Mace Security International, Inc. (OTCQX:MACE) Q3 2022 Earnings Conference Call November 2, 2022 11:00 AM ET
Company Participants
Remi Belzinskas – Controller
Mark O’Conner – Corporate Controller
Sanjay Singh – Chairman & CEO
Conference Call Participants
Vijay Marolia – Regal Point Capital Management
Andrew Shapiro – Lawndale Capital Management
Howard Rosencrans – Value Advisory, LLC
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Mace Security International Third Quarter 2022 Earnings Call. [Operator Instructions] Please be advised that today’s conference is being recorded.
I’d now like to turn the conference over to your first speaker for today, Remy Belzinskas. Thank you, sir. Please go ahead.
Remi Belzinskas
Thank you, Marjorie, and good morning, everyone. Joining me on the call today is Sanjay Singh, the Chairman and Chief Executive Officer of Mace. Please visit corp.mace.com under Newsroom, where you can find additional materials, including the financial statements and OTC QX report for the third quarter ended September 30, 2022, as well as our Q3 financial overview presentation.
Before proceeding, I would like to point out that certain statements and information during this conference call may constitute forward-looking statements and are based on management’s expectations and information currently in the possession of management.
When used during our conference call, the words or phrases such as will likely result, are expected to, will continue, is anticipated, estimated, projected and intended to or similar expressions are intended to identify forward-looking statements. Such statements are subject to certain risks, known and unknown, and uncertainties, including, but not limited to economic conditions, limit of capital resources and disruptions in domestic and international supply chains. Such factors could materially adversely affect Mace’s financial performance. It could cause Mace’s actual results for the future periods to differ materially from any opinions or statements expressed during this call.
I will now turn the call over to Sanjay for some comments about the quarter.
Sanjay Singh
Thank you, Remi. Good morning, everyone. Thank you for being here on this call. The third quarter continued to be very challenging as expected. While our top-line revenues continue to trend lower than prior year, the decreases are beginning to moderate in a lower trend.
Our revenues for the quarter increased by 26% versus the second quarter of 2022, including an increase by 54% in online sales on mace.com and 69% in the sporting goods segments. The orders from our larger price-sensitive customers have continued to be slower for the entire year due to lowering of inventory and demand. But we are beginning to see an uptick in orders from other retailers compared to the previous two quarters this year.
In October, we announced the completion of our restructuring that began earlier this year. This involves cost reductions, revenue expansion in specific segments that are relatively less impacted by inflation, increase in operating efficiencies to notify cost increases and our targeted working capital reduction. Those action plans were completed in the last quarter. This resulted in an adjusted EBITDA of $124,000 for the quarter ended September 30, 2022.
We lowered SG&A cost by 26% when compared to prior year and increased revenues on mace.com by 144% and by 16% in the Sporting Goods segment. We expect additional revenues of $2 million to $3 million from the addition of new retailers, new products and other initiatives in the coming quarters, including the partnership agreement with Legal Heat to offer fee-based training across the U.S.A.
The risks of a national economic recession may alter those projections by a meaningful amount. Our sales to nontraditional customers in the hospitality and health care industries continue to be higher than last year, mitigating some of the decreases from the retail segment. We’re also working on several co-branding opportunities and expect to formalize agreements in Q4 of this year and Q1 of next year.
The company’s focus continues to be on the following: Operate to a positive adjusted EBITDA, conversion of new business including retailers, promoting both our new products to the base business while delivering on our operating efficiencies.
I will now turn the call over to Remi to comment on the third quarter 2022 financial results.
Remi Belzinskas
Thank you, Sanjay. Our third quarter 2022 net sales were $2.5 million, a 34% decrease from $3.8 million for our third quarter sales of 2021. Retail sales decreased 32% and e-commerce sales decreased 36% compared with the same period in 2021. Sales were down across all sectors of our retail customers as point-of-sale traffic remains slow. We knew that this year was going to be challenging given the inflationary headwinds.
Last year, we came into the third quarter still with a significant order backlog coming out of 2020, resulting in sales in Q3 2021, which were higher than Q2 2021. We did not have the same level of backlog heading into the third quarter of 2022. Gross profit for the third quarter decreased $558,000 or 37% from our third quarter 2021 results. Our margin rate in the third quarter of 2022 was 38.3%, down almost 2 points from the 39.8% rate we achieved in the same quarter of 2021.
Margins decreased in the third quarter 2022 over the third quarter of 2021 due to increase in components and freight costs, the effect of which was partially offset by lower manufacturing overhead and manufacturing efficiency improvements. SG&A expenses for the third quarter decreased by $222,000 to $1.1 million or 43.5% of net sales.
Professional services expense in the third quarter 2022 decreased $89,000 compared with the third quarter of 2021 and primarily attributable to a decrease in digital marketing expenditures in Q3 of 2022. We had a $54,000 reduction in outside sales commissions, which was directly correlated to the reduction in sales. Bad debt expense was $51,000 lower in the third quarter of 2022 compared with the third quarter of 2021.
Our lower sales volume and higher manufacturing costs resulted in a net loss for the quarter of $233,000, which was down from our net income of $142,000 in the third quarter of 2021. Third quarter adjusted EBITDA was income of $124,000 down $192,000 from $316,000 in the third quarter of 2021. The decline in the bottom line is attributable to lower revenues. We experienced a decrease in our borrowings position during the third quarter, reducing the amount drawn against our line of credit from $865,000 at June 30, 2022 to $715,000 at September 30, 2022.
With the supply chain delays experienced in 2021 in early 2022, we had inventory orders that were in progress and could not be halted without a financial cost or implications on future inventory order fulfillment. As such, we currently have a lot of our cash tied up in convertible and saleable inventory. 45% of our inventory at September 30, 2022, is finished goods. We have manufactured and assembled products for our typically high-volume movers and continue utilizing targeted promotions for a slower moving and higher inventory positions.
In an unusual manner, the supply chain challenges, leading to our higher inventory level has better positioned us for timely order fulfillment as the selling season ramps up. We have successfully scaled back future purchase orders. And during Q3 2022 have reduced our inventory $591,000 since June 30, 2022.
I will now turn the call back to Sanjay for some additional comments before we take questions.
Sanjay Singh
Thank you, Remi. The entire team performed well to execute on the actions that resulted in landing new retail customers, increased operating efficiencies and formalizing our co-branding partnerships.
Our marching orders are to operate to a positive EBITDA, land at least 4 new retailers annually, scale the processes needed to fulfill orders for our new retail customers and further increase online revenues. We’re excited to mobilize revenues from our recent co-branding partnership with Legal Heat and I’m looking to finalize other deals in Q4 that will result in additional new products.
The list of initiatives is quite long, and we are allocating our energy and resources to those in a thoughtful fashion. We’re excited to have Margaret Jordan join Mace’s Board of Directors. Her advice on business development strategy and lead generation, especially in the new line of personal defense trading will be very helpful.
A quick reminder. We will not address or respond to any questions pertaining to our ongoing strategic alternatives project. The company has retained financial and legal advisors to assist with this process.
At this time, I will stop and open the lines for questions. I would ask each caller to limit themselves to one question with one follow-up to allow everyone a chance to participate. We have additional time. We’ll try to get you back into the queue. Marjorie, please open the lines for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question come from Vijay Marolia.
Vijay Marolia
You talked about inflation, which I know is a big problem for everybody. Could you give us a little more color on what kind of line items areas where the inflation is more troublesome?
Sanjay Singh
We are seeing inflation impact in a couple of different areas. One is freight. Just over the last 12 to 18 months, we’ve seen increases in our raw materials as well that are coming in from Asia. And we’ve also seen increases from some of our other suppliers in terms of — even in terms of new product introductions in terms of tooling costs. So it’s pretty much across the board.
Vijay Marolia
Okay. And just a quick follow-up. I thought I heard something about the bad debt expense. So could you repeat what you said about the bad debt expense and let us know if there’s any trends that you see within the bad debt expense?
Remi Belzinskas
Let me take that, Sanjay. We had some one-off provisions made a year ago. Those did not repeat. And so we recognized realized a lower bad debt expense this quarter.
Operator
Our next question comes from Andrew Shapiro.
Andrew Shapiro
I had a few questions here about the new customers that you’ve been announcing in particular, regarding the two new retailers you mentioned on the August 2 call from who we thought might result in incremental annual revenues going forward of $1.8 million to $2.3 million.
Given that size and the cadence in which you announced them, I assume one of those was the NAPA Auto Parts, but was Mid-States or some other customer or the other one.
Sanjay Singh
It was Mid-States and Cornwall. Those were the three as of August that we had landed.
Andrew Shapiro
Also, it wasn’t two that as you referred to in the call, it’s going to be three that would generate that. And were the initial orders you expected received? And do you still feel that their added annual revenue, I guess, of those three was — it remains within the $1.8 million to $2.3 million range and your new kind of estimates of $2 million to $3 million incremental sales, I guess, would include Dollar General?
Sanjay Singh
At the time that we announced that going from memory, I don’t — we have not formalized anything with Dollar General. That just happened a few weeks ago. So Dollar General will be incremental to what I had stated earlier. The projections that we had provided before that were based on forecast from our customers. Obviously, those things can always change, whether they could go dramatically up or down. We can’t really predict that, but we are certainly operating to their forecast. But things can change, and we’re very cognizant of that.
Andrew Shapiro
Right. Now were the initial orders you expect to receive?
Sanjay Singh
Yes, we’ve been receiving orders, yes.
Andrew Shapiro
Okay. And the cadence for this, the sales and collection cycle, et cetera, but how long a turnaround, is it for an order to be shipped and converted into your recorded sales and then accounts receivable and gross profit? And how long before those receivables get converted into cash.
Sanjay Singh
So just to offer a clarifying point to your last question. We have seen orders from Mid-State and Cornwall. We haven’t seen orders from NAPA yet. They were just unloaded. The typical cycle from any of these retailers is a turnaround within a couple of weeks, unless there is a significant bulk buy that may stretch out to the following months or 4 weeks. Typical receivables are on an average of between 60 and 70 days, and you see gross profits and all of that reported within 4 weeks.
Andrew Shapiro
Okay. And so the Q3 numbers that showed the sequential growth from Q2. None of that NAPA, if you have no orders from NAPA yet, do you expect to get some of those in the fourth quarter to ship within the fourth quarter?
Sanjay Singh
Yes. We are working with NAPA to — they have a lot of owner-operated stores. We are working with them to roll out our products in a proper manner, with the proper strategy. We have offered them training through our new training partnership that persuades a brand-new product for them.
With any of these retailers, there’s always concerns. So we are navigating all of that at the moment. But we received a forecast from them, and we are operating to that forecast. But we do have to navigate some of these issues until we start seeing orders from NAPA.
Andrew Shapiro
Okay. And then when do you expect to see orders from Dollar General?
Sanjay Singh
The first quarter of next year, the latest by the early part of second quarter.
Andrew Shapiro
Okay. And is the long time lag a function of getting the electronic interface that took you so long with NAPA or is just the long time lag tied to the fact that you’re a new SKU for them with the seasonal reset that’s usually spring?
Sanjay Singh
It’s a pretty — I would say it’s a pretty typical time line. It takes a couple of months to get our SKUs in the system, get the EDI kinks worked out as a very, very stringent sort of test to make sure that things work properly, information is going back and forth between our system and their and then it starts off with an opening order that goes out to the majority of their stores. So I would say it’s a typical sort of pattern that we see with these retailers, especially the larger ones.
Andrew Shapiro
So when your opening order goes with them, you’re going to go into all the regions or are you’re going to go into a particular geographic region first? I’m trying to get an example of how many doors that original orders like 10,000 stores, okay. And…
Sanjay Singh
We are starting out with 10,000 stores, Andrew, and then gradually will be in most of their almost 19,000 stores.
Andrew Shapiro
Okay. So about half their network initially and then rolling up. And with NAPA, how many doors do you expect you’ll be shipping to at NAPA?
Sanjay Singh
5,000.
Andrew Shapiro
5,000, outstanding. I’ll back out in the queue, I have plenty more questions.
Operator
For our next question, we’ll go back to Vijay.
Vijay Marolia
I thought I heard you mention regarding your sales initiative, something regarding hospitality, lodging, did I mishear that? Or if I did hear that correctly, could you repeat what you said, add a little bit more color?
Sanjay Singh
Yes. So we are seeing an uptick in demand for personal alarms from some of the B2B segments like hospitals and hotels. And it’s all around personal safety, safety for their employees. So they’re buying hundreds and thousands of alarms.
Vijay Marolia
Well, we should talk more about that when we’re not wasting other people’s time, but I think that’s a great initiative. I think it’s something that we mentioned before, but we have a lot of connections in the hotel space, in the franchise space. So whatever help we can be, we would like to be. So we’ll talk about that later. But congratulations. Thank you. I’ll back out.
Sanjay Singh
We’ll take you up on that.
Operator
We’ll next go back to Andrew.
Andrew Shapiro
If you’re experiencing continued growth in your costs here, presumably your competitors are as well. Can another round of price increases get put through that would be accepted by your retailers?
Sanjay Singh
Yes. Yes. We have plans to do that. So we’re planning on rolling it out.
Andrew Shapiro
Okay. And let’s talk about this new line of business and your thoughts on where this was. First off, in your Q2 call in August, you referred to a new line of business in the line of completing our end consumers sort of buying journey. Was this the new Legal Heat joint venture that you were anonymously referring to?
Sanjay Singh
That is correct.
Andrew Shapiro
Okay. And with respect to Legal Heat, what do you feel is the realistic addressable market size for this new line of business. And what’s your role, some of the terms that you could share, the capital or expense contribution requirements that Mace has to put up as a partner here and the various revenue streams to Mace in this new line of business you foresee.
Sanjay Singh
Okay. I’ll take that point by point. So, our new strategy with any new initiative is to bring on partners with a licensing deal and a co-branding deal where there is no additional capital that is incurred by Mace. The idea is to partner with like-minded folks who are interested in solving problems in terms of innovation or services and in the case of Legal Heat that align with our mission of empowerment of the individual family and the community and sharing a fee with them, a licensing fee or royalty fee with them for allowing our brand name to be associated with these partners.
In terms of the addressable market with Legal Heat, based on our projections, it’s merely a projection, but it’s based on extensive research and having talked to several people who have provided these kinds of services is, we could hit $10 million, but it will require, obviously, a significant amount of execution and other tactical details that need to be flushed out. When we decided to partner with Legal Heat, they have a substantial presence.
And most importantly, they have a learning system that they use for their firearm screening. We’re just going to use their systems and we will not be creating our own, and that is part of the reason why we decided to partner with them. We are building the curriculums. Those are being built that makes both the parties will market the services.
So it remains to be seen. We’re paying very close attention to rolling these classes and these lessons out. We are looking at partnering with existing retailers as well as offering it to new retailers in terms of training. And there is one particular retailer that is our customer is their customer as well, and they are already in talks to offer this type of nonlethal training to this one particular retailer.
Andrew Shapiro
So this sounds like what I’ve been asking for, for years. And I just want to clarify. So the $10 million, I know that’s the — it takes time to build that. Is that $10 million in revenue to Mace or $10 million in total revenue for which we get a portion of it?
Sanjay Singh
That’s the total revenue that Mace would show on their financial statements. All of the entire model is based on delivering a very specific level of EBITDA. So the way the arrangement works is whether the billing goes to them or us, there is — we have a piece of the action.
And so if $10 million is billable by, is recorded by Mace, then a certain amount of cost that we incur in this partnership will also be shown or it will be shown just as the incremental top line, which is the difference between the cost and the revenues. It depends on who captures these customers. So we’ve elected to keep it really, really simple to keep it very, very straightforward and uncomplicated.
Andrew Shapiro
Right. So in other words, depending on the sourcing under GAAP, you may have a 100% revenue line that drops to the bottom line as such as like a royalty or licensing revenue or alternatively, there’s a cost of goods sold component that is going to be separate revenue. Is that right?
Sanjay Singh
That is correct. So this is purely a hypothetical example. So say we build $10 million in terms of these lessons and training across the U.S. There will be a cost of goods sold and it’s purely a theoretical number and say that it’s $7.5 million, then $2.5 million would be recorded as the EBITDA in that scenario or to modify would be recorded on the revenue line with no cost, depending on who builds…
Andrew Shapiro
Okay. So it’s a question then of who sources is it? Because one’s high margin, one’s enormous margin. And the other is lower margin than your gross profit line, but higher margin than your EBITDA line? Right. I mean are you going to break this out? Are you going to break this out so we’ll know this kind of stuff.
Sanjay Singh
I think when we start this out, yes, we break it out. If the data presents itself. I’ll leave it up to Rem to answer that question about how he’s breaking out our different types of reporting, but again, we’re trying to keep this really, really simple. Our end goal is to help people be prepared and we have peace of mind and be anyone who’s interested in personal safety.
Andrew Shapiro
Well, I understand the whole training concept, but arguably from a shareholder point of view, our end goal is bottom line cash flow and utilization and pretax income be utilized, that’s what brand licensing and brand royalty is about, so that we can create pretax income to utilize the company’s over $50 million of tax NOLs?
Sanjay Singh
Yes. This is the profit-making venture, no question, and that’s how we structured the model.
Operator
And our next question comes from Mark Greenberg [ph].
Unidentified Analyst
Thanks for the review. I understood Sanjay to say in the beginning that there wouldn’t be any commenting on the dynamics of the strategic alternative reviews. But in your last call, you did say that the time frame for that analysis will be completed by the end of this calendar year. So I’m wondering if you can confirm that. And also related to that, as you’re completing the strategic alternative review process, are you going to be reinitiating investor conferences. And if so, what kind of schedule for that do you have planned?
Sanjay Singh
Yes, the comments that were made at the last earnings call is consistent with our plans that the time line is around the end of the year now that we have some momentum. We will start participating in investor conferences. We have one on the schedule right now that’s on December 6. I do not have a financial leader at the moment. So I’ll have to figure out how we attend other conferences in the future.
Operator
And we’ll go back to Andrew.
Andrew Shapiro
Just across the wire, by the way, the timing of which I find kind of questionable since you’re all on this call to do this. But it looks like you guys just issued a press release announcing a co-branding partnership with F3 Defense to provide mobile pepper spray deployment systems for the, I guess, we’ll call it perimeter defense of commercial and civilian vehicles.
Can you provide some additional color and insight onto this as to the timing, the addressable market kind of the terms, similar questions I asked about from the Legal Heat training deal that goes along with what you guys just announced. Maybe give a little more color since those on the call here, you probably don’t have the benefit of seeing this press release that you just issued.
Sanjay Singh
So this is a brand-new venture. It was launched by a gentleman in Maine, Mike Mercer. And I know you are familiar with him, Andrew. And this particular venture really — we’ll be looking at the trucking market, the automotive market. The timeline for this is we’re hoping to record revenues this quarter. That’s our expectation. We just signed the agreement, and we just started getting this program going.
But leading up to the signing of this agreement, our sales folks have been coming up with a targeted marketing approach working with Mike Mercer. So all that is going to get played out in this quarter. My sense is that the revenues this quarter will probably not be a very significant number, given that we are already almost 1 month into the quarter.
Andrew Shapiro
Right. But when do you expect that these products will be marketed more broadly? Does F3 bear all of the marketing expense? Or will there be some marketing dollars from Mace? And what’s your role in this joint venture, and I guess the SKU unit size that’s being sold. It seems like this is a very interesting way of first off enhancing the Mace brand and into a kind of a different use case but also selling some large containers of pepper for every unit sold to these commercial semi-trucks or to individuals, passenger car, we’ll call it carjacking defense system.
Sanjay Singh
Yes. So the marketing and sales will be done by us. We are relying on Mike’s design and concept. We are the provider of the spray and the marketing and selling activities are going to be done by us. And the timing of that is this quarter, that’s the expectation.
Andrew Shapiro
Now is this something that your customers like AutoZone and maybe NAPA Auto Parts and Carquest this nice segment that you’ve been building in the, we’ll call it, automotive sector. Is this something that they have kind of seen from you already and have an interest in potentially retailing? Or is this going to be just direct sale on mace.com.
Sanjay Singh
Oh, no. We are going to go out to automotive retailers and any in any other customers in the trucking segment, dropping associations, and we will be offering this product not only online but to our existing automotive retailers as well.
Andrew Shapiro
And have they been already expressed, — have they seen it already and expressed some interest?
Sanjay Singh
They have not it, now.
Andrew Shapiro
You discussed in your last call some co-branding opportunities you expected to formalize. Obviously, this was one of them. Do you have others that are in the hopper and what’s the expected timing of those?
Sanjay Singh
Yes. There is one that we have already signed and the product is being packaged to make his design and branding guidelines. We have not issued a press release on their product because the product is not available at the moment. So that has already been done, and we are expecting to release that in the fourth quarter as well.
And then we are looking at two other opportunities. One is within the female segment, specifically in the female segment that might spill over to the male segment, but it’s a company launched by a young woman who’s very big in the personal safety space, especially with the active outdoor segment. And the other one is also a product that will appeal to people who go on daily walks or hikes.
Andrew Shapiro
Okay. And the one that you’ve already signed that you expect to come out this quarter. Can you give a little color on that one?
Sanjay Singh
We expect to come out with the product this quarter. We are encountering supply chain delays. As a matter of fact, based on our project plan, we are running about 30 days behind and it’s — we’re seeing some of the supply chain issues. So until we can reshow this product, we won’t have a really good handle on the timing, but we are pushing for it to be introduced in the fourth quarter. We’re pushing for…
Andrew Shapiro
No, no, I meant a little more color, not on its timing, but more on the kind of the products. You talked about two more in the hopper one that involves kind of daily walk issues. The other one is this active outdoor segment. The one that we already have signed, that is we hope we’ll go here in Q4, what segment or what use case is it intended to address?
Sanjay Singh
It’s in the same segment. So people who ride bikes, motorcycle riders, people go on walks, people who take their children to the playground, outside of the home.
Andrew Shapiro
Okay. On the August call, you referred to a new product other than Pocket Hero that moved from Q2 to Q3 that solved a significant problem, which you couldn’t mention at the time. Is — are one of these products is that or is there some other new product that’s more internal that you have lined up to be releasing?
Sanjay Singh
No, that was one of these.
Andrew Shapiro
That’s the one. Okay. And regarding Pocket Hero, can you update us on your initial experiences with Q3’s introduction of the Pocket Hero and its novel form factor online. And, I guess, by now, you probably have some indications of it sell-through at AutoZone? And has AutoZone placed second round of orders yet?
Sanjay Singh
Yes, AutoZone has faced the second round of orders, and it’s selling very well, both online as well as in retail. The diagnosis on why it’s doing well and actually, one of the items of feedback was from one of our shareholders who actually paid a visit to the base headquarters and had the Pocket Hero within but what we found out is it’s selling because of the design and our consumers find it innovative, easy to carry. We are already working on a next-gen version. So far, so good. Very, very happy to see, how well it’s doing.
Andrew Shapiro
Are you able to offer the product to Mace’s other retailers and how has your experience been with Pocket Hero, if you have? And are you making sales of replacement canisters yet, which was part of its design?
Sanjay Singh
Not yet. We saw a pretty significant demand. So we’ve been managing the demand. There is a plan to come up with a newer version, a much improve design from the first generation, and that is also slated for this quarter.
Andrew Shapiro
I have more questions. I’ll back out in the queue.
Operator
We’ll next go to Howard Rosencrans. Okay. We’ll move next to Vijay.
Vijay Marolia
Hello. This is Vijay again. You mentioned the marketing initiatives. And one of the things that I would consider to be a low-hanging fruit because Mace does have a very undervalued brand. I think that everybody on the call at least admit to that but how do you leverage it?
Well, one, as we know that our sales are coming from consumers, and we have the distribution base that’s going to be set up, we need some sort of a catalyst to action. And so what science seems to have shown us is that it’s going to be either related to a story, which creates emotion, emotion creates action, right, or music.
And so are there any, for example, here’s the low-hanging fruit. We have probably one of the best founder stories of any globally known brand. It’s a story of good over evil. It’s a story of a husband trying to help his wife or in the memory of his wife or something similar. And I’m ashamed I don’t know it, but we should all be a ashamed because that should be something that we lead with. So can you tell me more about how do we tell the story of the brand with YouTube, with podcasts?
Sanjay Singh
Great point, Vijay. So yes, this Mace was founded by Alan Litman in Pittsburgh, when his wife was attacked. That’s the story about 50-odd years ago. We have hired a branding and a creative asset agency to help us shape these stories and our Instagram fees. We were a bit constrained for the last few months because we were — we did not have the financial aware call to spend the kind of dollars that like we wanted to.
But we hired them this quarter, this past quarter to help us with that to not only do that but to revamp the buying experience on our website or what other things. So that — all that is being worked on. So you’ll probably see more and more of that. And as we continue to grow, we will allocate more add and branding dollars to share the story.
Operator
We’ll next go back to Howard. Apparently, Howard line is not working. We’ll go back to Andrew.
Andrew Shapiro
Regarding the SG&A, you called out an adjusting EBITDA for the quarter certain costs, and I understand and support the strategic alternatives process. However, can you expand on what the non-ordinary EPA compliance costs are about whether these costs were Q3 only or will continue and for how long? And additionally, when and at what pace will the transition payroll and temporary labor costs that are carved out run down and off?
Sanjay Singh
So the transitional costs are related to the consulting costs from Rem who’s on the call, he’s our former Corporate Controller, who kindly agreed to support us during this transition and has been. We also had an interim controller for a short while, who was supporting us, but our costs were prohibitive. So we have — we’re taking a different approach in that regard.
With regards to the EPA costs, we define what our adjusted EBITDA was going to look like for our lenders 6, 7 months ago, and that’s what we are reporting against, and we knew that there were some licensing and registrations and other efforts that we needed to do that we have become aware of that was not part of our normal running the business.
And so that’s what we are calling those adjustments. Those will continue for a little while a few months, certainly from what we know based on the different projects. And in terms of the finance cost, as soon as we find a corporate controller, that will change things also.
Andrew Shapiro
Okay. I guess, I’ll just make it then permanent in EBITDA. During Q3, it looks like 700,000 options were granted under the 2012 stock plan that the company sought and received our shareholder extension vote on at the annual meeting. Should we move the bulk of these new option grants paid to?
Sanjay Singh
Rem, can you take that?
Remi Belzinskas
Yes. These options were issued to our directors.
Andrew Shapiro
So, all of that was in lieu of on — because I know they’re not taking cash comp, but they’re taking stock for the quarter with $700,000 options.
Remi Belzinskas
It’s an annual grant and the size and scope of it is consistent with the past.
Andrew Shapiro
And on the August call, for Q2, you spoke of maybe 100,000 of international orders, which have — which where they have to pay in advance that we’re sitting on the dock, so to speak. Yes, at only 46,000 of international sales were recorded and reported here for Q3. What happened and what are the status of your international orders and sales efforts?
Sanjay Singh
They’re still sitting on the docks. We have quite a bit. It’s both an external and an internal opportunity to improve. The external is, yes, they pay us, we rely on freight forwarders to pick up the shipments and there is just a significant delay across the board and so we need to figure out a solution to the problem.
It was very disappointing to our entire internal team because the inventory is sitting on our floor, kicking up a lot of space. And then internally, we are looking at ways of decreasing our take time or processing time to get the orders out quicker.
Andrew Shapiro
Your Q3 mace.com revenues, you called because they certainly they’ve continued sizable growth. To what do you attribute this to and can and how do you keep the momentum going?
Sanjay Singh
So there are a few factors. I think at a macro level, there is just this idea of personal safety is becoming a day-to-day affair for a lot of people. We saw a spike in sessions after that attack on that jogger in Memphis. I mean it was a sizable increase in sessions for a few weeks. But generally speaking, the work that is being done by our agency based on feedback that is provided to them on what we see on the Amazon platform is quickly becoming a proxy for our actions on mace.com.
So when we see certain gas works that are getting a lot of traction on Amazon, we pivot and strategize on actions, similar actions on mace.com. And our agency has been very good at providing that expertise and really shaping actions to complement all of that. So it’s both external and internal factors that do that. But generally speaking, it’s mostly demand. Demand is up inquiring of personal products is up.
Andrew Shapiro
Now what amount of success do you feel Mace is made in addressing new vertical markets such as hospitality, the real estate agents, the security guard market, health care. And what new initiatives are you doing to promulgate Mace brand in the back-to-school sector, either K-12 or in particular, the college opportunity since on-campus sales seem to have always been an issue.
Sanjay Singh
Yes. So the progress relatively speaking, has been slow. We have two outside sales resources. One is more recent, who is our retail expert. And the other is an employee who’s been with us for a couple of years who understands our business as we’ve been formulating all these co-branding agreements.
But I think relatively speaking, it’s a bit slow, but I think now that some of these things are closing out, all those opportunities, whether it’s with factory, whether it’s with Legal Heat, by certifying security guards, looking at hospitals, hotels. All that is sort of ongoing. And I think it’s a matter of how fast we can scale up. So that’s currently one of my top priorities is to be reshape that. It may require an additional resource or a resource slightly different resource allocation.
Operator
And we will once again go over to Howard Rosencrans.
Howard Rosencrans
As opposed to getting lost in the weeds or as to what you may or may not do in the future. I mean, the track record speaks for itself. The global brand value speaks for itself. In essence, track record is hoard. There is no evidence that there is any global brand value whatsoever. We’re talking about a business that started 30 years ago and today does a whopping $10 million run rate.
So instead of dedicating resources to trying to figure out a 100 different things or going to your next conference to present the story where you don’t even have somebody who can present the story, why don’t we actually put together a few decent quarters and have some confidence in what the future is going to look like because in a year from now, you’ll come back and you’ll say, “Well, there was social unrest.
So that’s why we had a decent quarter a year ago, and now it’s a tough comparison. Why don’t we get into a situation where you can actually make a conference call and not have to have the three people do your favors to provide some financial commentary on the call. So while I’d love to get enthusiastic and find out the 100 different things you’re doing and where the future may go, I mean, none of it is warranted based on the track record at all.
So let’s pull in the horns, let’s not go to conferences, let’s not waste our time, let’s not waste our money, just get blocking and tackling right, and I think you should put a lot more disclosure into the press releases on these various items that Andrew and others brought up is just sort of the progress you’re making in that regard, and that can be the liftoff point and then hopefully by midyear ’23, you’ll be positioned to move more along the curve. That’s my comment and or question, I would welcome your comment as to — regarding my comment.
Sanjay Singh
Howard, thank you very much. That’s a great point and frankly, that’s the reason why I mentioned that I — when I look at the deliverables that are in front of me, do I go spend a lot of time delivering on that and making sure that all of us, our team members included versus speaking about it, we do get a lot of inquiries from shareholders that want us in conferences. So it’s certainly a dilemma that we have to figure out.
Howard Rosencrans
Your market cap today is a whopping $9 million, $10 million. Essentially, you’re trading for onetime sales, which I think is perfectly adequate where you should be trading today. You have to prove out. I mean now you have 65 million shares outstanding. So you’ll have to be in a position where you can generate $0.12, $0.15 in earnings before you can justify a higher share price.
Nobody is going to pay a premium to sales when you — when profitability has extensively alluded you for all this time. So you don’t know where these conversations with these third parties are going or I think that’s where we stood at the last time. But I just think there’s a tremendous amount to clean up and prove out in the short term, and that should be the central focus.
Sanjay Singh
I agree with your views Howard.
Operator
Well, let’s go back to Vijay.
Sanjay Singh
One last question, Marjorie. We’re up on time.
Vijay Marolia
Okay. I’ll try to keep this very quick. I did notice, of course, cash balance, we could use more inventories, we have too much. I was at a fintech workshop. This is a public call. So my lawyers have a lot to talk about this and give you ideas. So there are ways to turn those inventories, those receivables into marketing dollars before Christmas. And should you agree, then let’s add that to our agenda after the call because I think we’re all hopefully on the same team here.
Sanjay Singh
Would love to do that, Vijay. We’ll arrange a call with you.
Vijay Marolia
Just last question, and this is probably easy. Regarding the inventories, regarding sales, are there any ways to track differences geographically. For example, all the data that I’m seeing on our other funds, Southeast is growing at multiples versus the rest of the country. And this is, of course, us in the U.S. So for example, is there a way or have you seen trends that are specific to Florida, Texas, Carolinas, so on and so forth?
Sanjay Singh
No, it is, certainly in the — there’s a lot of activity in the larger cities, I would say. So pick the top 25, 30 cities…
Vijay Marolia
Is there any demographic delta? I didn’t mean to cut you off, but I apologize. But for example, what we’ve seen is that population growth or the opposite of population growth is a leading indicator of that regional economy. And so as population growth or the lack thereof taking into account when we’re looking at regional initiatives, if we have any?
Sanjay Singh
What we have seen is it is not related to population growth entirely. It is more safety, personal safety concerns. Again, there are various factors at play. If you compare, say, a Chicago to say, a city like Pittsburgh. But those are the kinds of trends we are seeing. We see some of the data online. And we also can see the data from some of our retailers where there’s an uptick in activities.
Vijay Marolia
I think I mentioned — I missed that in key specific point. So whereas you’re talking about your current sales and historic sales. What I’m talking about is data of the category that we are playing in. So I’m talking about the people that buy what we are trying to sell. This data does have a very highly correlated — is very highly correlated to population and demographic trends. I’ll back out.
Sanjay Singh
Yes, Vijay, most of our online marketing strategy is driven by those demographic profile. So when we roll out campaigns, it is based on those factors. Well, I think we’re up on time, Marjorie. So thank you, everyone, for being on the call. Thank you, Rem.
Operator
Thank you, everyone. And that does conclude today’s conference. We appreciate your participation, and have a wonderful day.
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