Form 10-KSB

                   U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities and
    Exchange Act of 1934

                 For the fiscal year ended December 31, 1998

|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
    Exchange Act of 1934

For the transition period from _________ to ________

                      MACE SECURITY INTERNATIONAL, INC.
            (Exact name of registrant as specified in its charter)

                                   Delaware
        (State or other jurisdiction of incorporation or organization)

                  03-0311630                            0-22810
      (I.R.S. Employer Identification No.)      (Commission File Number)

160 Benmont Avenue, Bennington, Vermont                           05201
(Address of principal executive offices)                        (Zip Code)

Registrant's telephone number, including area code:             (802) 447-1503
Securities registered pursuant to Section 12(b) of the Act:     None
Securities registered pursuant to Section 12(g) of the Act:     Common Stock

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

Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B (ss.229.405) is not contained herein, and no disclosure will be
contained, to the best of registrant's knowledge, in definite proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB | |.

The registrant's net sales for 1998 from continuing operations were
$2,404,221. As of April 2, 1999 the aggregate market value of the voting
stock held by non-affiliates of the registrant, based on the closing price of
6 11/16 on that date, was $31,806,860. As of April 2, 1999 the registrant had
issued and outstanding 7,203,000 shares of Common Stock.
<PAGE>

                                    PART I

ITEM 1. BUSINESS

The following can be interpreted as including forward looking statements
under the Private Securities Litigation Reform Act of 1995. Such statements
are typically identified by the words "intends", "plans", "anticipates",
"believes", "expects", or words of similar import. Various important factors
that could cause actual results to differ materially from those expressed in
the forward looking statements are identified below and may vary
significantly based on a number of factors including, but not limited to,
marketing success, product development, production, manufacturing costs,
competitive conditions, change in economic conditions of the various markets
the Company serves as well as changes in potential transactions that have not
been fully negotiated and evidenced by executed agreements or approved by the
Board of Directors or stockholders. Actual future results may differ
materially from those suggested in the following statements.

GENERAL

Mace Security International, Inc. (the "Company") is a well known producer of
less-lethal defense sprays for the Consumer Market and a marketer of Consumer
safety and security products.

The Company was incorporated in Vermont in December of 1987 under the name
Mark Sport, Inc. after Jon E. Goodrich, the Company's President and CEO, and
a former principal stockholder obtained an exclusive license to produce and
market defense sprays to the Consumer Market under the Mace(R) brand
trademark within the continental United States, and a non-exclusive license
to market defense sprays under the Mace(R) trademark outside of the
continental United States. In 1992, this license was renegotiated to include
a purchase option.

The Company changed its name to Mace Security International, Inc. in
September 1993. In November 1993, prior to its initial public offering, it
merged into a new company incorporated in the state of Delaware.

The Company exercised its option to purchase the Mace(R) trademark and, in
December 1993, the Company paid in full all amounts due under its promissory
note for the purchase of all rights, title and interest to the Mace(R) brand
and related trademarks. In March 1994, the Company acquired certain assets
and liabilities of the Federal Laboratories division of TransTechnology
Corporation, which were operated by the Company as part of its Law
Enforcement division until July 14, 1998, when the Law Enforcement division
was sold.

PRODUCTS AND LINES OF MERCHANDISE

Consumer Products.   The Consumer division of the Company designs, markets and
sells its consumer product line for use in protection of the home and
automobile, and for personal and child protection. These products include a
line of defense sprays, personal alarms, whistles, and window and door locks
alarms. The defense sprays, the Company's most well known products, include
tear gas sprays, pepper sprays and sprays with both tear gas and pepper
solution. The Company's consumer market includes mass merchants/department
stores, consumer catalogues and guns/sporting goods, hardware, auto,
convenience, and drug stores.

Each market category is reached through dedicated in-house sales managers,
and/or through a nationwide network of manufacturers' representatives. Market
categories are also reached through catalogue, magazine and trade publication
advertising, internet website and promotion at industry trade shows. The
Company also sells directly to wholesale distributors and to certain large
department stores. Mail order and specialty accounts are handled directly by
the Company.
<PAGE>

Mace Anti Crime Bureau(R).   Mace Anti Crime Bureau(R) ("MACB"), an extension
of the Consumer division, develops and markets security products and
literature primarily for the financial community. In 1997, MACB completed
product development of a "dye-pack" used by financial institutions for
robbery protection. The "dye pack" system developed by MACB has features not
offered by its competitors and is offered at a lower price than its
competitors' product. It was introduced to trade shows in the fall of 1997 as
"MaceCash(TM)". MACB is also in the process of developing other safeguard
devices for use by financial institutions and armored cars in the physical
transportation of cash and by other customers for safeguarding valuables,
such as jewelry. Other services provided by MACB to financial institutions
are state-of-the-art training videos and crisis response materials. MACB's
market includes financial institutions and related businesses throughout the
world. Sales efforts for MaceCash(TM) in the domestic market are being
conducted through direct marketing and the use of independent sales
representatives and distributors as well as exhibitions at national trade
shows and advertisement in trade publications. International marketing
efforts are being conducted primarily through sales personnel in the United
Kingdom and a worldwide network of independent distributors.

The Company has entered into a letter of intent for the sale of substantially
all the assets of its MACB division for approximately $1,100,000. Only
certain liabilities of the division will be assumed by the purchaser. The
Company will retain the cash and accounts receivable from this division.
There are no definitive agreements executed and the terms of the letter of
intent are not binding with respect to this proposed transaction.
Additionally, the purchaser's obligation to acquire the MACB division is
conditional on its obtaining financing sufficient to effect this transaction.
(See below "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resource - Proposed Sale of
Assets of MACB").

Franchising.   Mace Security is attempting to increase sales and expand its
distribution channels by franchising Mace Security Centers(TM) retail stores.
The Mace Security Centers(TM) will offer Mace(R) brand products and a wider
range of out-sourced products than are marketed by the Company, including
home security systems, surveillance equipment, child monitors, and other home
and personal security devices. The Company launched its franchise program for
Mace Security Centers(TM) in mid 1998 and has sold two franchises, one in
South Africa and one in Chile. Franchising is not currently a significant
source of revenue.

Department of Defense Contract.   Notwithstanding its sale of its Law
Enforcement division in July 1998, the Company continues to manufacture
products to fill orders under its contract with the Department of Defense,
which is not assignable and, therefor, could not be sold with the rest of the
Law Enforcement division assets. The Department of Defense contract calls for
the production of 40 MM cartridges and is due to expire August 31, 1999.
Revenue realized from this contract has been treated as income (loss) from
discontinued operations.

The Company's Long Term Goal.   The Company's long term goal is to increase the
market value of its shares on the NASDAQ Stock Market, thereby maximizing
shareholder value.

In that regard, The Company has entered into an agreement with Louis D.
Paolino, Jr. to become its Chairman and Chief Executive Officer. He will
bring with him an entirely new management team. Mr. Paolino, a graduate of
Drexel University with a B.S. in Civil Engineering, was formerly the
Chairman, President and CEO of Eastern Environmental Services, Inc., a solid
waste management services company from June 1996 through December 1999. When
Mr. Paolino joined Eastern in June 1996, Eastern's sales for that fiscal year
totaled $7.6 million with a market value of less than $10 million and with a
stock price of $1.50. Eastern was recently acquired by Waste Management, Inc.
wherein Eastern shareholders received $32 of value per share of Eastern.
Before that time, Mr. Paolino was President of Soil Remediation of
Philadelphia, Inc., a company engaged in the business of treating
contaminated soil and which was sold to USA Waste Services, Inc., a waste
management corporation, in September 1993. From September 1993 to June 1996,
Mr. Paolino served as Vice President of USA Waste Services, Inc. From
November 1995 to January 1996, Mr. Paolino served on the Board of Directors
of Metal Management, Inc., formerly known as General Parametrics Corp., a
publicly traded company. THE SUCCESS OF EASTERN ENVIRONMENTAL HAS NO BEARING
ON, AND SHOULD NOT BE CONSIDERED AN INDICATION OF, THE POTENTIAL FUTURE
RESULTS OF OPERATIONS FOR THE COMPANY.

As a condition to his agreement to serve as CEO, the Company's current Board
of Directors, other than Mr. Goodrich, will resign and be replaced by a new
Board selected by Mr. Paolino.

Also, Mr. Paolino has agreed to purchase 3,735,000 shares of the Company's
Common Stock. A portion of such shares are expected to be purchased by
members of Mr. Paolino's management team, by assignment of Mr. Paolino's
right to purchase such shares.
<PAGE>

As a condition to Mr. Paolino's agreement to purchase the shares, the Company
has entered into employment agreements with certain members of the new
management team selected by Mr. Paolino. Pursuant to the employment
agreements, each new member of the management was granted options to purchase
shares of the Company's Common Stock. The employment agreements specify that
the new management will be entitled to only nominal compensation until the
sale of the 3,735,000 shares is consummated. In the event the sale of the
Paolino Shares does not occur, the employment agreements terminate and the
options will automatically be cancelled.

As an additional condition to Mr. Paolino's agreement to purchase the shares,
substantially simultaneously with such sale, the Company will sell in a
private placement 1,850,000 shares of the Company's Common Stock. The shares
will not be registered under the Securities Act of 1933, and thus, will not
be freely tradable for a period of at least one year from the closing of the
sale of the shares.

The sales of the above-referenced 5,585,000 shares will result in a total
capital investment by Mr. Paolino, members of Mr. Paolino's management team 
and others of approximately $8.83 million.

Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace(R) Consumer sales, which is expected to continue to operate in
Bennington, Vermont.

As a condition to the referenced stock purchases, the Company will
substantially simultaneously with the stock sales acquire by merger American
Wash Services, Inc., a company headed by Mr. Paolino. The purchase price for
American Wash will be cash of $4,687,500, 628,362 shares of the Company's
Common Stock and the issuance to Mr. Paolino and his designee of assignable
warrants to purchase a total of 1,825,000 shares of the Company's Common
Stock.. The total consideration to be paid to the Company upon the exercise
of all such warrants is approximately $2,791,000. The warrants will not be
exercisable until the expiration of 120 days following the closing and will
have terms of 64 months. The shares issued in the merger and issuable under
the warrants will not be registered under the Securities Act of 1933, and
thus, will not be freely tradable for a period of at least one year from the
closing of the sale of the shares.

The Company's obligation to complete the transactions is conditioned on,
among other things, approval by the Company's Board of Directors and
shareholders, continued listing on the NASDAQ National Market System, a due
diligence investigation and receipt of a fairness opinion covering the merger
and the sale of shares.

The Company believes the addition of a new car wash division will produce an
exciting new profit center and at the same time serve as an additional retail
distribution location for the Company's "impulse" personal protection
products.

It is anticipated that the transactions will be approved by the Company's
shareholders by written consent. The transactions are expected to close
twenty days following the distribution of an Information Statement regarding
the transactions and related matters. (See "Business- The Company's Long Term
Goal " and "Executive Compensation-Change in Control").

COMPETITION

The Company faces intense competition in the consumer market. Domestically,
there continues to be a number of companies marketing defense sprays to
civilian consumers. While the Company continues to offer defense spray
products that Management believes distinguish themselves through brand name
recognition, superior product features and formulations and research and
development, the Consumer division has experienced a sales decline for these
products. The Company attributes this decline not only to the strong
competition, but also to lower demand in general. Moreover, the Company was
not successful in its brief entry into the retail market in late 1997. The
Company closed its retail stores in the third quarter of 1998. ( See below
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources").

PRODUCTION

Substantially all of the Company's manufacturing processes are performed
at the Company's Bennington, Vermont facility. The Company's defense spray
products are manufactured on an aerosol filling machine. Most products are
packaged in sealed, tamper resistant "clamshells." The KinderGard(R) product
line is primarily manufactured by an unrelated company and packaged on-site
at the Vermont facility. Operating results of the KinderGard(R) product line
are immaterial at this time.

There are numerous potential suppliers of the components and parts required
in the Company's production process. The Company has developed strong
beneficial long-term relationships with many of its suppliers including the
following: Allplax, Inc., Moldamatic, Inc., Piper Impact, Inc., Amber
International, Inc. and Springfield Printing, Inc. In addition, the Company
purchases for resale a variety of products produced by others including
whistles, alarms, and window and door locks, among others.

MAJOR CUSTOMERS

The Company's top ten customers represented approximately 19% of the total
net sales in 1998. No single customer accounted for over 10% of those sales.

TRADEMARKS/PATENTS

The Company began marketing products in 1988 under the Mace(R) brand name and
related trademarks pursuant to an exclusive license for sales of defense
sprays to the Consumer Market in the continental United States, and a
non-exclusive license for sales to the Consumer Market worldwide. The license
agreement was renegotiated in 1992 to include a purchase option. The Company
exercised this option and purchased outright the Mace(R) brand name and
related trademarks (Pepper Mace(R), Chemical Mace(R), Mace . . . Just in
Case(R), CS Mace(TM) and Magnum Mace(TM)). In conjunction with this purchase,
the Company acquired a non-exclusive worldwide license to promote a patented
pepper spray formula in both markets. There are approximately five years
remaining on the license.
<PAGE>

The Company acquired a patent and trademark to the Big Jammer(R) door brace,
as part of its purchase of the assets of Home Protection Concepts, Inc., in
July 1991.

In 1995, the Company developed the trademark Cool-It!(R) decontamination
spray. This trademark was disposed of when the Company sold its Law
Enforcement division. The Company also developed internally the trademarks:
Window Jammer(TM), Sonic Alert(TM), Safety Flasher(TM), Sport Strobe(TM),
Child Safe Alarm(TM), Window Alert(TM), Motion Alert(TM), Emergency
Whistle(TM), and Auto Alert(TM). The Company markets products manufactured by
other companies under the foregoing trademarks.

The Company also acquired the trademarks Screecher(R), Peppergard(R),
Slam(R), and Mace (Mexico)(R). The Company developed the Viper(R) trademark
in 1993.

In August 1993, the Company acquired an exclusive worldwide license to the
patent for the safety top device used on the Viper(R) brand defense spray.
The Company is currently producing a Viper(R) spray line for sales to its
foreign franchisees.

In June 1994, as part of a license for a defense spray disarming device, the
Company acquired a co-exclusive license to manufacture and sell products
under U.S. Patent No. 5,310,086 until the expiration of the last patent
covering the invention. The Company does not intend to market products using
this patent.

As part of the August 1994 acquisition of the assets of KinderGard
Corporation, the Company acquired the trademark KinderGard(R) which is
registered in the United States and Japan.

As part of a January 1995 license agreement for a child-to-parent strap,
which is part of the KinderGard(R) line, the Company acquired the following
trademarks: Zip-a-Babe(R), Hand n-Hand(R) and Safe-T-Zip(R).

The Company received trademark registration for Muzzle(R) in Canada on June
17, 1997.

The Company has been issued letters patent on the locking mechanism for the
Mark VI defense spray unit.

The Company is in the process of applying for the registration of the Mace(R)
trademark in the European Community and South Africa.

In July 1998, in connection with its sale of its Law Enforcement division,
the Company transferred its Mace (R) brand trademark and all related
trademarks and a patent (No. 5,348,193) to its wholly-owned subsidiary, Mace
Trademark Corp. The purchaser of its Law Enforcement division received a 99
year license to use the Mace (R) brand, certain other such trademarks and the
patent in the Law Enforcement Market only.

Except as described above, the Company holds no material patents or patent
licenses, although it endeavors to maintain the confidentiality, as trade
secrets, of certain formulations and processes.

An essential part of the Company's business strategy has been to capitalize
on, promote aggressively, and enhance the public's awareness and confidence
in the Mace(R) trademark. The Company relies on the trademark laws to protect
its proprietary rights to the Mace(R) trademark. The Company uses a newspaper
clipping service to identify significant unauthorized uses of the Mace(R)
trademark and provides notice to such users of the Company's willingness to
take legal action for continued unauthorized use. Mace Security notifies all
persons that Mace Security knows are using the Mace(R) trademark improperly
or without authority of Mace Security's willingness to take legal action for
continued unauthorized use. The Company also engages in trademark advertising
in several literary publications and on the internet. All of the Company's
distributors are authorized to use the Mace(R) trademark for advertising. The
Company is not aware of any competitors repeatedly misusing the Mace(R)
trademark in any material manner. There can be no assurance, however, that
the efforts taken by the Company to protect its proprietary rights are or
will be adequate to prevent misappropriation or that the frequent use of the
Mace(R) trademark by the public as an encompassing description of defense
sprays will not jeopardize its proprietary status.
<PAGE>

The Company hopes that the license to the purchaser of its Law Enforcement
division to use the Mace(R) trademark and other related trademarks on
products sold to the Law Enforcement Market will continue the high profile
and market recognition, and enhance the value, of the Mace(R) brand name.

REGULATORY MATTERS

The distribution, sale, ownership and use of Consumer defense sprays are
legal in all 50 states and the District of Columbia. However, in most state
sales to minors are prohibited and in several states (MA, MI, NE, NY, WI)
sales of defense sprays are highly regulated.

On January 1, 1996, California eased restrictions on defense sprays. On
November 1, 1996, New York lifted an overall ban on defense sprays allowing
for the sale of oleoresin capsicum (OC) pepper sprays in licensed pharmacies
and licensed gun stores only. Massachusetts requires both users and sellers
to be licensed. Wisconsin allows the sale of oleoresin capsicum (OC) pepper
sprays only and they must be sold from behind a counter or under glass.
Michigan does not permit sales of chloroacetophenone (CN) sprays. Nevada
permits sales of orthochlorobenzalmalononitrile (CS) sprays only. The Company
has been successful notwithstanding these state regulations. There can be no
assurance, however, that broader, more severe restrictions will not be
enacted that would have an adverse impact on the Company's financial
condition.

The Company generated hazardous waste as a by-product of manufacturing
certain products of its Law Enforcement division. The Company believes that
it is in compliance with all state and local statutes governing the disposal
of such hazardous material through its contract with a licensed hazardous
material disposal company. By October of 1998, the Company had disposed of
substantially all the hazardous waste which was created while it owned and
operated the Law Enforcement division. The cost of the disposal of the
hazardous waste was booked as a charge against the shutdown reserve created
when the Company sold its Law Enforcement division in July of 1998. The
Company believes it is in compliance with all federal, state, and local
environmental laws.

RESEARCH AND DEVELOPMENT

Research and development expenses were approximately $58,000 in 1998 and
$81,000 in 1997. The Company has an on-site laboratory. Research and
development is used by the Company to maintain its reputation in the defense
spray industry. The Company is continually reviewing ideas and potential
licensing arrangements to expand its product lines. Particularly, the Company
spent a significant portion of its research and development budget in the
creation of MaceCash(TM) and other MACB products.

EMPLOYEES

As of April 2, 1999, the Company employed 50 individuals of whom 6 were part
time. The Company's employees are not subject to a collective bargaining
agreement. After completion of its obligations under the Department of
Defense contract, the Company anticipates reducing its number of employees
appropriately.

ITEM 2. PROPERTIES

The Company leases its headquarters in Bennington, Vermont. Substantially all
of the Company's operations, including administration and sales, and all of
its production facilities are located at the Bennington facility. The
facility consists of approximately 220,000 square feet; 60,000 square feet is
referred to as the South Wing of the Holden-Leonard Mill (the "South Wing")
and is leased from one landlord while the remaining 160,000 square feet is
leased from another owner (made up of the "Center Wing" and "North Wing").
The Company acquired from G&G Realty, Inc. , a company that was formerly
co-owned by Jon E. Goodrich, the President and CEO of the Company, a purchase
option with respect to the South Wing and has entered into a real estate
purchase agreement with the Vermont Economic Development Authority for the
Center and North Wings. The term of the South Wing lease expires on January
31, 2000, and requires monthly payments of $6,161, plus the Company's
<PAGE>

proportionate share of taxes, insurance, utilities and an annual cost of
living increase. The purchase option may be exercised for $600,000 at the end
of the lease term. The purchase agreement with respect to the Center and
North Wings contemplates that the Company will purchase the property for
$1,000,000 after certain contingencies are satisfied, including specific
environmental contingencies to be met by the seller. If these contingencies
are not satisfactorily met or waived, the Company has a right to lease the
Center and North Wings. The lease requires monthly payments of $4,000 together
with all utilities, assessments, taxes and maintenance. (See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" and Note 10 to "Notes to Financial
Statements").

The Company subleases a portion of the South, Center and North Wings of the
Holden-Leonard Mill. One of the sublease agreements is with a tenant owned
partially by Jon Goodrich, the Company's President and CEO. Total sublease
rental income was $110,406 and $93,231 in 1998 and 1997, respectively. The
Company does not have any current plan to invest in other real estate,
however, the Company may invest in various parcels of real estate from time
to time without stockholder approval. The Company believes that all of its
properties are adequately covered by insurance and believes its properties
are suitable and adequate for its current and near term needs.

ITEM 3. LEGAL PROCEEDINGS

The following discloses all pending litigation against the Company, other
than routine litigation, involving claims for damages in excess of $724,000,
which constitutes approximately ten (10%) percent of the Company's current
assets at December 31, 1998, and also discloses the disposition of claims
previously disclosed.

As disclosed in the Company's 1994 Form 10-KSB, on January 25, 1994 a suit
was filed by Carmeta Gentles on her own behalf and as personal representative
of the estate of Robert Gentles in Ontario Court (General Division), Ontario,
Canada, claiming intentional or negligent manufacture and distribution of the
Mark V Mace(R) brand defense spray unit and that its contents contributed to
the suffering and death of Robert Gentles while in the Kingston Penitentiary
in October 1993. The Company was added as a party defendant on February 8,
1995. The plaintiff seeks five million dollars in damages. The Company
forwarded this suit to its insurance carrier for defense. The Company does
not anticipate that this claim will result in the payment of damages in
excess of the Company's insurance coverage.

As disclosed in the Company's Form 10-QSB for the quarter ended June 30,
1995, on April 19, 1995 a suit was filed by Elaine Thomlinson, et al., in
Ontario Court (General Division), Ontario, Canada, claiming unspecified
damages to multiple school children for personal injuries, pain and
suffering, emotional trauma and financial loss and expense in consequence of
their exposure to noxious and hazardous substances while participating in a
simulated emergency exercise conducted at a local school by municipal
authorities. This case has been dismissed without the payment of any damages
on the part of the Company or its insurance company.

On July 27, 1998, the Company was added as a defendant in a suit filed in the
state of West Virginia by Susan H. Jackman, et. al. The litigation concerns an
attack on Mrs. Jackman by two dogs and the alleged failure of a "Muzzle(R)"
product distributed by the Company to repel the dogs. The suit claims product
liability and negligence and seeks one million dollars in damages. The
Company forwarded this suit to its insurance carrier for defense. The Company
does not anticipate that this claim will result in the payment of damages in
excess of the Company's insurance coverage.

Although the Company is not aware of any substantiated claim of permanent
personal injury from its products, the Company is aware of reports of
incidents in which, among other things, defense sprays have been
mischievously or improperly used, in some cases by minors, have not been
instantly effective or have been ineffective against enraged or intoxicated
individuals. Incidents of this type, or others, could give rise to product
liability or other claims, or to claims that past or future advertising,
packaging or other practices should be, or should have been, modified, or
that regulation of products of this nature should be extended or changed.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
<PAGE>

There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

                                   PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is traded on the NASDAQ Stock Market under the
symbol MACE. The following table sets forth for the calendar periods
indicating the high and low sales price for the Common Stock for each quarter
within the last two fiscal years.

QUARTER ENDED                        HIGH                       LOW
March 31, 1997                       1 3/4                      1 1/8
June 30, 1997                        1 3/8                        7/8
September 30, 1997                   1 5/16                      25/32
December 31, 1997                    1 1/4                        7/8
March 31, 1998                       1 9/16                       7/8
June 30, 1998                        1 11/16                    1 1/4
September 30, 1998                   1 1/2                      1 1/8
December 31, 1998                    1 13/16                    1 3/16
March 31, 1999                       6                          1 9/16

The past performance of the Company's securities is not necessarily
indicative of future performance. As of April 2, 1999, there were
approximately 224 holders of record of the Company's Common Stock. The
Company has not paid cash dividends on its Common Stock since its initial
public offering. The Company's current bank financing imposes certain
restrictions on the Company's ability to pay dividends. Payment of dividends,
if any, will be at the discretion of the Company's Board of Directors and
will depend on, among other factors, earnings, bank restrictions, capital
requirements and the results of operations and financial condition of the
Company. The Company does not intend to pay dividends in the foreseeable
future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following can be interpreted as including forward looking statements
under the Private Securities Litigation Reform Act of 1995. Such statements
are typically identified by the words "intends", "plans", "anticipates",
"believes", "expects", or words of similar import. Various important factors
that could cause actual results to differ materially from those expressed in
the forward looking statements are identified below and may vary
significantly based on a number of factors including, but not limited to,
marketing success, product development, production, manufacturing costs,
competitive conditions, the change in economic conditions of the various
markets the Company serves as well as changes in potential transactions that
have not been fully negotiated and evidenced by executed agreements. Actual
future results may differ materially from those suggested in the following
statements.

RESULTS OF OPERATIONS

Year Ended December 31, 1998 compared to Year Ended December 31, 1997.

The following discussion should be read in conjunction with the accompanying
Financial Statements and Notes thereto.
<PAGE>

Net Consumer sales decreased by $253,133 or 9.5% in 1998 compared to 1997.
The major component contributing to this decrease is a $395,603 decline in
Consumer defense spray sales offset in part by increased sales of $89,961 of
MACB products and $55,000 in franchise fees. Substantially all categories of
the consumer defense spray market realized a sales decrease in 1998 as
compared to 1997, which coincides with the continuing trend exhibited by the
declining defense spray market. Gross profit as a percent of sales increased
to 48.8% as compared to 38.1% in 1997. The margins realized in 1997 were
adversely affected by book to physical adjustments and additions to inventory
reserves for slow moving and obsolete items. Had these adjustments not been
made, the margins in 1997 would have been 48.1%, indicating a slight increase
in margins for 1998 over 1997 on a comparative basis.

General, administrative and selling expenses overall increased 15.3% in 1998
compared to 1997. As a percentage of net sales, these expenses increased to
71.5 % in 1998 from 56.1% in 1997.

General and administrative expenses increased by $348,277 or 41.3 % in 1998
compared to 1997. As a percent of net sales, these expenses increased to
49.6% in 1998 from 31.7% in 1997. The increase was primarily attributable to
Mace Security Centers, Inc., the franchise subsidiary of the Company, which
incurred $209,615 of general and administrative expenses in 1998. Mace
Security Centers, Inc. was not operating in 1997. In addition, the Consumer
division is absorbing all the general and administrative expenses of the
Company which previously were allocated in part to other divisions which have
now been discontinued. Selling expenses decreased by $119,687 or 18.5% in
1998 compared to 1997. As a percentage of net sales, these expenses decreased
to 21.9% in 1998 from 24.3% in 1997.

Operating loss as a percentage of net sales increased to 22.7% in 1998 from
18% in 1997. Other income/expense(net) was income of $263,147 in 1998
compared to income of $8,448 in 1997. These net amounts are comprised of
interest income and rents from sublets on the Company's leased facility and
interest expense on the Company's term loan with First National Bank of New
England. (See "Liquidity and Capital Resources").

For discussion of discontinued operations see "Liquidity and Capital
Resources - Sale of Law Enforcement division" and "Liquidity and Capital
Resources - Sale of Subsidiaries" below.

Following the sale of the Law Enforcement division, and in light of the
continuing decline in sales of Consumer products, the Company is considering
all opportunities to maximize shareholder value, including but not limited
to, potential acquisitions or dispositions, strategic alliances, stock
issuances and/or restructuring management. Such "acquisitions" may include
companies or assets not consistent with the Company's historical business
and/or may include a reverse merger pursuant to which the Company's current
Board of Directors and current management may be replaced. In the event of a
change of control of the Company, there can be no assurance that the
Company's business of selling personal protection products will continue.
(See "Executive Compensation - Change in Control" and "Subsequent Events -
Proposed Change in Control, Private Placement and Merger with American Wash
Services, Inc.")

LIQUIDITY AND CAPITAL RESOURCES

In September 1997, the Company refinanced its long-term debt through the
First National Bank of New England ("FNB"). Two term loans totaling
$1,800,000 bearing interest at prime plus 1.50% (10.0% at December 31, 1997)
payable in monthly installments of $23,791, including interest, due October
1, 2007, were obtained. Of the proceeds, $593,750 was used to pay off the
Company's long-term debt through Key Bank of New York. Additionally, a
$250,000 line of credit bearing interest at prime plus 1% (9.5% at December
31, 1997) due May 31, 1998 was obtained. The Company paid off the loan to FNB
simultaneously with the closing of the sale of its Law Enforcement division
in July of 1998.

Prior to consummating the loan with FNB, promissory notes to TransTechnology
Corporation relating to the acquisition of the assets of Federal Laboratories
(the key assets of the Company's Law Enforcement division), were paid in full
with cash from operations.
<PAGE>

At December 31, 1998, the Company's open orders totalled $41,197 compared to
$1,099,455 for the prior year-end. Open orders are orders that have not yet
been manufactured but are scheduled for production and delivery. Inventory
decreased $163,995 in 1998. For the year ended December 31, 1998, capital
expenditures were $122,568 compared to $238,726 in 1997.

Additionally, the Company is a party to a real estate purchase agreement with
the Vermont Economic Development Authority (VEDA) for the purchase of the
Center and North Wings of its headquarters, after the satisfaction or waiver
of certain contingencies by VEDA. The purchase price is $1,000,000, payable by
delivery of $150,000 in cash and a promissory note to VEDA for $850,000 at 4%
interest per annum, based on a 20 year amortization schedule with a balloon
payment of $100,000 due at the end of ten years. (See "Properties"). The
Company previously deposited $75,000 of the total cash portion into an escrow
account as required by the agreement. The Company has elected not to purchase
the building at this time and is leasing the premises for $4000 per month,
together with taxes, insurance and utilities.

At December 31, 1998 the Company had $4,183,222 in cash and cash equivalents.
These funds are expected to be used by the Company for operations and for the
purposes deemed to be appropriate by the Company's Board of Directors. (See
"Executive Compensation - Change in Control" and "Subsequent Events - Proposed
Change in Control, Private Placement and Merger with American Wash Services,
Inc.")

Sale of Law Enforcement division.

On July 14, 1998, the Company sold substantially all of the assets of its Law
Enforcement division. The purchase price was $4,985,651, paid in cash. In
conjunction with the sale of assets, the Company licensed to the purchaser the
use of Mace(R) and related trademarks and a patent for use by the purchaser
in the Law Enforcement Market only and received a one-time license fee of
$650,000. The Company retained the cash and accounts receivables from the Law
Enforcement division at closing.

The Company applied $1,725,202 of the purchase price received to pay off the
amount due to FNB under its term loans.

A portion of the purchase price ($600,000) was retained by the purchaser in
escrow to secure, among other things, the Company's obligations under the
representations and warranties in the purchase agreement. On January 20,
1999, $480,000 of the escrow was returned to the Company. The remainder will
be released on or about July 14, 1999 so long as no claim is brought against
the Company for which the purchaser is entitled to set off against the escrow
funds.

Sale of Subsidiaries

In the three months ended September 30, 1998, the Company disposed of two
wholly-owned subsidiaries, MSP, Inc. (a Colorado distributor) and MSP Retail,
Inc. (Colorado retail stores). The contracts between the Company and the
former owners of the distributorship and retail stores allowed the Company to
put back the shares of MSP, Inc. and MSP Retail, Inc. to the former owners if
certain pre-tax earnings targets were not met within one year following the
Company's acquisition. In both cases, the aforementioned subsidiaries failed
to make their pre-tax earnings targets.

The Company put back the shares of MSP, Inc. to the former owner in exchange
for 80,000 shares of the Company that were tendered as consideration in the
acquisition of MSP, Inc.

In a modified version of the put with respect to MSP Retail, Inc., the
Company transferred the net assets of MSP Retail, Inc. to a corporation owned
by the former owner in exchange for 176,666 shares of the Company that were
tendered as consideration in the acquisition of MSP Retail, Inc.

Further, both contracts called for repayment of working capital loaned by the
Company to MSP, Inc. and MSP Retail, Inc. The repayment amount as defined by
the contracts is the money loaned by the Company reduced by operating losses
incurred by the respective subsidiary during the twelve-month period each was
owned by the Company. The reduction of amounts owed was necessary to fulfill
another contract provision which required the Company to be responsible for
losses incurred by the subsidiaries during Company ownership. As a result of
the disposition of these subsidiaries, the Company incurred a loss of $67,013
with respect to MSP, Inc. and $47,317 with respect to MSP Retail, Inc.
<PAGE>

Proposed Sale of the Assets of MACB

The Company has entered into a letter of intent for the sale of substantially
all the assets of its MACB division for approximately $1,100,000. Only
certain liabilities of the division will be assumed by the purchaser. The
Company will retain the cash and accounts receivable from this division.
There are no definitive agreements executed and the terms of the letter of
intent are not binding with respect to this proposed transaction.
Additionally, the purchaser's obligation to acquire the MACB division is
conditioned on its obtaining financing sufficient to effect this transaction.

The proposal calls for a downpayment with the remainder of the purchase
price paid pursuant to a nonnegotiable promissory note, payable annually over 
three years, with interest at a floating rate per annum equal to the prime 
rate quoted by the Wall Street Journal and payable on the first and second
anniversaries of the closing.

The Company also expects to enter into agreements to receive a 1% royalty on
products sold using the brand names Mace Cash(TM), Mace Anti Crime(TM) and
Mace Anti Crime Bureau(R) and contingent consideration in the form of a 5%
royalty on certain sales made by the purchaser within three years following
the closing date.

ITEM 7. FINANCIAL STATEMENTS

Financial Statements filed as a part of this report:

Report of Independent Accountants                               F-2
Consolidated Balance Sheets at December 31, 1998 and 1997       F-3
Consolidated Statements of Operations
        for the Years Ended December 31, 1998 and 1997          F-4
Consolidated Statements of Stockholders' Equity
        for the Years Ended December 31, 1998 and 1997          F-5 
Consolidated Statements of Cash Flows
        for the Years Ended December 31, 1998 and 1997          F-6
Notes to Consolidated Financial Statements                      F-7

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On August 13, 1997, at the direction of its Board of Directors, the Company
advised Coopers & Lybrand, LLP ("Coopers") that due to cost containment
efforts, its engagement of Coopers as its independent public accountants was
terminated, subject to ratification by the Company's shareholders. The
Company's Board of Directors engaged Urbach Kahn & Werlin PC as its new
independent public accountants. The Company's decision to dismiss Coopers was
based solely on cost considerations. There were no disagreements with Coopers
on any matter of accounting principles or practices, financial statement
disclosure or otherwise. None of the Company's financial statements contained
an adverse opinion or disclaimer of opinion.

                                   PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The following persons are directors and officers of the Company as of April
2, 1999.

Name                             Age             Title

Marvin P. Brown ..............   69    Chairman of the Board
<PAGE>

Jon E. Goodrich...............   53    CEO, President and Director
Neil J. Campolungo............   56              Director
Mark A. Capone................   50    CFO, Treasurer, Vice President
Lewis Cohen...................   51              of Finance Director
Eric Crawford.................   28    Vice President of Operations
Howard S. Edelman.............   62    Director, Vice President of Franchising
R. David Garwood..............   56              Director
Eduardo Nieves, Jr............   25    Corporate Secretary
Linda Sandquist...............   48    Assistant Corporate Secretary,
                                                 Assistant Treasurer

Marvin P. Brown was elected President, Chief Executive Officer, and director
of the Company in January 1997. On March 14, 1997, Mr. Brown resigned as
President and CEO and assumed the position of Chairman of the Board. Since
1993 he has been associated with Wolff Investment Company, Inc., a brokerage
firm and member of the National Association of Securities Dealers, Inc., as
Director of Corporate Finance and Senior Vice President. From 1988 through
1992 he had been a senior vice president of Tucker Anthony, a member of the
New York Stock Exchange. Prior to that period, he had held senior officer
positions with various members of the New York Stock Exchange. He also has
served as president of Zenith Laboratories, Inc., formerly a leading
independent manufacturer of generic pharmaceuticals, from 1968 to 1969. Wolff
Investment Group, Inc. has served as a financial consultant to the Company on
several occasions from 1993 to 1996. (See "Certain Relationships and Related
Transactions").

Jon E. Goodrich served as Chairman of the Board of Directors of the Company
from its inception in 1987 until June 1995. He served as President of the
Company from its inception until January 15, 1996 when he tendered his
resignation as President and CEO and was renamed Chairman of the Board. On
March 14, 1997, he was reappointed as President and CEO and resigned as
Chairman of the Board. He was also a vice president of Gould & Goodrich
Leather, Inc., a manufacturer of holsters, belts and related products and
president of G&G Realty, Inc., a real estate management corporation until
January of 1997 when he resigned from his positions and terminated his
interest in both companies. (See and "Employment/Consulting Contracts and
Termination of Employment and Change-in-Control Arrangements").

Mark A. Capone, a CPA, was employed by the Company on September 2, 1997 as
the Company's Chief Financial Officer, and holds the titles of Vice President
of Finance and Treasurer of the Company. Prior to joining the Company, Mr.
Capone operated his own accounting firm providing business consulting and tax
preparation services. He has over 25 years experience in the accounting
profession which includes holding a Senior Financial position with
International Paper Company. Mr. Capone is responsible for all of the
Company's accounting and treasury functions, as well as corporate
development. (See "Certain Relationships and Related Transactions").

Lewis C. Cohen has been a director of the Company since August 7, 1997. Mr.
Cohen is the President and sole shareholder of Apahouser Access Systems, Inc.
since 1976. Apahouser Access Systems, Inc. supplies and services security
hardware and electronic systems to industry, institutions and governmental
entities throughout New England and in the Middle East. Mr. Cohen also serves
as treasurer and is on the boards of trustees of Sterling College in Vermont,
the Corporation at Babson College, Wellesley, Massachusetts and the Institute
for Community and Religion at Brandeis University.

Neil Campolungo has been a Director of the Company since May 10, 1997. Since
1991, Mr. Campolungo has been the CEO and sole shareholder of NJC Associates,
a consulting/marketing firm for public and private sector companies. Prior to
that, he was Division President of Prentice Hall Legal and Financial
Services, a division of Paramount Communications, a Fortune 100 company. Mr.
Campolungo serves on numerous boards of directors.

Eric Crawford became Vice President of Operations on August 7, 1998. He has
been employed by the Company since 1994 and has, during that time, held a
variety of positions including Assistant Plant Manager and Director of Law
Enforcement Sales. Prior to joining the Company, Mr. Crawford obtained a
Bachelor of Science degree from Castleton State College.
<PAGE>

Howard S. Edelman became a director on September 26, 1997. Mr. Edelman, a
CPA, has been employed by the Company since July 1, 1997 in connection with
the acquisition by the Company of MSP, Inc. (formerly known as Global
International Security Products), an importer and distributor of unique
pepper sprays and related personal protection products primarily to civilian
overseas markets, entrepreneurs, small retail stores and mail order catalog
firms. Since September 26, 1997, Mr. Edelman has been serving as Vice
President of Franchising, and in that capacity is responsible to develop and
manage the Company's franchise program. Mr. Edelman was the president, a
director and major stockholder of Global International Security Products from
1990 until its acquisition by the Company (See "Certain Relationships and
Related Transactions").

R. David Garwood was appointed as a director of the Company on February 27,
1998 to fill a vacancy created when the Board of Directors increased the size
of the Board. Mr. Garwood is, and has been since 1974, the president and
founder of R. D. Garwood, Inc., a management firm based in Atlanta, Georgia
that assists manufacturing and marketing firms. Mr. Garwood's clients include
Coca-Cola, Eastman Kodak, Allied Signal, Georgia Pacific, M&M, Monsanto and
others.

Eduardo Nieves, Jr. was appointed to the position of corporate secretary on
August 7, 1998. He has been employed by the Company since March 1997 and has
been responsible for corporate communications and investor relations since
such time. Prior to that time, he was a student at Southern Vermont College
where he obtained a degree in communications.

Linda Sandquist became the Assistant Secretary and Assistant Treasurer of the
Company on September 18, 1998. Her employment began in November of 1997 as
the manager of cost accounting. Prior to that time she worked for 11 years at
Flomatic Corporation in various accounting positions.

BOARD OF DIRECTORS

The number of directors on the Board is currently fixed at six. Each director
serves for a term of one year or until a successor is elected and qualified.
Officers are appointed by, and serve at the discretion of, the Board of
Directors. Virginia de Ganahl Russell, who was a director until the 1998
Annual Shareholder meeting, missed two of the five Board meetings held in
1998. No other directors missed any Board Meetings held during 1998. The
Chairman receives a fee of $750 and each director, who is not also an
employee of the Company, receives $500 per meeting plus out of pocket travel,
meals and lodging expenses for attendance at each board meeting. All
directors, other than Messrs, Brown, Goodrich and Edelman have been granted
options to purchase 20,000 shares of Common Stock in connection with their
roles as directors. Mr. Brown and Mr. Edelman have each been granted options
to purchase 10,000 shares of Common Stock in connection with his role as
director.

The Board of Directors has the following standing Committees, among others:
the Audit Committee, the Compensation Committee, the Planning Committee and
the Nominating Committee. The Audit Committee consists of Messrs. Campolungo,
Garwood, and Cohen. The Audit Committee recommends matters involving the
engagement and discharge of independent auditors, reviews the plans for and
results of the Company's procedures for internal auditing, and reviews the
continuing status of the Company's system of internal accounting controls.
The Compensation Committee consists of Messrs. Cohen, Brown and Campolungo
and makes recommendations regarding management compensation and administers
the Company's Non-qualified Stock Option Plan. The Planning Committee
consists of Messrs. Garwood, Goodrich, Cohen and Brown and is responsible for
recommending long-term strategies to the Board. The Nominating Committee
recommends persons to serve as directors of the Company and consists of
Messrs. Brown and Goodrich.

Mr. Brown and the Company have a verbal agreement pursuant to which Mr. Brown
provides executive services to the Company on an as needed basis and receives
a salary of $500 per day and reimbursement of business expenses.

COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
<PAGE>

Based solely on a review of Forms 3 and 4 and amendments thereto furnished to
the Company during its fiscal year ended December 31, 1998, no person (other
than Messrs. Garwood, Mr. Nieves and Crawford) known to be a director,
officer or the beneficial owner of more than 10% of the Company's outstanding
Common Stock, failed to file on a timely basis, reports required to be filed
by Section 16(a) of the Exchange Act during the most recent fiscal year. All
reports not timely filed by Messrs. Crawford, Garwood and Nieves have since
been filed.

ITEM 10. EXECUTIVE COMPENSATION

The following table sets forth the aggregate compensation, cash and non-cash,
awarded to, earned by or paid by the Company to all persons who served as its
Chief Executive Officer at any time during the most recent fiscal year. No
other executive officers received annual compensation (consisting solely of
base salary and bonus, if any) in excess of $100,000 for the year ended
December 31, 1998:

                          Summary Compensation Table

Name and               Year Ended       Annual                  Other
Principal Position     December 31      Salary      Bonus       Compensation

Jon E. Goodrich(1)     1998             $123,714    --          --
President and Chief    1997             $125,214    --          --
Executive Officer      1996             $124,023    $25,000     --

Mr. Goodrich served as President and CEO until January 15, 1996, and, for the
remainder of 1996, served as an advisor to the Board of Directors. He was
reappointed as President and CEO on March 14, 1997.

Options/Warrants

In September 1993, the Board of Directors of the Company adopted the Mace
Security International, Inc. Non-qualified Stock Option Plan (the "Plan"),
which was approved by the stockholders of the Company. The Plan provides for
the issuance of up to 630,000 shares of Common Stock upon exercise of the
options. The options are considered non-qualified stock options and are not
transferable by the recipient. The Plan is administered by the Compensation
Committee of the Board of Directors, which may grant options to employees,
former employees, directors and distributors for, and consultants to, the
Company. The term of each option may not exceed fifteen years from the date
of grant. Immediately exercisable options to purchase approximately 501,000
shares of Common Stock were outstanding to employees, former employees,
consultants, and former directors as of December 31, 1998 under the Plan and
options to purchase 428,000 shares are outstanding as of April 2, 1999. As of
April 2,1999, options to purchase 78,000 shares have been exercised.

Jon E. Goodrich, The Company's President and CEO, is the only officer who
receives compensation in excesss of $100,000 annually. Mr. Goodrich has never
been granted options by the Company. Consequently, tables disclosing
information with respect to options granted to in 1998 to the named current
and former executive officers of the Company and information with respect to
the year-end value of options held by the named current and former executive
officers of the Company have been excluded.

In connection with the acquisition of the trademarks and assets of KinderGard
Corporation, the Company granted to the stockholders of KinderGard
Corporation warrants to purchase 60,000 shares of the Company's Common Stock
at a per share exercise price equal to $4.25 exercisable until August 2004.

Employment/Consulting Contracts and Termination of Employment and
Change-in-Control Arrangements
<PAGE>

Jon E. Goodrich is employed by the Company under an employment agreement that
expires September 1, 1999. Mr. Goodrich is entitled to an annual salary of
$125,000. The agreement prohibits Mr. Goodrich from accepting employment with
any other entity and further prohibits him from competing with the Company
for a two year period following his voluntary termination of employment with
the Company or termination of his employment by the Company for cause, as
defined in the agreement. Should Mr. Goodrich's employment be terminated
without cause, he would be entitled to all payments for the term of the
agreement.

Change In Control

The Company has entered into an agreement with Louis D. Paolino, Jr. to
become its Chairman and Chief Executive Officer. He will bring with him an
entirely new management team. Mr. Paolino, a graduate of Drexel University
with a B.S. in Civil Engineering, was formerly the Chairman, President and
CEO of Eastern Environmental Services, Inc., a solid waste management
services company from June 1996 through December 1999. When Mr. Paolino
joined Eastern in June 1996, Eastern's sales for that fiscal year totaled
$7.6 million with a market value of less than $10 million and with a stock
price of $1.50. Eastern was recently acquired by Waste Management, Inc.
wherein Eastern shareholders received $32 of value per share of Eastern.
Before that time, Mr. Paolino was President of Soil Remediation of
Philadelphia, Inc., a company engaged in the business of treating
contaminated soil and which was sold to USA Waste Services, Inc., a waste
management corporation, in September 1993. From September 1993 to June 1996,
Mr. Paolino served as Vice President of USA Waste Services, Inc. From
November 1995 to January 1996, Mr. Paolino served on the Board of Directors
of Metal Management, Inc., formerly known as General Parametrics Corp., a
publicly traded company. THE SUCCESS OF EASTERN ENVIRONMENTAL HAS NO BEARING
ON, AND SHOULD NOT BE CONSIDERED AN INDICATION OF, THE POTENTIAL FUTURE
RESULTS OF OPERATIONS FOR THE COMPANY.

As a condition to his agreement to serve as CEO, the Company's current Board
of Directors, other than Mr. Goodrich, will resign and be replaced by a new
Board selected by Mr. Paolino.

Also, Mr. Paolino has agreed to purchase 3,735,000 shares of the Company's
Common Stock. A portion of such shares are expected to be purchased by
members of Mr. Paolino's management team, by assignment of Mr. Paolino's
right to purchase such shares.

As a condition to Mr. Paolino's agreement to purchase the shares, the Company
has entered into employment agreements with certain members of the new
management team selected by Mr. Paolino. Pursuant to the employment
agreements, each new member of the management was granted options to purchase
shares of the Company's Common Stock. The employment agreements specify that
the new management will be entitled to only nominal compensation until the
sale of the 3,735,000 shares is consummated. In the event the sale of the
Paolino Shares does not occur, the employment agreements terminate and the
options will automatically be cancelled.

As an additional condition to Mr. Paolino's agreement to purchase the shares,
substantially simultaneously with such sale, the Company will sell in a
private placement 1,850,000 shares of the Company's Common Stock. The shares
will not be registered under the Securities Act of 1933, and thus, will not
be freely tradable for a period of at least one year from the closing of the
sale of the shares.

The sales of the above-referenced 5,585,000 shares will result in a total
capital investment by Mr. Paolino, members of Mr. Paolino's management team 
and others of approximately $8.83 million.

Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace(R) Consumer sales, which is expected to continue to operate in
Bennington, Vermont.

As a condition to the referenced stock purchases, the Company will
substantially simultaneously with the stock sales acquire by merger American
Wash Services, Inc., a company headed by Mr. Paolino. The purchase price for
American Wash will be cash of $4,687,500, 628,362 shares of the Company's
Common Stock and the issuance to Mr. Paolino and his designee of assignable
warrants to purchase a total of 1,825,000 shares of the Company's Common
Stock.. The total consideration to be paid to the Company upon the exercise
of all such warrants is approximately $2,791,000. The warrants will not be
exercisable until the expiration of 120 days following the closing and will
have terms of 64 months. The shares issued in the merger and issuable under
the warrants will not be registered under the Securities Act of 1933, and
thus, will not be freely tradable for a period of at least one year from the
closing of the sale of the shares.

The Company's obligation to complete the transactions is conditioned on,
among other things, approval by the Company's Board of Directors and
shareholders, continued listing on the NASDAQ National Market System, a due
diligence investigation and receipt of a fairness opinion covering the merger
and the sale of shares.

The Company believes the addition of a new car wash division will produce an
exciting new profit center and at the same time serve as an additional retail
distribution location for the Company's "impulse" personal protection
products.

It is anticipated that the transactions will be approved by the Company's
shareholders by written consent. The transactions are expected to close
twenty days following the distribution of an Information Statement regarding
the transactions and related matters. (See "Business- The Company's Long Term
Goal " and "Executive Compensation-Change in Control").

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of April 2, 1999, certain information with
respect to beneficial ownership of the Common Stock of the Company (the only
outstanding security) by each director, each executive officer and all
directors and executive officers as a group and by each person known by the
Company to be the beneficial owner of more than five percent of the Company's
Common Stock. The address for all executive officers and directors is 160
Benmont Avenue, Bennington, Vermont. The information regarding shareholders
that are the beneficial owners of 5% or more of the currently outstanding
stock is based on information from the Company's transfer agent and filings
<PAGE>

made by the beneficial owners with the Securities and Exchange Commission.
The Company bears no responsibility for the accuracy of the information
contained in, or the timeliness of, such filings.

Name  and Address                   Amount and Nature of
of Beneficial Owner                 Beneficial Ownership          Percent(1)

Jon E. Goodrich(2) (3)              2,239,246                     31.1%
Marvin P. Brown(4)(6)                 380,388                     5.21
Neil J. Campolungo(5)(6)               30,000                        *
Lewis C. Cohen(5)(6)(7)                63,500                        *
Howard Edelman(6)                      67,700
R. David Garwood(5)(6)(8)              57,500                        *

All executive officers
  and directors as a group
(10 persons)                        2,891,834(6)                    39%

Ronald I. Heller(10)                  681,375                     9.46%
M. H. Meyerson & Co., Inc.
525 Washington Blvd.,
34th Floor
Jersey City, NJ 07310

David S. Nagleberg(11)                681,375                     9.46%
M.H. Meyerson & Co., Inc.
525 Washington Blvd.,
34th Floor Jersey City,
NJ 07310

*Indicates beneficial ownership of less than 1%

 (1) Calculation based on 7,203,000 outstanding shares plus shares issuable to
     the named person under options/warrantsexercisable within 60 days.
 (2) Excludes shares held by the named persons' spouses. The named directors do
     not have shared voting or dispositive power with respect to such shares. 
 (3) Includes 350,000 shares that are the subject of options granted by Mr.
     Goodrich to several individuals in private transactions. 
 (4) Includes immediately exercisable options to purchase 300,000 shares of
     Common Stock, 100,000 of which were granted by the Company in consideration
     of his agreement to join the Company, and 200,000 of which were granted by
     individuals in private transactions. 
 (5) Includes immediately exercisable options to purchase 10,000 shares of
     Common Stock granted in recognition for serving as a director. 
 (6) Includes options to purchase 10,000 shares of Common Stock exercisable in
     the event of a change in a majority of the Board as constituted on
     May 1, 1998. 
 (7) Includes 37,500 shares owned by a 501(c)(2) organization, of which Mr.
     Cohen is Trustee, from which he will derive no personal benefit. 
 (8) Includes immediately exercisable options to purchase 12,500 shares of 
     Common Stock which were granted by an individual in a private transaction.
 (9) The total number of shares deemed outstanding for the purpose of this
     calculation is 7,405,500, which includes shares issuable to any of the
     persons listed above under options exercisable within 60 days,
     exclusive of shares underlying options granted by individuals on shares
     already outstanding (to avoid duplication). 
(10) Includes 445,375 shares of Common Stock in the Ronald I. Heller Individual
     Retirement Account and 236,000 shares of Common Stock directly owned
     by his wife. 
(11) Includes 681,375 shares held by a trust for which the named person and 
     his spouse are the trustees.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
<PAGE>

Mr. Brown, who serves as Chairman of the Board, and the Company have a verbal
agreement pursuant to which Mr. Brown provides executive services to the
Company on an as needed basis and receives a salary of $500 per day and
reimbursement of business expenses.

The Company has entered into an employment agreement with Mark A. Capone
pursuant to which Mr. Capone serves as the chief financial officer of the
Company and receives an annual salary of $80,000 plus benefits paid to all
employees generally.

The employment agreement between the Company and Mr. Edelman, a Vice
President of the Company and a director since September 26, 1997, has expired
pursuant to its terms. Mr. Edelman remains an employee of the Company on an
"at-will" basis at an annual salary of $40,000. Mr. Edelman is responsible to
develop and manage the Company's franchise program.

In January 1997, the Company retained the law firm of Donovan & O'Connor,
LLP, a firm at which Mr. Goodrich's brother is a principal, to render legal
services in litigation matters and general corporate matters. The Company
paid $31,017 and $54,354 to such firm in the fiscal years ended December 31,
1998 and 1997, respectively. The Company believes that all transactions with
related individuals and entities were on terms at least as favorable to the
Company as those that would have been reached with unrelated third parties.

SUBSEQUENT EVENTS

Proposed Sale of Assets of MACB

The Company has entered into a letter of intent for the sale of substantially
all the assets of its MACB division for approximately $1,100,000. Only
certain liabilities of the division will be assumed by the purchaser. The
Company will retain the cash and accounts receivable from this division.
There are no definitive agreements executed and the terms of the letter of
intent are not binding with respect to this proposed transaction.
Additionally, the purchaser's obligation to acquire the MACB division is
conditional on its obtaining financing sufficient to effect this transaction.

The proposal calls for a downpayment with the remainder of the purchase price
paid pursuant to a nonnegotiable promissory note, payable annually over three 
years, with interest at a floating rate per annum equal to the prime rate 
quoted by the Wall Street Journal and payable on the first and second
anniversaries of the closing.

The Company also expects to enter into agreements to receive a 1% royalty on
products sold using the brand names Mace Cash(TM), Mace Anti Crime(TM) and
Mace Anti Crime Bureau(R) and contingent consideration in the form of a 5%
royalty on certain sales made by the purchaser within three years following
the closing date.

Proposed Change in Control, Private Placement and Merger with American Wash
Services, Inc.

The Company has entered into an agreement with Louis D. Paolino, Jr. to
become its Chairman and Chief Executive Officer. He will bring with him an
entirely new management team. Mr. Paolino, a graduate of Drexel University
with a B.S. in Civil Engineering, was formerly the Chairman, President and
CEO of Eastern Environmental Services, Inc., a solid waste management
services company from June 1996 through December 1999. When Mr. Paolino
joined Eastern in June 1996, Eastern's sales for that fiscal year totaled
$7.6 million with a market value of less than $10 million and with a stock
price of $1.50. Eastern was recently acquired by Waste Management, Inc.
wherein Eastern shareholders received $32 of value per share of Eastern.
Before that time, Mr. Paolino was President of Soil Remediation of
Philadelphia, Inc., a company engaged in the business of treating
contaminated soil and which was sold to USA Waste Services, Inc., a waste
management corporation, in September 1993. From September 1993 to June 1996,
Mr. Paolino served as Vice President of USA Waste Services, Inc. From
November 1995 to January 1996, Mr. Paolino served on the Board of Directors
of Metal Management, Inc., formerly known as General Parametrics Corp., a
publicly traded company. THE SUCCESS OF EASTERN ENVIRONMENTAL HAS NO BEARING
ON, AND SHOULD NOT BE CONSIDERED AN INDICATION OF, THE POTENTIAL FUTURE
RESULTS OF OPERATIONS FOR THE COMPANY.
<PAGE>

As a condition to his agreement to serve as CEO, the Company's current Board
of Directors, other than Mr. Goodrich, will resign and be replaced by a new
Board selected by Mr. Paolino.

Also, Mr. Paolino has agreed to purchase 3,735,000 shares of the Company's
Common Stock. A portion of such shares are expected to be purchased by
members of Mr. Paolino's management team, by assignment of Mr. Paolino's
right to purchase such shares.

As a condition to Mr. Paolino's agreement to purchase the shares, the Company
has entered into employment agreements with certain members of the new
management team selected by Mr. Paolino. Pursuant to the employment
agreements, each new member of the management was granted options to purchase
shares of the Company's Common Stock. The employment agreements specify that
the new management will be entitled to only nominal compensation until the
sale of the 3,735,000 shares is consummated. In the event the sale of the
Paolino Shares does not occur, the employment agreements terminate and the
options will automatically be cancelled.

As an additional condition to Mr. Paolino's agreement to purchase the shares,
substantially simultaneously with such sale, the Company will sell in a
private placement 1,850,000 shares of the Company's Common Stock. The shares
will not be registered under the Securities Act of 1933, and thus, will not
be freely tradable for a period of at least one year from the closing of the
sale of the shares.

The sales of the above-referenced 5,585,000 shares will result in a total
capital investment by Mr. Paolino, members of Mr. Paolino's management 
team and others of approximately $8.83 million.

Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace(R) Consumer sales, which is expected to continue to operate in
Bennington, Vermont.

As a condition to the referenced stock purchases, the Company will
substantially simultaneously with the stock sales acquire by merger American
Wash Services, Inc., a company headed by Mr. Paolino. The purchase price for
American Wash will be cash of $4,687,500, 628,362 shares of the Company's
Common Stock and the issuance to Mr. Paolino and his designee of assignable
warrants to purchase a total of 1,825,000 shares of the Company's Common
Stock.. The total consideration to be paid to the Company upon the exercise
of all such warrants is approximately $2,791,000. The warrants will not be
exercisable until the expiration of 120 days following the closing and will
have terms of 64 months. The shares issued in the merger and issuable under
the warrants will not be registered under the Securities Act of 1933, and
thus, will not be freely tradable for a period of at least one year from the
closing of the sale of the shares.

The Company's obligation to complete the transactions is conditioned on,
among other things, approval by the Company's Board of Directors and
shareholders, continued listing on the NASDAQ National Market System, a due
diligence investigation and receipt of a fairness opinion covering the merger
and the sale of shares.

The Company believes the addition of a new car wash division will produce an
exciting new profit center and at the same time serve as an additional retail
distribution location for the Company's "impulse" personal protection
products.

It is anticipated that the transactions will be approved by the Company's
shareholders by written consent. The transactions are expected to close
twenty days following the distribution of an Information Statement regarding
the transactions and related matters. (See "Business- The Company's Long Term
Goal " and "Executive Compensation-Change in Control").
                                   PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Reports on Form 8-K -No reports on Form 8-K were filed during the last
    quarter of 1998.

(b) Exhibits

 3(i)  Articles of Incorporation - Vermont(1) 
 3(i)2 Articles of Incorporation - Delaware(1) 
 3(i)3 Merger Agreement(1) 
 3(i)4 Certificate of Amendment for Name Change(1) 
 3(ii) By-Laws(1) 
3(ii)2 Amendment No. 1 to By-Laws, effective 11/12/93(1) 
3(ii)3 Amendment No. 2 to By-Laws, effective 2/24/96(5) 
<PAGE>

  9.1 Shareholders Voting Agreement between 321 Investments, Inc., Rajan
      Shamdasani, Jon E. Goodrich, Robert P. Gould and Robert D. Norman dated
      March 22, 1996(5) 
 10.1 Employment Agreement between the Company and Jon E. Goodrich dated as of
      September 1, 1993(1) 10.2 Consulting Agreement between the
      Company and Robert P. Gould dated as of September 1, 1993(1) 
 10.3 1993 Non-Qualified Stock Option Plan(1) 
 10.4 Form of Underwriter Warrants(1) 
 10.5 Form of Selected Dealers Agreement(1) 
 10.6 Sales Agreement dated May 1, 1992 between the Company and Mosler Inc.(1) 
 10.7 Purchase and Sales Agreement dated July 19, 1991 between the Company and
      Home Protection Concepts, Inc.(1)
 10.8 Purchase and Sales Agreement dated April 1, 1993 between the Company and
      Personal Protection Consultants, Inc.(1) 
 10.9 Purchase Agreement between the Company and Defense Technology Corp. of 
      America dated October 24, 1992(1)
10.10 Amendment to Purchase Agreement of October 24, 1992 between Defense
      Technology Corporation of America and the Company dated as of August 15,
      1993(1) 
10.11 Purchase and Sales Agreement between the Company and Personal Security,
      Inc., dated as of July 1, 1993(1)
10.12 Purchase and Sale Agreement between the Company and Messrs. Diamond and 
      Helmrich, dated August 16, 1993(1) 
10.13 Lease Agreement between the Company and G&G Realty, Inc. 
10.14 Form of Lock-up Agreement(1) 
10.15 Term Loan with Vermont National Bank(1)
10.16 Working Capital Line of Credit with Vermont National Bank for $500,000(1)
10.17 Loan with Vermont National Bank for $400,000(1)
10.18 Guarantees of Messrs. Gould and Goodrich under the loans with Vermont
      National Bank(1) 
10.19 Waiver/amendment of capital expenditure limitation contained in the term
      loan agreement with Vermont National Bank(1) 
10.20 Amended and Restated Employment Agreement between the Company and Jon E.
      Goodrich(1) 
10.21 Aircraft Lease dated as of June 1, 1993 between the Company and G&G 
      Realty, Inc.(1) 
10.22 Trademarks(1) 
10.23 Amendment No. 1 to Amended and Restated Employment Agreement(1) 
10.24 Asset Purchase Agreement between the Company and TransTechnology 
      Corporation dated March 1, 1994(2) 
10.25 Agreement for Sale between KinderGard Corporation and Mace Security
      International, Inc.(3) 
10.26 Consulting Agreement between Sheldon Hibbard and Mace Security 
      International, Inc.(3) 
10.27 Consulting agreement between P.D.M. Corporation and Mace Security 
      International, Inc.(3) 
10.28 Warrants in connection with the acquisition of the assets of the
      KinderGard Corporation(3) 
10.29 Purchase and Sale Agreement between Robert Mainhardt and Mace Security 
      International, Inc.(3) 
10.30 Consulting and Sales Representative Agreement between Robert Mainhardt
      and Mace Security International, Inc.(3) 
10.31 License Agreement between Robert Mainhardt and Mace Security 
      International, Inc.(3) 
10.32 Assignment and Assumption Agreement between G&G Realty, Inc. and Mace 
      Security International, Inc.(3)
10.33 Lease Agreement and Option to Purchase between G&G Realty, Inc. and
      James Comi and Rhoda Comi(3) 
10.34 Real Estate Purchase Agreement between Vermont Economic Development
      Authority and Mace Security International, Inc.(3) 
10.35 Consulting Agreement effective April 1, 1994 between Robert R. Rosberg
      and Mace Security International, Inc.(4) 
10.36 Supplemental Agreement effective January 1, 1995 between Robert R.
      Rosberg and Mace Security International, Inc.(4) 
10.37 Aircraft Lease effective June 1, 1994 between G&G Realty, Inc. and Mace
      Security International, Inc.(4) 
10.38 Aircraft Lease Termination Agreement effective March 31, 1995 between 
      G&G Realty, Inc. and Mace Security International, Inc.(4) 

<PAGE>

10.39 Line of Credit Note for $1,500,000 with Vermont National Bank(5) 
10.40 Term Note for $1,500,000 with Vermont National Bank(5) 
10.41 Security Agreement with Vermont National Bank(5) 
10.42 Advisory Employment Agreement between Mace Security International, Inc. 
      and Jon E. Goodrich, dated as of January 17, 1996(6)
10.43 Employment Agreement between Mace Security International, Inc. and
      Robert D. Norman, dated as of January 16, 1996(6) 
10.44 Letter of Intent between Mace Security International, Inc. and Gould &
      Goodrich Leather, Inc., dated March 22, 1996(6) 
10.45 Letter of Intent between Mace Security International, Inc. and 321 
      Investments, Inc., dated March 22, 1996(6) 
10.46 Letter of Intent between Mace Security International, Inc. and Rajan
      Shamdasani, dated March 22, 1996(6) 
10.47 Employment Agreement between the Company and Richard A. Galt dated as of 
      August 22, 1996(7). 
10.48 Amendment 1 to Employment Agreement between the Company and Richard A.
      Galt dated as of August 22, 1996(7). 
10.49 Employment Agreement between the Company and Richard A. Galt dated as of
      January 22, 1997.(8) 
10.50 Amendment 1 to Employment Agreement between the Company and Richard A. 
      Galt dated as of January 22, 1997.(8) 
10.51 Employment Agreement between the Company and Jon E. Goodrich dated as of
      March 14, 1997.(8) 
10.52 Loan Agreement between the Company and KeyBank National Association 
      dated March 31, 1997.(8)
10.53 Waiver and Modification of Loan Agreement between the Company and KeyBank
      National Association dated April 11, 1997.(8) 
10.54 Line of Credit Agreement between the Company and Marvin Brown dated
      April 14, 1997.(8) 
10.55 Line of Credit Agreement between the Company and Jon E. Goodrich dated 
      April 14, 1997.(8) 
10.56 Waiver and Second Modification of Loan Agreement between the Company
      and Key Bank National Association dated June 30, 1997(9) 
10.57 Stock Purchase Agreement between the Company and Howard S. Edelman dated
      July 1, 1997(9) 
10.58 First National Bank of New England Loan closing documents dated September
      25, 1997 - the $800,000 note.(10) 
10.59 First National Bank of New England Loan closing documents dated September
      25, 1997 - the $1,000,000 note.(10) 
10.60 First National Bank of New England Loan closing documents dated September
      25, 1997 - the $250,000 line of credit.(10) 
10.61 Asset Purchase Agreement between the Company and MSP Retail, Inc. dated 
      September 10, 1997.(10) 
10.62 First National Bank of New England loan closing documents dated February
      5, 1998 relating to the $800,000 loan guaranteed by the U.S. Department
      of Agriculture.(11) 
10.63 Purchase Agreement between the Company and Armor Holdings, Inc. and its
      subsidiary dated April 2, 1998.(11) 
10.64 Fairness Opinion relating to the sale of substantially all the assets of
      the Law Enforcement division to Armor Holdings, Inc.(11) 
10.65 Term Note with MSP, Inc. as payee to the Company dated as of July 1, 1998
      (12)
10.66 Employment Agreement between the Company and Jon E. Goodrich effective as
      of September 1, 1998 (12)
10.67 Employment Agreement between the Company and Mark A. Capone effective as
      of September 17, 1998 (12)
10.68 Settlement Agreement between the Company and MSP Retail, Inc. dated 
      December 2, 1998 (12)
10.69 Merger Agreement between Louis D. Paolino, Red Mountain Holding, Ltd. and
      Mace Security International, Inc. dated as of March 26, 1999 (12)
10.70 Stock purchase Agreement, between Louis Paolino, Jr. and Mace Security 
      International, Inc. dated as of March 26, 1999 (12)
10.71 Employment Contract between Mace Security International, Inc. and 
      Robert M. Kramer dated March 26, 1999 (12)
10.72 Employment Contract between Mace Security International, Inc. and 
      Gregory M. Krzemien dated March 26, 1999 (12)
10.73 Amendment No. 1 to Merger Agreement between Louis D. Paolino, Red
      Mountain Holding, Ltd. and Mace Security International, Inc. dated April
      13, 1999 (12)
10.74 Amendment No. 1 to Stock purchase Agreement, between Louis Paolino, Jr. 
      and Mace Security International, Inc. dated April 13, 1999 
      (12)

 (1) Incorporated by reference to the exhibit of the same number filed with
     the Company's registration statement on Form SB-2 (33-69270) that was
     declared effective on November 12, 1993.
 (2) Incorporated by reference to the Company's report on Form 8-K filed March
     14, 1994.
<PAGE>

 (3) Incorporated by reference to the Company's Form 10-QSB report for the
     quarter ended 9/30/94 filed on November 14, 1994. It should be noted
     that Exhibits 10.25 through 10.34 were previously numbered 10.1 through
     10.10 in that report.
 (4) Incorporated by reference to the Company's Form 10-KSB for the year ended
     12/31/94. 
 (5) Incorporated by reference to the Company's Form 10-KSB for the year ended
     December 31, 1995. 
 (6) Incorporated by reference to the Company's Form 10-QSB for the quarter 
     ended March 31, 1996. 
 (7) Incorporated by reference to the Company's Form 10-QSB for the quarter 
     ended September 30, 1996. 
 (8) Incorporated by reference to the Company's Form 10-KSB for the year ended
     December 31, 1996. 
 (9) Incorporated by reference to the Company's Form 10-QSB for the quarter 
     ended June 30, 1997. 
(10) Incorporated by reference to the Company's Form 10-QSB for the quarter
     ended September 30, 1997. 
(11) Incorporated by reference to the Company's Form 10-KSB for the year ended
     December 31, 1997 
(12) Filed herewith.
<PAGE>

                                  SIGNATURES

 In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereto
duly authorized.

                      MACE SECURITY INTERNATIONAL, INC.
                      By: /s/ Jon E. Goodrich
                          -------------------            Date: April  , 1998
                          Jon E. Goodrich, President
                                  and CEO

In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on
the date indicated.

Signature                              Title                     Date

/s/ Jon E. Goodrich                    President, CEO            April , 1998
-------------------                    and Director
Jon E. Goodrich

/s/ Marvin P. Brown                    Chairman of the           April , 1998
-------------------                    Board
Marvin P. Brown

/s/ Howard S. Edelman                  Director                  April , 1998
---------------------
Howard S. Edelman

/s/ Neil J. Campolungo                 Director                  April , 1998
----------------------
Neil J. Campolungo

/s/ Lewis C. Cohen                     Director                  April , 1998
------------------
Lewis C. Cohen

/s/ R. David Garwood                   Director                  April , 1998
--------------------
R. David Garwood

/s/ Mark A. Capone
------------------                     Treasurer/Chief           April , 1998
Mark A. Capone                         Financial Officer
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
                  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                      Page
                                                                      No.

Report of Independent Accountants                                     F-2

Consolidated Balance Sheets at December 31, 1998 and 1997             F-3

Consolidated Statements of Operations
  for the Years Ended December 31, 1998 and 1997                      F-4

Consolidated Statements of Stockholders' Equity
  for the Years Ended December 31, 1998 and 1997                      F-5

Consolidated Statements of Cash Flows for the Years
  Ended December 31, 1998 and 1997                                    F-6

Notes to Consolidated Financial Statements                            F-7

                                     F-1
<PAGE>

                      REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Mace Security International,
Inc.

     We have audited the accompanying consolidated balance sheets of Mace
Security International, Inc. and subsidiaries as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mace
Security International, Inc. and subsidiaries as of December 31, 1998 and
1997, and the results of their operations and their cash flows for the years
then ended in conformity with generally accepted accounting principles.

/s/URBACH KAHN & WERLIN PC

Albany, New York
April 2, 1999

                                     F-2
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
                         CONSOLIDATED BALANCE SHEETS
                          December 31, 1998 and 1997

                                              1998           1997

ASSETS
Current assets:

  Cash and cash equivalents.............      $ 3,572,422    $1,146,212
  Cash escrow...........................          610,800              -
  Accounts receivable, net..............        1,271,031      1,880,565
  Inventories:
    Finished goods......................          438,168        539,894
    Work in process.....................          126,696        175,699
    Raw material and supplies...........          937,308        622,586
  Prepaid expenses and other............          285,208        314,438

    Total current assets................        7,241,633      4,679,394
Net assets of discontinued operations...          326,835      5,103,851
Property and equipment, net.............        1,079,196      1,157,126
Intangibles, net........................          912,131      1,791,933
Other assets............................          217,474        136,362

    Total  Assets                             $ 9,777,269    $12,868,666

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Notes payable.........................      $         -    $    30,728 
  Current maturities of long-term debt..                -        113,210
  Accounts payable......................          297,553        333,735
  Accrued expenses......................          232,942        556,624

  ......................................          530,495      1,034,297
Long-term debt, net of current 
  maturities............................                -      1,660,205

    Total liabilities...................          530,495      2,694,502

Commitments and contingencies

Stockholders' equity:
    Preferred stock, par value $.01 per
    share; authorized 2,000,000 shares;
    no shares issued....................                -              -
  Common stock, par value $.01 per 
    share; authorized 18,000,000
    shares; issued 6,825,000 shares
    in 1998, issued and outstanding 
    7,081,666 in 1997...................           68,250         70,817
  Additional paid-in capital............       13,333,191     13,333,191
  Treasury stock, 256,666 shares........          (52,388)             -
  Accumulated deficit...................       (4,102,279)    (3,229,844)

    Total Stockholders' equity..........        9,246,774     10,174,164

    Total Liabilities and
      Stockholders' equity..............      $ 9,777,269    $12,868,666

                 The accompanying notes are an integral part
                         of the financial statements.

                                     F-3
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                For the Years Ended December 31, 1998 and 1997

                                              1998          1997

Net sales...............................      $2,404,221    $ 2,657,354
Cost of sales...........................       1,230,375      1,645,077

    Gross profit........................       1,173,846      1,012,277

Operating expenses:
  General and administrative............       1,191,611        843,334
  Selling...............................         527,556        647,243

    Operating loss......................        (545,321)      (478,300)

Other income (expense):
  Interest income.......................         137,486         32,130
  Interest expense......................         (94,920)      (121,877)
  Other income..........................         220,581         98,195

                                                 263,147          8,448

Loss from continuing operations
  before income tax expense.............        (282,174)      (469,852)
Income tax expense......................           4,358          7,800

Loss from continuing operations.........        (286,532)      (477,652)
Loss from discontinued operations,
  including $271,452 gain on sale
  of Law Enforcement division in 1998...        (585,903)    (1,209,291)

    Net loss............................      $ (872,435)   $(1,686,943)

Net loss per common share:
  From continuing operations ...........      $    (0.04)   $     (0.07)
  From discontinued operations..........           (0.08)         (0.17)

    Total net loss per common share.....           (0.12)         (0.24)

Weighted average number of
  common shares outstanding.............       6,987,127      6,920,023

                 The accompanying notes are an integral part
                         of the financial statements.

                                     F-4
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
               CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                For the Years Ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
                                                    Common Stock                Additional          Treasury
                                            Shares             Par Value        Paid-in Capital     Stock         Deficit   
<S>                                         <C>                <C>              <C>                 <C>           <C>
Balance at January 1, 1997                  6,825,000          $68,250          $13,080,133                -      $(1,542,901)

Shares issued for MSP Retail, Inc.
  acquisition                                 176,666            1,767              163,858                -                -

Shares issued for MSP, Inc.
  acquisition                                  80,000              800               89,200                -                -

Net loss                                            -                -                    -                -       (1,686,943)

Balance at December 31, 1997                7,081,666           70,817           13,333,191                -       (3,229,844)

Shares reacquired from MSP Retail, Inc.
  and MSP, Inc.                              (256,666)          (2,567)                   -          (52,388)               -

Net loss                                            -                -                    -                -         (872,435)

Balance at December 31, 1998                6,825,000          $68,250          $13,333,191         $(52,388)     $(4,102,279)
</TABLE>

                 The accompanying notes are an integral part
                         of the financial statements.

                                     F-5
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                For the Years Ended December 31, 1998 and 1997

                                            1998              1997 

Operating activities:
  Net loss                                  $  (872,435)      $(1,686,943)
  Adjustments to reconcile net
    loss to net cash provided by
    operating activities:
      Depreciation                              341,061           454,247
      Amortization                              175,653           268,994
      Allowance for bad debts                    21,140           (47,905)
      Gain on sale of assets                          -            (1,996)
      Gain on sale of Law Enforcement
        division                               (271,452)                -
  Changes in:
      Accounts receivable                       588,394           735,260
      Inventories                              (163,993)        1,334,307
      Prepaid expenses                           29,230          (115,087)
      Discontinued operations                 2,492,252                 -
      Accounts payable                          (36,182)         (679,042)
      Accrued expenses                         (323,682)          145,391
      Other assets                              (81,112)          (12,459)

        Net cash provided by
          operating activities                1,898,874           394,767

Investing activities:
  Purchases of property and equipment          (122,568)         (238,726)
  Proceeds attributable to noncurrent
    portion of Law Enforcement assets         3,117,235                 -

    Proceeds from sales of property
      and equipment                                   -            13,744
    Acquisition of subsidiaries                       -           (51,372)
    Increase in cash escrow account            (610,800)                -

        Net cash provided by (used in)
          investing activities                2,383,867          (276,354)

Financing activities:
  Payment of principal on long-term debt     (1,773,415)         (525,933)
  Proceeds from long-term debt                                  1,206,250
  Payment of notes payable                      (30,728)           (3,272)
  Proceeds from notes payable                         -            34,000
  Debt issue costs                                    -           (28,800)
  Treasury stock                                (52,388)                -  

        Net cash provided by (used in)
          financing activities               (1,856,531)          682,245

Net increase in cash and cash equivalents     2,426,210           800,658

Cash and cash equivalents:
  Beginning of year                           1,146,212           345,554

  End of year                               $ 3,572,422       $ 1,146,212 

                 The accompanying notes are an integral part
                         of the financial statements.

                                     F-6
<PAGE>

                      MACE SECURITY INTERNATIONAL, INC.
                       NOTES TO CONSOLIDATED STATEMENTS

1. DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of organization:

     Mace Security International, Inc. (Mace) is incorporated under the laws
of the state of Delaware. Mace and its subsidiary's revenues are generated
primarily through the manufacture, distribution and sale of defense sprays
and personal safety products for the consumer market.

     Summary of significant accounting policies:

Principles of consolidation:

     The consolidated financial statements include the accounts of Mace and
its wholly-owned subsidiary Mace Security Centers, Inc. (collectively
referred to as the Company). All intercompany accounts and transactions have
been eliminated.

Revenue recognition:

     Substantially all revenue from domestic sales is recognized when
shipments are made and export sales are recognized when title has passed.

Cash and cash equivalents:

     Cash and cash equivalents consist of cash and highly liquid short-term
investments with original maturities of three months or less.

Accounts receivable:

     Accounts receivable are presented net of an allowance for doubtful
accounts approximating $32,000 at December 31, 1998 ($54,000 at December 31,
1997).

Inventories:

     Inventories are stated at the lower of cost (first-in, first-out method)
or market.

     Cost of sales for the year ended December 31, 1998 includes
approximately $30,000 attributable to lower of cost or market write downs.

Property and equipment:

     Property and equipment are stated at cost.

     Depreciation is recorded using the straight-line method over the
estimated useful lives of the assets.

     Significant additions or improvements extending assets' useful lives are
capitalized; normal maintenance and repair costs are expensed as incurred.

     The cost of fully depreciated assets remaining in use are included in
the respective asset and accumulated depreciation accounts. When items are
sold or retired, related gains or losses are included in operations.

                                     F-7
<PAGE>

Intangibles:

     Trademarks are stated at cost and are amortized on a straight-line basis
over 15 years.

     The excess purchase price over fair values assigned to assets acquired
is amortized on a straight-line basis over 15 years.

Research expense:

     Research and development expense, which is charged to operations as
incurred, was approximately $58,000 in 1998 and $81,000 in 1997.

Income taxes:

     The Company accounts for income taxes using the asset and liability
method. Under the asset and liability method, deferred income taxes are
recognized for the tax consequences of temporary differences by applying
enacted statutory tax rates applicable for future years to differences
between financial statement and tax bases of existing assets and liabilities.
The effect of tax rate changes on deferred taxes is recognized in the income
tax provision in the period that includes the enactment date.

     The provision for taxes is reduced by investment and other tax credits
in the years such credits become available.

Advertising:

     The Company expenses the production costs of advertising the first time
the advertising takes place. Advertising expense was approximately $133,000
and $249,000 in 1998 and 1997, respectively.

Net loss per common share:

     Loss per common share amounts have been computed using the weighted
average number of common shares outstanding for the respective periods.
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128 Earnings Per Share (SFAS No. 128). This standard
requires the presentation of basic and diluted earnings, when applicable, per
share. All outstanding options and warrants are anti-dilutive at December 31,
1998 and 1997.

Use of Estimates:

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.

Disclosures about Fair Value of Financial Instruments:

     All financial instruments are held for purposes other than trading. The
following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:

Cash and Cash Equivalents

     The carrying amount approximates fair value because of the short term
maturity of those instruments.

                                     F-8
<PAGE>

Long Term Debt

     The carrying value approximates fair value for variable rate debt.

Impairment of long-lived assets

     In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Company
evaluates the recoverability of its long-lived assets which include
trademarks, other intangibles, and other assets whenever changes in
circumstances indicate that the carrying amount may not be recoverable. If
indications are that the carrying amount of the asset is not recoverable, the
Company will estimate the future cash flows expected to result from use of
the asset and its eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the asset, the Company
recognizes an impairment loss. The impairment loss recognized is measured as
the amount by which the carrying amount of the asset exceeds its fair value.

     During 1998, the Company's sale of its Law Enforcement division resulted
in an impairment loss attributable to a trademark. This loss, approximating
$550,000, is included with the gain on the sale of the Law Enforcement
division in 1998, classified as discontinued operations (Note 2).

2. DISCONTINUED OPERATIONS

     As more fully explained below, during 1998, the Company sold
substantially all the assets of its Law Enforcement division. Accordingly,
the operating results of its Law Enforcement division have been segregated
from continuing operations and reported, on a comparative basis, as a
separate line item on the statement of operations entitled "Loss from
discontinued operations" and entitled "Net assets of discontinued operations"
on the Balance Sheets.

     On April 2, 1998, the Company entered into an agreement (the "Purchase
Agreement") with Armor Holdings, Inc. and its wholly-owned subsidiary ("AHI")
for the sale of substantially all of the assets of the Company's Law
Enforcement division to AHI (the "Transaction"). The terms of the Purchase
Agreement required that, in conjunction with the sale of assets, the Company
license to AHI the use of Mace(R) and related trademarks and a patent for use
by AHI in the Law Enforcement Market only. The Transaction closed on July 14,
1998.

     Pursuant to the terms of the Purchase Agreement, the Company sold to AHI
all of the fixed assets, intangibles and inventory of the Law Enforcement
division. AHI received a 99-year paid-up license to exploit the Mace(R) brand
and other related trademarks in the Law Enforcement Market only, which is
made up of law enforcement, military, correctional and certain governmental
agencies. The assets of the Law Enforcement division constituted
approximately 40% of the Company's assets at December 31, 1997.

     The purchase price for the fixed assets and intangibles, including the
license fee for the 99-year paid-up license was $3,117,235, representing the
book value as of December 31, 1997. The purchase price for inventory was
$1,868,416, representing the book value at July 14, 1998. The Company
retained its cash and accounts receivable from the Law Enforcement division.

     In September 1998, the Company disposed of two-wholly owned
subsidiaries, MSP, Inc. (a Colorado distributor) and MSP Retail, Inc.
(Colorado retail stores). The contracts between the Company and the former
owners of the distributorship and retail stores allowed the Company to put
back the shares of MSP, Inc. and MSP Retail, Inc. to the former owners if
certain pre-tax earnings targets were not achieved within one year following
the Company's acquisition. In both cases, the aforementioned subsidiaries
failed to achieve their pre-tax earnings targets.

                                     F-9
<PAGE>

     The Company put back the shares of MSP, Inc. to the former owner in
exchange for 80,000 shares of the Company that were tendered as consideration
in the acquisition of MSP, Inc.

     In a modified version of the put, the Company transferred the net assets
of MSP Retail, Inc. to a corporation owned by the former owner in exchange
for 176,666 shares of the Company that were tendered as consideration in the
acquisition of MSP Retail, Inc.

     Further, both contracts called for repayment of working capital loaned
by the Company to MSP, Inc. and MSP Retail, Inc. The repayment amount as
defined by the contracts is the money loaned by the Company reduced by
operating losses incurred by the respective subsidiaries during the
twelve-month period each was owned by the Company. The reduction of amounts
owed was necessary to fulfill another contract provision which required the
Company to be responsible for losses incurred by the subsidiaries during
Company ownership. As a result of the disposition of these subsidiaries, the
Company incurred a loss of $67,013 with respect to MSP, Inc. and $47,317 with
respect to MSP Retail, Inc.

3. SUPPLEMENTARY CASH FLOW INFORMATION

     In September 1997, the Company obtained long-term debt from the First
National Bank of New England (See Note 8). As part of this refinancing, the
Key Bank long-term debt of $593,750 was paid. This non-cash transaction has
been excluded from proceeds from long-term debt, as well as payment of
principal on long-term debt.

     On January 20, 1999, pursuant to the purchase agreement between the
Company and the purchaser of the Law Enforcement division, the Company
collected $480,000 or 80% of the $600,000 of purchase price that was retained
by the purchaser in escrow to secure among other things, the Company's
obligation under the representations and warranties in the purchase
agreement. The remainder will be released on or about July 14, 1999 so long
as no claim is brought against the Company for which the purchaser is
entitled to set off against escrowed funds.

                                     F-10
<PAGE>

4. PROPERTY AND EQUIPMENT

     The components of property and equipment are summarized below:

                                       1998              1997   

Office furniture  .................    $   132,621       $  128,959
Computer equipment.................        475,194          428,769
Vehicles                ...........         46,501           46,501
Leasehold improvements.............        734,421          674,513
Machinery and equipment............        813,589          784,344

  Total property and equipment.....      2,202,326        2,063,086
Less: Accumulated depreciation.....     (1,123,130)        (905,960)

  Property and equipment, net......    $ 1,079,196       $1,157,126

     Depreciation expense was $341,061 in 1998 and $454,247 in 1997.
Expenditures for maintenance and repairs are charged to income as incurred
and amounted to $82,428 in 1998 and $113,429 in 1997.

5. INTANGIBLES

The components of intangibles are summarized below:

                                       1998              1997   

Trademarks.........................    $ 1,712,853       $2,483,846
Trademark protection costs.........        154,088          154,088
Excess purchase price over fair 
  value assigned to assets
    acquired.......................              -                -       

   Total intangibles ..............      1,866,941        2,637,934
Less: Accumulated amortization.....        954,810          846,001

     Intangibles, net..............    $   912,131       $1,791,933

Amortization expense was $175,653 in 1998 and $268,994 in 1997.

6. NOTES PAYABLE

     Notes payable at December 31, 1997 consisted of an obligation to a
financing company, payable in monthly installments with interest at 10.2%.
This note was fully paid in 1998.

     In September 1997, the Company obtained a $250,000 working capital line
of credit from First National Bank of New England bearing interest at prime
plus 1% (9.5% at December 31, 1997) due May 31, 1998. No amounts were ever
drawn on this line of credit which expired on May 31, 1998.

                                     F-11
<PAGE>

7. ACCRUED EXPENSES

     The components of accrued expenses are summarized below:

                                          1998            1997

Commissions                               $    664        $ 130,833
Customer prepayments...............         56,473          107,643
Payroll and related expenses.......         46,172          109,552
Compensated absences...............              -            8,524
Professional fees..................         33,349           65,000
Advertising........................         22,248           64,571
Other..............................         74,036           70,501

                                          $232,942        $ 556,624

8. LONG-TERM DEBT

     Long-term debt at December 31 consists of the following:

                                                     1998         1997

Notes payable--First National Bank of New 
England, bearing interest at prime plus 1.50% 
(10.0% at December 31, 1997) payable in monthly
installments of $23,791, including interest, 
due October 1, 2007, collateralized by
all assets of the Company ........................   -            $1,773,415
  Less: Current maturities                           -               113,210

  Total long-term debt                               -            $1,660,205

     Interest paid was $94,920 in 1998 and $129,770 in 1997.

     In September 1997, the Company refinanced its long-term debt with the
First National Bank of New England (`FNB"). Two term loans totaling
$1,800,000 bearing interest at prime plus 1.50% (10.0% at December 31, 1997)
payable in monthly installments of $23,791, including interest, due October
1, 2007, were obtained. Of the proceeds, $593,750 was used to pay off the
existing long-term debt. Additionally, a $250,000 line of credit bearing
interest at prime plus 1% (9.5% at December 31, 1997) due May 31, 1998 was
obtained. No amounts have been drawn on this line of credit. The Company paid
off the loan to FNB simultaneously with the closing of the sale of its Law
Enforcement division on July 14, 1998 (Note 2).

9. INCOME TAXES

     The components of income tax expense are:

                                                     1998         1997 

Current (principally state taxes)                    $4,358       $7,800
Deferred                                                  -            -

Total income tax expense                             $4,358       $7,800

                                     F-12
<PAGE>

     The significant components of deferred income tax expense attributed to
loss from continuing operations for the years ended December 31, 1998 and
1997 are as follows:

                                                     1998         1997   

Current deferred tax expense                         $  58,008    $  37,336
Loss carry forward                                    (203,600)    (615,707)
Valuation allowance for deferred tax assets            145,592      578,371

                                                     $       -    $       -

     A comparison of the federal statutory rate to the Company's effective
rate is as follows:

                                                     1998         1997 

U.S. statutory rate                                  (34%)        (34%)
State taxes, net of federal benefit                    1%           1%
Valuation allowance for deferred tax assets           34%          34%

Effective tax rate                                     1%           1%

     The significant components of deferred tax assets and liabilities are as
follows:

                                                     1998          1997 

Current assets (liabilities):
Allowance for doubtful accounts                      $    12,878   $   21,587
Inventories                                               45,147       65,869
Accrued expenses                                         (32,548)       9,128
Other                                                      1,357       12,163

  Current deferred assets                                 26,834      108,747
Valuation allowance                                      (26,834)    (108,747)

  Net current deferred tax assets                    $         -   $        -

Noncurrent assets (liabilities):
Intangibles                                                    -       (4,758)
Plant, equipment and depreciation                       (215,225)    (234,372)
Net operating loss carry forwards                      1,355,600    1,152,000
 
  Net noncurrent deferred assets                       1,140,375      912,870
Valuation allowance                                   (1,140,375)    (912,870)

  Net noncurrent deferred tax assets                 $         -   $        -

     A valuation allowance is provided to reduce the deferred tax assets to a
level which, more likely than not, will be realized. The deferred tax assets
recorded reflects management's estimate of the amount which will be realized
based upon current operating results and contingencies.

     At December 31, 1998, the Company has net operating loss carry forwards
for federal income tax purposes of approximately $3,389,000. The federal net
operating loss carry forwards, if unused, will begin to expire during the
year ended December 31, 2009.

                                     F-13
<PAGE>

10. RELATED PARTY TRANSACTIONS

     The Company paid legal and management/consulting fees to officers and
directors approximating $31,000 and $57,350 in 1998 and 1997, respectively.

11. COMMITMENTS AND CONTINGENCIES

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

     Operating lease expense for equipment, vehicles and real estate amounted
to $181,716 and $170,231 for 1998 and 1997, respectively. Certain of these
leases contain purchase options, renewal provisions, and contingent rentals
for proportionate share of taxes, utilities, insurance and annual cost of
living increases. Future minimum rental payments required under operating
leases that have initial or remaining noncancelable lease terms in excess of
one year as of December 31, 1998 are:

                  1999                    104,205
                  2000                     28,857

                                         $133,062

     The Company has entered into month to month and long-term sublease
agreements with tenants of their operating facility in Bennington, Vermont,
including a related party. Total sublease rental income was $110,406 and
$93,231 in 1998 and 1997, respectively.

     Future minimum rental receipts required under operating subleases that
have initial or remaining noncancelable lease terms in excess of one year as
of December 31, 1998 are:

                  1999                     76,848
                  2000                     44,828

                                         $121,676

     During 1994, the Company paid $75,000 to a related entity to acquire all
of the rights and obligations under a lease agreement, including an option to
purchase the South Wing of its principal operating facility. Amortization of
this deferred cost was $13,440 in 1998 and 1997. The term of the lease
expires on January 31, 2000, and requires monthly payments of $6,161, plus
the Company's proportionate share of taxes, insurance, utilities and an
annual cost of living increase. The option may be exercised for $600,000 at
the end of the lease term.

     The Company is a party to a real estate purchase agreement with the
Vermont Economic Development Authority (VEDA) for the purchase of the Center
and North Wings of its headquarters, after the satisfaction or waiver of
certain contingencies by VEDA. The purchase price is $1,000,000, payable by
delivery of $150,000 in cash and a promissory note to VEDA for $850,000 at 4%
interest per annum, based on a 20 year amortization schedule with a balloon
payment of $100,000 due at the end of ten years. The Company previously
deposited $75,000 of the total cash portion into an escrow account as
required by the agreement. The Company has elected not to purchase the
building at this time and is leasing the premises for $4,000 per month,
together with taxes, insurance and utilities.

                                     F-14
<PAGE>

12. STOCK OPTIONS AND WARRANTS

     During September 1993, the Company adopted the 1993 Stock Option Plan
(the Plan). The Plan provides for the issuance of up to 630,000 shares of
common stock upon exercise of the options. The Company has reserved 630,000
shares of common stock to satisfy the requirements of the Plan. The options
are non-qualified stock options and are not transferable by the recipient.
The Plan is administered by the Compensation Committee of the Board of
Directors, which may grant options to employees, directors and consultants to
the Company. The term of each option may not exceed fifteen years from the
date of grant. Options are exercisable over either a 10 or 15 year period and
exercise prices are not less than the market value of the shares on the date
of grant.

     The Company applies Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for the stock option
plans. Accordingly, no employee compensation cost has been recognized in 1998
and 1997. Had compensation cost and fair value been determined pursuant to
Statement of Financial Accounting Standards No. 123 (SFAS No. 123),
Accounting for Stock-Based Compensation, net loss would increase from
$872,435 to $996,694 in 1998 and from $1,686,943 to $1,886,293 in 1997. Net
loss per share would increase from $.12 to $.14 in 1998 and from $.24 to $.27
in 1997. The weighted average fair value of options granted during 1998 and
1997, for the purpose of SFAS No. 123, is $1.33 and $1.23 per share,
respectively.

     In accordance with SFAS No. 123, the fair value of each option granted
is estimated on the grant date using the Black-Scholes Single Option model,
assuming no dividend yield and an expected volatility of 89.5% and 92.2% in
1998 and 1997, respectively. The weighted-average remaining contractual life
of outstanding options under the plan at December 31, 1998 is 13 years. The
risk-free interest rate ranges from 5.53% to 5.88% in 1998 and from 6.06% to
6.86% in 1997.

     Activity with respect to these plans is as follows:

                                           1998                   1997 

                                                Weighted              Weighted
                                                Average               Average
                                                Exercise              Exercise
                                    Number      Price       Number    Price

Shares under option, January 1      437,800     $1.48       276,400   $1.54
Options granted                      98,500      1.10       162,500    1.40
Options repurchased                  (4,800)     5.50             -       -
Options canceled                    (30,500)     1.38        (1,100)   5.50

Shares under option, December 31    501,000      1.37       437,800    1.48

Options exercisable, December 31    501,000     $1.37       437,800   $1.48

Shares available for granting 
  of options, December 31           129,000                 192,200

                                     F-15
<PAGE>

The following is a summary of the status of options outstanding at December
31, 1998:

           Outstanding Options                    Exercisable Options

                       Weighted
                       Average         Weighted                Weighted
Exercise               Remaining       Average                 Average
Price                  Contractual     Exercise                Exercise
Range      Number      Life            Price       Number      Price    

$1.63        6,000     14.33           $1.63         6,000     $1.63
 1.50      337,500     12.41            1.50       337,500      1.50
 1.25       52,500     13.58            1.25        52,500      1.25
 1.21       65,000     14.60            1.21        65,000      1.21
 1.19       40,000     12.64            1.19        40,000      1.19

     In connection with the initial public offering of the Company's
securities in November 1993, the Company issued a total of 75,000 common
stock purchase warrants to the underwriters of the securities. These warrants
expired in November 1998.

     In August 1994, the Company issued warrants to purchase 60,000 shares of
Mace Security International, Inc. common stock at $4.25 per share in
connection with the purchase of certain assets of a business. The warrants
are exercisable over a ten year period, expiring on August 24, 2004. On July
14, 1998, in connection with the sale of the Law Enforcement division ( Note
2), the Company issued to the purchaser 300,000 warrants to purchase Common
Stock of the Company at $1.25 per share. These warrants were fully exercised
in March 1999.

     During the exercise periods, the Company will reserve a sufficient
number of shares of its common stock to provide for the exercise of the
rights represented by option and warrant holders.

13. CONCENTRATION OF CREDIT RISK

     The Company maintains its cash accounts in high quality financial
institutions. At times, these balances may exceed insured amounts.

     The Company limits the concentration of credit risk in receivables from
retailers by closely monitoring credit and collection policies. Risk of
losses from international sales are minimized by requiring the majority of
customers to provide irrevocable confirmed letters of credit and/or cash
advances. Management believes that the allowance for doubtful accounts is
adequate to absorb estimated losses.

14. EMPLOYEE BENEFIT PLAN

     The Company maintains a voluntary 401(k) plan covering substantially all
of its employees. Employees may contribute from 1% to 20% of their regular
wages, up to the limit permitted by the Department of Labor. The Company
matches 25% of each dollar contributed by employees up to 4% of their wages.
The cost of the plan amounted to $20,521 and $28,354 in 1998 and 1997,
respectively.

15. ACQUISITIONS AND SUBSIDIARIES

     In July 1997, the Company acquired all of the issued and outstanding
common stock of MSP, Inc. (MSP), an Aurora, Colorado marketer of a
diversified line of consumer safety and security products. This transaction
was recorded as a purchase, and the operations of MSP have been included with
the Company's from the acquisition date. In the event MSP achieves certain
financial goals, an additional 15,000 shares of the Company's common stock is
issuable. The purchase cost of $90,000 was represented by 80,000 shares of
the Company's stock valued at $1.125 per share.

                                     F-16
<PAGE>

     In September 1997, the Company acquired all of the issued and
outstanding common stock of MSP Retail, Inc. (MSPR), an operator of two
retail stores in the Denver, Colorado area, specializing in the sale of
security products for personal and home protection. This transaction was
recorded as a purchase, and the operations of MSPR have been included with
the Company's from the acquisition date. The purchase price of $212,000 was
represented by 176,666 shares of the Company's common stock valued at $.9375
per share and cash of $46,300.

     The operations of MSP, Inc. and MSP, Retail, Inc. were discontinued in
1998 (Note 2).

     In September 1997, the Company established Mace Security Centers, Inc.,
a subsidiary corporation formed for the purpose of offering franchises for
the operation of retail stores which will sell personal protection and
security products. The subsidiary became active during 1998 selling its first
two franchises.

16. SEGMENT INFORMATION

     Since the sale of its Law Enforcement division, the Company principally
engages in the manufacture, distribution and sale of Mace(R) brand defense
sprays and personal safety products to the civilian consumer market,
"Consumer". Mace Anti Crime Bureau's operations are not significant enough to
report as a separate business segment and are included in with Consumer.
Although the Company sell its products on a worldwide basis, more than 95% of
its sales in 1998 from continuing operations were within the United States.

17. SUBSEQUENT EVENTS

Proposed Sale of Mace Anti Crime Bureau

     The Company has entered into a letter of intent for the sale of
substantially all the assets of its MACB division for approximately
$1,100,000. Only certain liabilities of the division will be assumed by the
purchaser. The Company will retain the cash and accounts receivable from this
division. There are no definitive agreements executed and the terms of the
letter of intent are not binding with respect to this proposed transaction.
Additionally, the purchaser's obligation to acquire the MACB division is
conditioned on its obtaining financing sufficient to effect this transaction.

     The proposal calls for a downpayment with the remainder of the purchase
price paid pursuant to a nonnegotiable promissory note, payable annually over
three years, with interest at a floating rate per annum equal to the prime
rate quoted by the Wall Street Journal and is payable on the first and second
anniversaries of the closing.

     The Company also expects to enter into agreements to receive a 1%
royalty on products sold using the brand names Mace Cash(TM), Mace Anti
Crime(TM) and Mace Anti Crime Bureau(R) and contingent consideration in the
form of a 5% royalty on certain sales made by the purchaser within three
years following the closing date.

Proposed Change of Control, Private Placement and Merger with American Wash
Services, Inc.

     The Company has entered into an agreement with Louis D. Paolino, Jr. to
become its Chairman and Chief Executive Officer.

     As a condition to his agreement to serve as CEO, the Company's current
Board of Directors, other than Mr. Goodrich, will resign and be replaced by a
new Board selected by Mr. Paolino.

     Also, Mr. Paolino has agreed to purchase 3,735,000 shares of the
Company's Common Stock. A portion of such shares are expected to be purchased
by members of Mr. Paolino's management team, by assignment of Mr. Paolino's
right to purchase such shares.

                                    F-17
<PAGE>

     As a condition to Mr. Paolino's agreement to purchase the shares, the
Company has entered into employment agreements with certain members of the
new management team selected by Mr. Paolino. Pursuant to the employment
agreements, each new member of the management was granted options to purchase
shares of the Company's Common Stock. The employment agreements specify that
the new management will be entitled to only nominal compensation until the
sale of the 3,735,000 shares is consummated. In the event the sale of the
Paolino Shares does not occur, the employment agreements terminate and the
options will automatically be cancelled.

     As an additional condition to Mr. Paolino's agreement to purchase the
shares, substantially simultaneously with such sale, the Company will sell in
a private placement 1,850,000 shares of the Company's Common Stock. The
shares will not be registered under the Securities Act of 1933, and thus,
will not be freely tradable for a period of at least one year from the
closing of the sale of the shares.

     The sales of the above-referenced 5,585,000 shares will result in a
total capital investment by Mr. Paolino, members of Mr. Paolino's management
team and others of approximately $8.83 million.

     Following the stock sales, Mr. Paolino will become the Company's largest
shareholder and Jon E. Goodrich will become Vice President of the existing
business, Mace(R) Consumer sales, which is expected to continue to operate in
Bennington, Vermont.

     As a condition to the referenced stock purchases, MSI will substantially
simultaneously with the stock sales acquire by merger American Wash Services,
Inc., a company headed by Mr. Paolino. The purchase price for American Wash
will be cash of $4,687,500, 628,362 shares of the Company's Common Stock and
the issuance to Mr. Paolino and his designee of assignable warrants to
purchase a total of 1,825,000 shares of the Company's Common Stock. The
total consideration to be paid to the Company upon the exercise of all such
warrants is approximately $2,791,000. The warrants will not be exercisable
until the expiration of 120 days following the closing and will have terms of
64 months. The shares issued in the merger and issuable under the warrants
will not be registered under the Securities Act of 1933, and thus, will not
be freely tradable for a period of at least one year from the closing of the
sale of the shares.

     MSI's obligation to complete the transactions is conditioned on, among
other things, approval by MSI's Board of Directors and shareholders,
continued listing on the NASDAQ National Market System, a due diligence
investigation and receipt of a fairness opinion covering the merger and the
sale of shares.

     It is anticipated that the transactions will be approved by the
Company's shareholders by written consent. The transactions are expected to
close twenty days following the distribution of an Information Statement
regarding the transactions and related matters.

                                    F-18