Mace Security International Inc. (MACE, Financial) filed Quarterly Report for the period ended 2009-06-30.
Mace Security International Inc. is a manufacturer of electronic surveillance security and personal defense products and an owner and operator of car and truck wash facilities. The Company owns the highly recognized name Mace which is known for manufacturing and marketing high quality security products including personal defense sprays home and business surveillance and security automotive security and child safety and security. Mace also owns and operates car and truck washes throughout the United States. Mace Security International Inc. has a market cap of $16.1 million; its shares were traded at around $0.99 with and P/S ratio of 0.3.
Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings and leasehold improvements - 15 to 40 years; machinery and equipment - 5 to 20 years; and furniture and fixtures - 5 to 10 years. Significant additions or improvements extending assets\' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation expense from continuing operations was approximately $132,000 and $137,000 for the three months ended June 30, 2009, and 2008 and $260,000 and $275,000 for the six months ended June 30, 2009 and 2008, respectively. Maintenance and repairs are charged to expense as incurred and amounted to approximately $36,000 and $50,000 in the three months ended June 30, 2009 and 2008 and $65,000 and $97,000 in the six months ended June 30, 2009 and 2008, respectively.
The Company expenses advertising costs, including advertising production costs, as they are incurred or when the first time advertising takes place. The Company s costs of coupon advertising within its Car Wash Segment are recorded as a prepaid asset and amortized to advertising expense during the period of distribution and customer response, which is typically two to four months. Prepaid advertising costs was $4,000 and $30,000 at June 30, 2009 and December 31, 2008, respectively. Advertising expense was approximately $235,000 and $313,000 for the three months ended June 30, 2009 and 2008 and $393,000 and $583,000 for the six months ended June 30, 2009 and 2008, respectively.
At June 30, 2009, we owned full service and self-service car wash locations in Texas. We earn revenues from washing and detailing automobiles; performing oil and lubrication services, minor auto repairs, and state inspections; selling fuel; and selling merchandise within the car wash facilities. Revenues generated for the six months ending June 30, 2009 for the Car and Truck Wash Segment were comprised of approximately 54% from car washing and detailing, 43% from lube and other automotive services, and 3% from fuel and merchandise. Additionally, our Florida, Lubbock, Texas, Austin, Texas and our San Antonio, Texas region car washes are being reported as discontinued operations (see Note 5 of the Notes to Consolidated Financial Statements) and, accordingly, have been segregated from the following revenue and expense discussion. Revenues from discontinued operations were $1.6 million and $3.0 million for the three months ended June 30, 2009 and 2008 and $3.3 million and $5.3 million for the six months ended June 30, 2009 and 2008, respectively. Operating income (loss) from discontinued operations was $166,000 and $132,000 for the three months ended June 30, 2009 and 2008 and $236,000 and $(593,000) for the six months ended June 30, 2009 and 2008, respectively.
On December 31, 2007, we completed the sale of the truck washes for $1.2 million consideration, consisting of $280,000 cash and a $920,000 note payable to Mace secured by mortgages on the truck washes. The $920,000 note, which has a balance of $881,490 at June 30, 2009, has a five-year term, with principal and interest paid on a 15-year amortization schedule.
One of our short-term investments in 2008 was in a hedge fund, namely the Victory Fund, Ltd. We requested redemption of this hedge fund investment on June 18, 2008. Under the Limited Partnership Agreement with the hedge fund, the redemption request was timely for a return of the investment account balance as of September 30, 2008, payable ten business days after the end of the September 30, 2008 quarter. The hedge fund acknowledged that the redemption amount owed was $3,206,748; however, on October 15, 2008 the hedge fund asserted the right to withhold the redemption amount due to extraordinary market circumstances. After negotiations, the hedge fund agreed to pay the redemption amount in two installments, $1,000,000 on November 3, 2008 and $2,206,748 on January 15, 2009. The Company received the first installment of $1,000,000 on November 5, 2008. The Company has not received the second installment. On January 21, 2009, the principal of the Victory Fund, Ltd, Arthur Nadel, was criminally charged with operating a “Ponzi” scheme. Additionally, the SEC has initiated a civil case against Mr. Nadel and others alleging that Arthur Nadel defrauded investors in the Victory Fund, LLC and five other hedge funds by massively overstating the value of investments in these funds and issuing false and misleading account statements to investors. The SEC also alleges that Mr. Nadel transferred large sums of investor funds to secret accounts which only he controlled. A receiver has been appointed in the civil case and has been directed to administer and manage the business affairs, funds, assets, and any other property of Mr. Nadel, the Victory Fund, LLC and the five other hedge funds and conduct and institute such legal proceedings that benefit of the hedge fund investors. Accordingly, we recorded a charge of $2,206,748 as an investment loss at December 31, 2008. If we recover any of the investment loss, such amounts will be recorded as recoveries in future periods when received. The original amount invested in the hedge fund was $2,000,000. One of the actions the Receiver may take on behalf of all investors is to attempt to “claw back” redemptions and distributions made by the hedge funds to their investors and use the returned funds to pay the expenses of the Receiver and for a pro-rata distribution to all investors. No “claw back” action has been filed to date. We have received a letter from the Receiver stating that the Receiver does not intend to claw back the $1 million we were paid based on the fact that our original investment was $2 million. If we are required by the Court to pay back the $1,000,000 redemption we received, our liquidity would be adversely affected.
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Mace Security International Inc. is a manufacturer of electronic surveillance security and personal defense products and an owner and operator of car and truck wash facilities. The Company owns the highly recognized name Mace which is known for manufacturing and marketing high quality security products including personal defense sprays home and business surveillance and security automotive security and child safety and security. Mace also owns and operates car and truck washes throughout the United States. Mace Security International Inc. has a market cap of $16.1 million; its shares were traded at around $0.99 with and P/S ratio of 0.3.
Highlight of Business Operations:
On June 18, 2008, we requested redemption of a short-term investment in a hedge fund, namely the Victory Fund, Ltd. Under the Limited Partnership Agreement with the hedge fund, the redemption request was timely for a return of the investment account balance as of September 30, 2008, payable ten business days after the end of the September 30, 2008 quarter. The hedge fund acknowledged that the redemption amount owed was $3,206,748. On October 15, 2008 the hedge fund asserted the right to withhold the redemption amount due to extraordinary market circumstances. After negotiations, the hedge fund agreed to pay the redemption amount in two installments, $1,000,000 on November 3, 2008 and $2,206,748 on January 15, 2009. The Company received the first installment of $1,000,000 on November 5, 2008. The Company has not received the second installment. On January 21, 2009, the principal of the Victory Fund, Ltd, Arthur Nadel, was criminally charged with operating a “Ponzi” scheme. Additionally, the SEC has initiated a civil case against Mr. Nadel and others alleging that Arthur Nadel defrauded investors in the Victory Fund, LLC and five other hedge funds by massively overstating the value of investments in these funds and issuing false and misleading account statements to investors. The SEC also alleges that Mr. Nadel transferred large sums of investor funds to secret accounts which only he controlled. A receiver has been appointed in the civil case and has been directed to administer and manage the business affairs, funds, assets, and any other property of Mr. Nadel, the Victory Fund, LLC and the five other hedge funds and conduct and institute such legal proceedings that benefit the hedge fund investors. Accordingly, we recorded a charge of $2,206,748 as an investment loss at December 31, 2008. If we recover any of the investment loss, such amounts will be recorded as recoveries in future periods when received. The original amount invested in the hedge fund was $2,000,000.Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings and leasehold improvements - 15 to 40 years; machinery and equipment - 5 to 20 years; and furniture and fixtures - 5 to 10 years. Significant additions or improvements extending assets\' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation expense from continuing operations was approximately $132,000 and $137,000 for the three months ended June 30, 2009, and 2008 and $260,000 and $275,000 for the six months ended June 30, 2009 and 2008, respectively. Maintenance and repairs are charged to expense as incurred and amounted to approximately $36,000 and $50,000 in the three months ended June 30, 2009 and 2008 and $65,000 and $97,000 in the six months ended June 30, 2009 and 2008, respectively.
The Company expenses advertising costs, including advertising production costs, as they are incurred or when the first time advertising takes place. The Company s costs of coupon advertising within its Car Wash Segment are recorded as a prepaid asset and amortized to advertising expense during the period of distribution and customer response, which is typically two to four months. Prepaid advertising costs was $4,000 and $30,000 at June 30, 2009 and December 31, 2008, respectively. Advertising expense was approximately $235,000 and $313,000 for the three months ended June 30, 2009 and 2008 and $393,000 and $583,000 for the six months ended June 30, 2009 and 2008, respectively.
At June 30, 2009, we owned full service and self-service car wash locations in Texas. We earn revenues from washing and detailing automobiles; performing oil and lubrication services, minor auto repairs, and state inspections; selling fuel; and selling merchandise within the car wash facilities. Revenues generated for the six months ending June 30, 2009 for the Car and Truck Wash Segment were comprised of approximately 54% from car washing and detailing, 43% from lube and other automotive services, and 3% from fuel and merchandise. Additionally, our Florida, Lubbock, Texas, Austin, Texas and our San Antonio, Texas region car washes are being reported as discontinued operations (see Note 5 of the Notes to Consolidated Financial Statements) and, accordingly, have been segregated from the following revenue and expense discussion. Revenues from discontinued operations were $1.6 million and $3.0 million for the three months ended June 30, 2009 and 2008 and $3.3 million and $5.3 million for the six months ended June 30, 2009 and 2008, respectively. Operating income (loss) from discontinued operations was $166,000 and $132,000 for the three months ended June 30, 2009 and 2008 and $236,000 and $(593,000) for the six months ended June 30, 2009 and 2008, respectively.
On December 31, 2007, we completed the sale of the truck washes for $1.2 million consideration, consisting of $280,000 cash and a $920,000 note payable to Mace secured by mortgages on the truck washes. The $920,000 note, which has a balance of $881,490 at June 30, 2009, has a five-year term, with principal and interest paid on a 15-year amortization schedule.
One of our short-term investments in 2008 was in a hedge fund, namely the Victory Fund, Ltd. We requested redemption of this hedge fund investment on June 18, 2008. Under the Limited Partnership Agreement with the hedge fund, the redemption request was timely for a return of the investment account balance as of September 30, 2008, payable ten business days after the end of the September 30, 2008 quarter. The hedge fund acknowledged that the redemption amount owed was $3,206,748; however, on October 15, 2008 the hedge fund asserted the right to withhold the redemption amount due to extraordinary market circumstances. After negotiations, the hedge fund agreed to pay the redemption amount in two installments, $1,000,000 on November 3, 2008 and $2,206,748 on January 15, 2009. The Company received the first installment of $1,000,000 on November 5, 2008. The Company has not received the second installment. On January 21, 2009, the principal of the Victory Fund, Ltd, Arthur Nadel, was criminally charged with operating a “Ponzi” scheme. Additionally, the SEC has initiated a civil case against Mr. Nadel and others alleging that Arthur Nadel defrauded investors in the Victory Fund, LLC and five other hedge funds by massively overstating the value of investments in these funds and issuing false and misleading account statements to investors. The SEC also alleges that Mr. Nadel transferred large sums of investor funds to secret accounts which only he controlled. A receiver has been appointed in the civil case and has been directed to administer and manage the business affairs, funds, assets, and any other property of Mr. Nadel, the Victory Fund, LLC and the five other hedge funds and conduct and institute such legal proceedings that benefit of the hedge fund investors. Accordingly, we recorded a charge of $2,206,748 as an investment loss at December 31, 2008. If we recover any of the investment loss, such amounts will be recorded as recoveries in future periods when received. The original amount invested in the hedge fund was $2,000,000. One of the actions the Receiver may take on behalf of all investors is to attempt to “claw back” redemptions and distributions made by the hedge funds to their investors and use the returned funds to pay the expenses of the Receiver and for a pro-rata distribution to all investors. No “claw back” action has been filed to date. We have received a letter from the Receiver stating that the Receiver does not intend to claw back the $1 million we were paid based on the fact that our original investment was $2 million. If we are required by the Court to pay back the $1,000,000 redemption we received, our liquidity would be adversely affected.
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