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: July 1, 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)
Item 1. Change in Control
On July 1, 1999, Mace Security International, Inc., a Delaware
corporation (the "Company" or "Registrant"), sold 3,735,000 shares of the
Company's common stock at a price of $1.375 per share to Louis D. Paolino, Jr.
and certain individuals designated by Mr. Paolino (the "Purchasers"). Pursuant
to the terms and conditions of the Stock Purchase Agreement, Mr. Paolino, the
Company's President and CEO, immediately became Chairman of the Board. In
connection with the Stock Purchase Agreement, two members of the Board resigned
and were replaced by three additional members. The description of the
transaction set forth herein is qualified in its entirety by reference to the
Stock Purchase Agreement and two subsequent amendments, which are incorporated
as Exhibits 2.4, 2.5 and 2.6, respectively.
Item 2. Acquisition of American Wash Services, Inc.
On July 1, 1999, Mace Security International, Inc., a Delaware
corporation (the "Company" or "Registrant"), through a wholly owned subsidiary
merged with American Wash Services, Inc. ("AWS") owned by Louis D. Paolino, Jr.,
the Registrant's President and CEO, and Red Mountain Holdings, Ltd. (the
"Sellers"). Pursuant to the terms and conditions of the Merger Agreement (the
"Agreement"), AWS was merged into Mace Car Wash, Inc., a wholly owned subsidiary
of the Company. At the time of the merger, AWS owned fixed assets, trade names
and trademarks, and intangibles used in its car wash operations. The Company
intends to continue using the acquired assets in the operating of full service
car washes as did AWS. The description of the acquisition transaction set forth
herein is qualified in its entirety by reference to the Agreement and two
subsequent amendments, which are filed herewith as Exhibits 2.1, 2.2 and 2.3,
respectively.
At Closing under the Agreement, the Company paid to Sellers $4,687,500
in cash from working capital, and 628,362 unregistered shares of the Company's
common stock, par value $.01 per share. The acquisition is accounted for using
the "purchase" method of accounting.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Independent Accountant's Report
Consolidated Balance Sheet at December 31, 1998
Consolidated Statement of Income for the Short Fiscal Year Ended December
31, 1998
Consolidated Statement of Retained Earnings for the Short Fiscal Year
Ended December 31, 1998
Consolidated Statement of Cash Flows for the Short Fiscal Year Ended
December 31, 1998
Notes to Consolidated Financial Statements
Consolidated Balance Sheet as of June 30, 1999
Consolidated Statement of Income for the Six Months Ended June 30,1999
Consolidated Statement of Retained Earnings for the Six Months Ended
June 30, 1999
Consolidated Statement of Cash Flows for the Six Months Ended June 30,
1999
Notes to Consolidated Financial Statements
(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 Six Months Ended
June 30, 1999 (Unaudited)
Pro Forma Consolidated Balance Sheet as of June 30, 1999 (Unaudited)
(c) Exhibits
*2.1 The Merger Agreement dated as of March 26, 1999 between Louis D.
Paolino, Jr. and Red Mountain Holding, Ltd. on the one hand, and
Mace Security International, Inc. on the other hand.
*2.2 Amendment No. 1 to The Merger Agreement dated as of April 13, 1999.
*2.3 Amendment No. 2 to The Merger Agreement dated as of May 24, 1999.
*2.4 The Stock Purchase Agreement dated as of March 26, 1999 between
Louis D. Paolino, Jr. and Mace Security International, Inc.
*2.5 Amendment No. 1 to the Stock Purchase Agreement dated as of April
13, 1999.
*2.6 Amendment No. 2 to the Stock Purchase Agreement dated as of May 24,
1999.
*99 Press Release dated July 7, 1999.
23.1 Consent of Burton Segal & Company
- --------------------------------------------------------------------------------
* 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: September 13, 1999 MACE SECURITY INTERNATIONAL, INC.
By: /s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien
Chief Financial Officer and Treasurer
[LETTERHEAD OF BURTON SEGAL & CO.]
INDEPENDENT ACCOUNTANTS REPORT
Stockholders and
Board of Directors
American Wash Services, Inc.
Mount Laurel, New Jersey
We have audited the accompanying consolidated balance sheet of American Wash
Services, Inc. and subsidiaries as of December 31, 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for the
short fiscal year ended December 31, 1998. These financial statements are the
responsibility of American Wash Services' management. Our responsibility is to
express an opinion on these financial statements based on our audits.
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 induces
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 consolidated financial position of American Wash
Services, Inc. and subsidiaries as of December 31, 1998, and their cash flows
for the short fiscal year ended December 31, 9998, in conformity with generally
accepted accounting principles.
/s/ BURTON SEGAL & COMPANY
Burton Segal & Company
Certified Public Accountants
April 15, 1999
FS-31
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
-----------------
ASSETS
------
Current Assets
- --------------
Cash and Equivalents $ (2,714)
Exchange 19,972
Mortgage Receivable 2,040,000
Inventory 23,719
Deposits 200,000
Prepaid Expenses 42,539
Deferred Legal Costs 51,666
-----------
Total Current Assets 2,375,182
-----------
Property, Plant & Equipment
- ---------------------------
Leasehold Improvements 495,691
Machinery and Equipment 927,465
-----------
Subtotal: 1,423,156
Less: Accumulated Depreciation (30,889)
-----------
Net Property, Plant & Equipment 1,392,267
-----------
Other Assets
- ------------
Leasehold Interest - (Net of Amortization) 1,453,038
-----------
Total Other Assets 1,453,038
-----------
TOTAL ASSETS $ 5,220,487
- ------------ ===========
See Notes to Financial Statements.
FS-32
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
DECEMBER 31, 1998
-----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts Payable $ 177,099
Due To Stephen B. Properties, Inc. 53,026
Taxes Payable 38,010
Provision for Corporate Income Taxes 11,924
Accrued Expenses 86,111
----------
Total Current Liabilities 366,170
----------
LONG TERM LIABILITIES
- ---------------------
Deferred Income Taxes 4,537
Total Long Term Liabilities 4,537
----------
TOTAL LIABILITIES 370,707
- ----------------- ----------
STOCKHOLDER'S EQUITY
- --------------------
Capital Stock 1
(0.01 par value; 100,000,000 shares
authorized, 100 shares issued and
outstanding)
Additional Paid-in Capital 4,799,999
Retained Earnings 49,780
----------
Total Stockholder's Equity 4,849,780
----------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $5,220,487
- ------------------------------------------ ==========
See Notes to Financial Statements.
FS-33
AMERICAN WASH SERVICES, INC.
STATEMENT OF INCOME
FOR THE SHORT FISCAL YEAR ENDED DECEMBER 31 , 1998
--------------------------------------------------
% of Sales
----------
NET SALES $ 645,418 100.00
Cost of Sales 424,093 65.71
Less: Ending inventory (23,719) (3.67)
---------- -------
TOTAL COST OF SALES 400,374 62.03
---------- -------
GROSS PROFIT 245,044 37.97
ADMINISTRATIVE & OPERATING EXPENSES 125,742 19.48
---------- -------
INCOME BEFORE INTEREST, TAXES AND DEPRECIATION 119,302 18.48
---------- -------
Deferred Income Tax Expense 4,537 0.70
Corporate Income Taxes 11,925 1.85
Amortization 21,962 3.40
Depreciation 31,098 4.82
---------- -------
Total Other Expenses 69,522 10.77
---------- -------
NET INCOME $ 49,780 7.71
========== =======
Earnings Per Share $ 497.80
See Notes to Financial Statements.
FS-34
AMERICAN WASH SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
December 31, 1998
------------------------------
RETAINED EARNINGS - Beginning $ -0-
ADD: Income for the Short Fiscal Period Ended
December 31, 1998 49,780
--------
RETAINED EARNINGS AT DECEMBER 31, 1998 $ 49,780
========
See Notes to Financial Statements.
FS-35
AMERICAN WASH SERVICES, INC.
STATEMENT OF CASH FLOWS
December 31, 1998
---------------------------
Cash Flows From Operating Activities
- ------------------------------------
Net Income $ 49,780
-------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 53,060
Increase in taxes payable 38,010
Increase in deferred income taxes 4,537
Increase in provision for corporate income taxes 11,924
Increase in accounts payable 177,099
Increase in accrued liabilities 86,111
(Increase) in prepaid expenses (42,539)
(Increase) in inventories (23,719)
(Increase) in other assets (1,450,000)
(Increase) in deposits (200,000)
(Increase) in other current assets (96,638)
-------------
Total adjustments (1,442,155)
-------------
Net cash (used) by operating activities (1,392,375)
-------------
Cash Flow From Investing Activities:
- ------------------------------------
Cash payments for the purchase of property (1,423,365)
-------------
Net cash (used) by investing activities (1,423,365)
Cash Flow From Financing Activities:
- ------------------------------------
Issuance of common stock 1
Loans payable to Stephen B. Properties Inc. 53,026
Additional paid in capital 4,799,999
Mortgage receivable (2,040,000)
-------------
Net cash provided by financing activities 2,813,026
-------------
Net (decrease) in cash and equivalents (2,714)
Cash and equivalents, beginning of year 0
-------------
Cash and equivalents, end of year $ (2,714)
=============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Income tax $ 0
Interest expense $ 0
See Notes to Financial Statements.
FS-36
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
American Wash Services, Inc. and its subsidiaries, Car Care Inc. and Care
Investment Inc., were formed in 1998 and they are in the business of
operating car washes at multiple locations within Pennsylvania and New
Jersey. As of the statement date, the Company was operating five (5) car
washes and nearing completion of an additional one.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION - The financial statements include the accounts
of American Wash Services Inc. and its subsidiaries. Significant
intercompany transactions and balances have been eliminated.
PROPERTY AND IMPROVEMENTS - Property and Improvements are carried at cost.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss is
recognized in income for the period. The cost of maintenance and repairs is
charged to income as incurred; significant renewals and betterments are
capitalized. Deductions are made for retirements resulting from renewals or
betterments.
INVENTORIES - Ending inventories consists of supplies and are stated at
cost.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
FS-37
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
CASH - The Company maintains its cash balances at a financial institution.
These balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.
NOTE 3 - DEPOSITS
- -----------------
American Wash Services Inc.'s subsidiaries, Car Care Inc. and Care
Investment Inc. are parties to an Agreement of Sale and Settlement
Agreement dated December 7, 1998, and approved by Order of the Bankruptcy
Court dated December 8, 1998, pursuant to which Care Investment agreed to
pay $200,000 to the Trustee for (i) the transfer by the Trustee to Car Care
of the assets of White Glove, Inc. at the Flourtown and Norristown
locations, and (ii) waiver by the Trustee of any claims for profits under
the Management Agreement, and any claims for Trustee's commissions or
professional fees relating to these locations.
The closing of the Flourtown and Norristown sales had been contemplated to
take place by December 31, 1998. The formal closing has not yet occurred
but is expected to occur shortly, to be effective as of December 31, 1998.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
The Company leases its premises at the Bryn Mawr, Cherry Hill and West
Chester locations. The annual aggregate rental is one hundred ninety two
thousand three hundred ninety-six dollars ($192,396).
These Leases along with the accompanying options expire in 2010, 2016, 2018
respectively.
Future minimum payments by year under the aforementioned leases are as
follows:
1999 $192,384
2000 200,905
2001 209,808
2002 219,111
2003 228,833
FS-38
AMERICAN WASH SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
------------------------------------------
NOTE 5 - MORTGAGE RECEIVABLE
- ----------------------------
The real property at the Flourtown and Norristown locations is presently
owned by White Glove's principal, Anthony Baker. A company subsidiary (Care
Investment) purchased the mortgages of PNC Bank on the real property at
these locations for $2,040,000 on September 30, 1998. A sheriff's sale of
the real property on Care Investment's writ of execution, has been
scheduled on January 20, 1999. Care Investment has agreed to release Baker
from any mortgage deficiency claims upon the consummation of these sales,
in exchange for Baker's agreement not to interfere with the sales.
NOTE 6 - MANAGEMENT AGREEMENT AND PURCHASE TRANSACTIONS
- -------------------------------------------------------
Car Care Inc. and Marvin Krasny, Bankruptcy Trustee for White Glove
Enterprises I, Ltd. are parties to a Management Agreement dated as of
August 24, 1998, and approved by Order of the United States Bankruptcy
Court dated August 28, 1998, under which Car Care began August 29, 1998, to
operate and manage, on the Trustee's behalf, the White Glove facilities at
West Chester, Bryn Mawr, Flourtown, and Norristown, Pennsylvania.
Car Care and the Trustee entered into an Agreement of Sale dated as of
August 24, 1998, and approved by Order of the Bankruptcy Court dated
October 14, 1998, pursuant to which Car Care agreed to pay $2 million to
the Trustee for the assets of White Glove Enterprises I, Ltd. at the West
Chester and Bryn Mawr locations.
Care Investment, Inc. purchased the secured claims and leasehold mortgages
of Sovereign Bank relating to these locations for $1.6 million on September
30, 1998.
Car Care and the Trustee closed on the purchase transactions for the West
Chester and Bryn Mawr locations on October 15, 1998. Pursuant to a prior
agreement with Sovereign Bank, the Trustee credited $1.7 million against
the purchase price for the satisfaction of Sovereign's secured claims,
which had been purchased by Care Investment, Inc. for $1.6 million.
FS-39
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 6 - MANAGEMENT AGREEMENT AND PURCHASE TRANSACTIONS (continued)
- -------------------------------------------------------------------
Car Care, Care Investment, and the Trustee are parties to an Agreement of
Sale and Settlement Agreement dated December 7, 1998, and approved by Order
of the Bankruptcy Court dated December 8, 1998, pursuant to which Care
Investment agreed to pay $200,000 to the Trustee for (i) the transfer by
the Trustee to Car Care of the assets of White Glove, Inc. at the Flourtown
and Norristown locations, and (ii) waiver by the Trustee of any claims for
profits under the Management Agreement, and any claims for Trustee's
commissions or professional fees relating to these locations.
The closing of the Flourtown and Norristown sales had been contemplated to
take place by December 31, 1998. The formal closing has not yet occurred
but is expected to occur shortly, to be effective as of December 31, 1998.
In sum, the assets purchased from the Trustee include all of White Glove's
equipment, furnishings, fixtures, inventory, and supplies at the West
Chester, Bryn Mawr, Flourtown, and Norristown locations. White Glove's
permits and real property leases at these locations, and the non-exclusive
right to use the name "White Glove Car Wash" in connection with the
operation of these facilities.
The real property at the Flourtown and Norristown locations is presently
owned by White Glove's principal Anthony Baker. Care Investment purchased
the mortgage of PNC Bank on the real property at these locations for
$2,040,000 on September 30, 1998. A sheriff's sale of the real property, on
Care Investment's writ of execution, has been scheduled for January 20,
1998. Care Investment has agreed to release Baker from any mortgage
deficiency claims upon the consummation of these sales, in exchange for
Baker's agreement not to interfere with the sales.
FS-40
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
On March 26, 1999, Mace Security International, Inc., a Delaware
corporation ("MSI"), entered into a Merger Agreement (the "Merger
Agreement") with Louis D. Paolino, Jr. and Red Mountain Holding, Ltd.
(together, the "AWS Shareholders"), the owners of all of the outstanding
shares of common stock of American Wash Services, Inc., a Delaware
corporation ("AWS"), pursuant to which AWS will be merged (the "Merger")
with and into Mace Anti-Crime Bureau, Inc., a Delaware corporation and a
wholly-owned subsidiary of MSI ("Merger Sub"), with Merger Sub being the
surviving corporation of the Merger. The parties intend that the Merger
will qualify as a reorganization within the meaning of Section 368(a)(2)(D)
of the Internal Revenue Code of 1986, as amended (the "Code"). At the
closing under the Merger Agreement (the "Merger Closing"), AWS will be
merged with and into Merger Sub and all of the outstanding shares of common
stock of AWS shall be converted into the right to receive from MSI, as
consideration for the Merger, a combination of cash and unregistered shares
of common stock of MSI.
The Merger Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Merger Closing is conditioned upon, among other
things, the receipts by MSI of a fairness opinion from a reputable
investment banking firm stating that the Merger is fair to the stockholders
of MSI from a financial perspective, the approval of the Merger by a
majority of the stockholders and directors of MSI, the termination of the
waiting period under the Hart-Scott-Rodino Antitrust Improvement Acts of
1986. MSI's completion to its satisfaction of its due diligence
investigation of AWS, the simultaneous closing under the Stock Purchase
Agreement (as defined below), the simultaneous closing of Private Placement
(as defined below) and the continued listing of shares of Common Stock of
MSI on the Nasdaq National Market. The Merger Agreement may be terminated
by either MSI or the AWS Sharehoders if the Merger Closing has not occurred
by July 31, 1999.
On February 4, 1999, AWS entered into a Stock Purchase Agreement (the
"Colonial Agreement") with all of the shareholders (the "Colonial
Shareholders") of Colonial Full Service Car Wash, Inc. ("Colonial"), a
Delaware corporation which is in the business of operating a multi-location
car wash company, the closing under which (the "Colonial Closing") is
contingent upon the prior occurrence of the aforementioned Merger Closing.
In accordance with the terms and conditions of the Colonial Agreement, at
the Colonial Closing, Merger Sub will purchase all of the outstanding
shares of common stock of Colonial for a purchase price paid in Common
Stock of MSI. The parties intend that the transactions contemplated by the
Colonial Agreement will qualify as a "pooling of interests" for accounting
purposes.
On March 26, 1999, AWS entered into a Real Estate and Asset Purchase
Agreement (the
FS-41
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
"Millennia Agreement") with Millennia Car Wash, LLC ("Millennia"), a
Delaware corporation which is in the business of operating a multi-location
car wash company, and Millennia's members, Excel Legacy Corporation and G
II Ventures, LLC (together, the "Members"), the closing under which(the
"Millennia closing") is contingent upon the prior occurence of the
aforementioned Merger Closing. In accordance with the terms and conditions
of the Millennia Agreement, at the Millennia Closing and at a secondary
closing under the Millennia Agreement (the "Second Millennia closing"),
Merger Sub will purchase substantially all of the assets and real property
of Millennia for shares of Common Stock of MSI.
The Millennia Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The Millennia Closing is conditioned upon, among
other things, the consummation of the Merger, the execution by Millennia
and the Members of mutually satisfactory noncompetition agreements, the
execution by the parties of an operating agreement permitting Merger Sub to
operate certain facilities of Millennia during the period between the
Millennia closing and the Second Millennia Closing, the delivery to
Millennia and the Members of a registration rights agreement covering the
Millennia shares, the appointment of a designee of Millennia and the
Members to the Board of Directors of MSI and the continued listing of
shares of Common Stock of MSI on the Nasdaq National Market. The Second
Millennia Closing is conditioned upon, among other things, lender approval
of the transfer of certain properties of Millennia which are subject to
liens and certain transfer restrictions. The Millennia Agreement may be
terminated by either AWS or Millennia at any time prior to the Millennia
Closing.
NOTE 8 - STOCK PURCHASE AGREEMENT
- ---------------------------------
On December 23, 1998, AWS entered into a Stock Purchase Agreement with
Stephen N. Bulboff (the "SBP Agreement"), the sole shareholder of Stephen
B. Properties, Inc., a New Jersey corporation which is in the business of
operating a multi-location car wash company ("SBP"), pursuant to which AWS
will purchase all of the outstanding stock of SBP for shares of common
stock of MSI. The parties intend that the transactions contemplated by the
SBP Agreement will qualify as a tax-free reorganization within the meaning
of Section 368(a)(1)(B) of the Code.
The SBP Agreement contains representations, warranties, covenants,
conditions and indemnification provisions customary for a transaction of
this size and nature. The SBP closing is conditioned upon, among other
things, the execution by Mr. Bulboff of a mutually satisfactory
noncompetition agreement and the execution and delivery by AWS of a
mutually satisfactory employment agreement with Mr. Bulboff. The SBP
Agreement may be terminated by either AWS or Mr. Bulboff at any time until
the aforementioned Merger Closing. If the SBP closing occurs prior to the
Merger Closing, either AWS or Mr. Bulboff may unwind the transactions
contemplated by the SBP Agreement at any time until the Merger Closing.
FS-42
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998
----------------------------------------------
NOTE 9 - CONCENTRATION OF CREDIT RISK
- -------------------------------------
The company operates in the Philadelphia Metropolitan area. Most of the
sales are on the cash basis, hence, the company's credit risk exposure is
limited.
Financial instruments which potentially subject the company to
concentrations of credit risk consists principally of cash. At various
times, the company may have in excess of the $100,000, the federally
insured deposit limit, on deposit in banks.
NOTE 10 - INCOME TAXES
- ----------------------
The provision for income taxes is based on income recognized for financial
statement purposes and includes the effects of temporary differences
between such income and that recognized for tax return purposes. The
Company and its eligible subsidiaries intend to file a consolidated U.S.
federal income tax return.
As a result of differences in the calculation of depreciation between book
and tax, pre-tax book income was $15,199 more than taxable income. A
deferred income tax account has been set up to account for the tax effect
of these differences.
NOTE 11 - LEASEHOLD INTEREST
- ----------------------------
Leasehold Interests in the amount of $1,475,000 were recorded in connection
with the acquisition of the Bryn Mawr and west Chester car wash sites.
These assets are being amortized over the life of the leases and options
via the straight line method.
FS-43
AMERICAN WASH SERVICES, INC.
INDEX TO EXHIBITS
JUNE 30, 1999
-------------
EXHIBITS
- --------
BALANCE SHEET ...................................................... 1-2
STATEMENT OF INCOME ................................................. 3
STATEMENT OF RETAINED EARNINGS ...................................... 4
STATEMENT OF CASH FLOWS ............................................. 5
NOTES TO THE FINANCIAL STATEMENTS .................................. 6
AMERICAN WASH SERVICES, INC.
BALANCE SHEET
JUNE 30, 1999
-------------
ASSETS
------
CURRENT ASSETS: 1999
- --------------- ----
Cash and Equivalents $69,630
Accounts Receivable 2,027
Inventory 36,004
Prepaid Expenses 113,348
-----------------
TOTAL CURRENT ASSETS 221,009
-----------------
PROPERTY, PLANT AND EQUIPMENT:
- ------------------------------
Land and Buildings 2,431,721
Leasehold Improvements 373,643
Machinery and Equipment 1,219,037
-----------------
Subtotal: 4,024,401
Less: Accumulated Depreciation (136,099)
-----------------
Net Property, Plant & Equipment 3,888,302
-----------------
OTHER ASSETS:
- -------------
Loan Affiliated Company 1,734
Leasehold Interest - (Net of Amortization) 1,409,115
Organizational Costs - (Net of Amortization) 12,849
-----------------
Total Other Assets 1,423,698
-----------------
TOTAL ASSETS $5,533,009
- ------------ =================
See Notes to Financial Statements.
1
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES: 1997
- -------------------- ----
Officer's Loan Payable $60,000
Loan Affiliated Companies 8,575
Accounts Payable 378,387
Due to Stephen B. Properties Inc. 92,909
Taxes Payable 38,454
Accrued Expenses 91,412
-----------------
TOTAL CURRENT LIABILITIES 665,737
-----------------
LONG-TERM LIABILITIES:
- ----------------------
Deferred Income Taxes 16,462
Total Long Term Liabilities 16,462
-----------------
TOTAL LIABILITIES 682,199
-----------------
STOCKHOLDER'S EQUITY
- --------------------
Capital Stock
(.01 par value; 100,000,000 shares authorized,
100 shares issued and outstanding)
Additional Paid-In Capital 4,799,999
Retained Earnings 50,810
-----------------
Total Stockholder's Equity 4,850,810
-----------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $5,533,009
- ------------------------------------------ =================
See Notes to Financial Statements.
2
AMERICAN WASH SERVICES, INC.
STATEMENT OF INCOME
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
---------------------------------------------
% of
Sales
------
NET SALES $1,143,372 100.00
---------------- ---------------
Beginning Inventory 23,719 2.07
Cost of Sales 622,047 54.40
Less: Ending Inventory (36,001) (3.15)
---------------- ---------------
TOTAL COST OF SALES 609,765 53.33
---------------- ---------------
GROSS PROFIT 533,607 46.67
ADMINISTRATIVE AND OPERATING EXPENSES 382,741 33.47
---------------- ---------------
INCOME BEFORE INTEREST, TAXES
AND DEPRECIATION 150,866 13.19
---------------- ---------------
Amortization 46,731 4.09
Depreciation 103,105 9.02
---------------- ---------------
Total Other Expenses 149,836 13.10
---------------- ---------------
NET INCOME $1,030 0.09
================ ===============
See Notes to Financial Statements.
3
AMERICAN WASH SERVICES, INC.
STATEMENT OF RETAINED EARNINGS
JUNE 30, 1999
-------------
1999
----
RETAINED EARNINGS - January 1, 1999 $49,780
- -----------------------------------
ADD: Income for the Six Month Period Ended June 30, 1999 1,030
-----------------
RETAINED EARNINGS AT JUNE 30, 1999 $50,810
- ---------------------------------- =================
See Notes to Financial Statements.
4
AMERICAN WASH SERVICES, INC.
STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1999
--------------------------------------------
Cash flows from operating activities: 1998
- ------------------------------------- ----
Net Income $1,030
---------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 149,836
Decrease in Provision for Corporate Income Taxes 0
(Increase) decrease in accounts receivable 17,945
Increase (decrease) in accounts payable 199,288
Increase (decrease) in accrued liabilities 5,301
Increase (decrease) in prepaid expenses 891
Increase (decrease) in inventories (12,285)
(Increase) decrease in other assets (33,585)
Increase (decrease) in taxes payable (1,556)
---------------
Total adjustments 325,835
---------------
Net cash provided (used) by operating activities 326,865
---------------
Cash flow from investing activities:
- -----------------------------------
Cash payments for the purchase of property (361,245)
---------------
Net cash provided (used) by investing activities (361,245)
Cash flow from financing activities:
- -----------------------------------
Increase in Loans Officer 60,000
Loans payable to Stephen B. Properties, Inc. 39,883
Loans affiliated companies 6,841
---------------
Net cash provided (used) by financing activities 106,724
---------------
Net increase (decrease) in cash and equivalents 72,344
Cash and equivalents, January 1, 1999 (2,714)
---------------
Cash and equivalents, June 30, 1999 $69,630
===============
See Accountant's Report and Notes to Financial Statements.
5
AMERICAN WASH SERVICES, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- --------------------------------------------------------------------------------
NOTE 1 - DESCRIPTION OF BUSINESS
- --------------------------------
American Wash Service, Inc. and its subsidiaries, Car Care Inc. and Care
Investments, Inc. were formed in 1998 and they are in the business of
operating car washes at multiple locations within Pennsylvania and New
Jersey. As of the statement date, the Company was operating six (6) car
washes.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
PRINCIPLES OF CONSOLIDATION - The financial statements include the
accounts of American Wash Services, Inc. and its subsidiaries. Significant
intercompany transactions and balances have been eliminated.
PROPERTY AND IMPROVEMENTS - Property and Improvements are carried at cost.
Depreciation is computed using the straight-line method. When assets are
retired or otherwise disposed of, the cost and related accumulated
depreciation is removed from the accounts and any resulting gain or loss
is recognized in income for the period. The cost of maintenance and
repairs is charged to income as incurred; significant renewals and
betterments are capitalized. Deductions are made for retirements resulting
from renewals or betterments.
INVENTORIES - Ending inventories consists of supplies and are stated at
cost.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
CASH - The Company maintains its cash balances at a financial institution.
These balances are insured by the Federal Deposit Insurance Corporation up
to $100,000.
6
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999
The following unaudited pro forma consolidated statements of operations for the
year ended December 31, 1998 and the six months ended June 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; and (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.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 gives effect
to the aforementioned transactions as if the transactions 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 transactions 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 AWS appearing elsewhere in this
filing.
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 American
Mace Security Service Car Genie Wash
International, Inc. Wash, Inc. Car Wash Services, Inc.
------------------- --------------- -------------- --------------
Net sales $ 2,404 $ 10,697 $ 6,553 $ 645
Cost of sales 1,230 9,248 4,708 453
Selling, general and administrative 1,719 955 1,914 126
------------------- --------------- -------------- --------------
Operating (loss) income (545) 494 (69) 66
Other income (expense):
Interest income 137 - 5 -
Interest expense (95) (528) - -
Other income 221 53 6 -
------------------- --------------- -------------- --------------
(Loss) income from operations before
income tax expense (282) 19 (58) 66
Income tax expense (4) (19) - (16)
-------------------- --------------- -------------- --------------
Net (loss) income $ (286) $ - $ (58) $ 50
=================== =============== ============== ==============
Net loss per common share: $ (0.04)
===================
Weighted average number of
common shares outstanding 6,987,127
===================
Pro Forma Pro Forma
Adjustments Consolidated
---------------- ----------------
Net sales $ - $ 20,299
Cost of sales (297)(1) 15,389
(79)(2)
(32)(7)
Selling, general and administrative (569)(4) 3,785
(360)(5)
---------------- ----------------
Operating (loss) income 1,179 1,125
Other income (expense):
Interest income - 142
Interest expense (380)(6) (1,003)
Other income - 280
---------------- ----------------
(Loss) income from operations before
income tax expense 799 544
Income tax expense - (23)
---------------- ----------------
Net (loss) income $ 799 $ 521
================ ================
Net loss per common share: $ 0.06
================
Weighted average number of
common shares outstanding 9,399,822 (3)
================
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
(Dollars in thousands, except shares and per share data)
Colonial Full American
Mace Security Service Car Genie Wash
International, Inc. Wash, Inc. Car Wash Services, Inc.
------------------- --------------- -------------- --------------
Net sales $ 4,087 $ 4,050 $ 2,748 $ 1,143
Cost of sales 2,516 3,239 2,004 713
Selling, general and administrative 1,569 741 870 430
Restructuring and change in control charges 1,569 - - -
------------------- --------------- -------------- --------------
Operating (loss) income (1,517) 70 (126) -
Other income (expense):
Interest expense, net (27) (191) 1 -
Other income (expense) (16) 23 5 -
------------------- --------------- -------------- --------------
(Loss) income
before income tax expenses (1,560) (98) (120) -
Income tax expense (benefit) (350) - - -
-------------------- --------------- -------------- --------------
Net (loss) income $ (1,210) $ (98) $ (120) $ -
=================== =============== ============== ==============
Net loss income per common share $ (0.16)
===================
Weighted average number of
common shares outstanding 7,454,292
===================
Pro Forma Pro Forma
Adjustments Consolidated
---------------- ----------------
Net sales $ - $ 12,028
Cost of sales (119) (1) 8,339
48 (2)
(62) (7)
Selling, general and administrative (232) (4) 3,183
(195) (5)
Restructuring and change in control charges - 1,519
---------------- ----------------
Operating (loss) income 560 (1,013)
Other income (expense):
Interest expense, net (144) (6) (361)
Other income (expense) - 12
---------------- ----------------
(Loss) income
before income tax expenses 416 (1,362)
Income tax expense (benefit) - (350)
---------------- ----------------
Net (loss) income $ 416 $ (1,012)
================ ================
Net loss income per common share $ (0.11)
================
Weighted average number of
common shares outstanding 9,436,172 (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, and 628,362 shares, respectively, of unregistered
shares of common stock to effect the acquisition of Colonial, Genie and
AWS were issued 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.
The Unaudited Pro Forma Consolidated Statement of Operations for the Six Months
Ended June 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 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 had been completed on January 1, 1999, net of historical
depreciation and amortization expense of Genie.
(3) For purpose of determining pro forma earnings per share, the weighted
affect of the issuance of 1,251,000,
533,333 and 628,362 shares, respectively, of unregistered shares of common
stock to effect the acquisition of Colonial, Genie and AWS were issued 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 had been completed on January 1, 1999, net of historical
depreciation and amortization expense of AWS.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(Dollars in thousands)
American
Mace Security Wash Pro Forma Pro Forma
International, Inc. Services, Inc. Adjustments Consolidated
------------------- ------------------- ------------------- -------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,061 $ 70 $ (4,688)(1) $ 1,443
Accounts receivable, net 1,099 2 1,101
Inventories 1,790 36 1,826
Deferred income taxes 714 - 714
Prepaid expenses and other 811 113 924
------------------- ------------------- ------------------- -------------------
Total current assets 10,475 221 (4,688) 6,008
Net assets of discontinued operations 245 - 245
Property and equipment, net 21,247 3,888 2,312 (1) 27,447
Intangibles, net 5,457 - 991 (1) 6,448
Other assets 1,770 1,424 3,194
------------------- ------------------- ------------------- -------------------
Total Assets $ 39,194 $ 5,533 $ (1,385) $ 43,342
=================== =================== =================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,243 $ 376 $ - $ 1,619
Accrued expenses 2,325 129 2,454
Current portion of long term debt 10,066 161 10,227
------------------- ------------------- ------------------- -------------------
Total current liabilities 13,634 666 - 14,300
Deferred income taxes 1,412 16 1,428
Long term debt, less current portion 939 - 939
Other long term liabilities - - 2,114 (1) 2,114
------------------- ------------------- ------------------- -------------------
Total liabilities 15,985 682 2,114 18,781
Commitments and contingencies
Stockholders' equity:
Common stock 96 - 6 (1) 102
Additional paid-in capital 28,549 4,800 (3,454)(1) 29,895
Treasury stock (52) -
(Accumulated deficit) retained earnings (5,384) 51 (51)(1) (52)
(5,384)
------------------- ------------------- ------------------- -------------------
Total stockholders' equity 23,209 4,851 (3,499) 24,561
------------------- ------------------- ------------------- -------------------
Total liabilities and
stockholders' equity $ 39,194 $ 5,533 $ (1,385) $ 43,342
=================== =================== =================== ===================
Notes to Unaudited Pro Forma Consolidated Balance Sheet Adjustments
The unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1999 has been
adjusted to reflect the following:
(1) On March 26, 1999, the Company entered into a merger agreement for the
pending acquisitions of all the outstanding stock of American Wash
Services, Inc. for total cash consideration to be paid by Mace Security
International, Inc. of $4,688,000 and the issuance of 628,362 unregistered
shares of Mace common stock. Additionally, Mace will issue to certain of
new management assignable warrants to purchase 1,570,000 shares of common
stock at a purchase price of $1.375 per share and warrants to purchase an
additional 250,000 shares of common stock at a purchase price of $2.50 per
share. The terms of the warrants are more fully described in the Merger
Agreement. The acquisition is anticipated to be accounted for under the
purchase method. Pursuant to the terms of the merger 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 historic 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 and equipment ................................... $ 7,191,000
Current assets acquired .................................. 221,000
Other assets acquired .................................... 1,424,000
Other liabilities ........................................ (682,000)
-----------
$ 8,154,000
===========
EXHIBIT INDEX
Exhibit Description
No. -----------
- ---
23.1 Consent of Burton Segal & Company