Q4 2022 Mace Security International Inc Earnings Call

Participants

Remigijus Belzinskas

Sanjay Singh; Chairman & CEO; Mace Security International, Inc.

Andrew Evan Shapiro; Founder, Chairman, President, Portfolio Manager, and Managing Member; Lawndale Capital Management

Howard A. Rosencrans; Founder & Chief Research Analyst; Value Advisory LLC

Unidentified Analyst

Vijay Marolia

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Mace Security International Fourth Quarter 2022 Earnings Call. (Operator Instructions) Please be advised that today's call is being recorded.
I would now like to hand the conference over to your first speaker for today, Rem Belzinskas. Thank you. Please go ahead, Mr. Belzinskas.

Remigijus Belzinskas

Thank you, Kathy, 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 the OTCQX report for the fourth quarter ended December 31, 2022, as well as our Q4 financial overview presentation.
Before proceeding this morning, 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 expectation and information 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, limited capital resources and disruptions in domestic and international supply chains. Such factors could materially and 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

Thanks, Rem. Good morning, everyone.
The fourth quarter, which usually is a slower quarter revenue-wise, was very challenging. We started the quarter with a profitable EBITDA cost structure. As the quarter progressed, orders declined further by 15% in total, when compared to Q3 of '22. However, revenues were up when compared to Q2 '22.
Overall, the company's revenues in Q4 '22 were lower by 17%, when compared to the same quarter last year. Adding to the organic revenue slowdown, a meaningful amount of our backlog did not ship because of delays from our vendors in Asia.
The orders from our larger, price-sensitive customers have continued to be slower for the entire year due to higher levels of inventory that they are carrying. This decline was partially alleviated in Q4 '22, with a 70% growth in e-commerce platform sales and 382% increase in sales to international customers compared with Q4 of '21.
In October 2022, we announced the completion of our restructuring that was initiated in Q1 '22. This involved cost reductions, revenue expansion in specific segments that are relatively less impacted by inflation, increase in operating efficiencies to nullify cost increases and a targeted reduction in working capital.
Those actions resulted in positive adjusted EBITDA in Q3 2023. However, revenues in the retail sector declined further, resulting in a loss in Q4 2022. Overall, the adjusted EBITDA loss was $194,000 for the quarter ended December 31, 2022. We lowered SG&A costs in Q4 '22 by 8% when compared to the prior year.
From a preceding quarter perspective, Mace achieved growth of 10% in sales on mace.com, 18% in e-commerce platform sales overall, and 271% in sales to international customers versus the third quarter of '22. 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 expect incremental revenues from the addition of Dollar General, new product expansion at 2 other existing retailers that were approved in Q4 '22 to materialize in 2023. Separately, we expect additional revenues in late Q2 '23 and onwards from our fee-based training new line of business across the U.S.A.
From a cost perspective, monthly cost reduction opportunities of $100,000 per month have been identified and actions will be taken to deliver the results. From a financing perspective, we are in due diligence with a commercial finance company to a range of $2.5 million line of credit facility. This is a top priority.
The company's focus continues to be operating to a positive adjusted EBITDA and land new business.
I will now turn the call over to Rem to comment on the fourth quarter 2022 financial results.

Remigijus Belzinskas

Thank you, Sanjay.
Our fourth quarter net sales were $2.1 million, a 17% decrease from $2.6 million for our fourth quarter sales of 2021. Retail sales decreased 50%, with one customer accounting for the majority of the decrease due to high inventory levels.
Our e-commerce sales increased 70% compared with the same period in 2021. Gross profit for the fourth quarter decreased 243% or 26% from our fourth quarter 2021 results. Our margin rate in the fourth quarter of 2022 was 33%, down 4 points from a margin rate of 37% for the same quarter of 2021.
Margins decreased in the fourth quarter 2022 over fourth quarter 2021, due to lower sales volume, increasing components and freight costs, the effect of which was partially offset by lower manufacturing overhead and manufacturing efficiency improvements.
SG&A expenses for the fourth quarter decreased by $100,000 to $1.1 million or 51% of net sales. The decrease in SG&A expenses is attributable to a $65,000 reduction in digital marketing expenditures, a $31,000 decrease in insurance expense due to favorable insurance post-audit adjustments, and a $23,000 decrease in legal and professional expense.
Bad debt expense was $46,000 higher in the fourth quarter of 2022 compared with the fourth quarter of 2021, primarily due to the settlement of a disputed receivable. Our lower sales volume and higher manufacturing costs resulted in a net loss for the quarter of $468,000, which was down from a net loss of $313,000 in the fourth quarter of 2021.
Fourth quarter adjusted EBITDA was a loss of $194,000, down $58,000 from a loss of $136,000 in the fourth quarter of 2021. The decline in the bottom line is attributable to lower revenues.
Our borrowings decreased during the fourth quarter of 2022, reducing the amount drawn against our line of credit from $715,000 on September 30, 2022, to $515,000 at December 31, 2022. As mentioned previously, with the supply chain delays experienced in 2021 and 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. We have manufactured and assembled products for our typically high-volume movers and continue utilizing targeted promotions for our 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 Q2 2022, have reduced our inventory $253,000 since September 30, 2022.
I will now turn the call back to Sanjay for some additional comments before we take questions.

Sanjay Singh

Thank you, Rem.
We have our work cut outs in the coming quarters, implementing cost reductions, and landing new business and securing a new lender are our key areas of focus. 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 advisers to assist with this process.
At this time, I will stop and open the lines for questions. (Operator Instructions) Kathy, please open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) We'll go first to Andrew Shapiro with Lawndale Capital Management.

Andrew Evan Shapiro

Well, let's cut to the chase on a few of these items here, if we can.
Your Q4 retailer revenues were down, again, mostly, I think it was at 1 to 2 specific retailers. Is this market share loss for your relationship remains at the same levels, and it was just overall inventory adjustments? And have either retailers stabilized and reordered in Q1 or even now halfway through Q2?

Sanjay Singh

The majority of the increase over 75% was with one retailer that has -- consistently had very high levels of inventory going into 2020 and 2021. So this is -- we don't believe this is a loss of market share. We -- one of our other private label customers that sells to this retailer, their volume is down with us significantly for that same reason.
In terms of the trends going up in the first quarter, we are seeing -- we saw that, but it was just a slight improvement.

Andrew Evan Shapiro

So this particular retailer, the bulk of which was a sizable revenue decline, who had the inventory issues. Have they stabilized and done some reordering in Q1 or even now halfway through Q2 from you?

Sanjay Singh

They have. Because trends are moving in the right direction. They are nowhere close to where they were in Q4 of 2021.

Andrew Evan Shapiro

Yes. Okay. Fair enough. Okay.
And the other follow-up, a big kahuna here, is from reading your newly filed financial statements. I understand that a commercial lender who is going to replace Fifth Third, your current provider of your working capital line that's expiring soon, inexplicably failed to close on that new loan on May 1, and you have this new commercial lender you're progressing with.
What is the status and timing of getting this new lender in place? And what is the status and timing of having Fifth Third provide the necessary extension and time to accomplish this refinancing?

Sanjay Singh

So where we are with Fifth Third is they have given us a term sheet for an extension up to 60 days, and we are -- we owe them some information. And the new lender is expecting to close within the next 4 weeks, 4 to 5 weeks.

Andrew Evan Shapiro

Okay. And you have a term sheet from the new lender?

Sanjay Singh

We have a term sheet from the new lender.

Andrew Evan Shapiro

Okay. I have several other questions. I will back out in the queue. Hopefully, you'll come back to me.

Operator

We'll take our next question from Vijay Marolia with Regal Point Capital.

Vijay Marolia

Sanjay, do you have any plans for -- in terms of new marketing initiatives?

Sanjay Singh

We do. We'll have to line up our financing and all of that first, but we do. We have a couple of different initiatives that we are talking to an outside party to help us move some of our saleable finished good's inventory.

Vijay Marolia

And -- okay. A follow-up question would be, is there anything that's going on differently on the international front?

Sanjay Singh

Yes, we are seeing a substantial increase in inquiries. It's all of -- most of last year continuing through this year. Whether it's from Europe or South America, those trends continue.

Operator

We'll go next to Andrew Shapiro with Lawndale Capital Management.

Andrew Evan Shapiro

Some follow-up questions, if I could. Also mentioned in your financials with the possible additional convertible note investment by members of Mace Board and other qualified investors that's contingent on Mace getting the refinancing completed. If the refinancing of working capital is completed, then what is this additional debt being undertaken for? And what are the terms contemplated in such additional financing?

Sanjay Singh

The funds are to fund future addition of retailers as well as a source of working capital, which will be provided by the new lender. So this additional raise is, call it, growth capital. There are -- we have $21 million in our pipeline of retailers that we have identified, and we are pursuing aggressively.
And the way the cash conversion with the retailer works is you procure your inventory and raw materials, that takes about 60 days for the entire production opening orders to be satisfied, and then you collect in another 60 days. So the whole process takes about 120 days.

Andrew Evan Shapiro

And would not the working capital, the new lender's line of credit, take care of that or cover that?

Sanjay Singh

Possibly, it could. It depends on what the actual line is and what the terms are. And when we look -- when you look at, say, an asset-based lender, it's based on receivables and eligible -- receivables and inventory. And given our lower levels of revenues, those could be impacted. So it depends on the exact terms.

Andrew Evan Shapiro

Okay. When is the amount to be raised in the terms on this supplemental financing expected to be determined? Will that be after the details of the new working capital lender and line are known so that there will not be an excessive amount of convertibles raised?

Sanjay Singh

It will be after the -- after this new line of credit is established.

Andrew Evan Shapiro

Okay. What's the cause for the debt levels at the end of Q4 to have risen to currently reported levels in your financials?

Sanjay Singh

Rem, I'll let you answer the question you deem fit.

Remigijus Belzinskas

I think it's a combination of several factors, and it would be inventory that was acquired to fund some sales in Q1. And just in general, to fund Q1 operations.

Andrew Evan Shapiro

Okay. And did you not disclose that you've made your initial shipment to Dollar General? Wouldn't that have brought the inventory build down? I guess it would be a receivable at the end of Q1, but we're here in May, and I believe the language in your financials discussed how the debt levels were as of the date of the financial statements. Can you clarify what the -- I guess, what that date means? Or how much longer are you sitting on the receivables from Dollar General from that initial order?

Remigijus Belzinskas

We have not yet received Dollar General's payments. Is that your question?

Andrew Evan Shapiro

Well, I guess. I mean that would explain part of why the debt level is not down even though you shipped out inventory. So as a follow-up on -- go on.

Sanjay Singh

In addition to that, Andrew, we have another program with Dollar General that is -- that will affect our revenues positively in the second quarter, for which inventory and components had to be purchased in order to satisfy their on-time delivery requirements. And those were purchased in Q1.

Andrew Evan Shapiro

Okay. So your business with them expanding. Let me do one more follow-up on Dollar General and I'll back out into the queue again. I do have a lot more questions.
You announced that you shipped your first order at the end of March. You initially thought you were de-servicing 10,000 stores, and then expand to most of their almost 19,000 stores. Do you have an indication as to how many doors in stores this original order shipped out at the end of March was initially supplying? And have you experienced any reorders or indications of the number of doors in stores has increased? Or what's the progression you're seeing? It sounds already from what you just answered is that there's additional product lines that you're developing for them or building for them that you have orders for.

Sanjay Singh

So the program that I just mentioned is the back-to-school program. That was already forecasted at the end of Q4. The answer to your question about the rollout of stores, that's -- it rolled out to about 10,000 stores. It hasn't made its way to all the stores yet from the [DCs]. It takes about 6 to 8 weeks before we will see the POS data about how the products are doing, but locally in Cleveland, they seem to be doing well because we've gone after some stores and looked at it.
And in terms of replenishment orders, yes, we already started seeing replenishment orders.

Andrew Evan Shapiro

Okay. I have more questions. I'll back out into the queue, but please come back to me.

Operator

(Operator Instructions) We'll go back to Andrew Shapiro with Lawndale Capital Management.

Andrew Evan Shapiro

Okay. I'll ask a few more than just 2 this time to let the question queue fill up and/or get my stuff done, if you don't mind.
Q4 mace.com revenues continued sizable growth. To what do you attribute this to? And Ken and how do you keep this momentum going?

Sanjay Singh

So that was because of some changes that were made to our website to allow for better interactions with our audience, as well as we targeted increasing our conversions. So it was just the overall look, the way we organize the information, the different categories, better graphics, better assets. We promoted quite a bit on Instagram as well. It's a combination of all those factors.

Andrew Evan Shapiro

Okay. What is the status of the supplier delays that you highlighted contributed to the sales shortfall? And are you making any progress in local shoring your supply chain from the Asian sourcing? And do you take over possession and find inventory on your books from the moment it hits the boats in Asia, so that you have this longer cycle is more of Mace's financing needs?

Sanjay Singh

So the one set of products that have caused us issues from overseas are our stun guns, and we did find a U.S. supplier that I met with at the SHOT Show. Most of these manufacturers or distributors in the U.S. also source their products from China.
So we placed an order with a domestic provider. We got an immediate shipment, but it was for a small quantity to fulfill some of our smaller base business orders. But the larger quantities are still being sourced from our overseas supplier, and this is an issue we need to resolve this quarter.
Our new domestic supplier also did not follow through on their commitments because of issues that were beyond their control. Their products got held up in Chinese customs.

Andrew Evan Shapiro

Now do you take over custody and it's on your -- on our books and our financing of inventory when it leaves Asia? And thus, if you were local sourcing, yes, there still may be a supply chain issue, but this is an issue for your suppliers' balance sheet and not Mace's?

Sanjay Singh

Well, so the shorter lead time from a domestic supplier would definitely help our financing needs. However, we -- because, number one, we have to pay this in advance to our overseas vendors. But number two, we only take ownership on our balance sheet when we receive the products in-house.
Rem, you can confirm that.

Remigijus Belzinskas

That is correct. And overseas, it's prior there -- even prior to the good being shipped.

Andrew Evan Shapiro

Right. So it's just the advanced payment. It doesn't -- so it's going to be a prepaid and not on your inventory, it sounds like, until it hits the shore. So -- but either way, it's still a cash need and then cash use. Correct?

Sanjay Singh

That's correct.

Andrew Evan Shapiro

Okay. Your co-branding, these are activities in a sense that shouldn't require as much cash from Mace and could -- or alternatively otherwise provide high-margin revenue streams in a sense because you're leveraging off the Mace brand?
Let's talk about Legal Heat and then F3 here. On the last call, you explained the rollout strategy was twofold. One being the high-margin license royalty revenues generated on Legal Heat-created sales, and the other being direct revenues netted against cost of generating those revenues.
As this product offering is closer to rollout, can you provide an update and an elaboration on how you see this new co-branded product being marketed and the timing of generating revenues and cash flows to this company? And do you still feel this is a $10 million incremental revenue to Mace addressable market and why?

Sanjay Singh

So the launch is delayed, and our partners have mentioned that the courses are complete, but when they were doing some tests, they were running into instructor errors, so this is the last update that we received last week. We feel that this is a very, very good opportunity for Mace both in terms of product sales by these instructors of Mace products as well as the actual training in-stores and through webinars.
I don't have a definitive launch. I mean, the launch was supposed to be in the first quarter at the latest by March 31, which did not happen.

Andrew Evan Shapiro

Right. Well, I mean, that's a benefit, I guess, of getting high-margin royalty is -- I mean, that's the cost of high-margin royalty is you don't have as much control.
On F3, when you announced the new co-branded product on the same day as last quarter's November call, you would hope the product would be released and starting to generate some orders before the end of that Q4. And I'm not sure whether that was for commercial vehicle defense like trucks or for passenger vehicles, but did the introduction occur? And for which commercial or passenger vehicle offerings?

Sanjay Singh

The introduction was not formally in play at the end of Q4, but it was in Q1. We have several orders in-house in Q1, and the sales team is continuing to work on going after larger platforms.

Andrew Evan Shapiro

And the orders that you've been taking here in Q1, what's the turnaround time to deliver and book the revenue? And were these in both commercial or in the passenger vehicle product offering?

Sanjay Singh

They were both, mostly in the passenger vehicle, but there was an issue with one of the components that, nationwide, was on a backlog of several weeks. We have now resolved it with a replacement component and as of today, the products can all be shipped.

Andrew Evan Shapiro

Okay. So no revenues in Q1 then from this, but you had orders?

Sanjay Singh

No, no. Because of the issue with that one component and we have to do all the (inaudible) on testing.

Andrew Evan Shapiro

Right. So nothing in Q1, but Q2 is going to have revenues from this. And you said you'd be offering the vehicle perimeter defense product to your many automotive segment retailers. Did any of them take actions on those offerings as of yet? Or what's your visibility on the prospects of ramping up that channel?

Sanjay Singh

So we have partnered with a very large automotive parts distributor to -- that will be carrying our F3 line. And that has already been secured, and they have placed their first order. As these units move to other locations, the value -- the revenue values will go up.

Andrew Evan Shapiro

Okay. Now as I see, this as a natural benefit of this new product is that -- have you gained any penetration into the Truck Stop vertical market with this product offering as well as entree for your broad line of other pepper spray offerings? Which I don't think are regularly seen on the books at the Truck Stop?

Sanjay Singh

The Truck Stop folks are on our list. There are constantly ongoing conversations.

Andrew Evan Shapiro

Okay. Again, I'll back out in the queue. I have other questions for you. Please come back to me.

Operator

We'll take our next question from Mark Greenberg, a private investor.

Unidentified Analyst

Sanjay, could you give us an update on the sustainability of Mace on the OTC exchange? And if it's going to be removed, what are the implications of that?

Sanjay Singh

Rem, can you take that question? In terms of what...

Remigijus Belzinskas

We're currently on -- we just filed a notification of late filing for our Q1 '23 financial statements. Once we file those, we will be returned to OTCQX.

Unidentified Analyst

And Rem, can you elaborate on the implications of being dropped?

Remigijus Belzinskas

From OTC to Pink?

Unidentified Analyst

Yes. Is that in jeopardy?

Remigijus Belzinskas

It's only in jeopardy if we don't file our Q1 financial statements, so we'll continue to sit on Pink.

Unidentified Analyst

Okay.

Remigijus Belzinskas

But we have no intentions of doing that, and we're diligently working towards completing the Q1 filings.

Unidentified Analyst

And you've indicated that you anticipate that to happen within the next couple of weeks?

Remigijus Belzinskas

Yes. The time range we stated a 20th of June 5, possibly sooner.

Operator

We'll take our next question from Andrew Shapiro with Lawndale Capital Management.

Andrew Evan Shapiro

On the November call, you said you started to get orders from the new partnership with Mid-States distributing, and it's a very large network of farm retailers. Did Mid-States orders and reorders continue through Q4 and your recently completed Q1?

Sanjay Singh

Yes.

Andrew Evan Shapiro

Okay. Similarly, on that November call, you said you started to get orders from Cornwall. Did these orders and reorders continue through Q4 and your recently completed Q1?

Sanjay Singh

That is -- yes.

Andrew Evan Shapiro

Okay. And then lastly, I would like a little more elaboration rather than yes, no, because these results were not as anticipated, is your slide presentation for this quarter, so that your program with NAPA is on hold for the moment. Can you elaborate and explain why or how you use the word hold rather than gone, as to your expectations and what's going on, so we have a little better clarity?

Sanjay Singh

Yes. So NAPA basically, they onboarded us in terms of -- we were in their system. They gave us a forecast then they had an internal rollout. Out of all the stores that they own, I think the NAPA corporate owns maybe 20% of the entire -- all the stores.
And the -- during the rollout, there were a lot of questions from other store operators, and then they came back to us to help us provide them some support, and we did in a variety of ways. And they came back, and they said that they were not ready to do the rollout yet. So we were asked to just be patient and wait until NAPA as a company was ready to roll out these -- the pepper spray products.
Now we were also told that the -- this often happens with their franchisers with other products, and they have to just get -- the owners get their buy and that takes time. So at the moment, it's on hold. They tell us that this is a never, never thing, then we would appropriately communicate that.
And what's interesting in this case is there are other automotive manufacturer retailers that carry pepper spray, and we walked them through any of the concerns and that other retailers have expressed in the past and how we get got past it. So -- but the culture of NAPA is different, and they are -- they're cautious, and they want to make sure that their stores function well, and that's our impression. So that's where we are at NAPA.

Andrew Evan Shapiro

Okay. So when you shipped -- you did ship and make some revenues, but only to the company-owned stores or that didn't happen either? And what was the factors that caused them some concerns? Can you share?

Sanjay Singh

Yes, it was the idea of people who are underage being able to buy pepper spray at their stores, how do they monitor that. It's your -- the typical issues that retailers run into. And not being corporate owned, that -- there's certain amount of independence that the franchisor has in terms of carrying these types of products. Yes.

Andrew Evan Shapiro

Okay. And -- okay. You mentioned, if you're experiencing continued growth in costs, presumably your competitors are as well, can another round of price increases get put through that would be accepted by your retailers and not further hurt your unit sales?

Sanjay Singh

So there are -- the cost increases have begun to slow down in some areas, and there are others where we are now working with alternative suppliers to get much better pricing from our vendors, and we've made some progress there. But in terms of another price increase, I don't believe so. I don't think those will be welcome with any of the line reviews that I've been directly involved in. The retailers are asking for more cost reductions.

Andrew Evan Shapiro

Okay. Even after a sizable amount of tax loss carryforwards expire in this coming period here, you still have around $50 million of tax NOLs to shield future income. But that obviously needs pretax income to monetize and use this asset, okay? I think you're trying to create high-margin royalty streams from your valuable brand name, okay, but what's the focus?
On the November call, you discussed 3 other co-branding opportunities. The first one you had already formalized, you said, but had delays in the supply chain on the products, so you hadn't announced it, but had hoped to introduce it in Q4. Of course, here we are in the middle of Q2. This is the product you described as a product to protect or aid people who ride bikes, motorcycle riders, people go on walks, people who take their children to the playground outside of the home.
Now, I don't recall seeing any announcement not only for Q4 but even in Q1, on that product, and I have a few other questions on the other second and third co-branded ones that you said haven't then been formalized.
But on this one that had already been formalized. What happened? Can you tell us more about the product and its timing, et cetera?

Sanjay Singh

Yes. So with that particular product, that has -- an order has been placed with our vendors. We don't have the products in-house yet. There is a 13-week lead time on the product, and there is a variation of that product that is being worked on. So there are 2 versions of this product, and we don't have the product in-house yet.
In terms of other co-branding opportunities, yes, those conversations are continuing. But this whole revenue decline and restructuring our costs again, and I mean, we have to change our focus quite a bit, that's a lot just given the size of our team.

Andrew Evan Shapiro

And then the second and third ones that you had described in the November call that hadn't formalized, the first of these 2 was described as a product launch by a woman who is very big in personal safety space, especially in active outdoor segment. And the other one that not -- was not yet formalized was described as a product that would appeal to people who again go on daily walks or hikes. What's the status of these 2 opportunities? Have they gone by the wayside? Have they progressed?

Sanjay Singh

No, we're still in conversations. Some opportunities take some time, Andrew. There's a lot of back and forth. Yes. There's also the idea of capital allocation.

Andrew Evan Shapiro

Okay. And not counting these co-branded opportunities that I've asked updates on; can you provide an insight on any other initiatives that are in the works to leverage on this well-known Mace brand name or our purportedly strong distribution channel?

Sanjay Singh

Yes. There are 2 others that we reviewed in Q1, and we are continuing our discussions in the second quarter. They probably won't materialize. Maybe one might materialize in the fourth -- by the end of the year because that particular one is we're helping the designers, the inventors, come up with a whole supply chain strategy because they want us to provide all the manufacturing. And then we are trying to raise some capital and to come up with a prototype, so that's where we are with monitoring and opportunity, yes. Very early stage.
The second one, we have a prototype, but there is there's a substantial R&D expense or the inventory is looking for a reimbursement, which is significant. And at this time, the company really can't get into those types of ventures without showing any immediate sales or EBITDA. So we have to try and figure out a different type of arrangement, and that's ongoing.

Andrew Evan Shapiro

Okay. And regarding the new products, you had a new product this last year, well, 2 of them. The one we haven't heard much mentioned and not sure how well it's done, is the Chameleon product, but you had more quarters under your belt. And have you had and delivered any meaningful custom orders of the product yet that take advantage of the unique inserts?
And are you making sales of replacement canisters yet? Or do you think it will end up being this is a product that ends up being disposed of and not generating replacement cartridge sale?

Sanjay Singh

We are selling -- both these products are selling online. That's where it's primarily selling. The Pocket Personal has done, okay, and the Chameleon has done, okay, but they're -- neither of the products are anywhere close to our original projections.

Andrew Evan Shapiro

Okay. And Pocket Hero, you discussed on the December call, you working...

Sanjay Singh

Yes. Pocket Hero here is the one which -- yes, we call it the Pocket Personal. Those are selling online. It's very attractive to the younger female category and to who we are promoting it to. But in terms of ongoing sales, there are ongoing sales. Both are selling actively.

Andrew Evan Shapiro

Yes. Okay. And -- but you said on the call, you're working on a newer version of the Pocket Hero or now, your Pocket Personal, with a much-improved design from the first generation, and that was slated for introduction late Q4. Did that occur? And is that what you're marketing now? Or when will it occur?
And if it's been introduced, how has this reception been? You initially had this product at not just on mace.com, but in AutoZone. Has interest inside of AutoZone paired off? Or is it still doing well there?

Sanjay Singh

It's -- the interest has gone down. It's not doing well there. The redesign was done because the changing of the cartridges was the problem. It was -- consumers found it hard to change the cartridges, so we changed the design, and it now just has pepper, and those are selling. But again, it's mostly a direct-to-consumer program at the moment.

Andrew Evan Shapiro

Okay. And then your slide show talks about some new products. Is it new products whether, like, new, new? Or are these just expanded SKUs?

Sanjay Singh

They are just product line extensions.

Andrew Evan Shapiro

Okay. And when are you expecting those to be rolled out?

Sanjay Singh

Those are going to be rolled out in the coming quarters, so by the end of Q2.

Andrew Evan Shapiro

Okay. I'll back out. I have one or 2 more questions, if you can come back to me if there's time.

Operator

We'll take our next question from Howard Rosencrans with Value Advisory.

Howard A. Rosencrans

I tuned in quite late. Just wondering about the financial resources or your access to money, or I see you went $500,000 into a line. How much further is there on the line? What sort of -- do you have to hit some sort of EBITDA or something to -- that's suggestive?

Sanjay Singh

Howard, we have a $3 million line of credit, so we are $500 million into it as of Q4. We do have an EBITDA covenant, which we missed in Q4.

Howard A. Rosencrans

You said you missed the covenant. Okay. What is the covenant? How much?

Sanjay Singh

It was a cumulative EBITDA of $100,000 a quarter starting in Q2.

Howard A. Rosencrans

I'm sorry, starting in Q2 of '23 or Q2 of '22? I'm confused.

Sanjay Singh

Sorry, Q3. Rem, do you have the specifics?

Remigijus Belzinskas

Q3 of '22.

Howard A. Rosencrans

So starting in the Q2 of '22, you had to be EBITDA positive every quarter, $100,000? Yes or no, please.

Remigijus Belzinskas

In Q3, I believe, is a starting point.

Howard A. Rosencrans

Okay. Q3. Excuse me?

Remigijus Belzinskas

And we failed it in the fourth quarter, as Sanjay said.

Howard A. Rosencrans

Okay. So does that mean you are not allowed to go deeper into the line?

Sanjay Singh

No, no. We still have access to the line.

Howard A. Rosencrans

Okay. I'm not that smart, so please tell me how that works. I don't understand that.

Sanjay Singh

Well, that agreement is expiring at the end of May, so we are trying to find another lender. And we are now sourcing (inaudible)

Howard A. Rosencrans

Okay. So it's May 15. If you don't find another lender in 16 days, we call it quits? I'm trying to understand the ramifications of that.

Sanjay Singh

Yes. We explained it a bit earlier, but I'm happy to do that again. We have...

Howard A. Rosencrans

Okay. My apologies. I didn't tune in on time. My bad.

Sanjay Singh

We are in conversations with our current lender to extend our term by 60 days.

Howard A. Rosencrans

So to extend -- okay. I'm not exactly. So -- I'm sorry. I don't deal with companies that are this financially challenged, so let's try to get into the nuances. If everybody else understood it, which I sincerely doubt, that's fine. But why don't you entertain me and simplify it for me?

Sanjay Singh

Sure. So your point is valid. We have 16 days to come up with another lender, so we need time. And so we are working with Fifth Third to get us an extension for 60 days until we can get a new lender.

Howard A. Rosencrans

And so just -- so that I understand (inaudible)

Sanjay Singh

I think it might helpful if I can just finish my thought here.
And obviously, the extension will come with its own requirements, which may include a reduction in our access to the line, so that's where we are. Go ahead.

Howard A. Rosencrans

Okay. I apologize for cutting you off. My bad. So I -- okay. So that may come with a -- okay. So in the next 16 days, you have to negotiate an extension, and that will or will not be new covenants or new -- or access to additional money beyond how much you're into them now.
We are now May 15, so every other reporting company has already reported first quarter, and we're halfway done with the second quarter. So again, apologies for not tuning in early. Did you guys give us any insight into how it's going this year? Or are we still doing like $2 million in business on a quarterly basis?

Sanjay Singh

We didn't give any specific forward guidance, but the trend is the same as Q4.

Howard A. Rosencrans

Okay. All right. So we're just in search of a new line or other financial alternatives. Okay. I get it. I really appreciate it.

Operator

We'll go next to Andrew Shapiro with Lawndale Capital Management.

Andrew Evan Shapiro

Okay. Since there was back and forth in interruptions, and I asked this question earlier and I got -- teased out of you at least some additional information that, Sanjay, you didn't share again with Howard, which I can understand why he's in limbo on this.
Did you not answer my question that it's not just that you're getting a 60-day extension from Fifth Third with its own particular terms, but that you already have in hand a term sheet from a replacement lender that you thought would be resolved and done in the next 30 days. Isn't that what you just -- you told me at the beginning of the call when I (inaudible) addressed this?

Sanjay Singh

We have a term sheet -- yes. Yes, we have a term sheet and yes, and we are in diligence, as I explained to Howard, and that would (inaudible).

Andrew Evan Shapiro

You didn't explain to Howard, which is really -- Sanjay, you didn't explain it to Howard, which is really frustrating and does not lend to anyone's comfort when -- I mean I understood Howard's question, I understood Howard's concern. I understand why he asked the question since he was late to the call and didn't hear the detailed answers, I pulled out of you.
But I just -- I'm frustrated by the fact that you didn't provide the complete picture and left Howard and others in the lurch by not saying that you have a replacement lender, and you have a term sheet from them, unless it's not a real term sheet and you're hesitant to say it again. But I'm just -- I don't know why you wouldn't be more clear about that in the first place to bring it full circle.
I mean -- but yes, you say you have a term sheet, and in the next 4 weeks, this issue should be kind of resolved. Does the timing of that play into the timing of when you guys are likely to report your Q1 because you'll have perhaps the debt refinancing picture clearer at the time you make your filing?

Sanjay Singh

We should -- excuse me?

Remigijus Belzinskas

No, I was going to say, I think we're viewing the 2 as separate events.

Andrew Evan Shapiro

Right. But they're not -- so but you can -- you don't have to wait for any audit anymore. So you guys can turn around Q1 and get that out of the hopper pretty soon, right?

Remigijus Belzinskas

Yes.

Andrew Evan Shapiro

Okay. I mean I'm just -- I guess I'm frustrated by some of these little nuances, and it almost seems like your -- everything is going to hell in a handbasket to facilitate some kind of like management cheap LBO buyout here, and I'm not liking it.
So I just think that when the questions are asked that you should more fulsomely answer them, Sanjay, than leaving things in the lurch because Howard's question was pretty darn clear, so.

Sanjay Singh

All right. Thanks, Andrew. I try to answer the best I could, but no, I understand that -- he was asking (inaudible). I understand. I don't want to get into a debate on this call. I understand. Noted.

Andrew Evan Shapiro

Okay. Lastly, on the -- what success have you been making, if any, in further addressing the new vertical markets that were brought up in the last quarter's call? That's like in the hospitality industry, real estate agents, security guards, health care. Is it just the personal alarms? Or are you making headway with other -- a broader line of personal defense products now?

Sanjay Singh

At the moment, it's personal alarms. But we expect to see an interest with our training -- safety training as well in the future.

Andrew Evan Shapiro

Okay. All right. And with respect to the convertible financing that you're talking about to provide supplemental growth capital for all these revenue-generating opportunities, you say that -- need funding that may be beyond the new working capital line of credit lender.
How is the governance set up to ensure that the terms of the new financing that would go on and be funded by Mace Board members and other qualified investors are, in fact, arm's length and satisfy directors' duty of loyalty towards all the shareholders who might not be able to participate in this private financing?

Sanjay Singh

Well, we're being advised by our public securities lawyer on how to go about this capital raise, and we're following his direction on it. And in the future, we will likely be working with an investment banker to help us do that as well.

Andrew Evan Shapiro

Okay. Great. All right. Well, thank you much. I know the strategic alternatives process is something that we can't talk about, but I would hope that you get your refinancing done to get the strategic alternatives process moving again because until the financing is done, the new working capital lender, dealing with Fifth Third. Until that's done, I think the alternatives things on hold or should be on hold, so that you're dealing with and negotiating from a position of stability rather than your backs against the wall.

Sanjay Singh

Right.

Remigijus Belzinskas

Okay. Thank you, Andrew.
Okay, Katie, I think we are at 12:02.

Operator

Mr. Singh, there are no additional questions in queue.

Sanjay Singh

All right. Thank you very much.

Operator

That will conclude today's call. We appreciate your participation.

Sanjay Singh

Thank you, Katie.