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: May 17, 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.)
160 Benmont Avenue, Bennington, Vermont 05201
(Address of Principal Executive Offices)
(802) 447-1503
(Registrant's Telephone Number)
1
ITEM 2. ACQUISITION OF THE CAPITAL STOCK OF COLONIAL FULL SERVICE CAR WASH, INC.
On May 17, 1999, Mace Security International, Inc., a Delaware corporation(the
"Company" or "Registrant"), through its wholly owned subsidiary Mace Anti Crime
Bureau, Inc., pursuant to the terms and conditions of the Stock Purchase
Agreement (the "Stock Purchase Agreement") dated February 4, 1999, as amended
April 1, 1999, executed by American Wash Services, Inc. with Gary Higgins,
Rosario Higgins, Rosa Maria Dietrich, Rainer Dietrich, Amy Schmadeke, Elisa
Rauch and Gunter Rauch (collectively, the "Shareholders" or "Sellers"), and
assigned to the Company, acquired all of the outstanding shares of stock (the
"Colonial Shares") of Colonial Full Service Car Wash, Inc. ("Colonial"). The
Seller is not affiliated with Registrant nor with any of Registrant's
subsidiaries. The description of the acquisition transaction set forth herein is
qualified in its entirety by reference to the Stock Purchase Agreement and
subsequent amendment, which are incorporated as Exhibits 2.1 and 2.2,
respectively. The Company intends to continue the business of operating a car
wash company.
Pursuant to the Stock Purchase Agreement, as amended, Registrant purchased the
Colonial Shares for total consideration of approximately $15,100,000, including
1,251,000 shares of the Registrant's Common Stock valued at $6.6875 per share
and the assumption of debt and negative working capital of approximately
$6,734,000. Approximately 245,000 shares of the Registrant's Common Stock was
"held back" in accordance with the provisions of the Stock Purchase Agreement.
Upon the expiration of the "hold-back" period, assuming that the Company has no
claims against the Shareholders for breaches of representations and other
indemnified claims, the remaining shares will be issued. The acquisition is
accounted for using the "purchase" method of accounting.
In addition, each of the Shareholders executed non-competition agreements
preventing each of them from competing, directly or indirectly, with the Company
or carrying on the operations of a car wash within certain geographic areas and
for certain predetermined periods.
2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of business acquired.
Report of Independent Auditors
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations for the Two Years Ended December 31, 1998 and 1997
Statements of Stockholders' Equity for the Two Years Ended
December 31, 1998 and 1997
Statements of Cash Flows for the Two Years Ended December 31, 1998 and 1997
Notes to Financial Statements
Balance Sheets as of March 31, 1999 and March 31, 1998 (Unaudited)
Statements of Operations and Retained Earnings for the Three Months
Ended March 31, 1999 and 1998 (Unaudited)
Statement of Stockholders' Equity for the Three Months Ended
March 31, 1999 (Unaudited)
Statements of Cash Flows for the Three Months
Ended March 31, 1999 and 1998 (Unaudited)
Selected Notes to Consolidated 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 Three Months Ended
March 31, 1999 (Unaudited)
Pro forma Consolidated Balance Sheet as of March 31, 1999 (Unaudited)
(C) EXHIBITS
*2.1 Stock Purchase Agreement dated as of February 4, 1999, by and between Gary
Higgins, Rosario Higgins, Rosa Maria Dietrich, Rainer Dietrich, Amy
Schmadeke, Elisa Rauch and Gunter Rauch and American Wash Services, Inc.
*2.2 Amendment Number One to Stock Purchase Agreement dated April 1, 1999,
between Gary Higgins, Rosario Higgins, Rosa Maria Dietrich, Rainer
Dietrich, Amy Schmadeke, Elisa Rauch, Gunter Rauch and Steven Sims and
American Wash Services, Inc.
*2.3 Assignment dated May 17, 1999 between Mace Security International, Inc.,
Mace Anti Crime Bureau, Inc., and American Wash Services, Inc.
*99 Press Release dated May 25, 1999.
23.1 Consent of Ernst & Young LLP
- --------------------------------------------------------------------------------
* Incorporated by reference
3
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: July 30, 1999 MACE SECURITY INTERNATIONAL, INC.
By:/s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien
Chief Financial Officer and Treasurer
4
Financial Statements
Colonial Full Service Car Wash, Inc.
Years ended December 31, 1998 and 1997
with Report of Independent Auditors
1
Colonial Full Service Car Wash, Inc.
Financial Statements
Years ended December 31, 1998 and 1997
CONTENTS
Report of Independent Auditors.................................. 1
Audited Financial Statements
Balance Sheets................................................. 2
Statements of Operations....................................... 4
Statements of Stockholders' Equity............................. 5
Statements of Cash Flows....................................... 6
Notes to Financial Statements.................................. 7
1
Report of Independent Auditors
The Board of Directors
Colonial Full Service Car Wash, Inc.
We have audited the accompanying balance sheets of Colonial Full Service Car
Wash, Inc. (the Company), as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the financial
statements based on our audit.
We conducted our audits 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 audits provide 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 Colonial Full Service Car Wash,
Inc., as of December 31, 1998 and 1997, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
January 21, 1999, except for Notes 3 and 10 /s/Ernst & Young, LLP
as to which the dates are July 22, 1999
and May 17, 1999, respectively
1
Colonial Full Service Car Wash, Inc.
Balance Sheets
December 31
1998 1997
---------------------------------
Assets
Current assets:
Cash and cash equivalents $ 105,807 $ 140,393
Accounts receivable 33,266 57,170
Inventories 246,596 262,809
Deferred income taxes 11,445 18,955
Prepaid expenses 76,897 75,967
---------------------------------
Total current assets 474,011 555,294
Property and equipment:
Land 1,336,479 1,336,479
Leasehold improvements 1,993,454 1,943,052
Buildings 3,113,813 3,095,837
Machinery and equipment 3,146,293 2,854,399
Computer software 230,254 168,254
Construction in progress 46,420 42,160
---------------------------------
9,866,713 9,440,181
Accumulated depreciation (2,442,650) (1,852,648)
---------------------------------
7,424,063 7,587,533
Shareholder advance 182,536 57,016
Note receivable - shareholder 106,931 97,428
Other assets 9,721 9,721
---------------------------------
Total assets $ 8,197,262 $ 8,306,992
=================================
2
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 689,993 $ 797,372
Accrued expenses 533,212 468,144
Current portion of long-term debt 491,159 264,325
---------------------------------
Total current liabilities 1,714,364 1,529,841
Long-term debt, less current portion 5,270,521 5,442,504
Deferred income taxes 69,727 58,969
Other long-term liabilities 41,600 -
Commitments and contingencies
Stockholders' equity:
Common stock, $1.00 par value:
100,000 shares authorized with 89,337 shares issued in
1998 and 1997 and 89,084 and 89,337 outstanding in
1998 and 1997, respectively 89,337 89,337
Treasury stock, 253 shares at cost (50,000) -
Preferred stock, $1.00 par value: 2,000,000 shares
authorized, with 825,000 shares issued and outstanding
in 1998 and 1997 825,000 825,000
Additional capital 650,147 774,755
Accumulated deficit (413,434) (413,414)
---------------------------------
Total stockholders' equity 1,101,050 1,275,678
---------------------------------
Total liabilities and stockholders' equity $8,197,262 $8,306,992
=================================
See accompanying notes.
3
Colonial Full Service Car Wash, Inc.
Statements of Operations
YEAR ENDED DECEMBER 31
1998 1997
------------------------------------
Net sales $10,696,977 $10,062,711
Operating expenses:
Payroll costs 4,618,015 4,242,066
Materials and supplies 1,914,305 1,933,018
Other operating expenses 2,716,346 2,588,107
Selling, general and administrative 954,625 879,660
------------------------------------
Total expenses 10,203,291 9,642,851
------------------------------------
493,686 419,860
Interest expense (528,354) (516,431)
Other income 52,916 43,233
------------------------------------
Income (loss) before income taxes 18,248 (53,338)
Income tax expense (benefit) 18,268 (2,656)
------------------------------------
Net loss $ (20) $ (50,682)
====================================
See accompanying notes.
4
Colonial Full Service Car Wash, Inc.
Statements of Stockholders' Equity
PREFERRED STOCK COMMON STOCK TREASURY STOCK ADDITIONAL ACCUMULATED
--------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT TOTAL
--------------------------------------------------------------------------------------------------
Balance at December 31, 1996 - $ 94,431 $94,431 621 $(49,375) $1,757,876 $(362,732) $1,440,200
Purchase of treasury stock - - - - 613 (58,793) - - (58,793)
Sale of treasury stock - - - - (1,234) 108,168 - - 108,168
Preferred stock dividends - - - - - - (123,920) - (123,920)
Exchange of common stock
for preferred stock 825,000 825,000 (5,094) (5,094) - - (819,906) - -
Adjustment to deferred tax
liability - - - - - - (39,295) - (39,295)
Net loss - - - - - - - (50,682) (50,682)
--------------------------------------------------------------------------------------------------
Balance at December 31, 1997 825,000 825,000 89,337 89,337 - - 774,755 (413,414) 1,275,678
Preferred stock dividends - - - - - - (124,608) - (124,608)
Purchase of treasury stock - - - - 253 (50,000) - - (50,000)
Net income - - - - - - - (20) (20)
--------------------------------------------------------------------------------------------------
Balance at December 31, 1998 825,000 $825,000 89,337 $89,337 253 $(50,000) $ 650,147 $(413,434) $1,101,050
==================================================================================================
See accompanying notes.
5
Colonial Full Service Car Wash, Inc.
Statements of Cash Flows
Year ended December 31
1998 1997
-----------------------------
OPERATING ACTIVITIES
Net loss $ (20) $ (50,682)
Adjustments to reconcile net income (loss) to
net cash
provided by operating activities:
Depreciation 590,002 508,182
Deferred income tax expense (benefit) 18,268 (2,656)
Accrued preferred stock dividend - (61,875)
Changes in operating assets and liabilities:
Accounts receivable 23,904 4,702
Inventories 16,213 80,054
Prepaid and other assets (935) 2,297
Accounts payable and other liabilities (711) 531,320
-----------------------------
Net cash provided by operating activities 646,721 1,011,342
INVESTING ACTIVITIES
Expenditures for property and equipment (426,530) (845,910)
Increase in receivables from stockholder (135,023) (120,170)
-----------------------------
Net cash used in investing activities (561,553) (966,080)
FINANCING ACTIVITIES
Payments on notes payable (307,350) (249,719)
Proceeds from issuance of notes payable 362,204 -
Preferred stock dividends (124,608) (62,045)
Purchase of treasury stock (50,000) (58,793)
Proceeds from sale of treasury stock - 108,168
-----------------------------
Net cash provided by financing activities (119,754) (262,389)
-----------------------------
Net decrease in cash (34,586) (217,127)
Cash at beginning of year 140,393 357,520
-----------------------------
Cash at end of year $ 105,807 $ 140,393
=============================
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 522,000 $ 519,000
=============================
See accompanying notes.
6
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements
December 31, 1998 and 1997
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Colonial Full Service Car Wash, Inc. (the Company), was incorporated in Texas in
March 1988. The Company operates car wash facilities and lubrication centers
from ten locations in the Dallas-Fort Worth area which provide a full line of
car care services including washing, waxing, detailing, gasoline and lubrication
services.
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.
REVENUE RECOGNITION
Sales revenue is generally 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly-liquid investments which have an
original maturity of three months or less at the date of purchase.
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
soaps, waxes, gasoline and lubrication supplies.
CAPITALIZATION OF INTERNAL-USE SOFTWARE
The Company expenses all costs for internal-use software until the software
development has reached the application development stage, at which time, the
appropriate costs of developing or obtaining the internal-use software are
capitalized. The application
7
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development stage includes the design, coding, testing and implementation of the
software.
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
-----------------
Leasehold improvements 15 - 30
Buildings 30
Machinery and equipment 5 - 7
Computer software 3
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 $59,881 and $81,357 for the years ended
December 31, 1998 and 1997, respectively.
INCOME TAXES
Deferred income taxes are computed using the liability method and are provided
on all temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities.
8
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
3. LONG-TERM DEBT
Long-term debt consists of the following at December 31:
1998 1997
---------------------------
Notes payable to a bank, bearing interest at the
bank's prime rate plus 0.25% (8.00 % at December
31, 1998 and 8.75% at December 31, 1997).
Principal and interest are due in monthly
installments through January 2000. The notes are
collateralized by substantially all assets of $5,047,549 $5,075,183
the Company.
Note payable to a bank, bearing interest at prime
plus 1.50% (9.25% at December 31, 1998 and
10.00% at December 31, 1997). Principal and
interest are due in monthly installments through
October 2000. The note is collateralized by real 500,357 551,078
property.
Note payable to a vendor, bearing interest at 5%.
Principal and interest are due in monthly
installments through June 2003. 120,450 -
Note payable to a bank, bearing interest at
8.90%. Principal and interest are due in monthly
installments through January 2000. The note is
collateralized by a vehicle. 12,071 15,869
Note payable to a bank, bearing interest at
8.75%. Principal and interest are due in monthly
installments through January 2000. The note is
collateralized by a vehicle. 26,753 -
Note payable to an individual, bearing interest
at 12%. Payments of interest are due quarterly,
with principal 50,000 50,000
due upon maturity in March 1999.
Other notes payable 4,500 14,699
---------------------------
5,761,680 5,706,829
Less current portion 491,159 264,325
---------------------------
$5,270,521 $5,442,504
===========================
9
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
The Company's loan agreements contain various restrictive covenants including,
but not limited to, liquidity ratios and limitations on capital expenditures and
additional indebtedness. At December 31, 1998, the Company was in violation of
certain covenants pursuant to the loan agreement with the Company's primary
lender. On July 22, 1999, effective as of June 21, 1999, the lender has amended
the loan agreements to remove the financial covenants which had been in
violation and change the maturity date of all notes to January 31, 2000. In
connection with the amendments, the bank loans were guaranteed by Mace Security
International, Inc. (see Note 10).
Substantially all of the Company's outstanding debt is personally guaranteed by
Gary Higgins, the Company's majority shareholder prior to the transaction
described in Note 10.
Aggregate maturities of long-term debt for the five years subsequent to December
31, 1998, are as follows:
1999 $ 491,159
2000 5,200,287
2001 27,049
2002 28,428
2003 14,757
4. INCOME TAXES
The components of the income tax benefit for the years ended December 31 are as
follows:
1998 1997
----------------------------
Deferred:
Federal $15,082 $(1,354)
State 3,186 (1,302)
----------------------------
Total deferred benefit $18,268 $(2,656)
============================
10
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
4. Income Taxes (continued)
The reconciliation of the income tax benefit computed at the federal statutory
rate to the total income tax benefit for the years ended December 31 follows:
1998 1997
----------------------------
Tax expense (benefit) at U.S. statutory rate $ 6,302 $(18,135)
State income tax expense (benefit) 1,278 (556)
Meals and entertainment disallowed 2,482 1,974
Other permanent differences 8,206 14,061
----------------------------
Total tax benefit $18,268 $ (2,656)
============================
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Major components of the
Company's deferred taxes at December 31 are as follows:
1998 1997
-----------------------------
Deferred tax assets:
Net operating loss carryforward $ 379,844 $ 316,132
General business credits 75,310 75,310
Accrued compensation - 16,637
Alternative minimum tax credits 4,368 4,368
Other 11,833 2,707
-----------------------------
Total deferred tax assets 471,355 415,154
-----------------------------
Deferred tax liabilities:
Tax over book depreciation (529,637) (455,168)
-----------------------------
Total deferred tax liabilities (529,637) (455,168)
-----------------------------
Net deferred tax liability $ (58,282) $ (40,014)
=============================
During the year ended December 31, 1997, the Company recorded $39,295 of
deferred tax liabilities and charged additional capital representing the
difference between the financial and tax basis of assets contributed to the
Company in a prior year by the majority stockholder.
11
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
4. INCOME TAXES (CONTINUED)
The Company has approximately $1,024,000 of federal net operating loss
carryforwards which begin to expire in the year 2010; $1,065,000 of state net
operating loss carryforwards which begin to expire in the year 1999; $75,000
general business credit carryovers which begin to expire in the year 2005; and a
$4,000 alternative minimum tax credit carryover which has no expiration.
The Company believes it is more likely than not that it will fully realize its
deferred tax assets and, accordingly, a valuation allowance has not been
provided. Management expects the deferred tax assets will be realized as
reductions in future taxable operating income or by utilizing available tax
planning strategies. Uncertainties that may affect the realization of these
assets include tax law changes and the future level of product prices, costs,
and tax rates. Therefore, the Company periodically reviews its ability to
realize these assets and will establish a valuation allowance if needed.
5. RELATED PARTY TRANSACTIONS
The Company pays an affiliated entity, partially owned by the majority
shareholder, consulting and other fees for services related to software
development and maintenance. The amount paid to this entity was approximately
$104,000 and $103,000 for the years ended December 31, 1998 and 1997,
respectively, a portion of which was capitalized.
The Company leases one of its facilities from the majority shareholder. The
amount paid to the majority shareholder was approximately $120,000 for each of
the years ended December 31, 1998 and 1997. The lease expired at December 31,
1998, and has a three-year renewal option.
At December 31, 1998, the Company has an outstanding note receivable from the
majority shareholder for approximately $107,000. The note has a five-year term
and bears interest at 8%; the principal and interest are due upon maturity in
March 2002. The note is the net result of several transactions between the
Company and the majority shareholder.
6. 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
volume. The lease agreements have terms from two to ten years, with renewal
options which provide for renewals of up to 20 years from the original lease
term. Rent expense, including contingent rentals, for
12
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
facilities and equipment was approximately $605,000 and $584,000 for the years
ended December 31, 1998 and 1997, respectively. Future minimum lease
commitments, including contingent rentals, are as follows at December 31, 1998:
1999 $ 375,349
2000 357,800
2001 337,500
2002 337,500
2003 337,500
Thereafter 875,700
----------------
$2,621,349
================
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.
7. STOCK PURCHASE WARRANT
At December 31, 1998, the Company had an outstanding warrant permitting the
holder to acquire up to 2% of the Company's common stock at an exercise price
equal to 50% of the price offered to the public in the event the Company
undertakes a public offering of its common stock. The warrant will expire after
one year following a public offering of its common stock.
8. CAPITAL STOCK
The Company's capital stock consists of Class A common stock and Class B, Series
A participating, cumulative preferred stock. Dividends on Class B preferred
shares are paid semi-annually at the rate of 15% with an additional special
dividend of $62,045 paid in 1997. Class B preferred shares rank senior to the
Company's Class A common shares as to dividends and liquidation rights. Each
share of Series A preferred stock is redeemable for $1 per share at the option
of the Company. Upon notification of redemption, the holder of the Class B
shares has the option to convert into Class A common shares at the rate of one
common share for each 125 preferred shares. Accordingly, the Company has
reserved 6,600 of its authorized but unissued Class A common stock for possible
future conversion of the issued and outstanding Class B preferred stock at
December 31, 1998. Class B preferred shareholders have no voting rights.
13
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
9. 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.
10. SUBSEQUENT EVENT
Effective May 17, 1999, the stockholders of the Company sold all of their
outstanding stock to a wholly-owned subsidiary of Mace Security International,
Inc.
14
Colonial Full Service Car Wash, Inc.
Balance Sheets
March 31
1999 1998
--------------- ---------------
(Unaudited)
Assets
Current assets
Cash and cash equivalents $52,205 $141,655
Accounts receivable 32,486 40,552
Inventories 230,610 251,546
Deferred income taxes 27 22,910
Prepaid expenses 137,752 73,986
--------------- ---------------
Total current assets 453,080 530,649
Property and equipment
Land 2,950,885 1,336,479
Leasehold improvements 1,996,977 1,978,972
Buildings 3,413,813 3,110,411
Equipment 3,284,635 2,912,664
Computer software 230,254 188,124
Construction in progress 46,420 28,802
--------------- ---------------
11,922,984 9,555,452
Accumulated depreciation (2,598,073) (1,989,940)
--------------- ---------------
9,324,911 7,565,512
Stockholder Advance 379,710 114,144
Note Receivable - shareholder - 100,724
Other assets 9,721 9,721
Total assets $10,167,422 $8,320,750
============== ==============
15
March 31
1999 1998
------------------------------------
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $1,041,295 $619,511
Accrued expenses 316,382 294,997
Current portion of long term debt 5,198,626 536,419
--------------- --------------
Total current liabilities 6,556,303 1,450,927
Long term liabilities
Long-term debt, less current portion 513,956 5,435,309
Deferred income taxes 21,083 96,435
Other Long-term liability, less current portion 38,400 51,200
--------------- --------------
7,129,742 7,033,871
Stockholders equity
Common stock, $1.00 par value:
10,000,000 and 200,000 shares authorized, 117,587 and
89,337 issued, 117,334 and 89,337 outstanding in
1999 and 1998, respectively 117,587 89,337
Preferred stock, $1.00 par value: 2,000,000 shares
authorized, with 825,000 shares issued and outstanding
in 1998 - 825,000
Treasury stock, 253 shares at cost (50,000)
Additional capital 3,485,709 742,960
Accumulated deficit (515,616) (370,418)
--------------- --------------
Total stockholders' equity 3,037,680 1,286,879
--------------- --------------
Total liabilities and stockholders equity 10,167,422 8,320,750
============== =============
See accompanying selected notes.
16
Colonial Full Service Car Wash, Inc.
Income Statement
Three Months Ended March 31
1999 1998
--------------------------------------------
(Unaudited)
Revenues
Car wash and detail $1,597,052 $1,596,215
Lube and Other Services 968,532 850,646
Fuel 51,307 108,898
Merchandising 25,018 32,679
--------------- --------------
Total Revenue 2,641,909 2,588,438
Cost of goods sold
Car wash and detail 1,301,966 1,171,069
Lube and Other Services 733,564 612,460
Fuel 36,104 82,544
Merchandising 15,695 21,627
--------------- --------------
Total Cost of Goods Sold 2,087,329 1,887,700
Gross Profit 554,580 700,738
Depreciation expense 155,424 137,293
Sales, General and Administrative 422,837 365,379
--------------- --------------
Operating (loss) Income (23,681) 198,066
Interest expense, net (129,113) (134,750)
Other income 13,384 13,191
--------------- --------------
(Loss) income before income tax (139,410) 76,507
Income tax (benefit) (37,226) (5,785)
--------------- --------------
Net (loss) income ($102,184) $82,292
============== =============
See accompanying selected notes.
17
Colonial Full Service Car Wash, Inc.
Statement of Cash Flows
Three Months Ended March 31
1999 1998
-------------------------------------------
Cash flows from operating activities
Net (loss) income ($102,184) $82,292
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 155,423 137,293
Deferred income taxes (37,226) (5,785)
Changes in operating assets and liabilities:
Accounts receivable 780 73,634
Inventories 15,986 11,263
Prepaid and other assets (60,855) 1,981
Accounts payable and accrued expenses 258,228 (331,400)
Other liabilities (3,200) 62,529
------------- ------------
Net cash provided by operating activities 226,952 31,807
Cash flows from investing activities:
Purchase of property and equipment (56,272) (115,270)
Increase in receivable - stockholder (90,243) (117,440)
------------- ------------
Net cash used in investing activities: (146,515) (232,710)
Cash flows from financing activities:
Payments on notes payable (49,100) (67,340)
Proceeds from issuance of note payable - 332,238
Preferred stock dividends (123,750) (62,733)
Common stock issued 38,811 -
------------- ------------
Net cash (used in) provided by financing activities: (134,039) 202,165
Net (decrease) increase in cash and cash equivalent (53,602) 1,262
Cash and cash equivalents at beginning of year 105,807 140,393
------------- ------------
Cash and cash equivalents at end of period $52,205 $141,655
============ ============
See accompanying selected notes.
18
Colonial Full Service Car Wash, Inc.
Statement of Stockholder's Equity
Preferred Stock Common Stock Treasury Stock
--------------------------------------------------------------------
Shares Amount Shares Amount Shares Amount
--------------------------------------------------------------------
Balance at December 31, 1998 825,000 $ 825,000 89,337 $89,337 253 $(50,000)
Conversion of preferred
stock to common (825,000) (825,000) 6,600 6,600
Issuance of common stock
for services 584 584
Issuance of common stock for
acquisition of property 21,066 21,066
Net loss
--------------------------------------------------------------------
Balance at March 31, 1999 - $ - 117,587 $ 117,587 253 $(50,000)
=========== ============ ========= ============ ======= ===========
Additional Accumulated
Capital Deficit Total
------------------------------------------
Balance at December 31, 1998 $650,147 $(413,432) $1,101,052
Conversion of preferred -
stock to common 818,400 -
Issuance of common stock -
for services 38,228 38,812
Issuance of common stock for
acquisition of property 1,978,934 2,000,000
Net loss (102,184) (102,184)
-
-----------------------------------------
Balance at March 31, 1999 $3,485,709 $(515,616) $3,037,680
============= ============ ==============
See accompanying selected notes.
19
COLONIAL FULL SERVICE CAR WASH, INC.
SELECTED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999 AND 1998
(UNAUDITED)
1. ORGANIZATION AND DESCRIPTION OF BUSINESS
Colonial Full Service Car Wash, Inc. (the Company), was incorporated in Texas in
March 1988. The Company operates car wash facilities and lubrication centers
from ten locations in the Dallas-Fort Worth area which provide a full line of
car care services including washing, waxing, detailing, gasoline and lubrication
services.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Financial Statements
The consolidated financial statements for the three months ended March
31, 1999 are unaudited; however, in the opinion of management, all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation
of the consolidated financial statements for the interim period have been
included.
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.
REVENUE RECOGNITION
Sales revenue is generally 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.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include all highly-liquid investments which have an
original maturity of three months or less at the date of purchase.
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
soaps, waxes, gasoline and lubrication supplies.
CAPITALIZATION OF INTERNAL-USE SOFTWARE
The Company expenses all costs for internal-use software until the software
development has reached the application development stage, at which time, the
appropriate costs of developing or obtaining the internal-use software are
capitalized. The application development stage includes the design, coding,
testing and implementation of the software.
20
Colonial Full Service Car Wash, Inc.
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
--------------------
Leasehold improvements 15 - 30
Buildings 30
Machinery and equipment 5 - 7
Computer software 3
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
Deferred income taxes are computed using the liability method and are provided
on all temporary differences between the financial reporting basis and the tax
basis of the Company's assets and liabilities.
3. SUBSEQUENT EVENT
Effective May 17, 1999, the stockholders of the Company sold all of their
outstanding stock to a wholly-owned subsidiary of Mace Security International,
Inc.
21
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE THREE MONTHS ENDED MARCH 31, 1999
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1998 and the three months ended March 31, 1999 give
effect to 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.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 and the three months ended March 31, 1999 gives
effect to the aforementioned transaction as if the transaction had occurred on
January 1, 1998. 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 transaction to which such
data gives effect had 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 three years in the period then ended
and the historical financial statements of Colonial Full Service Car Wash, Inc.
appearing elsewhere in this filing.
22
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(Dollars in thousands, except shares and per share data)
Colonial Full
Mace Security Service Car Pro Forma
International, Inc. Wash, Inc. Adjustments
----------------------- ----------------------- -----------------------
Net sales $ 2,404 $ 10,697 $ -
Cost of sales 1,230 9,248 (297)(1)
Selling, general and administrative 1,719 955 -
----------------------- ----------------------- -----------------------
Operating (loss) income (545) 494 279
Other income (expense):
Interest income 137 - -
Interest expense (95) (528) -
Other income 221 53 -
----------------------- ----------------------- -----------------------
(Loss) income from operations
before income tax expense (282) 19 279
Income tax expense (4) (19) -
---------------------- ---------------------- -----------------------
Net (loss) income $ (286) $ - $ 279
====================== ====================== =======================
Net loss per common share: ($0.04)
======================
Weighted average number of
common shares outstanding 6,987,127
======================
Pro Forma
Consolidated
----------------------
Net sales $ 13,101
Cost of sales 10,199
Selling, general and administrative 2,674
----------------------
Operating (loss) income 228
Other income (expense):
Interest income 137
Interest expense (623)
Other income 274
----------------------
(Loss) income from operations
before income tax expense 16
Income tax expense (23)
----------------------
Net (loss) income (7)
----------------------
Net loss per common share: -
----------------------
Weighted average number of
common shares outstanding 8,238,127(2)
----------------------
23
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 1999
(Dollars in thousands, except shares and per share data)
Colonial Full
Mace Security Service Car Pro Forma Pro Forma
International, Inc. Wash, Inc. Adjustments Consolidated
---------------------- ---------------- ----------------- --------------
Net sales $ 704 $ 2,642 $ - $ 3,346
Cost of sales 364 2,243 (78)(1) 2,529
Selling, general and administrative 802 423 - 1,225
---------------------- ---------------- ----------------- --------------
Operating (loss) income (462) (24) 78 (408)
Other income (expense):
Interest income 47 - - 47
Interest expense - (129) - (129)
Other income (expense) (53) 13 - (40)
---------------------- ---------------- ----------------- --------------
(Loss) income
before income tax expense (468) (140) 78 (530)
Income tax expense (benefit) - (37) - (37)
---------------------- ---------------- ----------------- --------------
Net (loss) income $ (468) $ (103) $ 78 $ (493)
====================== ================ ================ ==============
Net (loss) income per common share ($0.07) $ (0.06)
====================== ==============
Weighted average number of
common shares outstanding 6,387,200 7,638,200(2)
====================== ==============
24
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:
(a) 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.
(b) For purpose of determining pro forma earnings per share, the issuance of
1,251,000 shares of unregistered shares of common stock to effect the
acquisition of Colonial by Mace were considered outstanding since January
1, 1998.
THE UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE
MONTHS ENDED MARCH 31, 1999 HAS BEEN ADJUSTED TO REFLECT THE FOLLOWING:
(a) 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, 1999, net of historical
depreciation and amortization expense of Colonial.
(b) For purpose of determining pro forma earnings per share, the issuance of
1,251,000 shares of unregistered shares of common stock to effect the
acquisition of Colonial by Mace were considered outstanding since January
1, 1999.
25
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of March 31, 1999
(Dollars in thousands)
Colonial Full
Mace Security Service Car Pro Forma Pro Forma
International, Inc. Wash, Inc. Adjustments Consolidated
-------------------- -------------------- -------------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 3,572 $ 52 $ - $ 3,624
Cash escrow 611 - 611
Accounts receivable, net 1,271 32 1,303
Inventories 1,502 231 1,733
Prepaid expenses and other 285 138 423
-------------------- -------------------- -------------------- --------------------
Total current assets 7,241 453 - 7,694
Net assets of discontinued operations 327 - - 327
Property and equipment, net 1,079 9,325 2,175(1) 12,579
Intangibles, net 912 - 3,153(1) 4,065
Other assets 217 390 - 607
-------------------- -------------------- -------------------- --------------------
Total assets $ 9,776 $ 10,168 $ 5,328 $ 25,272
=================== =================== =================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 298 $ 1,041 $ - $ 1,339
Accrued expenses 232 316 548
Current portion of long term debt - 5,199 5,199
-------------------- -------------------- -------------------- --------------------
Total current liabilities 530 6,556 - 7,086
Deferred income taxes - 21 21
Long term debt, less current portion - 514 514
Other Liabilities - 39 39
-------------------- -------------------- -------------------- --------------------
Total liabilities 530 7,130 - 7,660
Commitments and contingencies
Stockholders' equity:
Common stock 68 118 (106)(1) 80
Additional paid-in capital 13,333 3,486 4,868(1) 21,687
Treasury stock (52) (50) 50(1) (52)
(Accumulated deficit) retained earnings (4,103) (516) 516(1) (4,103)
-------------------- -------------------- -------------------- --------------------
Total stockholders' equity 9,246 3,038 5,328 17,612
-------------------- -------------------- -------------------- --------------------
Total liabilities and
stockholders' equity $ 9,776 $ 10,168 $ 5,328 $ 25,272
=================== =================== =================== ===================
26
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET ADJUSTMENTS
The unaudited Pro Forma Consolidated Balance Sheet as of March 31, 1998 has been
adjusted to reflect the following:
(1) On February 4, 1999, the Company entered into a Stock Purchase Agreement
for the pending acquisitions of all the outstanding stock of Colonial Full
Service Car Wash, Inc. ("Colonial") for total consideration to be paid by
Mace Security International, Inc. of approximately $15,100,000 including
1,251,000 shares of the Registrant's Common Stock valued at $6.6875 per
share and the assumption of debt and negative working capital of
approximately $6,734,000. Approximately 245,000 shares of the Registrant's
Common Stock was "held back" in accordance with the provisions of the Stock
Purchase Agreement. Upon the expiration of the "hold-back" period, assuming
that the Company has no claims against the Shareholders for breaches of
representations and other indemnified claims, the remaining shares will be
issued. The acquisition is anticipated to be accounted for under the
purchase method. Pursuant to the terms of the stock purchase agreement, all
property, equipment, other assets and working capital will be acquired and
all liabilities will be assumed. 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 estimated fair value 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 from the pro forma amounts
included herein. The preliminary allocation of the purchase price is as
follows:
Property and equipment $11,500,000
Cost over fair value of net assets acquired 3,153,000
Current assets acquired 453,000
Other assets acquired 390,000
Current liabilities assumed (6,556,000)
Other liabilities assumed (574,000)
-------------
$ 8,366,000
=============
27
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
- ----------- -----------
23.1 Consent of Ernst & Young LLP
1