New parental supervision on the board of directors of a traditionally poorly run microcap could get this long-underperforming but cash-rich name back on track.

Mount Laurel, N.J.-based Mace Security International Inc. (Nasdaq:MACE) has bounced from one business to the next in recent years, punishing its shareholders in the process. In 2002, after concluding that operating car and truck washes wasn’t all it was cracked up to be, Mace set its sights on the personal defense and electronic surveillance security industry. A series of acquisitions followed in which the company acquired the rights to the well-known Mace brand pepper spray, its namesake business.

Mace’s attempted roll-up of security products-related businesses also has yet to result in sustainable profits. Generally, we’d avoid a microcap name that has floundered strategically with a poor management track record, and such would also be the case with Mace except for two important factors. First, Mace now trades for significantly below its net tangible book value. Further, Mace’s corporate governance has significantly improved in recent months with the shake-up of its board of directors after its most recent annual meeting, held last December. The new board should lead to greater alignment in the future between shareholders and management.

Five of the company’s six board members are now classified as independent directors. Mace CEO Louis Paolino remains on the board as its sole management representative. Lawndale Capital Management, which holds a nearly 10% stake in Mace and is Mace’s largest outside shareholder, threatened a proxy contest last fall, which resulted in a variety of corporate governance improvements, including the new board alignment. Ancora Capital, Mace’s second-largest shareholder, supported these actions. In January of this year, Ancora urged Mace to promptly sell or shut down all money-losing businesses, agree to a moratorium on making any new acquisitions and promptly buy back its stock (given the depressed share price).

Over the course of 2007, Mace did succeed in selling its car wash operations for cash in Arizona, the Northeast and most of Florida. Mace’s remaining car washes are primarily located in Texas. For the most part, the value in the car wash operations lies in the underlying real estate. Mace has yet to file its earnings report for year-end 2007, but for the quarter ended Sept. 30, Mace reported a tangible book value of nearly $41 million. After completing the sale of five of its Florida car washes in January for $7.6 million in proceeds after expenses, Mace said that it had approximately $19 million in cash on hand. By our estimates, Mace should end the March quarter with around $35 million in tangible book value on hand, largely in cash and real estate.

Mace’s most recently reported results show a microcap name with an unfocused strategic direction in search of a path to profitability. For the third quarter ended Sept. 30, Mace reported revenue of $14 million, compared with $11.6 million a year earlier, and a loss of $3.2 million, compared with $2.3 million a year ago. Revenue in the car and truck wash segment declined to $5.9 million from $5.5 million, while revenue in the security products segment was largely flat year-over-year at $5.7 million. Mace’s annual growth was due to $2.8 million in revenue contributed by its new digital media marketing segment. Last July, Mace announced the surprise acquisition of Linkstar Interactive, an online product marketing company for $10.5 million in cash and stock. At the time of the deal, Mace management made the argument that Linkstar would help boost the sales of its Mace branded security products online.

As one can imagine, Mace’s scatterbrained acquisition strategy has exhausted the patience of even the most deep-value driven investors. Mace closed Monday at a meager $1.51 a share, at the low end of its 52-week range of $1.40 to $3. While Lawndale is no stranger to ugly-looking microcap situations that take several years to yield value, Mace has certainly tested the fund’s patience. Lawndale appears to have acquired most of its position around the $2 to $2.50 level. In January, Ancora Capital, Mace’s other major outside shareholder, added to its position around the $2 price level. It’s worth noting that, only a little over a year ago, Mace rejected an indication of interest from Kelly Capital to buy the company for $3 a share.

Mace could continue to drift lower, but our sense is that it’s now trading around a point of maximum pessimism. This long-time underperformer should find direction under a new Lawndale-inspired board. On the surface, Mace is unquestionably ugly, but digging deeper, I like its hard asset value protection. This microcap should be fixable, even though management has done a great job of regularly screwing things up. Bottom line, for medium- to high-risk oriented investors, I think Mace may be worth a flier below the $1.50 level.