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: September 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.)
1000 Crawford Place, Suite 400, Mount Laurel, New Jersey 08054
(Address of Principal Executive Offices)
(856) 778-2300
(Registrant's Telephone Number)
Item 2. Acquisition of Eager Beaver Car Wash, Inc.
On September 9, 1999, Mace Security International, Inc., a Delaware
corporation (the "Company" or "Registrant"), acquired all of the outstanding
stock of Eager Beaver Car Wash, Inc. (collectively "Eager Beaver") pursuant to
the terms of a Stock Purchase Agreement (the "Agreement") dated June 21, 1999,
by and between the Registrant on one hand, and Ken H. Bachman, Claudia Bachman,
Carolyn Schmidt, Daniel Warmbier, and Diane Warmbier (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 operating car wash facilities in Brandenton, Fort Myers,
Venice and Sarasota, Florida. 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.
At Closing, the Company delivered to Sellers 656,869 shares of the
Company's common stock. No cash was paid to the shareholders for the acquisition
of the shares of the Sellers. The acquisition is to be accounted for using the
"pooling of interests" method of accounting.
At the closing, the Registrant assumed approximately $3,818,000 of
outstanding indebtedness of Eager Beaver. The acquisition includes all of the
assets and liabilities, including the real estate, to operate the car wash
facilities. The Registrant intends to continue to use the acquired assets in
the business of operating car washes in Brandenton, Fort Myers, Venice and
Sarasota, Florida.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of business acquired.
Report of Independent Auditors
Balance Sheets as of January 31, 1999 and 1998
Statements of Income for the Two Years Ended January 31, 1999 and 1998
Statements of Stockholders' Equity for the Two Years Ended
January 31, 1999 and 1998
Statements of Cash Flows for the Two Years Ended January 31, 1999 and 1998
Notes to Financial Statements
Balance Sheets as of July 31, 1999 (Unaudited)
Statements of Income for the Six Months Ended July 31, 1999
and 1998 (Unaudited)
Statements of Cash Flows for the Six Months
Ended July 31, 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 Stock Purchase Agreement dated as of June 21, 1999, by and between Ken H.
Bachman, as Trustee under the Kenneth H. Bachman Revocable Trust under
agreement dated 9/12/94, Claudia Bachman, as Trustee under the Claudia
Bachman Revocable Trust under agreement dated 9/12/94, Carolyn Schmidt,
Daniel Warmbier, and Diane Warmbier on the one hand, and Mace Security
International, Inc. on the other hand.
*99 Press Release dated September 9, 1999.
23.1 Consent of Ernst & Young LLP
* Incorporated by reference
_______________________________________________________________________________
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: November 23, 1999 MACE SECURITY INTERNATIONAL, INC.
By:/s/ Gregory M. Krzemien
-----------------------
Gregory M. Krzemien
Chief Financial Officer and Treasurer
Financial Statements
Eager Beaver Car Wash, Inc.
Years ended January 31, 1999 and 1998
with Report of Independent Auditors
Eager Beaver Car Wash, Inc.
Financial Statements
Years ended January 31, 1999 and 1998
Contents
Report of Independent Auditors....................................... 1
Audited Financial Statements
Balance Sheets....................................................... 2
Statements of Income................................................. 4
Statement of Stockholders' Equity.................................... 5
Statements of Cash Flows............................................. 6
Notes to Financial Statements........................................ 7
Report of Independent Auditors
The Board of Directors
Eager Beaver Car Wash, Inc.
We have audited the accompanying balance sheets of Eager Beaver Car Wash, Inc.
as of January 31, 1999 and 1998, and the related statements of income,
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on 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 includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Eager Beaver Car Wash, Inc., as
of January 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Tampa, Florida
October 15, 1999
1
Eager Beaver Car Wash, Inc.
Balance Sheets
January 31
1999 1998
-------------------------------
Assets
Current assets:
Cash and cash equivalents $ 441,305 $ 425,193
Accounts receivable 38,707 39,666
Inventories 91,695 95,534
Prepaid expenses 7,066 3,491
-------------------------------
Total current assets 578,773 563,884
Property and equipment:
Land 2,034,855 2,034,855
Buildings and improvements 2,827,444 2,825,950
Machinery and equipment 833,601 836,416
Furniture and fixtures 88,967 89,621
-------------------------------
5,784,867 5,786,842
Accumulated depreciation (2,087,579) (1,935,327)
-------------------------------
3,697,288 3,851,515
Notes receivable - shareholders 543,985 310,820
Other assets 15,666 17,281
-------------------------------
Total assets $ 4,835,712 $ 4,743,500
===============================
2
January 31
1999 1998
--------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 57,510 $ 98,083
Accrued expenses 146,839 165,888
Unearned revenue 206,729 221,089
Current portion of long-term debt 358,964 345,281
--------------------------------
Total current liabilities 770,042 830,341
Long-term debt, less current portion 3,496,904 3,611,245
Commitments and contingencies
Stockholders' equity:
Class A common stock, $.01 par value; 40,000 shares
authorized; 1,000 shares issued and outstanding,
respectively 10 10
Class B common stock, $.01 par value; 60,000 shares
authorized; 1,000 shares issued and outstanding,
respectively 10 10
Additional paid in capital 102,813 102,813
Retained earnings 465,933 199,081
--------------------------------
Total stockholders' equity 568,766 301,914
--------------------------------
Total liabilities and stockholders' equity $4,835,712 $4,743,500
================================
See accompanying notes.
3
Eager Beaver Car Wash, Inc.
Statements of Income
Year ended January 31
1999 1998
-----------------------------------
Net sales $3,985,916 $3,856,507
Cost of sales 1,857,957 1,844,344
-----------------------------------
Gross profit 2,127,959 2,012,163
Operating expenses:
Employment costs 333,222 329,202
Depreciation 157,957 167,972
Insurance 109,612 94,419
Maintenance and repair 139,580 211,773
Selling, general and administrative 459,671 459,824
-----------------------------------
Total operating expenses 1,200,042 1,263,190
Interest expense, net (266,452) (286,486)
Other income 58,628 73,705
-----------------------------------
Net income $ 720,093 $ 536,192
===================================
See accompanying notes.
4
Eager Beaver Car Wash, Inc.
Statements of Stockholders' Equity
Class A Class B
Common stock Common stock Additional Retained
---------------------------------------
Shares Amount Shares Amount paid in capital earnings Total
--------------------------------------------------------------------------------
Balance at January 31, 1997 1,000 $10 1,000 $ 10 $102,813 $ 105,824 $ 208,657
Net income - - - - - 536,192 536,192
Dividends - - - - - (442,935) (442,935)
--------------------------------------------------------------------------------
Balance at January 31, 1998 1,000 10 1,000 10 102,813 199,081 301,914
Net income - - - - - 720,093 720,093
Dividends - - - - - (453,241) (453,241)
--------------------------------------------------------------------------------
Balance at January 31, 1999 1,000 $10 1,000 $ 10 $102,813 $ 465,933 $ 568,766
================================================================================
See accompanying notes.
5
Eager Beaver Car Wash, Inc.
Statements of Cash Flows
Year ended January 31
1999 1998
-----------------------------
Operating activities
Net income $ 720,093 $ 536,192
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 157,957 167,972
Loss on disposition of assets 634 2,805
Changes in operating assets and liabilities:
Accounts receivable 959 (5,444)
Inventories 3,839 5,696
Prepaid expenses (3,575) 15,050
Other assets 1,615 1,470
Accounts payable and other accrued expenses (59,622) (21,681)
Unearned revenue (14,360) 36,549
-----------------------------
Net cash provided by operating activities 807,540 738,609
Investing activities
Purchases of property and equipment (4,364) (155,030)
-----------------------------
Net cash used in investing activities (4,364) (155,030)
Financing activities
Repayments of notes payable (100,658) (150,854)
Dividends paid (453,241) (442,935)
Shareholder advances, net (233,165) (241,835)
-----------------------------
Net cash used in financing activities (787,064) (835,624)
-----------------------------
Net increase (decrease) in cash 16,112 (252,045)
Cash at beginning of year 425,193 677,238
-----------------------------
Cash at end of year $ 441,305 $ 425,193
=============================
Supplemental disclosure
Cash paid for interest $ 300,025 $ 304,807
=============================
See accompanying notes.
6
Eager Beaver Car Wash, Inc.
Notes to Financial Statements
January 31, 1999 and 1998
1. Organization and Description of Business
Eager Beaver Car Wash, Inc. (the "Company") was incorporated in Florida in
September 1976. The Company operates car wash facilities and a lubrication
center from five locations throughout west central and south central Florida.
The Company's operations provide a full line of car cleaning services including
washing, waxing, and detailing services.
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is generally recognized at the time services are performed. Credit is
extended to certain businesses and municipalities who have multiple vehicles for
which services are performed based upon evaluation of the customer's financial
condition, and generally collateral is not required.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments which have an
original maturity of three months or less at the date of purchase. Cash
equivalents are stated at cost which approximates market value. Deposits with
banks are generally federally insured in limited amounts.
Inventories
Inventories are stated at cost which is not in excess of market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist of
various chemical cleaning supplies used in the Company's operations and
merchandise inventory sold at impulse counters in each of the Company's
locations.
7
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed on
a straight line basis for financial reporting purposes and accelerated methods
for income tax purposes. The ranges of estimated useful lives are as follows:
Years
-----------------
Buildings and improvements 25 - 31
Machinery and equipment 5 - 7
Furniture and fixtures 5 - 7
Advertising Costs
Advertising costs are expensed as incurred and are included in selling, general,
and administrative expenses in the accompanying statements of income. Total
advertising expenses were approximately $120,400 and $131,500 for the years
ended January 31, 1999 and 1998, respectively.
Income Taxes
The Company has an elected S Corporation income tax status whereby its taxable
income and tax credits are included in the personal income tax returns of Eager
Beaver's stockholders and the resulting tax liabilities or benefits are those of
the stockholders. Therefore no provision or liability for income taxes is
reflected in the financial statements.
Unearned Revenue
Unearned revenue represents a liability to the Company for outstanding gift
certificates and ticket books sold but not yet redeemed. The Company estimates
these unredeemed amounts based on gift certificate and ticket book sales and
redemptions throughout the year as well as utilizing historical sales and
redemption rates.
8
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
2. Summary of Significant Accounting Policies (continued)
Long-Lived Assets
The Company accounts for long-lived assets in accordance with FASB Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of ("Statement 121"). Statement 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the asset's carrying amount.
3. Long-Term Debt
Long-term debt consists of the following:
January 31
1999 1998
-----------------------------
Bank Note $2,221,858 $2,282,892
Affiliate Notes 1,389,399 1,429,023
Stockholder Notes 244,611 244,611
-----------------------------
3,855,868 3,956,526
Less current portion (358,964) (345,281)
-----------------------------
$3,496,904 $3,611,245
=============================
Bank Note: The Company has a note payable with a bank (the "Bank Note") which
provides for equal monthly payments of principal and interest due on the first
day of each month with all balances of principal and interest due on December 1,
2005. The monthly principal and interest payments may adjust each January 1
based on the interest rate option chosen by the Company each December 1 that an
interest rate adjustment is available to the Company. The Company can elect to
pay principal and interest under the following three interest rate options: (1)
One Year Adjustable: The interest rate for each year, effective January 1, will
be set each year at 225 basis points over the one year United States Treasury
constant in effect on December 1 each loan year prior to renewal. (2) Three Year
Adjustable: The interest rate for each year, effective January 1, will be set
every three years at 225 basis points over the three year United States Treasury
constant in effect on December 1 each loan year prior to renewal. (3) Five Year
Adjustable: The interest rate for each year, effective January 1, will be set
every five years at 225 basis points over the five year United States Treasury
constant in effect on December 1 each loan year prior to renewal.
9
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
3. Long-Term Debt (continued)
Bank Note (continued): The Bank Note is secured by certain real property and
equipment of the car wash facilities located in North Sarasota, Fort Myers and
Bradenton, Florida.
The effective interest rate of the Bank Note at January 31, 1999 was 6.68% which
reflects the five year adjustable option chosen by the Company effective January
1, 1999.
Affiliate Notes: The Company has unsecured notes payable to Bullseye
Properties, Inc., an affiliate company whose majority shareholder is the
Company's President (the "Affiliate Notes"). The Affiliate Notes provide for
equal payments of principal and interest due the first day of each month under
similar terms as those of the Bank Note.
Stockholder Notes: The Company has notes payable to a stockholder and officer
of the Company under informal borrowing arrangements (the "Stockholder Notes").
Based on a verbal agreement, the Stockholder Notes are unsecured and provide for
monthly payments of interest only. In connection with the common stock
transaction described in Note 8, the Company repaid the Stockholder Notes.
Accordingly, the related amounts outstanding at January 31, 1999 have been
classified as current in the accompanying balance sheet.
The Company's loan agreements contain no restrictive covenants. Substantially
all of the Company's outstanding debt was personally guaranteed by Ken Bachman,
the Company's President and majority shareholder prior to the transaction
described in Note 8.
Aggregate maturities of long-term debt for the five years subsequent to January
31, 1999, are as follows:
2000 $ 358,964
2001 122,479
2002 132,057
2003 141,933
2004 152,552
Thereafter 2,947,883
----------
$3,855,868
==========
10
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
4. Stockholders' Equity
The Company's authorized capital consists of 40,000 shares of Class A voting
common stock, $.01 par value and 60,000 shares of Class B non-voting common
stock, $.01 par value. The Class A common and Class B common shares have equal
rights and preferences including dividend rights and liquidation preferences
but, except as otherwise provided by law, only the Class A common shares shall
be entitled to vote on action required or permitted by law to be approved by
stockholders. Each share of Class A common stock entitles the holder to 1 vote
per share.
On December 31, 1996, the Company granted warrants to its existing stockholders
to purchase 500 shares of Class A common stock at $9.25 per share. The warrants
are exercisable wholly or in part at any time for the longer of (i) ten years
from the date of grant or (ii) ten years from the date of a "change of control"
as defined in the instrument. If the ownership of the Company's Class A common
stock is sold to a corporation which is a reporting company under the Securities
Exchange Act of 1934 (the "Acquirer") by way of a sale of all of the Company's
Class A common stock so that Ken H Bachman and Claudia Bachman no longer
directly or indirectly own fifty percent (50%) or more of the Company's Class A
common stock, or by merger, then the holder of each warrant shall receive in
exchange for the Company's warrant a warrant of the Acquirer for shares of the
Acquirer's common stock at a rate of 100 shares for each share in the Company's
warrant.
Additionally on December 31, 1996, the Company granted warrants to its existing
stockholders to purchase 500 shares of Class B common stock at $9.25 per share.
The warrants are exercisable wholly or in part at any time for the longer of (i)
ten years from the date of grant or (ii) ten years from the date of a "change of
control" as defined in the instrument. If the ownership of the Company's Class
B common stock is sold to a corporation which is a reporting company under the
Securities Exchange Act of 1934 (the "Acquirer") by way of a sale of all of the
Company's Class B common stock so that Ken H Bachman and Claudia Bachman no
longer directly or indirectly own fifty percent (50%) or more of the Company's
Class B common stock, or by merger, then the holder of each warrant shall
receive in exchange for the Company's warrant a warrant of the Acquirer for
shares of the Acquirer's common stock at a rate of 100 shares for each share in
the Company's warrant.
The Company has reserved 500 shares of Class A common stock and 500 shares of
Class B common stock in connection with the warrants described above.
11
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
4. Stockholders' Equity (continued)
Each stockholder of the Company is a party to a stock restriction agreement (the
"Stockholders' Agreement") which restricts the transfer of the Company's common
stock and provides existing stockholders, and/or the Company, the right of first
refusal for the purchase of the Company's common stock under certain
circumstances as defined in the Stockholders' Agreement. In connection with the
common stock transaction described in Note 8, the provisions of the
Stockholders' Agreement were amended to accommodate the transaction.
5. Related Party Transactions
From time to time and during the years ended January 31, 1999 and 1998, the
Company made unsecured non-interest bearing advances to certain of its
stockholders who are also officers of the Company. Substantially all of the
advances were subsequently repaid from the dividend distributions of the
Company.
The Company occupies its corporate headquarters, a portion of a multi-tenant
building, under an informal arrangement with Bullseye Properties, Inc., an
affiliated company. Under these arrangements, the Company pays no rent but is
responsible for insurance, maintenance, utilities and certain common area
charges on a pro rata basis.
The Company provides monthly accounting and administrative services to Bullseye
Properties, Inc. The Company recognized revenues of approximately $12,100 in
each of the years ended January 31, 1999 and 1998, respectively for services
rendered under this arrangement.
6. Commitments and Contingencies
The Company is a party to employment agreements with four of its key employees.
The employment agreements have provisions for, among other things, duties,
compensation and non-compensation benefits. Additionally, the employment
agreements provide that in the event of a "change of control", as defined in the
agreements, the employee will receive a lump sum cash payment on the effective
date of the "change of control" as severance in consideration for the employee's
past service to the Company. In connection with the common stock transaction
described in Note 8, the Company will recognize severance costs of approximately
$1,185,000 in its results of operations for the fiscal year ending January 31,
2000 relating to the employment agreements described above.
12
Eager Beaver Car Wash, Inc.
Notes to Financial Statements (continued)
6. Commitments and Contingencies (continued)
The Company leases a portion of the building space at several of its car wash
facilities either on a month-to-month basis or under cancelable leases. During
the years ended January 31, 1999 and 1998, the Company recognized revenues of
approximately $36,800 and $57,200, respectively under these leasing
arrangements. These amounts are classified as other income in the accompanying
statements of income.
The Company is subject to federal and state environmental regulations, including
rules relating to air and water pollution and the storage and disposal of oil,
other chemicals, and waste. The Company believes that it complies with all
applicable laws relating to its business.
7. Year 2000 Issue (Unaudited)
The Company has developed a plan to modify its information technology to be
ready for the Year 2000 and has begun converting critical data processing
systems in software. The Company currently expects the project to be
substantially complete by late 1999 and does not expect this project to have a
significant effect on operations.
8. Subsequent Event
Effective September 9, 1999, the stockholders of the Company sold all of their
outstanding common stock to a wholly-owned subsidiary of Mace Security
International, Inc.
13
Eager Beaver Car Wash, Inc.
Balance Sheet
July 31, 1999
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 254,917
Accounts receivable 38,240
Inventories 109,373
Prepaid expenses 20,647
-----------
Total current assets 423,177
Property and equipment:
Land 2,095,593
Buildings and improvements 2,724,168
Machinery and equipment 845,101
Furniture and fixtures 89,417
-----------
5,754,279
Accumulated depreciation (2,084,112)
-----------
3,670,167
Notes receivable - shareholders 61,900
Other 14,918
-----------
Total assets $ 4,170,162
===========
1
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 25,316
Accrued expenses 157,441
Unearned revenue 169,891
Current portion of long-term debt 123,066
----------
Total current liabilities 475,714
Long-term debt, less current portion 3,673,067
Commitments and contingencies
Stockholders' equity:
Class A common stock, $.01 par value; 40,000 shares authorized;
1,000 shares issued and outstanding 10
Class B common stock, $ .01 par value; 60,000 shares
authorized; 1,000 shares issued and outstanding 10
Additional paid in capital 102,813
Retained earnings (81,452)
----------
Total stockholders' equity 21,381
----------
Total liabilities and stockholders' equity $4,170,162
==========
See accompanying notes.
2
Eager Beaver Car Wash, Inc.
Statements of Income
(Unaudited)
Six Months ended July 31,
1999 1998
----------------------------------
Net sales $2,138,514 $2,062,134
Direct Operating Expenses 1,151,309 1,135,951
----------------------------------
987,205 926,183
Depreciation 52,600 80,410
Selling, general and administrative 337,278 330,212
----------------------------------
Operating income 597,327 515,561
Interest expense, net (120,465) (134,805)
Other income 40,020 29,933
----------------------------------
Net income $ 516,882 $ 410,689
==================================
See accompanying selected notes.
3
Eager Beaver Car Wash, Inc.
Statements of Cash Flows
(Unaudited)
Six Months ended July 31,
1999 1998
-------------------------------
Operating activities
Net income $ 516,882 $ 410,689
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 52,600 79,661
Changes in operating assets and liabilities:
Accounts receivable 467 (235,897)
Inventories (17,678) 1,854
Prepaid expenses (13,581) (15,618)
Accounts payable and other accrued expenses (32,194) (21,645)
Unearned revenue (26,236) (32,160)
-------------------------------
Net cash provided by operating activities 480,260 186,884
Investing activities
Purchase of property and equipment (24,730) -
-------------------------------
Net cash used in investing activities (24,730) -
Financing activities
Repayments of notes payable (59,736) (50,528)
Dividends paid (582,182) -
Shareholder advances, net - 146,836
-------------------------------
Net cash used in (provided by) financing activities (641,918) 96,308
-------------------------------
Net (decrease) increase in cash (186,388) 283,192
Cash at beginning of period 441,305 425,193
-------------------------------
Cash at end of period $ 254,917 $ 708,385
===============================
Supplemental disclosure
Cash paid for interest $ 132,622 $ 149,173
===============================
See accompanying selected notes.
4
Eager Beaver Car Wash, Inc.
Selected Notes to Financial Statements
(Unaudited)
1. Organization and Description of Business
Eager Beaver Car Wash, Inc. (the "Company") was incorporated in Florida in
September 1976. The Company operates car wash facilities and a lubrication
center from five locations throughout west central and south central Florida.
The Company's operations provide a full line of car cleaning services including
washing, waxing, and detailing services.
2. Summary of Significant Accounting Policies
Basis of Presentation
These interim financial statements reflect all adjustments (consisting of normal
recurring accruals), which in the opinion of management, are necessary for a
fair presentation of results of operations for the interim periods presented.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is generally recognized at the time services are performed. Credit is
extended to certain businesses and municipalities who have multiple vehicles for
which services are performed based upon evaluation of the customer's financial
condition, and generally collateral is not required.
Cash and Cash Equivalents
Cash and cash equivalents include all highly-liquid investments which have an
original maturity of three months or less at the date of purchase. Cash
equivalents are stated at cost which approximates market value. Deposits with
banks are generally federally insured in limited amounts.
Inventories
Inventories are stated at cost which is not in excess of market. Cost is
determined using the first-in, first-out (FIFO) method. Inventories consist of
various chemical cleaning supplies used in the Company's operations and
merchandise inventory sold at impulse counters in each of the Company's
locations.
5
Eager Beaver Car Wash, Inc.
Selected Notes to Financial Statements (continued)
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is generally computed on
a straight line basis for financial reporting purposes and accelerated methods
for income tax purposes. The ranges of estimated useful lives are as follows:
Years
-----------------
Buildings and improvements 25 - 31
Machinery and equipment 5 - 7
Furniture and fixtures 5 - 7
Advertising Costs
Advertising costs are expensed as incurred and are included in selling, general,
and administrative expenses in the accompanying statements of income.
Income Taxes
The Company has an elected S Corporation income tax status whereby its taxable
income and tax credits are included in the personal income tax returns of Eager
Beaver's stockholders and the resulting tax liabilities or benefits are those of
the stockholders. Therefore no provision or liability for income taxes is
reflected in the financial statements.
Unearned Revenue
Unearned revenue represents a liability to the Company for outstanding gift
certificates and ticket books sold but not yet redeemed. The Company estimates
these unredeemed amounts based on gift certificate and ticket book sales and
redemptions throughout the year as well as utilizing historical sales and
redemption rates.
3. Subsequent Event
Effective September 9, 1999, the stockholders of the Company sold all of their
outstanding common stock to a wholly-owned subsidiary of Mace Security
International, Inc.
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; (iii) the acquisition of the stock of American Wash
Services, Inc. ("AWS") from Louis D. Paolino, Jr. and Red Mountain Holdings,
Ltd. for total consideration of approximately $8,153,000; (iv) the acquisition
of substantially all of the assets of Stephen Bulboff and Stephen B. Properties,
Inc. ("Bulboff") for total consideration of approximately $3,744,000; (v) the
acquisition of the stock of Innovative Control Systems, Inc. ("ICS") for 603,721
shares; (vi) the acquisition of the stock of 50's Classic Car Wash of
Lubbock, Inc. and CRCD, Inc. (collectively "50's Classic") for 91,677 shares
(vii) the acquisition of substantially all of the assets of Quaker Car Wash,
Inc. ("Quaker") for total consideration of approximately $2,895,000; and (viii)
the acquisition of the stock of Eager Beaver Car Wash, Inc. ("Eager Beaver") for
656,869 shares. The ICS, 50's Classic and Eager Beaver business combinations
were accounted for using the pooling of interests method, and as a result, no
material pro forma adjustments were deemed necessary to reflect the results of
operations on a consolidated basis for these business combinations.
The following unaudited pro forma consolidated statement of operations for the
year ended December 31, 1998 and the six months ended June 30, 1999 gives effect
to the aforementioned transactions as if the transactions had occurred on
January 1, 1998. Additionally, the pro forma consolidated statement of
operations for the year ended December 31, 1998 includes the results of Eager
Beaver for its fiscal year ended January 31, 1999. Similarly, the pro forma
consolidated statement of operations for the six months ended June 30, 1999
include the results of Eager Beaver for its six months ending July 31, 1999.
The following unaudited pro forma financial data may not be indicative of what
the results of operations or financial position of Mace Security International,
Inc. would have been, had the transactions to which such data gives effect 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 two years in the period then ended appearing in the
Company's Form 10-KSB and the historical financial statements of Eager Beaver
appearing elsewhere in this filing.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(In thousands, except shares and per share data)
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 expense, net 42 (528) 5 - (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 50's Car Wash of Eager
Control Lubbock, Inc. and Quaker Car Beaver Car Pro Forma Pro Forma
Systems, Inc. CRCD, Inc. Wash, Inc. Wash, Inc. Adjustments Consolidated
------------- ----------------- ---------- ----------- ------------ -------------
Net sales $ 2,029 $ 780 $ 1,150 $ 3,986 $ - $ 29,532
Cost of sales 1,206 437 432 2,598 (297)(1) 20,600
79 (2)
(32)(7)
(59)(8)
(6)(9)
Selling, general and administrative 944 210 369 460 (569)(4) 6,065
(360)(5)
------------- ------------- ---------- ----------- ------------ -------------
Operating (loss) income (121) 133 349 928 1,244 2,867
Other income (expense):
Interest expense, net (30) (61) (80) (266) (380)(6) (1,509)
Other income - 5 50 59 - 394
------------- ------------- ---------- ----------- ------------ -------------
(Loss) income from operations before
income tax expense (151) 77 319 721 864 1,752
Income tax expense - - - - (661)(10) (700)
------------- ------------- ---------- ----------- ------------ -------------
Net (loss) income $ (151) $ 77 $ 319 $ 721 $ 203 $ 1,052
============= ============= ========== =========== ============ =============
Net (loss) income per common share: $ 0.09
=============
Weighted average number of
common shares outstanding 11,858,918(3)
=============
Notes to Unaudited Pro Forma Consolidated Statement of Operations Adjustments
The Unaudited Pro Forma Consolidated Statement of Operations for the Year Ended
December 31, 1998 has been adjusted to reflect the following:
(1) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Colonial had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Colonial.
(2) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of Genie
had been completed on January 1, 1998, net of historical depreciation and
amortization expense of Genie.
(3) For purpose of determining pro forma earnings per share, the issuance of
1,251,000, 533,333, 628,362, 860,000, 603,721, 91,677, 236,876 and 656,869
shares, respectively, of unregistered shares of common stock to affect the
acquisition of Colonial, Genie, AWS, Bulboff, ICS, 50's Classic, Quaker
and Eager Beaver were assumed to be outstanding from January 1, 1998 by
Mace.
(4) To eliminate intercompany administrative charges of $569,000 related
directly to cost sharing arrangements provided by Genie's prior parent,
which were terminated as a result of the purchase transaction. Such
administrative services were absorbed by excess capacity of the Company and
the Company has not hired additional employees to perform these
administrative services.
(5) To reflect the elimination of intercompany rental expense of $360,000 from
Genie's prior parent terminated as a result of the purchase transaction.
(6) To record additional interest expense of $380,000 resulting from a $4.75
million promissory note issued to Genie's prior parent to consummate the
acquisition of Genie.
(7) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of AWS
had been completed on January 1, 1998, net of historical depreciation and
amortization expense of AWS.
(8) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Bulboff had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Bulboff.
(9) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Quaker had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Quaker.
(10) The Company's pro forma tax provision reflects an effective tax rate of 40%
considering federal and state income taxes and the effect of certain
non-deductible costs principally related to acquisitions consummated.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1999
(In thousands, except shares and per share data)
Colonial Full American Stephen Bulboff Innovative
Mace Security Service Car Genie Wash and Stephen B. Control
International, Inc. Wash, Inc. Car Wash Services, Inc. Properties, Inc. Systems, Inc.
------------------ ------------ -------- ------------- ---------------- ------------
Net sales $ 4,087 $ 4,050 $ 2,748 $ 1,143 $ 799 $ 1,613
Cost of sales 2,516 3,239 2,004 713 409 970
Selling, general and administrative 1,569 741 870 430 217 521
Restructuring and change in control
charges 1,519 - - - - -
---------------- ------------ --------- ------------- --------------- ------------
Operating (loss) income (1,517) 70 (126) - 173 122
Other income (expense):
Interest expense, net (27) (191) 1 - (157) (21)
Other income (expense) (16) 23 5 - - (13)
---------------- ------------ --------- ------------- --------------- ------------
(Loss) income
before income tax expense (1,560) (98) (120) - 16 88
Income tax expense (benefit) (350) - - - - -
---------------- ------------ --------- ------------- --------------- ------------
Net (loss) income $ (1,210) $ (98) $ (120) $ - $ 16 $ 88
================ ============ ========= ============= =============== ============
Net loss per common share $ (0.16)
================
Weighted average number of
common shares outstanding 7,454,292
================
50's Car Wash of Eager
Lubbock, Inc. and Quaker Car Beaver Car Pro Forma Pro Forma
CRCD, Inc. Wash, Inc. Wash, Inc. Adjustments Consolidated
----------------- --------- ---------- ----------- ------------
Net sales $ 397 $ 507 $ 2,138 $ - $ 17,482
Cost of sales 233 287 1,204 (119) (1) 11,408
48 (2)
(62) (7)
(31) (8)
(3) (9)
Selling, general and administrative 124 112 337 (232) (4) 4,494
(195) (5)
Restructuring and change in control
charges - - 1,519
---------------- --------- ---------- ----------- ------------
Operating (loss) income 40 108 597 594 61
Other income (expense):
Interest expense, net (27) (31) (120) (144) (6) (717)
Other income (expense) 4 56 40 - 99
---------------- --------- ---------- ----------- ------------
(Loss) income
before income tax expense 17 133 517 450 (557)
Income tax expense (benefit) - - - 127 (10) (223)
---------------- --------- ---------- ----------- ------------
Net (loss) income $ 17 $ 133 $ 517 $ 323 $ (334)
=============== ========= ========== =========== ============
Net loss per common share $ (0.03)
============
Weighted average number of
common shares outstanding 11,877,811 (3)
============
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, 860,000, 603,721,
91,677, 236,876 and 656,869 shares, respectively, of unregistered shares of
common stock to affect the acquisition of Colonial, Genie, AWS, Bulboff,
ICS, 50's Classic, Quaker and Eager Beaver 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.
(9) To adjust depreciation and amortization expense for the change in the basis
of property and equipment and intangible assets as if the purchase of
Quaker had been completed on January 1, 1998, net of historical
depreciation and amortization expense of Quaker.
(10) The company's pro forma tax provision reflects an effective tax rate of 40%
considering federal and state income taxes and the effect of certain
non-deductible costs principally related to acquisitions consummated.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of June 30, 1999
(In thousands)
American Stephen Bulboff Innovative 50's Car Wash of
Mace Security Wash and Stephen B. Control Lubbock, Inc. and
International, Inc. Services, Inc. Properties, Inc. Systems, Inc. CRCD, Inc.
------------------- -------------- ---------------- ------------ -----------------
ASSETS
Current assets:
Cash and cash equivalents $ 6,061 $ 70 $ 48 $ 33 $ 11
Accounts receivable, net 1,099 2 - 281 2
Inventories 1,790 36 15 401 12
Deferred income taxes 714 - - - -
Prepaid expenses and other 811 113 104 69 -
----------------- ------------ --------------- ------------ --------------
Total current assets 10,475 221 167 784 25
Net assets of discontinued
operations 245 - - - -
Property and equipment, net 21,247 3,888 1,132 81 678
Intangibles, net 5,457 - - 126 -
Other assets 1,770 1,424 - - -
----------------- ------------ --------------- ------------ --------------
Total Assets $ 39,194 $ 5,533 $ 1,299 $ 991 $ 703
================= ============ =============== =========== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,243 $ 376 $ 60 $ 326 $ 17
Accrued expenses 2,325 129 11 401 15
Current portion of long term
debt 10,066 161 2,140 732 41
----------------- ------------ --------------- ------------ --------------
Total current liabilities 13,634 666 2,211 1,459 73
Deferred income taxes 1,412 16 - - -
Long term debt, less current
portion 939 - - 27 567
Other long term liabilities - - - -
----------------- ------------ --------------- ------------ --------------
Total liabilities 15,985 682 2,211 1,486 640
Commitments and contingencies
Stockholders' equity:
Common stock 96 - 12 - 2
Additional paid-in capital 28,549 4,800 - 770 78
Treasury stock (52) - - - -
(Accumulated deficit)
retained earnings (5,384) 51 (924) (1,265) (17)
----------------- ------------ --------------- ------------ --------------
Total stockholders' equity 23,209 4,851 (912) (495) 63
----------------- ------------ --------------- ------------ --------------
Total liabilities and
stockholders' equity $ 39,194 $ 5,533 $ 1,299 $ 991 $ 703
================= ============ =============== =========== ==============
Eager
Quaker Car Beaver Car Pro Forma Pro Forma
Wash, Inc. Wash, Inc. Adjustments Consolidated
---------- ----------- ----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 70 $ 255 $ (4,688) (1) $ 747
(1,113) (3)
Accounts receivable, net 13 38 (13) (3) 1,422
Inventories 8 109 (8) (3) 2,363
Deferred income taxes - - 714
Prepaid expenses and other 4 21 (4) (3) 1,118
---------- ----------- ----------- ----------
Total current assets 95 423 (5,826) 6,364
Net assets of discontinued
operations - - 245
Property and equipment, net 731 3,670 2,312 (1) 37,605
2,527 (2)
1,339 (3)
Intangibles, net - - 991 (1) 7,087
513 (2)
Other assets 1,506 77 (1,506) (3) 3,271
---------- ----------- ----------- ----------
Total Assets $ 2,332 $ 4,170 $ 350 $ 54,572
========== =========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 15 $ 25 $ (15) (3) $ 2,047
Accrued expenses 14 329 138 (3) 3,362
Current portion of long term
debt 54 123 (240) (2) 13,023
(54) (3)
---------- ----------- ----------- ----------
Total current liabilities 83 477 (171) (3) 18,432
Deferred income taxes - - - 1,428
Long term debt, less current
portion 1,260 3,672 (1,260) (3) 5,205
Other long term liabilities - - 2,114 (1) 2,114
---------- ----------- ----------- ----------
Total liabilities 1,343 4,149 683 27,179
Commitments and contingencies
Stockholders' equity:
Common stock 1 - 6 (1) 117
(1) (2)
1 (3)
Additional paid-in capital - 102 (3,454) (1) 34,075
1,844 (2)
1,386 (3)
Treasury stock - - (52)
(Accumulated deficit)
retained earnings 988 (81) (51) (1) (6,747)
924 (2)
(988) (3)
---------- ----------- ----------- ----------
Total stockholders' equity 989 21 (333) 27,393
---------- ----------- ----------- ----------
Total liabilities and
stockholders' equity $ 2,332 $ 4,170 $ 350 $ 54,572
========== =========== =========== ==========
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. The acquisition closed on July 1, 1999.
Additionally, as part of the purchase price consideration, Mace issued
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
Net 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
Net current assets acquired.................................. 167,000
Other liabilities............................................ (82,000)
----------
$3,744,000
==========
(3) On September 9, 1999, the Company acquired all of the car wash related
assets of Quaker pursuant to the terms of a Car Wash Asset Purchase/Sale
Agreement dated August 26, 1998 for an aggregate purchase price of
$2,895,000 consisting of $1,850,000 worth of unregistered shares of the
Company's common stock, valued at a strike price of $7.81 per share, and
cash of $1,045,000 paid 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 one full service car wash in
Texas. The allocation of the purchase price is preliminary. The actual
allocation will be based on management's final evaluation of such assets
and liabilities. The excess of the purchase price over the 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........................................ $2,070,000
Net current assets acquired................................... 513,000
Other liabilities............................................. (152,000)
----------
$2,431,000
==========
EXHIBIT INDEX
Exhibit Description
-----------
No.
- ---
23.1 Consent of Ernst & Young LLP