Mace Security International, Inc.

Q3 2023 net sales were approximately $1.5 million, down 40% from $2.5 million in Q3 2022. Gross profit fell by $511,000, or 53%, and gross margin was 30% versus 38% a year ago. SG&A was about $1 million, down $59,000 year over year, and net loss widened to $771,000 from $233,000. Adjusted EBITDA was a loss of $318,000 versus income of $124,000 in Q3 2022. Cash was $754,000 at September 30, 2023 versus $62,000 at December 31, 2022, helped by a $590,000 convertible debt offering, and inventory was down $130,000 versus year-end 2022. Looking ahead, management did not give formal quarterly or full-year financial guidance, but said it is targeting $13.1 million of new business in the next few quarters, expects the U.S. LawShield initiative to begin reporting revenue, and is targeting a Q1 release for one new product while another co-branded product is targeted for this quarter.

Sanjay Singh described the quarter as “very, very challenging” and said the company is in a period of soft consumer demand, lost customers, and weaker replenishment behavior from retailers and base-business customers. His strategy centered on pushing new business through co-branding, licensing-style deals, e-commerce, and new products, including U.S. LawShield training, F3 vehicle perimeter defense products, and additional product launches in new price points and segments. His tone was frustrated but defensive, stressing that the company is “laser-like” focused on these initiatives and that revenues from them will be key.

Remigijus Belzinskas said net sales were down 40%, gross profit was down 53%, gross margin compressed to 30%, SG&A was about $1 million and 69% of net sales, and the quarter ended with a $771,000 net loss and a $318,000 adjusted EBITDA loss. He attributed the margin pressure to lower sales volume, unfavorable channel mix, higher component costs from inflation, and lower plant efficiencies. On liquidity, he said cash rose to $754,000 from $62,000 at year-end 2022, borrowing under the line of credit stayed at $1.5 million, and inventory remains tied up in convertible and salable product despite a $130,000 decline from December 31, 2022. He also highlighted the new 3-year line of credit and the company’s plan to reduce costs and convert inventory into cash.

Analyst Andrew Shapiro pressed management on the 11 straight quarters of year-over-year revenue declines, executive pay cuts, inventory not falling as expected, and whether the new $2 million line of credit leaves the company with much borrowing room. Management said salaries have been cut, inventory is still being built around Dollar General and large private-label orders, and availability under the ABL is effectively limited, with management saying there is “not much room.” He also asked about delayed rollout and sell-through for Dollar General, Walmart, Surge, and the U.S. LawShield partnership; management said some launches were delayed by buyer changes, technology issues, and a payment-processor issue, and that LawShield should now start producing revenue after going live on November 1. On new products, management said several projects are still awaiting agreements, one is targeted for Q1, and the company is seeking more retailer interest and larger-batch sales.