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 9, 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 2. ACQUISITION OF INNOVATIVE CONTROL SYSTEMS, INC.
-----------------------------------------------
On July 9, 1999, Mace Security International, Inc., a Delaware corporation
(the "Company" or "Registrant"), acquired all of the outstanding shares of stock
of Innovative Control Systems, Inc. ("ICS") pursuant to the terms of a Stock
Purchase Agreement and Plan of Reorganization dated June 1, 1999 (the
"Agreement"), by and between the Registrant on the one hand, and Kevin Detrick,
Brian Bath, Michael Ruiz, and Francis Janoski (the "Sellers") on the other hand.
Pursuant to the terms and conditions of the Agreement, the Registrant purchased
all of the outstanding shares of stock of the Sellers who are in the business of
the development and sale of computer application software for car wash control
and management. Sellers are not affiliated with the Registrant nor with any of
the Registrant's subsidiaries. The description of the acquisition transaction
set forth herein is qualified in its entirety by reference to the Agreement,
which is incorporated as Exhibit 2.1.
No cash was paid to the Shareholders for the acquisition of the shares
of the Company. The acquisition is to be accounted for using the "pooling of
interests" method of accounting.
At the closing, the Company issued 603,721 shares of unregistered common
stock, $.01 par value in exchange for all issued and outstanding shares of the
Company and assumed approximately $502,471 of outstanding indebtedness of ICS.
The merger includes all of the assets and liabilities relating to the operating
of ICS. The Registrant intends to continue to use the acquired assets in the
business of developing and selling computer applications software. In
connection with the acquisition, the Shareholders were hired by the Registrant
to continue their previous responsibilities within ICS's operations.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
Independent Auditor's Report
Balance Sheets as of December 31, 1998 and 1997
Statements of Operations and Retained Earnings for the Years Ended
December 31, 1998 and 1997
Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1998 and 1997
Statements of Cash Flows for the Years Ended December 31, 1998 and 1997
Notes to Financial Statements
Balance Sheet as of June 30, 1999 (Unaudited)
Statement of Operations for the Six Months Ended June 30, 1999 and 1998
(Unaudited)
Statements of Changes in Stockholders' Equity for the Six Months Ended
June 30, 1999 and 1998 (Unaudited)
Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998
(Unaudited)
Selected Notes to Financial Statements (Unaudited)
(B) PRO FORMA FINANCIAL INFORMATION
Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1998 (Unaudited)
Pro Forma Consolidated Statement of Operations for the Six Months Ended
June 30, 1999 (Unaudited)
Pro Forma Consolidated Balance Sheet as of June 30, 1999 (Unaudited)
(C) EXHIBITS
*2.1 The Stock Purchase Agreement And Plan Of Reorganization dated as
of June 1, 1999, by and between Kevin Detrick, Brian Bath, Michael
Ruiz, and Francis Janoski on the one hand, and Mace Security
International, Inc. on the other hand.
*99 Press Release dated July 19, 1999.
23.1 Consent of Daniel P. Irwin and Associates P.C.
- --------------------------------------------------------------------------------
* 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 22, 1999 MACE SECURITY INTERNATIONAL, INC.
By:/s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien
Chief Financial Officer and Treasurer
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; (iii) the acquisition of the stock of American Wash
Services, Inc. ("AWS") from Louis D. Paolino, Jr. and Red Mountain Holdings,
Ltd. for total consideration of approximately $8,153,000; (iv) the acquisition
of substantially all of the assets of Stephen Bulboff and Stephen B. Properties,
Inc. ("Bulboff") for total consideration of approximately $3,744,000; and (v)
the acquisition of the stock of Innovative Control Systems, Inc. ("ICS") for
total consideration of approximately $5 million. The ICS business combination
was accounted for using the pooling of interests method, and as a result, no
material pro forma adjustments were deemed necessary to reflect the results of
operations on a consolidated basis for this business combination.
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 ICS 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 Stephen Bulboff
Mace Security Service Car Genie Wash and Stephen B.
International, Inc. Wash, Inc. Car Wash Services, Inc. Properties, Inc.
------------------- ------------- -------- -------------- -----------------
Net sales $ 2,404 $ 10,697 $6,553 $ 645 $1,288
Cost of sales 1,230 9,248 4,708 453 603
Selling, general and administrative 1,719 955 1,914 126 297
---------- ------------ ------ ----- ------
Operating (loss) income (545) 494 (69) 66 388
Other income (expense):
Interest income 137 -- 5 -- --
Interest expense, net (95) (528) -- -- (211)
Other income 221 53 6 -- --
---------- ------------ ------ ----- ------
(Loss) income from operations before
income tax expense (282) 19 (58) 66 177
Income tax expense (4) (19) -- (16) --
---------- ------------ ------ ----- ------
Net (loss) income $ (286) $ -- $ (58) $ 50 $ 177
========== ============ ====== ===== ======
Net (loss) income per common share: $ (0.04)
==========
Weighted average number of
common shares outstanding 6,987,127
==========
Innovative
Control Pro Forma Pro Forma
Systems, Inc. Adjustments Consolidated
------------- ----------- ------------
Net sales $ 2,029 $ -- $ 23,616
Cost of sales 1,206 (297)(1) 17,139
79 (2)
(32)(7)
(59)(8)
Selling, general and administrative 944 (569)(4) 5,026
(360)(5)
------- -------- -----------
Operating (loss) income (121) 1,238 1,451
Other income (expense):
Interest income -- -- 142
Interest expense, net (30) (380)(6) (1,244)
Other income 280
------- -------- -----------
(Loss) income from operations before
income tax expense (151) 858 629
Income tax expense -- -- (39)
------- -------- -----------
Net (loss) income $ (151) $ 858 $ 590
======= ======== ===========
Net (loss) income per common share: $ 0.05
===========
Weighted average number of
common shares outstanding 11,063,543(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
Mace Security Service Car Genie
International Inc. Wash, Inc. Car Wash
------------------ ---------- --------
Net sales $ 4,087 $ 4,050 $ 2,748
Cost of sales 2,516 3,239 2,004
Selling, general and administrative 1,569 741 870
Restructuring and change in control charges 1,519 -- --
---------- -------- -------
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 expense (1,560) (98) (120)
Income tax expense (benefit) (350) -- --
---------- -------- -------
Net (loss) income $ (1,210) $ (98) $ (120)
========== ======== =======
Net loss per common share $ (0.16)
==========
Weighted average number of
common shares outstanding $7,454,292
==========
American
Wash Stephen Bulboff Innovative
Service and Stephen B. Control Pro Forma Pro Forma
Inc. Properties, Inc. Systems, Inc. Adjustments Consolidated
------- ---------------- ------------- ------------ ------------
Net sales $1,143 $ 799 $ 1,613 $ -- $ 14,440
(119)(1)
48
(62)(7)
Cost of sales 713 409 970 (31)(8) 9,687
Selling, general and administrative 430 217 521 (232)(4) 3,921
(195)(5)
Restructuring and change in control charges -- -- -- 1,519
------ ------------- ------------ ------- ------------
Operating (loss) income -- 173 122 591 (687)
Other income (expense):
Interest expense, net -- (157) (21) (144)(6) (539)
Other income (expense) -- -- (13) -- (1)
------ ------------- ------------ ------- ------------
(Loss) income
before income tax expense -- 16 88 447 (1,227)
Income tax expense (benefit) -- -- -- -- (350)
------ ------------- ------------ ------- ------------
Net (loss) income -- $ 16 $ 88 $ 447 $ (877)
====== ============= ============ ======= ============
Net loss per common share
$ (0.08)
Weighted average number of
common shares outstanding $ 10,496,172(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, 628,362, 1,060,000 and 603,721 shares, respectively,
of unregistered shares of common stock to affect the acquisition of
Colonial, Genie, AWS, Bulboff and ICS were assumed to be outstanding from
January 1, 1998 by Mace.
(4) To eliminate intercompany administrative charges of $569,000 related
directly to cost sharing arrangements provided by Genie's prior parent,
which were terminated as a result of the purchase transaction. Such
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(5) To reflect the elimination of intercompany rental expense of $360,000 from
Genie's prior parent terminated as a result of the purchase transaction.
(6) To record additional interest expense of $380,000 resulting from a $4.75
million promissory note issued to Genie's prior parent to consummate the
acquisition of Genie.
(7) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of AWS
had been completed on January 1, 1998, net of historical depreciation and
amortization expense of AWS.
(8) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Bulboff had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Bulboff.
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 Colonial.
(3) For purpose of determining pro forma earnings per share, the weighted
effect of the issuance of 1,251,000, 533,333, 628,362, 1,060,000 and
603,721 shares, respectively, of unregistered shares of common stock to
affect the acquisition of Colonial, Genie, AWS, Bulboff and ICS were
assumed to be outstanding from January 1, 1999 by Mace.
(4) To eliminate intercompany administrative charges of $232,000 related
directly to cost sharing arrangements provided by Genie's prior parent,
which were terminated as a result of the purchase transaction. Such
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(5) To reflect the elimination of intercompany rental expense of $195,000 from
Genie's prior parent terminated as a result of the purchase transaction.
(6) To record additional interest expense of $144,000 resulting from a $4.75
million promissory note issued to Genie's prior parent to consummate the
acquisition of Genie.
(7) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of AWS
had been completed on January 1, 1999, net of historical depreciation and
amortization expense of AWS.
(8) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Bulboff had been completed on January 1, 1999, net of historical
depreciation and amortization expense of Bulboff.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(Dollars in thousands)
American Stephen Bulboff
Mace Security Wash and Stephen B.
International, Inc. Services, Inc. Properties, Inc.
-------------------- -------------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,061 $ 70 $ 48
Accounts receivable, net 1,099 2 --
Inventories 1,790 36 15
Deferred income taxes 714 -- --
Prepaid expenses and other 811 113 104
-------------------- -------------------- --------------------
Total current assets 10,475 221 167
Net assets of discontinued operations 245 -- --
Property and equipment, net 21,247 3,888 1,132
Intangibles, net 5,457 -- --
Other assets 1,770 1,424 --
-------------------- -------------------- --------------------
Total assets $ 39,194 $ 5,533 $ 1,299
=================== =================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,243 $ 376 $ 60
Accrued expenses 2,325 129 11
Current portion of long term debt 10,066 161 2,140
-------------------- -------------------- --------------------
Total current liabilities 13,634 666 2,211
Deferred income taxes 1,412 16 --
Long term debt, less current portion 939 -- --
Other long term liabilities -- --
-------------------- -------------------- --------------------
Total liabilities 15,985 682 2,211
Commitments and contingencies
Stockholders' equity:
Common stock 96 -- 12
Additional paid-in capital 28,549 4,800 --
Treasury stock (52) -- --
(Accumulated deficit) retained earnings (5,384) 51 (924)
-------------------- -------------------- --------------------
Total stockholders' equity 23,209 4,851 (912)
-------------------- -------------------- --------------------
Total liabilities and
stockholders' equity $ 39,194 $ 5,533 $ 1,299
==================== ==================== ====================
Innovative
Control Pro Forma Pro Forma
Systems, Inc. Adjustments Consolidated
-------------------- -------------------- --------------------
ASSETS
Current assets:
Cash and cash equivalents $ 33 $ (4,688)(1) $ 1,524
Accounts receivable, net 281 1,382
Inventories 401 2,242
Deferred income taxes -- 714
Prepaid expenses and other 69 1,097
-------------------- -------------------- --------------------
Total current assets 784 (4,688) 6,959
Net assets of discontinued operations -- 2,312 (1) 245
Property and equipment, net 81 2,527 (2) 31,187
Intangibles, net 126 991 (1) 6,574
Other assets -- -- 3,194
-------------------- -------------------- --------------------
Total assets $ 991 $ 1,142 $ 48,159
==================== ==================== ====================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 326 $ -- $ 2,005
Accrued expenses 401 -- 2,866
Current portion of long term debt 732 (240)(2) 12,859
-------------------- -------------------- --------------------
Total current liabilities 1,459 (240) 17,730
Deferred income taxes -- 1,428
Long term debt, less current portion 27 966
Other long term liabilities -- 2,114 (1) 2,114
-------------------- -------------------- --------------------
Total liabilities 1,486 2,114 22,238
Commitments and contingencies
Stockholders' equity: -- 6(1) 113
Common stock (1)(2)
Additional paid-in capital 770 (3,454)(1) 32,509
1,844 (2)
Treasury stock -- -- (52)
(Accumulated deficit) retained earnings (1,265) (51)(1) (6,649)
924 (2)
-------------------- -------------------- --------------------
Total stockholders' equity (495) (732) 25,921
-------------------- -------------------- --------------------
Total liabilities and
stockholders' equity $ 991 $ 1,142 $ 48,159
==================== ==================== ====================
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
==========
(2) On July 1, 1999, the Company, through a wholly owned subsidiary, acquired
all of the car wash related assets of Stephen Bulboff and Stephen B.
Properties, Inc. ("Bulboff") pursuant to the terms of a Real Estate and
Asset Purchase Agreement dated March 8, 1999 for an aggregate purchase
price of 1,060,000 unregistered shares of the Company's common stock, par
value $.01 per share plus cash of $1,900,000 from working capital.
Pursuant to the terms and conditions of the Agreement, the Registrant
purchased all of the assets of the Sellers used in the business of
operating 10 full service car washes in Pennsylvania, Delaware and New
Jersey. The acquisition is anticipated to be accounted for using the
"purchase" method of accounting. 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.................................................................. $3,659,000
Current assets acquired................................................................. 167,000
Other liabilities....................................................................... (82,000)
----------
$3,744,000
==========
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
FINANCIAL STATEMENTS
--------------------
DECEMBER 31, 1998 AND 1997
--------------------------
INNOVATIVE CONTROL SYSTEMS, INC.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
-----------------
PAGE NO.
--------
INDEPENDENT AUDITORS' REPORT 1
AUDITED FINANCIAL STATEMENTS:
- -----------------------------
BALANCE SHEETS 2
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS 3
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 4
STATEMENTS OF CASH FLOWS 5
NOTES TO FINANCIAL STATEMENTS 6 - 9
[LETTERHEAD APPEARS HERE]
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Innovative Control Systems, Inc.
112 Meyer Road
Nazareth, Pennsylvania 18064
We have audited the accompanying Balance Sheets of Innovative Control Systems,
Inc. as of December 31, 1998 and December 31, 1997, and the Statement of
Operations, Retained Earnings, Changes in Stockholders' Equity and Cash Flows
for the calendar years then ended. These Financial Statements are the
responsibility of the Company's Management. Our responsibility is to express an
opinion on these Financial Statements based on our audit.
We conducted our audit in accordance with Generally Accepted Auditing Standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Innovative Control Systems,
Inc. as of December 31, 1998 and 1997 and the results of its operations and cash
flows for the periods then ended in conformity with generally accepted
accounting principles.
/s/ DANIEL P. IRWIN AND ASSOCIATES P.C.
Strafford-Wayne, Pennsylvania
September 18, 1999
-1-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
BALANCE SHEET
-------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
ASSETS
------
DECEMBER 31,
1998 1997
-----------------------
Current Assets:
- ---------------
Cash $ 39,396 $ 4,711
Accounts Receivable - Trade LESS
Allowance of $58,709 and $48,601 210,244 76,339
Inventory 159,946 141,368
--------- --------
TOTAL CURRENT ASSETS 409,586 222,418
--------- --------
Property and Equipment:
- -----------------------
Property and Equipment 98,211 76,267
LESS: Accumulated Depreciation (29,416) (20,961)
--------- --------
NET PROPERTY AND EQUIPMENT 68,795 55,306
--------- --------
Other Assets:
- -------------
Research and Development Cost, Net 108,571 86,607
--------- --------
TOTAL ASSETS $ 586,952 $ 364,331
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities:
- --------------------
Accounts Payable 282,912 179,600
Note Payable - Bank 150,000 90,000
Accrued Expenses 78,187 113,542
Customer Deposits 104,153 12,540
Deferred Revenue 28,875 15,676
Grant Payable 246,920 246,920
Current Portion Long-Term Debt 22,460 15,729
Note Payable - Shareholder 8,063 11,672
Notes Payable - Other 214,500 76,500
---------- -----------
TOTAL CURRENT LIABILITIES 1,136,070 762,179
---------- -----------
Long-Term Debt, LESS Current Maturities 33,667 35,172
---------- -----------
TOTAL LIABILITIES 1,169,737 797,351
---------- -----------
Stockholders' Equity:
- ---------------------
Common Stock - $.01 Par Value; 1000 Shares,
Authorized 118 and 1000 Shares Issued and
Outstanding 1 1
Additional Paid-In-Capital 769,764 768,594
Retained Earnings (Deficit) (1,352,550) (1,201,615)
---------- -----------
TOTAL STOCKHOLDERS' EQUITY (582,785) (433,020)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 586,952 $ 364,331
========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
-2-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
---------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
------------------------------------------------------
DECEMBER 31,
1998 1997
------------------------------
Sales $2,029,884 $ 895,252
Cost of Goods Sold 1,206,044 533,994
Selling, General and Administrative Expenses 944,390 762,433
----------- -----------
(LOSS) From Operations (120,550) (401,175)
Other Income (Expense):
- -----------------------
Other Income NONE 83,602
Interest Expense (30,385) (15,628)
----------- -----------
NET LOSS $ (150,935) $ (333,201)
Retained Earnings - Beginning of Period (Deficit) $(1,201,615) $ (868,414)
----------- -----------
Retained Earnings - End of Period (Deficit) $(1,352,550) $(1,201,615)
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
-3-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
--------------------------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------------------------------------------------
BALANCE AT JANUARY 1,
1997 $1 $314,106 $ (868,414)
COMMON STOCK ISSUED TO
SATISFY DEBT OBLIGATIONS 454,488
NET LOSS (333,201)
BALANCE AT
DECEMBER 31, 1997 1 768,594 (1,201,615)
COMMON STOCK ISSUED AS
COMPENSATION 1,170
NET LOSS (150,935)
_________________________________________________
BALANCE DECEMBER 31,
1998 $1 $ 769,764 $(1,352,550)
==================================================
SEE NOTES TO FINANCIAL STATEMENTS.
-4-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
STATEMENT OF CASH FLOWS
-----------------------
DECEMBER 31, 1998 AND 1997
--------------------------
DECEMBER 31,
1998 1997
------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
- -------------------------------------
Net Loss $(150,935) $(333,201)
Adjustments to Reconcile Net Income (LOSS) to Net
Cash Provided by Operating Activities:
Depreciation 8,455 11,154
Amortization 31,575 22,897
(Increase) Decrease In:
Accounts Receivable (133,905) 35,998
Inventory (18,578) (24,749)
Increase (Decrease) In:
Accounts Payable 103,312 99,503
Accrued Expenses (35,355) 37,056
Customer Deposits 91,613 1,448
Deferred Revenue 13,199 938
----------- -----------
NET CASH USED BY OPERATING ACTIVITIES (90,619) (148,956)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
- -------------------------------------
Purchase of Property, Plant, and Equipment (21,944) (24,053)
Capitalized Development Cost (53,539) (24,678)
Common Stock (9) NONE
Additional Paid in Capital 1,179 454,495
----------- -----------
NET CASH PROVIDED BY INVESTING ACTIVITIES (74,313) 405,764
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
- -------------------------------------
Proceeds From Short-Term Borrowings 60,000 40,000
Increase in Long-Term Debt 5,226 15,686
Decrease in Notes Payable Shareholders (3,609) (369,073)
Increase in Grant Payable NONE 93,800
Increase in Notes Payable - Other 138,000 (85,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 199,617 (304,587)
----------- -----------
INCREASE (DECREASE) IN CASH EQUIVALENTS:
- ----------------------------------------
Cash and Cash Equivalents:
-------------------------
Beginning 4,711 52,490
----------- -----------
Ending $ 39,396 $ 4,711
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
-5-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 1 NATURE OF BUSINESS:
-------------------
Innovative Control Systems, Inc., the "Company" (a Pennsylvania
Corporation) develops and manufactures products for the management and
control of the car care industry. Its primary product, a software
package called "Tunnel Master", provides car wash equipment control,
point of sale and management information. ICS also distributes products
for management and control of auto lube operations and a product called
"Vision Master" which allows a user to access cameras and view
operations remotely using a personal computer. ICS has a strong emphasis
on continued product development and improvement using the latest
technology as well as responding to customer needs.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES:
-------------------------------
Cash and Cash Equivalents:
--------------------------
For the purposes of the Statement of Cash Flows, the Company considers
all highly liquid debt instruments purchased with maturities of less
then three months to be cash equivalents.
Property and Equipment Depreciation:
------------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation
is computed using the straight-line basis over the estimated service
lives of the respective classes of property.
Allowance For Uncollectible Accounts:
-------------------------------------
The Company uses the Allowance Method to account for uncollectible
accounts receivable. The Allowance for doubtful accounts is based on
management's analysis of possible bad debts. Bad debt recoveries are
charged against the allowance account as realized.
Intangible Assets:
------------------
Intangible Assets consist of the cost of research and development for
new products. The cost are being amortized over three (3) to five (5)
years on a straight-line basis which reflects management's estimated
marketability of the developed product.
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 the assets and
liabilities, income and expenses and disclosure of contingencies. Actual
results could differ from those results.
-6-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
-------------------------------
Revenue Recognition:
-------------------
The Company recognizes revenue when goods are shipped or services are
rendered. For custom ordered goods, revenue is recognized when the
custom goods are shipped or ready for shipping.
Revenues related to telephone support provided with new unit sales, are
deferred and recognized as income over the life of the support contract,
generally a twelve month period.
Capitalized Development Costs:
-----------------------------
The Company accounts for costs of its computer software to be sold or
otherwise marketed in accordance with FAS #86, "Accounting for the Costs
of Computer Software to Be Sold, Leased, or Otherwise Marketed". Costs
incurred to establish the technological feasibility of a computer
software product to be sold by the Company are charged to expense when
incurred. When technical feasibility is established, costs are
capitalized until the product is commercialized. When the product is
commercialized, capitalized development costs are amortized over the
useful life of the product ranging from three to five years.
Inventory:
---------
Inventory is stated at the lower of cost of market. Cost is determined
by using the average cost method.
"S" Corporation:
---------------
The Company and its Stockholders have elected to be taxed as an "S"
Corporation for both Federal and State income tax purposes. Generally,
under this election, any Federal and State taxable income of the Company
is included in the personal income tax returns of the stockholders.
Consequently, no provision for Federal and State income taxes has been
recorded in the accompanying financial statements.
NOTE 3 PROPERTY AND EQUIPMENT:
-----------------------
Property and equipment at December 31, 1998 and 1997 is summarized as
follows:
DECEMBER 31,
1998 1997
--------- ----------
Equipment 35,895 35,318
Office Improvements 20,619 20,619
Automobiles 40,428 19,061
Office Equipment 1,269 1,269
-------- --------
98,211 76,267
LESS: Accumulated Depreciation (29,416) (20,961)
---- -------- --------
NET PROPERTY AND EQUIPMENT 68,795 55,306
======== ========
Depreciation was $8,455.00 and $11,154.00 for the year ended December
31, 1998 and 1997 respectively.
-7-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 4 INTANGIBLE ASSETS:
------------------
A Summary of Intangible Assets and Accumulated Amortization at December
31, 1998 and 1997 is as follows:
1998 1997
-------------------
Research and Development Costs 163,043 109,504
LESS: Accumulated Amortization (54,472) (22,897)
---- -------------------
NET RESEARCH AND DEVELOPMENT COSTS 108,571 86,607
======== =======
Amortization was $31,575.00 and $22,897.00 for the year ended December
31, 1998 and 1997.
NOTE 5 NOTE PAYABLE - BANK:
-------------------
The Company has bank borrowing in the form of a demand note with
interest payable, on a monthly basis at an annual rate of prime plus one
percent. This demand note is secured by the Company's accounts
receivable, inventory and fixed assets.
NOTE 6 LONG-TERM DEBT:
--------------
Long-term debt consisted of the following:
DECEMBER 31,
1998 1997
---------------------
Sovereign Bank - Installment Loan
Secured by Accounts Receivable
Inventory, Equipment and General
Intangibles. Interest Payable at
Prime plus one percent per annum. 23,348 35,564
PNC Bank - Installment Loan Secured
By Automobile. Interest payable at
8.9% per annum. 11,824 15,337
Ford Credit Corporation - Installment
Loan secured by Automobile. Interest
At 3.9% per annum. 20,955 NONE
------ ------
56,127 50,901
LESS: Current Portion 22,460 15,729
---- ------ ------
33,667 35,172
====== ======
Principal repayments on Long-Term Debt are as follows: 1999:
$22,460.00; 2000: $19,229.00; 2001: $9,250.00 and 2002: $5,188.00.
Interest paid on all indebtedness was $30,385.00 and $15,628.00 for the
year ended December 31, 1998 and 1997, respectively.
-8-
INNOVATIVE CONTROL SYSTEMS, INC.
--------------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
DECEMBER 31, 1998 AND 1997
--------------------------
NOTE 7 NOTES PAYABLE OTHER:
--------------------
The Company has the following additional short-term borrowings.
Interest only note payable to a related party in the amount of
$100,000.00 as of December 31, 1998, with interest payable monthly at
prime plus 1/2%. The full principal balance is due on or before
December 1, 1999.
Interest only demand note payable to a related party in the amount of
$40,000.00 as of December 31, 1997 and 1998. The note calls for monthly
interest payments calculated at an annual interest rate of 7%.
Non-interest bearing demand note to a related party in the amount of
$36,500.00 and $74,500.00 as of December 31, 1997 and 1998,
respectively.
NOTE 8 GRANT PAYABLE:
-------------
The Company has received grants from the Ben Franklin Technology Center
(BFTC). The grants were provided to assist the Company in developing its
products and to create and maintain jobs in Pennsylvania. The grants are
repaid when the products for which the grants are provided are
commercialized and the repayments are based on either a royalty of the
sales of the commercialized products or as a lump sum. The liabilities
of $246,920.00 as of December 31, 1997 and 1998 represent the total
amount of grants received by the Company.
NOTE 9 STOCKHOLDERS' EQUITY:
---------------------
In January 1998, the Company completed a one for ten reverse stock
split. Number of shares have been restated for all periods presented.
NOTE 10 SUBSEQUENT EVENTS:
-----------------
CORPORATE OWNERSHIP:
--------------------
On June 1, 1999, Innovative Control Systems, Inc. entered into an
agreement with Mace Security International, Inc., to exchange Common
Stock which resulted in Innovative Control Systems, Inc. becoming a
wholly owned subsidiary of Mace Security International, Inc., upon
closing on July 9, 1999.
-9-
Innovative Control Systems, Inc.
Balance Sheet
June 30, 1999
(Unaudited)
Assets
Current assets:
Cash $ 32,798
Accounts receivable, net of allowance of $68,709 281,440
Inventory 401,443
Other current assets 69,354
-----------
Total current assets 785,035
Property, plant, and equipment, net 80,209
Other assets 126,062
-----------
Total assets $ 991,306
===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 326,079
Accrued interest 181,668
Stockholders' Loan 5,248
Deferred revenue and other 213,903
Grant payable 246,920
Current portion long-term debt 485,309
-----------
Total current liabilities 1,459,127
Long-term debt, net of current portion 26,572
Stockholders' equity
Common stock 1
Additional paid-in capital 769,764
Retained earnings (deficit) (1,264,158)
Total -----------
stockholders' equity (494,393)
Total -----------
liabilities
and
stockholders' equity $ 991,306
===========
See selected notes to unaudited financial statements.
10
Innovative Control Systems, Inc.
Statements of Operations
Six Months
Ended June 30
1999 1998
----------------------------
(Unaudited)
Revenues $ 1,613,204 $ 528,459
Cost of revenues 969,553 200,398
----------- -----------
Gross profit 643,651 328,061
Selling, general, and administrative
expenses 521,474 339,832
----------- -----------
Operating income (loss) 122,177 (11,771)
Interest expense (20,619) (14,562)
Other (expense) income, net (13,166) 28
----------- -----------
Net income (loss) $ 88,392 $ (26,305)
=========== ===========
See selected notes to unaudited financial statements.
11
Innovative Control Systems, Inc.
Statements of Cash Flows
Six Months Ended
June 30
1999 1998
--------- ---------
(Unaudited)
Net income (loss) $ 88,392 $ (26,305)
Adjustments to reconcile net income
(loss) to net cash used in operating
activities:
Depreciation and amortization 21,609 19,160
Non-cash -- 1,170
compensation
Bad debt 10,000 5,470
expense
Accounts (81,196) (21,366)
receivable
Inventory (241,497) (154,631)
Accounts payable 43,167 113,368
Other, net 82,282 (18,851)
--------- ---------
Net cash used in operating activities (77,243) (81,985)
Investing activities
Purchase of property, plant, and equipment (17,794) --
--------- ---------
Net cash used in investing activities (17,794) --
Financing activities
Borrowings of long-term debt 102,681 135,000
Repayments of long-term debt (14,242) (44,721)
--------- ---------
Net cash provided by financing activities 88,439 90,279
Net (decrease) increase in cash (6,598) 8,294
Cash at beginning of period 39,396 4,711
--------- ---------
Cash at end of period $ 32,798 $ 13,005
========= =========
See selected notes to unaudited financial statements.
12
Innovative Control Systems, Inc.
Statement of Changes in Stockholders' Equity
Six Months Ended June 30, 1999 and 1998
(Unaudited)
ADDITIONAL RETAINED
COMMON PAID-IN EARNINGS
STOCK CAPITAL (DEFICIT)
----------- ----------- -----------
BALANCE AT JANUARY 1, 1998 $ 1 $ 768,594 $(1,201,615)
Net loss (26,305)
----------- ----------- -----------
Balance at June 30, 1998 $ 1 $ 768,594 $(1,227,920)
=========== =========== ===========
BALANCE AT JANUARY 1, 1999 $ 1 $ 768,594 $(1,352,550)
Common stock issued as
compensation 1,170
Net income 88,392
----------- ----------- -----------
Balance June 30, 1999 $ 1 $ 769,764 $(1,264,158)
=========== =========== ===========
See selected notes to unaudited financial statements.
13
Innovative Control Systems, Inc.
June 30, 1999
Selected Notes to Financial Statements
(Unaudited)
NOTE 1 NATURE OF BUSINESS
Innovative Control Systems, Inc. (the "Company"), a Pennsylvania Corporation,
develops and manufactures products for the management and control of the car
care industry. Its primary product, a software package called "Tunnel Master",
provides car wash equipment control, point of sale and management information.
ICS also distributes products for management and control of auto lube operations
and a product called "Vision Master" which allows a user to access cameras and
view operations remotely using a personal computer. ICS has a strong emphasis on
continued product development and improvement using the latest technology as
well as responding to customer needs.
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents
- -------------------------
For the purposes of the Statement of Cash Flows, the Company considers all
highly liquid debt instruments purchased with maturities of less than three
months to be cash equivalents.
Property and Equipment Depreciation
- -----------------------------------
Property and Equipment are capitalized and stated at cost. Depreciation is
computed using the straight-line basis over the estimated service lives of the
respective classes of property.
Allowance for Uncollectible Accounts
- ------------------------------------
The Company uses the Allowance Method to account for uncollectible accounts
receivable. The Allowance for doubtful accounts is based on management's
analysis of possible bad debts. Bad debt recoveries are charged against the
allowance account as realized.
Intangible Assets
- -----------------
Intangible Assets consist of the cost of research and development for new
products. The costs are being amortized over three (3) to five (5) years on a
straight-line basis which reflects management's estimated marketability of the
developed product.
14
Innovative Control Systems, Inc.
June 30, 1999
Selected Notes to Financial Statements
(Unaudited)
NOTE 2 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 the assets and liabilities, income and expenses
and disclosure of contingencies. Actual results could differ from those results.
Revenue Recognition
- -------------------
The Company recognizes revenue when goods are shipped or services are rendered.
For custom ordered goods, revenue is recognized when the custom goods are
shipped or ready for shipping.
Revenues related to telephone support provided with new unit sales are deferred
and recognized as income over the life of the support contract, generally a
twelve month period.
Capitalized Development Costs
- -----------------------------
The Company accounts for costs of its computer software to be sold or otherwise
marketed in accordance with FAS #86 "Accounting for the Costs of Computer
Software to Be Sold, Leased, or Otherwise Marketed". Costs incurred to establish
the technological feasibility of a computer software product to be sold by the
Company are charged to expense when incurred. When technical feasibility is
established, costs are capitalized until the product is commercialized. When the
product is commercialized, capitalized development costs are amortized over the
useful life of the product ranging from three to five years.
Inventory
- ---------
Inventory is stated at the lower of cost of market. Cost is determined by using
the average cost method.
"S" Corporation
- ---------------
The Company and its Stockholders have elected to be taxed as an "S" Corporation
for both Federal and State income tax purposes. Generally, under this election,
any Federal and State taxable income of the Company is included in the personal
income tax returns of the stockholders. Consequently, no provision for Federal
and State income taxes has been recorded in the accompanying financial
statements.
15
Innovative Control Systems, Inc.
June 30, 1999
Selected Notes to Financial Statements
(Unaudited)
NOTE 3 SUBSEQUENT EVENTS
Corporate Ownership
- -------------------
On June 1, 1999, Innovative Control Systems, Inc. entered into an agreement with
Mace Security International, Inc. to exchange Common Stock, which resulted in
Innovative Control Systems, Inc. becoming a wholly owned subsidiary of Mace
Security International, Inc. upon closing on July 9, 1999.
16
EXHIBIT INDEX
Exhibit Description
-----------
No.
- ---
23.1 Consent of Daniel P. Irwin and Associates P.C.
1