279 (245,833)
Prepaid and other assets (82,021) (284,257)
Accounts payable (17,469) 122,949
Accrued expenses 428,265 585,284
----------------- -----------------
Net cash provided by operating activities 1,039,065 37,914
Investing Activities
Acquisition of businesses and purchases in progress (383,706) (15,041,563)
Capital expenditures (404,892) -
----------------- -----------------
Net cash used in investing activities (788,598) (15,041,563)
Financing Activities
Cash capital contributions - 903,180
Payments on loan payable (371,451) (9,924)
Proceeds from issuance of loan payable - 14,921,103
----------------- -----------------
Net cash (used in) provided by financing activities (371,451) 15,814,359
----------------- -----------------
Net (decrease) increase in cash (120,984) 810,710
Cash at beginning of period 610,415 -
----------------- -----------------
Cash at end of period $ 489,431 $ 810,710
================= =================
See accompanying selected notes.
3
Millennia Car Wash, L.L.C.
Selected Notes to Financial Statements
(Unaudited)
1. Description of Business
Organization and Purpose
Millennia Car Wash, L.L.C. (the "Company"), a limited liability company, was
formed on April 2, 1998, under the laws of the state of Delaware. The latest
date on which the Company is to dissolve is December 31, 2048. The Company was
formed to own and operate car washes. At September 30, 1999 the Company owned
and operated car washes in Phoenix, Arizona and San Antonio, Texas. Certain of
the facilities also sell gasoline and provide automotive lubrication services.
The Company is wholly owned by Excel Legacy Corporation ("Excel"), which is also
the Company's sole member. Certain executive services of the Company are managed
by another party who may earn up to 50% ownership in the Company based upon
operating results exceeding a 35% return on Excel's investment. The accounts of
the Company are consolidated with Excel.
Limitation of Liability
All debts, obligations and liabilities of the Company, whether arising in
contract, tort or otherwise, shall be solely the debts, obligations and
liabilities of the Company. None of the members or the manager shall be
obligated personally for any such debt, obligation or liability of the Company
solely by reason of being a member or the manager.
2. Summary of Significant Accounting Policies
Basis of Presentation
These interim 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.
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 reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
4
Millennia Car Wash, L.L.C.
Selected Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Revenue Recognition
Sales revenue is recognized and received at the time services are performed.
Credit is extended to certain businesses and municipalities who have multiple
vehicles for which services are performed based upon evaluation of the
customer's financial condition, and generally collateral is not required.
Consideration received prior to services being performed is recorded as deferred
revenue and is amortized to revenues as earned.
Inventories
Inventories are stated at cost which is not in excess of market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist of
gasoline and small auto accessories such as air freshners and floor mats.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the respective lives of the assets. The ranges of
estimated useful lives are as follows:
Years
---------
Buildings and leasehold improvements 25
Machinery and equipment 5 - 10
Computer software 5
Purchases in Progress
The Company capitalizes costs related directly to proposed acquisitions which
have not yet been consummated. The Company periodically reviews the future
realization of these capitalized costs and makes provisions against capitalized
costs that are associated with projects that are not probable of completion. At
September 30, 1999, the Company has capitalized costs related to proposed
acquisitions of $217,500.
In March of 1999, the Company made the decision, based on current information
regarding the probability of completion of several potential acquisitions, to
abandon certain acquisitions and accordingly recorded a charge to operations of
$899,000 of which $518,500 had been capitalized at December 31, 1998. This
5
2. Summary of Significant Accounting Policies (continued)
amount is included in other income (expense) in the statement of operations for
the nine months ended September 30, 1999.
Start-up Costs
The Company expenses the costs of all start-up activities, including
organization costs, in the period in which these costs are incurred.
Advertising Expenses
Advertising costs are expensed as incurred and are included in selling, general,
and administrative expenses in the accompanying statement of operations.
Income Taxes
The Company is a limited liability company and is treated as a sole
proprietorship for U.S. federal and state income tax purposes. The Company is
not subject to income taxes. Any taxable income or loss is reported by the
member on its income tax return.
3. Operating Agreement
Effective April 1, 1999, Mace Car Wash, Inc., a wholly-owned subsidiary of the
Company ("Mace"), entered into an Operating Agreement with Millennia Car Wash,
LLC, Excel Legacy Corporation, and GII Ventures, LLC. According to the terms of
the Agreement, Mace would operate the locations and earn, as a management fee,
any profit realized from the operations of those locations during the term of
the Agreement. Accordingly, a management fee of approximately $407,000 has been
charged to net sales in the statement of operations for the nine months ended
September 30, 1999.
4. Subsequent Event
Effective October 29, 1999, Mace Security International, Inc. acquired all of
the car wash related assets of the Company pursuant to the terms of a Real
Estate and Asset Purchase Agreement dated March 30, 1999.
6
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1998 and the nine months ended September 30, 1999 give
effect to (i) the acquisition on May 17, 1999 of all the outstanding stock of
Colonial Full Service Car Wash, Inc. ("Colonial") by Mace Security
International, Inc. (the "Registrant" or "Mace") for total consideration paid by
Mace of approximately $15.1 million; (ii) the acquisition of substantially all
of the assets of Genie Car Wash, Inc. of Austin, Genie Car Care Center, Inc.,
and Genie Car Service Center, Inc. (collectively, "Genie") from Genie and
Cornett Limited Partnership (collectively with Genie, the "Sellers") for total
consideration of approximately $11,750,000; (iii) the acquisition of the stock
of American Wash Services, Inc. ("AWS") from Louis D. Paolino, Jr. and Red
Mountain Holdings, Ltd. for total consideration of approximately $8,153,000;
(iv) the acquisition of substantially all of the assets of Stephen Bulboff and
Stephen B. Properties, Inc. ("Bulboff") for total consideration of approximately
$3,744,000; (v) the acquisition of the stock of Innovative Control Systems, Inc.
("ICS") for 603,721 shares of Mace common stock; (vi) the acquisition of the
stock of 50's Classic Car Wash of Lubbock, Inc. and CRCD, Inc. (collectively
"50's Classic") for 91,677 shares of Mace common stock; (vii) the acquisition of
substantially all of the assets of Quaker Car Wash, Inc. ("Quaker") for total
consideration of approximately $2,895,000; (viii) the acquisition of the stock
of Eager Beaver Car Wash, Inc. ("Eager Beaver") for 656,869 shares of Mace
common stock; and (ix) the acquisition of substantially all of the assets of
Millennia Car Wash, L.L.C. ("Millennia") for total consideration of
approximately $27,600,000. The ICS, 50's Classic and Eager Beaver business
combinations were accounted for using the pooling of interests method, and as a
result, no material pro forma adjustments were deemed necessary to reflect the
results of operations on a consolidated basis for these business combinations.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 and the nine months ended September 30, 1999 gives
effect to the aforementioned transactions as if the transactions had occurred on
January 1, 1998. Additionally, the pro forma consolidated statement of
operations for the year ended December 31, 1998 includes the results of Eager
Beaver for its fiscal year ended January 31, 1999. The following unaudited pro
forma financial data may not be indicative of what the results of operations or
financial position of Mace Security International, Inc. would have been, had the
transactions to which such data gives effect been completed on the date
assumed, nor are such data necessarily indicative of the results of operations
or financial position of Mace Security International, Inc. that may exist in the
future. The following unaudited pro forma information should be read in
conjunction with the notes thereto, the other pro forma financial statements and
notes thereto, and the consolidated financial statements and notes of Mace
Security International, Inc. as of December 31, 1998 and for each of the two
years in the period then ended appearing in the Company's Form 10-KSB and the
historical financial statements of Millennia appearing elsewhere in this filing.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(In thousands, except shares and per share data)
American
Mace Security Colonial Full Wash Stephen Bulboff Innovative
International, Service Car Genie Services, and Stephen B. Control
Inc. Wash, Inc. Car Wash Inc. Properties, Inc. Systems, Inc.
-------------- ------------- ---------- ---------- --------------- -------------
Net sales $ 2,404 $ 10,697 $ 6,553 $ 645 $ 1,288 $ 2,029
Cost of sales 1,230 9,248 4,708 453 603 1,206
Selling, general and
administrative 1,719 955 1,914 126 297 944
-------------- ------------- ---------- ---------- --------------- -------------
Operating (loss) income (545) 494 (69) 66 388 (121)
Other income (expense):
Interest expense, net 42 (528) 5 - (211) (30)
Other income 221 53 6 - - -
-------------- ------------- ---------- ---------- --------------- -------------
(Loss) income from operations before
income tax expense (282) 19 (58) 66 177 (151)
Income tax expense (4) (19) - (16) - -
-------------- ------------- ---------- ---------- --------------- -------------
Net (loss) income $ (286) $ - $ (58) $ 50 $ 177 $ (151)
============== ============= ========== ========== =============== =============
Net (loss) income per common share: $ (0.04)
==============
Weighted average number of
common shares outstanding 6,987,127
==============
50's Car Wash of Eager
Lubbock, Inc. and Quaker Car Beaver Car Millennia Car Pro Forma
CRCD, Inc. Wash, Inc. Wash, Inc. Wash, L.L.C. Adjustments
----------------- ------------ ------------ ------------- -------------
Net sales $ 780 $ 1,150 $ 3,986 $ 7,230 $ -
Cost of sales 437 432 2,598 6,486 (297) (1)
79 (2)
(32) (7)
(59) (8)
(6) (9)
(177) (10)
Selling, general and
administrative 210 369 460 1,073 (569) (4)
(360) (5)
(435) (11)
----------------- ------------ ------------ ------------- -------------
Operating (loss) income 133 349 928 (329) 1,856
Other income (expense):
Interest expense, net (61) (80) (266) (434) (380) (6)
Other income 5 50 59 75 -
----------------- ------------ ------------ ------------- -------------
(Loss) income from operations
before income tax expense 77 319 721 (688) 1,476
Income tax expense - - - - (631) (12)
----------------- ------------ ------------ ------------- -------------
Net (loss) income $ 77 $ 319 $ 721 $ (688) $ 845
================= ============ ============ ============= =============
Net (loss) income per common share:
Weighted average number of
common shares outstanding
Pro Forma
Consolidated
------------
Net sales $ 36,762
Cost of sales 26,909
Selling, general and
administrative 6,703
------------
Operating (loss) income 3,150
Other income (expense):
Interest expense, net (1,943)
Other income 469
------------
(Loss) income from operations
before income tax expense 1,676
Income tax expense (670)
------------
Net (loss) income $ 1,006
============
Net (loss) income per common share: $ 0.07
============
Weighted average number of
common shares outstanding 15,358,918 (3)
============
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
(In thousands, except shares and per share data)
Mace
Security Colonial Full American Stephen Bulboff
International, Service Car Genie Wash and Stephen B.
Inc. Wash, Inc. Car Wash Services, Inc. Properties, Inc.
-------------- ------------- ----------- -------------- ---------------
Net sales $ 16,640 $ 4,050 $ 2,748 $ 1,143 $ 799
Cost of sales 10,818 3,239 2,004 713 409
Selling, general and administrative 4,205 741 870 430 217
Merger, restructuring and change
in control charges 3,393 - - - -
-------------- ------------- ----------- -------------- ---------------
Operating (loss) income (1,776) 70 (126) - 173
Other income (expense):
Interest expense, net (548) (191) 1 - (157)
Other income (expense) 148 23 5 - -
-------------- ------------- ----------- -------------- ---------------
(Loss) income
before income tax expense (2,176) (98) (120) - 16
Income tax expense (benefit) (685) - - - -
-------------- ------------- ----------- -------------- ---------------
Net (loss) income $ (1,491) $ (98) $ (120) $ - $ 16
============== ============= =========== ============== ===============
Net loss per common share $ (0.13)
==============
Weighted average number of
common shares outstanding 11,652,009
==============
Quaker Car Millennia Car Pro Forma Pro Forma
Wash, Inc. Wash, L.L.C. Adjustments Consolidated
----------- ------------- ----------- ------------
Net sales $ 507 $ 11,980 $ - $ 37,867
Cost of sales 287 10,360 (119) (1) 27,093
48 (2)
(62) (7)
(31) (8)
(3) (9)
(570) (10)
Selling, general and administrative 112 1,081 (232) (4) 6,886
(195) (5)
(343) (11)
Merger, restructuring and change
in control charges 3,393
----------- ------------- ----------- ------------
Operating (loss) income 108 539 1,507 495
Other income (expense):
Interest expense, net (31) (941) (144) (6) (2,011)
Other income (expense) 56 (747) - ( 515)
----------- ------------- ----------- ------------
(Loss) income
before income tax expense 133 (1,149) 1,363 (2,031)
Income tax expense (benefit) - - (127) (12) (812)
----------- ------------- ----------- ------------
Net (loss) income $ 133 $ (1,149) $ 1,490 $ (1,219)
=========== ============= =========== ============
Net loss per common share $ (0.07)
============
Weighted average number of
common shares outstanding 17,254,841 (3)
============
Notes to Unaudited Pro Forma Consolidated Statement of Operations Adjustments
The Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1998 has been adjusted to reflect the following:
(1) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Colonial had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Colonial.
(2) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of Genie
had been completed on January 1, 1998, net of historical depreciation and
amortization expense of Genie.
(3) For purpose of determining pro forma earnings per share, the issuance of
1,251,000, 533,333, 628,362, 860,000, 603,721, 91,677, 236,876, 656,869,
and 3,500,000 shares, respectively, of unregistered shares of common stock
to affect the acquisition of Colonial, Genie, AWS, Bulboff, ICS, 50's
Classic, Quaker, Eager Beaver, and Millennia were assumed to be outstanding
from January 1, 1998 by Mace.
(4) To eliminate intercompany administrative charges of $569,000 related
directly to cost sharing arrangements provided by Genie's prior parent,
which were terminated as a result of the purchase transaction. Such
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(5) To reflect the elimination of intercompany rental expense of $360,000 from
Genie's prior parent terminated as a result of the purchase transaction.
(6) To record additional interest expense of $380,000 resulting from a $4.75
million promissory note issued to Genie's prior parent to consummate the
acquisition of Genie.
(7) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of AWS
had been completed on January 1, 1998, net of historical depreciation and
amortization expense of AWS.
(8) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Bulboff had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Bulboff.
(9) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Quaker had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Quaker.
(10) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Millennia had been completed April 2, 1998 (date of inception), net of
historical depreciation and amortization expense of Millennia.
(11) To eliminate general and administrative charges of $435,000 related
directly to Millennia's executive and acquisition personnel in Millennia's
San Diego, California office. Such administrative services were absorbed by
excess capacity of the Company and the Company has not hired additional
employees to perform these administrative services.
21
(12) The Company's pro forma tax provision reflects an effective tax rate of 40%
considering federal and state income taxes and the effect of certain non-
deductible costs principally related to acquisitions consummated.
The Unaudited Pro Forma Consolidated Statement of Operations for the Nine Months
Ended September 30, 1999 has been adjusted to reflect the following:
(1) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Colonial on May 17, 1999 had been completed on January 1, 1999, net of
historical depreciation and amortization expense of Colonial.
(2) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of Genie
on May 18, 1999 had been completed on January 1, 1999, net of historical
depreciation and amortization expense of Colonial.
(3) For purpose of determining pro forma earnings per share, the weighted
effect of the issuance of 1,251,000, 533,333, 628,362, 860,000, 603,721,
91,677, 236,876, 656,869 and 3,500,000 shares, respectively, of
unregistered shares of common stock to affect the acquisition of Colonial,
Genie, AWS, Bulboff, ICS, 50's Classic, Quaker, Eager Beaver, and Millennia
were assumed to be outstanding from January 1, 1999 by Mace.
(4) To eliminate intercompany administrative charges of $232,000 related
directly to cost sharing arrangements provided by Genie's prior parent,
which were terminated as a result of the purchase transaction. Such
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(5) To reflect the elimination of intercompany rental expense of $195,000 from
Genie's prior parent terminated as a result of the purchase transaction.
(6) To record additional interest expense of $144,000 resulting from a $4.75
million promissory note issued to Genie's prior parent to consummate the
acquisition of Genie.
(7) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of AWS
on July 1, 1999 had been completed on January 1, 1999, net of historical
depreciation and amortization expense of AWS.
(8) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Bulboff on July 1, 1999 had been completed on January 1, 1999, net of
historical depreciation and amortization expense of Bulboff.
(9) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Quaker on September 9, 1999 had been completed on January 1, 1999, net of
historical depreciation and amortization expense of Quaker.
(10) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Millennia had been completed on January 1, 1999, net of historical
depreciation and amortization expense of Millennia.
(11) To eliminate general and administrative charges of $343,000 related
directly to Millennia's executive and acquisition personnel in Millennia's
San Diego, California office. Such
22
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(12) The Company's pro forma tax provision reflects an effective tax rate of 40%
considering federal and state income taxes and the effect of certain non-
deductible costs principally related to acquisitions consummated.
23
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 1999
(In thousands)
Mace Security Millennia Car Pro Forma Pro Forma
International, Inc. Wash, L.L.C. Adjustments Consolidated
------------------- ------------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,912 $ 389 $ (36) (1) $ 4,265
Accounts receivable, net 1,837 161 - 1,998
Inventories 2,360 346 - 2,706
Deferred income taxes 730 - - 730
Prepaid expenses and other 1,075 92 (415) (1) 752
------------------- ------------ ----------- -----------
Total current assets 9,914 988 (451) 10,451
Net assets of discontinued operations 33 - - 33
Property and equipment, net 39,035 32,577 (8,597) (1) 63,015
Intangibles, net 12,464 354 4,275 (1) 17,093
Other assets 2,023 397 (300) (1) 2,120
------------------- ------------ ----------- -----------
Total Assets $ 63,469 $ 34,316 $ (5,073) $ 92,712
=================== ============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,532 $ 306 $ - $ 1,838
Accrued expenses 3,068 1,229 93 (1) 4,390
Current portion of long term debt 10,695 583 - 11,278
------------------- ------------ ----------- -----------
Total current liabilities 15,295 2,118 93 17,506
Deferred income taxes 1,827 - - 1,827
Long term debt, less current portion 4,650 14,134 - 18,784
Other long term liabilities 3,104 - - 3,104
------------------- ------------ ----------- -----------
Total liabilities 24,876 16,252 93 41,221
Commitments and contingencies
Stockholders' equity:
Common stock 175 - 35 (1) 210
Additional paid-in capital 46,277 19,901 (7,038) (1) 59,140
Treasury stock (52) - - (52)
(Accumulated deficit) retained earnings (7,807) (1,837) 1,837 (1) (7,807)
------------------- ------------ ----------- -----------
Total stockholders' equity 38,593 18,064 (5,166) 51,491
------------------- ------------ ----------- -----------
Total liabilities and
stockholders' equity $ 63,469 $ 34,316 $ (5,073) $ 92,712
=================== ============ =========== ===========
Notes to Unaudited Pro Forma Consolidated Balance Sheet Adjustments
The unaudited Pro Forma Consolidated Balance Sheet as of September 30, 1999 has
been adjusted to reflect the following:
(1) On October 29, 1999, the Company acquired all of the car wash related
assets of Millennia pursuant to the terms of a Car Wash Asset Purchase/Sale
Agreement dated March 30, 1999 for an aggregate purchase price of
$27,600,000 consisting of $12,900,000 worth of unregistered shares of the
Company's common stock and warrants to purchase 62,500 shares of the
Company's common stock and the assumption of approximately $14,700,000 of
long term debt. Pursuant to the terms and conditions of the Agreement, the
Registrant purchased all of the assets of the Sellers used in the business
of operating 17 full service car wash in Phoenix and Texas. The allocation
of the purchase price is preliminary. The actual allocation will be based
on management's final evaluation of such assets and liabilities. The excess
of the purchase price over the historical cost of net assets was allocated
to goodwill; however, this excess may ultimately be allocated to other
specific tangible and intangible assets. The final allocation of the
purchase price and the resulting effect on operations may differ
significantly from the pro forma amounts included herein. The preliminary
allocation of the purchase price is as follows:
Property, equipment and intangible assets.............................. 28,609,000
Net current liabilities assumed........................................ (1,091,000)
Other assets........................................................... 82,000
-----------
$27,600,000
===========
EXHIBIT INDEX
Exhibit Description
-----------
No.
- ---
23.1 Consent of Ernst & Young LLP