Edgar Filing: MACE SECURITY INTERNATIONAL INC

Unassociated Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM __ TO __

COMMISSION FILE NO: 0-22810

MACE SECURITY INTERNATIONAL, INC.

(Exact name of Registrant as specified in its charter)

DELAWARE	03-0311630
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

240 Gibraltar Road, Suite 220, Horsham, Pennsylvania 19044

(Address of Principal Executive Offices) (Zip code)

Registrant's Telephone Number, including area code: (267) 317-4009

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one)

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company x

(Do not check if a smaller

reporting company)

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

As of November 16, 2009, there were 16,052,075 Shares of the registrant’s Common Stock, par value $.01 per share, outstanding.

Mace Security International, Inc.

Form 10-Q

Quarter Ended September 30, 2009

Table of Contents

	Page

PART I - FINANCIAL INFORMATION

Item 1 - Financial Statements

Consolidated Balance Sheets – September 30, 2009 (Unaudited) and December 31, 2008	1

Consolidated Statements of Operations (Unaudited) for the three months ended September 30, 2009 and 2008	3

Consolidated Statements of Operations (Unaudited) for the nine months ended September 30, 2009 and 2008	4

Consolidated Statement of Stockholders’ Equity (Unaudited) for the nine months ended September 30, 2009	5

Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2009 and 2008	6

Notes to Consolidated Financial Statements (Unaudited)	7

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3 - Quantitative and Qualitative Disclosures about Market Risk	37

Item 4T - Controls and Procedures	37

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings	37

Item 1A - Risk Factors	38

Item 2 - Unregistered Sales of Securities and Use of Proceeds	48

Item 6 - Exhibits	48

Signatures	49

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

Mace Security International, Inc.

Consolidated Balance Sheets

(in thousands, except share information)

	September 30, 2009			December 31, 2008
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	3,543		$	8,314
Short-term investments		1,079			1,005
Accounts receivable, less allowance for doubtful accounts of $801 and $760 in 2009 and 2008, respectively		2,435			1,852
Inventories		5,699			7,743
Prepaid expenses and other current assets		2,185			1,994
Assets held for sale		12,088			4,680
Total current assets		27,029			25,588
Property and equipment:
Land		2,374			6,874
Buildings and leasehold improvements		6,407			12,642
Machinery and equipment		5,048			5,332
Furniture and fixtures		536			511
Total property and equipment		14,365			25,359
Accumulated depreciation and amortization		(5,608	)		(7,164	)
Total property and equipment, net		8,757			18,195

Goodwill		7,869			6,887
Other intangible assets, net of accumulated amortization of $1,608 and $1,472 in 2009 and 2008, respectively		3,935			3,449
Other assets		1,625			917
Total assets	$	49,215		$	55,036

The accompanying notes are an integral

part of these consolidated financial statements.

	September 30, 2009			December 31, 2008
	(Unaudited)
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current portion of long-term debt and capital lease obligations	$	402		$	2,502
Accounts payable		2,747			2,287
Income taxes payable		342			350
Deferred revenue		358			131
Accrued expenses and other current liabilities		4,245			2,649
Liabilities related to assets held for sale		3,136			1,644
Total current liabilities		11,230			9,563

Long-term debt, net of current portion		1,624			2,306
Capital lease obligations, net of current position		132			-
Other liabilities		481			-

Commitments and contingencies – See Note 7

Stockholders’ equity:
Preferred stock, $.01 par value: authorized shares-10,000,000 issued and outstanding shares-none		-			-

Common stock, $.01 par value: authorized shares-100,000,000 issued and outstanding shares of 16,052,075 at September 30, 2009 and 16,285,377 at December 31, 2008, respectively		161			163
Additional paid-in capital		94,050			94,161
Accumulated other comprehensive loss		(1	)		(5	)
Accumulated deficit		(58,435	)		(51,147	)
		35,775			43,172
Less treasury stock at cost, 27,232 shares at September 30, 2009 and 5,532 shares at December 31, 2008		(27	)		(5	)
Total stockholders’ equity		35,748			43,167
Total liabilities and stockholders’ equity	$	49,215		$	55,036

The accompanying notes are an integral

part of these consolidated financial statements.

Mace Security International, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share information)

	Three Months Ended September 30,
	2009			2008
Revenues:
Security	$	4,821		$	5,309
Digital media marketing		2,231			3,355
Car wash		1,175			1,677
		8,227			10,341
Cost of revenues:
Security		3,348			4,004
Digital media marketing		1,772			2,139
Car wash		1,143			1,463
		6,263			7,606

Selling, general and administrative expenses		3,771			4,481
Depreciation and amortization		255			247
Asset impairment charges		150			-

Operating loss		(2,212	)		(1,993	)

Interest (expense) income, net		(29	)		(8	)
Other income		1			157
Loss from continuing operations before income taxes		(2,240	)		(1,844	)

Income tax expense		15			25
Loss from continuing operations		(2,255	)		(1,869	)
Loss from discontinued operations, net of tax of $0 in 2009 and 2008		(103	)		(192	)
Net loss	$	(2,358	)	$	(2,061	)
Per share of common stock (basic and diluted):
Loss from continuing operations	$	(0.14	)	$	(0.11	)
Loss from discontinued operations		(0.01	)		(0.02	)
Net loss	$	(0.15	)	$	(0.13	)

Weighted average shares outstanding:
Basic		16,191,590			16,465,253
Diluted		16,191,590			16,465,253

The accompanying notes are an integral

part of these consolidated financial statements.

Mace Security International, Inc.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share information)

	Nine Months Ended September 30,
	2009			2008
Revenues:
Security	$	13,457		$	16,151
Digital media marketing		8,035			14,272
Car wash		3,841			5,077
		25,333			35,500
Cost of revenues:
Security		9,477			12,019
Digital media marketing		5,797			9,884
Car wash		3,580			4,430
		18,854			26,333

Selling, general and administrative expenses		11,627			14,182
Depreciation and amortization		739			818
Asset impairment charges		1,432			2,608
Operating loss		(7,319	)		(8,441	)

Interest (expense) income, net		(50	)		40
Other income		55			378
Loss from continuing operations before income taxes		(7,314	)		(8,023	)

Income tax expense		95			75
Loss from continuing operations		(7,409	)		(8,098	)
Income from discontinued operations, net of tax of $0 in 2009 and 2008		121			6,082
Net loss	$	(7,288	)	$	(2,016	)
Per share of common stock (basic and diluted):
Loss from continuing operations	$	(0.46	)	$	(0.49	)
Income from discontinued operations		0.01			0.37
Net loss	$	(0.45	)	$	(0.12	)

Weighted average shares outstanding:
Basic		16,253,765			16,465,253
Diluted		16,253,765			16,465,253

The accompanying notes are an integral

part of these consolidated financial statements.

Mace Security International, Inc.

Consolidated Statement of Stockholders' Equity

(Unaudited)

(in thousands, except share information)

										Accumulated
	Common Stock						Additional			Other
	Shares			Amount			Paid-in Capital			Comprehensive Income (loss)			Accumulated Deficit			Treasury Stock			Total
Balance at December 31, 2008		16,285,377		$	163		$	94,161		$	(5	)	$	(51,147	)	$	(5	)	$	43,167
Stock-based compensation expense (see note 6)		-			-			93			-			-						93
Purchase and retirement of treasury stock, net		(233,302	)		(2	)		(204	)		-			-			(22	)		(228	)
Unrealized gain on short-term investments		-			-			-			4			-						4
Net loss		-			-			-			-			(7,288	)		-			(7,288	)
Total comprehensive loss		-			-			-			-			-			-			(7,284	)
Balance at September 30, 2009		16,052,075		$	161		$	94,050		$	(1	)	$	(58,435	)	$	(27	)	$	35,748

The accompanying notes are an integral

part of this consolidated financial statements.

Mace Security International, Inc.

Consolidated Statements of Cash Flows

(Unaudited) (in thousands)

	Nine Months Ended September 30,
	2009			2008
Operating activities
Net (loss) income	$	(7,288	)	$	(2,016	)
Income from discontinued operations, net of tax		121			6,082
Loss from continuing operations		(7,409	)		(8,098	)
Adjustments to reconcile loss from continuing operations to net cash used in operating activities:
Depreciation and amortization		739			818
Stock-based compensation (see Note 6)		93			546
Provision for losses on receivables		145			244
(Gain) loss on sale of property and equipment		(18	)		7
Asset impairment charge		1,432			2,608
Loss (gain) on short-term investments		4			(259	)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable		(609	)		877
Inventories		1,906			(348	)
Prepaid expenses and other assets		169			53
Accounts payable		619			(1,568	)
Deferred revenue		242			109
Accrued expenses		134			812
Income taxes payable		(41	)		(364	)
Net cash used in operating activities-continuing operations		(2,594	)		(4,563	)
Net cash provided by (used in) operating activities-discontinued operations		283			(727	)
Net cash used in operating activities		(2,311	)		(5,290	)
Investing activities
Acquisition of business, net of cash acquired		(1,845	)		-
Purchase of property and equipment		(375	)		(374	)
Proceeds from sale of property and equipment		809			1
Purchase of short-term investments		(74	)		(1,070	)
Payments for intangibles		(36	)		(15	)
Net cash used in investing activities-continuing operations		(1,521	)		(1,458	)
Net cash (used in) provided by investing activities-discontinued operations		(23	)		7,849
Net cash (used in) provided by investing activities		(1,544	)		6,391
Financing activities
Payments on long-term debt		(388	)		(867	)
Purchase and retirement of treasury stock, net		(22	)		(38	)
Net cash used in financing activities-continuing operations		(410	)		(905	)
Net cash used in financing activities-discontinued operations		(506	)		(544	)
Net cash used in financing activities		(916	)		(1,449	)
Net decrease in cash and cash equivalents		(4,771	)		(348	)
Cash and cash equivalents at beginning of period		8,314			8,104
Cash and cash equivalents at end of period	$	3,543		$	7,756

The accompanying notes are an integral

part of these consolidated financial statements.

Mace Security International, Inc.

Notes to Consolidated Financial Statements

(Unaudited)

1. Description of Business and Basis of Presentation

The accompanying consolidated financial statements include the accounts of Mace Security International, Inc. and its wholly owned subsidiaries (collectively, the “Company” or “Mace”). All significant intercompany transactions have been eliminated in consolidation. The Company currently operates in three business segments: the Security Segment, selling consumer safety and personal defense products, as well as electronic surveillance products and security monitoring services; the Digital Media Marketing Segment, selling consumer products on the internet; and the Car Wash Segment, supplying complete car care services (including wash, detailing, lube, and minor repairs). The Company entered the digital media marketing business with its acquisition of Linkstar Interactive, Inc. (“Linkstar”) on July 20, 2007 and the wholesale security monitoring business with its acquisition of Central Station Security Systems, Inc. (“CSSS”) on April 30, 2009. See Note 4. Business Acquisitions and Divestitures. As of September 30, 2009, the results for the Florida; Austin, Texas; San Antonio, Texas; and the Lubbock, Texas car wash regions have been classified as discontinued operations in the statement of operations and the statement of cash flows. The statements of operations and the statements of cash flows for the prior years have been restated to reflect the discontinued operations in accordance with accounting principles generally accepted in the United States (“GAAP”). See Note 5. Discontinued Operations and Assets Held for Sale.

2. New Accounting Standards

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (the “ASC”). The ASC has become the single source of non-governmental accounting principles generally accepted in the United States (“GAAP”) recognized by the FASB in the preparation of financial statements. The ASC does not supersede the rules or regulations of the U.S. Securities and Exchange Commission (the “SEC”), therefore, the rules and interpretive releases of the SEC continue to be additional sources of GAAP for the Company. The Company adopted the ASC as of July 1, 2009. The ASC does not change GAAP and did not have an effect on the Company’s financial position, results of operations or cash flows.

In December 2007, the FASB issued new guidance on business combinations. This guidance establishes principles and requirements for how the Company: (1) recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree; (2) recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and (3) determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The business combinations guidance also requires acquisition-related transaction and restructuring costs to be expensed rather than treated as part of the cost of the acquisition. This guidance applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company adopted the business combination guidance on January 1, 2009. See Note 4. Business Acquisitions and Divestitures.

In April 2009, the FASB issued guidance relating to accounting for assets acquired and liabilities assumed in a business combination that arise from contingencies. This pronouncement amends the guidance on business combinations to clarify the initial and subsequent recognition, subsequent accounting, and disclosure of assets and liabilities arising from contingencies in a business combination. This pronouncement requires that assets acquired and liabilities assumed in a business combination that arise from contingencies be recognized at fair value, as determined in accordance with the fair value measurements guidance, if the acquisition-date fair value can be reasonably estimated. If the acquisition-date fair value of an asset or liability cannot be reasonably estimated, the asset or liability would be measured at the amount that would be recognized in accordance with the accounting guidance for contingencies. This pronouncement became effective for the Company as of January 1, 2009, and the provisions of the pronouncement are applied prospectively to business combinations with an acquisition date on or after the date the guidance became effective. The adoption of the pronouncement did not have a material impact on the Company’s financial position or results of operations.

In April 2009, the FASB issued additional guidance on fair value measurements and disclosures. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants under current market conditions. The new guidance requires an evaluation of whether there has been a significant decrease in the volume and level of activity for the asset or liability in relation to normal market activity for the asset or liability. If there has been a significant decrease in activity, transactions or quoted prices may not be indicative of fair value and a significant adjustment may need to be made to those prices to estimate fair value. Additionally, an entity must consider whether the observed transaction was orderly (that is, not distressed or forced). If the transaction was orderly, the obtained price can be considered a relevant, observable input for determining fair value. If the transaction is not orderly, other valuation techniques must be used when estimating fair value. This guidance, which was applied by the Company prospectively as of June 30, 2009, did not impact the Company’s results of operations, cash flows or financial position for the three and nine months periods ended September 30, 2009.

In May 2009, the FASB issued guidance on subsequent events which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. This guidance is based on the same principles as currently exist in auditing standards and was issued by the FASB to include accounting guidance that originated as auditing standards into the body of authoritative literature issued by the FASB. The standard addresses the period after the balance sheet date during which management of a reporting entity should evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements, the circumstances under which an entity should recognize events or transactions occurring after the balance sheet date in its financial statements and disclosure that an entity should make about events or transactions that occurred after the balance sheet date. The Company adopted this guidance during the quarter ended June 30, 2009. For the quarter ended September 30, 2009, the Company evaluated subsequent events through November 16, 2009, which is the date the accompanying financial statements were available to be issued. During this period we had recognizable subsequent events by entering into an agreement to sell the Ft. Lauderdale, Florida warehouse building on October 5, 2009 (See Note 5, Discontinued Operations and Assets Held for Sale) and by entering into an amendment on October 9, 2009 to the agreements of sale for the three car washes we own in Austin, Texas (See Note 4, Business Acquisitions and Divestitures).

3. Other Intangible Assets

The following table reflects the components of intangible assets, excluding goodwill and other intangibles classified as assets held for sale (in thousands):

	September 30, 2009				December 31, 2008
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization

Amortized intangible assets:
Non-compete agreement	$	515	$	216	$	465	$	164
Customer lists		1,824		623		1,184		654
Product lists		590		310		590		266
Software		883		319		883		208
Patent costs		23		-		16		-
Tradename		70		10		-		-
Deferred financing costs		137		130		231		180
Total amortized intangible assets		4,042		1,608		3,369		1,472
Non-amortized intangible assets:
Trademarks-Security Segment		1,013		-		1,074		-
Trademarks-Digital Media Marketing Segment		488		-		478		-
Total non-amortized intangible assets		1,501		-		1,552		-
Total intangible assets	$	5,543	$	1,608	$	4,921	$	1,472

The following sets forth the estimated amortization expense on intangible assets for the fiscal years ending December 31 (in thousands):

2009	$	444
2010	$	485
2011	$	444
2012	$	379
2013	$	270

Amortization expense of other intangible assets, net of discontinued operations, was approximately $121,000 and $104,000 for the three months ended September 30, 2009 and 2008 and $345,000 and $399,000 for the nine months ended September 30, 2009 and 2008, respectively. The weighted average useful life of amortizing intangible assets was 4.9 years at September 30, 2009.

4. Business Acquisitions and Divestitures

Acquisitions

On April 30, 2009, the Company completed the purchase of all the outstanding common stock of CSSS from CSSS’s shareholders. The Company paid approximately $3.7 million consisting of $1.7 million in cash at closing, potential additional payments of up to $1.4 million upon the settlement of certain contingencies as set forth in the Stock Purchase Agreement, $124,000 which has been paid to date, $846,000 which is recorded in accrued expenses and other current liabilities and $481,000 of which is recorded as other non-current liabilities at September 30, 2009, and the assumption of approximately $590,000 of liabilities. CSSS, which is reported within the Company’s Security Segment, is a national wholesale monitoring company located in Anaheim, California, with approximately 300 security dealer clients. CSSS owns and operates a UL-listed monitoring center that services over 30,000 end-user accounts. CSSS’s primary assets are accounts receivable, equipment, customer contracts, and its business methods. The acquisition of CSSS enables the Company to expand the marketing of its security products through cross-marketing of the Company’s surveillance equipment products to CSSS’s dealer base as well as offering the Company’s current customers monitoring services. The purchase price was allocated as follows: approximately (i) $19,000 for cash; (ii) $112,000 for accounts receivable; (iii) $63,000 for prepaid expenses and other assets; (iv) $443,000 for fixed assets and capital leased assets; (v) the assumption of $590,000 of liabilities, and (vi) the remainder, or $3.04 million, allocated to goodwill and other intangible assets. Within the $3.04 million of acquired intangible assets, $1.98 million was assigned to goodwill, which is not subject to amortization expense. The amount assigned to goodwill was deemed appropriate based on several factors, including: (i) multiples paid by market participants for businesses in the security monitoring business; (ii) levels of CSSS’s current and future projected cash flows; (iii) the Company’s strategic business plan, which included cross-marketing the Company’s surveillance equipment products to CSSS’s dealer base as well as offering the Company’s current customers monitoring services, thus potentially increasing the value of its existing business segment; and (iv) the Company’s plan to substitute the cash flows of the Car Wash Segment, which the Company is exiting. The remaining intangible assets were assigned to customer contracts and relationships for $940,000, tradename for $70,000, and a non-compete agreement for $50,000. Customer relationships, tradename and the non-compete agreement were assigned a life of fifteen, three, and five years, respectively. The acquisition was accounted for as a business combination in accordance with the new business combination pronouncement as disclosed in Note 2.

Divestitures

In the first quarter ending March 31, 2008, the Company sold its six full service car washes in Florida in three separate transactions from January 4, 2008 to March 3, 2008 for total cash consideration of approximately $12.5 million at a gain of approximately $6.9 million. Simultaneously with the sale, $4.2 million of cash was used to pay down related mortgage debt.

On July 18, 2008, the Company entered into an agreement to sell one of its full service car washes in Dallas, Texas for a total cash consideration of $1.8 million. The Company completed the sale of the Dallas, Texas car wash on October 14, 2008. Simultaneously with the sale, $1.24 million of cash was used to pay down related mortgage debt.

On January 14, 2009, the Company sold its two remaining San Antonio, Texas car washes. The sale price of the car washes was $1.0 million, resulting in a loss of approximately $7,000. The sale price was paid by the buyer issuing the Company a secured promissory note in the amount of $750,000 bearing interest at 6% per annum plus cash of $250,000, less closing costs.

On January 15, 2009, the Company entered into an agreement of sale for two of the three car washes it owns in Austin, Texas. The net book value of these two car washes is approximately $5.3 million. Additionally, on April 6, 2009, the Company entered into an agreement of sale for the third of the three car washes it owns in Austin, Texas. The net book value of this car wash is approximately $2.6 million. On October 9, 2009 the agreements of sale were amended, and the purchase price was modified to $8.0 million for the three car washes. Under the amendment to the agreements of sale, $440,000 of deposits were released to the Company and an additional $200,000 has been deposited in escrow. Closing under the amendment is required to occur by November 30, 2009. Although no assurance can be given that these transactions will close, the Company believes that the sale will be consummated on or before November 30, 2009.

On May 5, 2009, the Company entered into an agreement of sale for an Arlington, Texas car wash for a sales price of $2.95 million. The net book value of this car wash is approximately $2.8 million. The agreement to sell the Arlington, Texas car wash was terminated by the buyer through exercise of a contingency clause.

On May 11, 2009, the Company entered into an agreement of sale for a Lubbock, Texas car wash for a sales price of $800,000. The net book value of this car wash is approximately $750,000. The agreement to sell the Lubbock, Texas car wash was terminated by the buyer on August 25, 2009. The Company received $20,000 in cancellation payments from the buyer’s exercise of a contingency clause.

On May 18, 2009, the Company entered into an agreement of sale for an Arlington, Texas car wash for a sale price of $979,000. The net book value of this car wash was approximately $925,000. The Company completed the sale of the Arlington, Texas car wash on September 16, 2009. Simultaneously with the sale, $461,000 of cash was used to pay down related mortgage debt. The sale resulted in a net gain of $15,000.

On July 31, 2009, the Company sold a cell tower easement located at one of the Company’s Arlington, Texas car wash properties for a sales price of $292,000. The sale resulted in a net gain of $9,600.

5. Discontinued Operations and Assets Held for Sale

The Company reviews the carrying value of its long-lived assets held and used, and its assets to be disposed of, for possible impairment when events and circumstances warrant such a review. We also follow the criteria within GAAP in determining when to reclass assets to be disposed of to assets and related liabilities held for sale as well as when an operation disposed of or to be disposed of is classified as a discontinued operation in the statements of operations and the statements of cash flows.

The Company entered into two separate agreements on November 8, 2007 and November 19, 2007 to sell five of its six full service car washes and a third agreement in January 2008 to sell its final car wash in the Sarasota, Florida area. All six Florida car washes were sold from January 4, 2008 to March 3, 2008.

Additionally, on May 17, 2008 and June 30, 2008, the Company entered into two separate agreements to sell two of its three full service car washes in Lubbock, Texas for total cash consideration of $3.66 million. Additionally, on August 7, 2008, the Company entered into an agreement to sell a full service car wash in Arlington, Texas for total cash consideration of $3.6 million. The agreements to sell the two Lubbock, Texas car washes and the Arlington, Texas car wash were terminated by the buyers through the exercise of contingency clauses. The Company received $10,700 in cancellation payments from the buyers’ exercise of the contingency clauses. Also, as noted above, the Company entered into agreements of sale for the three car washes it owns in Austin, Texas.

Accordingly, for financial statement purposes, the assets, liabilities, results of operations and cash flows of the operations of our Florida; San Antonio, Texas; Lubbock, Texas; and Austin, Texas car washes have been segregated from those of continuing operations and are presented in the Company’s consolidated financial statements as discontinued operations.

Revenues from discontinued operations were $1.5 million and $2.6 million for the three months ended September 30, 2009 and 2008 and $4.8 million and $7.9 million for the nine months ended September 30, 2009 and 2008, respectively. Operating (loss) income from discontinued operations was $(106,000) and $(188,000) for the three months ended September 30, 2009 and 2008 and $131,000 and $(781,000) for the nine months ended September 30, 2009 and 2008, respectively.

On October 5, 2009, the Company entered into an agreement of sale to sell its Ft. Lauderdale, Florida warehouse building for cash consideration of $1.6 million. The sale is subject to customary closing conditions, including a general due diligence period. While the transaction is expected to close prior to December 31, 2009 , no assurance can be given that the sale will be consummated. We recorded an additional impairment charge of $150,000 at September 30, 2009 to write-down the property to the sale price. The related assets have also been reclassed to assets held for sale at September 30, 2009 (See Note 11. Assets Impairment Charges).

Assets and liabilities held for sale were comprised of the following (in thousands):

	As of September 30, 2009
Assets held for sale:	Lubbock, Texas		Austin, Texas		Ft. Lauderdale, Florida		Total

Inventory	$	126	$	32	$	-	$	158
Property, plant and equipment, net		2,604		7,677		1,610		11,891
Intangible Assets		-		39		-		39
Total assets	$	2,730	$	7,748	$	1,610	$	12,088

Liabilities related to assets held for sale:

Current portion of long-term debt	$	209	$	491	$	-	$	700
Long-term debt, net of current portion		697		1,739		-		2,436
Total liabilities	$	906	$	2,230	$	-	$	3,136

	As of December 31, 2008
Assets held for sale:	Fort Worth, Texas		Lubbock, Texas		San Antonio, Texas		Total

Inventory	$	51	$	126	$	-	$	177
Property, plant and equipment, net		927		2,599		977		4,503
Total assets	$	978	$	2,725	$	977	$	4,680

Liabilities related to assets held for sale: sale:

Current portion of long-term debt	$	589	$	201	$	-	$	790
Long-term debt, net of current portion		-		854		-		854
Total liabilities	$	589	$	1,055	$	-	$	1,644

6. Stock-Based Compensation

The Company has two stock-based employee compensation plans. The Company recognizes compensation cost relating to share-based payment transactions as compensation expense on a straight-line basis over the vesting period of the instruments, based upon the grant date fair value of the equity or liability instruments issued. Total stock compensation expense is approximately $40,300 and $93,000 for the three and nine months ended September 30, 2009 ($40,300 in selling, general and administrative (“SG&A”) expenses in the three month period and $93,000 in the nine month period) and $255,000 and $548,000 for the three and nine months ended September 30, 2008, ($255,000 in SG&A expenses in the three month period and $545,400 in SG&A expenses and $2,600 in the discontinued operations in the nine month period).

The fair values of the Company’s options were estimated at the dates of grant using a Black-Scholes option pricing model with the following weighted average assumptions:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Expected term years		10			10			10			10
Risk-free interest rate		2.75	%		3.88	%	2.75% to 3.21		%	3.51% to 3.91		%
Volatility		49	%		47	%		49	%		47	%
Dividend yield		0	%		0	%		0	%		0	%
Forfeiture Rate		30	%		11	%		30	%	11% to 31		%

Expected term: The Company’s expected life is based on the period the options are expected to remain outstanding. The Company estimated this amount based on historical experience of similar awards, giving consideration to the contractual terms of the awards, vesting requirements and expectations of future behavior.

Risk-free interest rate: The Company uses the risk-free interest rate of a U.S. Treasury Note with a similar term on the date of the grant.

Volatility: The Company calculates the volatility of the stock price based on historical value and corresponding volatility of the Company’s stock price over the prior five years, to correspond with the Company’s focus on the Security Segment.

Dividend yield: The Company uses a 0% expected dividend yield as the Company has not paid and does not anticipate declaring dividends in the near future.

Forfeitures: The Company estimates forfeitures based on historical experience and factors of known historical or future projected work force reduction actions to anticipate the projected forfeiture rates.

During the nine months ended September 30, 2009 and 2008, the Company granted 353,000 and 887,500 stock options, respectively. The weighted-average of the fair value of stock option grants are $0.57 and $0.95 per share for the nine months ended September 30, 2009 and 2008, respectively. As of September 30, 2009, total unrecognized stock-based compensation expense is $261,300, which has a weighted average period to be recognized of approximately 1.2 years.

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

7. Commitments and Contingencies

The Company is obligated under various operating leases, primarily for certain equipment, vehicles, and real estate. Certain of these leases contain purchase options, renewal provisions, and contingent rentals for the proportionate share of taxes, utilities, insurance, and annual cost of living increases. Future minimum lease payments under operating leases with initial or remaining non-cancellable lease terms in excess of one year as of September 30, 2009 for continuing operations are as follows: 2010 - $1.0 million; 2011 - $826,000; 2012 - $775,000; 2013 - $480,000; 2014- $291,000 and thereafter - $436,000. Rental expense under these leases was $298,000 and $253,000 for the three months ended September 30, 2009 and 2008 and $832,000 and $787,000 for the nine months ended September 30, 2009 and 2008, respectively.

The Company subleases a portion of the building space at several of its car wash facilities and its California leased office space related to its Digital Media Marketing Segment either on a month-to-month basis or under cancelable leases. During the three months ending September 30, 2009 and 2008, revenues under these leases were approximately $5,300 and $28,300, respectively and $57,600 and $68,200 for the nine months ended September 30, 2009 and 2008, respectively. These amounts are recorded in SG&A expense as a reduction of rental expense in the accompanying consolidated statements of operations.

As a result of its continued cost saving efforts, the Company decided to terminate a leased office in Fort Lauderdale, Florida during the second quarter 2008. Effective December 31, 2008, the lease’s termination date, the executives in the terminated office were moved to other offices of the Company. The lease termination resulted in a one time fee of $38,580, which was paid and included in SG&A expense in the second quarter of 2008.

The Company is subject to federal and state environmental regulations, including rules relating to air and water pollution and the storage and disposal of oil, other chemicals, and waste. The Company believes that it complies, in all material respects, with all applicable laws relating to its business. See also the discussion below concerning the environmental remediation which occurred at the Bennington, Vermont location in 2008.

Certain of the Company’s executive officers have entered into employee stock option agreements pursuant to which options issued to them shall immediately vest upon a change in control of the Company.

The Board of Directors of the Company terminated Mr. Paolino as the Chief Executive Officer of the Company on May 20, 2008. On June 9, 2008, the Company received a Demand for Arbitration from Mr. Paolino (“Arbitration Demand”). The Arbitration Demand has been filed with the American Arbitration Association in Philadelphia, Pennsylvania (“Arbitration Proceeding”). The primary allegations of the Arbitration Demand are: (i) Mr. Paolino alleges that he was terminated by the Company wrongfully and is owed a severance payment of $3,918,120 due to the termination; (ii) Mr. Paolino is claiming that the Company owes him $322,606 because the Company did not issue him a sufficient number of stock options in August 2007, under provisions of the Employment Contract between Mr. Paolino and the Company dated August 21, 2006; (iii) Mr. Paolino is claiming damages against the Company in excess of $6,000,000, allegedly caused by the Company defaming Mr. Paolino’s professional reputation and character in the Current Report on Form 8-K dated May 20, 2008 filed by the Company and in the press release the Company issued on May 21, 2008 relating to Mr. Paolino’s termination; and (iv) Mr. Paolino is also seeking punitive damages, attorney’s fees and costs in an unspecified amount. The Company has disputed the allegations made by Mr. Paolino and is defending itself in the Arbitration Proceeding. The Company has also filed a counterclaim in the Arbitration Proceeding demanding damages from Mr. Paolino of $1,000,000. Testimony in the arbitration has been completed, the parties are preparing briefs of their positions and a ruling is expected on or about March 15, 2010, based on the current scheduling order. It is not possible to predict the outcome of the Arbitration Proceeding. No accruals have been made with respect to Mr. Paolino’s claims.

Mr. Paolino has demanded that the Company pay Mr. Paolino’s costs of defending the Company’s $1,000,000 counterclaim that was filed in the Arbitration Proceeding. The Company has refused Mr. Paolino’s letter demand for indemnification. Mr. Paolino on March 30, 2009 filed a Complaint (“Indemnity Complaint”) in the Court of Chancery for the State of Delaware seeking to compel the Company to indemnify Mr. Paolino’s defense costs. The Indemnity Complaint alleges that the Company is obligated to pay for Mr. Paolino’s defense of the Company’s counterclaim under Article 6, Section 6.01 of the Company’s Bylaws. The Company has filed a motion with the Chancery Court for dismissal of Mr. Paolino’s Indemnity Complaint. A hearing on the Company’s motion has been scheduled for the end of November 2009.

On June 25, 2008, Mr. Paolino filed a claim with the United States Department of Labor claiming that his termination as Chief Executive Officer of the Company was an “unlawful discharge” in violation of 18 U.S.C. Sec. 1514A, a provision of the Sarbanes-Oxley Act of 2002 (the “DOL Complaint”). Mr. Paolino has alleged that he was terminated in retaliation for demanding that certain risk factors be set forth in the Company’s Form 10-Q for the quarter ended March 31, 2008, filed by the Company on May 15, 2008. Even though the risk factors demanded by Mr. Paolino were set forth in the Company’s Form 10-Q for the quarter ended March 31, 2008, Mr. Paolino in the DOL Complaint asserts that the demand was a “protected activity” under 18 U.S.C. Sec. 1514A, which protects Mr. Paolino against a “retaliatory termination.” In the DOL Complaint, Mr. Paolino demands the same damages he requested in the Arbitration Demand and additionally requests reinstatement as Chief Executive Officer with back pay from the date of termination. On September 23, 2008 the Secretary of Labor, acting through the Regional Administrator for the Occupational Safety and Health Administration, Region III dismissed the DOL Complaint and issued findings (the “Findings”) that there was no reasonable cause to believe that the Company violated 18 U.S.C. Sec. 1514A of the Sarbanes-Oxley Act of 2002. The Findings further stated that: (i) the investigation revealed that Mr. Paolino was discharged for non-retaliatory reasons that were unrelated to his alleged protected activity; (ii) Mr. Paolino was discharged because of his failure to comply with a Board directive to reduce costs; (iii) the Board terminated Mr. Paolino’s employment because of his failure to follow its directions and for his failure to reduce corporate overhead and expenses; and (iv) a preponderance of the evidence indicates that the alleged protected activity was not a contributing factor in the adverse action taken against Mr. Paolino. Mr. Paolino has filed objections to the Findings. As a result of the objections, an Administrative Law Judge set a date for a “de novo” hearing on Mr. Paolino’s claims. A “de novo” hearing is a proceeding where evidence is presented to the Administrative Law Judge and the Administrative Law Judge rules on the claims based on the evidence presented at the hearing. Upon the motion of Mr. Paolino, the de novo hearing and the claims made in the DOL Complaint have been stayed pending the conclusion of the Arbitration Proceeding. The Company will defend itself against the allegations made in the DOL Complaint, which the Company believes are without merit. Although the Company is confident that it will prevail, it is not possible to predict the outcome of the DOL Complaint or when the matter will reach a conclusion.

As previously disclosed, on May 8, 2008, Car Care, Inc. (“Car Care”), a defunct subsidiary of the Company that owned four of the Company’s Northeast region car washes, the Company’s former Northeast region car wash manager and four former general managers of four Northeast region car washes, were each indicted with and pled guilty to one felony count of conspiracy to defraud the government, harboring illegal aliens and identity theft. To resolve the indictment, Car Care entered into a written Guilty Plea Agreement on June 23, 2008 with the government, to plead guilty to the one count of conspiracy charged in the indictment. Under this agreement, on June 27, 2008, Car Care paid a criminal fine of $100,000 and forfeited $500,000 in proceeds from the sale of the four car washes. A charge of $600,000 was recorded as a component of income from discontinued operations as of March 31, 2008. The Company was not named in the indictment and, according to the plea agreement, will not be charged. The Company fully cooperated with the government in its investigation of this matter.

During January 2008, the Environmental Protection Agency (the “EPA”) conducted a site investigation at the Company’s Bennington, Vermont location and the building within which the facility is located. The Company leases 33,476 square feet of the building from Vermont Mill Properties, Inc. (“Vermont Mill”). The site investigation was focused on whether hazardous substances were being improperly stored. After the site investigation, the EPA notified the Company and the building owner that remediation of certain hazardous wastes were required. The EPA, the Company and the building owner entered into an Administrative Consent Order under which the hazardous materials and waste were remediated. All remediation required by the Administrative Consent Order was completed within the time allowed by the EPA and a final report regarding the remediation was submitted to the EPA in October 2008, as required by the Administrative Consent Order. On September 29, 2009 the EPA accepted the final report. A total estimated cost of approximately $711,000 relating to the remediation, which includes disposal of the waste materials, as well as expenses incurred to engage environmental engineers and legal counsel and reimbursement of the EPA’s costs, has been recorded through December 31, 2008. This amount represents management’s best estimate of probable loss. Approximately $596,000 has been paid to date, leaving an accrual balance of $115,000 at September 30, 2009 for estimated EPA costs.

In addition to the EPA site investigation, the United States Attorney for the District of Vermont (“U.S. Attorney”) conducted a search of the Company’s Bennington, Vermont location and the building in which the facility is located, during February 2008, under a search warrant issued by the U.S. District Court for the District of Vermont. On May 2, 2008, the U.S. Attorney issued a grand jury subpoena to the Company. The subpoena required the Company to provide the U.S. Attorney documents related to the storage, disposal and transportation of materials at the Bennington, Vermont location. The Company has supplied the documents and fully cooperated with the U.S. Attorney’s investigation and will continue to do so. The U.S. Attorney is actively pursuing an investigation of possible criminal violations. The Company has made no provision for any future costs associated with the investigation.

On September 19, 2008, the Company received a proposed assessment from a sales tax audit in the State of Florida for the audit period of August 2004 through July 2007. In the proposed assessment, audit deficiency, including interest, totaled $600,307. Based on documentation provided to the State, the Company settled this matter with a payment of $45,000 in March 2009.

The Company is a party to various other legal proceedings related to its normal business activities. In the opinion of the Company’s management, none of these proceedings are material in relation to the Company’s results of operations, liquidity, cash flows, or financial condition.

8. Business Segments Information

The Company currently operates in three segments: the Security Segment, the Digital Media Marketing Segment, and the Car Wash Segment.

The Company evaluates performance and allocates resources based on operating income of each reportable segment rather than at the operating unit level. The Company defines operating income as revenues less cost of revenues, selling, general and administrative expense, and depreciation and amortization expense. The accounting policies of the reportable segments are the same as those described in the Summary of Critical Accounting Policies (see below in Management’s Discussion and Analysis of Financial Condition and Results of Operations). There is no intercompany profit or loss recognized on intersegment sales.

The Company’s reportable segments are business units that offer different services and products. The reportable segments are each managed separately because they provide distinct services or produce and distribute distinct products through different processes.

Selected financial information for each reportable segment from continuing operations is as follows:

	Security			Digital Media Marketing			Car Wash			Corporate Functions(1)			Total

Three months ended September 30, 2009
Revenues from external customers	$	4,821		$	2,231		$	1,175		$	-		$	8,227
Segment operating (loss) income	$	(482	)	$	(174	)	$	(179	)	$	(1,227	)	$	(2,062	)
Segment assets (2)	$	16,604		$	8,400		$	12,123		$	-		$	37,127
Goodwill	$	1,982		$	5,887		$	-		$	-		$	7,869
Capital expenditures	$	115		$	1		$	1		$	70		$	187

Nine months ended September 30, 2009
Revenues from external customers	$	13,457		$	8,035		$	3,841		$	-		$	25,333
Segment operating (loss) income	$	(1,711	)	$	141		$	(441	)	$	(3,876	)	$	(5,887	)
Capital expenditures	$	274		$	1		$	23		$	77		$	375

Three months ended September 30, 2008
Revenues from external customers	$	5,309		$	3,355		$	1,677		$	-		$	10,341
Segment operating (loss) income	$	(504	)	$	36		$	(120	)	$	(1,405	)	$	(1,993	)
Segment assets (2)	$	17,787		$	10,264		$	30,745		$	-		$	58,796
Goodwill	$	1,344		$	6,887		$	-		$	-		$	8,231
Capital expenditures	$	87		$	-		$	30		$	7		$	124

Nine months ended September 30, 2008
Revenues from external customers	$	16,151		$	14,272		$	5,077		$	-		$	35,500
Segment operating (loss) income	$	(1,807	)	$	387		$	(273	)	$	(4,140	)	$	(5,833	)
Capital expenditures	$	247		$	23		$	94		$	10		$	374

A reconciliation of operating income for reportable segments to total reported operating loss is as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2009			2008			2009			2008

Total operating loss for reportable segments	$	(2,062	)	$	(1,993	)	$	(5,887	)	$	(5,833	)

Asset impairment charges		(150	)		-			(1,432	)		(2,608	)

Total reported operating loss	$	(2,212	)	$	(1,993	)	$	(7,319	)	$	(8,441	)

(1) Corporate functions include the corporate treasury, legal, financial reporting, information technology, corporate tax, corporate insurance, human resources, investor relations, and other typical centralized administrative functions.

(2) Segment assets exclude assets held for sale.

9. Use of Estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as the disclosure of contingent assets and liabilities at the date of its consolidated financial statements. The Company bases its estimates on historical experience, actuarial valuations and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Some of those judgments can be subjective and complex and, consequently, actual results may differ from these estimates under different assumptions or conditions. The Company must make these estimates and assumptions because certain information is dependent on future events and cannot be calculated with a high degree of precision from the data currently available. Such estimates include the Company's estimates of reserves such as the allowance for doubtful accounts, sales returns, warranty allowances, inventory valuation allowances, insurance losses and loss reserves, valuation of long-lived assets, estimates of realization of income tax net operating loss carryforwards, computation of stock-based compensation, as well as valuation calculations such as the Company’s goodwill impairment calculations.

10. Income Taxes

The Company recorded income tax expense of $15,000 and $25,000 from continuing operations in the three months ended September 30, 2009 and 2008 and $95,000 and $75,000 for continuing operations in the nine months ended September 2009 and 2008, respectively. Income tax expense reflects the recording of income taxes on income from continuing operations at an effective rate of approximately (1.3)% in 2009 and (0.9)% in 2008. The effective rate differs from the federal statutory rate for each year primarily due to state and local income taxes, non-deductible costs related to intangibles, fixed asset adjustments and changes to the valuation allowance. It is management’s belief that it is unlikely that the net deferred tax asset will be realized and as a result it has been fully reserved. Additionally, the Company recorded no income tax expense related to discontinued operations for either of the three or nine month periods ended September 30, 2009 and 2008.

The Company follows the appropriate accounting pronouncements which prescribe a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on recognition, classification, interest and penalties, disclosure and transition. At September 30, 2009, the Company did not have any significant unrecognized tax benefits. The total amount of interest and penalties recognized in the statements of operations for the nine months ended September 30, 2009 and 2008 is insignificant and when incurred is reported as interest expense.

11. Asset Impairment Charges

We periodically review the carrying value of our long-lived assets held and used, and assets to be disposed of, for possible impairment when events and circumstances warrant such a review. Assets classified as held for sale are measured at the lower of carrying value or fair value, net of costs to sell.

Continuing Operations

In June 2008, management made a decision to discontinue marketing efforts by its subsidiary, Promopath, the online marketing division of Linkstar, to third-party customers on a non-exclusive CPA basis, both brokered and through promotional sites. Management’s decision was the result of business environment changes in which the ability to maintain non-exclusive third-party relationships at an adequate profit margin became increasingly difficult. Promopath will continue to market and acquire customers for the Company’s e-commerce operation, Linkstar. As a result of this decision, the value assigned to customer relationships at the time of the acquisition of Promopath was determined to be impaired as of June 30, 2008 in that future undiscounted cash flows relating to this asset were insufficient to recover its carrying value. Accordingly, in the second quarter of 2008, we recorded an impairment charge of approximately $1.4 million representing the net book value of the Promopath customer relationship intangible asset at June 30, 2008.

During the quarter ended June 30, 2008, we wrote down assets related to two full-service car washes in Arlington, Texas by approximately $1.2 million. Additionally, during the quarter ended December 31, 2008, we wrote down the assets of two of our Arlington, Texas area car wash sites by approximately $1.0 million. We determined that based on current data utilized to estimate the fair value of these car wash facilities, the future expected cash flows would not be sufficient to recover their carrying values.

In the fourth quarter of 2008, we consolidated the inventory in our Ft. Lauderdale, Florida warehouse into our Farmers Branch, Texas facility. Certain of our administrative and sales staff of our Security Segment’s electronic surveillance products division remain in the Ft. Lauderdale, Florida building which we listed for sale with a real estate broker. We recorded an impairment charge of $275,000 related to this property at December 31, 2008 and an additional impairment charge of $60,000 at June 30, 2009 to write-down the property to our estimate of net realizable value based on updated market valuations of the property. On October 5, 2009, the Company entered into an agreement of sale to sell the Ft. Lauderdale, Florida building for cash consideration of $1.6 million. The sale is subject to customary closing conditions, including a general due diligence period. While the transaction is expected to close prior to December 31, 2009, no assurance can be given that the sale will be consummated. We recorded an additional impairment charge of $150,000 at September 30, 2009 to write-down the property to the sale price. The related assets have also been reclassed to assets held for sale. See Note 5. Discontinued Operations and Assets Held for Sale.

In the second quarter of 2009, we conducted our annual assessment of goodwill for impairment for our Digital Media Marketing Segment as of June 30, 2009. We updated our forecasted cash flows of this reporting unit during the second quarter. This update considered current economic conditions and trends, estimated future operating results for the launch of new products as well as non-product revenue growth, and anticipated future economic and regulatory conditions. Based on the results of our assessment of goodwill impairment, the net book value of our Digital Media Marketing Segment reporting unit exceeded its fair value. With the noted potential impairment, we performed the second step of the impairment test to determine the implied fair value of goodwill. The resulting implied goodwill was $5.9 million, which was less than the recorded value of goodwill of $6.9 million; accordingly, we recorded an impairment to write down goodwill of this reporting unit by $1.0 million. Additionally, due to continuing deterioration in our Mace Security Products, Inc. reporting unit, we performed certain impairment testing of our remaining intangible assets, specifically, the value assigned to customer lists, product lists, and trademarks as of June 30, 2009. We recorded an additional impairment charge to trademarks of approximately $80,000 and an impairment charge of $142,000 to customer lists, both principally related to our consumer direct electronic surveillance operations at June 30, 2009.

Discontinued Operations

We closed the two remaining car wash locations in San Antonio, Texas in the quarter ended September 30, 2008. In connection with the closing of these two facilities, we wrote down the assets of these sites by approximately $310,000 to our estimate of net realizable value based on our plan to sell the two facilities for real estate value. Additionally, during the quarter ending December 31, 2008, we closed a full-service car wash location in Lubbock, Texas and wrote down the assets of this site by approximately $670,000 to an updated appraisal value based on our plan to sell this facility for real estate value. We also wrote down an additional Lubbock, Texas location by approximately $250,000 during the quarter ending December 31, 2008. We have determined that due to further reductions in car wash volumes at these sites resulting from increased competition and a deterioration in demographics in the immediate geographic areas of these sites, current economic pressures, along with current data utilized to estimate the fair value of these car wash facilities, future expected cash flows would not be sufficient to recover their carrying values.

Additionally, as noted in Note 4. Business Acquisitions and Divestitures, on October 9, 2009 the agreements of sale related to the three car washes the Company owns in Austin, Texas were amended to modify the sales price to $8.0 million. This amended sale price less costs to sell will result in an estimated loss upon disposal of approximately $175,000. An impairment loss of $175,000 was recorded as of September 30, 2009 and included in the results from discounted operations in the accompanying consolidated statements of operations.

12. Related Party Transactions

The Company’s Security Segment leases manufacturing and office space under a five-year lease with Vermont Mill. Vermont Mill is controlled by Jon E. Goodrich, a former director and current employee of the Company. In November 2004, the Company exercised an option to continue the lease through November 2009 at a rate of $10,576 per month. The Company amended the lease in 2008 to occupy additional space for an additional $200 per month. The Company also began leasing in November 2008, on a month-to-month basis through May 2009, approximately 3,000 square feet of temporary inventory storage space at a monthly cost of $1,200. In September 2009, the Company and Vermont Mill extended the term of the lease to November 14, 2010 at a monthly rental rate of $10,776 per month and modified the square footage rented to 33,476 square feet. The Company believes that the lease rate is lower than lease rates charged for similar properties in the Bennington, Vermont area. Rent expense under this lease was $32,300 and $32,100 for the three months ending September 30, 2009 and 2008 and $102,956 and $95,556 for the nine months ended September 30, 2009 and 2008, respectively.

13. Long-Term Debt, Notes Payable and Capital Lease Obligations

At September 30, 2009, we had borrowings, including capital lease obligations and borrowings related to discontinued operations, of approximately $5.3 million, substantially all of which is secured by mortgages against certain of our real property. Of such borrowings, approximately $3.5 million, including $3.1 million of long-term debt included in liabilities related to assets held for sale, is reported as current as it is due or expected to be repaid in less than twelve months from September 30, 2009. On May 8, 2009, the Company entered into Amendments to its Business Loan Agreements with JP Morgan Chase Bank, N.A. (“Chase”) to renew four car wash mortgages which were up for periodic renewal from June 2009 through October 2009, and a mortgage on the Company’s Farmers Branch, Texas warehouse facility up for periodic renewal in September 2009. These loans, classified as current at December 31, 2008, were renewed by Chase for a two-year period for the four car washes and a three-year period for the Farmers Branch, Texas warehouse facility. Accordingly, certain of these loans were classified as long-term debt at September 30, 2009, with certain loans classified as liabilities related to assets held for sale.

We have two letters of credit outstanding at September 30, 2009 totaling $570,364 as collateral relating to workers’ compensation insurance policies. We maintain a $500,000 revolving credit facility to provide financing for additional electronic surveillance product inventory purchases. There were no borrowings outstanding under the revolving credit facility at September 30, 2009. The Company also maintains a $300,000 line of credit for commercial letters of credit for the importation of inventory. There were no outstanding commercial letters of credit under this commitment at September 30, 2009.

Our most significant borrowings, including borrowings related to discontinued operations are secured notes payable to Chase, in the amount of $4.2 million, $1.6 million of which was classified as non-current debt at September 30, 2009. The Chase agreements contain affirmative and negative covenants, including covenants relating to the maintenance of certain levels of tangible net worth, the maintenance of certain levels of unencumbered cash and marketable securities, limitations on capital spending and certain financial reporting requirements. The Chase agreements are our only debt agreements that contain an expressed prohibition on incurring additional debt for borrowed money without the approval of the lender. As of September 30, 2009, our warehouse and office facility in Farmers Branch, Texas and seven car washes were encumbered by mortgages.

The Chase term loan agreement also limits capital expenditures annually to $1.0 million, requires the Company to provide Chase with an Annual Report on Form 10-K and audited financial statements within 120 days of the Company’s fiscal year end and a Quarterly Report on Form 10-Q within 60 days after the end of each fiscal quarter, and requires the maintenance of a minimum total unencumbered cash and marketable securities balance of $3 million. The maintenance of a minimum total unencumbered cash and marketable securities balance requirement was reduced to $3 million from $5 million on May 8, 2009 as part of the Amendments to the Chase loan agreements noted above. If we are unable to satisfy these covenants and we cannot obtain waivers, the Chase notes may be reflected as current in future balance sheets and as a result our stock price may decline. We were in compliance with these covenants as of September 30, 2009.

If we default on any of the Chase covenants and are not able to obtain amendments or waivers, Chase debt totaling $4.2 million at September 30, 2009, including debt recorded as long-term debt at September 30, 2009, could become due and payable on demand, and Chase could foreclose on the assets pledged in support of the relevant indebtedness. If our assets (including up to seven of our car wash facilities as of September 30, 2009) are foreclosed upon, revenues from our Car Wash Segment, which comprised 14.6% of our total revenues for fiscal year 2008 and 15.2% of our total revenues for the nine months ended September 30, 2009, would be severely impacted and we may be unable to continue to operate our business.

14. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):

	September 30,		December 31,
	2009		2008

Accrued compensation	$	488	$	534

Accrued acquisition consideration		846		-

Other		2,911		2,115
	$	4,245	$	2,649

15. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings (loss) per share (in thousands, except share and per share data):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2009			2008			2009			2008
Numerator:
Net loss	$	(2,358	)	$	(2,061	)	$	(7,288	)	$	(2,016	)
Denominator:
Denominator for basic earnings per share-weighted-average shares		16,191,590			16,465,253			16,253,765			16,465,253
Dilutive effect of options and warrants		-			-			-			-
Denominator for diluted earnings per share-weighted-average shares		16,191,590			16,465,253			16,253,765			16,465,253
Basic and diluted (loss) income per share	$	(0.15	)	$	(0.13	)	$	(0.45	)	$	(0.12	)

The effect of options and warrants for the periods in which we incurred a net loss has been excluded as it would be anti-dilutive. The options and warrants excluded totaled 15,435 and 110,781 for the three months ended September 30, 2009 and 2008 and 2,261 and 153,746 for the nine months ended September 30, 2009 and 2008, respectively.

16. Equity

On August 13, 2007, the Company’s Board of Directors authorized a share repurchase program to purchase shares of the Company’s common stock up to a maximum value of $2.0 million. Purchases will be made in the open market, if and when management determines to effect purchases. Management may elect not to make purchases or to make purchases totaling less than $2.0 million in amount. Through September 30, 2009, the Company purchased 440,410 shares on the open market, at a total cost of approximately $477,000 with 27,232 shares included in treasury stock at September 30, 2009.

17. Florida Security Division

As previously disclosed, in April 2007, we determined that the former divisional controller of the Florida Security division embezzled funds from the Company. In January 2009, we recovered $41,510 of funds from an investment account of the former divisional controller where certain of the embezzled funds were deposited. The recovered funds were reported as a component of operating income in the first quarter of 2009.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of the financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto included in this report on Form 10-Q.

Forward-Looking Statements

This report includes forward-looking statements (“Forward-Looking Statements”) within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements other than statements of historical fact included in this report are Forward-Looking Statements. Forward-Looking Statements are statements related to future, not past, events. In this context, Forward-Looking Statements often address our expected future business and financial performance and financial condition, and often contain words such as "expect," "anticipate," "intend," "plan," believe," "seek," or ''will." Forward-Looking Statements by their nature address matters that are, to different degrees, uncertain. For us, particular uncertainties that could cause our actual results to be materially different than those expressed in our Forward-Looking Statements include: the severity and duration of current economic and financial conditions; our success in selling our remaining car washes; the level of demand of the customers we serve for our goods and services; and numerous other matters of national, regional and global scale, including those of a political, economic, business and competitive nature. These uncertainties are described in more detail in Part II, Item 1A. Risk Factors of this Quarterly Report on Form 10-Q. The Forward-Looking Statements made herein are only made as of the date of this filing, and we undertake no obligation to publicly update such Forward-Looking Statements to reflect subsequent events or circumstances.

Summary of Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations is based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company's financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and potentially result in materially different results under different assumptions and conditions. The Company’s critical accounting policies are described below.

Revenue Recognition and Deferred Revenue

The Company recognizes revenue when the following criteria have been met: persuasive evidence of an arrangement exists, the fees are fixed and determinable, no significant obligations remain and collection of the related receivable is reasonably assured. Allowances for sales returns, discounts and allowances are estimated and recorded concurrent with the recognition of the sale and are primarily based on historical return rates.

Revenue from the Company’s Security Segment is recognized when shipments are made or security monitoring services are provided, or for export sales when title has passed. Shipping and handling charges and costs of $132,000 and $177,000 for the three months ending September 30, 2009 and 2008 and $413,000 and $516,000 for the nine months ended September 30, 2009 and 2008, respectively are included in cost of revenues. Prior year amounts, which were originally recorded as SG&A expenses, were reclassed to conform to current year presentation.

The e-commerce division recognizes revenue and the related product costs for trial product shipments after the expiration of the trial period. Marketing costs incurred by the e-commerce division are recognized as incurred. The online marketing division recognizes revenue and cost of sales based on the gross amount received from advertisers and the amount paid to the publishers placing the advertisements as cost of sales. Shipping and handling charges related to the e-commerce division of the Company’s Digital Media Marketing Segment of $141,000 and $318,000 are included in cost of revenues for the three months ended September 30, 2009 and 2008 and $498,000 and $1.14 million for the nine months ended September 30, 2009 and 2008, respectively. Prior year amounts, which were originally recorded as SG&A expenses, were reclassed to conform to current year presentation.

Revenue from the Company’s Car Wash Segment is recognized, net of customer coupon discounts, when services are rendered or fuel or merchandise is sold. Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact to revenues. The Company records a liability for gift certificates, ticket books, and seasonal and annual passes sold at its car wash locations but not yet redeemed. The Company estimates these unredeemed amounts based on gift certificates and ticket book sales and redemptions throughout the year as well as utilizing historical sales and redemption rates per the car washes’ point-of-sale systems. Seasonal and annual passes are amortized on a straight-line basis over the time during which the passes are valid.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and highly liquid short-term investments with original maturities of three months or less, and credit card deposits which are converted into cash within two to three business days.

Short-Term Investments

At September 30, 2009, the Company had approximately $1.1 million of short-term investments classified as available for sale in one broker account consisting of certificates of deposit. A cumulative unrealized loss, net of tax, of approximately $(1,000) is included as a separate component of equity in Accumulated Other Comprehensive Income at September 30, 2009.

On June 18, 2008, we requested redemption of a short-term investment in a hedge fund, the Victory Fund, Ltd. Under the Limited Partnership Agreement with the hedge fund, the redemption request was timely for a return of the investment account balance as of September 30, 2008, payable ten business days after the end of the September 30, 2008 quarter. The hedge fund acknowledged that the redemption amount owed was $3,206,748. On October 15, 2008 the hedge fund asserted the right to withhold the redemption amount due to extraordinary market circumstances. After negotiations, the hedge fund agreed to pay the redemption amount in two installments, $1,000,000 on November 3, 2008 and $2,206,748 on January 15, 2009. The Company received the first installment of $1,000,000 on November 5, 2008. The Company has not received the second installment. On January 21, 2009, the principal of the Victory Fund, Ltd, Arthur Nadel, was criminally charged with operating a “Ponzi” scheme. Additionally, the SEC has initiated a civil case against Mr. Nadel and others alleging that Arthur Nadel defrauded investors in the Victory Fund, LLC and five other hedge funds by massively overstating the value of investments in these funds and issuing false and misleading account statements to investors. The SEC also alleges that Mr. Nadel transferred large sums of investor funds to secret accounts which only he controlled. A receiver has been appointed in the civil case and has been directed to administer and manage the business affairs, funds, assets, and any other property of Mr. Nadel, the Victory Fund, LLC and the five other hedge funds and conduct and institute such legal proceedings that benefit the hedge fund investors. Accordingly, we recorded a charge of $2,206,748 as an investment loss at December 31, 2008. If we recover any of the investment loss, such amounts will be recorded as recoveries in future periods when received. The original amount invested in the hedge fund was $2,000,000.

Fair Value Measurements

The Company’s nonfinancial assets and liabilities that are measured at fair value on a nonrecurring basis include goodwill, intangible assets and long-lived tangible assets including property, plant and equipment. The Company did not adjust any nonfinancial assets or liabilities measured at fair value on a nonrecurring basis to fair value during the three months ended September 30, 2009. Although the adoption of the new accounting pronouncement did not materially impact our financial condition, results of operations or cash flows, additional disclosures about fair value measurements are required.

The following table shows the assets included in the accompanying balance sheet which are measured at fair value on a recurring basis and the source of the fair value measurement:

(In thousands)	Fair Value Measurement Using
Description	Fair Value at September 30, 2009		Quoted Market Prices(1)		Observable Inputs(2)		Unobservable Inputs(3)

Short-term investments	$	1,079	$	1,079	$	-	$	-

(1) This is the highest level of fair value input and represents inputs to fair value from quoted prices in active markets for identical assets and liabilities to those being valued.

(2) Directly or indirectly observable inputs, other than quoted prices in active markets, for the assets or liabilities being valued including but not limited to, interest rates, yield curves, principal-to principal markets, etc.

(3) Lowest level of fair value input because it is unobservable and reflects the Company’s own assumptions about what market participants would use in pricing assets and liabilities at fair value.

Accounts Receivable

The Company’s accounts receivable are due from trade customers. Credit is extended based on evaluation of customers’ financial condition and, generally, collateral is not required. Accounts receivable payment terms vary and amounts due from customers are stated in the financial statements net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they are deemed uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Risk of losses from international sales within the Security Segment are reduced by requiring substantially all international customers to provide either irrevocable confirmed letters of credit or cash advances.

Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in first-out (“FIFO”) method for security, e-commerce and car care products. Inventories within the Company’s Security Segment consist of defense sprays, child safety products, electronic security monitors, cameras and digital recorders, and various other consumer security and safety products. Inventories within the e-commerce division of the Digital Media Marketing segment consist of several health and beauty products. Inventories at the Company’s car wash locations consist of various chemicals and cleaning supplies used in operations and merchandise and fuel for resale to consumers. The Company continually and at least on a quarterly basis reviews the book value of slow moving inventory items, as well as discontinued product lines to determine if inventory is properly valued. The Company identifies slow moving or discontinued product lines by a detailed review of recent sales volumes of inventory items as well as a review of recent selling prices versus cost and assesses the ability to dispose of inventory items at a price greater than cost. If it is determined that cost is less than market value, then cost is used for inventory valuation. If market value is less than cost, then an adjustment is made to the Company’s obsolescence reserve to adjust the inventory to market value. When slow moving items are sold at a price less than cost, the difference between cost and selling price is charged against the established obsolescence reserve.

Property and Equipment

Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, which are generally as follows: buildings and leasehold improvements - 15 to 40 years; machinery and equipment - 5 to 20 years; and furniture and fixtures - 5 to 10 years. Significant additions or improvements extending assets' useful lives are capitalized; normal maintenance and repair costs are expensed as incurred. Depreciation expense from continuing operations was approximately $134,000 and $143,000 for the three months ended September 30, 2009, and 2008 and $394,000 and $419,000 for the nine months ended September 30, 2009 and 2008, respectively. Maintenance and repairs are charged to expense as incurred and amounted to approximately $51,000 and $56,000 in the three months ended September 30, 2009 and 2008 and $147,000 and $187,000 in the nine months ended September 30, 2009 and 2008, respectively.

Asset Impairment Charges

In assessing goodwill for impairment, we first compare the fair value of our reporting units with their net book value. We estimate the fair value of the reporting units using discounted expected future cash flows, supported by the results of various market approach valuation models. If the fair value of the reporting units exceeds their net book value, goodwill is not impaired, and no further testing is necessary. If the net book value of our reporting units exceeds their fair value, we perform a second test to measure the amount of impairment loss, if any. To measure the amount of any impairment loss, we determine the implied fair value of goodwill in the same manner as if our reporting units were being acquired in a business combination. Specifically, we allocate the fair value of the reporting units to all of the assets and liabilities of that unit, including any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair value of goodwill is less than the goodwill recorded on our balance sheet, we record an impairment charge for the difference.

We performed extensive valuation analyses, utilizing both income and market approaches, in our goodwill assessment process. The following describes the valuation methodologies used to derive the fair value of the reporting units.

Income Approach: To determine fair value, we discounted the expected cash flows of the reporting units. The discount rate used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our reporting units and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of our model, we used a terminal value approach. Under this approach, we used estimated operating income before interest, taxes, depreciation and amortization in the final year of our model, adjusted to estimate a normalized cash flow, applied a perpetuity growth assumption and discounted by a perpetuity discount factor to determine the terminal value. We incorporated the present value of the resulting terminal value into our estimate of fair value.

Market-Based Approach: To corroborate the results of the income approach described above, we estimated the fair value of our reporting units using several market-based approaches, including the value that we derive based on our consolidated stock price as described above. We also used the Guideline Company Method which focuses on comparing our risk profile and growth prospects to select reasonably similar/guideline publicly traded companies.

The determination of the fair value of the reporting units requires us to make significant estimates and assumptions that affect the reporting unit’s expected future cash flows. These estimates and assumptions primarily include, but are not limited to, the discount rate, terminal growth rates, operating income before depreciation and amortization and capital expenditures forecasts. Due to the inherent uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying assumptions would have a significant impact on either the fair value of the reporting units or the goodwill impairment charge.

The allocation of the fair value of the reporting units to individual assets and liabilities within reporting units also requires us to make significant estimates and assumptions. The allocation requires several analyses to determine fair value of assets and liabilities including, among others, customer relationships, non-competition agreements and current replacement costs for certain property, plant and equipment.

As of November 30, 2008, we conducted our annual assessment of goodwill for impairment for our Security Segment and as of June 30, 2008, for our Digital Media Marketing Segment. We conduct assessments more frequently if indicators of impairment exist. As of November 30, 2008, we experienced a sustained, significant decline in our stock price. The Company believes the reduced market capitalization reflects the financial market’s reduced expectations of the Company’s performance, due in large part to overall deteriorating economic conditions that may have a materially negative impact on the Company’s future performance. We also updated our forecasted cash flows of the reporting units during the fourth quarter. This update considered current economic conditions and trends; estimated future operating results, our views of growth rates, anticipated future economic and regulatory conditions. Additionally, based upon our procedures, we determined impairment indicators existed at December 31, 2008 relative to our Digital Media Marketing Segment and accordingly, we performed an updated assessment of goodwill for impairment. Based on the results of our assessment of goodwill for impairment, the net book value of our Mace Security Products, Inc. (Florida and Texas security surveillance equipment operations) reporting unit exceeded its fair value. Our Digital Media Marketing Segment reporting unit fair value as determined exceeded its net book value.

With the noted potential impairment in Mace Security Products, Inc., we performed the second step of the impairment test to determine the implied fair value of goodwill. Specifically, we hypothetically allocated the fair value of the impaired reporting units as determined in the first step to our recognized and unrecognized net assets, including allocations to intangible assets such as trademarks, customer relationships and non-competition agreements. Based on the resulting implied goodwill, we recorded an impairment charge to write off the goodwill of this reporting unit totaling $1.34 million. We also performed impairment testing of certain other intangible assets relating to Mace Security Products, Inc., specifically, the value assigned to trademarks. We recorded an additional impairment charge to trademarks of approximately $223,000 related to our consumer direct electronic surveillance operations and our high end digital and machine vision cameras and professional imaging component operations. Additionally, due to continuing deterioration in our Mace Security Products, Inc. reporting unit, we performed certain impairment testing of our remaining intangible assets, specifically, the value assigned to customer lists, product lists, and trademarks as of June 30, 2009. We recorded an additional impairment charge to trademarks of approximately $80,000 and an impairment charge of $142,000 to customer lists, both principally related to our consumer direct electronic surveillance operations at June 30, 2009.

As noted above, we conducted our annual assessment of goodwill for impairment for our Digital Media Marketing Segment as of June 30, 2009. We updated our forecasted cash flows of this reporting unit during the second quarter. This update considered current economic conditions and trends, estimated future operating results for the launch of new products as well as non-product revenue growth, and anticipated future economic and regulatory conditions. Based on the results of our assessment of goodwill impairment, the net book value of our Digital Media Marketing Segment reporting unit exceeded its fair value. With the noted potential impairment, we performed the second step of the impairment test to determine the implied fair value of goodwill. The resulting implied goodwill was $5.9 million which was less than the recorded value of goodwill of $6.9 million; accordingly, we recorded an impairment to write down goodwill of this reporting unit by $1.0 million.

In June 2008, management made a decision to discontinue marketing efforts by its subsidiary, Promopath, the online marketing division of Linkstar, to third-party customers on a non-exclusive CPA basis, both brokered and through promotional sites. Management’s decision was the result of business environment changes in which the ability to maintain non-exclusive third-party relationships at an adequate profit margin became increasingly difficult. Promopath will continue to market and acquire customers for the Company’s e-commerce operation, Linkstar. As a result of this decision, the value assigned to customer relationships at the time of the acquisition of Promopath was determined to be impaired as of June 30, 2008 in that future undiscounted cash flows relating to this asset were insufficient to recover its carrying value. Accordingly, in the second quarter of 2008 we recorded an impairment charge of approximately $1.4 million representing the net book value of the Promopath customer relationship intangible asset at June 30, 2008.

Goodwill

Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business combinations. Accounting standards require that the Company perform a goodwill impairment test on at least an annual basis. Application of the goodwill impairment test requires significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill impairment for each reporting unit. The Company conducts its annual goodwill impairment test as of November 30 for its Security Segment and as of June 30 for its Digital Media Marketing Segment, or more frequently if indicators of impairment exist. We periodically analyze whether any such indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, among others. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill. Future changes in the industry could impact the results of future annual impairment tests. Goodwill was $7.9 million and $6.9 million at September 30, 2009 and December 31, 2008, respectively. There can be no assurance that future tests of goodwill impairment will not result in impairment charges. Also see Note 3. Other Intangible Assets and Note 11. Asset Impairment Charges.

Other Intangible Assets

Other intangible assets consist of deferred financing costs, trademarks, customer lists, non-compete agreements, product lists, and patent costs. Our trademarks are considered to have indefinite lives and as such, are not subject to amortization. These assets will be tested for impairment annually and whenever there is an impairment indicator. Estimating future cash requires significant judgment and projections may vary from cash flows eventually realized. Several impairment indicators are beyond our control, and determining whether or not they will occur cannot be predicted with any certainty. Customer lists, product lists, software costs, patents and non-compete agreements are amortized on a straight-line or accelerated basis over their respective estimated useful lives. Amortization of other intangible assets from continuing operations was approximately $121,000 and $104,000 for the three months ended September 30, 2009 and 2008 and $345,000 and $399,000 for the nine months ended September 30, 2009 and 2008, respectively. Also see Note 11. Asset Impairment Charges.

Insurance

The Company insures for auto, general liability, and certain workers’ compensation claims through participation in a captive insurance program with other unrelated businesses. The Company maintains excess coverage through occurrence-based policies. With respect to participating in the captive insurance program, the Company sets aside an actuarially determined amount of cash in a restricted “loss fund” account for the payment of claims under the policies. The Company funds these accounts annually as required by the captive insurance company. Should funds deposited exceed claims ultimately incurred and paid, unused deposited funds are returned to the Company with interest on or about the fifth anniversary of the policy year-end. The Company’s participation in the captive insurance program is secured by a letter of credit in the amount of $566,684 at September 30, 2009. The Company records a monthly expense for losses up to the reinsurance limit per claim based on the Company’s tracking of claims and the insurance company’s reporting of amounts paid on claims plus an estimate of reserves for possible future losses on reported claims as well as claims incurred but not reported.

Income Taxes

Deferred income taxes are determined based on the difference between the financial accounting and tax bases of assets and liabilities. Deferred income tax expense (benefit) represents the change during the period in the deferred income tax assets and deferred income tax liabilities. Deferred tax assets include tax loss and credit carryforwards and are reduced by a valuation allowance if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company also follows the appropriate accounting pronouncements which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken, and provides guidance on recognition, classification, interest and penalties, disclosure and transition. At September 30, 2009, the Company did not have any significant unrecognized tax benefits. The total amount of interest and penalties recognized in the statements of operations for the nine months ended September 30, 2009 and 2008 is insignificant and when incurred is reported as interest expense.

Supplementary Cash Flow Information

Interest paid on all indebtedness, including discontinued operations, was approximately $68,000 and $118,000 for the three months ended September 30, 2009 and 2008 and $197,000 and $425,000 for the nine months ended September 30, 2009 and 2008, respectively.

Income taxes paid (refunded), including discontinued operations, was approximately $(41,000) and $336,000 for the three months ended September 30, 2009 and 2008 and $135,000 and $447,000 for the nine months ended September 30, 2009 and 2008, respectively.

Noncash investing and financing activity of the Company within discontinued operations includes the recording of a $750,000 note receivable recorded as part of the consideration received from the sale of the Company’s San Antonio, Texas car washes during the three months ended March 31, 2009. Additionally, the Company sold its Florida car washes in the three months ended March 31, 2008 and simultaneously paid down related mortgages of approximately $4.2 million.

Advertising

The Company expenses advertising costs, including advertising production costs, as they are incurred or when the first time advertising takes place. The Company’s costs of coupon advertising within its Car Wash Segment are recorded as a prepaid asset and amortized to advertising expense during the period of distribution and customer response, which is typically two to four months. Prepaid advertising costs were $45,000 and $30,000 at September 30, 2009 and December 31, 2008, respectively. Advertising expense was approximately $197,000 and $147,000 for the three months ended September 30, 2009 and 2008 and $590,000 and $730,000 for the nine months ended September 30, 2009 and 2008, respectively.

Revenues

Security

Our Security Segment designs, manufactures, markets and sells a wide range of security products and provides wholesale security monitoring. The Company’s primary focus in the Security Segment is the sourcing and selection of electronic surveillance products and components that it sells, primarily to installing dealers, system integrators, distributors, retailers and end users. Other products in our Security Segment include, but are not limited to, less-than-lethal Mace® defense sprays, personal alarms, high-end digital and machine vision cameras and imaging components, as well as video conferencing equipment and security monitors. The main marketing channels for our products are industry shows and publications, catalogs, internet and sales through telephone orders. Revenues generated for the nine months ended September 30, 2009 for the Security Segment were comprised of approximately 26% from our professional electronic surveillance operation in Florida, 15% from our consumer direct electronic surveillance operations, 21% from our machine vision camera and video conferencing equipment operation in Texas, 27% from our personal defense and law enforcement operation in Vermont, and 11% from our wholesale security monitoring operation in California.

Digital Media Marketing

Prior to June 2008, our Digital Media Marketing Segment consisted of two business divisions: (1) e-commerce and (2) online marketing. After June 2008, we discontinued the online marketing services to outside customers and our Digital Media Marketing Segment is now essentially an online e-commerce business.

Our e-commerce division is a direct-response product business that develops, markets and sells products directly to consumers through the Internet. We reach our customers predominately through online advertising on third party promotional websites. Before discontinuing Promopath, Linkstar also marketed products on promotional websites operated by Promopath. Our products include: Vioderm, an anti-wrinkle skin care product (www.vioderm.com); Purity by Mineral Science, a mineral cosmetic (www.mineralscience.com); TrimDay™, a weight-loss supplement (www.trimday.com); Eternal Minerals, a Dead Sea spa product line (www.eternalminerals.com); ExtremeBriteWhite, a teeth whitening product (www.extremebritewhite.com) and Knockout, an acne product (www.knockoutmyacne.com). We continuously develop and test product offerings to determine customer acquisition costs and revenue potential, as well as to identify the most efficient marketing programs.

Promopath, our online affiliated marketing company, secured customer acquisitions or leads for advertising clients principally using promotional internet sites offering free gifts. Promopath was paid by its clients based on the cost-per-acquisition (“CPA”) model. Promopath’s advertising clients were typically established direct-response advertisers with well recognized brands and broad consumer appeal such as NetFlix®, Discover® credit cards and Bertelsmann Group. Promopath generated CPA revenue, both brokered and through co-partnered sites, as well as list management and lead generation revenues. CPA revenue in the digital media marketplace refers to paying a fee for the acquisition of a new customer, prospect or lead. List management revenue is based on a relationship between a data owner and a list management company. The data owner compiles, collects, owns and maintains a proprietary computerized database composed of consumer information. The data owner grants a list manager a non-exclusive, non-transferable, revocable worldwide license to manage, use and have access to the data pursuant to defined terms and conditions for which the data owner is paid revenue. Lead generation is referred to as cost per lead (“CPL”) in the digital media marketplace. Advertisers purchasing media on a CPL basis are interested in collecting data from consumers expressing interest in a product or service. CPL varies from CPA in that no credit card information needs to be provided to the advertiser for the publishing source to be paid for the lead.

In June of 2008, the Company discontinued marketing Promopath’s online marketing services to third party customers. Promopath’s primary mission is now focused on increasing the distribution of the products of the Company’s e-commerce division, Linkstar. During the third quarter of 2009, management made a decision to reactivate on a limited basis certain operations of the Promopath online marketing services to both third party customers as well as to generate customer acquisitions for Linkstar, the Company’s e-commerce division.

Revenues within our Digital Media Marketing Segment for the nine months ended September 30, 2009, were approximately $8.0 million, consisting of $8.0 million from our e-commerce division and $15,000 from our online marketing division.

Car Wash

At September 30, 2009, we owned full service and self-service car wash locations in Texas. We earn revenues from washing and detailing automobiles; performing oil and lubrication services, minor auto repairs, and state inspections; selling fuel; and selling merchandise within the car wash facilities. Revenues generated for the nine months ending September 30, 2009 for the Car and Truck Wash Segment were comprised of approximately 53% from car washing and detailing, 44% from lube and other automotive services, and 3% from fuel and merchandise. Additionally, our Florida; Lubbock, Texas; Austin, Texas; and our San Antonio, Texas region car washes are being reported as discontinued operations (see Note 5 of the Notes to Consolidated Financial Statements) and, accordingly, have been segregated from the following revenue and expense discussion. Revenues from discontinued operations were $1.5 million and $2.6 million for the three months ended September 30, 2009 and 2008 and $4.8 million and $7.9 million for the nine months ended September 30, 2009 and 2008, respectively. Operating (loss) income from discontinued operations was $(106,000) and $(188,000) for the three months ended September 30, 2009 and 2008 and $131,000 and $(781,000) for the nine months ended September 30, 2009 and 2008, respectively.

On December 31, 2007, we completed the sale of the truck washes for $1.2 million consideration, consisting of $280,000 cash and a $920,000 note payable to Mace secured by mortgages on the truck washes. The $920,000 note, which has a balance of $876,856 at September 30, 2009, has a five-year term, with principal and interest paid on a 15-year amortization schedule.

The majority of revenues from our Car Wash Segment are collected in the form of cash or credit card receipts, thus minimizing customer accounts receivable.

Cost of Revenues

Security

Cost of revenues within the Security Segment consists primarily of costs to purchase or manufacture the security products including direct labor and related taxes and fringe benefits, raw material costs, and telecommunication costs related to our wholesale monitoring operation. Product warranty costs related to the Security Segment are mitigated in that a portion of customer product warranty claims are covered by the supplier through repair or replacement of the product associated with the warranty claim.

Digital Media Marketing

Cost of revenues within the Digital Media Marketing Segment consist primarily of amounts we pay to website publishers that are directly related to revenue-generating events, including the cost to enroll new members, fulfillment and warehousing costs, including direct labor and related taxes and fringe benefits and e-commerce product costs.

Car Wash

Cost of revenues within the Car Wash Segment consists primarily of direct labor and related taxes and fringe benefits, certain insurance costs, chemicals, wash and detailing supplies, rent, real estate taxes, utilities, car damages, maintenance and repairs of equipment and facilities, as well as the cost of the fuel and merchandise sold.

Selling, General and Administrative Expenses

SG&A expenses consist primarily of management, clerical and administrative salaries, professional services, insurance premiums, sales commissions, and other costs relating to marketing and sales.

Direct incremental costs associated with business acquisitions as well as indirect acquisition costs, such as executive salaries, corporate overhead, public relations, and other corporate services and overhead are expensed as incurred.

Depreciation and Amortization

Depreciation and amortization consists primarily of depreciation of buildings and equipment, and amortization of leasehold improvements and certain intangible assets. Buildings and equipment are depreciated over the estimated useful lives of the assets using the straight-line method. Leasehold improvements are amortized over the shorter of their useful lives or the lease term with renewal options. Intangible assets, other than goodwill or intangible assets with indefinite useful lives, are amortized over their useful lives ranging from three to fifteen years, using the straight-line or an accelerated method.

Other Income

Other income consists primarily of rental income received on renting out excess space at our car wash facilities and includes gains and losses on short-term investments.

Income Taxes

Income tax expense is derived from tax provisions for interim periods that are based on the Company’s estimated annual effective rate. Currently, the effective rate differs from the federal statutory rate primarily due to state and local income taxes, non-deductible costs related to acquired intangibles, and changes to the valuation allowance.

Liquidity and Capital Resources

Liquidity

Cash, cash equivalents and short-term investments were $4.6 million at September 30, 2009. The ratio of our total debt to total capitalization, which consists of total debt plus stockholders’ equity, was 12.8% at September 30, 2009 and 13.0% at December 31, 2008.

One of our short-term investments in 2008 was in a hedge fund, the Victory Fund, Ltd. We requested redemption of this hedge fund investment on June 18, 2008. Under the Limited Partnership Agreement with the hedge fund, the redemption request was timely for a return of the investment account balance as of September 30, 2008, payable ten business days after the end of the September 30, 2008 quarter. The hedge fund acknowledged that the redemption amount owed was $3,206,748; however, on October 15, 2008 the hedge fund asserted the right to withhold the redemption amount due to extraordinary market circumstances. After negotiations, the hedge fund agreed to pay the redemption amount in two installments, $1,000,000 on November 3, 2008 and $2,206,748 on January 15, 2009. The Company received the first installment of $1,000,000 on November 5, 2008. The Company has not received the second installment. On January 21, 2009, the principal of the Victory Fund, Ltd, Arthur Nadel, was criminally charged with operating a “Ponzi” scheme. Additionally, the SEC has initiated a civil case against Mr. Nadel and others alleging that Arthur Nadel defrauded investors in the Victory Fund, LLC and five other hedge funds by massively overstating the value of investments in these funds and issuing false and misleading account statements to investors. The SEC also alleges that Mr. Nadel transferred large sums of investor funds to secret accounts which only he controlled. A receiver has been appointed in the civil case and has been directed to administer and manage the business affairs, funds, assets, and any other property of Mr. Nadel, the Victory Fund, LLC and the five other hedge funds and conduct and institute such legal proceedings that benefit the hedge fund investors. Accordingly, we recorded a charge of $2,206,748 as an investment loss at December 31, 2008. If we recover any of the investment loss, such amounts will be recorded as recoveries in future periods when received. The original amount invested in the hedge fund was $2,000,000. One of the actions the Receiver may take on behalf of all investors is to attempt to “claw back” redemptions and distributions made by the hedge funds to their investors and use the returned funds to pay the expenses of the Receiver and for a pro-rata distribution to all investors. No “claw back” action has been filed to date. We have received a letter from the Receiver stating that the Receiver does not intend to claw back the $1 million we were paid based on the fact that our original investment was $2 million. If we are required by the Court to pay back the $1,000,000 redemption we received, our liquidity would be adversely affected.

Our business requires a substantial amount of capital, most notably to pursue our expansion strategies, including our current expansion in the Security and Digital Media Marketing Segment. We plan to meet these capital needs from various financing sources, including borrowings, cash generated from the sale of car washes, and the issuance of common stock if the market price of the Company’s stock is at a desirable level.

As of September 30, 2009, we had working capital of $15.8 million. Working capital was $16.0 million at December 31, 2008. The working capital of $15.8 million at September 30, 2009 is inclusive of assets held for sale, net of liabilities related to assets held for sale, of $8.95 million. See Note 5. Discontinued Operations and Assets Held for Sale.

During the nine months ended September 30, 2009 and 2008, we made capital expenditures of $46,000 and $196,000 (including $23,000 and $102,000 related to discontinued operations), respectively, within our Car Wash Segment.

Capital expenditures for our Security Segment were $274,000 and $247,000 for the nine months ending September 30, 2009 and 2008, respectively. We estimate capital expenditures for the remainder of 2009 for the Security Segment at approximately $5,000 to $15,000, principally related to technology and warehouse facility improvements.

We expect to invest resources in additional products within our e-commerce division. Our online marketing division will also require the infusion of additional capital as we grow our new members because our e-commerce customers are charged after a 14 to 21 day trial period while we typically pay our website publishers for new member acquisitions in approximately 15 days. Additionally, as we introduce new e-commerce products, upfront capital spending is required to purchase inventory as well as pay for upfront media costs to enroll new e-commerce members.

We intend to continue to expend cash for the purchasing of inventory as we grow and introduce new video surveillance products in 2009 and in years subsequent to 2009. We anticipate that inventory purchases will be funded from cash collected from sales and working capital. At September 30, 2009, we maintained an unused and fully available $500,000 revolving credit facility with Chase to provide financing for additional video surveillance product inventory purchases.

The amount of capital that we will spend in the remainder of 2009 and in years subsequent to 2009 on all of our businesses is largely dependent on the profitability of our businesses. Until our businesses start generating positive cash flow, we are dependent on car wash sales for liquidity. We believe our cash and short-term investments balance of $4.6 million at September 30, 2009, the revolving credit facility, and cash generated from the sale of our car wash operations will be sufficient to meet capital expenditure and fund operating needs through at least the next twelve months while continuing to satisfy our debt covenant requirement with Chase. Our debt covenant requires us to maintain a total unencumbered cash and marketable securities balance of $3 million. Unless our operating cash flow improves, our growth will be limited if we deplete our cash balance. If the cash provided from operating activities does not improve in 2009 and future years and if current cash balances are depleted, we will need to raise additional capital to meet these ongoing capital requirements.

During the six months ended December 31, 2008 and throughout 2009, we implemented Company wide cost savings measures, including a reduction in employees throughout the entire Company, and completed a consolidation of our Security Segment’s electronic surveillance equipment operations in Ft. Lauderdale, Florida and Farmers Branch, Texas at December 31, 2008. As part of this reorganization, we consolidated our security division’s surveillance equipment warehouse operations into our Farmers Branch, Texas facility. Our professional security sales and administrative team remained in Florida with the security catalog sales team being relocated from Texas to Florida during the third quarter of 2009. Our goals of the reorganization were to better align our electronic surveillance equipment sales teams to achieve sales growth; gain efficiencies by sharing redundant functions within our security operations such as warehousing, customer service, and administrative services; and to streamline our organization structure and management team for improved long-term growth. We estimate that our reorganization within our Security Segment, our Company wide employee reductions, and other cost saving measures result in excess of $3.0 million in annualized savings. This program continued through the third quarter of 2009. Through September 30, 2009, we incurred approximately $140,000 in severance costs from employee reductions.

As previously disclosed, on June 27, 2008 Car Care, Inc., a subsidiary of the Company, paid a criminal fine of $100,000 and forfeited $500,000 in proceeds from the sale of four car washes to settle a criminal indictment. A charge of $600,000 was recorded as a component of income from discontinued operations for the three months ended March 31, 2008.

Shortly after the Company’s Audit Committee became aware of the now resolved criminal investigation into the hiring of illegal aliens at four of the Company’s car washes on March 6, 2006, the Company’s Audit Committee retained independent outside counsel (“Special Counsel”) to conduct an independent investigation of the Company’s hiring practices at the Company’s car washes and other related matters. Special Counsel’s findings included, among other things, a finding that the Company’s internal controls for financial reporting at the corporate level were adequate and appropriate, and that there was no financial statement impact implicated by the Company’s hiring practices, except for a potential contingent liability. The Company incurred $704,000 in legal, consulting and accounting expenses associated with the Audit Committee investigations in fiscal 2006 and a total of $1.9 million through September 30, 2009 ($185,000 included in the nine months ended September 30, 2009) in legal fees associated with the governmental investigation and Company’s defense and negotiations with the government. As a result of this matter, the Company has incorporated additional internal control procedures at the corporate, regional and site level to further enhance the existing internal controls with respect to the Company’s hiring procedures at the car wash locations to prevent the hiring of undocumented workers.

As previously discussed, during January 2008, the Environmental Protection Agency (“EPA”) conducted a site investigation at the Company’s Bennington, Vermont location and the building in which the facility is located. The Company does not own the building or land and leases 33,476 square feet of the building from Vermont Mill Properties, Inc (“Vermont Mill”). The site investigation was focused on whether hazardous substances were being improperly stored. After the site investigation and search, the EPA notified the Company and the building owner that remediation of certain hazardous wastes were required. The Company completed the remediation of the waste during September 2008 within the time allowed by the EPA. A total cost of approximately $711,000, which includes disposal of the waste materials, as well as expenses incurred to engage environmental engineers and legal counsel and the cost of reimbursing the EPA for its costs, has been recorded through December 31, 2008. Approximately $596,000 has been paid to date, leaving an accrual balance of $115,000 at September 30, 2009. This amount represents management’s best estimate of probable loss.

In December 2004, the Company announced that it was exploring the sale of its car washes. From December 2005 through September 30, 2009, we sold 38 car washes and five truck washes with total cash proceeds generated of approximately $35.3 million, net of pay-off of related mortgage debt. We believe we will be successful in selling additional car washes and generating cash for funding of current operating needs and expansion of our Security Segment. If the cash provided from operating activities does not improve in 2009 and in future years and if current cash balances are depleted, we will need to raise additional capital to meet these ongoing capital requirements.

In the past, we have been successful in obtaining financing by selling common stock and obtaining mortgage loans. Our ability to obtain new financing can be adversely impacted by our stock price. Our failure to maintain the required debt covenants on existing loans also adversely impacts our ability to obtain additional financing. We are reluctant to sell common stock at market prices below our per share book value. Our ability to obtain new financing will be limited if our stock price is not above our per share book value and our cash from operating activities does not improve. Currently, we cannot incur additional long term debt without the approval of one of our commercial lenders. The Company must demonstrate that the cash flow benefit from the use of new loan proceeds exceeds the resulting future debt service requirements.

Debt Capitalization and Other Financing Arrangements

At September 30, 2009, we had borrowings, including capital lease obligations, of approximately $5.3 million. We had two letters of credit outstanding at September 30, 2009, totaling $570,364 as collateral relating to workers’ compensation insurance policies. We maintain a $500,000 revolving credit facility to provide financing for additional video surveillance product inventory purchases. There were no borrowings outstanding under the revolving credit facility at September 30, 2009. The Company also maintains a $300,000 bank commitment for commercial letters of credit for the importation of inventory. There were no outstanding commercial letters of credit under this commitment at September 30, 2009.

Several of our debt agreements, as amended, contain certain affirmative and negative covenants and require the maintenance of certain levels of tangible net worth, maintenance of certain unencumbered cash and marketable securities balances, limitations on capital spending and the maintenance of certain debt service coverage ratios on a consolidated level.

The Company entered into amendments to the Chase term loan agreements effective September 30, 2006. The amended loan agreements with Chase eliminated the Company’s requirement to maintain a ratio of consolidated earnings before interest, income taxes, depreciation and amortization to debt service. The Chase term loan agreements also limit capital expenditures annually to $1.0 million, requires the Company to provide Chase with an Annual Report on Form 10-K and audited financial statements within 120 days of the Company’s fiscal year end and a Quarterly Report on Form 10-Q within 60 days after the end of each fiscal quarter, and requires the maintenance of a minimum total unencumbered cash and marketable securities balance of $3 million. The maintenance of a minimum total unencumbered cash and marketable securities balance requirements was reduced to $3 million from $5 million on May 8, 2009 as part of the Amendments to the Chase loan agreements noted above. If we are unable to satisfy these covenants and we cannot obtain waivers, the Chase notes may be reflected as current in future balance sheets and as a result our stock price may decline. We were in compliance with these covenants as of September 30, 2009.

If we default on any of the Chase covenants and are not able to obtain amendments or waivers of acceleration, Chase debt totaling $4.2 million at September 30, 2009, including debt recorded as long-term debt at September 30, 2009, could become due and payable on demand, and Chase could foreclose on the assets pledged in support of the relevant indebtedness. If our assets (including up to seven of our car wash facilities as of September 30, 2009) are foreclosed upon, revenues from our Car Wash Segment, which comprised 14.6% of our total revenues for fiscal year 2008 and 15.2% of our total revenue for the nine months ended September 30, 2009, would be severely impacted and we may be unable to continue to operate our business. Even if the debt were accelerated without foreclosure, it would be very difficult for us to continue to operate and we may go out of business.

The Company’s ongoing ability to comply with its debt covenants under its credit arrangements and refinance its debt depends largely on the achievement of adequate levels of cash flow. If our future cash flows are less than expected or our debt service, including interest expense, increases more than expected causing us to default on any of the Chase covenants in the future, the Company will need to obtain further amendments or waivers from Chase. Our cash flow has been and could continue to be adversely affected by weather patterns, continued deterioration in economic conditions, and the requirements to fund the growth of our security business. In the event that non-compliance with the debt covenants should occur, the Company would pursue various alternatives to attempt to successfully resolve the non-compliance, which might include, among other things, seeking additional debt covenant waivers or amendments, or refinancing debt with other financial institutions. If the Company is unable to obtain waivers or amendments in the future, Chase debt currently totaling $4.2 million, including debt recorded as long-term debt at September 30, 2009, would become payable on demand by the financial institution upon expiration of its current waiver. There can be no assurance that further debt covenant waivers or amendments would be obtained or that the debt would be refinanced with other financial institutions at favorable terms. If we are unable to obtain renewals on maturing loans or refinancing of loans on favorable terms, our ability to operate would be materially and adversely affected.

The Company is obligated under various operating leases, primarily for certain equipment and real estate within the Car Wash Segment. Certain of these leases contain purchase options, renewal provisions, and contingent rentals for our proportionate share of taxes, utilities, insurance, and annual cost of living increases.

The following are summaries of our contractual obligations and other commercial commitments at September 30, 2009, includes capital lease obligations, debt related to discontinued operations and liabilities related to assets held for sale and reflects the renewal on May 8, 2009 of loans maturing in 2009 (in thousands):

	Payments Due By Period
Contractual Obligations (1)	Total		Less than One Year		One to Three Years		Three to Five Years		More Than FiveYears
Long-term debt (2)	$	5,116	$	1,022	$	2,927	$	1,167	$	-
Capital Lease Obligations		178		46		105		27		-
Minimum operating lease payments		3,809		1,001		1,601		771		436
	$	9,103	$	2,069	$	4,633	$	1,965	$	436

	Amounts Expiring Per Period
Other Commercial Commitments	Total		Less Than One Year		One to Three Years		Three to Five Years		More Than Five Years
Line of credit (3)	$	–	$	–	$	–	$	–	$	–
Standby letters of credit (4)		570		570		–		–		–
	$	570	$	570	$	–	$	–	$	–

(1) Potential amounts for inventory ordered under purchase orders are not reflected in the amounts above as they are typically cancelable prior to delivery and, if purchased, would be sold within the normal business cycle.

(2) Related interest obligations have been excluded from this maturity schedule. Our interest payments for the next twelve month period, based on current market rates, are expected to be approximately $196,000.

(3) The Company maintains a $500,000 line of credit with Chase. There were no borrowings outstanding under this line of credit at September 30, 2009.

(4) The Company also maintains a $300,000 bank commitment for commercial letters of credit with Chase for the importation of inventory. There were no outstanding commercial letters of credit under this commitment at September 30, 2009. Additionally, outstanding letters of credit of $570,364 represent collateral for workers’ compensation insurance policies.

Cash Flows

Operating Activities. Net cash used in operating activities totaled $2.3 million for the nine months ended September 30, 2009. Cash used in operating activities in 2009 was primarily due to a net loss from continuing operations of $7.4 million offset partially by a reduction in inventories of $1.9 million, depreciation and amortization expense of $739,000, asset impairment charges of $1.4 million, and an increase in accounts payable of $619,000.

Net cash used in operating activities totaled $5.3 million for the nine months ended September 30, 2008. Cash used in operating activities in 2008 was primarily due to a net loss from continuing operations of $8.1 million, which included $545,500 in non-cash stock-based compensation charges from continuing operations and $817,600 of depreciation and amortization. Cash was also impacted by a decrease in accounts payable of $1.6 million, an increase in accrued expenses of $812,000, a decrease in accounts receivable of $877,000 and an increase in inventory of $348,000.

Investing Activities. Cash used in investing activities totaled approximately $1.5 million for the nine months ended September 30, 2009, which includes use of $1.8 million in consideration for the acquisition of CSSS, Inc. and capital expenditures of $375,000 related to ongoing operations, partially offset by $809,000 of cash generated from the sales of car wash sites.

Cash provided by investing activities totaled approximately $6.4 million for the nine months ended September 30, 2008, which includes cash provided by investing activities from discontinued operations of $7.8 million related to the sale of six car wash sites in the nine months ended September 30, 2008.

Financing Activities. Cash used in financing activities was approximately $916,000 for the nine months ended September 30, 2009, which includes $388,000 of routine principal payments on debt from continuing operations and $506,000 of principal payments on debt related to discontinued operations.

Cash used in financing activities was approximately $1.4 million for the nine months ended September 30, 2008, which includes $867,000 of routine principal payments on debt from continuing operations and $544,000 of principal payments on debt related to discontinued operations.

Results of Operations for the Nine Months Ended September 30, 2009

Compared to the Nine Months Ended September 30, 2008

The following table presents the percentage each item in the consolidated statements of operations bears to revenues:

	Nine months Ended September 30,
	2009			2008

Revenues		100	%		100	%
Cost of revenues		74.4			74.2
Selling, general and administrative expenses		45.9			39.9
Depreciation and amortization		2.9			2.3
Asset impairment charges		5.7			7.3
Operating loss		(28.9	)		23.7
Interest (expense) income, net		(0.2	)		0.1
Other income		0.2			1.0
Loss from continuing operations before income taxes		(28.9	)		(22.6	)
Income tax expense		(0.4	)		(0.2	)
Loss from continuing operations		(29.3	)		(22.8	)
Income from discontinued operations		0.5			17.1
Net (loss) income		(28.8	)%		(5.7	)%

Revenues

Security

Revenues within the Security Segment were approximately $13.5 million and $16.2 million for the nine months ended September 30, 2009 and 2008, respectively. Of the $13.5 million of revenues for the nine months ended September 30, 2009, $3.4 million, or 26%, was generated from our professional electronic surveillance operation in Florida, $2.0 million, or 15%, from our consumer direct electronic surveillance equipment operations in Texas, $2.9 million or 21%, from our machine vision camera and video conferencing equipment operation in Texas, $3.7 million, or 27%, from our personal defense operation, and $1.5 million, or 11% from our wholesale security monitoring operation. Of the $16.2 million of revenues for the nine months ended September 30, 2008, $5.7 million, or 35%, was generated from our professional electronic surveillance operation in Florida, $2.8 million, or 18%, from our consumer direct electronic surveillance equipment operation in Texas, $4.3 million, or 26%, from our machine vision camera and video conference equipment operation in Texas, and $3.4 million, or 21%, from our personal defense operation in Vermont. The decrease in revenues within the Security Segment was due to a decrease in sales of our professional electronic surveillance operation in Florida, our consumer direct electronic surveillance and our industrial machine vision camera and video conferencing equipment in Texas partially offset by an increase in our personal defense operations in Vermont and revenues of our wholesale security monitoring operation acquired in April 2009. The decrease in sales of our professional electronic surveillance operation in Florida, our consumer direct electronic surveillance and industrial machine vision camera and video conference equipment operations in Texas was largely a result of increased competition and a reduction in spending by certain of our customers impacted by the deteriorating economy. The Company’s industrial machine vision camera and video conferencing equipment operations continue to be impacted by competition and a reduction in sales to certain customers with ties to the “big three” domestic automotive manufacturers. The increase of approximately $323,000 or 10% in revenues in our personal defense operation was largely a result of an increase in Mace® aerosol defense spray sales with an increase in sales of our PepperGel® product, sales from the introduction of new products such as our Mace Pepper Gun®, and an overall increase in product sales in both domestic and international markets, as we believe customers became increasingly concerned with their personal safety.

Digital Media Marketing

Revenues for the nine months ended September 30, 2009 within our Digital Media Marketing Segment were approximately $8.0 million as compared to $14.3 million for the nine months ended September 30, 2008, a decrease of $6.3 million, or 44%. Of the $8.0 million of revenues for the nine months ended September 30, 2009, $8.0 million related to our e-commerce division and $15,000 related to our online marketing division. Of the $14.3 million of revenues for the nine months ended September 30, 2008, $12.1 million related to our e-commerce division and $2.2 million related to our online marketing division. The reduction in revenues within our e-commerce division of $4.1 million is related to a reduction in sales in our Purity by Mineral Science cosmetic product line introduced in late 2007 partially offset by sales from the introduction of new products, including the Eternal Minerals spa products and the ExtremeBriteWhite teeth whitening product. Revenues within our e-commerce division were also negatively impacted by an increase in credit card decline rates as the recession continues and as credit card companies continue to tighten their credit to customers. The reduction in revenues within our online marketing divisions was a result of management’s decision to discontinue marketing Promopath’s online marketing services to external customers in June 2008.

Car Wash Services

Revenues for the nine months ended September 30, 2009 were $3.8 million as compared to $5.1 million for the nine months ended September 30, 2008, a decrease of $1.2 million, or 24%. Of the $3.8 million of revenues for the nine months ended September 30, 2009, $2.0 million, or 53%, was generated from car wash and detailing, $1.7 million, or 44%, from lube and other automotive services, and $120,000, or 3%, from fuel and merchandise sales. Of the $5.1 million of revenues for the nine months ended September 30, 2008, $2.8 million, or 55%, was generated from car wash and detailing, $2.0 million, or 40%, from lube and other automotive services, and $236,000, or 5%, from fuel and merchandise sales. The decrease in car wash and detail revenues in 2009 was principally due to a decline in car wash volumes of 42,000 cars, or 25%, in the first nine months of 2009 as compared to the first nine months of 2008, including a car wash volume reduction of 21,600 cars from the closure and divestiture of two Texas car wash locations since October 2008 included in continuing operations. Additionally, the Company experienced a decline in average car wash and detailing revenue per car from $16.64 in the first nine months of 2008 to $15.98 in the same period in 2009.

Cost of Revenues

Security

During the nine months ended September 30, 2009, cost of revenues was $9.5 million, or 70% of revenues, as compared to $12.0 million, or 74% of revenues, for the nine months ended September 30, 2008. The reduction in cost of revenues as a percent of revenues in 2009 is the result of the implementation of corporate wide cost savings measures in the last six months of 2008 and the first nine months of 2009 and a reduction in discounts and product returns within our professional and our consumer direct electronic surveillance operations.

Digital Media Marketing

Cost of revenues for the nine months ended September 30, 2009 and 2008 within our Digital Media Marketing Segment was approximately $5.8 million, or 72% of revenues, and $9.9 million, or 69% of revenues, respectively.

Car Wash Services

Cost of revenues for the nine months ended September 30, 2009 were $3.6 million, or 93% of revenues, with car washing and detailing costs at 105% of respective revenues, lube and other automotive services costs at 79% of respective revenues, and fuel and merchandise costs at 88% of respective revenues. Cost of revenues for the nine months ended September 30, 2008 were $4.4 million, or 87% of revenues, with car washing and detailing costs at 95% of respective revenues, lube and other automotive services costs at 76% of respective revenues, and fuel and merchandise costs at 85% of respective revenues. This increase in car wash costs as a percent of revenues in 2009 was the result of the reduction in car wash volumes and an increase in the cost of labor as a percentage of car wash and detailing revenues from 55.8% in 2008 to 58.5% in 2009.

Selling, General and Administrative Expenses

SG&A expenses for the nine months ended September 30, 2009 were $11.6 million compared to $14.2 million for the same period in 2008, a net decrease of approximately $2.6 million, or 18% inclusive of approximately $487,000 of SG&A expenses in 2009 related to CSSS which we acquired in April 2009. SG&A expenses as a percent of revenues increased to 46% for the nine months ended September 30, 2009 as compared to 40% for the same period in 2008 as a result of the above mentioned reductions in revenues. The decrease in SG&A costs is primarily the result of implementation of corporate wide cost savings measures in the last six months of 2008 and the first nine months of 2009, including a significant reduction in employees throughout the entire Company. The cost savings were partially realized from a reduction in costs with the consolidation of our security division’s surveillance equipment warehouse operations into our Farmers Branch, Texas facility as well as the consolidation of customer service, accounting services, and other administrative functions within these operations. SG&A costs decreased within our Florida and Texas electronic surveillance equipment operations by approximately $419,000, or 11%, partially as a result of our consolidation efforts to reduce SG&A costs as noted above and partially as a result of our reduced sales levels. Additionally, cost savings were realized through overhead reductions within our Digital Media Marketing Segment, Linkstar, including cost savings from our decision in June 2008 to discontinue marketing Promopath’s online marketing services to external customers. SG&A expenses of our Digital Media Marketing Segment decreased from $3.7 million in the nine months ended September 30, 2008 to $1.9 million in the nine months ended September 30, 2009. In addition to these cost savings measures, we also noted a reduction in non-cash compensation expense from continuing operations from approximately $546,000 in the nine months ended September 30, 2008 to $93,000 in the nine months ended September 30, 2009. SG&A expenses also includes costs related to the Arbitration Proceedings with Mr. Paolino of approximately $300,000 and $69,000 in the nine months ended September 30, 2009 and 2008, respectively.

Depreciation and Amortization

Depreciation and amortization totaled $739,000 for the nine months ended September 30, 2009, compared to $818,000 for the same period in 2008. The decrease in depreciation and amortization expense was related to amortization expense on Linkstar intangible assets that were determined to be impaired and as a result written down at June 30, 2008.

Asset Impairment Charges

In June 2008, management made a decision to discontinue marketing efforts by its subsidiary, Promopath, the on-line marketing division of Linkstar, to third-party customers on a non-exclusive CPA basis, both brokered and through promotional sites. Management’s decision was the result of business environment changes in which the ability to maintain non-exclusive third-party relationships at an adequate profit margin became increasingly difficult. Promopath continued to market and acquire customers for the Company’s e-commerce operation, Linkstar. As a result of this decision, the value assigned to customer relationships at the time of the acquisition of Promopath was determined to be impaired as of June 30, 2008 in that future undiscounted cash flows relating to this asset were insufficient to recover its carrying value. Accordingly, in the second quarter of 2008, we recorded an impairment charge of approximately $1.4 million representing the net book value of the Promopath customer relationship intangible asset at June 30, 2008. Additionally, during the quarter ended June 30, 2008, we wrote down assets related to two full service car washes in Arlington, Texas by approximately $1.2 million. We have determined that due to further reductions in car wash volumes at these sites resulting from increased competition and a deterioration in demographics in the immediate geographic areas of these sites, along with current data utilized to estimate the fair value of these car wash facilities, the further expected cash flows would not be sufficient to recover their carrying values.

In the fourth quarter of 2008, we consolidated the inventory in our Ft. Lauderdale, Florida warehouse into our Farmers Branch, Texas facility. Certain of our administrative and sales staff of our Security Segment’s electronic surveillance products division remain in the Ft. Lauderdale, Florida building which we listed for sale with a real estate broker. We performed an updated market valuation of this property, with a current listing of this facility for sale at a price of $1,750,000. We recorded an impairment charge of $275,000 related to this property at December 31, 2008 and an additional impairment charge of $60,000 at June 30, 2009 to write-down the property to our estimate of net realizable value. On October 5, 2009, the Company entered into an agreement of sale to sell the Ft. Lauderdale, Florida building for cash consideration of $1.6 million. The sale is subject to customary closing conditions, including a general due diligence period. While the transaction is expected to close prior to December 31, 2009, no assurance can be given that the sale will be consummated. We recorded an additional impairment charge of $150,000 at September 30, 2009 to write-down the property to the sale price. The related assets have also been reclassed to assets held for sale. See Note 5. Discontinued Operations and Assets Held for Sale.

We conducted our annual assessment of goodwill for impairment for our Digital Media Marketing Segment as of June 30, 2009. We updated our forecasted cash flows of this reporting unit during the second quarter. This update considered current economic conditions and trends, estimated future operating results for the launch of new products as well as non-product revenue growth, and anticipated future economic and regulatory conditions. Based on the results of our assessment of goodwill impairment, the net book value of our Digital Media Marketing Segment reporting unit exceeded its fair value. With the noted potential impairment, we performed the second step of the impairment test to determine the implied fair value of goodwill. The resulting implied goodwill was $5.9 million which was less than the recorded value of goodwill of $6.9 million; accordingly, we recorded an impairment to write down goodwill of this reporting unit by $1.0 million. Additionally, due to continuing deterioration in our Mace Security Products, Inc. reporting unit, we performed certain impairment testing of our remaining intangible assets, specifically, the value assigned to customer lists, product lists, and trademarks as of June 30, 2009. We recorded an additional impairment charge to trademarks of approximately $80,000 and an impairment charge of $142,000 to customer lists, both principally related to our consumer direct electronic surveillance operations as of June 30, 2009.

Interest Expense, Net

Interest expense, net of interest income, for the nine months ended September 30, 2009 was $50,000, compared to interest income, net of interest expense of $40,000 for the nine months ended September 30, 2008. The Company experienced a decrease in interest expense of approximately $128,000 as a result of decreasing interest rates and a reduction in outstanding debt due to routine principal payments and repayment of debt related to car wash sales, as well as a decrease in interest income of approximately $218,000 with the Company’s decrease in cash and cash equivalents.

Other Income

Other income for the nine months ended September 30, 2009 was $55,000, compared to $378,000 for the nine months ended September 30, 2008. The 2008 other income includes $250,000 of earnings on short-term investments.

Income Taxes

The Company recorded tax expense of $95,000 and $75,000 in the nine months ended September 30, 2009 and 2008, respectively. Tax expense reflects the recording of income taxes at an effective rate of approximately (1.3)% in 2009 and (0.9)% in 2008.

Results of Operations for the Three Months Ended September 30, 2009

Compared to the Three Months Ended September 30, 2008

The following table presents the percentage each item in the consolidated statements of operations bears to revenues:

	Three months Ended September 30,
	2009			2008

Revenues		100	%		100	%
Cost of revenues		76.1			73.6
Selling, general and administrative expenses		45.8			43.3
Depreciation and amortization		3.1			2.4
Asset impairment charges		1.8			0.0
Operating loss		(26.8	)		(19.3	)
Interest (expense) income, net		(0.4	)		(0.1	)
Other income		0.0			1.5
Loss from continuing operations before income taxes		(27.2	)		(17.9	)
Income tax expense		0.2			0.2
Loss from continuing operations		(27.4	)		(18.1	)
Loss from discontinued operations		(1.3	)		(1.8	)
Net loss		(28.7	)%		(19.9	)%

Revenues

Security

Revenues within the Security Segment were approximately $4.8 million and $5.3 million for the three months ended September 30, 2009 and 2008, respectively. Of the $4.8 million of revenues for the three months ended September 30, 2009, $1.1 million, or 23%, was generated from our professional electronic surveillance operation in Florida, $525,000 or 11%, from our consumer direct electronic surveillance equipment operations in Texas, $1.1 million, or 23%, from our machine vision camera and video conferencing equipment operation in Texas, $1.2 million, or 25%, from our personal defense operation, and $875,000, or 18% from our wholesale security monitoring operation. Of the $5.3 million of revenues for the three months ended September 30, 2008, $1.8 million, or 34%, was generated from our professional electronic surveillance operation in Florida, $903,000, or 17%, from our consumer direct electronic surveillance equipment operation in Texas, $1.5 million, or 29%, from our machine vision camera and video conference equipment operation in Texas, and $1.1 million, or 20%, from our personal defense operation in Vermont. The decrease in revenues within the Security Segment was due to a decrease in sales of our consumer direct electronic surveillance operations and our machine vision camera and video conferencing equipment in Texas and our professional electronic surveillance operation in Florida. These decreases in revenues were partially offset by increases in revenues in our personal defense operation in Vermont and our wholesale security monitoring operation acquired in April 2009. The decrease in sales of our consumer direct electronic surveillance, machine vision camera and video conference equipment operations, and our professional electronic surveillance operation was due to several factors, including the impact on sales of increased competition, delay in introducing new product lines and a reduction in spending by certain of our customers impacted by the deteriorating economy. Additionally, the Company’s machine vision camera and video conferencing equipment operations continue to be impacted by certain large customers purchasing directly from its main supplier combined with reductions in sales to certain customers with ties to the “big three” domestic automotive manufacturers. The increase in sales of our personal defense operation in Vermont of $181,000 or 17% was largely a result of an increase in Mace® aerosol defense spray sales with an increase in sales of our PepperGel® product, sales from the introduction of new products such as our Mace Pepper Gun®, and an overall increase in product sales in both domestic and international markets, as we believe customers became increasingly concerned with their personal safety.

Digital Media Marketing

Revenues for the three months ended September 30, 2009 within our Digital Media Marketing Segment were approximately $2.2 million as compared to $3.4 million for the three months ended September 30, 2008, a decrease of $1.1 million, or 34%. Of the $2.2 million of revenues for the three months ended September 30, 2009, $2.2 million related to our e-commerce division and $3,100 related to our online marketing division. Of the $3.4 million of revenues for the three months ended September 30, 2008, $3.3 million related to our e-commerce division and $97,000 related to our online marketing division. The reduction in revenues within our e-commerce division of $1.0 million is related to a reduction in sales in our Purity by Mineral Science cosmetic product line introduced in late 2007 partially offset by sales from the introduction of new products, including the Eternal Minerals spa products and the ExtremeBriteWhite teeth whitening product. Sales within our e-commerce division were also negatively impacted by an increase in credit card decline rates as the recession continues and as credit card companies continue to tighten their credit to customers. The reduction in revenues within our online marketing divisions was a result of management’s decision to discontinue marketing Promopath’s online marketing services to external customers in June of 2008.

Car Wash Services

Revenues for the three months ended September 30, 2009 were $1.2 million as compared to $1.7 million for the three months ended September 30, 2008, a decrease of approximately $502,000, or 30%. This decrease was primarily attributable to a reduction in volume which negatively affected car wash, detailing and lube and other automotive service revenues. Of the $1.2 million of revenues for the three months ended September 30, 2009, $607,000, or 52%, was generated from car wash and detailing, $537,000, or 46%, from lube and other automotive services, and $31,000, or 2%, from fuel and merchandise sales. Of the $1.7 million of revenues for the three months ended September 30, 2008, $933,000, or 56%, was generated from car wash and detailing, $688,000 or 41%, from lube and other automotive services, and $56,000, or 3%, from fuel and merchandise sales. The decrease in wash and detail revenues in 2009 was principally due to a reduction in car wash volumes including the impact of the sale of two Dallas, Texas car wash sites since October 2008 combined with a decline in average wash and detailing revenue per car from $16.71 in the three months ending September 30, 2008 to $15.53 in the three months ended September 30, 2009.

Cost of Revenues

Security

During the three months ended September 30, 2009, cost of revenues was $3.3 million, or 69% of revenues, as compared to $4.0 million, or 75% of revenues, for the three months ended September 30, 2008. The reduction in cost of revenues as a percent of revenues in 2009 is the result of the implementation of corporate wide cost savings measures in the last six months of 2008 and the first nine months of 2009 and a reduction in discounts and product returns within our professional and our consumer direct electronic surveillance operations.

Digital Media Marketing

Cost of revenues for the three months ended September 30, 2009 and 2008 within our Digital Media Marketing Segment were approximately $1.8 million, or 79% of revenues, and $2.1 million, or 64% of revenues, respectively.

Car Wash Services

Cost of revenues for the three months ended September 30, 2009 was $1.1 million, or 97% of revenues, with car washing and detailing costs at 114% of revenues, lube and other automotive services costs at 79% of revenues, and fuel and merchandise costs at 81% of revenues. Cost of revenues for the three months ended September 30, 2008 was $1.5 million, or 87% of revenues, with car washing and detailing costs at 96% of revenues, lube and other automotive services costs at 76% of revenues, and fuel and merchandise costs at 82% of revenues. This increase in car wash and detailing costs as a percent of revenues in 2008 was the result of reduced volumes.

Selling, General and Administrative Expenses

SG&A expenses for the three months ended September 30, 2009 were $3.8 million compared to $4.5 million for the same period in 2008, a decrease of approximately $710,000, or 16% inclusive of approximately $279,000 of SG&A expenses in 2009 related to CSSS which we acquired in April 2009. SG&A expenses as a percent of revenues increased to 46% for the three months ended September 30, 2009 as compared to 43% for the same period in 2008 as a result of the above mentioned reductions in revenues. The decrease in SG&A costs is primarily the result of implementation of corporate wide cost savings measures in the last six months of 2008 and the first nine months of 2009, including a significant reduction in employees throughout the entire Company. The cost savings in particular were realized from a reduction in costs with the consolidation of our security division’s surveillance equipment warehouse operations into our Farmers Branch, Texas facility as well as the consolidation of customer service, accounting services, and other administrative functions within these operations. SG&A costs decreased within our Florida and Texas electronic surveillance equipment operations by approximately $216,000 or 17%, partially as a result of our consolidation efforts to reduce SG&A costs as noted above and partially as a result of our reduced sales levels. Additionally, cost savings were realized through overhead reductions within our Digital Media Marketing Segment, Linkstar, including cost savings from our decision in June 2008 to discontinue marketing Promopath’s online marketing services to external customers. SG&A expenses of Linkstar decreased from $1.1 million in the three months ended September 30, 2008 to $578,000 in the three months ended September 30, 2009. In addition to these cost savings measures, we also noted a reduction in non-cash compensation expense from continuing operations from approximately $255,000 in the three months ended September 30, 2008 to $40,000 in the three months ended September 30, 2009. SG&A expenses also includes costs related to the Arbitration Proceedings with Mr. Paolino of approximately $154,000 and $59,000 in the three months ended September 30, 2009 and 2008, respectively.

Depreciation and Amortization

Depreciation and amortization totaled $255,000 for the three months ended September 30, 2009, compared to $247,000 for the same period in 2008. The increase in depreciation and amortization expense was attributable to the CSSS acquired intangible assets on April 30, 2009.

Interest Expense, Net

Interest expense, net of interest income, for the three months ended September 30, 2009 was $29,000, compared to $8,000 for the three months ended September 30, 2008.

Other Income

Other income for the three months ended September 30, 2009 was $1,000, compared to $157,000 for the three months ended September 30, 2008. The 2008 other income includes $70,000 of earnings on short-term investments.

Income Taxes

The Company recorded tax expense of $15,000 and $25,000 in the three months ended September30, 2009 and 2008, respectively. Income tax expense reflects the recording of income taxes at an effective rate of approximately (0.7)% in 2009 and (1.4)% in 2008.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There has been no material change in our exposure to market risks arising from fluctuations in foreign currency exchange rates, commodity prices, equity prices or market interest rates since December 31, 2008 as reported in our Annual Report on Form 10-K for the year ended December 31, 2008.

Nearly all of the Company’s debt at September 30, 2009, including debt related to discontinued operations, is at variable rates. Substantially all of our variable rate debt obligations are tied to the prime rate, as is our incremental borrowing rate. A one percent increase in the prime rates would not have a material effect on the fair value of our variable rate debt at September 30, 2009. The impact of increasing interest rates by one percent would be an increase in interest expense of approximately $65,000 in 2009.

Item 4T. Controls and Procedures

The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules, and include controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management, including its principal executive and financial officers, to allow timely decisions regarding required disclosure. Based on the evaluation of the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2009 required by Rule 13a-15(b) or Rule 15d-15(b) under the Exchange Act and conducted by the Company’s chief executive officer and chief financial officer, such officers concluded that the Company’s disclosures controls and procedures were effective as of September 30, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. In addition, no change in the Company’s internal control over financial reporting (as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended September 30, 2009 that materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding our legal proceedings can be found in Note 7, Commitments and Contingencies, of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.

Item 1A. Risks Factors

Many of our customers’ activity levels and spending for our products and services may be impacted by the current deterioration in the economy and credit markets. As a result of the recession, the credit market crisis, declining consumer and business confidence, increased unemployment, and other challenges currently affecting the domestic economy, our customers have reduced their spending on our products and services. Many of our customers in our electronic surveillance equipment business finance their purchase activities through cash flow from operations or the incurrence of debt. Additionally, many of our customers in our personal defense products division, our e-commerce division and our car wash operations depend on disposable personal income. The combination of a reduction of disposal personal income, a reduction in cash flow of businesses and a possible lack of availability of financing to businesses and individuals has resulted in a significant reduction in our customers’ spending for our products and services. During the first nine months of 2009, our revenues from continuing operations declined $10.2 million, or 29%, from our revenues from continuing operations in the first nine months of 2008. To the extent our customers reduce their spending for the remainder 2009, this reduction in spending could have a material adverse effect on our operations. If the economic slowdown continues for a significant period or there is significant further deterioration in the economy, our results of operations, financial position and cash flows will be materially adversely affected.

If we are unable to finance the growth of our business, our stock price could decline. Our business plan involves growing our Security and Digital Media Marketing Segments through acquisitions and internal development, and divesting of our car washes through third party sales. The growth of our Security and Digital Media Segments requires significant capital that we hope to partially fund through the sale of our car washes. Our capital requirements also include working capital for daily operations and capital for equipment purchases. Although we had positive working capital of $15.8 million as of September 30, 2009, we have a history of net losses and in some years we have ended our fiscal year with a negative working capital balance. The current economic climate has made it more difficult to sell our remaining car washes as it is more difficult for buyers to finance the purchase price. To the extent that we lack cash to meet our future capital needs, we will need to raise additional funds through bank borrowings and additional equity and/or debt financings, which may result in significant increases in leverage and interest expense and/or substantial dilution of our outstanding equity. If we are unable to raise additional capital, we may need to substantially reduce the scale of our operations and curtail our business plan. Although we have generated cash from the sale of our car washes, there is no guarantee that in the current economic climate we will be able to sell our remaining car washes.

Our liquidity could be adversely affected if we do not prevail in the litigation initiated by Louis D. Paolino, Jr. The Board of Directors of the Company terminated Louis D. Paolino, Jr. as the Chief Executive Officer of the Company on May 20, 2008. On June 9, 2008, the Company received a Demand for Arbitration from Mr. Paolino (the “Arbitration Demand”) filed with the American Arbitration Association in Philadelphia, Pennsylvania (the “Arbitration Proceeding”). The primary allegations of the Arbitration Demand are: (i) Mr. Paolino alleges that he was terminated by the Company wrongfully and is owed a severance payment of $3,918,120 due to the termination; (ii) Mr. Paolino is claiming that the Company owes him $322,606 because the Company did not issue him a sufficient number of stock options in August 2007, under provisions of the Employment Contract between Mr. Paolino and the Company dated August 21, 2006; (iii) Mr. Paolino is claiming damages against the Company in excess of $6,000,000, allegedly caused by the Company having defamed Mr. Paolino’s professional reputation and character in the Current Report on Form 8-K dated May 20, 2008 filed by the Company and in the press release the Company issued on May 21, 2008, relating to Mr. Paolino’s termination; and (iv) Mr. Paolino is also seeking punitive damages, attorney’s fees and costs in an unspecified amount. The Company filed a counterclaim in the Arbitration Proceeding demanding damages from Mr. Paolino of $1,000,000. On June 25, 2008, Mr. Paolino also filed a claim with the United States Department of Labor claiming that his termination as Chief Executive Officer of the Company was an “unlawful discharge” in violation of 18 U.S.C. Sec. 1514A, a provision of the Sarbanes-Oxley Act of 2002 (the “DOL Complaint”). In the DOL Complaint, Mr. Paolino demands the same damages he requested in the Arbitration Demand and additionally requests reinstatement as Chief Executive Officer with back pay from the date of termination. Upon the motion of Mr. Paolino, the proceedings relating to the DOL Complaint have been stayed pending the conclusion of the Arbitration Proceeding. The Company is disputing the allegations made by Mr. Paolino and is defending itself in the Arbitration Proceeding and against the DOL Complaint. Although the Company is confident that it will prevail, it is not possible to predict the outcome of litigation with any certainty. If the Company does not prevail and significant damages are awarded to Mr. Paolino, such award may severely diminish the Company’s liquidity.

If we fail to manage the growth of our business, our stock price could decline. Our business plan is predicated on growing the Security Segment. If we succeed in growing, it will place significant burdens on our management and on our operational and other resources. For example, it may be difficult to assimilate the operations and personnel of an acquired business into our existing business; we must integrate management information and accounting systems of an acquired business into our current systems; our management must devote its attention to assimilating the acquired business, which diverts attention from other business concerns; we may enter markets in which we have limited prior experience; and we may lose key employees of an acquired business. We will also need to attract, train, motivate, retain, and supervise senior managers and other employees. If we fail to manage these burdens successfully, one or more of the acquisitions could be unprofitable, the shift of our management’s focus could harm our other businesses, and we may be forced to abandon our business plan, which relies on growth.

We have debt secured by mortgages, which can be foreclosed upon if we default on the debt. Our bank debt borrowings as of September 30, 2009 were $5.3 million, including capital lease obligations and borrowings related to assets held for sale, substantially all of which are secured by mortgages against certain of our real property (including up to seven of our car wash facilities at September 30, 2009). Our most significant borrowings are secured notes payable to Chase in the amount of $4.2 million. We have in the past violated loan covenants in our Chase agreements. We have obtained waivers for our violations of the Chase agreements. Our ongoing ability to comply with the debt covenants under our credit arrangements and refinance our debt depends largely on our achievement of adequate levels of cash flow. Our cash flow has been and could continue to be adversely affected by economic conditions. If we default on our loan covenants in the future and are not able to obtain amendments or waivers of acceleration, our debt could become due and payable on demand, and Chase could foreclose on the assets pledged in support of the relevant indebtedness. If our assets (including up to seven of our car wash facilities at September 30, 2009) are foreclosed upon, revenues from our Car Wash Segment, which comprised 14.6% of our total revenues for the fiscal 2008 and 15.2% of out total revenues for the nine months ended September 30, 2009, would be severely impacted and we may go out of business.

Our loans with Chase have financial covenants that restrict our operations and which can cause our loans to be accelerated. Our secured notes payable to Chase total $4.2 million, $1.6 million of which was classified as non-current debt at September 30, 2009. The Chase agreements contain affirmative and negative covenants, including the maintenance of certain levels of tangible net worth, maintenance of certain levels of unencumbered cash and marketable securities, limitations on capital spending, and certain financial reporting requirements. Our Chase agreements contain an express prohibition on incurring additional debt without the approval of the lender. The Chase term loan agreements also limit capital expenditures annually to $1.0 million, require the Company to provide Chase with an Annual Report on Form 10-K and audited financial statements within 120 days of the Company’s fiscal year end and a Quarterly Report on Form 10-Q within 60 days after the end of each fiscal quarter, and require the maintenance of a minimum total unencumbered cash and marketable securities balance of $3 million. If we are unable to satisfy the Chase covenants and we cannot obtain further waivers or amendments to our loan agreements, the Chase notes may be reflected as current in future balance sheets and as a result our stock price may decline. We were in compliance with these covenants at September 30, 2009.

We have reported net losses in the past. If we continue to report net losses, the price of our common stock may decline, or we could go out of business. We reported net losses and negative cash flow from operating activity from continuing operations in each of the five years ended December 31, 2008 and in the first nine months of 2009. Although a portion of the reported losses in past years related to non-cash impairment charges of intangible assets and non-cash stock-based compensation expense, we may continue to report net losses and negative cash flow in the future. Additionally, accounting pronouncements requires annual fair value based impairment tests of goodwill and other intangible assets identified with indefinite useful lives. As a result, we may be required to record additional impairments in the future, which could materially reduce our earnings and equity. If we continue to report net losses and negative cash flows, our stock price could be adversely impacted.

We compete with many companies, some of whom are more established and better capitalized than us. We compete with a variety of companies on a worldwide basis. Some of these companies are larger and better capitalized than us. There are also few barriers to entry in our markets and thus above average profit margins will likely attract additional competitors. Our competitors may develop products and services that are superior to, or have greater market acceptance than our products and services. For example, many of our current and potential competitors have longer operating histories, significantly greater financial, technical, marketing and other resources and larger customer bases than ours. These factors may allow our competitors to respond more quickly than we can to new or emerging technologies and changes in customer requirements. Our competitors may engage in more extensive research and development efforts, undertake more far-reaching marketing campaigns and adopt more aggressive pricing policies which may allow them to offer superior products and services.

Failure or circumvention of our controls or procedures could seriously harm our business. An internal control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues, mistakes and instances of fraud, if any, within the Company have been or will be detected. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Any failure of our controls and procedures to detect error or fraud could seriously harm our business and results of operations.

If we lose the services of our executive officers, our business may suffer. If we lose the services of one or more of our executive officers and do not replace them with experienced personnel, that loss of talent and experience will make our business plan, which is dependent on active growth and management, more difficult to implement and could adversely impact our operations.

If our insurance is inadequate, we could face significant losses. We maintain various insurance coverages for our assets and operations. These coverages include property coverage including business interruption protection for each location. We maintain commercial general liability coverage in the amount of $1 million per occurrence and $2 million in the aggregate with an umbrella policy which provides coverage up to $25 million. We also maintain workers’ compensation policies in every state in which we operate. Since July 2002, as a result of increasing costs of the Company’s insurance program, including auto, general liability, and certain of our workers’ compensation coverage, we have been insured as a participant in a captive insurance program with other unrelated businesses. Workers’ compensation coverage for non-car wash employees was transferred to an occurrence-based policy in March 2009. The Company maintains excess coverage through occurrence-based policies. With respect to our auto, general liability, and certain workers’ compensation policies, we are required to set aside an actuarially determined amount of cash in a restricted “loss fund” account for the payment of claims under the policies. We expect to fund these accounts annually as required by the insurance company. Should funds deposited exceed claims incurred and paid, unused deposited funds are returned to us with interest after the fifth anniversary of the policy year-end. The captive insurance program is further secured by a letter of credit from Mace in the amount of $566,684 at September 30, 2009. The Company records a monthly expense for losses up to the reinsurance limit per claim based on the Company’s tracking of claims and the insurance company’s reporting of amounts paid on claims plus an estimate of reserves for possible future losses on reported claims and claims incurred but not reported. There can be no assurance that our insurance will provide sufficient coverage in the event a claim is made against us, or that we will be able to maintain in place such insurance at reasonable prices. An uninsured or under insured claim against us of sufficient magnitude could have a material adverse effect on our business and results of operations.

Risks Related to our Security Segment

We could become subject to litigation regarding intellectual property rights, which could seriously harm our business. Although we have not been the subject of any such actions, third parties may in the future assert against us infringement claims or claims that we have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to them. We provide the specifications for most of our security products and contract with independent suppliers to engineer and manufacture those products and deliver them to us. Certain of these products contain proprietary intellectual property of these independent suppliers. Third parties may in the future assert claims against our suppliers that such suppliers have violated a patent or infringed upon a copyright, trademark or other proprietary right belonging to them. If such infringement by our suppliers or us were found to exist, a party could seek an injunction preventing the use of their intellectual property. In addition, if an infringement by us were found to exist, we may attempt to acquire a license or right to use such technology or intellectual property. Some of our suppliers have agreed to indemnify us against any such infringement claim, but any infringement claim, even if not meritorious and/or covered by an indemnification obligation, could result in the expenditure of a significant amount of our financial and managerial resources, which would adversely effect our operations and financial results.

If our Mace brand name falls into common usage, we could lose the exclusive right to the brand name. The Mace registered name and trademark is important to our security business and defense spray business. If we do not defend the Mace name or allow it to fall into common usage, our security segment business could be adversely affected.

If our original equipment manufacturers (“OEMs”) fail to adequately supply our products, our security products sales may suffer. Reliance upon OEMs, as well as industry supply conditions generally involves several additional risks, including the possibility of defective products (which can adversely affect our reputation for reliability), a shortage of components and reduced control over delivery schedules (which can adversely affect our distribution schedules), and increases in component costs (which can adversely affect our profitability). We have some single-sourced manufacturer relationships, either because alternative sources are not readily or economically available or because the relationship is advantageous due to performance, quality, support, delivery, capacity, or price considerations. If these sources are unable or unwilling to manufacture our products in a timely and reliable manner, we could experience temporary distribution interruptions, delays, or inefficiencies adversely affecting our results of operations. Even where alternative OEMs are available, qualification of the alternative manufacturers and establishment of reliable suppliers could result in delays and a possible loss of sales, which could affect operating results adversely.

Many states have and other states have stated an intention to enact laws (“electronic recycling laws”) requiring manufacturers of certain electronic products to pay annual registration fees and have recycling plans in place for electronic products sold at retail such as televisions, computers, and monitors. If the electronic recycling laws are applied to us, the sale of monitors by us may become prohibitively expensive. Our Security Segment sells monitors as part of the video security surveillance packages we market. The video security surveillance packages consist of cameras, digital video recorders and video monitors. We have taken the position with many states that our monitors are security monitors and are not subject to the laws they have enacted which generally refer to computer monitors. If we have to pay registration fees and have recycling plans for the monitors we sell, it may be prohibitively expensive to offer monitors as part of our security surveillance packages. The inability to offer monitors at a competitive price will place us at a competitive disadvantage.

The businesses that manufacture our electronic surveillance products are located in foreign countries, making it difficult to recover damages if the manufacturers fail to meet their obligations. Our electronic surveillance products and many non-aerosol personal protection products are manufactured on an OEM basis. Most of the OEM suppliers we deal with are located in Asian countries and are paid a significant portion of an order in advance of the shipment of the product. We also have limited information on the OEM suppliers from which we purchase, including their financial strength, location and ownership of the actual manufacturing facilities producing the goods. If any of the OEM suppliers defaulted on their agreements with the Company, it would be difficult for the Company to obtain legal recourse because of the suppliers’ assets being located in foreign countries.

If people are injured by our consumer safety products, we could be held liable and face damage awards. We face claims of injury allegedly resulting from our defense sprays, which we market as less-than-lethal. For example, we are aware of allegations that defense sprays used by law enforcement personnel resulted in deaths of prisoners and of suspects in custody. In addition to use or misuse by law enforcement agencies, the general public may pursue legal action against us based on injuries alleged to have been caused by our products. We may also face claims by purchasers of our electronic surveillance systems if they fail to operate properly during the commission of a crime. As the use of defense sprays and electronic surveillance systems by the public increases, we could be subject to additional product liability claims. We currently have a $25,000 deductible on our consumer safety products insurance policy, meaning that all such lawsuits, even unsuccessful ones and ones covered by insurance, cost the Company money. Furthermore, if our insurance coverage is exceeded, we will have to pay the excess liability directly. Our product liability insurance provides coverage of $1 million per occurrence and $2 million in the aggregate with an umbrella policy which provides coverage of up to $25 million. However, if we are required to directly pay a claim in excess of our coverage, our income will be significantly reduced, and in the event of a large claim, we could go out of business.

If governmental regulations regarding defense sprays change or are applied differently, our business could suffer. The distribution, sale, ownership and use of consumer defense sprays are legal in some form in all 50 states and the District of Columbia. Restrictions on the manufacture or use of consumer defense sprays may be enacted, which would severely restrict the market for our products or increase our costs of doing business.

Our defense sprays use hazardous materials which if not properly handled would result in our being liable for damages under environmental laws. Our consumer defense spray manufacturing operation currently incorporates hazardous materials, the use and emission of which are regulated by various state and federal environmental protection agencies, including the United States Environmental Protection Agency. If we fail to comply with any environmental requirements, these changes or failures may expose us to significant liabilities that would have a material adverse effect on our business and financial condition. The Environmental Protection Agency conducted a site investigation at our Bennington, Vermont facility in January, 2008 and found the facility in need of remediation. See Note 7. Commitments and Contingencies.

We rely on third party providers for the software systems and communication connections we use to monitor alarms and video signals; any failure or interruption in products or services provided by these third parties could harm our ability to operate our business. Our central station utilizes third party software and third party phone and internet connections to monitor alarm and video signals. Any financial or other difficulties our providers face may have negative effects on our business.

Shifts in our current and future customers' selection of telecommunications services could increase customer attrition and could adversely impact our earnings and cash flow. Certain elements of our operating model rely on our customers' selection and continued use of traditional, land-line telecommunications services, which we use to communicate with our monitoring operations. In order to continue to service existing customers who cancel their land-line telecommunications services and to service new customers who do not subscribe to land-line telecommunications services, some customers must upgrade to alternative and often more expensive wireless or internet based technologies. Higher costs may reduce the market for new customers of alarm monitoring services, and the trend away from traditional land-lines to alternatives may mean more existing customers will cancel service with us. Continued shifts in customers' preferences regarding telecommunications services could continue to have an adverse impact on our earnings, cash flow and customer attrition.

We face continuing competition and pricing pressure from other companies in our industry and, if we are unable to compete effectively with these companies, our sales and profitability could be adversely affected. We compete with a number of major domestic security monitoring companies, as well as a large number of smaller, regional competitors. We believe that this competition is a factor in our attrition, limits our ability to raise prices, and, in some cases, requires that we lower prices. Some of our monitoring competitors, either alone or in conjunction with their respective parent corporate groups, are larger than we are and have greater financial resources, sales, marketing or operational capabilities than we do. In addition, opportunities to take market share using innovative products, services and sales approaches may attract new entrants to the field. We may not be able to compete successfully with the offerings and sales tactics of other companies, which could result in the loss of customers and, as a result, decreased revenue and operating results.

Loss of customer accounts could materially adversely affect our operations. Our contracts can be terminated on 60 day notice by our customers. We could experience the loss of accounts as a result of, among other factors:

relocation of customers;

customers' inability or unwillingness to pay our charges;

adverse financial and economic conditions, the impact of which may be particularly acute among our small business customers;

the customers' perceptions of value;

competition from other alarm service companies; and

the purchase of our dealers by third parties who choose to monitor elsewhere.

Loss of a large dealer could result in a significant reduction in recurring monthly revenue. Net losses of customer accounts could materially and adversely affect our business, financial condition and results of operations.

Increased adoption of "false alarm" ordinances by local governments may adversely affect our business. An increasing number of local governmental authorities have adopted, or are considering the adoption of, laws, regulations or policies aimed at reducing the perceived costs to municipalities of responding to false alarm signals. Such measures could include:

requiring permits for the installation and operation of individual alarm systems and the revocation of such permits following a specified number of false alarms;

imposing limitations on the number of times the police will respond to alarms at a particular location after a specified number of false alarms;

requiring further verification of an alarm signal before the police will respond; and

subjecting alarm monitoring companies to fines or penalties for transmitting false alarms.

Enactment of these measures could adversely affect our future business and operations. For example, concern over false alarms in communities adopting these ordinances could cause a decrease in the timeliness of police response to alarm activations and thereby decrease the propensity of consumers to purchase or maintain alarm monitoring services. Our costs to service affected accounts could increase.

Due to a concentration of accounts in California, we are susceptible to environmental incidents that may negatively impact our results of operations. Approximately 95% of our recurring monthly revenue (“RMR”) at September 30, 2009 was derived from customers located in California. Additionally, our facilities are located in California. A major earthquake, or other environmental disaster in California, could disrupt our ability to serve customers or render customers uninterested in continuing to retain us to provide alarm monitoring services.

We could face liability for our failure to respond adequately to alarm activations. The nature of the services we provide potentially exposes us to greater risks of liability for employee acts or omissions or system failures than may be inherent in other businesses. In an attempt to reduce this risk, our alarm monitoring agreements and other agreements pursuant to which we sell our products and services contain provisions limiting our liability to customers and third parties. In the event of litigation with respect to such matters, however, these limitations may not be enforced. In addition, the costs of such litigation could have an adverse effect on us.

In the event that adequate insurance is not available or our insurance is not deemed to cover a claim, we could face liability. We carry insurance of various types, including general liability and professional liability insurance in amounts management considers adequate and customary for the industry. Some of our insurance policies, and the laws of some states, may limit or prohibit insurance coverage for punitive or certain other types of damages, or liability arising from gross negligence. If we incur increased losses related to employee acts or omissions, or system failure, or if we are unable to obtain adequate insurance coverage at reasonable rates, or if we are unable to receive reimbursements from insurance carriers, our financial condition and results of operations could be materially and adversely affected.

Future government regulations or other standards could have an adverse effect on our operations. Our operations are subject to a variety of laws, regulations and licensing requirements of federal, state and local authorities. In certain jurisdictions, we are required to obtain licenses or permits to comply with standards governing employee selection and training and to meet certain standards in the conduct of our business. The loss of such licenses, or the imposition of conditions to the granting or retention of such licenses, could have an adverse effect on us. In the event that these laws, regulations and/or licensing requirements change, we may be required to modify our operations or to utilize resources to maintain compliance with such rules and regulations. In addition, new regulations may be enacted that could have an adverse effect on us.

The loss of our Underwriter Laboratories listing could negatively impact our competitive position. Our alarm monitoring center is Underwriters Laboratories ("UL") listed. To obtain and maintain a UL listing, an alarm monitoring center must be located in a building meeting UL's structural requirements, have back-up and uninterruptible power supplies, have secure telephone lines and maintain redundant computer systems. UL conducts periodic reviews of alarm monitoring centers to ensure compliance with its regulations. Non-compliance could result in a suspension of our UL listing. The loss of our UL listing could negatively impact our competitive position.

Risks Related to our Digital Media Marketing Segment

Our e-commerce brands are not well known. Our e-commerce brands of Vioderm (anti-wrinkle products), TrimDay (diet supplement), Purity by Mineral Science (mineral based facial makeup), Eternal Minerals (Dead Sea spa products), Extreme- BriteWhite (a teeth whitening product) and Knockout (an acne product) are relatively new. We have not yet been able to develop widespread awareness of our e-commerce brands. Lack of brand awareness could harm the success of our marketing campaigns, which could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

We have a concentration of our e-commerce business in limited products. E-Commerce revenues are currently generated from six product lines. The concentration of our business in limited products creates the risk of adverse financial impact if we are unable to continue to sell these products or unable to develop additional products. We believe that we can mitigate the financial impact of any decrease in sales by the development of new products, however we cannot predict the timing of or success of new products.

We compete with many established e-commerce companies that have been in business longer than us. Current and potential e-commerce competitors are making, and are expected to continue to make, strategic acquisitions or establish cooperative, and, in some cases, exclusive relationships with significant companies or competitors to expand their businesses or to offer more comprehensive products and services. To the extent these competitors or potential competitors establish exclusive relationships with major portals, search engines and ISPs, our ability to reach potential members through online advertising may be restricted. Any of these competitors could cause us difficulty in attracting and retaining online registrants and converting registrants into customers and could jeopardize our existing affiliate program and relationships with portals, search engines, ISPs and other Internet properties. Failure to compete effectively including by developing and enhancing our services offerings would have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

We need to attract and retain a large number of e-commerce customers who purchase our products on a recurring basis. Our e-commerce model is driven by the need to attract a large number of customers to our continuity program and to maintain customers for an extended period of time. We have fixed costs in obtaining an initial customer which can be defrayed only by a customer making further purchases. For our business to be profitable, we must convert a certain percentage of our initial customers to customers that purchase our products on a recurring monthly basis for a period of time. To do so, we must continue to invest significant resources in order to enhance our existing products and to introduce new high-quality products and services. There is no assurance we will have the resources, financial or otherwise, required to enhance or develop products and services. Further, if we are unable to predict user preferences or industry changes, or if we are unable to improve our products and services on a timely basis, we may lose existing members and may fail to attract new customers. Failure to enhance or develop products and services or to respond to the needs of our customers in an effective or timely manner could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

Our customer acquisition costs may increase significantly. The customer acquisition cost of our business depends in part upon our ability to obtain placement on promotional Internet sites at a reasonable cost. We currently pay for the placement of our products on third party promotional Internet sites by paying the site operators a fixed fee for each customer we obtain from the site, (“CPA fee”). The CPA fee varies over time, depending upon a number of factors, some of which are beyond our control. One of the factors that determine the amount of the CPA fee is the attractiveness of our products and how many consumers our products draw to a promotional website. Historically, we have used online advertising on promotional websites as the sole means of marketing our products. In general, the costs of online advertising have increased substantially and are expected to continue to increase as long as the demand for online advertising remains robust. We may not be able to pass these costs on in the form of higher product prices. Continuing increases in advertising costs could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

Our online marketing business must keep pace with rapid technological change to remain competitive. Our online marketing business operates in a market characterized by rapidly changing technology, evolving industry standards, frequent new product and service announcements, enhancements, and changing customer demands. We must adapt to rapidly changing technologies and industry standards and continually improve the speed, performance, features, ease of use and reliability of our services and products. Introducing new technology into our systems involves numerous technical challenges, requires substantial amounts of capital and personnel resources, and often takes many months to complete. We may not successfully integrate new technology into our websites on a timely basis, which may degrade the responsiveness and speed of our websites. Technology, once integrated, may not function as expected. Failure to generally keep pace with the rapid technological change could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

We depend on our merchant and banking relationships, as well as strategic relationships with third parties, who provide us with payment processing solutions. Our e-commerce products are sold by us on the Internet and are paid for by customers through credit cards. From time to time, VISA and MasterCard increase the fees that they charge processors. We may attempt to pass these increases along to our customers, but this might result in the loss of those customers to our competitors who do not pass along the increases. Our revenues from merchant account processing are dependent upon our continued merchant relationships which are highly sensitive and can be canceled if customer charge-backs escalate and generate concern that the company has not held back sufficient funds in reserve accounts to cover these charge-backs as well as result in significant charge-back fines. Cancellation by our merchant providers would most likely result in the loss of new customers and lead to a reduction in our revenues.

We depend on credit card processing for a majority of our e-commerce business, including but not limited to Visa, MasterCard, American Express, and Discover. Significant changes to the merchant operating regulations, merchant rules and guidelines, card acceptance methods and/or card authorization methods could significantly impact our revenues. Additionally, our e-commerce membership programs are accepted under a negative option billing term (customers are charged monthly until they cancel), and change in regulation of negative option billing could significantly impact our revenue.

We are exposed to risks associated with credit card fraud and credit payment. Our customers use credit cards to pay for our e-commerce products and for the products we market for third parties. We have suffered losses, and may continue to suffer losses, as a result of orders placed with fraudulent credit card data, even though the associated financial institution approved payment. Under current credit card practices, a merchant is liable for fraudulent credit card transactions when the merchant does not obtain a cardholder’s signature. A failure to adequately control fraudulent credit card transactions would result in significantly higher credit card-related costs and could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

Security breaches and inappropriate Internet use could damage our Digital Media Marketing business. Failure to successfully prevent security breaches could significantly harm our business and expose us to lawsuits. Anyone who is able to circumvent our security measures could misappropriate proprietary information, including customer credit card and personal data, cause interruptions in our operations, or damage our brand and reputation. Breach of our security measures could result in the disclosure of personally identifiable information and could expose us to legal liability. We cannot assure you that our financial systems and other technology resources are completely secure from security breaches or sabotage. We have experienced security breaches and attempts at “hacking.” We may be required to incur significant costs to protect against security breaches or to alleviate problems caused by breaches. All of these factors could have a material adverse effect on our business, results of operations, financial condition and the trading price of our common stock.

Changes in government regulation and industry standards could decrease demand for our products and services and increase our costs of doing business. Laws and regulations that apply to Internet communications, commerce and advertising are becoming more prevalent. These regulations could affect the costs of communicating on the web and could adversely affect the demand for our advertising solutions or otherwise harm our business, results of operations and financial condition. The United States Congress has enacted Internet legislation regarding children’s privacy, copyrights, sending of commercial email (e.g., the Federal CAN-SPAM Act of 2003), and taxation. Other laws and regulations have been adopted and may be adopted in the future, and may address issues such as user privacy, spyware, “do not email” lists, pricing, intellectual property ownership and infringement, copyright, trademark, trade secret, export of encryption technology, click-fraud, acceptable content, search terms, lead generation, behavioral targeting, taxation, and quality of products and services. This legislation could hinder growth in the use of the web generally and adversely affect our business. Moreover, it could decrease the acceptance of the web as a communications, commercial and advertising medium. The Company does not use any form of spam or spyware.

Government enforcement actions could result in decreased demand for our products and services. The Federal Trade Commission and other governmental or regulatory bodies have increasingly focused on issues impacting online marketing practices and consumer protection. The Federal Trade Commission has conducted investigations of competitors and filed law suits against competitors. Some of the investigations and law suits have been settled by consent orders which have imposed fines and required changes with regard to how competitors conduct business. The New York Attorney General’s office has sued a major Internet marketer for alleged violations of legal restrictions against false advertising and deceptive business practices related to spyware. In our judgment, the marketing claims we make in advertisements we place to obtain new e-commerce customers are legally permissible. Governmental or regulatory authorities may challenge the legality of the advertising we place and the marketing claims we make. We could be subject to regulatory proceedings for past marketing campaigns, or could be required to make changes in our future marketing claims, either of which could adversely affect our revenues.

Our business could be subject to regulation by foreign countries, new unforeseen laws and unexpected interpretations of existing laws, resulting in an increased cost of doing business. Due to the global nature of the web, it is possible that, although our transmissions originate in California and Pennsylvania, the governments of other states or foreign countries might attempt to regulate our transmissions or levy sales or other taxes relating to our activities. In addition, the growth and development of the market for Internet commerce may prompt calls for more stringent consumer protection laws, both in the United States and abroad, that may impose additional burdens on companies conducting business over the Internet. The laws governing the internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine how existing laws, including those governing intellectual property, privacy, libel and taxation, apply to the Internet and Internet advertising. Our business, results of operations and financial condition could be materially and adversely affected by the adoption or modification of industry standards, laws or regulations relating to the Internet, or the application of existing laws to the Internet or Internet-based advertising.

We depend on third parties to manufacture all of the products we sell within our e-commerce division, and if we are unable to maintain these manufacturing and product supply relationships or enter into additional or different arrangements, we may fail to meet customer demand and our net sales and profitability may suffer as a result. In addition, shortages of raw ingredients, especially for our Purity mineral cosmetics line, could affect our supply chain and impede current and future sales and net revenues. All of our products are contract manufactured or supplied by third parties. The fact that we do not have long-term contracts with our other third-party manufacturers means that they could cease manufacturing these products for us at any time and for any reason. In addition, our third-party manufacturers are not restricted from manufacturing our competitors’ products, including mineral-based products. If we are unable to obtain adequate supplies of suitable products because of the loss of one or more key vendors or manufacturers, our business and results of operations would suffer until we could make alternative supply arrangements. In addition, identifying and selecting alternative vendors would be time-consuming and expensive, and we might experience significant delays in production during this selection process. Our inability to secure adequate and timely supplies of merchandise would harm inventory levels, net sales and gross profit, and ultimately our results of operations.

The quality of our e-commerce products depend on quality control of third party manufacturers. For our e-commerce products, third-party manufacturers may not continue to produce products that are consistent with our standards or current or future regulatory requirements, which would require us to find alternative suppliers of our products. Our third-party manufacturers may not maintain adequate controls with respect to product specifications and quality and may not continue to produce products that are consistent with our standards or applicable regulatory requirements. If we are forced to rely on products of inferior quality, then our customer satisfaction and brand reputation would likely suffer, which would lead to reduced net sales.

Within our e-commerce division, we manufacture and market health and beauty consumer products that are ingestible or applied topically. These products may cause unexpected and undesirable side effects that could limit their use, require their removal from the market or prevent further development. In addition, we are vulnerable to claims that our products are not as effective as we claim them to be. We also may be vulnerable to product liability claims from their use. Unexpected and undesirable side effects caused by our products for which we have not provided sufficient label warnings could result in our recall or discontinuance of sales of our products. Unexpected and undesirable side effects could prevent us from achieving or maintaining market acceptance of the affected products or could substantially increase the costs and expenses of commercializing new products. In addition, consumers or industry analysts may assert claims that our products are not as effective as we claim them to be. Unexpected and undesirable side effects associated with our products or assertions that our products are not as effective as we claim them to be also could cause negative publicity regarding our company, brand or products, which could in turn harm our reputation and net sales. Our business exposes us to potential liability risks that arise from the testing, manufacture and sale of our beauty products. Plaintiffs in the past have received substantial damage awards from other cosmetics companies based upon claims for injuries allegedly caused by the use of their products. We currently maintain general liability insurance in the amount of $1 million per occurrence and $2 million in the aggregate with an umbrella policy which provides coverage of up to $25 million. Any claims brought against us may exceed our existing or future insurance policy coverage or limits. Any judgment against us that is in excess of our policy limits would have to be paid from our cash reserves, which would reduce our capital resources. Any product liability claim or series of claims brought against us could harm our business significantly, particularly if a claim were to result in adverse publicity or damage awards outside or in excess of our insurance policy limits.

Risks Related to our Car Wash Segment

Our car wash work force may expose us to claims that might adversely affect our business, financial condition and results of operations; our insurance coverage may not cover all of our potential liability. We employ a large number of workers who perform manual labor at the car washes we operate. Many of the workers are paid at or slightly above minimum wage. Also, a large percentage of our car wash work force is composed of employees who have been employed by us for relatively short periods of time. This work force is constantly turning over. Our work force may subject us to financial claims in a variety of ways, such as:

· claims by customers that employees damaged automobiles in our custody;

· claims related to theft by employees;

· claims by customers that our employees harassed or physically harmed them;

· claims related to the inadvertent hiring of undocumented workers;

· claims for payment of workers’ compensation claims and other similar claims; and

· claims for violations of wage and hour requirements.

We may incur fines and other losses or negative publicity with respect to these claims. In addition, some or all of these claims may rise to litigation, which could be costly and time consuming to our management team, and could have a negative impact on our business. We cannot assure you that we will not experience these problems in the future, that our insurance will cover all claims or that our insurance coverage will continue to be available at economically feasible rates

Our car wash operations face governmental regulations, including environmental regulations, and if we fail to or are unable to comply with those regulations, our business may suffer. We are governed by federal, state and local laws and regulations, including environmental regulations, that regulate the operation of our car wash centers and other car care services businesses. Other car care services and products, such as gasoline and lubrication, use a number of oil derivatives and other regulated hazardous substances. As a result, we are governed by environmental laws and regulations dealing with, among other things:

· transportation, storage, presence, use, disposal, and handling of hazardous materials and wastes;

· discharge of storm water; and

· underground storage tanks.

If uncontrolled hazardous substances are found on any of our properties, including leased property, or if we are otherwise found to be in violation of applicable laws and regulations, we could be responsible for clean-up costs, property damage, fines, or other penalties, any one of which could have a material adverse effect on our financial condition and results of operations.

Through our Car Wash Segment, we face a variety of potential environmental liabilities, including those arising out of improperly disposing waste oil or lubricants at our lube centers, and leaks from our underground gasoline storage tanks. If we improperly dispose of oil or other hazardous substances, or if our underground gasoline tanks leak, we could be assessed fines by federal or state regulatory authorities and/or be required to remediate the property. Although each case is different, and there can be no assurance as to the cost to remediate an environmental problem, if any, at one of our properties, the costs for remediation of a leaking underground storage tank typically range from $30,000 to $75,000.

If our car wash equipment is not maintained, our car washes will not be operable. Many of our car washes have older equipment that requires frequent repair or replacement. Although we undertake to keep our car washing equipment in adequate operating condition, the operating environment in car washes results in frequent mechanical problems. If we fail to properly maintain the equipment in a car wash, that car wash could become inoperable or malfunction, resulting in a loss of revenue, damage to vehicles and poorly washed vehicles.

The current difficult economic conditions make it more difficult to sell our car washes. We can offer no assurances that we will be able to locate additional buyers for our remaining car washes or that we will be able to consummate any further sales to potential buyers we do locate. The current economic climate has made it more difficult to sell our remaining car washes. Potential buyers of the car washes are finding it difficult to finance the purchase price.

If we sell our Car Wash Segment, our revenues will decrease and our business may suffer. If we are able to sell our remaining car washes, our total revenues will decrease and our business will become reliant on the success of our Security Segment and our Digital Marketing Media Segment. Those businesses face significant risks as set forth herein and our reliance on them may impact our ability to generate positive operating income or cash flows from operations, may cause our financial results to become more volatile, or may otherwise materially adversely affect us.

Risks Related to our Common Stock

Our stock price has been, and likely will continue to be, volatile and an investment in our common stock may suffer a decline in value.

The market price of our common stock has in the past been, and is likely to continue in the future to be, volatile. That volatility depends upon many factors, some of which are beyond our control, including:

announcements regarding the results of expansion or development efforts by us or our competitors;

announcements regarding the acquisition of businesses or companies by us or our competitors;

announcements regarding the disposition of all or a significant portion of the assets that comprise our Car Wash Segment, which may or may not be on favorable terms;

technological innovations or new commercial products developed by us or our competitors;

changes in our or our suppliers’ intellectual property portfolio;

issuance of new or changed securities analysts’ reports and/or recommendations applicable to us or our competitors;

additions or departures of our key personnel;

operating losses by us;

actual or anticipated fluctuations in our quarterly financial and operating results and degree of trading liquidity in our common stock; and

our ability to maintain our common stock listing on the NASDAQ Global Market.

One or more of these factors could cause a decline in our revenues and income or in the price of our common stock, thereby reducing the value of an investment in our Company.

We could lose our listing on the NASDAQ Global Market if the closing bid price of our stock does not return to above $1.00 for ten consecutive days during the 180 day period ending April 7, 2010. The loss of the listing would make our stock significantly less liquid and would affect its value. Our common stock is listed on NASDAQ Global Market with a closing bid price of $0.83 at the close of the market on November 11, 2009. On October 9, 2009, the Company received a letter from the NASDAQ Listing Qualifications Department that the Company was not in compliance with NASDAQ Listing Rule 5450(a)(1) because, for the period August 27, 2009 through October 8, 2009, the Company closing bid price of our common stock was less than $1.00 per share. The non-compliance with NASDAQ Listing Rule 5450a)(1) makes the Company’s common stock subject to being delisted from the NASDAQ Stock Market. In accordance with NASDAQ Listing Rule 5810(c)(3)(A), the Company has a grace period of 180 calendar days expiring on April 7, 2010 to regain compliance by having a closing bid price for a minimum of ten consecutive business days at $1.00 per share or higher. Under NASDAQ Listing Rule 5810(c)(3)(F), the NASDAQ Listing Qualification Department may, in its discretion, require the Company to maintain a closing bid price of at least $1.00 per share for a period in excess of ten consecutive business days, but generally not more than 20 consecutive business days. Upon delisting from the NASDAQ Capital Market, our stock would be traded over-the-counter, more commonly known as OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on the NASDAQ Global Market or the NASDAQ Capital Market (together “NASDAQ-listed Stocks”). Many OTC stocks trade less frequently and in smaller volumes than NASDAQ-listed Stocks. Accordingly, our stock would be less liquid than it would be otherwise. Also, the values of these stocks may be more volatile than NASDAQ-listed Stocks. If our stock is traded in the OTC market and a market maker sponsors us, we may have the price of our stock electronically displayed on the OTC Bulletin Board, or OTCBB. However, if we lack sufficient market maker support for display on the OTCBB, we must have our price published by the National Quotations Bureau LLP in a paper publication known as the Pink Sheets. The marketability of our stock would be even more limited if our price must be published on the Pink Sheets.

Because we are a Delaware corporation, it may be difficult for a third party to acquire us, which could affect our stock price. We are governed by Section 203 of the Delaware General Corporation Law, which prohibits a publicly held Delaware corporation from engaging in a “business combination” with an entity who is an “interested stockholder” (as defined in Section 203, an owner of 15% or more of the outstanding stock of the corporation) for a period of three years following the stockholder becoming an “interested stockholder,” unless approved in a prescribed manner. This provision of Delaware law may affect our ability to merge with, or to engage in other similar activities with, some other companies. This means that we may be a less attractive target to a potential acquirer who otherwise may be willing to pay a premium for our common stock above its market price.

If we issue our authorized preferred stock, the rights of the holders of our common stock may be affected and other entities may be discouraged from seeking to acquire control of our Company. Our certificate of incorporation authorizes the issuance of up to 10 million shares of “blank check” preferred stock that could be designated and issued by our board of directors to increase the number of outstanding shares and thwart a takeover attempt. No shares of preferred stock are currently outstanding. It is not possible to state the precise effect of preferred stock upon the rights of the holders of our common stock until the board of directors determines the respective preferences, limitations, and relative rights of the holders of one or more series or classes of the preferred stock. However, such effect might include: (i) reduction of the amount otherwise available for payment of dividends on common stock, to the extent dividends are payable on any issued shares of preferred stock, and restrictions on dividends on common stock if dividends on the preferred stock are in arrears, (ii) dilution of the voting power of the common stock to the extent that the preferred stock has voting rights, and (iii) the holders of common stock not being entitled to share in our assets upon liquidation until satisfaction of any liquidation preference granted to the holders of our preferred stock. The “blank check” preferred stock may be viewed as having the effect of discouraging an unsolicited attempt by another entity to acquire control of us and may therefore have an anti-takeover effect. Issuances of authorized preferred stock can be implemented, and have been implemented by some companies in recent years, with voting or conversion privileges intended to make an acquisition of a company more difficult or costly. Such an issuance, or the perceived threat of such an issuance, could discourage or limit the stockholders’ participation in certain types of transactions that might be proposed (such as a tender offer), whether or not such transactions were favored by the majority of the stockholders, and could enhance the ability of officers and directors to retain their positions.

Our policy of not paying cash dividends on our common stock could negatively affect the price of our common stock. We have not paid in the past, and do not expect to pay in the foreseeable future, cash dividends on our common stock. We expect to reinvest in our business any cash otherwise available for dividends. Our decision not to pay cash dividends may negatively affect the price of our common stock.

Item 2. Unregistered Sales of Securities and Use of Proceeds

None.

The following table summarizes our equity security repurchases during the three months ended September 30, 2009:

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Share Purchased as part of Publicly Announced Plans or Programs		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1)
July 1 to July 31, 2009		14,400	$	1.02		14,400	$	1,579,000
August 1 to August 31, 2009		51,200		1.01		51,200	$	1,527,000
September 1 to September 30, 2009		4,000		1.01		4,000	$	1,523,000
Total		69,600	$	1.01		69,600

(1) On August 13, 2007, the Company’s Board of Directors approved a share repurchase program to allow the Company to repurchase up to an aggregate $2,000,000 of its shares of common stock in the future if the market conditions so dictate. As of September 30, 2009, 440,410 shares had been repurchased under this program at an aggregate cost of approximately $477,000.

Item 6. Exhibits

(a) Exhibits:

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Mace Security International, Inc.

BY:	/s/ Dennis R. Raefield
Dennis Raefield, Chief Executive Officer
(Principal Executive Officer)

BY:	/s/ Gregory M. Krzemien
Gregory M. Krzemien, Chief Financial Officer
and Chief Accounting Officer
(Principal Financial Officer)

DATE: November 16, 2009

EXHIBIT INDEX

Exhibit No.		Description

31.1		Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.