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Executives

Don Taylor - Vice President, Marketing & Investor Relations

Dennis Raefield - CEO and President

Greg Krzemien - Chief Financial Officer

Analysts

Andrew Shapiro - Lawndale Capital Management

Jack Gulati - Unidentified

Mace Security International Inc. (OTCPK:MACE) 4Q 2009 Earnings Call March 31, 2010 1:00 PM ET

Operator

Hello, and welcome to today's Webcast. All lines have been placed on mute, and this event will be recorded. This event is recorded for future playback. There will be a Q&A session at the end of today's presentation. At that time, the Operator will instruct you on how to ask a live audio question. For our Web viewing audience, to view your slides in full screen, please press the enlarge sites button on your console. To go back to normal mode, exit out of that window.

If you need to ask a question at any time, please ask a question in the question box and hit the submit button. For Web participants, if you need any technical support, please press the help button on your console, or dial 866-260-4631 or 70-902-5017. Again, today's event is being recorded. We'll pause for a moment to initiate the recording. Ladies and gentlemen, please stand by.

Welcome to 2009 10K Shareholder's Conference Call. At this time, I'd like to turn the even over to Don Taylor. Don, the floor is yours.

Don Taylor

Thank you, (Rachel). Welcome to Mace Security International's Fourth Quarter Investor Conference Call. My name is Don Taylor. I'm Mace's Vice President for Marketing and Investor Relations. Also on today's call is Mace's Chief Executive Officer and President, Dennis Raefield; and Mace's Chief Financial Officer, Greg Krzemien. On today's call, Greg Krzemien will discuss the financial results for the quarter. And Dennis Raefield will discuss the market trends, business conditions and the company's plans.

I do have some housekeeping matters to discuss. But before that, I just want to make sure that for those of you who are just listening to the audio, we do have webcasts. There were instructions on our Website as well as an e-mail. If you did not get those and you want to look at the presentation as we're going through that, you can go to our corp.mays.com to Investor Relations, and you'll see Shareholder Presentations and it will - the 2010 presentation will be the one we'll be going through today.

Now, before I turn the call over to Greg, there are some housekeeping matters that we want to address. Certain statements and information during this conference call will constitute forward-looking statements within the meaning of the Federal Private Securities Litigation Reform Act, 1995. When used during a conference call, the words or phrases "will likely result", "are expected to", "will continue", "is anticipated", "estimate", "projected" and "intend to" or similar expressions are intended to identify forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subjected to certain risks, known and unknown, and uncertainties including but not limited to economic conditions, limit of capital resources and the ability of management to effectively manage the business and integrate required businesses. Such factors could materially adversely affect Mace's financial performance. It could cause Mace's actual results for future periods to differ materially from any opinions or statements expressed during this call.

Additional discussions for factors that could cause actual results to differ materially from management's projected forecasts, estimates and expectations, are contained under the heading Risk Factors in Mace's Sec Filings, which includes it registration statements and its periodic reports on Forms 10K and Form 10Q. All statements made during the conference call should also be considered in conjunction with the financial statements and notes contained in Mace's Annual Reports on Form 10K and quarterly reports on Form 10Q. Access to these reports can be generated on its Website, www.mace.com. Please click on the Investor Relations button. With that, I would like now to turn the call over to Greg Krzemien.

Greg Krzemien

Thank you, Don. Good afternoon, everyone, and thank you for joining us on our call this afternoon to talk about our 2009 results. For those who may be new to our call, just want to remind everyone that we currently have two active segments which we operate in - the security segment and our digital media marketing segment. We also have a third operation which is currently recorded as discontinued operations, which is our car wash operations. This is the first period that we've presented all of our car washes as discontinued operations in the income statement, and classified all of the balance sheet-related fixed assets and debt in assets (all) for sale and related liabilities again in our balance sheet. So I just want to make sure everybody's aware of that change.

Also, whenever we restate for discontinued operations, we have to restate the prior quarter financial results. So that was also done in conjunction with putting together this December 31st, 2009 Form 10K. Again, our most significant segment is our security segment, which we operate in three distinct divisions - our personal defense, which is our famous pepper spray operation, our electronic surveillance and access control operation, and our new monitoring service operation which we acquired in April of this past year.

During the presentation, Dennis is going to spend some significant time in each of these divisions discussing the events of 2009 and his plans and our plans as a management group for 2010. What I'm going to cover are some financial highlights on income statements. I'll make some comments on some of the cost control measures we've done. I'll comment on our balance sheet, on some key items and cash flow key items, and talk about our car washes and the dispositions and a few other key financial items.

On the first slide here is a slide about our revenues by quarter. Now what I'd like to note here is that, again, these revenues are only for our security and our digital media marketing segment, and that the car washes are discontinued operations. For 2009, overall, we had a decline of revenues of about $9.8 million or 26 percent. On the positive side, our security segment is sequentially up, quarter to quarter, in 2009, and overall it has increased from approximately 20 point - I'm sorry, decreased $20.7 to $18.6 million for 2009. But, on a quarterly basis, we have seen sequential improvement in the last two quarters.

In the September quarter, we reported about $4.8 million, and reported about $5.1 million in the fourth quarter. So that was a positive trend for us. Overall, for 2009, our personal defense operation is up about nine percent, which we're very happy to see. Our overall reduction in our revenues in the security segment, as we mentioned in our September call, are really significantly impacted by the recession. Construction has been down; renovations have been down; credit availability to customers is down. But again, we're continuing to work through the recession and through some competitive issues. And Dennis will be speaking about some of our plans to overcome the revenue shortfalls as we go through 2010.

On the other side of our business, our digital media marketing segment, we saw a decrease overall of about $7.6 million in 2009. Part of that decrease is because we discontinued the media marketing division, Promopath, in 2008. That had about $2.2 million of sales in 2008 and really zero sales in 2009. So without that, our decrease is about 36 percent in that division, versus 44 percent. We really had difficulties in that segment this past year. Lot of different influences.

The Credit Card Act of 2009 really impacted our customer base. We saw credit card decline rates in the five to one ratio in the May/June time frame. And that really didn't start improving until we hit into the November and the December time frame. We started dropping the more reasonable two to one decline ratio. So we're kind of happy to see that that has come down. It's staying down, and we believe that hopefully will be staying down in, throughout 2010 and into the future. The Credit Card Act has weeded out some of the customers who were having difficulties getting credit.

Going into 2010, you know, we're again happy with the decline rates going down. We're really encouraged by seeing improvements in new member growth, in introducing new products such as our pet vitamin product which we just introduced. And another big thing which we're hopeful for is introducing Promopath again into our mix of businesses, which really does a couple of things for it. It helps our relationships with publishers which helps us gain new members. It also is an avenue for our Linkstar operation, our eCommerce business to obtain customers without paying us to (give again) publisher fee. So we're encouraged that this resurgence or bringing back Promopath on a very cautious, very controlled basis will help us going through 2010.

Dennis, would you like to move to the next slide, please? Thank you. Next slide is on gross margins. Happy to report that we have seen improvements in our gross margins in 2009. In blue we have our overall margin improvements. On a year total basis, we improved from 26.8 percent to about 29.4 percent. It's about 2.6 percentage points improvement over 2008. You know, really saw strength in the security margins for 2009. We're up to 29.4 percent from 26 - I'm sorry, we're up from 24.3 percent rather to 30.1 percent. And that could be seen in the red colors there.

You know, we attribute that to a lot of positive things that management team has been doing, working with new vendors, buying products at a better rate, really working to weed out low margin customers, working hard on how we give out discounts, really working down the returns of products, and also on the overhead side of the business really reducing some of the costs in the warehouse operation and other direct cost operations have improved the margins in the security segment. So really pleased with what we've been able to achieve there.

On the digital media side, we did see a slight decline in our profit margins from about 29.9 percent to 28.1 percent. Part of that is the decline rates; the time lag between paying for the CTA cost and generating the revenue for these new members causes the margins to be a little bit erratic at times. But again, just like in the security segment, we've taken a lot of cost over the last year, plus out of the digital media marketing segment, and we really hope that will see the benefits of that as we go through 2010.

The next slide is a slide on operating losses. The key thing to point out here is, is that despite our revenues being down as I previously mentioned, the red bar, we've been able to keep in check our operating losses. Our operating losses, including impairment charges or (GAAP) from about $10.9 million to $9 million even. We look at it also without the impairment losses. So the adjusted operating loss, which is in green, we have at about $7.5 million for '09 versus about $7.6 million for '08.

So again, even without impairment charges we have been able to actually reduce the operating loss despite the revenue decline that I've previously mentioned. Again, a lot of this is due to the margin improvement I just mentioned (and us) purchasing a product to reduce some overhead costs; also reducing other SG&A costs; headcount reductions have helped us keep check on the operating losses despite the revenue shortfalls. Dennis, we'd like to advance to next slide, please.

SG&A expenses - again, happy to report here that we've been able to reduce these expenses as reported on the financial statements, reduce these expenses from a little over $17 million to about $15 million. That's a $2 million-dollar reduction or about 12 percent. Would like to mention that that 2009 SG&A cost of $15 million does include about $860,000 dollars' worth of expenses related to our CSS monitoring station operation we acquired in April. So if I pull that out of the '09 numbers, our SG&A costs are about $14.2 million, versus the $17 million in '08. So that shows a more dramatic 17 percent decrease in SG&A costs.

These SG&A costs obviously have a lot of, as I call them, notable items. In 2009, for instance, the current year, we have about $1.9 million dollars of items that are considered of a more notable basis, such as arbitration costs. They are about $875,000 in 2009. We had acquisition and relating consulting costs with the CSS acquisition of about $300,000. We had about $200,000 of severance costs; about $140,000 of final EPA cost for Vermont issue we've encountered in 2008. So if I look at it without those costs, our overhead for 2009, SG&A would be about $13.1 million. And without CSS, about $12.2 million.

So again, we've done a lot to bring those costs down over the last year, year and a half. And we're looking to continue to look for reductions there. The good news is, is that as we're, we work to increase our revenues in 2010 and in the future, management is really committed to keeping these costs down and being very careful of adding any additional costs, only when absolutely necessary as we grow hopefully in the future. Next slide, Dennis.

Next slide is on headcount reduction. This headcount reduction slide here is shown without the car washes. As of March 30th, we had about 180 employees in the car wash segment, which we're continuing to discontinue and sell off, and 129 employees in non-car wash operations. If I look at reductions since the middle of 2008 - and this, in the 2008 numbers I added in our central station employee base which was there currently to make it comparable - we're down actually about 86 staff in the non-car wash segments, from about 215 people down to about 129, which is a 40 percent reduction. And those reductions go through all the sectors, from corporate through Vermont through the surveillance operation, right through digital media marketing. So we've really taken a significant decrease in all parts of the company to make it leaner, to be able to get through the difficult revenue periods here. Next slide, Dennis, please.

A couple of comments on the balance sheet. And I just highlighted some of the line items here. Cash and short-term investments, about $9.4 million at December 2009. Our inventories - wanted to highlight, we went from about $7.7 million to about $5.2 at 12/31/09, about $2.5 million-dollar reduction or 32 percent. Really a lot of hard work by our people of selling the inventories that we had previously purchased. Management has done an excellent job of being more just-in-time basis for purchasing inventory versus purchasing in large loads in the past. And, you know, we're really, really dedicated and really focused on continuing to manage the inventory as tight as possible, and continue to bring this number down as we move forward here and conserve our working capital.

As far as asset (sell) for sale and the related liabilities, the net of those numbers from our balance sheet are about $5 million at the end of '09 versus $3 million at '08. As I previously mentioned, all of our car washes are now moved into this category. The change is really the effect of selling off the Austin, Texas car washes during 2009 as well as three other small car washes, and moving the remaining Dallas-based car washes into asset sell for sale as of 12/31/09. Intangible assets are up about $1.3 million, (really net) effect of acquiring CSS, less some impairment charges we took during the year in amortization on amortizing intangibles. Our debt reduced by $3.5 million from $6.5 to $2.9 through routine payments as well as through the disposition of assets and paying off the related debt. And our working capital is at about $16.6 million versus $16 million at the end of last year.

A couple of bullet points. Before I mentioned the inventory (are) ready; the asset sell for sale. Do want to mention that we did sell the Florida warehouse in the fourth quarter of 2009, brought in net proceeds of about $1.5 million dollars. Also want to mention our net worth is $32 million or about $2.00 a share. And our leverage ratio, which is our total debt outstanding divided by debt plus equity, is at about 8.4 percent, and again, down to $2.9 million of debt, with a weighted average interest rate of about 4.84 percent. Next slide, Dennis?

Couple of key points on our car wash updates here. At December 31st we disclosed in the 10K that we had eight car washes remaining. Three were in Lubbock, Texas; five were in the Dallas/Arlington/Fort Worth market. Again, these are all discontinued operations. If you look at our income statement, the discontinued operations show a loss of about $1.8 million. This includes over $1.4 million of impairment charges that were recorded throughout the year as we continued to be aggressive on selling these car washes and marketing to get rid of them.

Also, want to mention that the revenue from the car washes, that is not included in the top line because it's in discontinued ops, is about $10.6 million through '09. We did sell a Lubbock, Texas car wash on March 10th of 2010 which generated net cash of about $733,000. This was a site that we had closed about a year or so ago due to poor operations. And we had sold it pretty much for real estate value. We also have a site under agreement for $625,000 in Arlington, Texas. We hope to move that site in the second quarter here. It's scheduled to close. So excluding these two sites I just mentioned that were sold in pending sale, there'll be six sites remaining. They have a net book value of about $5.5 million with related debt of about $1.8 million against those six properties. Next slide, Dennis.

I'll leave you with a couple of other key financial items here, and want to highlight a treasury stock purchasing activity from August of '07 when we announced that we would be buying back company stock, through March of 2010; we purchased a little over 741,000 shares. Through December 31st of '09 we purchased 575,000 of those shares; about 390,000 of them in '09. And subsequent to December 31st of '09 we purchased another 166,000 shares. And with those shares, which are being cancelled as of the end of the quarter here, we should be reporting net shares outstanding of about 15,729,000. So I just want to highlight those items. As far as our net operating loss carried forward, which we disclose in our Form 10K, we have about $35.6 million (available) carry forwards for federal purposes. And these expire up through 2029. So that's, will definitely help us in future paying any taxes. So with that, I'm going to turn the call over to Dennis, our CEO.

Dennis Raefield

Good morning, ladies and gentlemen. Thank you for joining us today. As you can see from the financials so far, that we've had a tumultuous year, but a rather committed year in keeping our losses down while we fight with the real problem that Mace has had, which has been their revenues, because of the recession, and fighting those revenues up. As you can see from Q4, we hit a low in April of 2009. Our sales then started growing back at a very slow rate. We crashed at a very high rate, went down about 35 percent in the first quarter, and then grew back very slowly.

It's unfortunate to say that we have not yet regained where we were when management changed because of this. But we are fighting our way back out of it. I want to send you to a new corporate Website which launched this morning, and it shows on the screen. And it's our corp.mace.com where you can see the slideshow and download it as well. If you aren't on the audio, on the Webinar portion, you can follow along and actually see them, just as a lump sum site(s). So that new site has been launched this morning.

I want to start with talking about the low points of 2009. And it was a very tough year with a global recession. We missed our revenue profit targets significantly. But we can continue to reduce our SG&A costs, and we've been chasing a shrinking base of business which went down for a long time, if not in one division than another. We also took significant asset write-downs on the things that we sold. The market for car washes and property is just like the home market, and the commercial market has been very soft.

And we had difficulty in the car washes. My goal was to be out of them by now. And we are having trouble with buyer financing. So we've been doing a tremendous amount of work to do financing. We have only had to carry back financing on one small car wash. All of our sales so far, except this one sale in San Antonio, were all cash to us. And we prefer that method. But I now want to get out of the remaining washes. So we will be more aggressive.

In Q3 and Q4, as previously mentioned by Greg, Linkstar revenue was completely crushed by this credit card crisis. It is really a fundamental part of the business that requires credit card purchases. It's 100 percent done online with credit cards. And as Greg was saying, five out of every six people who wanted to buy a Linkstar product were declined by the credit card companies. Five out of six - it's a horrendous number. So because of that, we could not ship things. And the good news is that that was reversed.

We believe - and this is my opinion and the opinion of our team - that the credit card companies, knowing that in February I believe 22nd there would be a new law enacted, pushed very hard to clean their slate of poor and underperforming credit customers, and so declined a lot of things that they were accepting before. And now that - we've seen it - and I'll show you in a later slide - that now that that has passed, we have seen just a complete resurgence of Linkstar's business. So let me go on from there to some of the highlights.

Our Mace Security products did grow three to four percent every month after our April low. It's still way too low. We didn't recover even back to where we were started. But at least we saw a positive trend that said that the rising tide was helping the company. It was also part of a lot of aggressive efforts. It was not enough. I'm not happy with the results. But they were an improvement from going down and down and down further.

Our Mace Personal Defense Pepper Spray business grew greater than nine percent, so it was very healthy and continued to grow, which kind of makes sense if you think about the aspects of security that - security products business is tied very heavily to construction, renovation, new homes, people moving and changing homes - all of that which went away. Mace Personal Defense Pepper Spray increased because people were scared for their personal property, their families, because of different issues. Unfortunately, the Mace Personal Defense is the smallest of our divisions. So it is not able, even with large growth, to overcome the softness in the other parts of the business.

I don't normally give any forward-looking statements, and don't, continue not to want to do so, but Linkstar's revenue did rebound in 2010 due to that legislation protecting debtors being in place. And we'll show you with a slide what's happening so you can make your own conclusion. We did sell six car washes in 2009. We've already sold another one in 2010. And we have one under contract. We've had a couple go in and out of contract as the financing fell apart, so we still have six for sale, plus we operate one that we do not own. It is a leased site.

For 2010 - I'm just reiterating what Greg had said - we have about $9 million in cash on hand on 12/31. We have another $5 million to $7 million dollars in car wash assets to be liquidated; $7 million at the high end and $5 million at the low end. We did take some write-downs on them in 12/31 to get them in line with the marketplace. And so this is what is the remaining car wash assets. We have negligible debt, and that is secured by property, mostly the car wash properties. We have the significant loss carry forward, and our Mace brand is stronger than ever. We've been doing a lot of protection of our Mace trademark, and fighting against people that wanted to try and abuse it on the Internet. We've been very successful with that.

We now also, I think the number one item is that Mace is now a security company and moving quickly towards it with all of our actions that I'll talk about as we go through the slides. Our focus is clear. And we are out of the car wash business and just remaining, a few remaining laggards to sell. And we'll talk about Linkstar in just a moment as we get to it. I'm going to talk a little bit about what else we're doing in 2010. We expect to be completely out of the car washes. I've said that on three conference calls. It really is a matter now of financing. We have reduced our book value enough on the car washes that we can sell them. We took the write-downs in 2009. And now it's a matter of getting financing for them.

We are continuing to consolidate our Finance Department activities to reduce our corporate G&A. We're looking at some new ideas to do that. We have listed Linkstar for sale. I put on the slide, it's not a fire sale. Linkstar is performing, performing again. We think it's going to continue to perform. But it is not core to our future, so if we find a good buyer that is synergistic and it will be, have value, and we can recover our investment, we will sell it; we will not sell it if we can't do that because it is now making us money and we expect it to make money the entire year.

We will focus on security as our core. We have new Mace Pepper products that I'll be talking to you about. We have completely overhauled Mace Security products from a strategy standpoint. And I'll discuss that in just a moment. We have now the full security product lines in place, or will be in place by Q2. And Mace's Security Services, our central station is profitable and growing. So I think we're solidly placed to do better in 2010 certainly than we did in 2009.

So I want to talk about Linkstar first a little bit. This is our digital media marketing segment, and it had a subsidiary called Promopath that we closed. This division was acquired in 2007, and it sells, for those of you that don't know, it sells consumer products online using what's called the continuity method. It's a club method where you give your credit card and take shipments until you don't want the product anymore. And we sell on a cost per acquisition basis, meaning that we only pay for our customer when they give us a credit card and purchase. It is being offered for sale through an investment banker's north side advisors to other digital media companies. And we expect to see quite - we have quite a few interested parties in it. But, as we said, we want to monetize our shareholder value in that before we would do anything.

Here is the splash page of their products offerings which include makeup, teeth whitening products, now some new products I'll be talking about - weight loss products and different products. So they sell a variety of products to consumers online. As you see, it doesn't fit the security focus of the company. But it is a decent business and well run by our excellent management staff. Linkstar for this, in Q4 of 2009, did release three new products, including the famous pet vitamins name. And we've had success in all three of these products. And they have continued to increase our new member acquisition.

I want to try and explain to people what happened, so that you can see clearly what happened with the credit card crunch. The credit card - this was the credit card decline rate in the fall. It was huge. We were losing, as we said, five out of six - depends on how you measure it - but it's a huge number of people who cannot get through and buy who want to buy. So this continued to get worse in the fall. And then, now you see, starting in December, it has now, moving back down to a normal rate and we expect it to be where it was.

And just to get, in case we aren't sure that we really believe it, this is a graph of our new member acquisitions. These are people who call in and buy. And as you can see, it went down, and it has now spiked. And January better than December, February better than January, March better again. It's going up in a huge amount. The different colors represent different products in their cycles. But you can see that we are back to and surpassing member acquisitions that we did over a year ago.

I want to move on now to quite an aggressive slide presentation. For those of you that are audio only, I apologize. I would like to show you where we're going with our product plan for our different divisions, because I think this is the only way out for Mace is to really introduce the right products to the marketplace. We had a lot of cleanup to do. And as you saw, we sold $2.5 million dollars of our inventory. And that was significantly old, obsolete and technologically behind inventory. But just writing it all off would have taken a huge hit to the company. So we, in a parallel to that, brought in an executive product management team, and we're going to see the things that they've done.

I have mentioned releasing products before. We were releasing them at a pace that we could afford. Now we've taken an aggressive goal, and our strategic realignment says, this is the way out of this. We have to grow the top line. We've done all the cost cutting. We've done all the lean things that we can do. We now have to move to raising the top line. And we've been very frustrated with that. It has been very difficult.

I'm going to start with the Pepper Spray. We have basically four hot products in the Pepper Spray business. Our Pepper Gun - and there's a video on the Mace.com site to see this. This is a gun that shoots pepper, liquid pepper, over 20 feet. And it is a small purse-held or pocket-held device, but it allows you to confront attackers from a distance, rather than waiting until they're right in your face. So this has been a very effective product. We've had increased sales on it through sporting goods and automotive, as well as online on our Mace.com Website.

Our hottest product is actually a packaging of the Mace Pepper Spray into a hot pink purse model for women. Don't ask why, but I guess this is bling. The liked it. And it's taken off. We continue to sell our take-down Pepper Spray to law enforcement. That business has increased this year. And we continue to sell our Mace Bear Pepper Spray, which is really the only effective spray that hunters and hikers can carry with them that will stop a bear. And it is a popular seller.

Here's some pictures of those products. In the lower right-hand corner, if you see that, that is a silver version of that Mace Pepper Gun. It looks like a pistol. It looks enough like - it looks like a flare gun, so that the police understand what it is, in our estimation. But it is very effective, because it keeps the attackers away from you. We also have a small Mace Pen Defender, which is the small picture at the bottom, which is pen that holds a small amount of mace. Looks like a pen. You can carry it in your pocket. And that's for men and people who don't necessarily want to carry something bulky.

Moving on quickly, Mace Personal Defense, as I said, grew at nine percent. It's (planning on) greater than nine percent growth in 2010. We intend to do better and push that. Our international sales are up. Just came back from a very successful show in Germany. This group continues to deliver consistent EBITDA profits. And we are looking for synergistic acquisitions. As you know, as we sell car washes, and if we are successful in selling Linkstar, we must redeploy those assets. And these are some of the areas - body armor, flashlights and other non-lethal protection.

It is our current intention not to go into high liability sometimes lethal protection such as tasers and stun guns and grenades at this time. We want to avoid that because of the liability insurance requirements. We do have a name in that business, but it is a name that - it is a business that requires a significant amount of liability insurance. So at this moment we are avoiding products that are going to be more lethal or have a liability risk with them, and staying with ones that are protect only. I'd like to move on quickly and talk about Mace Security products. This was the division that has been in the most trouble, has had the slowest recovery in revenue, had a lot of old products. And we've done a complete change.

I'm not going to read through these slides. I'm going to show you the volume of work that was done by our team in coming out with new products, and how we divided up the company. Here is just a graph showing what's happened. In 2008, we only sold video surveillance, and it was quite dated. In 2009, we upgraded our video surveillance product line, with the existing products replaced poor-performing, poor quality products, with new, upgraded video. And in 2009, at the end of the year, we launched Access Control, a whole new division for the company.

In 2010, we have clearly separated our channels. We have an end user direct channel and a dealer channel, and they (were) in crossover, many of the products conflicted with each other and upset our dealers. We've completely separated that channel now. We've added perimeter protection, so this is already done, even though we're in Q1. And the only thing left to complete for the year of this schedule is intrusion detection, which we'll talk about a little bit later.

The next slide shows our two new Websites - Mace.com, completely redesigned and split between Mace Pepper Spray and Mace Business and Home Security, which is what we're calling that section, plus our Mace Pro Site. These are sites that you can go and look at and get a feel for them. I want to talk a little bit now about where we're going - give me a second; there's a delay here - with Access Control. This is a completely new venue for Mace. It happens to be the experience level of our senior management. We have three senior people who are experts in access control. And we introduced two versions - Mace Lock, a trademark name, sold via Mace.com - that's for homes and small business - and Mace Track, sold only to professional dealers. I'll just spend a second showing you the intensity and the depth of this product line. This is Mace Track. It's a networked access control system. As you see on the slide, full featured; will hold up with the best of them. This can go against any of the mid to upper mid. It's not an enterprise system for the likes of Citibank or Citigroup or Apple Computer, but it is, it will go easily up to 500 doors which is a huge part of the market, fully featured.

It's well done. It's our own product. And we've done an extensive roll-out of this product. Just to show you how full it is (with that), just to show you, one of the details - this works on the Internet, works on TCP/IP connections, and works wirelessly. It is a well priced product. It has a low cost per door. And it's got lots of flexibility. We're very excited about it. We are selling this already. We're selling it significantly. One of our major customers is rolling it out throughout their nationwide sites as we speak. And they bought 50 systems in January alone.

This is one of my most exciting products that came with this. This is an all-in-one wireless door lock that is card access. But, as you can see from the right picture, it mounts in 15 minutes. It doesn't take any wiring. It communicates wirelessly to a hub and a gateway which connects it back to a computer. So you can put this on the door. The batteries will last over a year. And this is something that is - we are one of three people in the marketplace who have an all-in-one wireless unit.

And we think ours is one of the most rugged and well priced ones in the marketplace. (Thus) we expect significant sales in 2010. Lastly about Access Control, this slide just shows you that we're giving a five-year warranty which we get from our manufacturer. We have a Mace University where people are certified before they can buy it. We have all kinds of sales tools and demo equipment and tech support. So we have rolled this out in a completely new way, and we are getting the traction that we expect to see in 2010.

Moving on to video surveillance, this is the core of Mace Security products. We have now divided ourselves into three groups of very distinct products. It's all one company, by the way, all one force answering the phone and tech support, so we don't have lots of silos. But the products are specifically directed towards our customers. Mace Easy Watch, we're calling True DIY. This'll be sold via Mace.com to homes and small business. It is truly built for people to put in completely by themselves who have no experience in security.

Our next level up is Mace View, also sold at Mace.com, but sold to the small business owners who understand how to run wires and could hook up computers and do things like that. And then Mace Video is the brand name for our professional dealer only program. And we have now upgraded those products, made them only available to professional dealers. The last bullet on that slide says that there is now no channel conflict when we're done with this. And we have reduced our prices to be competitive, because the marketplace in this recession has been brutal. And we reduced our price points. But we did it while actually maintaining and increasing our margin by sending our excellent product development management team out to buy better, to go back and push on our vendors. So we're actually significantly lowering our offering price, and slightly higher in our gross margin. So we're not sacrificing and scavenging our gross margin.

This just gives you a quick view of what Easy Watch is. It's an all-in-one camera/DVR recording camera equipment, all connected with telephone cable, not traditional professional installation cable. So it's easy to buy, install, and it's easy to use. So we're calling it Easy Watch. Next slide is our next grade up. This is for customers that know how to run wires in their building and want more features. Just to show you the price point, that I showed a price point on there at $9.99 - this is on our Mace.com site - this was selling for $14.99 on our site just two months ago. And we were able to back to the manufacturers and significantly become more competitive. So you can see some of the work we're doing here.

Next quick slide is our new very low-end DVR. We're now the most competitive DVR manufacturer of quality, plus we have the brand name. We can deliver a four-channel DVR to record your security for $399.00. There aren't many people - there are some off brands and some bad stuff on the market a little lower, but this is a high-quality equipment, full featured, at a competitive price, and good margins for the company. We're re-entering the covert surveillance series. One of the things we have is a security mirror camera. It looks like a convenience store mirror, but it's actually a camera, and many other things. Just wanted you to know, we're re-entering that marketplace. And this goes on and on.

In Q2 we're releasing a standard series of lower-cost cameras, and we're releasing a very low-cost DVR for, to compete in the price market at under $300. This is unheard of. And this is with a hard drive and ready to go. So this is full-featured, and able to send video to your e-mail, smart phones, iPhones and Blackberries, and send video from your home to your smart phone so you can review what's going on at your house. These are quite significant new products at the low end. These products have existed at the professional end, but now they're coming down into the consumer market.

What we're working on in Q3 is completely wireless products. Again, this is for business and home. You don't even have to run any wires. There will be transmitters. As you can see, the antennas on the picture here, antenna on the camera, antenna on the monitor, antenna on the DVR. Everything will be wireless. This will be in Q3. And lastly, we have stayed out of the Internet, the IP-based camera market. It is still only 20 percent of the video market, but it is growing rapidly. And we will be making our first entrance with Mace Pro at the professional level with an IP platform, high-quality product. And that is anticipated for Q4. And we want to make sure we have the right product. There's been a lot of stuff coming out on the marketplace that isn't the quality that we want.

This is an exciting new area that the company also went into - perimeter protection. We have added on a line of fence protection, and we got it from an Israeli company. And we are the sole U.S. distributor and agent for this company. It's called (Sabra) Fence, developed for the Israeli military to keep out real problem children, real terrorists out of the country. We released it in Q1, just last week, at the International Security Conference. We had significant interest from dealers. And this is a picture of it. It straps on any fence. It gives you fence protection. It gives you thermal protection if there's a fire raging through the fence line. And it does many other things. It's very intelligent. It's about half the price of existing systems.

And this is what it looks like. It's a small device that clips. It's built into a cable - that's a roll of the cable you see in the video. And you strap that to the fence, and every three meters or about ten feet there's one of these nodes that senses when someone is climbing the fence. It's very immune to the wind and the weather, and the quality of the fence, and we're quite excited about it. It was the hit of the show. Our booth was swamped with it. We expect sales from this shortly.

We will be moving in the next two quarters into intrusion detection. That's burglar alarms. And we will be split in half. Half of it will be true DIY, sold via Mace.com. This will not talk to a central station, but call your cell phone. And the other one will be professional alarm sold to our central station customers and many of our dealers. Most of our dealers in Mace Security products install some kind of burglar alarm, and they buy it from someone else.

This is what the residential line will look like, full featured, including water and flood detection and door (context). This is perfect for a second home where you don't want to pay for a central station, but you'd like a phone call if there's a fire, if there's a flood, if there's, someone's broken into your second home. And we'll be selling as we say there in that $139-dollar price range. This is a self-contained system. It does not report to central stations, as I said. It's sold directly to the end users. And next, we are moving into - and have not finalized this yet, which vendor it will be - this is dealer-installed intrusion systems. We're looking at, excuse me, Canadian, U.S. and Israeli product, and full featured. And these will be, as I mentioned in my last conference call, we have, we're right at the very cusp of making that decision and releasing in Q3.

Just want to talk a few seconds - I'm almost done with the slide show - about the security services. This is our central station in California. This is a picture of the central station. We have completely remodeled it, state-of-the-art equipment. It is, we do have increasing revenue in the top line, and increasing and positive EBITDA, and our dealer accounts are increasing. So this is now running and improving. And we have over 36,000 customers. And we are doing about 20 percent video remote monitoring already. And it is a wholesale central station, meaning we do not install the products; we monitor for dealers. We monitor over 360 dealers.

And the thing we're most proud about is that we now have the capability to monitor all of the new products that are coming out on the market, whether it's Xanboo, (Videophide), VideoIQ, Mace Vision, which is (inaudible) vision. And we can monitor all different brands of burglar alarms, whether it's DMP, Napco, Bosch, RISCO. We can do them all. And it's an excellent central station, and it has a new SureView stages Web portal allowing our dealers to get in and do their work directly, and add and delete customers so it's highly automated. It's probably the most advanced one that I know of in the business. And it is growing.

That's the end of my presentation. I'm going to thank you for listening. I hope I didn't take too long on it. But I thought it was very important for you to see that the way out of our top line revenue problems is to have the right products at the right price. We have now focused on that. And I'm expecting that we will have a much better year, and be able to get away from our loss position. We've done significant, in closing, significant cuts in our SG&A that don't show in Q4, that started in Q1. We continued to reduce our overhead and our costs. And I think we've done what we can do on that end. Now we have to grow the top line. So I'm going to turn it back over to the moderator, who will queue anyone up for questions and answers. And Greg and I will be here to answer them.

Question-and-Answer Session

Operator

Ladies and gentlemen, if you would like to ask a question, please press star and the number one on your telephone keypad. Again, that's star, then the number one. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Andrew Shapiro.

Andrew Shapiro - Lawndale Capital Management

I have several questions, and I'll go back out into the queue, let others - and but please come back to us because we probably (won't) (inaudible) ...

Dennis Raefield

Good morning, Andrew.

Andrew Shapiro - Lawndale Capital Management

Hi. I have several questions. Again, I'll ask a few and I'll get back into the question queue. But please come back to us, because I doubt we will have finished. You just mentioned you had cost taken out in Q4 that won't show until Q1. Can you describe and somewhat quantify the amount of Q4 level costs that will come out in Q1 and quarters forward?

Dennis Raefield

Yes, let me say - yes. And the reason, when I say some of them that came out, some of them had severance payments that stayed in even though they may have left at the end of Q4, they had severance payments that actually either were paid in Q4 or spilled into Q1.

Andrew Shapiro - Lawndale Capital Management

Right.

Dennis Raefield

Plus people that were terminated in Q1, positions eliminated, also had severance payments. So severance payments, as you know, are significant. We have to take them at the moment of the termination or at the moment of payment. So they delay some of our savings. Greg, do you want to quantify any ... ?

Greg Krzemien

Sure, sure, Dennis. I mean, my estimate would be about a million dollars' worth of salaries we reduced since September 30th of last year. And there were a couple of sizeable management type position salaries that alone totaled almost a half million dollars. And then probably another $500,000 of other salaries. So probably about $1 million dollars' worth of salaries. And we continue to just tighten up in many other areas, of just relooking at relationships - we brought down our legal consulting costs, telecommunication costs - we've done a lot of work (at) CSS on that, on that venue. So, you know ... But alone I'd say about a million dollars annualized the payroll cost.

Andrew Shapiro - Lawndale Capital Management

But that is from the September run rate, not the December rate?

Greg Krzemien

Yes. I'm speaking from September 30th. And no, if you want me to split between what would be from December, maybe $300,000 since December 31st. And maybe $700,000 in the fourth quarter would be my estimate.

Andrew Shapiro - Lawndale Capital Management

Just what I'm trying to do is get a handle on what the new run rate might be.

Dennis Raefield

For corporate (inaudible)?

Andrew Shapiro - Lawndale Capital Management

(Inaudible) see what you did, yes. I can see what your rate was at the fourth quarter. But what you're saying is that you've made subsequent cuts or cuts in that quarter that didn't show up in Q4 because of severance or other continuing payments, and trying to get a handle on what the ongoing lower rate savings might be.

Greg Krzemien

Yes, I mean, I think, Andrew, it's just kind of hard to quantify off the, off the cuff. But you know, I would, again, think on an annualized basis we would be down about a million dollars from where we were during the fourth quarter on just compensation cost. But I'd be happy to try and get that, get back to you on that information.

Andrew Shapiro - Lawndale Capital Management

That would be great. So there was questions about the security segment, since obviously that's our focus, but I have questions about the other things as well. Is the current security segment gross margin indicative of what investors can expect as you grow sales back up? Or are the areas of growth in products of higher or lower gross margin that will then move the mix?

Dennis Raefield

That's a fair question. We have three typical - we don't disclose individual gross margins of the groups - but I can give you a leaning. The highest gross margin business of course is our end user direct Mace.com site where the margins approach 50 percent, versus the professional division which the margins are in the 30, 35 percent. And then we have a very small industrial segment where we are manufacturers' reps basically. We buy and sell, but the margins are very thin, in the 15 percent. And so we have an overall mix at about 31.

We are obviously pushing - and you'll see from the product mix - I am pushing the Mace.com site because it is the fastest way to grow the bottom line with some top line growth. So we are putting a significant focus on Mace.com. We have just started a significant online advertising and marketing program with Google, Yahoo and different kinds of shop sites. There's growth there. It's happening. The dealers are still very weak. I think there is still - we've seen, even in all of last year and this year, the professional dealer market is still very weak. They're waiting for construction to resume. And if we wait for them, our recovery will be slower.

So we are moving to the end user direct. I think what we're seeing in general, Andrew, is that people first still have security needs of some kind. And since they don't have money, they aren't calling in the professionals as much. They're trying to do things on their own. And so they go down to the big box stores, or they go online and they try and find something that can solve their problem. You know, people are still are shoplifting, and people are still breaking into small businesses and homes. And so, they're trying to do something, so they're going to the Internet. And we were there, but now we're there with the right pricing and the right competitive marketplace. As you know, the Internet is very, very competitive. But we now know how to buy, our product management and development teams have learned how to buy well, and so that we are as competitive as anyone else. And that's where I'm going, and that has the highest margin.

Andrew Shapiro - Lawndale Capital Management

Now does that mean we want to or we could get into a Best Buy, a Wal-Mart, a Costco, or we don't want to be doing that?

Dennis Raefield

Well, I've avoided you. If you've tracked some of our competitors in the industry, none of the ones that are dealing with the big box stores, the Best Buy - Best Buy's in a slightly different category - but Costco and Sam's Club - their gross margin is zero. They basically have so many pressures against them to, for product returns and things, that they end up with very little margin. Mace was in this business many, many years ago.

Andrew Shapiro - Lawndale Capital Management

Yes, and you got (out of their) Costco.

Dennis Raefield

And they got out of there, because it was negative gross margin. It actually didn't make any money. The only way they made money was people calling later to buy add-ons around Costco to add something to their system where they could get a decent margin. Everything that was sold through that, it's a very, very tough market. I don't see us moving into it. There's lots of volume. I could increase our top line. But I don't think that there's any bottom line there. And I've looked at acquisitions of our competitors. They're all, there are many that are for sale, and they don't seem to be making any money. There's nothing to buy. So I'm going to read their financials and decide that there's something true about that statement.

Andrew Shapiro - Lawndale Capital Management

Now you've announced several new products with great fanfare over the last six months. You've just given us a nice slide show with some products. Which ones are providing meaningful incremental revenues so far? And what are your thoughts as to, of the many products and things you just announced, which ones are addressing I guess the biggest markets and you think have the biggest potential to help Mace close the gap on its still continuing (burn rate)?

Dennis Raefield

OK, that's a good question. I believe that there is - of current products, that's out, that has just been released - I believe that, number one, Access Control on the professional side is going to be, is probably our number one grower. It's too soon to tell about the fence protection, but we got a lot of interest. It was the number one item in our show booth. But I would say Access Control, which we've invested a lot of money in and a lot of time in, it seems to be taking off. And on the video side, I'm turning up the slide again here, the MX Series, this DVR at $399, a fully high-quality DVR that goes to cell phones and smart phones at $399, that's an excellent product, and we're getting business on it.

We just ran some Google ads and got hits on it immediately. This just released a week ago. So it's a little soon to say. But I'm pretty excited about this. You are correct, Andrew. I release products at each call. And many of these products, as I announced before, were replacements for our poor quality and kind of obsolete things. But they were catch-up, and they were priced as the best we could at the time, they were priced to be about the same prices.

Of course, the marketplace continues to get more and more competitive. And we did not have in-house the skill set that we do now of qualified people to get us to the right sources. As you know, we hired two key executives out of the video division of G.E. - George Martinez and (Joel Refer). And they came on board. And they are used to knowing where the best sources were of high quality equipment. They've come on board with a lot of years of skill. And they have taken us into these new markets and been, it's been a significant improvement. So before we were introducing new products that were equally priced, and catch up, and now we're introducing products that are, I think, next step, and very, very competitively priced.

Andrew Shapiro - Lawndale Capital Management

I'll ask one more question that segues from what you just said, and then back out into the question queue, but know that I have more questions. Please come back to us and not kill the call off. But Mace has invested quit a lot in new sales efforts and new sales people over the last year. What is the status of the sales force realignment actions that you previously took? And it still appears sales force hasn't gained sufficient traction above broad market gains to justify the costs. So what is additionally being done about this?

Dennis Raefield

Good question. I would tell you that our sales effort, our outside sales effort for the year has been a very disappointing failure. We have invested a lot of money with high-quality salespeople and sent them out with, during the year, several missions and readjusted them. And I would give them zero percent of, zero percent of our growth was, could be attributed to that outside sales force. It was all done by either executive management, inside sales, or the rising tide of the marketplace, or online. It was a completely and utterly disappointing - I wouldn't call it an adventure - it was more like a root canal. It did not work. We have terminated those sales force at this moment. And I have, we have one left who is our inside salesperson, very successful, promoted to outside. That one's worked. The others that we've hired have not worked, and they're all off the payroll at this moment.

So I'm reevaluating right now with John O'Leary, the President of the (inaudible), the Products Division; do we do again or do we focus on our core business which we've been successful at, which is inside sales promotion and outside - and Web-based presence, and avoid rehiring the salesmen? Now, this is - I'm not the only company that's in that mode. There just was an announcement of combining, in some of the larger companies, our larger competitors have combined sales forces, eliminated sales forces and flushed out sales forces. The salesmen get the blame when the sales don't come in, and they've been turned over. There's lots of them knocking (at their) door. The question is, I think in this new world is, can salesmen make and influence the buying decision? Our efforts and our history says they weren't able to.

Andrew Shapiro - Lawndale Capital Management

So, in terms of - when did this, when did this sales force pretty much come off the payroll? And how much would you say was their costs in '09 that thus have, would be coming out of SG&A in 2010?

Dennis Raefield

I would say the average cost for the year was probably $300,000 to $400,000 for the - they weren't all on at the same time. Some of them were serial. Some of them were in parallel. But I would say that there's - Greg, correct me if I'm wrong - $300,000 to $400,000, $500,000?

Greg Krzemien

I think the $400,000 is a very accurate (inaudible).

Andrew Shapiro - Lawndale Capital Management

And when was that kind of cost stream cut down or cut out?

Dennis Raefield

Just the last ... Many of them were done, as I said, sequentially, trying to, to try a different mix of salespeople to see if we had mis-hired, if we had mismanaged them, you know, what was our - how much was us and how much was product and how much was market. And I would say that 200,000 or out of - we had 200,000 of them, of cost at 2010 that's not there anymore - at 2009 that's not there in 2010. And that's the question - do we go back in and try it again and, or do we change our minds?

Andrew Shapiro - Lawndale Capital Management

All right. I'll back out. I have more questions. Please come back to me.

Dennis Raefield

We won't hang up on you, Andrew.

Operator

And again, ladies and gentleman, that's star, followed by the number one on your telephone keypad to ask any question. And you do have a question from the line of Andrew Shapiro.

Andrew Shapiro - Lawndale Capital Management

Wow. I hope there's others at least on the call.

Dennis Raefield

Yes, we have, we have quite a - we have actually the most we've ever had.

Andrew Shapiro - Lawndale Capital Management

Well, I wish that they wouldn't be afraid and ask their own questions. But I'll ask a few more here. You mentioned that Mace was not going into more lethal security products because of the liability issue. And the Mace name is a brand name that has value. If it's just liability, if you were to license the Mace name, would the liability extend to that? And if it wouldn't, why not license the Mace name? And why aren't we yet, after all this time, seeing any Mace name license deals come forward yet?

Dennis Raefield

That's a good question. Well, I'm not a lawyer, so I can't answer you (whether) liability passes, if you have the name, you know, licensed, and someone else, someone else will certainly take the first, the licensee would certainly take the first liability risk and have to insure against it. It doesn't stop someone from naming Mace in a lawsuit because they think ...

Andrew Shapiro - Lawndale Capital Management

That's not (why you haven't) licensed. You have, you know - I guess the main question is, we got a brand here, intangible value, people know the brand, everyone initially assumes, well, Mace, that's got some value, except here we are a year and a half later, what progress if any has been made in licensing this brand?

Dennis Raefield

Well, activity has happened. Progress (not) - I'm still working on a Mace bulletproof vest right now, which of course we don't consider - there is liability in it, if the bullet gets through. But it's not an offensive weapon; it's, again, defensive, which is Mace's posture - we protect and we protect you and your house and your home and your businesses. And so we've been looking in that area. We had a license deal for flashlights. And I think we decided that we wanted to do them ourselves rather than just license it, because it is sold to a very similar group of customers. The licensing deals haven't come to fruition, and there haven't been as many as you would expect. And I don't have, Andrew, I don't have a great answer as to why we haven't done more.

Andrew Shapiro - Lawndale Capital Management

We've gotten calls from people who all want to go buy the Mace Company. They want to buy out the company and use it as some public vehicle, (and) they're private, and they're in the security area. I just don't understand why then these people aren't candidates for and can't have a licensing deal (inaudible) regardless of whether there was a merger deal.

Dennis Raefield

Right. Well, one of the things that we worked on, I didn't mention, was the intrusion - we thought we weren't going to go into residential burglar alarms. But where we're going with Mace.com, it seemed like a mistake to license away the Mace name on burglar alarm panels when we're about to introduce them. It would have locked us out of that market. We own a central station. So we actually withdrew from that idea. I don't know - I have been approached by a padlock company who wants to put Mace on padlocks. I haven't seen the door. If you've got some names, I'd be glad to talk to them, who wanted to buy the company for the name. I've seen it want to be bought for its public shell, but I haven't been approached by someone who wanted the name, other than another pepper spray company, which doesn't make a lot of sense.

Andrew Shapiro - Lawndale Capital Management

Well, as you know, we have in the past and will again brainstorm for you guys and get you a bunch of names.

Dennis Raefield

I appreciate that. You've been very helpful.

Andrew Shapiro - Lawndale Capital Management

Why is the revenue for the international security segment shrinking? Shouldn't it be rising? Is it a currency issue? Is there some brand or recession issue that's going on?

Dennis Raefield

Where did you get that information that it's shrinking?

Andrew Shapiro - Lawndale Capital Management

In the 10K it lists, I believe, a certain number, absolute dollars, that are sold, that has been sold internationally. And it seemed as if the international sales numbers in the 10K were dropping.

Dennis Raefield

Maybe Greg can answer that. That is not the perception that I have. It may have been something that, a piece of business that we were classif(ying) internationally. Greg, would that be, include international Mace Security products, mixed with Mace Pepper?

Greg Krzemien

I mean, it would be everything, Dennis. It would be digital media ...

Dennis Raefield

OK.

Greg Krzemien

... marketing segment as well as pepper as well as electronics.

Dennis Raefield

OK. So I know that pepper spray has been growing. It was probably - and Andrew, we will confirm this - but Mace Security products dropped, and that has a significant piece of business that we sell into Latin America and Canada. So we do sell - we have one dedicated Spanish-speaking salesperson for the Latin American market. And if that business is falling, I don't see that reported separately, so it may have popped out because ...

Andrew Shapiro - Lawndale Capital Management

(It was) security in the aggregate.

Dennis Raefield

Security in the aggregate, OK. So what I know is, is that pepper internationally has been growing. So therefore, I would conclude from that, and that we will confirm it, that it must have been Mace Security products, which of course did shrink, probably shrank in the international as well. And Greg, if you can follow up with that and get the actual facts on that.

Greg Krzemien

Yes, sure. And again, I know what Andrew is referring to. About 4.5 percent of our security segment sales last year were international, and now only about 3.6, down from about 900 and some thousand to about $675,000. But yes, Andrew, I will follow up. We do have (inaudible) the detail by division.

Andrew Shapiro - Lawndale Capital Management

Central Station, CSS - wasn't that in Mace last Q4? And normally your footnote would allow us to, this analysis. But this year's combined historical performance of multiple asset sales, not just CSS. So can you help us understand CSS's performance for this Q4 to compare not just to the immediately preceding September Q3 which, on the last conference call, you said was about $3.95 million, but also versus prior year December Q4?

Dennis Raefield

You mean, before we owned it?

Andrew Shapiro - Lawndale Capital Management

Yes. I'm just trying to understand, is this performing better under your Mace ownership than it was under prior ownership?

Dennis Raefield

While Greg is looking up the numbers, I would say this. That the reason we were able to acquire Mace Central Station was that the owner was ill and not able to attend fully to the business - one of the business partners, there were two partners - one passed away and the other became ill. So the business, a year before, was more than it was - they were in an attrition mode of losing customers, which is why we were able to acquire it at a decent multiples of recurring monthly revenue. So the business was in a slow slide before we bought it. So I don't know that, if Greg can get it, glad to give it to you - but I don't know that comparing it to a year before we bought it means anything, because the business was stronger and going down and they finally sold to us, because they couldn't manage it.

Andrew Shapiro - Lawndale Capital Management

Well, more importantly, is it growing under Mace's tutelage?

Dennis Raefield

It is now, yes. It was (inaudible) ...

Greg Krzemien

Yes, and I think, I think - what I'll add to that is, is it actually went through somewhat of a down, a downfall, more because of, we fired customers. When it was owned by the people, you know, private ownership, they were a lot more tolerant with customers who didn't pay. You know, we realized that in the acquisition due diligence. So you know, (with) the first couple of months we owned them, we weeded out some customers. And as Dennis is saying, now we're starting to see the revenues going on the incline. Also, from an operating standpoint, we are seeing profitability in the last couple of months, more so than we did in 2009. Not only because we're starting to grow the revenues back up, but we had a lot of distractions in 2009.

We pretty much put in a whole new customer interfacing system, the billing system that went with that, and just recently a whole new telecommunication system. And after we got all that done, we really went back through the ranks and files, and we really weeded down not only some of the top management, also some of the middle management, and really made it more leaner. So I think what we're seeing now in the last couple of months is a much stronger operation.

Andrew Shapiro - Lawndale Capital Management

I guess what I'm trying to get at is, if the cash flow has grown - you know, when you bought it, we booked a lot of goodwill. And to the extent the business grows and is growing under your tutelage, and that goodwill impairment would be a smaller and diminishing risk. And that's what (inaudible) ...

Greg Krzemien

Yes, and I think it would be safe to say, it's a diminishing risk, as we're moving into 2010.

Andrew Shapiro - Lawndale Capital Management

OK. I'll back out again. I have many more questions. But again, maybe one of the many people on the call have questions. But otherwise, come back to us, please.

Operator

And again, ladies and gentlemen, that's star, followed by the number one on your telephone keypad, to ask any question.

Don Taylor

Dennis, this is Don. I have a text question from a Kenneth Cecil, International Security. And I'll read that to you. I note, as per the company's exposure at the recent International Security Conference Trade Show in Las Vegas, the company is committed to the electronic security business, and specifically Access Control and Perimeter Fence Protection. What marketing approach do you plan to reach the Access Control and Perimeter Intrusion Control industry? What channels of distribution are included in the marketing plan, given that most outdoor intrusion detection sensors are sold direct to the end user with some manufacturers offering insulation services?

Dennis Raefield

Oh, that's a very good question. OK, well, first of all, let me deal with the fence protection. Fence protection is sold, we believe it is sold as a dealer installed product. I agree that some of the competitors in the business do try and sell direct and install. But there is, the real issue with the fence protection business in the United States over the last 20 years, has been that the early products were not reliable, and people put them in and took them out, and they were quite expensive. I think (Sabra) has reached both of those with a highly sophisticated processor at every node that learns and understands what's going on, and can tell false alarms. And, in addition, their price is low. We're selling this only through professionally installed dealers.

We have, as you know, 800 Mace dealers. And we have another 360 in the Central Station. That's 1,100 dealers that we have rolled out our program too. And, as well as going to the trade shows to acquire new dealers as we did. We don't plan to sell direct. We don't install. And I haven't seen that as a significant obstacle. I think it was more of a strategy because dealers shunned away from some of these products that false alarmed all the time, because they didn't want to hurt their name. So I'm going to continue the way we're going.

We are investigating adding manufacturers' reps to the (Sabra) Fence line. Haven't made that final decision. We were approached by quite a few at the ISC Show, and manufacturers' reps are always looking for lines that are not under the traditional access control or CCTV; whether they're overpopulated with lines. And we were approached by - we're going to make that decision within the next 30 days.

As to Access Control, one of the things we did, as I mentioned on the slide, was that we are using an eCertification course. We are not letting people buy this off the street. We're not selling it to distribution. We believe that that is fraught with problems as far as installation problems and tech support calls of selling to unqualified dealers. So I think good dealers and good installers in the business want a line that works, is well priced. They're under tremendous price pressure. And they want something that's not available down at your favorite alarm supply house, where they can just pull it off the shelf, put it in and then it, they make a bad name for themselves or for the product.

So we're going to continue to do rollout access control as we do with video through our traditional channels. And we are not going to put it into distribution. That may limit our growth, some rapid growth, but I think it will mean we'll be in the business a lot longer, because the distribution products come and go. And Mr. (Cecil), since you sound like you're in the industry and you know it, you know the distributors don't really promote products; they just take orders. And so if we put it on the distributors' shelves it would probably sit there anyway, unless we cut the price. So we plan to sell through our own people. We have a pretty aggressive e-mail blast system, pretty aggressive telemarketing programs in the company. And we reach out to our regular dealers and teach them how to use it, and show them features, advantages and benefits, as well as giving them sales aids to do that. Hope I answered your question. If not, text back in, and we'll be glad to continue that.

Operator

And you do have an audio question from the line of (Jack Gulati).

Jack Gulati - Unidentified

Yes. Dennis and the members of the teams - I have a (inaudible) questions, but before I say that, I really want you to know that I think you guys have done a great job in at least clarifying the mission of the company and its operations. So I was glad to hear when the digital media was put up for sale, and hopefully be sold again. And with the exit of that sector, you would be able to devote more of your energies to the security business, which is the core competency of the company. So I just want you to keep up the good work, and continue that pace. And hopefully it will start to show up in our shareholder value. So having said that, I just wondered if you could tell us, what is the latest status of (our) litigation with the previous CEO?

Dennis Raefield

OK. Well, first of all, (Jack), thank you for the kind words. I mean, I'm really disappointed that, you know, by now we haven't started making money. I think that's the number one job of our management team is to return shareholder value. We've done, like you say, we're focusing the company and we've done all the right steps, but it isn't coming out on the bottom line, and that's where it's got to come out. So thanks for your support. And I'm just, it's been a very frustrating year to see - as you see, in Q4, we got security up and Linkstar went down. So it's a constant fight amongst all the different pieces of this.

And by the way, you know, Linkstar is a performing company, and we have a great team there. So it's kind of a mixed blessing. It will get us focused. But obviously, they are contributing under, somewhere between three quarters of a million, $1 million of EBIDTA, and that's, when I sell that business and it goes away, I have to redeploy that capital immediately or else I will be back in the soup again. So obviously it's going to go towards a security acquisition or security organic growth, but it has to be redeployed because otherwise I'll be having too much overhead to support. Your second question was?

Jack Gulati - Unidentified

The status of the litigation with the previous CEO.

Dennis Raefield

Oh, the litigation. Thank you. That's what happens when the CEO talks too much. The litigation - what I would tell you is that we finished the arbitration hearings in November. And then each side was allowed to submit briefs, and then respond to the briefs. That was all done with a promised date of April 1st to answer. And we just received notice that the arbitrators want to take additional time to consider that, and will give us an answer before May 31st. So they took, they've taken up to two months' extension to review it. I don't know whether to read that in any way and I'm not a lawyer. But it has been extended. We hoped to be, we want to be done with it by now, and we hope to prevail. And now it'll be postponed until May 31st or sooner. Still could be a week from now, but they have asked for an extension of two months.

Jack Gulati - Unidentified

Is that expected to (review) the existing evidence, or is that the, taking new evidence, testimony and the like?

Dennis Raefield

No, I think they're reading the 4,000 pounds worth of submissions by both sides. No, there's no new evidence that I know of, no new questions. And I don't know that they can do that even - I think they're just taking a long time to understand it. It was a complex litigation on both sides.

Jack Gulati - Unidentified

Good, OK. My follow-on question, in 2009/2010, approximately 700,000 shares were purchased and retired. What was the average purchase price of those shares?

Dennis Raefield

While Greg is looking it up, I can tell you it's under a dollar. Of course, we bought it when we thought it was of significant value and accretive to the shareholders. And Greg, you have an average number?

Greg Krzemien

Yes, hi, Dennis. I would say it's around $1.00 to $1.10 range. I could tell you that so far this year we averaged about $1.03; in, towards the end of 2009 we were in the $1.05 range. So it's been in that level, (Jack).

Jack Gulati - Unidentified

OK. I guess as many of us know, noticed from that, is the (inaudible) about keeping the share at $1.00 or more for 14 days sequential, whatever the number is. Notice has been posted that Mace does not meet that today. What is your corporate strategy to support that price, (at least at) a dollar, for certain number of days, to meet that objective of NASDAQ requirement?

Dennis Raefield

Well, I don't know that I want to post a corporate strategy. What I would tell you is that we did do some price support, the last time within that 180 period. And you saw that the price did come back up over, that was from some efforts on our part to retire shares because they were at a good price. And so I don't know that the company should post a strategy other than you know that we want to be above that dollar. We have now six months from last week, I believe, to regain for 10 days. We did it once before. It is - you know, we are always walking on the fence.

Of course the different shareholders have different opinions of whether to use our cash to keep the company strong and viable, or whether to retire shares. It's certainly a good investment for us to buy and retire shares at the prices it's at, since it's way under book value. But, at the same time, cash is king, so we're always fighting between those two. And we are in the market, and we are in the market on a regular basis when it looks like good value. And I really don't want to lock myself into a strategy that I'm public about, if you don't mind, Jack.

Jack Gulati - Unidentified

That's OK. No problem. That's a good answer, I guess. Let me ask a publicly issued statement. Has board issued any public statements as to how many more shares they're willing to buy, and in what period?

Dennis Raefield

I believe the board has passed a resolution, long before I was the CEO, that we have continued to use. And that's a significant amount of shares, about a million shares, is it not?

Greg Krzemien

I am just looking for that, Dennis.

(CROSS TALK)

Greg Krzemien

While I'm looking for that, (Jack), I did look up the shares that we repurchased in 2009. And the price was really low in the beginning of the year. So we averaged about $0.89 per share ...

Jack Gulati - Unidentified

$0.89, yes. OK.

Greg Krzemien

... is what we (inaudible) for that year there. And the program that the board did approve back in 2007 was to repurchase up to $2 million dollars' worth of shares. And so far, yes, that have not been repurchased, is about $1.4 million dollars' worth of shares under that program that was approved.

Jack Gulati - Unidentified

OK. So $1.4 million. That's about $700,000 in shares. So that's not a correct, then at $0.89 a share. It'd be less than a million.

Greg Krzemien

Now what I'm saying is, about - we have $1.4 yet to spend on (inaudible).

Jack Gulati - Unidentified

Oh, you (inaudible) (buy). OK, fine. Yes, (you're fine). (Inaudible) (buy). OK.

Greg Krzemien

We spent about $600,000.

Jack Gulati - Unidentified

Yes, OK. That buy or not to buy at a given opportunity, is that a board decision or is that your executive management decision?

Dennis Raefield

Both. The board, I asked the board for guidance, because it's a controversial issue. And the board gives us guidance. And then we have an operating range as management to, when to spend and how to do it. And we have a broker. And we're active in the marketplace. But the board makes that overall strategic decision because it's controversial. And then we carry out the board's wishes, and within a range. In other words, we don't go to them every time we need to do something. And we're active in it. We were active yesterday in the marketplace. So we, we buy on a regular basis when it makes sense. And always watching our cash (and) position. So it's a, as I said, it's a fine line. But we are operating under board oversight, but management makes the daily calls.

Jack Gulati - Unidentified

OK, good. All right, that's fine. Let me shift over to the service center. The accounting you're keeping of the service revenues, what is your method of accounting for revenues, particularly having to do with the cost of acquisition and service?

Dennis Raefield

While Greg is looking that up, I would tell you that our cost of acquisition of course, since we're a wholesale central station, we are not installing - we get an account, and it is ours the day, it is running account the day we get it as a wholesale central station. So our, there is no cost of acquisition to be amortized or to be expensed, if that was part of your question. And our revenue is the revenue as received, where there's no complex formula that we're using that would happen in other places. It's very simple. It's the revenue received.

Jack Gulati - Unidentified

That means all your selling expenses that you're selling, your sales force and that division, and the cost of setting up the account and all that kind of things, expensed immediately?

Greg Krzemien

That's correct.

Dennis Raefield

(Inaudible) immediately. There's no amortization. That's correct.

Jack Gulati - Unidentified

Good. That's a good way (inaudible).

Dennis Raefield

That's the right way to do it. Right.

Jack Gulati - Unidentified

Yes, and I agree. OK, good. And do you expect that obviously you're now probably near capacity on your monitoring center and thus (inaudible) acquire additional investments than you had made during the last year?

Dennis Raefield

We're not anywhere near capacity. We can grow substantially. We have an infrastructure of both fiber and telecommunication lines, staff positions in slots, and hardware and software, to double or triple this. Acquisition of new accounts in this marketplace is tough. But we don't have any technical limitations. I don't need to buy - if I bought more acquisitions in this space, it would be to, either to get a second site or to buy revenue. But I don't need any more capacity as far as central station. I can grow quite a bit. This was the platform to start with. The marketplace is obviously soft right now.

Jack Gulati - Unidentified

So basically, the only barrier to increasing your revenue in the monitoring center is your sales and the matter of acquisition, either by direct sales with the dealers, or to the acquisition. Is that correct?

Dennis Raefield

Correct. I don't have any technical barriers. Just, just top line revenue is my issue, not capacity.

Jack Gulati - Unidentified

Sure. OK, good, good. I think you can solve that probably fairly easier than ... I think you spent a lot of time and effort last year in getting the capacity level and getting all the - you already said so. So, which is good to hear, basically it's cleaned up and now you can start to ramp up your sales effort. I have one more question. I can (either) can back in the queue like Andrew (inaudible) and courtesy gives us, or I can ask now and then I'll get off.

Dennis Raefield

If It's just one, why don't you ask it, and then you don't have to ... Go ahead.

Jack Gulati - Unidentified

Thank you. Just one more, one more. OK. You have very nicely identified the product line that you're going to be coming out with and that you have come out already with, particularly in Q2 and Q3 and Q4 now, which is right way of doing it, progressive increasing product line. My question is, what part of these products do you actually control as - controlling, meaning either as a designer, manufacturer, proprietary interest, patent, intellectual property, those kind of things, versus strictly being a buyer and reseller of these products in the marketplace?

Dennis Raefield

OK, good question. Well, the Pepper Spray is virtually divided in two halves. The Pepper Spray is virtually 100 percent (inaudible) manufactured ...

Jack Gulati - Unidentified

I'm sorry. I don't want to (know if you're there). But I was more referring to security products, your security cameras and all of that.

Dennis Raefield

OK, I was answering for the entire audience.

Jack Gulati - Unidentified

Go ahead. You can do that if you want to. Please do.

Dennis Raefield

Yes. The Pepper Spray is entirely manufactured by us. We buy a few pieces outside that we combine, but it's almost all made by our factory in Vermont and made in the USA. And very little of it comes from anywhere else. On the security product side it's the flip side. In general, we are private labeling. In the case of our older products, it was buy it and resell I without any modification. Our current products is, buy it, customize it, change it slightly, but still I would say 80 percent core product bought from Asian and American and European sources. So it is not significant value add other than we are specifying it well, and delivering now even more the correct product. When you start to look at Q2, Q3, Q4 stuff, there's a lot more of individualization where we are coming out with something that is only ours, that works with ours, our equipment and doesn't work with (others).

In fact, on the Access Control, for example, the software in our Access Control does features for specific vertical markets that we identified that is not available if you found that product from the manufacturer in Europe and brought it over here. It wouldn't work exactly the same, and we've added features. So that's the direction we're going. Of course, it's a double edged sword. You've got to be right with those product modifications, and you have to have enough volume to keep them from becoming public domain with any of these private labelers. So today we are manufacturing - we don't manufacture in the U.S. anything.

And while everyone claims to have these single sources, and they control their factories, we are buying from stable factories and then adding our Mace touch to them, sometimes as simple as different front plates, but most of the time adding something more significant, a feature or upsizing it or hardening it, making it tougher or better. Hope that answered your question.

Jack Gulati - Unidentified

Yes, it does. I just, maybe minor comment if you will. You know, you got to double source them or something, because that's a danger in case of the vendor going out of business or has quality problems, and all of a sudden increases the prices because the market is strengthened now, because the work you did, you know more about it than I do. So I would leave that up to you, but just as a (word). Having said that, I thank you for everything, and keep up the good work, guys.

Dennis Raefield

Thank you. Appreciate your comments.

Jack Gulati - Unidentified

Right. Thank you. Bye.

Greg Krzemien

Thank you.

Operator

Your next question comes from the line of Andrew Shapiro.

Andrew Shapiro - Lawndale Capital Management

Hi. A few other follow-ups. (Jack) asked about the Paolino arbitration issue. I'd like to ask about the other past messes that were being cleaned up or have been cleaned up from the Paolino era. Are there any additional steps towards recovering the lost investment principal of the million dollars from the Paolino's foray of Mace going into this Ponzi scheme hedge fund investment?

Dennis Raefield

Are you talking about that $2.3 million that we wrote off that was ...

Andrew Shapiro - Lawndale Capital Management

Well, the write-off of $2.3 was a write-down from what was stated as fair market value, which includes the paper printed appreciations. That'll never be recovered. But Mace put out $2 million dollars of principal investment, recovered $1 million, and the other million that it sunk in as principal investment has, was part of the $2.3 million that was written off.

Dennis Raefield

Right.

Andrew Shapiro - Lawndale Capital Management

Is there any additional steps towards, or progress or opportunities towards recovering that lost principal, whether it is litigation against Mr. Paolino or recovery through the bankruptcy restructuring process with that Ponzi hedge fund?

Dennis Raefield

Greg, you have a comment, or?

Greg Krzemien

Yes, I have no update at this point, other than we know that our Ponzi scheme friend is being prosecuted. But we have gotten no communication saying that there's going to be any additional distribution of assets. We're hoping that at some point we will get such communication, but we have not received anything as of the last probably six months now.

Andrew Shapiro - Lawndale Capital Management

All right. Any additional recovery likely against the embezzling former controller at the Florida Security Division? I seem to recall Mace has the rights to insurance proceeds, and this gentleman was sick.

Greg Krzemien

Yes, we have no information as to his health at this point, Andrew. So unless he, something happens to him ...

Andrew Shapiro - Lawndale Capital Management

What's the potential recovery left from that in those assets that we have a judgment on?

Greg Krzemien

As far as his life insurance policy?

Andrew Shapiro - Lawndale Capital Management

Well, I don't know if that was - you know, what the potential recovery is. I guess ...

Greg Krzemien

Yes, I mean, I think that's (like) potential recovery from what we've heard from the authorities. And I'm not sure off the top of my head what the life insurance policy is for, Andrew.

Andrew Shapiro - Lawndale Capital Management

During - the 10K has, during the fourth quarter, the U.S. Attorney interviewed a company employee before a Grand Jury, and that U.S. Attorney was actively pursuing an investigation for possible criminal violations on the former EPA issue. Was this a senior employee? And what violations might they possibly pursue? And is the company subject to this investigation as well?

Greg Krzemien

Dennis, would you like to take that one?

Dennis Raefield

I'm not sure what has been, what Andrew's (got), what has been revealed publicly. Certainly the EPA issue in Vermont I believe is now, has been resolved. And we - Greg, correct me if I'm wrong - we took an additional charge or not?

Greg Krzemien

Yes, I think Andrew's asking a different question. Yes, from a - one of the things that we did disclose is that from a cost standpoint we accrued an additional sum of monies - about I believe $75,000 - to bring our estimate of cost that we'll have to pay for the EPA's time up to a new estimate based on some correspondence we had from the EPA. That was the one issue. As far as interviewing the person, I think the person who was interviewed, Andrew, was just like a warehouse person, a plant person. And, you know, we really don't know anything else other than that. As you may know, these Grand Juries move very, very, very slow. And we do know that they interviewed that line worker, that warehouse employee. But as far as I know, I know really nothing else further than that, nor have we disclosed anything more than that.

Andrew Shapiro - Lawndale Capital Management

OK. In the 10K, it was highlighted as a risk of the customer concentration (in) your monitoring business with maybe 95 percent of the customers being California. What are you doing to diversify the concentration of monitoring customers from just a California base?

Dennis Raefield

Well, Greg, is 95 percent the number that we ... ?

Greg Krzemien

Yes, yes. Yes, that's give or take a percent, correct.

Dennis Raefield

OK. Well, certainly our efforts have been to add on additional Mace Pro Dealers which we have added a few. Not a resounding success. They're all outside of California. We've added a, just added a new, a couple of new customers. Almost all of our work is outside of California as far as new acquisitions. Has it reduced the percentage? It's probably reduced it from 95 to 90, because the marketplace is generally soft all over the country. But it is, all of our new acquisitions, I would say virtually all, have been outside, except for one dealer who has moved some significant amount of business to us. So it's probably moved to the 90 percent range. California has stabilized. You know, we're not in the same dire straits that we were. It's not going up, but it's stopped going down significantly.

Andrew Shapiro - Lawndale Capital Management

No, but it was listed as a risk factor because of environmental incidents, such as like an earthquake. So just, you know ...

Dennis Raefield

Yes, we are waiting to fall into the sea. No, I don't mean to be flippant. I think it's a relatively insignificant risk factor. We have a central station that can withstand pretty - it's a hardened building. It is (inaudible) ..

Andrew Shapiro - Lawndale Capital Management

No, but your customers, all of your customers are in California, and that was my issue was to find out what's happening to diversify your customer concentration to other areas.

Dennis Raefield

Right. I'm diversifying in that all of our new efforts are outside of California, just trying to get a broader spread. But we're not turning down California business.

Andrew Shapiro - Lawndale Capital Management

No ...

Dennis Raefield

So if that comes in, we're going to take it. And so that may re-strengthen that percentage-wise. And I haven't focused on California being, getting in deep trouble. And so I'm not focusing on (them).

Andrew Shapiro - Lawndale Capital Management

OK. Mace Track will be sold by whom, and what's likely to be the cost per system for a Mace Track? And how do you advertise and market it?

Dennis Raefield

OK. Well, Mace Track is sold through - Mace Track and Mace Lock are the two (brands). One is sold through Mace.com, and they are different products. Mace Lock also goes on the door, but doesn't have any electronics, no computer. It's all done with, at the door. That's sold on Mace.com. Mace Track is sold only through professional dealers who have been to certification. So we have done dealer training from our existing dealer base and the inside salespeople and attracted new dealers, both at trade shows and with our e-mail blasts. So it is sold only through dealers. And we are acquiring them. And they like it. The price point is significantly less than the stuff on the marketplace. The features are higher. And we're the only one, and I see that allows you to mix from wireless to wired like we do so easily, where you can go to on the door or wireless in the closet, or wired. And we don't care; it's all the same system. And that's quite a feature.

These installers are always in trouble when a salesman goes to sell something, and then the installer goes out and finds out that the reality does not match what he thought or what, the parts he brought. So with our Mace Track system he can swap out and go to wireless. So it's pretty exciting. Now, what is the take-off and what is the growth ramp? That will be seen. You know, the market, as I said, for professional dealers, is still weak. And they need their phone to ring, and for construction to come before they need anything. And that's one of the dilemmas, which is why (inaudible).

Andrew Shapiro - Lawndale Capital Management

Well, with Mace Track, the professional system - and you're going to go sell those into businesses, and let's say it's a medium-sized business with 50 doors - in general, what kind of size sale is that? What's your selling price per system, so that a 50-door sale means how much?

Dennis Raefield

OK. That's a good question. A door installed is in the $3,000 dollar range. That's retail price that an end user would pay. We are probably, with the components that we would sell that door, probably $600 to $700 per door. We get the panel; we get the readers at the door; we get some of the accessories that mount to it. So a system like that would, you could probably say that our sale is $600 per door.

Andrew Shapiro - Lawndale Capital Management

How is this - which could be some big ticket sales - how is this product being advertised and marketed?

Dennis Raefield

Well, we're running advertising in all of the major trade magazines. There's one this month in two different magazines that you could, that I can send you a picture of. So we have an ad actually appealing to the difference of our equipment from something else; the five-year warranty, which is a big deal for our customers; and the ease of installation and the price. So we're actually selling on the differences between us. There's lots of access control out there. This is easy to use, easy to install. I would say that, you know, I don't want to lull you into thinking this is going to become an enterprise product going to the top end of the major corporations of America.

Our current dealer base that we sell to today does not sell those jobs. They sell smaller jobs. We think, if you look at the pyramid of customers, what we would call the eight to 12-door market is where most of the people are, and that's where this fits really well, and that's where our dealers are. So an eight to 12-door system for us is a $5,000-dollar order, per order, versus less than $1,000 for a piece of, for camera gear. So it is certainly a higher ticket item.

Andrew Shapiro - Lawndale Capital Management

Right.

Dennis Raefield

But we're not going to be selling this to major, big, big corporations. You know, 500 doors is a pretty good-sized company, if you think about it. But it's not Cisco and it's not AT&T. But 500 doors on an Access Control system is probably 3,000 or 4,000 employees. So we're not just talking to mom and pops here. It's a next step up.

Andrew Shapiro - Lawndale Capital Management

Right. OK. So now on digital media marketing ...

Dennis Raefield

Yes?

Andrew Shapiro - Lawndale Capital Management

Promopath was terminated or closed down. It took write-offs. We impaired some of the good will that was overpaid for by the prior management team when they bought it. And it was losing money. And the 10K discloses that you've restarted Promopath. So why did you restart Promopath? How much does it, did it or is it costing you to restart it? And is it already profitable and worthwhile to have restarted it?

Dennis Raefield

OK. This is about five questions in there. Number one, we shut it down because it didn't have a lot of controls on it when we originally acquired it. And it, while it had big revenues, it had an ability to make and lost vast amounts of money. And as a public company versus a private company, you can't make money in one quarter and then take it all back the next. And that's what was happening. That's why we shut it down. It was losing significant amounts of money immediately after making it; it would give it all back. So it didn't have enough controls on it.

Ron Gdovic, President of Linkstar, came to me in the fall and said, I'd like to relaunch it. Because one of the advantages that it gave us, it gave us access to the advertising market that we lost when we closed Promopath. But the risk was too high. So we decided to live with that. He said, I think I can launch this on a controlled basis with lots of controls to keep it from getting out of whack. And it cost us about $25,000 a month in the pre-launch phase to get it going with engineers and sales staff. And it's now making money, but not at a significant amount. But it is part - if I take you back to the graph, if your slide is still up - if you look at that huge spike that happened in 2010, we launched it in late December - a lot of that spike is Promopath. I think it's on the last - I underlined it on the last bullet.

The relaunch of Promopath ad campaign is part of the reason that we spiked. So we see it as a support to Linkstar. And if we sell Linkstar, we should go with Promopath. It isn't the same old Promopath. It is now a, basically an enabler for Linkstar. And I would probably, if I asked Ron and he could talk on the call, he'd probably say that 40 percent of his 2010 jump is based on Promopath. Certainly some of it is other things, and they're changing the credit card decline rate. But I would probably say that 40 percent of his growth is because Promopath gets our offerings shown to more people. So I think we're probably, we'll never exist like it was, which was touted as a huge growth machine. But it was a very volatile thing that was scary. And now it is a controlled ... Where we probably should have not called it Promopath, and called it Promo(thort) or something else. But that is the relaunch.

Andrew Shapiro - Lawndale Capital Management

What sort of customers and customer relationships does Promopath now I guess own? And how do you get more?

Dennis Raefield

Well, Promopath has two assets. One is the relationships with the publishers, with the people who will put these ads on their Websites and e-mail blasts. And the second is that it has intellectual property and that it has an automated program that watches the publishers' ads and knows which ones are going well, and allows them to tweak it. That we never gave away, and that we preserved. That was one of the assets at Promopath that we shut down. But it gives us tremendous - it's a software program that gives us tremendous insight into the activities in the market space. So that's - excuse me - that is back on. And what we've done is changed the way we acquire business. Now how do we acquire more? We have a full - that expense that we have in that department includes a full-time, highly-qualified publisher sales rep who moves from publisher to publisher and tries to attract their business for Promopath.

Andrew Shapiro - Lawndale Capital Management

Right.

Dennis Raefield

And they're quite successful.

Andrew Shapiro - Lawndale Capital Management

Now, your brands are cited in the 10K - these are the Linkstar brands - aren't well known. And that contributes to the product's short lifespan, amongst other reasons. Is there an inexpensive brand building opportunity available for your eCommerce brand?

Dennis Raefield

Well, I would say that some of our brands are unknown and insignificant. Our Purity Mineral science which is a mineral-based makeup - I put the slide up of the, it's the first one in the upper left-hand corner - is quite successful and has quite long legs. If I take you to the revenue slide and you look at the revenue - let me push that to you - if you look at this slide of new member acquisitions - the purple is Purity. This is not a slow-lived brand. And you can see that it's come back up again. It's actually higher than it's been for a year.

So our brands are not disappearing. The small little slivers you see at the bottom are things that don't have big market potentials and therefore are unknown. But I would not say that everything is unknown. Our Extreme Bright White tooth whitener is the blue at the top, the light blue section - it's holding its own. So we're not seeing these things - they all went down in the fall because of the credit card decline - but we're not seeing short legs on these things, because we've changed the way the previous management went to market. They were looking at acquisitions. We're looking at retention, because that's where the profits are at. And so we're still attracting people. Is there a low-cost way to build brand recognition? I think Ron, our President, is doing that. We just ran an ad in an infomercial on Purity Mineral Makeup. And it broke last week on the Learning Channel. And it's one of those infomercial ads where they're there to teach you new ways to make yourself look younger.

Andrew Shapiro - Lawndale Capital Management

Right.

Dennis Raefield

And so, so we're doing some alternative things that have never been done before. And I can't tell you whether it's going to work or not, because it just broke about the last four or five days. But I do know that member acquisitions are back up again. I think this is February. March has a good month of acquisitions. We see those first before we see revenue of course. We can tell online immediately. And Purity went, did take a bounce up from it. I don't know how big it is yet.

Andrew Shapiro - Lawndale Capital Management

OK. One or two more questions. The pace of car wash sales you even mentioned was frustratingly slow in '09, and it's unacceptable. And what steps are you taking that might speed this pace up and finish the divestment?

Dennis Raefield

Finish and put a nail in that. Well, number one, as I went to the board and asked to write down in 2009 to the actual, what I perceive were the market values - before we were very reluctant when you had something that was valued at $2.5 or $3 million dollars and you get a $1.5 million-dollar offer; it's pretty hard to accept that, even though it gets you out of the business. You know, this is shareholder money; I want to protect it. So we went through and I think trimmed our book values down to where we think is the right price so that we don't have to take more hits. And that I can, it's more palatable to sell them. That's number one.

Number two, we're looking at some creative offerings where we might carry back a small amount of paper, as long as it's secured by real estate, and we've still got dirt under every car wash. So I'm OK to take, carry back paper. We weren't doing that before. We were looking for all cash. But I think now we're at the tipping point. We also have - you know, I have, (I had) three in contract. One closed and two fell out. And today I'm supposed to have the signature back in on that, on one of the two that fell out of contracts. So (inaudible), and it's from the buyer of the one that did close. So it's from real buyers who have money. And that's the big, the problem. We're down to the last few. I may close some. And we're taking some steps I can't discuss on the call to get rid of the rest. I want nothing more than to stop it. It's not making money. It is draining us slightly. It's no longer bleeding to death, but it is a drain. And at this stage, I don't need any drains at all.

Andrew Shapiro - Lawndale Capital Management

Right. OK. And does that also include structuring the actual deals so they close quicker? Because I think the longer the closing period, the greater the risk they fall out.

Dennis Raefield

I wish I could change that. Unfortunately, these are sites that have gas tanks in the ground and, you know, chemicals that have been laying there for years. And the amount of time it takes us, mostly governmental regulation; our last one was delayed three weeks just because there was a certificate with the State of Texas that had, that was part of the contingencies that had to be cleared. And it was to be cleared by the buyer. But he couldn't get them to come out and inspect it, and his bank wouldn't close. The banks are quite reluctant to buy things without completely clear titles. And of course, you know, these are - in Texas, most of the gas tanks are single wall, meaning they could have leaked. And there have to be holes drilled and test reports, and it takes a month. So I wish I could get someone to buy it as is, and close tomorrow at a good price, but it just doesn't happen, Andrew.

Andrew Shapiro - Lawndale Capital Management

(Now) scale down to the car washes should provide for reduced insurance expense, because you guys have self-insured layers and (inaudible) ...

Greg Krzemien

Yes, what we have, Andrew, what we have is a captive insurance program. And that made a lot of sense when we had all the car washes. And quite frankly, it still does make sense. That renews on February 1st. And last year on February 1st their premium going into the year - which a lot of it is worker's compensation for the car wash employees, also provides some general liability and property coverage for people's cars - but going into February of 2009, that premium was in excess of $300,000 - between $300,000 and $350,000. And we just renewed it for about $90,000 going into February of 2010. So you know, we saw significant reductions there. And it's still a very favorable program for us compared to, you know, total transfer of risk insurance.

Andrew Shapiro - Lawndale Capital Management

And what busted the sale of the two remaining Lubbock car washes? What was the contingency that broke up the sale?

Greg Krzemien

Yes, the person who was looking to buy those, Andrew, was more of a developer who was looking to possibly use the properties for alternative uses. And I guess they were given some demographic studies and some other, you know, studies that - and I'm not sure of all the details, but from what I understand, is that they just decided that whatever use they were going to use the properties for probably wouldn't have been the best use.

Andrew Shapiro - Lawndale Capital Management

Right.

Greg Krzemien

So, they weren't going to use them as car washes.

Andrew Shapiro - Lawndale Capital Management

OK. And (inaudible) ...

Greg Krzemien

But, as I said, we do expect an agreement on one of those car washes literally any day now.

Andrew Shapiro - Lawndale Capital Management

That'll start another 90-day cycle though.

Dennis Raefield

Yes, it sure does. I would sell you, Andrew. You could buy - I'd give you a hell of a deal on six.

Andrew Shapiro - Lawndale Capital Management

I've had my ownership of these car washes for far too long already.

Dennis Raefield

Amen.

Andrew Shapiro - Lawndale Capital Management

(And I) (inaudible) them anymore. With respect to that - and that's a comment you had made regarding the car wash sales - but it carries over really for any asset sales you make, just from an investor's standpoint or a viewpoint - look, the assets are worth what they are; I don't care that you have a non-cash write-down that has to be taken in order to get cash from an asset that's costing or bleeding the company money. So if it is the right price, you know, it's a fair price that someone is offering you for the product, take the darn write-off, and it's a (inaudible) (cost) (inaudible).

Dennis Raefield

Right.

Andrew Shapiro - Lawndale Capital Management

But you overpaid for the - someone overpaid for the asset when it was bought. And don't let the write-off ... It's not as if you guys have earnings estimates that are going to get missed ...

Dennis Raefield

Right.

Andrew Shapiro - Lawndale Capital Management

... because you take the write-off. Get the damn thing out of there. Write them down to appropriate values, 'cause Chinese water torture of having $200,000-dollar write-downs every quarter is no better than taking the $800,000-dollar write-down and then closing on the sale. And if you book (a gain), you book (a gain).

Dennis Raefield

Right. I agree. And that's why we did write down the remaining car washes, so that that was done. Hopefully that Chinese water torture on that is over. And Linkstar, if we had decided to sell it last quarter, certainly when it was not making money, you're right; it would have been a stop of the bleed. But it did - we saw what was coming, that the credit crunch was ending. And we took the risk that they were going to recover, so that we have an asset to sell that is worth something, not only as an asset for our shareholders, but worth something to the buyers that are looking at it now, that it has real value. So I'm going to try and maximize that.

But you're right. If it was losing money, there's no hesitation here about what to close and let's do it. The same thing with the car washes. You know, I'm not letting, they're not bleeding us to death. We realized (Laindoff) Management sized it so that it's the very kind of insignificant bleed, and it's sitting, not really hurting us very much. I want out of it for other reasons. I want out of it because of the liability exposure and the INS exposure, to make sure that doesn't happen again.

Andrew Shapiro - Lawndale Capital Management

Right.

Dennis Raefield

And that's a constant thing. That's (why) we should be out of that business. But it's not draining us. What's draining us is the Security Products Division, you know, has to get to profitable business, and that's - the rest of them are working - and that's the one that's getting the focus.

Andrew Shapiro - Lawndale Capital Management

Yes. Now can you discuss the ISC, the latest show? At least you've highlighted that you're attending on the Website, the Mace Website. Can you just discuss the, Mace's experience at the ISC show and upcoming show participation schedules?

Dennis Raefield

Sure. First of all, we thought it was going to be a terrible show. They predicted a 25 percent fall-off in attendance. And last year's show was terrible because of the - of course, that was last Spring, which was the, kind of the bottom. And so we went with trepidation, and we had a fantastic show. We brought back hundreds of leads, a lot of them for the Fence Protection, but also for our Access Control. And our, some of our new video - we did some teasers of the new video. So I'm very pleased, and we were quite - I have to tell you, I was voting for not going. I mean, that ... Luckily, our costs were all sunk, and I was voting for saving the rest of the costs. But it was so much sunk cost, we went with trepidation, and I guess that went wrong and we had a very good show.

So, you know, having a good show and having it turn into orders are of course two different things. But if you have a bad show, you probably know for sure you're not going to have any sales. But we did have a good show, and we anticipate that. So we are right now not scheduled to do very many other shows. Trade shows are in transition because of the recession. And we were at ISC East, which was in New York. It was a very slow show, and they asked us if we wanted to come back. We said no.

One of the trade shows was cancelled, the Security America Show in Miami which handles the South American market. And so trade shows, in my mind, are up in the air as to how valuable they are. We have no choice about ISC West because it was the biggest. And we have a good position. We have a decent-sized booth and a good location, and we had good traffic. I think we're in transition with trade shows as we are with dealer sales. What's going to happen? We need our dealers to recover. And we're seeing those green shoots, as Mr. Obama keeps calling them. But they get trampled over pretty easily. So I'm not, I don't have a forecast of how many more shows we'll do.

Andrew Shapiro - Lawndale Capital Management

All right. I'll back out. Thank you.

Dennis Raefield

Thank you, Andrew, for your good calls.

Operator

And again, ladies and gentlemen, that's star, followed by the number one on your telephone keypad, to ask any questions. And there are no audio questions in queue at this time.

Dennis Raefield

All right. I guess then we'll adjourn the conference call.

Greg Krzemien

Yes.

Dennis Raefield

And I thank you all for come ... Don, do you want to adjourn it?

Don Taylor

I will. I wanted to make one point, while we're all here, that we are planning our Annual Shareholder Meeting in New York City this summer on June 18th. That's Friday. And I believe the time is 11:00 A.M. We'll have a more formal announcement. But I thought I'd mention that while we have everybody on the phone. And then just a real sincere thanks to everybody for their attendance and participation at today's conference. I thought it was very good. If there are any further questions, please don't hesitate to call me - 954-449-1306. Or you can e-mail me at dtaylor@mace.com. And thank you very much.

Dennis Raefield

Thank you all for coming.

Don Taylor

Thank you.

Operator

Thank you for joining today's presentation. You may now disconnect.

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Source: Mace Security International Inc. 4Q 2009 Earnings Call Transcript
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