PhillyInc

PhillyInc incorrectly stated that Mace shareholder Andrew Shapiro is seeking to increase the size of the company's board from three to five. He actually wants to expand the board from five to seven.

Mace Security International Inc. (Nasdaq: MACE), the struggling Mt. Laurel-based provider of security products, says it has filed suit against a former executive it has accused of stealing $343,000 from the company and intends to pursue "all legal measures" to recover its losses. This is from the company that some shareholders and corporate governance experts have accused of overpaying Chief Executive Louis D. Paolino Jr. and giving him unusual incentives for buying and selling companies.

In May, the company had disclosed what it called its own discovery in April of an internal embezzlement scheme by a former employee. In an SEC filing late yesterday, it blamed the former "divisional controller" of its Florida Security division, whom it didn't name. The company said it had undertaken an internal company probe. It also underwent an independent forensic investigation, which it said found that during fiscal 2006, the individual allegedly took about $240,000 and another $99,000 during the first fiscal quarter of 2007. Its filing says this:

"The embezzlement occurred from a local petty cash checking account and from diversion of customer cash payments at the Florida Security division. ... Additionally, the investigation uncovered an unexplained inventory shortage in 2006 in the Florida Security division of approximately $350,000."

It's unclear whether Mace is pressing criminal charges. Its civil lawsuit comes at a tense moment. Last month, Lawndale Capital Management head Andrew Shapiro, Mace's largest shareholder and a vocal critic of the company, publicly demanded that Paolino's brother Matthew step down from the board (he is also a vice president) and to increase the size of the board to five seven members from three five. Shapiro also acquired more shares in Mace to further pressure the company to change. In an email to phillyinc, Shapiro said he was disturbed by the theft. He also noted the "ongoing deterioration in operating business lines with both car wash and security divisions suffering revenue and profitability erosion."

Mace spokesman Eduardo Nieves declined to say anything beyond the company's statements.

Shares of Mace are down about 2 percent for the year and fell 13 cents, or 5 percent, to $2.50 today in light pre-holiday trading. The company faces possible delisting from the Nasdaq for failing to file its paperwork with the SEC on time. The filing yesterday of fourth-quarter results showed Mace's net loss narrowed to $1.67 million, or 11 cents, compared with $4.34 million, or 28 cents a year earlier. Revenue fell 6.8 percent to $49.2 million amid a decline in the company's security business and the continued sell off a national car wash chain which is funding acquisitions of other companies. Though the company had positive working capital of $26.6 million as of December 31, Mace noted in the filing that it has a history of operating losses and may "substantially reduce the scale of our operations and curtail our business plan" if it can't raise additional money.

- Jonathan Berr