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  Former car-wash kings need to clean up their act

BENJ GALLANDER and BEN STADELMANN

Monday, November 2, 2009

Often enough, one hears an expression like "Timing is everything." Take the case of Wang Chen, arrested because he caught the thief, Anthony Bennett, who stole from his store a few hours earlier. If he had caught him during the act, Mr. Chen would not have had to deal with being strip-searched and facing criminal charges of kidnapping, forcible confinement, assault and carrying a concealed weapon. But not catching him while actually committing the robbery means Chen had no right to carry out a citizen's arrest. The legal system believes it was a job for the police. Heck, where was Deputy Dawg when needed?

Mr. Bennett, who pleaded guilty to two counts of theft, received a reduced sentence of 30 days so he can testify against the man he robbed as a witness for the prosecution. Isn't justice divine!

But mace is where we wanted to go with this. One of us owns the company that makes this famous tear gas spray, a company by the name of, you might have guessed, Mace.

While one of its products is infamous, the company is even more notorious — not only because it has traded down to under a buck from over $10, which is bad enough for investors, but because some of its employees have been convicted of various indiscretions.

The most recent of these was a case involving the hiring of illegal aliens to work in car washes owned by the company in the Philadelphia area. The biggest fish caught was the enterprise's general counsel, Robert Kramer. He managed to escape with six months' home confinement and a year's probation. Plus, he must pay a $75,000 fine and lecture law students about corporate and professional responsibility. Effectively, we surmise that he'll talk about what a naughty boy he was.

Keeping him company, so to speak, is regional manager Nicholas Sama, who will be homebound for nine months and serve five years' probation. Evidently, both gents will have clean cars for the near future, since they will not be driving much.

This is not the first time Mace has had legal difficulties. In 2008, three managers pleaded guilty to using illegal aliens, defrauding the government and committing identity theft. Evidently this organization has had numerous bad eggs.

But wait! Mace isn't a gang of delinquents. Its raison d'etre is as a security outfit to protect the good and thwart the bad guys. Some of the products that facilitate this goal, besides the famous pepper spray, include the Mace Pepper Gun Silver, the Mace Pen Defender, the Mace Screecher and the Mace Bear Pepper Spray. Plus, the company has been expanding its line of electronic security products featuring the Mace Wireless Security System, backed by a central monitoring station to keep the evil-doers out.

So where do the car washes come in? Well, back in the 1990s, when pepper-spray use wasn't growing by leaps and bounds, one Louis Paolino pitched the company on getting involved in, and consolidating, this sector. The company bit, with the goal of becoming the largest player nationwide, and Mr. Paolino became the president and CEO, positions he held until 2008, when he was let go for "willful misconduct." Soon afterwards, Mace tossed in the towel, so to speak, and began selling their sites. Twelve car washes currently remain on the block.

All the more reason, perhaps, for the company to ramp up its security business, which it continues to try to do. To this point, though, success remains elusive, and the enterprise continues to lose money quarter after quarter as it has for years.

Cash flow from operations has remained ugly, while the other financials are starting to look much better. The debt level has been reduced from about $15 million in 2006 to just north of $2 million. The company was able to pay down debt despite the poor operating cash flow by using the proceeds of the car-wash sales.

The company trades at about half of book after accounting for goodwill. Insiders own about 20 percent. With revenues around $50 million and only 16 million shares outstanding, this company could prove cheap for a takeover artist who also knows turnarounds. That almost happened back in 2007, when Kelly Capital made a bid of $3.00 per share to buy the company. Evidently, after doing due diligence, Mace was deemed not attractive enough. Perhaps it needed more of a buff and shine.

It was actually after the Kelly bid, when Mace was trading well below the offer price, that one Contra Guy bought in, hoping to do a bit of arbitrage on a successful takeover. Oops. It didn't work out. The company should have been dumped immediately, but unfortunately, it was held.

Now, with Mace trading around a buck, he will hold on. The current risk is mitigated by the low debt level and the cash that will be received as additional car washes are sold. It makes for an interesting speculative buy.

A prime danger, of course, is that those purchasing are getting a company with a pattern of dishonesty; it is somewhat difficult to know whether the people currently in charge of this security outfit are the good guys, or the baddies who will grab your money.

A far cry from the case of Wang Chen, who clearly caught a thief and is now being tried as a criminal for his actions. In his case, it is simply the law that is criminal.


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