**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**FORM
      10-K**





**ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF**


**THE
      SECURITIES EXCHANGE ACT OF 1934**





**For
      the fiscal year ended December 31, 2006**   Commission
      File No. **0-22810**





**MACE
      SECURITY INTERNATIONAL, INC.**


**(Exact
      name of registrant as specified in its charter)**




**Delaware**
              **(State
                or Other Jurisdiction of**
              **Incorporation
                or Organization)**
            
            **03-0311630**
              **(I.R.S.
                Employer**
              **Identification
                No.)**





**1000
      Crawford Place, Suite 400, Mt. Laurel, NJ 08054**


**(Address
      of Principal Executive Offices)    (Zip
      Code)**





**Registrant's
      Telephone Number, Including Area Code: (856) 778-2300**





**Securities
      Registered Pursuant to Section 12(b) of the Act: None**





**Securities
      Registered Pursuant to Section 12(g) of the Act:**





**Common
      Stock, par value $0.01 per share**





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.


Yes
oNo x





Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act. Yes o No x





Indicate
      by check mark 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 (“the
      Exchange Act”) 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 o No x





Indicate
      by check mark if disclosure of delinquent filers in response to Item 405 of
      Regulation S-K is not contained in this form, and will not be contained, to
      the
      best of the registrant's knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-K or any
      amendment to this Form 10-K. x





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one)




Large accelerated filer o
              Accelerated
                  filer o
              Non-accelerated
                  filerx




Indicate
      by check mark whether the registrant is a shell company, as defined in Rule
      12b-2 of the Act. Yes o No x




The
      aggregate market value of the voting stock held by non-affiliates of the
      Registrant on June 30, 2006 was approximately $32,303,000. Such aggregate market
      value was computed by reference to the closing price of the common stock as
      reported on the Nasdaq Global Market on June 30, 2006. For purposes of
      determining this amount only, Registrant has defined affiliates as including
      (a)
      the executive officers and directors of Registrant on June 30, 2006, and (b)
      each stockholder that had informed Registrant that it was the beneficial owner
      of 10% or more of the outstanding common stock of Registrant on June 30,
      2006.





The
      number of shares of Common Stock, par value $.01 per share, of the Registrant
      outstanding as of June 25, 2007 was 15,275,382.














**Mace
      Security International, Inc. and Subsidiaries**


**Form
      10-K**


**Year
      Ended December 31, 2006**




**Contents**


**Page****PART
                  I**Item
                  1.
              Business
              3Item
                  1A.
              Risk
                  Factors
              9Item
                  2.
              Properties
              16Item
                  3.
              Legal
                  Proceedings
              17Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              18**PART
                  II**Item
                  5.
              Marketfor
                  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
                  of Equity Securities
              18Item
                  6.
              Selected
                  Financial data
              22Item
                  7.
              Management’s
                  Discussion and Analysis of Financial Condition and Results of
                  Operations
              23Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              35Item
                  8.
              Financial
                  Statements and Supplementary data
              36Item
                  9.
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              36Item
                  9A.
              Controls
                  and Procedures
              36Item
                  9B.
              Other
                  Information
              37**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the Registrant and Corporate
                  Governance
              37Item
                  11.
              Executive
                  Compensation
              39Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and Related
                  Stockholder Matters
              53Item
                  13.
              Certain
                  Relationships and Related Transactions
              55Item
                  14.
              Principal
                  Accountant Fees and Service
              56**PART
                  IV**Item
                  15.
              Exhibits
                  and Financial Statement Schedules
              56





2




**PART
      I**




**ITEM
      1.**  **BUSINESS**





**GENERAL**





Mace
      Security International, Inc. (“the Company” or “Mace”) was incorporated in
      Delaware on September 1, 1993. On December 17, 2002, we effected a one-for-two
      reverse stock split. All stock prices, share amounts, per share information,
      stock options and stock warrants reflect the reverse split, unless otherwise
      noted. Our operations are currently conducted through two segments: Security
      and
      Car and Truck Washes.





Our
      Security Segment designs, manufactures, assembles, markets and sells a wide
      range of security products. Our primary focus in the Security Segment is
      electronic surveillance products and components that we purchase from Asian
      manufacturers who design equipment to our requirements. We sell the electronic
      surveillance products and components primarily to installing dealers, system
      integrators and end users. Other products in our Security Segment are
      less-than-lethal Mace® defense sprays and other security devices such as
      monitors, high-end digital and machine vision cameras and professional imaging
      components, as well as video conferencing equipment. The main marketing channels
      for our products are industry shows, trade publications, catalogs, the internet,
      a call center and mass merchants.





Our
      Car
      and Truck Wash Segment owns and operates car washes and owns truck washes.
      We
      currently own and operate 39 car washes, of which 12 are subject to an Agreement
      of Sale. We own, but do not operate, five truck washes. The truck washes are
      leased to a third party, pursuant to a lease under which we are paid $9,000
      per
      month.




The
      Company’s periodic reports on Forms 10-K and 10-Q and current reports on Form
      8-K, as filed with the United States Securities and Exchange Commission, can
      be
      accessed through the Company’s website at www.mace.com.





**LINES
      OF BUSINESS**





**Car
      and Truck Wash Segment** .
      The
      Company, through its subsidiaries, owned and operated 46 car washes as of
      December 31, 2006. As of May 31, 2007, the Company operates 25 car washes,
      having sold 21 car washes from January 1, 2007 through May 31, 2007. As of
      May
      31, 2007, we own six car wash locations in or near the Sarasota, Florida area,
      two car washes in New Jersey, and 17 car wash locations in Texas. Except
      for the New Jersey car washes, which provide only exterior washing, and one
      Texas location, which is a self-serve wash and lube facility, the rest of our
      locations are full service car washes. The full service car washes provide
      exterior washing and drying, vacuuming of the interior of the vehicle, dusting
      of dashboards and door panels, and cleaning of all windows and glass. In
      addition, we own five truck washes located in
      Arizona, Indiana, Ohio and Texas. The
      Company executed a lease-to-sell agreement on December 31, 2005 with Eagle
      United Truck Wash, LLC (“Eagle”) to lease Mace’s five truck washes beginning
      January 1, 2006 for up to two years. Pursuant to the terms of the agreement,
      Eagle must pay Mace $9,000 per month to lease the Company’s truck washes, and is
      responsible for all underlying property expenses. By December 31, 2007, Eagle
      is
      obligated under the agreement to purchase the truck washes for the purchase
      price of $1.2 million, consisting of $280,000 cash and a $920,000 note payable
      to Mace secured by mortgages on the truck washes. When issued, the $920,000
      note
      will have a five-year term, with principal and interest paid on a 15-year
      amortization schedule. If Eagle does not fulfill its obligation to purchase
      the
      truck washes, the Company will regain possession of the truck washes and Eagle
      will be obligated to pay $200,000 as liquidated damages.





Our
      typical car wash facility consists of a free standing building of approximately
      4,000 square feet, containing a sales area for impulse items and a car wash
      tunnel. Cars are moved through the car wash tunnel by a conveyor system. Inside
      the tunnel, automatic equipment cleans the vehicle as it moves past the
      equipment. Additional services, including wheel cleaning, fragrance, rust
      protection treatment, wheel treatments, and waxing are also offered at the
      locations. Many of our locations also offer other consumer products and related
      car care services, such as professional automotive detailing services (currently
      offered at 22 locations), oil and lubrication services (currently offered at
      eight locations), gasoline dispensing services (currently offered at 11
      locations), state inspection services (currently offered at seven locations),
      convenience store sales (currently offered at one location), and merchandise
      sales (currently offered at 22 locations). The Car and Truck Wash Segment
      provided 52.5%, 52.8% and 61.3% of our revenues in fiscal years 2006, 2005
      and
      2004, respectively. (See Note 20, *Segment
      Reporting* to the
      consolidated financial statements accompanying this report.)




Our
      car wash operations are not dependent on any one
      or a small number of customers. The nature of our car wash operations does
      not
      result in a backlog of orders at any time, and all of our car wash revenues
      are
      derived from sales in the United States.




3


For
      a
      discussion of seasonal effects on our car wash operations, **** see *Item
      7, Seasonality and Inflation* in *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* ,
      on page
      33.





**Security
      Segment** .
      The
      Security Segment offers a wide variety of security related products. Among
      the
      items offered, are electronic surveillance products, including analog, digital
      and IP cameras, digital video recorders, monitors, matrix switching equipment
      for video distribution, robotic camera dome systems, system controls, and
      consoles for system assembly markets. Other products offered are Mace defense
      sprays, personal alarms, biometric locks, home security alarms, whistles, door
      jammers, and window and door lock alarms. We also offer the KinderGard® product
      line of childproof security locks, security literature for the domestic and
      foreign financial community, a "dye-pack" used by financial institutions for
      robbery protection, state-of-the-art training videos, crisis response materials
      and TG Guard®, an electronically controlled tear gas system used in prisons,
      embassies, and safe rooms.





Our
      electronic surveillance products and system component requirements are
      established by our operating and marketing staffs in Ft. Lauderdale, Florida
      and
      Farmers Branch, Texas and manufactured by overseas original equipment
      manufacturers (“OEM”). Our electronic surveillance products and system
      components are warehoused and shipped from our facilities in Farmers Branch,
      Texas and Ft. Lauderdale, Florida. Our defense sprays are manufactured by us
      in
      our Bennington, Vermont facility. The KinderGard® product line is manufactured
      by a third party utilizing molds primarily owned by the Company. Our defense
      sprays and the KinderGard® product line are packaged, warehoused, and shipped
      from our Vermont facility. Our TG Guard® products are also assembled in our
      Vermont facility.





Our
      electronic surveillance products and components are marketed through several
      sales channels, such as dealers, system integrators, catalogs, the internet,
      mass merchants, exhibitions at national trade shows and a call center. We also
      sell our products by the use of independent sales representatives and
      distributors, exhibitions at national trade shows and advertisements in trade
      publications.





The
      Security Segment provided 47.5%, 47.2%, and 38.7% of our revenues in fiscal
      years 2006, 2005, and 2004, respectively. (See Note 20, *Segment
      Reporting,* to the
      consolidated financial statements accompanying this report.)





**BUSINESS
      STRATEGIES**





**Car
      and Truck Wash Segment.**





***Sales*** We
      intend to maintain our sales in our current markets while we continue to sell
      the car and truck washes, which is described below. We intend to maintain our
      sales by providing superior service and through our existing marketing efforts. To
      maintain market share in a given operating region, we spend approximately 2%
      to
      3% of regional revenue on regional advertising campaigns emphasizing coupons
      to
      attract volume with discount offers and brand awareness. We believe that only
      about 30% of the general population routinely uses car wash services. We believe
      that this relatively low level of participation is the result of (i) lack of
      effective advertising; (ii) inconsistent wash quality and service levels across
      fragmented locations; and (iii) concerns about scratches and other adverse
      effects from the automated wash process.





***Operating
      Efficiency*** ***.*** ** We
      have
      implemented programs to take advantage of certain economies of scale in such
      areas as the purchase of equipment, chemicals, supplies and parts, equipment
      maintenance, data processing, financing arrangements, employee benefits,
      insurance and communications. We train our operating personnel to emphasize
      customer service, labor efficiency, safe operations, and sales of add-on and
      ancillary services.





***Acquisitions
      and Divestitures.*** **** We
      acquired our car and truck washes between May 1999 and December
      2000. Our
      current strategy is to sell the car and truck washes we own. During
      2005, we sold one car wash and leased the five truck washes under an agreement
      that obligates Eagle, the lessee, to purchase the truck washes by December
      31,
      2007. If Eagle does not fulfill its obligation to purchase the truck washes,
      the
      Company will regain possession of the truck washes and Eagle will be obligated
      to pay $200,000 in liquidated damages. **** From
      January 1, 2006 to May 31, 2007 **,** we
      have
      sold 23 car washes and have entered into agreements to sell four additional
      car
      washes and all five of our truck washes.





We
      currently own and operate 25 car washes. We are marketing our car washes
      individually and in groups. We are considering offers for our car washes and
      evaluate offers based on whether the purchase price would be sufficient to
      retire all debt related to the car washes and provide sufficient capital for
      the
      growth of our Security Segment. We seek to grow the Security Segment through
      acquisitions, new product development and new market penetration.




4




On
      February 28, 2006, the Company signed an agreement to sell its Arizona car
      wash
      region to CW Acquisition, LLC (“CW Acquisition”) for $19.5 million. CW
      Acquisition was unable to arrange its funding by August 4, 2006, and the
      transaction was terminated. Mace retained a $312,500 deposit on the transaction
      as liquidated damages as provided for in the agreement of sale. The Company
      sold
      the twelve Arizona car washes constituting our Arizona region on May 17, 2007
      pursuant to an agreement of sale entered into on December 7, 2006 with Twisted
      Cactus Enterprises, LLC for $19.3 million in cash.




Additionally,
      on June 19, 2006, we completed the sale of our car wash located in Deptford,
      New
      Jersey for $1,025,000. On
      September 28, 2006, we sold a full service car wash facility in Dallas, Texas
      for approximately $1.85 million, resulting in a $461,000 gain on
      disposal.  On
      November 9, 2006, the Company signed an agreement to sell three full service
      car
      washes in the Philadelphia, Pennsylvania area for $4.75 million in cash. The
      sale was completed on January 29, 2007. On November 10, 2006, the Company signed
      an agreement to sell its full service car wash in Cherry Hill, New Jersey for
      $2.91 million in cash. The sale was completed on February 1, 2007. We sold
      four
      exterior car washes in our Northeast region, one in Moorestown, New Jersey
      on
      January 5, 2007 for $350,000, one in Philadelphia, Pennsylvania on March 1,
      2007
      for $470,000, one in Yeadon, Pennsylvania on May 14, 2007 for $100,000, and
      one
      in Smyrna, Delaware on May 31, 2007 for $220,000 in cash. We also sold a full
      service car wash in Fort Worth, Texas on March 7, 2007 for $285,000 in
      cash. We have
      received other offers from other parties for individual regions or car washes.
      We do not accept any offer which we believe is not for sufficient consideration.
      There can be no assurances that any other transactions will be concluded.





**Security
      Segment** .





***Internal
      Growth.*** ** The
      Security Segment designs, manufacturers, markets and sells a wide range of
      security products. For the year ended December 31, 2006, revenues from the
      Security Segment were $23.4 million. The
      Company began selling electronic surveillance products and system components
      in
      August 2002. Revenues from electronic surveillance products and system
      components have grown from $373,000 of revenue in 2002 to $2.8 million in 2003,
      $13.9 million in 2004, $21.4 million in 2005 and have declined slightly to
      $19.8
      million in 2006. Growth has been principally achieved through acquiring
      businesses and through internal growth through development of advanced product
      offerings, as well as expanded advertising and marketing efforts.





For
      the
      five years prior to July 14, 2003, the Company was prohibited from selling
      defense sprays to the law enforcement market, under a non-competition agreement
      with Armor Holdings, Inc. We are now selling our defense sprays in the law
      enforcement market under the brand name of TakeDown® .
      We
      believe that the total consumer defense spray market is approximately $10
      million to $12 million in annual revenues and that the law enforcement market
      is
      approximately $3 million in annual revenues. Our newly developed Pepper
      Gel Ô has
      increased sales in Law Enforcement and Consumer markets. Pepper Gel Ô has a
      patent pending in the US Patent office and internationally through the patent
      co-operation treaty (PCT).





***Operating
      Agreements and Acquisitions*** **.**  On
      August 12, 2002, the video systems and system component products were added
      to
      the Security Segment when we acquired certain of the assets and operations
      of
      Micro-Tech, Inc., a manufacturer and retailer of video security and surveillance
      devices. Plasma and video monitors were added to the Security Segment on
      September 26, 2003 when we acquired certain assets and the operations of Vernex,
      Inc., a manufacturer and retailer of plasma and CRT video monitors. We added
      a
      line of high-end digital and machine vision cameras and professional imaging
      components, Industrial Vision Source (“IVS”), and a line of consumer “do it
      yourself” video surveillance systems, SecurityandMore (“S&M”), on July 1,
      2004, when we acquired the two businesses from American Building Control, Inc.
      On November 23, 2005 we acquired the inventory and customer accounts of
      Securetek, Inc. which specializes in the sale of electronic surveillance
      products to security alarm dealers and installers. The acquired business was
      relocated and integrated into our existing security operation in Ft. Lauderdale,
      Florida.





We
      regularly evaluate potential acquisitions for the Security Segment to determine
      if they provide an advantageous opportunity. In evaluating potential
      acquisitions, we consider: (i) our cash position and the availability of
      financing at favorable terms; (ii) the potential for operating cost reductions;
      (iii) marketing advantages by adding new products to the Mace® brand name; (iv)
      market penetration of existing products; and (v) other relevant factors.





As
      consideration for acquisitions, we may use combinations of common stock,
      warrants, cash, and indebtedness. The consideration for each future acquisition
      will vary on a case-by-case basis depending on our financial interests, the
      historic operating results of the acquisition target, and the growth potential
      of the business to be acquired. We expect to finance the cash portion of future
      acquisitions through our cash reserves, funds provided by operations, loans,
      and
      the proceeds of possible future equity sales.




5




**MARKETING**




**Car
      and Truck Wash Segment.** The car
      care industry services customers on a local and regional basis. We employ
      operational and customer service people at our operating locations. The
      operational and customer service people are supervised by the management of
      the
      operating locations. We emphasize providing quality services as well as customer
      satisfaction and retention, and believe that we will attract customers in the
      future because of our reputation for quality service. We market our services
      through regional coupon advertising, direct mail marketing programs and radio
      and television advertisements. We spend 2% to 3% of regional revenue on regional
      advertising campaigns. We have a diverse customer base, with no single customer
      accounting for 5% or more of our consolidated revenues for the fiscal year
      ended
      December 31, 2006. We do not believe that the loss of any single customer would
      have a material adverse effect on our business or results of
      operations.





**Security
      Segment.** Our
      electronic surveillance products and components are marketed through several
      sales channels, such as catalogs, the internet, mass merchants, exhibitions
      at
      national trade shows and a call center. Our other products are sold through
      direct marketing, the use of independent sales representatives and distributors
      as well as exhibitions at national trade shows and advertisements in trade
      publications.





Our
      self
      defense sprays are available for purchase at mass merchant/department stores,
      gun shops, sporting goods stores, hardware, auto, convenience and drug stores.
      In the law enforcement market, our defense sprays, including Pepper
      Gel Ô ,
      are
      sold through direct marketing, the use of independent sales representatives
      and
      distributors as well as exhibitions at national trade shows and advertisements
      in trade publications.





We
      have a
      diverse customer base within the Security Segment with no single customer
      accounting for 5% or more of our consolidated revenues for the fiscal year
      ended
      December 31, 2006. We do not believe that the loss of any single Security
      Segment customer would have a material adverse effect on our business or results
      of operations.





**PRODUCTION
      AND SUPPLIES**





**Car
      and Truck Wash Segment.** We
      do not
      manufacture any of the car or truck wash equipment and supplies which we use.
      There are numerous suppliers of the equipment and supplies required by our
      car
      and truck wash operations.





**Security
      Segment.** Our
      electronic surveillance products and system component requirements are
      established at our Ft. Lauderdale, Florida facility but are manufactured
      principally in Korea, China, and other foreign countries, by original equipment
      manufacturers (“OEM”). The electronic surveillance products and components
      meeting our requirements are labeled, packaged, and shipped ready for sale,
      to
      our warehouses in Ft. Lauderdale, Florida and Farmers Branch,
      Texas.





Substantially
      all of the manufacturing processes for our defense sprays are performed at
      our
      leased Bennington, Vermont facility. Defense spray products are manufactured
      on
      an aerosol filling machine. Most products are packaged in sealed,
      tamper-resistant "clamshells." The KinderGard®, a product
      line of childproof locks, MaceCash Ô ,
      a dye
      pack system, and TG Guard ® ,
      an
      electronic tear gas security system, the components are primarily manufactured
      by unrelated companies and are assembled and packaged on-site at our Vermont
      facility. There are numerous potential suppliers of the components and parts
      required in the production process. We have developed strong long-term
      relationships with many of our suppliers, including the following: Moldamatic,
      Inc., Amber International, Inc., and Springfield Printing, Inc. In addition,
      we
      purchase for resale a variety of products produced by others including whistles
      and window and door alarms.





**COMPETITION**





**Car
      and Truck Wash Segment.** The car
      care industry is a highly fragmented industry comprised of many large and small
      businesses. We compete principally with locally-owned car wash facilities and
      other regional car wash chains which may, in many instances, be located near
      our
      car washes. The
      car
      care industry is highly competitive. Competition is based primarily on location,
      facilities, customer service, available services and price. We also face
      competition from sources outside the car wash industry, such as gas stations
      that offer automated car wash services. Barriers to entry in the car care
      industry are relatively low. Competition is always entering our existing markets
      from new sources not currently competing with us.




**Security
      Segment.**Our
      video systems and components face competition from many larger companies such
      as
      Sony, Panasonic, Armor Holdings, Inc. and others. A number of these competitors
      have significantly greater financial, marketing, and other resources than us.
      Our high-end digital and machine vision camera operation, IVS, is a large
      distributor of Sony products. Upon a customer of IVS achieving a high Sony
      product purchasing level, the customer may qualify for purchasing directly
      from
      Sony and thus IVS may lose the sales to the customer. Additionally, our foreign
      manufacturers of our electronic surveillance products may also sell directly
      to
      our customer base. We also compete with numerous well-established, smaller,
      local or regional firms. Increased competition from these companies could have
      an adverse effect on our electronic surveillance products
      sales.




6





There
      continues to be a number of companies marketing personal defense sprays to
      civilian consumers such as Armor Holdings. Inc. We continue to offer defense
      spray products that we believe distinguish themselves through brand name
      recognition and superior product features and formulations. This segment
      experienced increased sales in aerosols and TG Guard systems in 2006
      attributable to improved marketing as well as an increase in government spending
      on purchasing our TG Guard systems for embassy, prison and safe room
      installations.





**TRADEMARKS
      AND PATENTS**




**Car
      and Truck Wash Business** .
      We own
      a registered service mark for *Super
      Bright* ®. *Super
      Bright* ®
is
      our
      brand name in our San Antonio, Texas and Lubbock, Texas locations. We operate
      our car washes in other geographic regions under locally recognizable names
      such
      as Eager Beaver Car Wash, Genie Car Wash, Colonial Car Wash, and Weiss Guys
      Car
      Wash.





**Security
      Segment.** We
      began
      marketing products in 1993 under the Mace ® 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. We
      subsequently purchased outright the Mace ® brand
      name and related trademarks (Pepper Mace ® ,
      Chemical Mace ® ,
      Mace .
      . . Just in Case ® ,
      CS
      Mace Ô and
      Magnum Mace Ô ).
      In
      conjunction with this purchase, we acquired a non-exclusive worldwide license
      to
      promote a patented pepper spray formula in both the consumer and law enforcement
      markets. We have a patent pending and filed two trademark applications for
      a new
      less-than-lethal product called Pepper Gel Ô in the
      law enforcement market and Mace Gel Ô in the
      civilian market. Additionally, we have been issued a patent on the locking
      mechanism for our Mark VI defense spray unit.





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





We
      also
      have various other patents and trademarks for the devices we sell, including
      trademarks and/or patents for the Big Jammer® door brace, Screecher®,
      Peppergard®, Mace (Mexico)®, Viper®defense spray, Kindergard®, TG Guard®, Take
      Down®, Muzzle®, Pepper Mace®, MSI and Design®, Mace® Community (European Union)
      Trademark, Pepper Gel®, and Take Down Extreme Ô .





With
      the
      2004 acquisition of S&M and IVS, we obtained the following trademarks used
      in our Security Segment: SecurityandMore ® ,
      SecurityandMore.com ® ,
      Industrial Vision Source ®, Security
      Outsourcing Solutions Ô ,
      Observision ® ,
      ProtectItNow! ® ,
      Easy
      Watch ® ,
      Focus
      Vision 4 Observation System (Stylized) ® and
      SmartChoice ® .





The
      Company has expanded the Mace ® trademark to cover new electronic surveillance products.





We
      believe these Mace related trademarks provide us with a competitive
      advantage.





**GOVERNMENT
      REGULATION/ENVIRONMENTAL COMPLIANCE**





**Car
      and Truck Wash Segment** .
      We are
      subject to various local, state, and federal laws regulating the discharge
      of
      pollutants into the environment. We believe that our operations are in
      compliance, in all material respects, with applicable environmental laws and
      regulations. Compliance with these laws and regulations is not expected to
      materially affect our competitive position. Three major areas of regulation
      facing us are disposal of lubrication oil at our oil change centers, the
      compliance with all underground storage tank laws in connection with our
      gasoline sales, and the proper recycling and disposal of water used in our
      car
      and truck washes. We use approved waste-oil haulers to remove our oil and
      lubricant waste. Before acquiring a gasoline dispensing site, we investigate
      it
      to verify that any underground storage tanks are in compliance with all legal
      requirements. We recycle our waste water and, where we have proper permits,
      it
      is disposed of into sewage drains. Approximately 70% of the water used in the
      car wash is recycled at sites where a built-in reclaim system
      exists.




**Security
        Segment** .
        The
        distribution, sale, ownership, and use of consumer defense sprays are legal
        in
        some form in all fifty states and the District of Columbia. However, in some
        states sales to minors are prohibited and in several states (MA, MI, NY and
        WI,
        for example) sales are highly regulated. Among the typical regulations are
        the
        following, which list is not all inclusive: Massachusetts requires both the
        seller and possessor to be licensed; Michigan does not allow the sale of
        combinations of tear gas and pepper sprays; and New York requires sellers
        to be
        licensed firearms dealers or pharmacists. There are often restrictions on
        sizes,
        labeling and packaging that may vary from state to state. We have been able
        to
        sell our defense sprays consistent with the requirements of state laws. We
        believe we are in material compliance with all federal, state, and local
        laws
        that affect our defense spray business. There can be no assurance, however,
        that
        broader or more severe restrictions will not be enacted that would have an
        adverse impact on the sale of defense sprays. Additionally, certain states
        require licenses for the sale of our security equipment. We have obtained
        all
        required licenses.


7





**RESEARCH
      AND DEVELOPMENT**





**Car
      and Truck Wash Segment.** There
      are
      no research and development expenditures within the Car and Truck Wash
      Segment.





**Security
      Segment.** Our
      staffs in our Ft. Lauderdale, Florida and Farmers Branch, Texas facilities
      determine the requirements of various electronic surveillance products and
      components in conjunction with OEM manufacturers. We also have an on-site
      laboratory at our Vermont facility where research and development is conducted
      to maintain our reputation in the defense spray industry. We are continually
      reviewing ideas and potential licensing arrangements to expand our product
      lines. **** Our
      research and development expense was not material in 2006, 2005 or
      2004.





**INSURANCE**





We
      maintain various insurance coverages for our assets and operations. These
      coverages include property coverages including business interruption protection
      for each location. We maintain commercial general liability coverage in the
      amount of $1 million per occurrence and $2 million in the aggregate with an
      umbrella policy which provides coverage up to $25 million. We also maintain
      workers’ compensation policies in every state in which we operate. Commencing
      July 2002, as a result of increasing costs of the Company’s insurance program,
      including auto, general liability, and workers’ compensation coverage, we are
      insured through participation in a captive insurance program with other
      unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to our auto, general liability, and
      workers’ compensation policies, we are required to set aside an actuarially
      determined amount of cash in a restricted “loss fund” account for the payment of
      claims under the policies. We expect to fund these accounts annually as required
      by the captive insurance company. Should funds deposited exceed claims incurred
      and paid, unused deposited funds are returned to us with interest upon the
      captive insurance company deciding a distribution is appropriate but no earlier
      then the third anniversary of the policy year-end. The captive insurance program
      is further secured by a letter of credit in the amount of $1,079,000 at December
      31, 2006. The Company records a monthly expense for losses up to the reinsurance
      limit per claim based on the Company’s tracking of claims and the insurance
      company’s reporting of amounts paid on claims plus an estimate of reserves for
      possible future losses on reported claims and claims incurred but not reported.
      There can be no assurance that our insurance will provide sufficient coverage
      in
      the event a claim is made against us, or that we will be able to maintain in
      place such insurance at reasonable prices. An uninsured or under insured claim
      against us of sufficient magnitude could have a material adverse effect on
      our
      business and results of operations.





**U.S.
      BASED BUSINESS**





All
      of
      our car and truck wash business is conducted in the United States. Approximately
      4%, (or $956,000), 6% (or $1.5 million), and 4% (or $673,000) of the 2006,
      2005
      and 2004 revenues, respectively, from our Security Segment were derived from
      customers outside of the United States. Our Electronic Surveillance products
      are
      manufactured in Korea, China, and other foreign countries. All of our property
      and equipment is located in the United States. We do not believe we are
      currently subject to any material risks associated with any foreign
      operations.





**EMPLOYEES**





As
      of
      June 15, 2007, we had approximately 844 employees, of which approximately 734
      were employed in the Car and Truck Wash Segment, 88 employed in the Security
      Segment, 18 in corporate clerical and administrative positions, and four in
      executive management. None of our employees are covered by a collective
      bargaining agreement.




8


**ITEM
      1A. RISK FACTORS**





**Risks
      Related to Our Business**





***If
      we do not raise additional capital, we may need to substantially reduce the
      scale of our operations and curtail our business plan*** .





Our
      business plan involves growing our Security Segment through acquisitions and
      internal development, and divesting of our car washes through third party sales.
      The growth of our Security Segment requires significant capital that we hope
      to
      partially fund through the sale of our car washes. Our capital requirements
      also
      include working capital for daily operations and significant capital for
      equipment purchases. Although we had positive working capital of $26.6 million
      as of December 31, 2006, we have a history of net losses and in some years
      we
      have ended our fiscal year with a negative working capital balance. Our positive
      working capital increased by $12.0 million from December 31, 2005 to December
      31, 2006 principally due to the reclassification of assets and liabilities
      of
      our Arizona region, our truck wash operations, and six car washes in our
      Northeast and Texas regions at December 31, 2006 as assets and related
      liabilities, held for sale. To the extent that we lack cash to meet our future
      capital needs, we will need to raise additional funds through bank borrowings
      and significant additional equity and/or debt financings, which may result
      in
      significant increases in leverage and interest expense and/or substantial
      dilution of our outstanding equity. If we are unable to raise additional
      capital, we may need to substantially reduce the scale of our operations and
      curtail our business plan. Although we believe we can generate cash from the
      sale of our car washes, there is no guarantee that we will be able to sell
      our
      car washes in time to meet our cash needs.





***If
      we are not able to manage growth, our business plan may not be
      realized.***





Our
      business objectives include developing our Security Segment, both internally
      and
      through acquisitions, if we can do so under advantageous terms. As such, our
      business plan is predicated on growth. If we succeed in growing, it will place
      significant burdens on our management and on our operational and other
      resources. For example, it may be difficult to assimilate the operations and
      personnel of an acquired business into our existing business; we must integrate
      management information and accounting systems of an acquired business into
      our
      current systems; our management must devote its attention to assimilating the
      acquired business, which diverts attention from other business concerns; we
      may
      enter markets in which we have limited prior experience; and we may lose key
      employees of an acquired business. We will also need to attract, train,
      motivate, retain, and supervise senior managers and other employees. If we
      fail
      to manage these burdens successfully, one or more of the acquisitions could
      be
      unprofitable, the shift of our management’s focus could harm our other
      businesses, and we may be forced to abandon our business plan, which relies
      on
      growth.





***We
      have debt secured by mortgages against our property, which can be foreclosed
      upon if we default on the debt.***





Our
      bank
      debt borrowings as of December 31, 2006 were $24.0 million, including capital
      lease obligations and borrowings related to discontinued operations,
      substantially all of which is secured by mortgages against certain of our real
      property. Of such borrowings, $10.9 million, including $9.6 million of long-term
      debt included in liabilities related to assets held for sale, is classified
      as
      current as it is due or expected to be paid in less than twelve months from
      December 31, 2006. We repaid $9.4 million of this $9.6 million of debt
      subsequent to December 31, 2006 in connection with the sale of the Arizona
      car
      washes on May 17, 2007. Our two most significant borrowings were secured notes
      payable to Capmark Finance Inc. (“Capmark”) in the amount of $8.8 million (paid
      on May 17, 2007), and secured notes payable to JP Morgan Chase Bank, N.A.
      (“Chase”) in the amount of $12.4 million, $ 11.4 million of which was classified
      as non-current debt at December 31, 2006.





We
      have
      in the past violated loan covenants in the Capmark and Chase agreements. We
      have
      obtained waivers for our violations of the Chase agreements and we have repaid
      the Capmark debt subsequent to December 31, 2006. Our ongoing ability to comply
      with the debt covenants under our credit arrangements and refinance our debt
      depends largely on our achievement of adequate levels of cash flow. Our cash
      flow has been and could continue to be adversely affected by the expenses of
      the
      ongoing criminal immigration investigation, weather patterns and economic
      conditions. In the future, if our cash flows are less than expected or debt
      service, including interest expense, increases more than expected, we may
      continue to be out of compliance with the loan covenants and need to seek
      waivers or amendments.




If
      we are in default on loan covenants and are not
      able to obtain amendments or waivers of acceleration, our debt could become
      due
      and payable on demand, and Chase could foreclose on the assets pledged in
      support of the relevant indebtedness. If our assets (including up to 16 of
      our
      car wash facilities and one truck wash at May 31, 2007) are foreclosed upon,
      revenues from our Car and Truck Wash Segment, which comprised 53% of our total
      revenues for fiscal year 2006, would be severely impacted and we may go out
      of
      business. Even if the debt was accelerated without foreclosure, it would be
      very
      difficult for us to continue to operate our business and we may go out of
      business. If the debt were accelerated, it would become more difficult to sell
      the car washes at an adequate price.




9





***Our
      loans with Chase have financial covenants that restrict our operations, and
      which can cause our loans to be accelerated.***





Our
      secured notes payable to Chase total $12.4 million, $11.4 million of which
      was
      classified as non-current debt at December 31, 2006. The Chase agreements
      contain affirmative and negative covenants, including the maintenance of certain
      levels of tangible net worth, maintenance of certain levels of unencumbered
      cash
      and marketable securities, limitations on capital spending, the maintenance
      of
      certain debt coverage ratios ****** on
      a
      consolidated level and certain financial reporting requirements. Our Chase
      agreements are the only debt agreements that contain an expressed prohibition
      on
      incurring additional debt for borrowed money without the approval of the lender.
      None of our other agreements contain such a prohibition.





Additionally,
      the Chase term loan agreement also limits capital expenditures annually to
      $1.0
      million, requires the Company to provide Chase with a Form 10-K and audited
      financial statements within 120 days of the Company’s fiscal year end and a Form
      10-Q within 60 days after the end of each fiscal quarter, and requires the
      maintenance of a minimum total unencumbered cash and marketable securities
      balance of $5 million. The Company incurred capital expenditures of $1.3 million
      in 2006 and did not timely provide the required financial statements.
      Accordingly, we were not in compliance with the Chase covenants. The Company
      received a waiver of acceleration from Chase at December 31, 2006 and for
      measurement periods through January 1, 2008 related to these covenant violations
      and, accordingly, a portion of the Chase notes payable was reflected as
      non-current in our financial statements at December 31, 2006. If we are unable
      to satisfy the Chase covenants and we cannot obtain further waivers or
      amendments to our loan agreements, the Chase notes may be reflected as current
      in future balance sheets and as a result our stock price may
      decline.





***We
      have reported net losses in the past. If we continue to report net losses,
      the
      price of our common stock may decline, or we could go out of
      business.***





We
      reported net losses for the years ended December 31, 2006, 2005 and 2004 and
      we
      reported negative cash flow from operating activities from continuing operations
      in 2006 and 2005. Although a portion of the reported losses in past years
      related to non-cash impairment charges of intangible assets under Statement
      of
      Financial Accounting Standards (“SFAS”) 142 and non-cash stock-based
      compensation expense under SFAS 123(R) in the current year, we may continue
      to
      report net losses and negative cash flow in the future. Additionally, SFAS
      142
      requires annual fair value based impairment tests of goodwill and other
      intangible assets identified with indefinite useful lives. As a result, we
      may
      be required to record additional impairments in the future, which could
      materially reduce our earnings and equity. If we continue to report net losses
      and negative cash flows, our stock price could be adversely
      impacted.





***If
      we lose the services of our executive officers, our business may
      suffer.***





If
      we
      lose the services of one or more of our executive officers and do not replace
      them with experienced personnel, that loss of talent and experience will make
      our business plan, which is dependent on active growth and management, more
      difficult to implement and could adversely impact our operations.





***If
      our insurance is inadequate, we could face significant
      losses.***




We
      maintain various insurance coverages for our assets and operations. These
      coverages include property coverages including business interruption protection
      for each location. We maintain commercial general liability coverage in the
      amount of $1 million per occurrence and $2 million in the aggregate with an
      umbrella policy which provides coverage up to $25 million. We also maintain
      workers’ compensation policies in every state in which we operate. Commencing
      July 2002, as a result of increasing costs of the Company’s insurance program,
      including auto, general liability, and workers’ compensation coverage, we are
      insured through participation in a captive insurance program with other
      unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to our auto, general liability, and
      workers’ compensation policies, we are required to set aside an actuarial
      determined amount of cash in a restricted “loss fund” account for the payment of
      claims under the policies. We expect to fund these accounts annually as required
      by the insurance company. Should funds deposited exceed claims incurred and
      paid, unused deposited funds are returned to us with interest after the third
      anniversary of the policy year-end. The captive insurance program is further
      secured by a letter of credit from Mace in the amount of $1,079,000 at December
      31, 2006. The Company records a monthly expense for losses up to the reinsurance
      limit per claim based on the Company’s tracking of claims and the insurance
      company’s reporting of amounts paid on claims plus an estimate of reserves for
      possible future losses on reported claims and claims incurred but not reported.
      There can be no assurance that our insurance will provide sufficient coverage
      in
      the event a claim is made against us, or that we will be able to maintain in
      place such insurance at reasonable prices. An uninsured or under insured claim
      against us of sufficient magnitude could have a material adverse effect on
      our
      business and results of operations.




10





**Risks
      Related to our Security Segment**





***If
      we are not able to operate our electronic surveillance products operations
      effectively, our business will suffer.***





In
      2002,
      we expanded our Security Segment by adding electronic surveillance products
      and
      components. We are incurring expenses to develop and further expand these
      products. There are numerous risks associated with expanding our video
      surveillance systems and components that may prevent us from operating the
      Security Segment profitably, including, among others: risks associated with
      products which do not function properly; risks associated with unanticipated
      liabilities of the acquired companies; risks inherent with our management having
      limited experience in the electronic surveillance product market; risks relating
      to the size and number of competitors in the video system and component product
      market, many of whom may be more experienced or better financed; risks
      associated with the costs of entering into new markets and expansion of product
      lines in existing markets; risks associated with rapidly evolving technology
      and
      having inventory become obsolete; risks associated with purchasing inventory
      before having orders for that inventory; risks attendant to locating and
      maintaining reliable sources of OEM products and component supplies in the
      electronic surveillance industry; risks related to retaining key employees
      involved in future technology development and communications with OEM suppliers;
      and risks associated with developing and introducing new products in order
      to
      maintain competitiveness in a rapidly changing marketplace. If we are not able
      to operate our electronic surveillance products division effectively, our
      operating and financial results could be adversely impacted.





***We
      could become subject to litigation regarding intellectual property rights,
      which
      could seriously harm our business.***





Although
      we have not been the subject of any such actions, third parties may in the
      future assert against us infringement claims or claims that we have violated
      a
      patent or infringed upon a copyright, trademark or other proprietary right
      belonging to them. We design many of our security products and contract with
      independent suppliers to manufacture those products and deliver them to us.
      Certain of these products contain proprietary intellectual property of these
      independent suppliers. Third parties may in the future assert claims against
      our
      suppliers that such suppliers have violated a patent or infringed upon a
      copyright, trademark or other proprietary right belonging to them. If such
      infringement by our suppliers or us were found to exist, a party could seek
      an
      injunction preventing the use of their intellectual property. In addition,
      if an
      infringement by us were found to exist, we may attempt to acquire a license
      or
      right to use such technology or intellectual property. Most of our suppliers
      have agreed to indemnify us against any such infringement claim, but any
      infringement claim, even if not meritorious and/or covered by an indemnification
      obligation, could result in the expenditure of a significant amount of our
      financial and managerial resources, which would adversely effect our operations
      and financial results.





The
      Mace
      registered name and trademark is important to our security business. If we
      do
      not defend the Mace name or allow it to fall into common usage, our security
      segment business could be adversely affected.





***If
      our original equipment manufacturers fail to adequately supply our products,
      our
      security products sales may suffer.***





Our
      electronic surveillance products are manufactured on an OEM basis. Reliance
      upon
      OEMs, as well as industry supply conditions generally involves several risks,
      including the possibility of defective products (which can adversely affect
      our
      reputation for reliability), a shortage of components and reduced control over
      delivery schedules (which can adversely affect our distribution schedules),
      and
      increases in component costs (which can adversely affect our profitability).
      We
      have some single-sourced manufacturer relationships, either because alternative
      sources are not readily or economically available or because the relationship
      is advantageous due to performance, quality, support, delivery, capacity, or
      price considerations. If these sources are unable or unwilling to manufacture
      our products in a timely and reliable manner, we could experience temporary
      distribution interruptions, delays, or inefficiencies, adversely affecting
      our
      results of operations. Even where alternative OEMs are available, qualification
      of the alternative manufacturers and establishment of reliable suppliers could
      result in delays and a possible loss of sales, which could affect operating
      results adversely.




***If
        people are injured by our consumer safety products, we could be held liable
        and
        face damage awards.***
  We
        face
        claims of injury allegedly resulting from our defense sprays, which we market
        as
        less-than-lethal. For example, we are aware of allegations that defense sprays
        used by law enforcement personnel resulted in deaths of prisoners and of
        suspects in custody. In addition to use or misuse by law enforcement agencies,
        the general public may pursue legal action against us based on injuries alleged
        to have been caused by our products. We may also face claims by purchasers
        of
        our electronic surveillance systems, if they fail to operate properly during
        the
        commission of a crime. As the use of defense sprays and electronic surveillance
        systems by the public increase, we could be subject to additional product
        liability claims. We have a $25,000 deductible on our consumer safety products
        insurance policy, meaning that all such lawsuits, even unsuccessful ones
        and
        ones covered by insurance, cost the Company money. Furthermore, if our insurance
        coverage is exceeded, we will have to pay the excess liability directly.
        Our
        product liability insurance provides coverage of $1 million per occurrence
        and
        $2 million in the aggregate with an umbrella policy which provides coverage
        up
        to $25 million. However, if we are required to directly pay a claim in excess
        of
        our coverage, our income will be significantly reduced, and in the event
        of a
        large claim, we could go out of business.


11





***If
      governmental regulations change or are applied differently, our business could
      suffer.***





The
      distribution, sale, ownership and use of consumer defense sprays are legal
      in
      some form in all 50 states and the District of Columbia. Restrictions on the
      manufacture or use of consumer defense sprays may be enacted, which would
      severely restrict the market for our products or increase our costs of doing
      business.





Our
      consumer defense spray manufacturing operation currently incorporates hazardous
      materials, the use and emission of which are regulated by various state and
      federal environmental protection agencies, including the United States
      Environmental Protection Agency. We also store a chemical component of tear
      gas
      in our Bennington, Vermont facility in such quantities that if all the chemical
      was released into the air, could cause an evacuation of Bennington, Vermont
      until the chemical broke down into its components. We believe that we are in
      compliance with all current state and local statutes governing our handling
      and
      disposal of these hazardous materials, but if there are any changes in
      environmental permit or regulatory requirements, or if we fail to comply with
      any environmental requirements, these changes or failures may expose us to
      significant liabilities that would have a material adverse effect on our
      business and financial condition.





**Risks
      Related to our Car and Truck Wash Segment**





***We
      face a criminal investigation regarding the hiring of undocumented workers
      at
      our car washes that could result in fines and
      penalties.***





On
      March
      13, 2006, the Company learned that the United States Attorney for the Eastern
      District of Pennsylvania is investigating the Company for the alleged hiring
      of
      undocumented workers at the Company’s car washes. The Company’s Audit Committee
      retained independent outside counsel (“Special Counsel”) to conduct an
      independent investigation of the Company’s hiring practices at the Company’s car
      washes and other related matters. Special Counsel provided a written summary
      of
      findings on April 18, 2006. The investigative findings included, among other
      things, a finding that the Company’s internal controls for financial reporting
      at the corporate level are adequate and appropriate, and that there is no
      financial statement impact implicated by the Company’s hiring practices, except
      for a potential contingent liability. Beginning on April 21, 2006, the Special
      Counsel began to receive for review some additional and previously requested
      but
      unavailable documents and information. On May 18, 2006, Special Counsel issued
      its Review of Information Supplemental to Internal Investigation which stated
      that the review of the additional documents and information had not changed
      the
      conclusions contained in the April 18, 2006 summary of findings.





There
      is
      a possibility that the United States Attorney for the Eastern District of
      Pennsylvania may prosecute the Company at the conclusion of its investigation.
      Violations of law may result in civil, administrative or criminal fines or
      penalties. Due to the ongoing nature of the criminal investigation, it is not
      possible at this time to predict the outcome of the investigation or the impact
      of costs of ultimately resolving this matter on our results of operations or
      financial condition. However, any fees, expenses, fines or penalties which
      might
      be incurred by the Company in connection with the hiring of undocumented workers
      may have a material impact on the Company’s results of operations and financial
      condition. The Company has made no provision for any future costs associated
      with the investigations or any future costs associated with the Company’s
      defense or negotiations with governmental authorities to resolve these
      outstanding issues.




***Our
      car wash work force may expose us to claims that might adversely affect our
      business, financial condition and results of operations; our insurance coverage
      may not cover all of our potential liability.***





We
      employ
      a large number of workers who perform manual labor at the car washes we operate.
      Many of the workers are paid at or slightly above minimum wage. Also, a large
      percentage of our car wash work force is composed of employees who have been
      employed by us for relatively short periods of time. This work force is
      constantly turning over. Our work force may subject us to financial claims
      in a
      variety of ways, such as:




12




·
            claims
                by customers that employees damaged automobiles in our
                custody;





·
            claims
                related to theft by employees;





·
            claims
                by customers that our employees harassed or physically harmed
                them;





·
            claims
                related to the inadvertent hiring of undocumented workers;





·
            claims
                for payment of workers’ compensation claims and other similar claims;
                and





·
            claims
                for violations of wage and hour
                requirements.





We
      may
      incur fines and other losses or negative publicity with respect to these claims.
      In addition, some or all of these claims may rise to litigation, which could
      be
      costly and time consuming to our management team, and could have negative impact
      on our business. We cannot assure you that we will not experience these problems
      in the future, that our insurance will cover all claims or that our insurance
      coverage will continue to be available at economically feasible rates.





***If
      consumer demand for our car wash service drops, our business will
      suffer.***





More
      than
      fifty percent of our revenues are derived from our Car and Truck Wash Segment.
      As such, our financial condition and results of operations will depend
      substantially on continued consumer demand for car wash services. Our car wash
      business depends on consumers choosing to employ professional services to wash
      their cars rather than washing their cars themselves or not washing their cars
      at all. Also, seasonal trends in some areas affect our car wash business. In
      particular, long periods of rain and cloudy weather can adversely affect our
      car
      wash business as people typically do not wash their cars during such periods.
      Additionally, extended periods of warm, dry weather may encourage customers
      to
      wash their cars themselves which also can adversely affect our car wash
      business. If there is a drop in consumer demand, our financial condition and
      results of operations will be adversely impacted.





***We
      face significant competition and if we cannot compete effectively we may lose
      money and the value of our securities could decline.***





The
      car
      care industry is highly competitive. Competition is based primarily on location,
      customer service, available services, and price. We face competition from both
      inside and outside the car care industry, including gas stations, gasoline
      companies, automotive companies, specialty stores and convenience stores that
      offer automated car wash services. Because barriers to entry into the car care
      industry are relatively low, competition may be expected to continually arise
      from new sources not currently competing with us. In some cases, our competitors
      may have greater financial and operating resources than we do. If we cannot
      effectively compete, our operating results are likely to be negatively
      effected.





***Our
      car wash operations face governmental regulations, including environmental
      regulations, and if we fail to or are unable to comply with those regulations,
      our business may suffer.***





We
      are
      governed by federal, state and local laws and regulations, including
      environmental regulations, that regulate the operation of our car wash centers
      and other car care services businesses. Other car care services, such as
      gasoline and lubrication, use a number of oil derivatives and other regulated
      hazardous substances. As a result, we are governed by environmental laws and
      regulations dealing with, among other things:





i.
            transportation,
                storage, presence, use, disposal, and handling of hazardous materials
                and
                wastes;


ii.
            discharge
                of storm water; and


iii.
            underground
                storage tanks.




If
      uncontrolled hazardous substances were found on any of our properties, including
      leased property, or if we were otherwise found to be in violation of applicable
      laws and regulations, we could be responsible for clean-up costs, property
      damage, fines, or other penalties, any one of which could have a material
      adverse effect on our financial condition and results of
      operations.




Through
      our Car and Truck Wash Segment, we face a variety of potential environmental
      liabilities, including those arising out of improperly disposing waste oil
      or
      lubricants at our lube centers, improper maintenance of oil discharge ponds,
      which exist at two of our truck washes, and leaks from our underground gasoline
      storage tanks. If we improperly dispose of oil or other hazardous substances,
      or
      if our oil discharge ponds or underground gasoline tanks leak, we could be
      assessed fines by federal or state regulatory authorities and/or be required
      to
      remediate the property. Although each case is different, and there can be no
      assurance as to the cost to remediate an environmental problem, if any, at
      one
      of our properties, the costs for remediation and removal of a leaking discharge
      pond typically range from $150,000 to $200,000, and the costs for remediation
      of
      a leaking underground storage tank typically range from $30,000 to
      $75,000.


13


***If
      our car wash equipment is not maintained, our car washes will not be
      operable.***





Many
      of
      our car washes have older equipment that requires frequent repair or
      replacement. Although we undertake to keep our car washing equipment in adequate
      operating condition, the operating environment in car washes results in frequent
      mechanical problems. If we fail to properly maintain the equipment in a car
      wash, that car wash could become inoperable or malfunction resulting in a loss
      of revenue, damage to vehicles and poorly washed vehicles.





**Risk
      Related to the Sale of our Car and Truck Wash Segment**





***If
      we sell our Car and Truck Wash Segment, our revenues will decrease and our
      business may suffer.***





We
      can
      offer no assurances that we will be able to locate additional potential buyers
      for our remaining car washes or that we will be able to consummate any further
      sales to potential buyers we do locate. In addition if we are able to sell
      our
      remaining car washes, our total revenues will decrease and our business will
      become reliant on the success of our Security Segment. Our Security Segment
      faces significant risks as set forth herein and may impact our ability to
      generate positive operating income or cash flows from operations, may cause
      our
      financial results to become more volatile, or may otherwise materially adversely
      affect us.





**Risks
      Related to our Stock**





***Our
      stock price has been, and likely will continue to be, volatile and your
      investment may suffer a decline in value.***




The
      market price of our common stock, has in the past been, and is likely to
      continue to be volatile in the future. That volatility depends upon many
      factors, some of which are beyond our control, including:




·
            announcements
                regarding the results of expansion or development efforts by us or
                our
                competitors;





·
                announcements
                    regarding the acquisition of businesses or companies by us or
                    our
                    competitors;





·
            announcements
                regarding the disposition of all or a significant portion of the
                assets
                that comprise our Car and Truck Wash Segment, which may or may not
                be on
                favorable terms;





·
            technological
                innovations or new commercial products developed by us or our
                competitors;





·
            changes
                in our, or our suppliers’ intellectual property
                portfolio;





·
            issuance
                of new or changed securities analysts’ reports and/or recommendations
                applicable to us or our
                competitors;





·
            additions
                or departures of our key personnel;





·
            operating
                losses by us;


·
              actual
                  or anticipated fluctuations in our quarterly financial and operating
                  results and degree of trading liquidity in our common stock;
                  and




·
            our
                ability to maintain our common stock listing on the Nasdaq Global
                Market.





One
      or
      more of these factors could cause a decline in our revenues and income or in
      the
      price of our common stock, thereby reducing the value of an investment in our
      Company.


14




***We
      have failed to file our Form 10-K for the year ended December 31, 2006 and
      our
      Form 10-Q for the quarter ended March 31, 2007 when required, and the failure
      may result in the loss of our listing on the Nasdaq National Market. The loss
      of
      our Nasdaq National Market listing would make our stock significantly less
      liquid and would adversely affect its value.***





On
      May
      17, 2007, the Company received a Nasdaq Staff Determination that the Company
      was
      not in compliance with Marketplace Rule 4310(c)(14)
      for failing to timely file its Quarterly Report on Form 10-Q
      for
      the quarter ended March 31, 2007 (“Form 10-Q”). The May 17, 2007 Staff
      Determination was in addition to the Nasdaq Staff Determination received by
      the
      Company on April 18,
      2007,
      regarding the Company being in violation of Marketplace Rule 4310(c)(14) for
      not
      timely filing its Annual Report on Form 10-K
      for
      the year ended December 31,
      2006
      (“Form 10-K”). The non-compliance with Marketplace Rule 4310(c)(14) makes the
      Company’s common stock subject to being delisted from The Nasdaq Stock Market.
      On May 31, 2007, the Company attended a hearing with respect to the May 17,
      2007
      and April 18, 2007 Nasdaq Staff Determinations before the Nasdaq Listing
      Qualifications Panel (“Panel”) to request an exception to its non-compliance
      with Marketplace Rule 4310(c)(14).
      By operation of Marketplace Rule 4805(a), the delisting of the Company’s common
      stock is stayed pending the Panel’s review and determination. The Panel has not
      yet issued its ruling. There can be no assurance that the Panel will grant
      an
      exception to the Company allowing the Company’s common stock to remain
      listed.





Upon
      delisting, our stock would be traded over-the-counter, more commonly known
      as
      OTC. OTC transactions involve risks in addition to those associated with
      transactions in securities traded on the Nasdaq National Market. Many OTC stocks
      trade less frequently and in smaller volumes than Nasdaq-Listed Stocks.
      Accordingly, our stock would be less liquid than it would otherwise be. Also,
      the values of these stocks may be more volatile than Nasdaq-Listed Stocks.
      If
      our stock is traded in the OTC market and a market maker sponsors us, we may
      have the price of our stock electronically displayed on the OTC Bulletin Board,
      or OTCBB. However, if we lack sufficient market maker support for display on
      the
      OTCBB, we must have our price published by the National Quotations Bureau LLP
      in
      a paper publication known as the “Pink Sheets.” The marketability of our stock
      will be even more limited if our price must be published on the “Pink
      Sheets.”





***We
      could lose our listing on the Nasdaq Global Market if our stock price falls
      below $1.00 for 30 consecutive days, and the loss of the listing would make
      our
      stock significantly less liquid and would affect its
      value.***





Our
      common stock is listed on Nasdaq Global Market with a closing price of $2.47
      at
      the close of the market on June 25, 2007. Although the recent closing prices
      of
      our stock have been well in excess of $1.00, in 2004 our stock traded at a
      price
      as low as $1.78. If the price of our common stock falls below $1.00 and for
      30
      consecutive days remains below $1.00, we would be subject to being delisted
      from
      the Nasdaq Global Market. Upon delisting from the Nasdaq Global Market, our
      stock would be traded on the Nasdaq SmallCap Market until we maintain a minimum
      bid price of $1.00 for 30 consecutive days at which time we would be able to
      regain our listing on the Nasdaq Global Market. If our stock fails to maintain
      a
      minimum bid price of $1.00 for 30 consecutive days during a 180-day grace period
      on the Nasdaq SmallCap Market or a 360-day grace period if compliance with
      certain core listing standards are demonstrated, we could receive a delisting
      notice from the Nasdaq SmallCap Market. Upon delisting from the Nasdaq SmallCap
      Market, our stock would be traded over-the-counter, more commonly known as
      OTC.
      OTC transactions involve risks in addition to those associated with transactions
      in securities traded on the Nasdaq Global Market or the Nasdaq SmallCap Market
      (together “Nasdaq-Listed Stocks”). Many OTC stocks trade less frequently and in
      smaller volumes than Nasdaq-Listed Stocks. Accordingly, our stock would be
      less
      liquid than it would otherwise be. Also, the values of these stocks may be
      more
      volatile than Nasdaq-Listed Stocks. If our stock is traded in the OTC market
      and
      a market maker sponsors us, we may have the price of our stock electronically
      displayed on the OTC Bulletin Board, or OTCBB. However, if we lack sufficient
      market maker support for display on the OTCBB, we must have our price published
      by the National Quotations Bureau LLP in a paper publication known as the “Pink
      Sheets.” The marketability of our stock would be even more limited if our price
      must be published on the “Pink Sheets.”


***Because
        we are a Delaware corporation, it may be difficult for a third party to acquire
        us, which could affect our stock price.***
 
 We
        are
        governed by Section 203 of the Delaware General Corporation Law, which prohibits
        a publicly held Delaware corporation from engaging in a “business combination”
with an entity who is an “interested stockholder” (as defined in Section 203, an
        owner of 15% or more of the outstanding stock of the corporation) for a period
        of three years following the shareholders becoming an “interested shareholder”,
        unless approved in a prescribed manner. This provision of Delaware law may
        affect our ability to merge with, or to engage in other similar activities
        with,
        some other companies. This means that we may be a less attractive target
        to a
        potential acquirer who otherwise may be willing to pay a premium for our
        common
        stock above its market price.


15




***If
      we issue our authorized preferred stock, the rights of the holders of our common
      stock may be affected and other entities may be discouraged from seeking to
      acquire control of our Company.***





Our
      certificate of incorporation authorizes the issuance of up to 10 million shares
      of “blank check” preferred stock that could be designated and issued by our
      board of directors to increase the number of outstanding shares and thwart
      a
      takeover attempt. No shares of preferred stock are currently outstanding. It
      is
      not possible to state the precise effect of preferred stock upon the rights
      of
      the holders of our common stock until the board of directors determines the
      respective preferences, limitations, and relative rights of the holders of
      one
      or more series or classes of the preferred stock. However, such effect might
      include: (i) reduction of the amount otherwise available for payment of
      dividends on common stock, to the extent dividends are payable on any issued
      shares of preferred stock, and restrictions on dividends on common stock if
      dividends on the preferred stock are in arrears, (ii) dilution of the voting
      power of the common stock to the extent that the preferred stock has voting
      rights, and (iii) the holders of common stock not being entitled to share in
      our
      assets upon liquidation until satisfaction of any liquidation preference granted
      to the holders of our preferred stock.





The
      “blank check” preferred stock may be viewed as having the effect of discouraging
      an unsolicited attempt by another entity to acquire control of us and may
      therefore have an anti-takeover effect. Issuances of authorized preferred stock
      can be implemented, and have been implemented by some companies in recent years,
      with voting or conversion privileges intended to make an acquisition of a
      company more difficult or costly. Such an issuance, or the perceived threat
      of
      such an issuance, could discourage or limit the stockholders’ participation in
      certain types of transactions that might be proposed (such as a tender offer),
      whether or not such transactions were favored by the majority of the
      stockholders, and could enhance the ability of officers and directors to retain
      their positions.





***Our
      policy of not paying cash dividends on our common stock could negatively affect
      the price of our common stock.***





We
      have
      not paid in the past, and do not expect to pay in the foreseeable future, cash
      dividends on our common stock. We expect to reinvest in our business any cash
      otherwise available for dividends. Our decision not to pay cash dividends may
      negatively affect the price of our common stock.





**ITEM
      2.**  **PROPERTIES**





Our
      corporate headquarters is located in Mount Laurel, New Jersey. We rent
      approximately 10,000 square feet of space at a current annual cost of
      approximately $222,000.


**Car
        and Truck Wash Properties** .
        Our
        principal fixed assets are our car wash facilities used for performing car
        care
        services which are described under *Item
        1. Business* .
        The 46
        car wash facilities operated by us as of December 31, 2006 are situated on
        sites
        we own or lease. As of December 31, 2006, we owned 38 and leased eight of
        our
        car wash facilities. As of May 31, 2007, we own 23 and lease two car wash
        facilities. The locations of our car washes and the services offered at the
        locations are set forth in summary fashion in the chart
        below.




**Locations****(1)**
            
            **Type
                of**
              **Car
                Wash****(2)**
            
            **Number
                of**
              **Facilities
                as of**
              **December
                31, 2006**
            
            **Number
                of Facilities as of**
              **May
                31, 2007**Philadelphia,
                Pennsylvania Area
            
            Full
                Service
              Exterior
                Washes
            
            3
              2
            
            0
              0Southern
                New Jersey Area
            
            Full
                Service
              Exterior
                Washes
            
            1
              3
            
            0
              2Smyrna,
                Delaware
            
            Exterior
                Wash
            
            1
            
            0


Phoenix,
                Arizona Area
            
            Full
                Service
            
            12
            
            0Dallas,
                Texas Area
            
            Full
                Service
              Self
                Serve /Lube
            
            7
              1
            
            6
              1Austin,
                Texas
            
            Full
                Service
            
            3
            
            3Lubbock,
                Texas
            
            Full
                Service
            
            3
            
            3




16




Sarasota,
                Florida Area
            
            Full
                Service
            
            6
            
            6San
                Antonio, Texas
            
            Full
                Service
            
            4
            
            4




(1)
              The
                  majority of our locations are owned, except for the following number
                  of
                  locations which are leased:


(i)
            Philadelphia,
                Pennsylvania (2)


(ii)
            Smyrna,
                Delaware (1)


(iii)
            Phoenix,
                Arizona Area(3)


(iv)
            Dallas,
                Texas Area(2)





(2)
            Several
                locations also offer other consumer products and related car care
                services, such as professional detailing services (currently offered
                at 22
                locations), oil and lubrication services (currently offered at eight
                locations), gasoline dispensing services (currently offered at 11
                locations), state inspection services (currently offered at seven
                locations), convenience store sales (currently offered at one location)
                and merchandise store sales (currently offered at 22
                locations).





We
      own
      real estate, buildings, equipment, and other properties that we employ in
      substantially all of our car washes. We expect to make investments in additional
      equipment and property as deemed necessary to insure the car washes operate
      properly.





Many
      of
      our car washes are encumbered by first mortgage loans. Of the 46 car washes
      owned or leased by us at December 31, 2006, 24 properties and related equipment
      with a net book value totaling $38.8 million secured first mortgage loans
      totaling $22.9 million and 22 properties were not encumbered.





We
      also
      own five truck wash facilities. We own the buildings and equipment at each
      of
      our truck washes, and lease the land for all of our truck wash facilities except
      for the Amarillo, Texas land which we own and which is encumbered by debt of
      $274,000 at
      December 31, 2006. The truck wash facilities are leased to a third
      party.





**Security
      Segment Properties** .
      The
      operations of our electronic surveillance product operations are located in
      Ft.
      Lauderdale, Florida and Farmers Branch, Texas. The operations of our personal
      defense and law enforcement aerosol business, including administration and
      sales, and all of its production facilities are located in Bennington, Vermont.
      Commencing May 1, 2002, we leased approximately 44,000 square feet of space
      in a
      building from Vermont Mill Properties, Inc. (“Vermont Mill”) at an annual cost
      of $127,000. Vermont Mill is controlled by Jon E. Goodrich, a director of the
      Company through December 2003 and a current employee of the Company. We
      purchased a 20,000 square foot facility in June 2004 in Ft. Lauderdale, Florida,
      where our professional electronic surveillance products and components are
      warehoused and sold. Since December 2005, we lease approximately 3,000 square
      feet of administrative office space in Ft. Lauderdale, Florida to support our
      security segment operations at an annual cost of approximately $119,000. In
      August 2004, we purchased a 45,000 square foot facility in Farmers Branch,
      Texas
      where our consumer “do it yourself” electronic surveillance products and
      components and our high end camera products are warehoused and sold. The Farmers
      Branch facility is secured by a first mortgage loan in the amount of $760,000
      at
      December 31, 2006.





**ITEM
      3.**  **LEGAL
      PROCEEDINGS**




On
      March
      13, 2006, the Company was served with a search warrant issued by the United
      States District Court for the District of New Jersey relating to a criminal
      immigration investigation. A search of the Company’s headquarters and four out
      of the Company’s 48 car washes was conducted by representatives of the United
      States Department of Investigations and Customs Enforcement and certain other
      agencies. Three of the car washes searched are located in Pennsylvania and
      the
      fourth is located in New Jersey. Documents were seized and a number of car
      wash
      employees of Car Care, Inc., a wholly-owned subsidiary of the Company, were
      taken into custody by the United States immigration authorities. The Company
      was
      also served with a federal grand jury subpoena seeking similar documents. The
      Company has completed its response to the subpoena. The Company has been
      informed by the government that it is a subject of the government’s
      investigation. The Company’s Audit Committee retained independent outside
      counsel (“Special Counsel”) to conduct an independent investigation of the
      Company’s hiring practices at the Company’s car washes and other related
      matters. Special Counsel provided a written summary of findings on April 18,
      2006 to the Company’s Audit Committee. The investigative findings included,
      among other things, a finding that the Company’s internal controls for financial
      reporting at the corporate level are adequate and appropriate, and that there
      is
      no financial statement impact implicated by the Company’s hiring practices,
      except for a potential contingent liability. Beginning on April 21, 2006,
      Special Counsel began to receive for review some additional and previously
      requested but unavailable documents and information, including the documents
      the
      government seized on March 13, 2006. On May 18, 2006, Special Counsel issued
      its
      Review of Information Supplemental to Internal Investigation which stated that
      the review of the additional documents and information had not changed the
      conclusions contained in the April 18, 2006 summary of findings. The Company
      has
      hired a Human Resources Manager and has incorporated additional internal control
      procedures at the corporate, regional and site level to further enhance the
      existing internal controls with respect to the Company’s hiring procedures at
      the car wash locations to prevent the hiring of undocumented workers. There
      is a
      possibility that the United States Attorney for the Eastern District of
      Pennsylvania may prosecute the Company at the conclusion of its investigation.
      Violations of law may result in civil, administrative or criminal fines or
      penalties. Due to the ongoing nature of the criminal investigation, it is not
      possible at this time to predict the outcome of the investigation or the impact
      of costs of ultimately resolving this matter on our results of operations or
      financial condition. However, any fees, expenses, fines or penalties which
      might
      be incurred by the Company in connection with the hiring of undocumented workers
      may have a material impact on the Company’s results of operations and financial
      condition. The Company has made no provision for any future costs associated
      with the investigations or any future costs associated with the Company’s
      defense or negotiations with governmental authorities to resolve these
      outstanding issues.




17




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





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.





**ITEM
      4.**  **SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY HOLDERS**





The
      Annual Meeting of the stockholders of Mace Security International, Inc. was
      held
      December 8, 2006. A proposal for the election of five directors to the Board
      of
      Directors for one-year terms was submitted to a vote.





The
      proposal was adopted by the shareholders. The voting was as
      follows:




Directors:
            
            Votes
                For
            
            Votes
                WitheldLouis
              D. Paolino, Jr.
            
            
            11,081,320
            
            
            3,087,967Mark
              S. Alsentzer
            
            
            10,982,210
            
            
            3,187,077Matthew
              J. Paolino
            
            
            11,009,284
            
            
            3,160,003Constantine
              N. Papadakis, Ph.D
            
            
            11,113,056
            
            
            3,056,231Burton
              Segal
            
            
            11,115,101
            
            
            3,054,186




**PART
      II**





**ITEM
      5.**  **MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS**  **AND
      ISSUER PURCHASES OF EQUITY SECURITIES**





**(a)
      Market Price and Dividends of the Registrant’s Common
      Equity**





Our
      common stock is traded and quoted on the Nasdaq Global Market under the trading
      symbol "MACE". Common stock price reflects inter-dealer quotations, does not
      include retail markups, markdowns or commissions and does not necessarily
      represent actual transactions.


The
        following table sets forth, for the quarters indicated, the high and low
        sale
        prices per share for our common stock, as reported by
        Nasdaq.


Year
                  Ending December 31, 2005
              
              **HIGH**
              
              **LOW**First
                  Quarter
              
              $
              4.90
              
              $
              2.55Second
                  Quarter
              
              
              2.96
              
              
              2.05Third
                  Quarter
              
              
              3.55
              
              
              2.32Fourth
                  Quarter
              
              
              2.92
              
              
              2.28Year
                  Ending December 31, 2006First
                  Quarter
              
              $
              2.71
              
              $
              2.25Second
                  Quarter
              
              
              2.87
              
              
              2.28Third
                  Quarter
              
              
              2.59
              
              
              2.13Fourth
                  Quarter
              
              
              2.68
              
              
              2.24Year
                  Ending December 31, 2007First
                  Quarter
              
              $
              2.99
              
              $
              2.50Second
                  Quarter
              
              
              2.73
              
              
              2.37(Through
                  June 25, 2007)





18




The
      closing price for our common stock on June 25, 2007, was $2.47. For purposes
      of
      calculating the aggregate market value of our shares of common stock held by
      non-affiliates, as shown on the cover page of this report, it has been assumed
      that all the outstanding shares were held by non-affiliates except for the
      shares held by our directors and executive officers and stockholders owning
      10%
      or more of our outstanding shares. However, this should not be deemed to
      constitute an admission that all such persons are, in fact, affiliates of the
      Company, or that there are not other persons who may be deemed to be affiliates
      of the Company. For further information concerning ownership of our securities
      by executive officers, directors and principal stockholders, see *Item
      12, Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters.*





As
      of
      June 25, 2007, we had 142 stockholders of record and approximately 4,474
      beneficial owners of our common stock. We have not paid dividends in the
      proceeding two years and do not anticipate paying any cash dividends in the
      foreseeable future. We intend to retain all working capital and earnings, if
      any, for use in our operations and in the expansion of our business. Any future
      determination with respect to the payment of dividends will be at the discretion
      of our Board of Directors and will depend upon, among other things, our results
      of operations, financial condition and capital requirements, the terms of any
      then existing indebtedness, general business conditions, and such other factors
      as our Board of Directors deems relevant. Certain of our credit facilities
      prohibit or limit the payment of cash dividends without prior bank
      approval.




19


**(c)
      Stock Performance Graph**




The
      following line graph and table compare, for the five most recently concluded
      fiscal years, the yearly percentage change in the cumulative total stockholder
      return, assuming reinvestment of dividends, on the Company’s common stock with
      the cumulative total return of companies on the Nasdaq Stock Market and an
      index
      comprised of certain companies in similar service industries (the “Selected Peer
      Group Index”). (1)




pg20


(1)
            The
                Selected Peer Group Index is comprised of securities of Lo Jack Corp.,
                Napco Security Systems Inc., Rockford Corporation, Taser International
                Inc., and Vicon Industries Inc. IPIX Corporation was eliminated from
                the
                selected peer group in 2006 since its stock ceased to trade during
                2006.
                There can be no assurance that the Company’s stock performance will
                continue into the future with the same or similar trends depicted
                by the
                graph above. The Company neither makes nor endorses any predictions
                as to
                future stock performance.




20




**COMPARISON
      OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG MACE SECURITY INTERNATIONAL,
      INC., THE NASDAQ MARKET INDEX, AND SELECTED PEER GROUP**





December
                31,2001
            
            2002
            
            2003
            
            2004
            
            2005
            
            2006Mace
                Security International, Inc.
            
            
            100.00
            
            
            121.51
            
            
            121.51
            
            
            279.07
            
            
            143.60
            
            
            148.84Selected
                Peer Group
            
            
            100.00
            
            
            79.00
            
            
            191.85
            
            
            595.31
            
            
            329.75
            
            
            283.14Nasdaq
                Market Index
            
            
            100.00
            
            
            69.75
            
            
            104.88
            
            
            113.70
            
            
            116.19
            
            
            128.12





The
      Performance Graph set forth above shall not be deemed incorporated by reference
      into any filing under the Securities Act or the Exchange Act by virtue of any
      general statement in such filing incorporating this Form 10-K by reference,
      except to the extent that the Company specifically incorporates the information
      contained in this section by reference, and shall not otherwise be deemed filed
      under either the Securities Act or the Exchange Act.


**(d)
        Recent Sales of Unregistered Securities**





During
      2006, we did not sell any securities that were not registered under the
      Securities Act of 1933 at the time of sale.





**(e)
      Issuer Purchases of Securities**





**Period**
            
            **Total
                Number of Shares Purchased**
            
            **Average
                Price Paid per Share**
            
            **Total
                Number of Share Purchased as part of Publicly Announced Plans or
                Programs**
            
            **Approximate
                Dollar Value of Shares that May Yet Be Purchased Under the Plans
                or
                Programs (1)**October
                1 to October 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000November
                1 to November 30, 2006
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000December
                1 to December 31, 2006
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000Total
            
            
            -
            
            
            -
            
            
            -





(1)
            On
                July 29, 2004, the Company’s Board of Directors approved a share
                repurchase program to allow the Company to repurchase up to an aggregate
                $3,000,000 of its common shares in the future if market conditions
                so
                dictate. During 2006,the Company did not repurchase any shares.





21


**ITEM
      6.**  **SELECTED
      FINANCIAL DATA**





The
      information below was derived from our Consolidated Financial Statements
      included in this report and in reports we have previously filed with the United
      States Securities and Exchange Commission (”SEC”). This information should be
      read together with those financial statements and the Notes to the Consolidated
      Financial Statements. For more information regarding this financial data, see
      the *Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations* section
      also included in this report.





**Statement
                of Operations Data:**
            
            **Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**(In
                thousands, except share information)Revenues:Car
                wash and detailing services
            
            $
            19,063
            
            $
            20,460
            
            $
            19,445
            
            $
            21,342
            
            $
            22,722Lube
                and other automotive services
            
            
            3,445
            
            
            3,232
            
            
            3,317
            
            
            3,977
            
            
            4,019Fuel
                and merchandise sales
            
            
            3,341
            
            
            4,162
            
            
            3,624
            
            
            3,127
            
            
            2,800Security
                sales
            
            
            23,366
            
            
            24,909
            
            
            16,632
            
            
            5,581
            
            
            2,49849,215
            
            
            52,763
            
            
            43,018
            
            
            34,027
            
            
            32,039Cost
                of revenues:Car
                wash and detailing services
            
            
            14,733
            
            
            14,523
            
            
            13,691
            
            
            15,320
            
            
            15,206Lube
                and other automotive services
            
            
            2,727
            
            
            2,441
            
            
            2,553
            
            
            3,041
            
            
            3,127Fuel
                and merchandise sales
            
            
            3,026
            
            
            3,733
            
            
            3,243
            
            
            2,789
            
            
            2,443Security
                sales
            
            
            17,427
            
            
            17,658
            
            
            11,989
            
            
            3,485
            
            
            1,52337,913
            
            
            38,355
            
            
            31,476
            
            
            24,635
            
            
            22,299Selling,
                general and administrative expenses
            
            
            16,868
            
            
            13,116
            
            
            10,753
            
            
            7,713
            
            
            6,620Depreciation
                and amortization
            
            
            1,621
            
            
            1,539
            
            
            1,497
            
            
            1,280
            
            
            1,224Costs
                of terminated acquisitions
            
            
            -
            
            
            -
            
            
            53
            
            
            -
            
            
            57Goodwill
                and asset impairment charges
            
            
            151
            
            
            1,563
            
            
            6,727
            
            
            9
            
            
            325Operating
                (loss) income
            
            
            (7,338
            )
            
            (1,810
            )
            
            (7,488
            )
            
            390
            
            
            1,514Interest
                expense, net
            
            
            (961
            )
            
            (869
            )
            
            (885
            )
            
            (878
            )
            
            (1,058
            )Other
                income
            
            
            1,093
            
            
            630
            
            
            197
            
            
            188
            
            
            165Income
                from operating agreement
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            80(Loss)
                income from continuing operations before income taxes
            
            
            (7,206
            )
            
            (2,049
            )
            
            (8,176
            )
            
            (300
            )
            
            701Income
                tax expense (benefit)
            
            
            156
            
            
            2,448
            
            
            (2,943
            )
            
            (104
            )
            
            252(Loss)
                income from continuing operations
            
            
            (7,362
            )
            
            (4,497
            )
            
            (5,233
            )
            
            (196
            )
            
            449Income
                (loss) from discontinued operations, net of tax
            
            
            580
            
            
            (523
            )
            
            (1,177
            )
            
            (3,337
            )
            
            (506
            )Loss
                before cumulative effect of change in accounting principle
            
            
            (6,782
            )
            
            (5,020
            )
            
            (6,410
            )
            
            (3,533
            )
            
            (57
            )Cumulative
                effect of change in accounting principle, net of tax benefitof
                $2,188
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,733
            )Net
                loss
            
            $
            (6,782
            )
            $
            (5,020
            )
            $
            (6,410
            )
            $
            (3,533
            )
            $
            (5,790
            )Basic
                and Diluted loss per share(Loss)
                income from continuing operations
            
            $
            (0.48
            )
            $
            (0.30
            )
            $
            (0.38
            )
            $
            (0.01
            )
            $
            0.04Income
                (loss) from discontinued operations, net of tax
            
            $
            0.04
            
            
            (0.03
            )
            
            (0.09
            )
            
            (0.27
            )
            
            (0.04
            )Loss
                before cumulative effect of change in accounting principle
            
            $
            (0.44
            )
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            
            -Cumulative
                effect of change in accounting principle
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (0.46
            )Net
                loss
            
            $
            (0.44
            )
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            $
            (0.46
            )Weighted
                average number of shares outstanding
            
            
            15,274,498
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816
            
            
            12,630,964






**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**
            
            **2003**
            
            **2002**(In
                thousands)Balance
                Sheet Data (at end of period):Working
                capital (deficit)
            
            $
            26,556
            
            $
            14,615
            
            $
            17,471
            
            $
            270
            
            $
            (2,210
            )Intangible
                assets, net
            
            $
            4,546
            
            $
            6,148
            
            $
            6,522
            
            $
            11,614
            
            $
            14,389Total
                assets
            
            $
            87,598
            
            $
            96,111
            
            $
            102,757
            
            $
            90,602
            
            $
            96,288Long-term
                debt, including current maturities
            
            $
            23,966
            
            $
            26,674
            
            $
            29,195
            
            $
            31,286
            
            $
            33,312Stockholders’
                equity
            
            $
            56,506
            
            $
            61,650
            
            $
            66,522
            
            $
            54,212
            
            $
            57,669


22




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





The
      following discussion reviews our operations for each of the three years in
      the
      period ended December 31, 2006, and should be read in conjunction with our
      Consolidated Financial Statements and related notes thereto included elsewhere
      herein.





**FACTORS
      INFLUENCING FUTURE RESULTS AND ACCURACY OF FORWARD-LOOKING
      STATEMENTS**





This
      report includes forward looking statements within the meaning of Section 27A
      of
      the Securities Act of 1933, as amended, and Section 21E of the Securities
      Exchange Act of 1934, as amended (“Forward-Looking-Statements”). All statements
      other than statements of historical fact included in this report are
      Forward-Looking-Statements. Although we believe that the expectations reflected
      in such Forward-Looking Statements are reasonable, we can give no assurance
      that
      such expectations will prove to be correct. Generally, these statements relate
      to business plans or strategies, projected or anticipated benefits or other
      consequences of such plans or strategies, number of acquisitions, and projected
      or anticipated benefits from acquisitions made by or to be made by us, or
      projections involving anticipated revenues, earnings, levels of capital
      expenditures or other aspects of operating results. All phases of our operations
      are subject to a number of uncertainties, risks, and other influences, many
      of
      which are outside our control and any one of which, or a combination of which,
      could materially affect the results of our operations and whether
      Forward-Looking Statements made by us ultimately prove to be accurate. Such
      important factors that could cause actual results to differ materially from
      our
      expectations are disclosed in *Item
      1A. Risk Factors* of
      this
      report. All subsequent written and oral Forward-Looking Statements attributable
      to the Company or persons acting on its behalf are expressly qualified in their
      entirety by the important factors described below that could cause actual
      results to differ from our expectations. The Forward- Looking Statements made
      herein are only made as of the date of this filing, and we undertake no
      obligation to publicly update such Forward-Looking Statements to reflect
      subsequent events or circumstances.




**Introduction**





**Revenues**





***Car
      and Truck Wash Services***





We
      own
      full service, exterior only and self-service car wash locations in New Jersey,
      Pennsylvania, Delaware, Texas, Florida and Arizona, as well as truck washes
      in
      Arizona, Indiana, Ohio and Texas. We earn revenues from washing and detailing
      automobiles; performing oil and lubrication services, minor auto repairs, and
      state inspections; selling fuel; and selling merchandise through convenience
      stores within the car wash facilities. Revenues generated for 2006 for the
      Car
      and Truck Wash Segment were comprised of approximately 74% from car washing
      and
      detailing, 13% from lube and other automotive services, and 13% from fuel and
      merchandise. Additionally,
      our Arizona and certain of our Northeast region car washes and our truck washes
      are being reported as discontinued operations (see Note 4 of the Notes to
      Consolidated Financial Statements) and, accordingly, have been segregated from
      the following revenue and expense discussion. Revenues from discontinued
      operations were $14.1 million, $15.5 million and $14.6 million for the years
      ended December 31, 2006, 2005 and 2004, respectively. Operating income from
      discontinued operations was $953,000, $337,000 and a loss of $343,000 for the
      years ended December 31, 2006, 2005 and 2004 respectively.





The
      Company executed a lease-to-sell agreement on December 31, 2005 with Eagle
      to
      lease Mace’s five truck washes beginning January 1, 2006 for up to two years.
      Pursuant to the terms of the agreement, Eagle must pay Mace $9,000 per month
      to
      lease the Company’s truck washes, and is responsible for all underlying property
      expenses. By December 31, 2007, Eagle is obligated under the agreement to
      purchase the truck washes for $1.2 million consideration, consisting of $280,000
      cash and a $920,000 note payable to Mace secured by mortgages on the truck
      washes. When issued, the $920,000 note will have a five-year term, with
      principal and interest paid on a 15-year amortization schedule. If Eagle does
      not fulfill its obligation to purchase the truck washes, the Company will regain
      possession of the truck washes and Eagle will be obligated to pay $200,000
      as
      liquidated damages. As a
      result, we do not recognize revenue or operating expenses during the term of
      the
      lease other than rental income, depreciation expense and interest
      expense.





The
      majority of revenues from our Car and Truck Wash Segment are collected in the
      form of cash or credit card receipts, thus minimizing customer accounts
      receivable.


23


Weather
      has had a significant impact on volume and revenue at the individual locations.
      We believe that the geographic diversity of our operating locations in different
      regions of the country helps mitigate the risk of adverse weather-related
      influence on our volume.





***Security***





Our
      Security Segment designs, manufactures, markets and sells a wide range of
      products. The Company’s primary focus in the Security Segment is the design of
      electronic surveillance products and components that it produces and sells,
      primarily to installing dealers, system integrators and end users. Other
      products in our Security Segment include, but are not limited to,
      less-than-lethal Mace defense sprays, personal alarms, high-end digital and
      machine vision cameras and imaging components, as well as video conferencing
      equipment and monitors. The main marketing channels for our products are
      industry shows and publications, outside sales representatives, catalogs,
      internet and sales through a call center. **** Revenues
      generated for the year ended December 31, 2006 for the Security Segment were
      comprised of approximately 39% from our professional electronic surveillance
      operation in Florida, 46% from our consumer direct electronic surveillance
      and
      machine vision camera and video conferencing equipment operation in Texas,
      and
      15% from our personal defense and law enforcement aerosol operation in
      Vermont.





**Cost
      of Revenues**





***Car
      and Truck Wash Services***





Cost
      of
      revenues within the Car and Truck Wash Segment consists primarily of direct
      labor and related taxes and fringe benefits, certain insurance costs, chemicals,
      wash and detailing supplies, rent, real estate taxes, utilities, car damages,
      maintenance and repairs of equipment and facilities, as well as the cost of
      the
      fuel and merchandise sold.




***Security***





Cost
      of
      revenues within the Security Segment consists primarily of costs to purchase
      or
      manufacture the security products including direct labor and related taxes
      and
      fringe benefits, and raw material costs. Product warranty costs related to
      the
      Security Segment are mitigated in that a significant portion of customer product
      warranty claims are reimbursed by the supplier.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses consist primarily of
      management, clerical and administrative salaries, professional services,
      insurance premiums, sales commissions, and other costs relating to marketing
      and
      sales.





We
      capitalize direct incremental costs associated with business acquisitions.
      Indirect acquisition costs, such as executive salaries, corporate overhead,
      public relations, and other corporate services and overhead are expensed as
      incurred.





**Depreciation
      and Amortization**





Depreciation
      and amortization consists primarily of depreciation of buildings and equipment,
      and amortization of leasehold improvements and certain intangible assets.
      Buildings and equipment are depreciated over the estimated useful lives of
      the
      assets using the straight-line method. Leasehold improvements are amortized
      over
      the shorter of their useful lives or the lease term with renewal options.
      Intangible assets, other than goodwill or intangible assets with indefinite
      useful lives, are amortized over their useful lives ranging from three to
      fifteen years, using the straight-line method.





**Other
      Income**





Other
      income consists primarily of rental income received on renting out excess space
      at our car wash facilities and includes gains and losses on the sale of property
      and equipment and gains and losses on short-term investments.





**Income
      Taxes**





Income
      tax expense is derived from tax provisions for interim periods that are based
      on
      the Company’s estimated annual effective rate. Currently, the effective rate
      differs from the federal statutory rate primarily due to state and local income
      taxes, non-deductible costs related to acquired intangibles, fixed asset
      adjustments, and changes to the valuation allowance.


24


**Results
      of Operations for the Three Years Ended December 31, 2006**





The
      following table presents the percentage each item in the consolidated statements
      of operations bears to total revenues:





**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues
            
            
            100.0
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            77.0
            
            
            72.7
            
            
            73.2Selling,
                general and administrative expenses
            
            
            34.3
            
            
            24.8
            
            
            25.0Depreciation
                and amortization
            
            
            3.3
            
            
            2.9
            
            
            3.5Costs
                of terminated acquisitions
            
            
            -
            
            
            -
            
            
            0.1Goodwill
                and asset impairment charges
            
            
            0.3
            
            
            3.0
            
            
            15.6Operating
                loss
            
            
            (14.9
            )
            
            (3.4
            )
            
            (17.4
            )Interest
                expense, net
            
            
            (2.0
            )
            
            (1.7
            )
            
            (2.1
            )Otherincome
            
            
            2.2
            
            
            1.2
            
            
            0.5Loss
                from continuing operations before income taxes
            
            
            (14.7
            )
            
            (3.9
            )
            
            (19.0
            )Income
                tax expense (benefit)
            
            
            0.3
            
            
            4.6
            
            
            (6.8
            )Loss
                from continuing operations
            
            
            (15.0
            )
            
            (8.5
            )
            
            (12.2
            )Income
                (loss) from discontinued operations, net of tax
            
            
            1.2
            
            
            (1.0
            )
            
            (2.7
            )Net
                loss
            
            
            (13.8
            )%
            
            (9.5
            )%
            
            (14.9
            )%




**Revenues**





***Car
      and Truck Wash Services***





Revenues
      for the year ended December 31, 2006 were $25.9 million as compared to $27.9
      million for the year ended December 31, 2005, a decrease of $2.0 million or
      7.0%. This decrease was primarily attributable to a decrease in wash and detail
      services. Of
      the $25.9
      million of revenues for the year ended December 31, 2006, $19.1 million or
      74 % was
      generated from car wash and detailing, $3.5 million or
      13% from
      lube and other automotive services, and $3.3 million or 13% from fuel and
      merchandise sales. Of the $27.9 million of revenues for the year ended December
      31, 2005, $20.5 million or 73% was generated from car wash and detailing, $3.2
      million or 12% from lube and other automotive services, and $4.2 million or 15%
      from fuel and merchandise sales. The
      decrease in wash and detail revenues in 2006 was principally due to the sale
      of
      car wash sites and reduced car wash volumes principally in our Dallas, Texas
      market. C ar
      wash
      volumes declined 112,000 cars or 8.5% in 2006 as compared to 2005. The closure
      and divestiture of three of our car wash locations since November, 2005 resulted
      in a car wash reduction of 79,000 cars of the 112,000 car reduction in 2006.
      Partially offsetting this decline in volume, the Company experienced an increase
      in average wash and detailing revenue per car to $15.87 in 2006, from $15.54
      in
      the same period in 2005. This increase in average wash and detailing revenue
      per
      car was the result of management’s continued focus on aggressively selling
      detailing and additional on-line car wash services. Management expects car
      wash
      volumes and revenues to continue at historic levels consistent with weather
      patterns.




Revenues
      for the year ended December 31, 2005 were $27.9 million as compared to
      $26.4 million
      for the year ended December 31, 2004, an increase of $1.5 million or 5.6%.
      Of
      the $27.9 million of revenues for the year ended December 31, 2005, $20.5
      million or 73% was generated from car wash and detailing, $3.2 million or 12%
      from lube and other automotive services, and $4.2 million or 15% from fuel
      and
      merchandise sales. Of the $26.4 million of revenues for the year ended December
      31, 2004, $19.5 million or 74% was generated from car wash and detailing, $3.3
      million or 12% from lube and other automotive services, and $3.6 million or
      14%
      from fuel and merchandise sales. The increase in wash and detailing revenues
      was
      principally due **** to **** an
      overall increase in consumer spending combined with an improvement in weather
      trends. This improvement was partially offset by a decline in volumes and
      revenues in the Florida region as a result of several severe hurricanes and
      related storm warnings. The Company also experienced reduced volumes in 2005
      from the divesting of two of its car wash locations in the first half of 2004.
      Overall car wash volumes increased 42,000 cars or 3.3% in 2005 as compared
      to
      2004. In addition to this increase in volume, the Company experienced an
      increase in average car wash and detailing revenues per car to $15.54 in 2005,
      from $15.25 in 2004. This increase in average wash and detailing revenue per
      car
      was the result of management’s continued focus on aggressively selling detailing
      and additional on-line car wash services. The increase in fuel and merchandise
      revenues was primarily the result of higher fuel prices and the addition of
      higher quality merchandise in our car wash lobbies.




25





***Security***





Revenues
      were approximately $23.4 million, $24.9 million and $16.6 million for the years
      ended December 31, 2006, 2005 and 2004, respectively. Of the $23.4 million
      of
      revenues for year ended December 31, 2006, $9.1 million, or 39%, was generated
      from our professional electronic surveillance operation in Florida, $10.8
      million, or 46%, from our consumer direct electronic surveillance and high
      end
      digital and machine vision cameras and professional imaging components operation
      in Texas, and $3.5 million, or 15%, from personal defense and law enforcement
      aerosol operations in Vermont. Of the $24.9 million of revenues for the year
      ended December 31, 2005, $8.4 million, or 34%, was generated from our
      professional electronic surveillance operation in Florida, $13.0 million, or
      52%, from our consumer direct electronic surveillance and high end digital
      and
      machine vision cameras and professional imaging components operation in Texas,
      and $3.5 million, or 14%, from our personal defense and law enforcement aerosol
      operation in Vermont. Of the $16.6 million of revenues for the year ended
      December 31, 2004, $6.0 million, or 36%, was generated from our professional
      electronic surveillance operations in Florida, $7.8 million, or 47%, from our
      consumer direct electronic surveillance and high end digital and machine vision
      cameras and professional imaging components operation in Texas, and $2.8 million
      or 17%, for our personal defense and law enforcement aerosol operations in
      Vermont. The decrease in revenues within the Security Segment in 2006 as
      compared to 2005 was due principally to a decrease in our high end digital
      and
      machine vision cameras and professional imaging components sales and to a lesser
      extent in our consumer direct electronic surveillance and retail sales in our
      Texas operations. This decrease was partially offset by Securetek operations,
      which we acquired in November of 2005 and integrated into our Ft. Lauderdale,
      Florida operations and provided approximately $1.5 million of revenue in the
      year ended December 31, 2006 compared to $179,000 in 2005, which we acquired
      in
      November of 2005. We also experienced an increase in our sales of professional
      electronic surveillance equipment sales in our Ft. Lauderdale, Florida
      operations, partially offset by a decrease in sales of our Vernex monitor
      through a decision to eliminate the sale of plasma monitors and sales of
      monitors to large distributors. The increase in revenues from 2004 to 2005
      was
      due principally to internal growth of approximately $2.5 million in sales within
      our professional electronic surveillance equipment operation in Florida, $5.2
      million of sales growth generated by our consumer direct electronic surveillance
      and high end digital and machine vision cameras and professional imaging
      components operation in Texas in 2005, which we acquired in July of 2004 and
      therefore contributed revenues for only six months in 2004, and sales growth
      of
      $0.8 million generated by the Company’s personal defense products operations in
      Vermont. Additionally, our professional electronic surveillance operation in
      Florida experienced higher than historic product returns due to increase sales
      to distributors and technical issues related to certain new product
      offerings.





**Cost
      of Revenues**





***Car
      and Truck Wash Services***





Cost
      of
      revenues for the year ended December 31, 2006 were $20.5 million,
      or 79% of revenues, with car washing and detailing costs at 77% of
      respective revenues, lube and other automotive services costs at 79% of
      respective revenues, and fuel and merchandise costs at 91% of
      respective revenues. Cost of revenues for the year ended December 31 ,
      2005
      were $20.7 million,
      or 74% of revenues, with car washing and detailing costs at 71% of respective
      revenues, lube and other automotive services costs at 76% of respective
      revenues, and fuel and merchandise costs at 90% of respective revenues. This
      increase in car washing and detailing costs as a percent of revenues in 2006
      was
      a result of an increase in labor as a percent of car wash and detailing revenues
      from 48.7% in 2005 to 52.0% in 2006 combined with an increase in workers’
compensation and car damage claims, utility costs, and wash and detail chemicals
      and supplies.





Cost
      of
      revenues for the year ended December 31, 2005 were $20.7 million or 74% of
      revenues with car washing and detailing costs at 71% of respective revenues,
      lube and other automotive services costs at 76% of respective revenues, and
      fuel
      and merchandise costs at 90% of respective revenues. Cost of revenues for the
      year ended December 31, 2004 was $19.5 million ,
      or
      74 %
      of
      revenues with car wash and detailing costs at 70% of respective revenues, lube
      and other automotive services costs at 77% of respective revenues, and fuel
      and
      merchandise costs at 89% of respective revenues. Cost of revenues, as a percent
      of revenues, was relatively consistent between 2004 and 2005.The Company
      experienced a slight decline in wash and detailing operating margins in 2005.




26
  ***Security***
 
 Cost
        of
        revenues were $17.4 million, or 75% of revenues, $17.7 million or 71% of
        revenues and $12.0 million or
        72 %
        of
        revenues for 2006, 2005 and 2004, respectively. The increase in cost of revenues
        as a percentage of revenues in 2006 as compared to 2005 is due to a change
        in
        customer and product mix and increased costs of adding additional technical
        and
        warehouse staff to address customer needs as we continue to grow in this
        segment. The decrease in cost of revenues in 2005 as compared to 2004 was
        principally due to growth in sales and a reduction in sales to large retailers
        at lower profit margins.


**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses
      for the year ended December 31, 2006 were $16.9 million compared
      to $13.1 million
      for the same period in 2005, an increase of approximately $3.8 million or
      29% .
      SG&A expenses as a percent of revenues were 34% for year
      ended December 31, 2006 as compared to 25% in the same period of 2005. The
      increase in SG&A costs is primarily the result of growth in infrastructure
      and an increase in marketing and advertising costs within the Security Segment,
      which added an additional $732,000 of SG&A costs in 2006; $1.4 million
      related to non-cash charges to compensation expense for stock-based compensation
      under SFAS 123(R); and $1.5 million of legal, consulting and accounting fees
      relating to the ongoing immigration investigation.  In April
      2007, we determined that our former divisional controller of our Florida
      Security division embezzled funds from the Company. We initially conducted
      an
      internal investigation, and our Audit Committee subsequently engaged a
      consulting firm to conduct an independent forensic investigation. As a result
      of
      the investigation, we identified that the amount embezzled by the employee
      during fiscal 2006 was approximately $240,000, with an additional $99,000 in
      the
      first quarter of fiscal 2007. The embezzlement occurred from a local petty
      cash
      checking account and from diversion of customer cash payments at the Florida
      Security division. Additionally, the investigation uncovered an unexplained
      inventory shortage in 2006 in the Florida Security division of approximately
      $350,000. The independent forensic consulting firm agreed with these
      conclusions. We have filed a civil complaint against the former employee in
      June, 2007 and intend to pursue all legal measures to recover our losses.
      SG&A expenses for fiscal 2006 include a charge of $240,000 representing
      embezzled funds at our Florida Security division. If we recover any of the
      embezzled funds, such amounts will be recorded as recoveries in future periods
      when they are received. Management expects SG&A costs to increase in the
      future as the Company continues to expand its security operations.





SG&A
      expenses for the year ended December 31, 2005 were $13.1 million
      compared to $10.7 million for the same period in 2004 ,
      an
      increase of approximately $2.4 million or 22%. SG&A costs as a percent of
      revenues were 25 %
      in 2005
      and 2004. The increase in SG&A costs is primarily the result of growth of
      the Security Segment, which added $2.1 million of
      SG&A costs in 2005. The SG&A cost increase in the Security Segment was
      comprised of $1.2 million related to the “do it yourself” video surveillance
      system business and the advanced imaging components and video equipment business
      acquired in July 2004 as well as a $700,000 increase in costs of our existing
      Ft. Lauderdale, Florida-based electronic surveillance equipment operation.
      These
      increases werein the areas of marketing and selling costs and administrative
      personnel costs as additional staff were added to handle planned growth.
      Corporate SG&A costs decreased slightly in 2005 as compared to 2004 due to a
      reduction in payroll costs and legal expenses, partially offset by increased
      insurance costs and increased auditing and consulting fees related to
      preparation of the audit of internal controls over financial reporting as
      required by Section 404 of the Sarbanes Oxley Act of 2002.





**Depreciation
      and Amortization**





Depreciation
      and amortization totaled $1.6 million, $1.5 million and $1.5 million for 2006,
      2005 and 2004, respectively. In the fourth quarter of 2004, the Company recorded
      an adjustment to reflect the appropriate balances for certain assets classified
      as buildings and leasehold improvements that had been depreciated using
      incorrect useful lives. Specifically, the Company recognized $55,000 in
      additional depreciation and amortization expense from continuing operations
      in
      its consolidated statement of operations for
      the
      quarter ended December 31, 2004 to correct the aforementioned error in
      accounting. We decided to record the correction in the current period and not
      restate our previously issued financial statements after taking into
      consideration (i) that the adjustment, net of applicable income taxes, did
      not
      have a material impact on the financial statements of prior interim or annual
      periods taken as a whole; and (ii) that the cumulative impact of the adjustment
      on stockholders’ equity was not material to the financial statements of prior
      interim or annual periods.




27


**Costs
      of Terminated Acquisitions**





Our
      policy is to charge as an expense any previously capitalized expenditures
      relating to proposed acquisitions that in our current opinion will not be
      consummated. The costs of previously capitalized expenditures related to
      proposed acquisitions totaled approximately $53,000 in 2004. These costs, which
      principally related to several possible acquisitions we pursued in the Security
      Segment, were primarily related to due diligence costs. There were no such
      costs
      in 2005 or 2006.





**Asset
      Impairment Charges**





In
      accordance with SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* (“SFAS
      144”), we periodically review the carrying value of our long-lived assets held
      and used, and assets to be disposed of, for possible impairment when events
      and
      circumstances warrant such a review. Assets classified as held for sale are
      measured at the lower of carrying value or fair value, net of costs to sell.





***Continuing
      Operations***





In
      the
      fourth quarter of 2005, as a result of the annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 144, we recorded an impairment
      of
      approximately $1.56 million related to our Texas region reporting unit of our
      Car and Truck Wash Segment. In the fourth quarter of 2004, we recorded an
      impairment of approximately $6.7 million related to our Texas reporting unit.
      These 2005 and 2004 impairments were principally due to reductions in future
      projected cash flows resulting from extended departures from our historic
      revenue levels as a result of inclement weather, and increased competition
      near
      several of our facilities in Texas. During
      the quarter ended September 30, 2006, we wrote down assets related to a full
      service car wash in Fort Worth, Texas by approximately $40,000. We determined
      that based on current data utilized to estimate the fair value of this car
      wash
      facility, the future expected cash flows would not be sufficient to recover
      its
      carrying value. Additionally, in the fourth quarter of 2006, as a result of the annual
      impairment test of Goodwill and Other Intangibles in accordance with SFAS 142,
      we recorded an impairment of approximately $111,000 related to our high end
      digital and machine vision cameras and professional imaging components operation
      in Texas. The impairment charge was due to reduction in our future projected
      cash flows as sales levels in this division continue to deviate from historic
      levels as a result of competitive pressures.





***Discontinued
      Operations***





During
      the year ended December 31, 2004, we wrote down assets related to our truck
      wash
      operations determined to be impaired by approximately $500,000 and we wrote
      these assets down an additional $966,000 during the quarter ended September
      30,
      2005 as a result of our SFAS 144 quarterly reviews. We have determined that
      due
      to a reduction in truck wash volumes resulting from an increase in inclement
      weather, increased competition, the significant increase in fuel costs which
      had
      the effect of reducing spending on truck washing, and demographic changes to
      certain of our facilities, their future expected cash flows would not be
      sufficient to recover their respective carrying values. The Company executed
      a
      lease-to-sell agreement on December 31, 2005 with Eagle to lease Mace’s five
      truck washes beginning January 1, 2006 for up to two years. During
      the quarter ended September 30, 2006, we wrote down assets related to a full
      service car wash in Moorestown, New Jersey , by approximately $40,000. We
      determined that based on current data utilized to estimate the fair value of
      this car wash facility, the future expected cash flows would not be sufficient
      to recover its carrying value.





**Interest
      Expense, Net**





Interest
      expense, net of interest income, for the year ended December 31, 2006 was
      $961,000 compared to $869,000 for the year ended December 31, 2005. This
      increase in interest expense was the result of an increase in interest rates
      on
      approximately 63% of our long term debt which has interest rates tied to the
      prime rate.





Interest
      expense, net of interest income, for the year ended December 31, 2005 was
      $869,000 compared to $885,000 for 2004.




**Other
      Income**





Other
      income was $1.1 million, $630,000, and $197,000 for 2006, 2005 and 2004,
      respectively. The 2006 other income includes a $202,000 gain on the sale of
      our
      Deptford, New Jersey car wash site and a $461,000 gain on the sale of a Dallas,
      Texas car wash site. Included in 2005 are gains on the sale of fixed assets
      totaling $333,000 and gains on short-term investments of $264,000.




28




**Supplementary
      Cash Flow Information**





Interest
      paid on all indebtedness was approximately $2.0 million, $2.1 million and $2.0
      million for the years ended December 31, 2006, 2005 and 2004, respectively.
      Income taxes paid were approximately $160,000, $86,000 and $340,000 for the
      years ended December 31, 2006, 2005 and 2004, respectively. Noncash investing
      and financing activities of the Company excluded from the statement of cash
      flows include a property addition financed by common stock of $1.6 million,
      real
      estate partially funded by a mortgage of approximately $825,000, and the sale
      of
      property and simultaneous pay down of a related mortgage of $325,000, all in
      2004.





**Income
      Taxes**





We
      recorded income tax expense of $156,000 and $2.4 million for the years ended
      December 31, 2006 and 2005, respectively, and an income tax benefit of $2.9
      million for the year ended December 31, 2004. Income tax expense (benefit)
      reflects the recording of income taxes on loss before income taxes at effective
      rates of approximately (2)%,(119)%, and 36% for the years ended December 31,
      2006, 2005, and 2004, respectively. The effective rate differs from the federal
      statutory rate for each year primarily due to state and local income taxes,
      non-deductible costs related to intangibles, and changes to the valuation
      allowance.





Realization
      of the future tax benefits related to the deferred tax assets is dependent
      upon
      many factors, including the Company’s ability to generate taxable income in
      future years. The Company performed a detailed review of the considerations
      influencing our ability to realize the future benefit of the NOLs, including,
      the extent of recently used NOLs, the turnaround of future deductible temporary
      differences, the duration of the NOL carryforward period, and the Company’s
      future projection of taxable income. The Company increased its valuation
      allowance against deferred tax assets by $3.2 million in 2005 and $2.6 million
      in 2006 with a total valuation allowance of $6.75 million at December 31, 2006
      representing the amount of its deferred income tax assets in excess of the
      Company’s deferred income tax liabilities. The valuation allowance was recorded
      because management was unable to conclude that realization of the net deferred
      income tax asset was more likely than not. This determination was a result
      of
      the Company’s continued losses, the uncertainty of the timing of the Company’s
      transition from the Car Wash business, and the ultimate extent of growth in
      the
      Company’s Security Segment.





**Liquidity
      and Capital Resources**





***Liquidity***





Cash
      and
      cash equivalents were $4.1 million at December 31, 2006. The ratio of our total
      debt to total capitalization, which consists of total debt plus stockholders’
equity, was 29.8% at December 31, 2006, and 30.2% at December 31,
      2005. **** The
      improvements in the Company’s total debt to total capitalization ratio is
      directly related to routine principal payments on debt as noted below.





Our
      business requires a substantial amount of capital, most notably to pursue our
      expansion strategies, including our current expansion in the Security Segment,
      and for equipment purchases and upgrades for our Car and Truck Wash Segment.
      We
      plan to meet these capital needs from various financing sources, including
      borrowings, internally generated funds, cash generated from the sale of car
      washes, and the issuance of common stock if the market price of the Company’s
      stock is at a desirable level.




As
      of
      December 31, 2006, we had working capital of approximately $26.6 million.
      Working capital was approximately $14.6 million and $17.5 million at December
      31, 2005 and 2004, respectively. Our positive working capital increased by
      approximately $12.0 million from December 31, 2005 to December 31, 2006
      principally due to the reclassification of assets and liabilities of our Arizona
      region, certain of our Northeast region car washes and our truck washes at
      December 31, 2006 as assets and related liabilities, held for sale. The
      reduction in working capital at December 31, 2005 from 2004 was principally
      due
      to a use of $1.9 million of cash for the acquisition of Securetek in November
      2005. We experienced a significant improvement in working capital at December
      31, 2004, primarily attributable to: 1) $8.95 million of proceeds received
      from
      the removal of a restriction on outstanding shares of the Company’s common
      stock; 2) $9.4 million of proceeds, net of issuance costs, from the sale of
      approximately 1.9 million shares of the Company’s common stock to two private
      institutions through three separate sale transactions and the sale of 150,000
      shares of the Company’s stock to Fusion under a Master Facility Agreement; 3)
      $1.9 million of proceeds from the exercise of common stock options; and 4)
      $795,000 of proceeds from the sale of an exterior-only car wash in New Jersey
      and a full-service car wash in Arizona. Working capital was also positively
      affected in 2004 by the renewal and reclassification to non-current liabilities
      of approximately $3.3 million of 15-year amortizing loans with Chase. The
      increase in working capital in 2004 was partially offset by the use of $5.6
      million of cash for the acquisitions of IVS and S&M on July 1, 2004; capital
      expenditure investments for further growth within the Car and Truck Wash Segment
      and the Security Segment, as more fully detailed below; and the reclassification
      to current liabilities of an additional loan for $290,000 which was renewed
      in
      April 2005.





29




During
      the years ended December 31, 2006, 2005 and 2004, we made capital expenditures
      of $978,000, $1.14 million and $1.46 million, (including $384,000, $506,000,
      and
      $487,000 related to discontinued operations) respectively, within our Car and
      Truck Wash Segment. We estimate aggregate capital expenditures for our Car
      and
      Truck Wash Segment of approximately $600,000 for the year ending December 31,
      2007. We believe our current cash and short-term investment balance at December
      31, 2006 of $7.6 million, cash flow from operating activities in 2007, and
      cash
      generated from the sale of our car wash operations will be sufficient to meet
      our car wash capital expenditure funding needs through at least the next twelve
      months. In years subsequent to 2007, we estimate that our Car and Truck Wash
      Segment will require annual capital expenditures of $300,000 to $600,000
      depending upon the timing of the sale of our remaining car wash sites. Capital
      expenditures within our Car and Truck Wash Segment are necessary to maintain
      the
      efficiency and competitiveness of our sites. If the cash provided from operating
      activities does not improve in 2007 and future years and if current cash
      balances are depleted, we will need to raise additional capital to meet these
      ongoing capital requirements.





Capital
      expenditures for our Security Segment were $320,000, $424,000 and $3.8 million
      for the fiscal years ending December 31, 2006, 2005, and 2004, respectively.
      We
      used $1.9 million of cash for the acquisition of Securetek in November 2005.
      We
      spent approximately $4.9 million through June 30, 2004 in the initial
      development of our video surveillance systems operations in Ft. Lauderdale,
      Florida including the acquisition costs of Micro-Tech and Vernex and the cost
      of
      developing and purchasing inventory for our expanded product line. Additionally,
      on July 1, 2004 the Company paid approximately $5.6 million of cash for the
      acquisition of the S&M and IVS security operations. We also made capital
      expenditures in 2004 of approximately $1.9 million for the purchase and
      furnishing of a new facility in Farmers Branch, Texas for our S&M and IVS
      security operations. Approximately $825,000 of the Farmers Branch, Texas
      facility purchase price was financed with debt. We estimate capital expenditures
      for the Security Segment at approximately $100,000 to $200,000 for 2007,
      principally related to facility improvements and equipment for our Farmers
      Branch, Texas and Ft. Lauderdale, Florida operations.





We
      intend
      to continue to expend significant cash for the purchasing of inventory as we
      grow and introduce new video surveillance products in 2007 and in years
      subsequent to 2007. We anticipate that inventory purchases will be funded from
      cash collected from sales and working capital. At December 31, 2006, we
      maintained an unused and fully available $500,000 revolving credit facility
      with
      Chase to provide financing for additional video surveillance product inventory
      purchases. The amount of capital that we will spend in 2007 and in years
      subsequent to 2007 is largely dependent on the marketing success we achieve
      with
      our video surveillance systems and components. We believe our cash and
      short-term investments balance of $7.6 million at December 31, 2006, the
      revolving credit facility and cash generated from the sale of our car wash
      operations will provide for growth in 2007. Unless our operating cash flow
      improves, our growth will be limited if we deplete our cash
      balance.





Despite
      our recent operating losses, we believe our cash and short-term investment
      balance of approximately $7.6 million at December 31, 2006, cash flow from
      operating activities, cash provided from the sale of assets, and the revolving
      credit facility will be sufficient to meet its car wash and security operations
      capital expenditure and operating funding needs through at least the next twelve
      months and provide for growth in 2007.





In
      December 2004, the Company announced that it was exploring the sale of its
      car
      and truck washes. From December 2005 through May 31, 2007, we sold 24 car washes
      with total cash proceeds generated of approximately $20.8 million, net of pay
      off of related mortgage debt. In October 2006, the Company announced that
      management determined that better value for the car washes can be obtained
      by
      individual car wash site sales or sale of car washes by operating region. We
      believe we will be successful in selling additional car washes and generating
      cash for funding of current operating needs and expansion of our Security
      Segment. If the cash provided from operating activities does not improve in
      2007
      and in future years and if current cash balances are depleted, we will need
      to
      raise additional capital to meet these ongoing capital
      requirements.




In
      the past, we have been successful in obtaining
      financing by selling common stock and obtaining mortgage loans. Our ability
      to
      obtain new financing can be adversely impacted by our stock price. Our failure
      to maintain the required debt covenants on existing loans also adversely impacts
      our ability to obtain additional financing. We are reluctant to sell common
      stock at market prices below our per share book value. For the twelve month
      period ended December 31, 2006 we were in default on certain of our debt
      covenants. We obtained waivers from Chase through January 1, 2008. Our ability
      to obtain new financing will be limited if our stock price is not above our
      per
      share book value and our cash from operating activities does not improve.
      Currently, we cannot incur additional long term debt without the approval of
      one
      of our commercial lenders. The Company must demonstrate that the cash flow
      benefit from the use of new loan proceeds exceeds the resulting future debt
      service requirements.




30




***Debt
      Capitalization and Other Financing Arrangements***





At
      December 31, 2006, we had borrowings, including capital lease obligations,
      of
      approximately $24.0 million. We had three letters of credit outstanding at
      December 31, 2006, totaling $1,163,000 as collateral relating to workers’
compensation insurance policies. We maintain a $500,000 revolving credit
      facility to provide financing for additional video surveillance product
      inventory purchases. There were no borrowings outstanding under the revolving
      credit facility at December 31, 2006. The Company also maintains a $300,000
      bank
      commitment for commercial letters of credit for the importation of inventory.
      There were no outstanding commercial letters of credit under this commitment
      at
      December 31, 2006.




Several
      of our debt agreements, as amended, contain certain affirmative and negative
      covenants and require the maintenance of certain levels of tangible net worth,
      maintenance of certain unencumbered cash and marketable securities balances,
      limitations on capital spending and the maintenance of certain debt service
      coverage ratios on a consolidated level.





At
      December 31, 2006, we were not in compliance with our semi-annual consolidated
      debt coverage ratio of at least 1.25:1 related to our Capmark notes payable.
      We
      repaid this debt on May 17, 2007 with proceeds from the sale of the Arizona
      car
      washes to Twisted Cactus Enterprises, LLC. The Company’s debt coverage ratio
      related to the Capmark notes payable was .15: 1 at December 31, 2006. Capmark
      previously granted us a waiver of acceleration related to the non-compliance
      with the debt coverage ratio covenant at March 31, 2006, and for measurement
      periods through April 1, 2007. Capmark did not grant us a further waiver of
      acceleration. Accordingly, as noted above, the Capmark notes payable in the
      amount of $8.8 million are reported as a current liability included in
      liabilities related to assets held for sale.





The
      Company entered into amendments to the Chase term loan agreements effective
      September 30, 2006. The amended debt coverage ratio with Chase eliminated the
      Company’s requirement to maintain a ratio of consolidated earnings before
      interest, income taxes, depreciation and amortization to debt service.
      Additionally, the
      Chase term loan agreement also limits capital expenditures annually to $1.0
      million, requires
      the Company to provide Chase with a Form 10-K and audited financial statements
      within 120 days of the Company’s fiscal year end and a Form 10-Q within 60 days
      after the end of each fiscal quarter, and requires the maintenance of a minimum
      total unencumbered cash and marketable securities balance of $5 million. The
      Company incurred capital expenditures of $1.3 million in 2006 and did not timely
      provide the required financial statements and, accordingly, was not in
      compliance with the Chase loan agreement covenants. The Company received a
      waiver of acceleration from Chase at December 31, 2006 and for measurement
      periods through January 1, 2008 related to these covenant violations and,
      accordingly, a portion of the Chase notes payable was reflected as non-current
      on our financial statements at December 31, 2006. If we are unable to satisfy
      these covenants and we cannot obtain further waivers, the Chase notes may be
      reflected as current in future balance sheets and as a result our stock price
      may decline.





The
      Company sold or closed unprofitable or marginally profitable car wash facilities
      and a lube facility in past years and increased its prices on several occasions
      within the Car and Truck Wash Segment to help improve cash flows. If our future
      cash flows are less than expected or debt service including interest expense
      increases more than expected causing us to further default on any of the Chase
      covenants in the future, the Company will need to obtain further amendments
      or
      waivers from Chase. If the Company is unable to obtain waivers or amendments
      in
      the future, Chase debt currently totaling $12.4 million, including debt recorded
      as long-term debt at December 31, 2006, would become payable on demand by the
      financial institution upon expiration of the current waivers.





The
      Company’s ongoing ability to comply with its debt covenants under its credit
      arrangements and refinance its debt depends largely on the achievement of
      adequate levels of cash flow. If our future cash flows are less than expected
      or
      our debt service, including interest expense, increases more than expected
      causing us to further default on any of the Chase covenants in the future,
      the
      Company will need to obtain further amendments or waivers from Chase. Our cash
      flow has been and could continue to be adversely affected by weather patterns,
      economic conditions, and the requirements to fund the growth of our security
      business. In the event that non-compliance with the debt covenants should
      continue to occur, the Company would pursue various alternatives to attempt
      to
      successfully resolve the non-compliance, which might include, among other
      things, seeking additional debt covenant waivers or amendments, or refinancing
      debt with other financial institutions. If the Company is unable to obtain
      waivers or amendments in the future, Chase debt currently totaling $12.4
      million, including debt recorded as long-term debt at December 31, 2006, would
      become payable on demand by the financial institution upon expiration of its
      current waiver. There can be no assurance that further debt covenant waivers
      or
      amendments would be obtained or that the debt would be refinanced with other
      financial institutions at favorable terms. If we are unable to obtain renewals
      on maturing loans or refinancing of loans on favorable terms, our ability to
      operate would be materially and adversely affected.




31


On
      March
      13, 2006, the Company learned that the United States Attorney for the Eastern
      District of Pennsylvania is conducting a
      criminal investigation regarding the alleged hiring of undocumented workers
      at
      the Company’s car washes. See Item 3, Legal Proceedings. From March 13, 2006
      through December 31, 2006, the Company incurred $433,000 in legal, consulting
      and accounting expenses associated with the Audit Committee investigations
      and
      $796,000 associated with the governmental investigation and Company’s defense
      and negotiations with the government. In accordance with the Company’s By-Laws,
      the Company is obligated to indemnify and advance legal costs for its officers
      and directors. Due to the ongoing nature of the criminal investigation, it
      is
      not possible at this time to predict the outcome of the investigation or the
      impact of costs of ultimately resolving this matter. However, we believe that
      additional legal and other costs and expenses through 2007 may be significant
      as
      we work to resolve the criminal investigation. In addition, we may be required
      to make substantial payments for fines, penalties or settlements in connection
      with the resolution of alleged violations of laws. Any such expenses or payments
      could have a material adverse effect on our liquidity and capital
      resources.





The
      Company is obligated under various operating leases, primarily for certain
      equipment and real estate within the Car and Truck Wash Segment. Certain of
      these leases contain purchase options, renewal provisions, and contingent
      rentals for our proportionate share of taxes, utilities, insurance, and annual
      cost of living increases.





The
      following are summaries of our contractual obligations and other commercial
      commitments, including debt related to discontinued operations, at December
      31,
      2006 (in thousands):




Payments
                Due By PeriodContractual
                Obligations(1)
            
            Total
            
            Less
                than
              One
                Year
            
            One
                to Three Years
            
            Three
                to Five Years
            
            More
                Than Five YearsLong-term
                debt (2)
            
            $
            23,935
            
            $
            10,848
            
            $
            11,036
            
            $
            529
            
            $
            1,522Capital
                leases (2)
            
            
            31
            
            
            31
            
            
            -
            
            
            -
            
            
            -Minimum
                operating lease payments
            
            
            5,386
            
            
            1,042
            
            
            1,423
            
            
            975
            
            
            1,946$
            29,352
            
            $
            11,921
            
            $
            12,459
            
            $
            1,504
            
            $
            3,468





Amounts
                Expiring Per PeriodOther
                Commercial Commitments
            
            Total
            
            Less
                Than One Year
            
            One
                to Three Years
            
            Three
                to Five Years
            
            More
                Than Five YearsLine
                of credit (3)
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -
            
            $
            -Standby
                letters of credit (4)
            
            
            1,163
            
            
            1,163
            
            
            -
            
            
            -
            
            
            -$
            1,163
            
            $
            1,163
            
            $
            -
            
            $
            -
            
            $
            -





(1)
      Potential amounts for inventory ordered under purchase orders are not reflected
      in the amounts above as they are typically cancelable prior to delivery and,
      if
      purchased, would be sold within the normal business cycle.




(2)
      Related interest obligations have been excluded from this maturity schedule.
      Our
      interest payments for the next twelve month period, based on current market
      rates, are expected to be approximately $2.0 million.




(3)
      The
      Company maintains a $500,000 line of credit with Chase. There were no borrowings
      outstanding under this line of credit at December 31, 2006.




(4)
      The
      Company also maintains a $300,000 bank commitment for commercial letters of
      credit with Chase for the importation of inventory. There were no outstanding
      commercial letters of credit under this commitment at December 31, 2006.
      Outstanding letters of credit of $1,163,000 represent collateral for workers’
compensation insurance policies.





The
      Master Facility Agreement between the Company and Fusion Capital Fund II, LLC
      ("Fusion") and the Equity Purchase Agreement between the Company and Fusion
      was
      terminated on April 21, 2004. Under the Master Facility Agreement, the Company
      had entered into an Equity Purchase Agreement on April 17, 2000. Under the
      Equity Purchase Agreement, Fusion had the right and obligation to purchase
      up to
      $10 million of the Company's common stock under certain conditions. On April
      21,
      2004, the Company and Fusion entered into a termination and release agreement
      under which the Company sold Fusion 150,000 registered shares of the Company’s
      common stock at $2.32 per share and terminated the Equity Purchase
      Agreement.





32


***Cash
      Flows***





*Operating
      Activities.* Net cash
      used in operating activities totaled $3.1 million for the year ended December
      31, 2006. Cash used in operating activities in 2006 was primarily due to a
      net
      loss from continuing operations of $7.4 million offset partially by $1.4 million
      in non-cash stock based compensation charges and $1.0 million of cash provided
      by discontinued operations. Net cash provided by operating activities totaled
      $1.3 million for year ended December 31, 2005. Cash provided by operating
      activities in 2005 was primarily due to $1.4 million of cash provided by
      discontinued operations.





Net
      cash
      provided by operating activities totaled $1.3 million for the year ended
      December 31, 2005 and $1.2 million in 2004 primarily due to cash provided by
      discontinued operations of $1.4 million and $1.1 million in 2005 and 2004,
      respectively. The Company used approximately $638,000 in cash for working
      capital accounts. The cash used for working capital was mainly due to increases
      in accounts receivable, inventory and prepaid expenses as the Company continues
      to grow and expand its product offerings within its security operations. The
      Company also incurred $2.4 million of non-cash depreciation and amortization
      expense, and a non-cash reserve against deferred tax assets of $3.2
      million.





*Investing
      Activities* .
      Cash
      provided by investing activities totaled approximately $1.5 million for the
      year
      ended December 31, 2006, which includes capital expenditures of $594,000 related
      to ongoing car wash operations, $320,000 for Security Segment operations, and
      $384,0000 for discontinued operations and also includes proceeds of
      approximately $1.0 million from the sale of our Deptford, New Jersey site and
      proceeds of approximately $1.85 million from the sale of a Dallas, Texas car
      wash site.





Cash
      used
      in investing activities totaled $4.8 million for the year ended December 31,
      2005, which includes $1.9 million for the November 23, 2005 acquisition of
      Securetek, $493,000 for capital expenditures relating to ongoing car care
      operations, $420,000 for capital expenditures relating to the Security Segment,
      $506,000 for discontinued operations, and $2.6 million for the purchase of
      short-term investments. These expenditures were partially offset by proceeds
      of
      approximately $1.1 million received from the sale of fixed assets.




*Financing
      Activities* .
      Cash
      used in financing activities was approximately $2.7 million from continuing
      operations for the year ended December 31, 2006, which includes $1.2 million
      of
      routine principal payments on debt related to continuing operations, $1.0
      million of routine principal payments on debt related to discontinued
      operations, and $547,000 cash used to pay off debt relating to the Dallas,
      Texas
      car wash site sold in the third quarter of 2006. Cash used in financing
      activities was $2.6 million for the year ended December 31, 2005, which includes
      routine principal payments on debt of $1.2 million from continuing operations,
      $965,000 from discontinued operations, and $338,000 of cash used to payoff
      debt
      utilizing proceeds from the sale of a warehouse bay in Florida.





**Seasonality
      and Inflation**





The
      Company believes that its car washing and detailing operations are adversely
      affected by periods of inclement weather. In particular, long periods of rain
      and cloudy weather adversely affect our car wash volumes and related lube and
      other automotive services as people typically do not wash their cars during
      such
      periods. Additionally, extended periods of warm, dry weather, usually
      encountered during the Company’s third quarter, may encourage customers to wash
      their cars themselves which also can adversely affect our car wash business.
      The
      Company has attempted to mitigate the risk of unfavorable weather patterns
      by
      having operations in diverse geographic regions. The Company also experiences
      a
      seasonal reduction in volume during the third quarter within the Company’s
      Arizona and Florida regions as a result of a migration of a significant portion
      of those areas’ populations to cooler climates. The Company does not believe its
      security operations are subject to seasonality.




The
        Company believes that inflation and changing prices have not had, and are
        not
        expected to have, a material adverse effect on its results of operations
        in the
        near future.
 
 **Summary
        of Critical Accounting Policies**
 
 The
        discussion and analysis of our financial condition and results of operations
        are
        based upon the Company's consolidated financial statements, which have been
        prepared in accordance with accounting principles generally accepted in the
        United States of America. The preparation of these financial statements requires
        the Company to make estimates and judgments that affect the reported amounts
        of
        assets and liabilities, revenues and expenses, and related disclosures of
        contingent assets and liabilities at the date of the Company's financial
        statements. Actual results may differ from these estimates under different
        assumptions or conditions.


33




Critical
      accounting policies are defined as those that are reflective of significant
      judgments and uncertainties, and potentially result in materially different
      results under different assumptions and conditions. The Company’s critical
      accounting policies are described below.





***Revenue
      Recognition***  ***and
      Deferred Revenue***





Revenues
      from the Company’s Car and Truck Wash Segment are recognized, net of customer
      coupon discounts, when services are rendered or fuel or merchandise is sold.
      The
      Company records a liability for gift certificates, ticket books, and seasonal
      and annual passes sold at its car care locations but not yet redeemed. The
      Company estimates these unredeemed amounts based on gift certificate and ticket
      book sales and redemptions throughout the year as well as utilizing historical
      sales and tracking of redemption rates per the car washes’ point-of-sale
      systems. Seasonal and annual passes are amortized on a straight-line basis
      over
      the time during which the passes are valid.





Revenues
      from the Company’s Security Segment are recognized when shipments are made or
      for export sales when title has passed. Shipping and handling charges and costs
      of $647,000, $528,000 and $322,000 in years ending December 31, 2006, 2005
      and
      2004 respectively, are included in revenues, the cost of which is included
      in
      selling, general and administrative (“SG&A”) expenses.





***Cash
      and Cash Equivalents***





Cash
      and
      cash equivalents consist of cash, highly liquid short-term investments with
      original maturities of three months or less, and credit card deposits which
      are
      converted into cash within two to three business days.





***Short-Term
      Investments***





At
      December 31, 2006, the Company had approximately $3.6 million of investments
      classified as available for sale in three funds which are stated at market
      value. The Company may exit one of the funds at the end of any calendar quarter
      with 30 days advanced written notice and the other funds may be exited with
      one
      business day notice. In the year ended December 31, 2006, the Company realized
      a
      total gain of $323,000. Additionally, an unrealized gain, net of tax, of
      approximately $396,000 is included as a separate component of equity in
      Accumulated Other Comprehensive Income at December 31, 2006.




***Impairment
      of Long-Lived Assets***





In
      accordance with SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      we
      periodically review the carrying value of our long-lived assets held and used,
      and assets to be disposed of, when events and circumstances warrant such a
      review. If significant events or changes in circumstances indicate that the
      carrying value of an asset or asset group may not be recoverable,
      we perform a test of recoverability by comparing the carrying value of the
      asset
      or asset group to its undiscounted expected future cash flows. Cash flow
      projections are sometimes based on a group of assets, rather than a single
      asset. If cash flows cannot be separately and independently identified for
      a
      single asset, we determine whether an impairment has occurred for the group
      of
      assets for which we can identify the projected cash flows. If the carrying
      values are in excess of undiscounted expected future cash flows, we measure
      any
      impairment by comparing the fair value of the asset group to its carrying value.
      If the fair value of an asset or asset group is determined to be less than
      the
      carrying amount of the asset or asset group, an impairment in the amount of
      the
      difference is recorded.




***Goodwill***
 
 In
        accordance with SFAS 142, *Goodwill
        and Other Intangible Assets* ,
        the
        Company completed annual impairment tests as of November 30, 2006, 2005,
        and
        2004, and will be subject to an impairment test each year thereafter and
        whenever there is an impairment indicator. The Company’s annual impairment
        testing corresponds with the Company’s determination of its annual operating
        budgets for the upcoming year. The Company’s valuation of goodwill is based on a
        discounted cash flow model applying an appropriate discount rate to future
        expected cash flows and management’s annual review of historical data and future
        assessment of certain critical operating factors, including security product
        sales and related costs, car wash volumes, average car wash and detailing
        revenue rates per car, wash and detailing labor cost percentages, weather
        trends
        and recent and expected operating cost levels. Estimating cash flows requires
        significant judgment including factors beyond our control and our projections
        may vary from cash flows eventually realized. Adverse business conditions
        could
        affect recoverability of goodwill in the future and, accordingly, the Company
        may record additional impairments in subsequent years.





34




***Other
      Intangible Assets***





Other
      intangible assets consist primarily of deferred financing costs, trademarks,
      customer lists, product lists, and patent costs. In accordance with SFAS 142, *Goodwill
      and Other Intangible Assets* ,
      our
      trademarks are considered to have indefinite lives, and as such, are not subject
      to amortization. These assets are tested for impairment using discounted cash
      flow methodology annually and whenever there is an impairment indicator.
      Estimating future cash flows requires significant judgment and projections
      may
      vary from cash flows eventually realized. Several impairment indicators are
      beyond our control, and cannot be predicted with any certainty whether or not
      they will occur. Deferred financing costs are amortized on a straight-line
      basis
      over the terms of the respective debt instruments. Customer lists, product
      lists, and non-compete agreements are amortized on a straight-line basis over
      their respective estimated useful lives.





***Income
      Taxes***





Deferred
      income taxes are determined based on the difference between the financial
      accounting and tax bases of assets and liabilities. Deferred income tax expense
      (benefit) represents the change during the period in the deferred income tax
      assets and deferred income tax liabilities. Deferred income tax assets include
      tax loss and credit carryforwards and are reduced by a valuation allowance
      if,
      based on available evidence, it is more likely than not that some portion or
      all
      of the deferred income tax assets will not be realized.





***Stock-Based
      Compensation***





The
      Company has two stock-based employee compensation plans. Prior to January 1,
      2006, the Company accounted for those plans under the recognition and
      measurement principles of APB Opinion 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. In 2005, stock-based employee compensation costs were
      not reflected in net income, as all options granted under the plan had exercise
      prices equal to the market value of the underlying common stock on the date
      of
      grant.





SFAS
      123(R) replaces SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      and
      supersedes APB Opinion 25. SFAS 123, as originally issued in 1995, established
      as preferable a fair-valued-based method of accounting for share-based payment
      transaction with employees. However, SFAS 123 permitted entities the option
      of
      continuing to apply the guidance in APB No. 25 as long as the footnotes to
      financial statements disclosed what net income would have been had the
      preferable fair-valued-based method been used. On
      January 1, 2006, the Company adopted SFAS 123(R), *Share-Based
      Payment,* which
      requires that the compensation cost relating to share-based payment transactions
      be recognized in financial statements. We adopted SFAS 123 (R) using the
      modified prospective method, which results in recognition of compensation
      expense for all share-based awards granted or modified after December 31, 2005
      as well as all unvested awards outstanding at the date of adoption. The cost
      is
      recognized as compensation expense over the vesting period of the instruments,
      based upon the grant date fair value of the equity or liability instruments
      issued. The adoption of SFAS 123(R) resulted in stock-based compensation expense
      which increased our loss from continuing operations before income taxes by
      approximately $1.4 million in 2006. Additionally, we expect stock-based
      compensation expense of approximately $1.2 million to $1.4 million in 2007.
      The
      Company’s actual stock-based compensation expense in 2007 could differ
      materially from this estimate depending on the timing, magnitude and vesting
      of
      new awards, the number of new awards and changes in the market price or the
      volatility of the Company’s common stock.





***Supplementary
      Cash Flow Information***





Interest
      paid on all indebtedness, including debt related to discontinued operations,
      was
      approximately $2.0 million, $2.1 million and $2.0 million for each of the years
      ended December 31, 2006, 2005 and 2004, respectively. Income taxes paid were
      approximately $160,000, $86,000 and $340,000 for the year ended December 31,
      2006, 2005 and 2004, respectively.




**ITEM
      7A.**  **QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS**





We
      are
      not materially exposed to market risks arising from fluctuations in foreign
      currency exchange rates, commodity prices, or equity prices.





**Interest
      Rate Exposure**





A
      significant portion of our debt, approximately 63% at December 31, 2006, is
      at
      variable rates. Substantially all of our variable rate debt obligations are
      tied
      to the prime rate, as is our incremental borrowing rate. A one percent increase
      in the prime rates would not have a material effect on the fair value of our
      variable rate debt at December 31, 2006. The impact of increasing interest
      rates
      by one percent would be an increase in interest expense of approximately $75,000
      in 2006.





35




On
      October 14, 2004, we entered into an interest rate cap that effectively changes
      our interest rate exposure on approximately $7 million of variable rate debt.
      The variable rate debt floats at prime plus .25% (8.5% at December 31, 2006).
      The interest rate cap contract has a 36-month term and caps the interest rate
      on
      the $7 million of variable rate debt at 6.5%. The derivative is designated
      as a
      cash flow hedge and, accordingly, is marked to market with gains and losses
      on
      the contract reported as a component of other comprehensive income (loss) and
      is
      classified into earnings in the earlier of (i) the period the hedged transaction
      affects earnings, or (ii) the termination of the hedge contract. At December
      31,
      2006, the contract, originally purchased for $124,000, is included in prepaid
      expenses and other current assets at its fair market value of approximately
      $84,000.





**ITEM
      8.**  **FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA**





The
      reports of independent registered public accounting firm and Consolidated
      Financial Statements are included in Part IV, Item 15 of this
      Report.





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




None





**ITEM
      9A** .  **CONTROLS
      AND PROCEDURES**





**Disclosure
      Controls and Procedures**





The
      Company’s disclosure controls and procedures are designed to ensure that
      information required to be disclosed by the Company in the reports it files
      or
      submits under Securities Exchange Act of 1934, as amended, is recorded,
      processed, summarized and reported, within the time periods specified in the
      Securities and Exchange Commission’s rules, and include controls and procedures
      designed to ensure that such information is accumulated and communicated to
      the
      Company’s management, including its principal executive and financial officers,
      to allow timely decisions regarding required disclosure. Based on the evaluation
      of the effectiveness of the Company’s disclosure controls and procedures as of
      December 31, 2006 required by Rule 13a-15(b) under the Securities Exchange
      Act
      of 1934, as amended, and conducted by the Company’s chief executive officer and
      chief financial officer, such officers concluded that the Company’s disclosures
      controls and procedures were not effective as of December 31, 2006. That
      conclusion was based on the fact that, during the first quarter of 2007, the
      Company identified a material weakness in its internal control over financial
      reporting.





Internal
      controls over financial reporting includes those policies and procedures that:
      (i) pertain to the maintenance of records that, in reasonable detail, accurately
      and fairly reflect the transactions and dispositions of the assets of the
      Company; (ii) provide reasonable assurance that transactions are recorded as
      necessary to permit preparation of financial statements in accordance with
      generally accepted accounting principles and that receipts and expenditures
      of
      the Company are being made only in accordance with authorizations of management
      and directors of the Company; and (iii) provide reasonable assurance regarding
      prevention or timely detection of unauthorized acquisition, use, or disposition
      of the Company’s assets that could have a material effect on the financial
      statements. A material weakness is a significant deficiency or combination
      of
      significant deficiencies that results in more than a remote likelihood that
      a
      material misstatement of the annual or interm financial statements will not
      be
      prevented or detected.




The
      material weakness is related to weaknesses in certain financial controls
      associated with the Company’s Florida based Security Division (“Florida Security
      Division”) and corporate level. During management’s closing procedures for its
      fiscal year ended December 31, 2006, unreconciled accounts were discovered
      at
      the Company’s Florida Security division. The accounts were mainly in the areas
      of cash, accounts receivable, inventory, and the purchase order clearing
      account. During the process of investigating the unreconciled accounts and
      determining the correct adjusting entries, management determined that the
      accounting controller of the Florida Security division (“Florida Controller”)
      wrote unauthorized checks from the Florida Security Division petty cash checking
      account (“Petty Cash Checking Account”) to a personal account of the Florida
      Controller in the amount of $211,000. Management also discovered that the
      Florida Controller received $54,000 in cash payments from sales to customers
      and
      did not deposit the payments in any Company bank account, issued $46,000 of
      checks from the Petty Cash Check Account payable to “petty cash” that were
      endorsed by the Florida Controller without any invoices or other supporting
      documentation and authorized $28,000 of American Express credit card automatic
      debits from the Petty Cash Checking Account without invoices or other supporting
      documentation. The total amount embezzled was approximately $339,000 of which
      $240,000 related to the year ended December 31, 2006 and $99,000 related to
      the
      quarter ended March 31, 2007. Management also determined that there was an
      unexplained inventory shortage in 2006 in the Florida Security division of
      approximately $350,000, which may be due to theft.





36




The
      material weakness identified by the Company related to the failure of the
      accounting personnel within the Company’s Florida Security Division to follow
      controls established to ensure: (i) that cash reconciliations are performed
      on a
      accurate and timely basis;(ii) that prepaid inventory amounts and related
      receipts are timely and accurately recorded within the purchase order clearing
      account; (iii) that relief of the inventory perpetual records is accurate;
      and
      (iv) that journal entries are properly recorded and reviewed. Additionally,
      established corporate oversight over the local level accounting personnel in
      this region did not operate effectively and was inadequate in the areas of:
      (i)
      effectively limiting and restricting access to cash; (ii) detailed timely review
      of reconciliations and non- standard journal entries: and (iii) detailed timely
      review of all inventory adjustments. A material weakness is a control
      deficiency, or combination of control deficiencies, that results in more than
      a
      remote likelihood that a material misstatement of the annual or interim
      financial statements will not be prevented or detected.





**Changes
      in Internal Control Over Financial Reporting and Remediation
      Actions**





In
      March
      2007, we began the remediation of the material weakness in our internal controls
      over financial reporting relating to the above noted weakness within this
      operating location through: (i) hiring of new divisional accounting personnel
      for this location; (ii) restrictions on access to cash disbursement activity
      at
      the Florida Security Division; (iii) reinforcement of control procedures at
      the
      regional level for maintenance of the purchase order clearing account, cash
      accounts, and other significant balance sheet accounts; (iv) reinforcement
      of
      controls over timely review of account reconciliations and journal entries;
      (v)
      increased corporate supervision of regional accounting personnel; and (vi)
      initiation of an internal audit function. We will continue to closely monitor
      the effectiveness of our processes, procedures and controls, and will make
      further changes as management determines appropriate.





**Remediation
      of Previously Reported Material Weakness**





As
      we
      previously disclosed in our Annual Report on Form 10-K for the fiscal year
      ended
      December 31, 2005 and our Quarterly Report on Form 10-Q for the quarter ended
      March 31, 2006, in March 2006, we began the remediation of the material weakness
      in our internal control over financial reporting relating to the hiring and
      termination policies and procedures for car wash field personnel through: (i)
      increased focus on training, monitoring, and enforcement of field hiring and
      termination policies and procedures; (ii) enhancements to current regional
      management monitoring and testing for adherence to field policies and control
      procedures by field car wash management; (iii) the addition of certain corporate
      level quarterly testing and monitoring procedures of regional and field car
      wash
      management for adherence to policies and procedures; and (iv) enhancements
      to
      car wash personnel files maintenance procedures. We believe that we have
      completed implementation of the appropriate remediation measures as of June
      30,
      2006.





**ITEM
      9B** .  **OTHER
      INFORMATION**





None




**PART
      III**





**ITEM
      10.**  **DIRECTORS
      AND EXECUTIVE OFFICERS OF THE REGISTRANT AND CORPORATE
      GOVERANCE**





**Name**
            
            **Age**
            
            **Position**Louis
                D. Paolino, Jr.
            
            51
            
            Chairman
                of the Board, President, and Principal Executive
                OfficerRobert
                M. Kramer
            
            54
            
            Executive
                Vice President, General Counsel and SecretaryGregory
                M. Krzemien
            
            47
            
            Principal
                Financial Officer and TreasurerRonald
                R. Pirollo
            
            48
            
            Chief
                Accounting Officer and Corporate ControllerMatthew
                J. Paolino
            
            42
            
            Director,
                Vice PresidentMark
                S. Alsentzer
            
            52
            
            DirectorConstantine
                N. Papadakis, Ph.D.
            
            61
            
            DirectorBurton
                Segal
            
            64
            
            Director




All
      of
      the Mace’s directors serve for terms of one year each until their successors are
      elected and qualified.


**Louis
      D. Paolino, Jr.** has
      served as the Chairman of the Board, President and Principal Executive Officer
      of the Company since May 1999. From June 1996 through December 1998, Mr. Paolino
      served as Chairman of the Board, President and Chief Executive Officer of
      Eastern Environmental Services, Inc. Prior thereto, he was President of Soil
      Remediation of Philadelphia, Inc., a company engaged in the business of treating
      contaminated soil. From September 1993 to June 1996, Mr. Paolino served as
      a
      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. Mr. Paolino
      received a B.S. in Civil Engineering from Drexel University. Mr. Paolino is
      the
      brother of Matthew J. Paolino.


37


**Robert
      M. Kramer** has
      served as Executive Vice President, General Counsel, and Secretary of the
      Company since May 1999, and as Chief Operating Officer of the Car and Truck
      Wash
      Segment from July 2000 to July 2006. Mr. Kramer also served as a director of
      the
      Company from May 1999 to December 2003. From June 1996 through December 1998,
      he
      served as General Counsel, Executive Vice President and Secretary of Eastern
      Environmental Services, Inc. Mr. Kramer is an attorney and has practiced law
      since 1979 with various firms, including Blank Rome Comisky & McCauley,
      Philadelphia, Pennsylvania and Arent Fox Kitner Poltkin & Kahn, Washington,
      D.C. From 1989 to December 2000, Mr. Kramer had been the sole partner of Robert
      M. Kramer & Associates, P.C. From December 1989 to December 1997, Mr. Kramer
      served on the Board of Directors of American Capital Corporation, a registered
      securities broker dealer. Mr. Kramer received B.S. and J.D. degrees from Temple
      University.





**Gregory
      M. Krzemien** has
      served as the Principal Financial Officer and Treasurer of the Company since
      May
      1999. From August 1992 through December 1998, he served as Chief Financial
      Officer and Treasurer of Eastern Environmental Services, Inc. From October
      1988
      to August 1992, Mr. Krzemien was a senior audit manager with Ernst & Young
      LLP. Mr. Krzemien received a B.S. degree in Accounting from the Pennsylvania
      State University and is a certified public accountant.





**Ronald
      R. Pirollo** has
      served as Chief Accounting Officer and Corporate Controller of the Company
      since
      May 1999. Mr. Pirollo served as Vice President and Corporate Controller of
      Eastern Environmental Services, Inc. from July 1997 to June 1999. Prior thereto,
      Mr. Pirollo was with Envirite Corporation for ten years, where he served in
      various financial management positions including Vice President - Finance.
      Mr.
      Pirollo received a B.S. degree in Accounting and an MBA from Villanova
      University.





**Matthew
      J. Paolino** has
      served as a director and as a Vice President of the Company since May 1999.
      From
      1996 to December 1998, Mr. Paolino served as a director of Eastern Environmental
      Services, Inc. as well as Vice President of Risk Management, Asset Management
      and Special Waste Divisions of Eastern Environmental Services, Inc. From 1993
      to
      1996, Mr. Paolino served as Vice President and General Manager - Soil
      Remediation Division of USA Waste Services, Inc., which was acquired by Eastern
      in August 1997. Mr. Paolino received a B.S. degree in Civil Engineering from
      Villanova University in 1986 and a J.D. degree from the Widener School of Law
      in
      1994. Mr. Paolino is the brother of Louis D. Paolino, Jr., the Chairman,
      President and Chief Executive Officer of the Company.





**Mark
      S. Alsentzer** has
      served as a director of the Company since December 1999. From December 1996
      through September 2004, Mr. Alsentzer was President and Chief Executive Officer
      of U.S. Plastic Lumber Corporation (a plastic and lumber and recycling company).
      From 1992 to December 1996, Mr. Alsentzer served as Vice President of Republic
      Environmental Systems, Inc. (an environmental services company). Mr. Alsentzer
      also served as a director, and from January 4, 2000, as Chairman of the Board,
      of U.S. Plastic Lumber Corporation. On July 23, 2004, U.S. Plastic Lumber
      Corporation filed a voluntary petition under Chapter 11 of the United States
      Bankruptcy Code. At the time of the Chapter 11 filing, Mark S. Alsentzer was
      Chairman, President and Chief Executive Officer of U.S. Plastic Lumber
      Corporation. Mr. Alsentzer resigned as a director on the Board of U.S. Plastic
      Lumber Corporation in October 2005 and is no longer Chairman, President or
      Chief
      Executive Officer. Since January 2006, Mr. Alsentzer serves as the Chief
      Executive Officer and a director of Pure Earth, Inc.




**Constantine
      N. Papadakis, Ph.D.** has
      served as a director of the Company since May 1999. From 1995 through the
      present, Dr. Papadakis has been President of Drexel University. From 1986
      through 1995, Dr. Papadakis was Dean of the College of Engineering, Geier
      Professor of Engineering Education and Professor of Civil Engineering at the
      University of Cincinnati. Dr. Papadakis also serves on the board of directors
      of
      Sovereign Bank, Met-Pro Corporation, The Philadelphia Stock Exchange, Amkor
      Technologies, Inc., Aqua America, Inc., CDI, Inc., the Judicial Council of
      the
      Supreme Court of Pennsylvania, the Opera Company of Philadelphia, the National
      Commission for Cooperative Education, the University City Science Center, the
      Ben Franklin Technology Center and the World Trade Center of Greater
      Philadelphia.





**Burton
      Segal** has
      served as a director of the Company since December 2003. From 1973 through
      May
      31, 2005, Mr. Segal has been a Principal in the accounting firm of Burton Segal
      & Company, Certified Public Accountants, and from June 1, 2005 through the
      present in the accounting firm of Segal, Brint & Company, LLC.





**Code
      of Ethics and Corporate Governance**





The
      Company has adopted a Code of Ethics and Business Conduct for directors,
      officers (including the chief executive officer, chief financial officer, and
      chief accounting officer), and employees. The Code of Ethics and Business
      Conduct is posted on our website at www.mace.com.





38


The
      Board
      of Directors adopted Corporate Governance Guidelines. Stockholders are
      encouraged to review the Corporate Governance Guidelines at our website at www.mace.com for
      information concerning the Company’s governance practices. Copies of the
      charters of the committees of the Board are also available on the Company’s
      website.




**Audit
      Committee**





The
      Company has a separately designated standing Audit Committee established in
      accordance with Section 3(a)(58)(A) of the Exchange Act. The members of the
      Audit Committee are Burton Segal, Chairman, Mark S. Alsentzer, and Constantine
      N. Papadakis, Ph.D. The Board of Directors has determined that each member
      of
      the Audit Committee is independent within the meaning of Rule 4200(a)(15) of
      the
      National Association of Securities Dealers’ Nasdaq Global Market listing
      standards and Rule 10A-3 promulgated under the Securities Exchange Act of
      1934.





**Audit
      Committee Financial Expert**





The
      Board
      of Directors has determined that Burton Segal, the Chairman of the Company’s
      Audit Committee, is an audit committee financial expert as defined by Item
      401(h) of Regulation S-K of the Exchange Act.





**Section
      16(a) Beneficial Ownership Reporting Compliance.**





Section
      16(a) of the Exchange Act requires Mace’s directors and executive officers, as
      well as persons beneficially owning more than 10% of Mace’s outstanding shares
      of common stock and certain other holders of such shares (collectively, “Covered
      Persons”), to file with the Commission and the Nasdaq Stock Market (the
“Nasdaq”), within specified time periods, initial reports of ownership, and
      subsequent reports of changes in ownership, of common stock and other equity
      securities of Mace. Based upon Mace’s review of copies of such reports furnished
      to it and upon representations of Covered Persons that no other reports were
      required, to Mace’s knowledge, all of the Section 16(a) filings required to be
      made by the Covered Persons with respect to 2006 were made on a timely
      basis.





**ITEM
      11.**  **EXECUTIVE
      COMPENSATION**





**Compensation
      Discussion and Analysis**





***Introduction***





The
      Compensation Committee of Mace’s Board of Directors (the “Compensation
      Committee”) is responsible for developing the Company’s philosophy and structure
      for executive compensation. Consistent with this philosophy, on an annual basis
      the Compensation Committee reviews and sets the compensation of the following
      executive officers (the “Executive Officers”):





(a)
      Louis
      D. Paolino, Jr., the Chairman of the Board, Principal Executive Officer, and
      President (“PEO”);


(b)
      Gregory M. Krzemien, the Principal Financial Officer (“PFO”) and
      Treasurer;


(c)
      Robert M. Kramer, the Executive Vice President and General Council;
      and


(d)
      Ronald R. Pirollo, the Chief Accounting Officer and Corporate
      Controller.





The
      Company’s executive compensation program is based on principles designed to
      align executive compensation with the Company’s business strategy of creating
      wealth for its shareholders and creating long-term value for the business.
      The
      Compensation Committee believes that executive compensation tied to the
      execution of a sound business strategy achieves stockholder value. It is the
      Company’s philosophy to evaluate its executive compensation structure with other
      companies of comparative size, type and geographic scope. The Company’s
      compensation policy for executives is intended to further the interests of
      the
      Company and its stockholders by encouraging growth of its business through
      securing, retaining, and motivating management employees of high caliber who
      possess the skills necessary to the development and growth of the Company.
      This
      was especially critical in 2006, as the Company is in the process of selling
      its
      car washes and focusing its energy on the Security Segment. The Compensation
      Committee believes that the entrepreneurial spirit of Mr. Paolino and his
      executive team is critical to the success of Mace. The Compensation Committee
      also recognizes the importance of continuity of management through the time
      of
      transition.


39




***Compensation
      and Benefits Philosophy***


The
      compensation and benefits programs for the Executive Officers are designed
      with
      the goal of providing compensation and benefits that are fair, reasonable and
      competitive. The programs are intended to help the Company recruit and retain
      qualified executives, motivate executive performance to achieve specific
      strategic objectives of the Company, and align the interests of executive
      management with the long-term interests of the Company’s
      stockholders.





The
      design of specific programs is based on the following guiding
      principles:





*Competitiveness:*Compensation
                and benefit programs are designed to be competitive with those provided
                by
                companies with whom we compete for talent. In general, programs are
                considered competitive when all factors of a job are considered with
                compensation levels at the 50th percentile as measured against these
                competitor companies.**





*Performance:* The
      Company believes that the best way to accomplish alignment of compensation
      plans
      with the interest of its executives and shareholders is to link pay directly
      to
      individual and Company performance.





*Cost* :
      Compensation and benefit programs are designed to be cost-effective and
      affordable, ensuring that the interests of the Company’s stockholders are
      considered. This is especially critical during this time of transition, as
      we
      cannot afford to add executives to strengthen our “bench”.





*Comparator
      Group:* The
      relevant comparator group for compensation and benefit programs consists
      primarily of companies of comparative size, similar businesses and geographic
      scope. These are the firms with which the Company competes for talent. The
      comparator group was chosen to include companies with similar market
      capitalization, similar revenue size, direct competitors, and also included
      some
      companies in areas where the Company intends to do business in the near future.
      The comparator group is different from the companies used for the five year
      cumulative return graph in Part II, Item 5 of this Annual Report on Form 10-K.
      The reason for this is that the Company has business competitors with whom
      we
      benchmark against for financial performance, but also has business and talent
      competitors against whom we benchmark for pay purposes. The comparator group
      is
      broader then the peer group used in Part II, Item 5 (c).




These
      companies are:


Abatix
                  Corporation
              DHB
                  Industries
              Markwest
                  Energy PartAble
                  Laboratories
              Devcon
                  International
              NumerexAdams
                  Respiratory
              ECC
                  Capital Corp.
              Pacific
                  Ethanol ProveAllied
                  Defense Group
              Emtec
                  Inc.
              RAE
                  SystemsAmerican
                  Science Engineering
              Hansen
                  Natural Corporation
              Strattec
                  Security Corp.Atlas
                  America
              Integrated
                  Alarm Services Corp.
              SunoptaBoss
                  Holdings
              Inphonic
                  Inc.
              Sunpower
                  CorpCeradyne
              Identix
              Taser
                  InternationalCogent
              Ionatron
              TherapeuticsCohu
              Kaanapali
                  Land LLC
              Versar
                  Inc.Compudyne
              Lojack
                  Corp.
              Vicon
                  IndustriesDatatec
                  Systems
              MGP
                  Ingrediants
              Viisage
                  Technology Waste Services,
                  Inc.





In
      addition to the comparator group above, Compensation Resources, Inc., the
      Company’s compensation consultant, looked at a much broader group of companies
      in varied industries with a similar financial profile as Mace. This group
      included 120 companies, and the findings from the larger sample indicated that
      our peer group was statistically relevant.


40


***Roles,
      Responsibilities and Charter of the Committee***





The
      primary purpose of the Compensation Committee is to conduct reviews of the
      Company’s general executive compensation policies and strategies, oversee and
      evaluate the Company’s overall compensation structure and programs and establish
      the compensation for the Executive Officers. Direct responsibilities include,
      but are not limited to:


·
              Determining
                    and approving the compensation level of the PEO;


·
            Evaluating
                and approving compensation levels of the other Executive
                Officers;





·
            Evaluating
                and approving all grants of equity-based compensation to Executive
                Officers;





·
            Recommending
                to the Board compensation policies for outside directors;
                and


·
              Designing
                  performance-based and equity-based incentive plans for the PEO
                  and other
                  Executive Officers and reviewing other
                  benefit programs presented to the Compensation Committee by the
                  PEO.





Since
      July 2006, the Committee has retained the firm of Compensation Resources, Inc.
      as its compensation consultant to assist in the continual development and
      evaluation of compensation policies and the Compensation Committee’s
      determinations of compensation awards. The role of Compensation Resources,
      Inc.
      is to provide independent, third party advice and expertise in executive
      compensation issues.




***Overall
      Program Components***





The
      key
      components of Mace’s executive compensation package are direct compensation and
      company-sponsored benefit plans. These components are administered with the
      goal
      of providing total compensation that recognizes meaningful differences in
      individual performance, is competitive, varies the opportunity based on
      individual and corporate performance, and is valued by the Company’s executives.
      The Company seeks to achieve its compensation objectives through five key
      compensation elements:




·
              A
                    base salary;


·
            Periodic
                (generally annual) grants of long-term, equity-based compensation
                (i.e.,
                longer-term incentives), such as stock options, which may be subject
                to
                performance-based and/or time-based vesting
                requirements;


·
              Change
                    in control arrangements that are designed to retain executives
                    and provide
                    continuity of management in the event of an actual or threatened
                    change of
                    control;


·
            Special
                awards and/or bonuses for duties that are above and beyond the normal
                scope of duties for a given executive;
                and





·
            Perquisites
                and benefits.





*Competitive
      Considerations*





In
      making
      compensation decisions with respect to each element of compensation, the
      Compensation Committee considers the competitive market for executives and
      compensation levels provided by comparable companies. The Compensation Committee
      regularly reviews the compensation practices at companies with which it competes
      for talent, including businesses engaged in activities similar to those of
      the
      Company, as noted in the list above.




The
      Compensation Committee does not attempt to set each compensation element for
      each executive within a particular range related to levels provided by industry
      peers or the comparator group. The Committee does use market comparisons as
      one
      factor in making compensation decisions. Some of the other factors considered
      when making individual executive compensation decisions include individual
      contribution and performance, reporting structure, internal pay relationship,
      complexity and importance of role and responsibilities, leadership and growth
      potential.





41


***Executive
      Compensation Practices***





The
      Company’s practices with respect to each of the five key compensation elements
      identified above, as well as other elements of compensation, are set forth
      below, followed by a discussion of the specific factors considered in
      determining key elements of fiscal year 2006 compensation for the Executive
      Officers.





***Base
      Salary***





*Purpose:* Base
      salary is designed to attract and retain experienced executives who can drive
      the achievement of the Company’s business goals.





*Target
      competitive position* :
      Base
      salaries are generally targeted slightly above the median of the competitive
      market for Mr. Paolino and slightly under the median for the other Executive
      Officers.





*Performance
      drivers* :
      While
      an executive’s initial base salary is determined through an assessment of
      comparative market levels for the position, the major factors in determining
      base salary increases are individual performance, pertinent experience and
      an
      increase in responsibility Executives who are new to a role may have base
      salaries below the market median; similarly, executive who have significant
      experience and tenure and have demonstrated sustained superior performance
      over
      time may have salaries above the market median.




*Considerations* :
      The
      minimum salary for the PEO, PFE, and General Counsel are determined by
      employment agreement. This minimum salary, the amount of any increase over
      this
      minimum and salary for Ronald Pirollo whose salary is not specified in an
      agreement are determined by the Compensation Committee based on a variety of
      factors, including:





·
            The
                nature and responsibility of the position and, to the extent available,
                salary norms for persons in comparable positions at comparable
                companies;




·
            The
                expertise of the individual
                executive;





·
            The
                competitiveness of the market for the executive’s services;
                and





·
            The
                recommendations of the PEO (except in the case of his own
                compensation).





Where
      not
      specified by contract, salaries are generally reviewed annually.




***Fiscal
      Year 2006 Base Salary Decisions*** .
      Among
      the named Executive Officers, Mr. Paolino, Mr. Krzemien, and Mr. Kramer are
      employed pursuant to agreements described under ***Employment
      Agreements*** below.




Mr.
      Paolino’s salary was changed during the fiscal year after a compensation
      analysis was conducted in July and August of 2006. His salary was changed from
      $400,000 to $450,000. The competitive market was utilized in this anaylsis,
      and
      the data showed that cash compensation (base salary and cash bonus) for this
      position at the 50 th percentile was $480,000. The Committee felt that base salary cash compensation
      of $450,000 was sufficient for Mr. Paolino.





Between
      September and December 2006, additional compensation analyses were performed
      for
      Mr. Krzemien’s position, Mr. Kramer’s position and Mr. Pirollo’s position. As a
      result of these studies, the base salary of Mr. Krzemien was increased to
      $230,000 from $200,000, Mr. Kramer’s salary was increased to $230,000 from
      $210,000, and Mr. Pirollo’s salary was increased to $180,000 from $160,000. The
      increases all occurred on February 12, 2007. The increases were based on the
      competitive marketplace, and their individual performance. The base salary
      of
      Mr. Krzemien, Mr. Kramer and Mr. Pirollo were not adjusted in 2005 or
      2006.





***Annual
      Incentives for Named Executive Officers***




There
      is
      no formal incentive plan in place that rewards for annual results. It is the
      opinion of the Compensation Committee and management that due to the current
      nature of the business, and the exit from the car wash segment, that an Annual
      Incentive Plan and appropriate goal setting during this time of reorganization
      is extremely difficult, and could potentially reward for non-desired behaviors.
      Therefore, we believe that equity participation provides a better line of sight
      and rewards the executives for increasing shareholder value and long-term growth
      of the Company. However, it is the intent of the Committee to implement a formal
      Annual Incentive Plan that focuses on key financial, operational, and individual
      goals, when the business model stabilizes. Implementation of a formal incentive
      plan may occur in 2007.


42




Currently,
      Mr. Paolino is entitled to a Mergers and Acquisition Transaction Bonus
      (“Transaction Bonus”) as a reward for his efforts in acquiring new business
      lines, and divesting those businesses that no longer fit the strategic plan
      for
      the Company. This Transaction Bonus is 1% of the transaction value of any car
      wash sold, and 3% of the value of any other businesses bought or sold. The
      3%
      reward is reduced by any fees paid to an investment banker hired by the Company
      where the investment banker located the transaction and conducted all
      negotiations (no deduction is made for any fairness opinion fee). The Committee
      believes that the Company is saving significantly by providing a small
      Transaction Bonus to the PEO, and thereby avoiding the larger fees that would
      be
      paid to an Investment Banking Firm that specializes in this area. Mr. Paolino
      brings his special skills and abilities to the Company, and he will be rewarded
      appropriately for those skills.




***Discretion.*** **** Additionally,
      the Compensation Committee has discretion to provide bonuses to the Executive
      Officers for exceptional results, special circumstances, and other
      non-quantitative measures.




***Fiscal
      Year 2006 Annual Incentive Decisions*** .
      In
      2006, no annual bonuses, special awards or recognition were granted by the
      Compensation Committee, and none of the named officers received any annual
      incentive payments. Mr. Paolino, by contract, was eligible for the Transaction
      Bonus, but none were paid in 2006.




***Long-term
      Incentive Compensation***





*Purpose:* The
      long-term equity based award is designed to attract and retain executives and
      certain other key employees, and to strengthen the link between compensation
      and
      increased returns for stockholders through share price
      appreciation.





Awards
      granted to individual executives are discretionary and may be made annually
      under the Company’s 1999 Stock Option Plan (the “Option Plan”) in the form of
      stock options. The number of shares granted is at the discretion of the
      Compensation Committee and are generally awarded each year for the previous
      year’s performance, or when the Company conducts a market-based review to ensure
      compensation is in line with the outside world. The options are typically
      subject to a ten-year life and vest per the terms of each option agreement.
      Options are issued at the market close price for the Company’s common stock on
      the date the option is authorized. The value of each option is not adjusted
      during the option’s lifetime.




The
      Company has adopted a policy on stock option grants that includes the following
      provisions relating to the timing of option grants:





·
            All
                awards of stock options to Executive Officers are awarded by the
                Compensation Committee when the each Executive Officer’s compensation and
                performance are reviewed by the Compensation
                Committee.


·
              All
                  awards of stock options to employees who are not Executive Officers
                  are
                  awarded by the Compensation Committee based on the Executive Officer’s
                  recommendations after review by the Compensation
                  Committee.
 ·
                Option
                    grants are not timed with the release of material non-pubic
                    information.
 ·
                  Except
                      for inducement grants for new employees, Executive Officers
                      recommended an
                      award of stock options based on a review of the employees performance
                      and
                      compensation.
 ·
                    The
                        grant date of the stock options is always the date of the
                        issuance of the
                        Option Agreement for the grant, which date is shortly after
                        the date the
                        Compensation Committee authorizes the
                        grant.
 ·
                      The
                          exercise price is the closing price of the underlying common
                          stock on the
                          date the option is authorized by the Compensation
                          Committee.
 ·
                        Stock
                            option awards for Executive Officers are promptly announced
                            on a Form
                            4 filing.




***Stock
      Options*** **.** The
      long-term incentive program calls for stock options to be granted with exercise
      prices of not less than fair market value of the Company’s stock on the date of
      authorization and to vest over time, based on continued employment, with rare
      exceptions made by the Compensation Committee. The Committee will not grant
      stock options with exercise prices below the market price of the Company’s stock
      on the date of authorization, and will not reduce the exercise price of stock
      options (except in connection with adjustments to reflect recapitalizations,
      stock or extraordinary dividends, stock splits, mergers, spin-offs and similar
      events permitted by the relevant plan) without shareholder approval. New option
      grants to Executive Officers normally have a term of ten years.


43


*Target
      competitive position* :
      Long-term equity grants are positioned at or below the median of the competitive
      market when performance is at target levels. When performance falls below target
      levels, funding will be below the market median or eliminated. When performance
      exceeds target levels, funding may be above the market median.




*Performance
      Drivers* :
      Overall
      grant levels are at the discretion of the Compensation Committee. The size
      of
      individual long-term equity based awards is determined using compensation
      guidelines developed based on individual performance.




***Fiscal
      Year 2006 Stock Options Decisions*** .
      In
      fiscal 2006, the Compensation Committee awarded long-term compensation to
      Executive Officers pursuant to the program described above resulting in the
      awards of stock options identified in the Grant of Plan Based Awards
      Table.




In
      determining the annual grant of options, the Committee considered any
      contractual requirements, market data on total compensation packages, the value
      of long-term incentive grants at targeted external companies, total shareholder
      return, share usage and shareholder dilution and, except in the case of the
      award to the Principal Executive Officer, the recommendations of the Principal
      Executive Officer.





On
      March
      1, 2006, the Compensation Committee authorized stock options for Mr. Paolino,
      Mr. Kramer, Mr. Krzemien and Mr. Pirollo which were issued on March 23, 2006.
      The options were authorized as incentive compensation for their 2005
      performance. The executives did not receive an increase in base salary
      compensation in 2005. The respective amounts of the options were as follows:
      Mr.
      Paolino-150,000, Mr. Kramer-75,000, Mr. Krzemien-60,000 and Mr. Pirollo-25,000.
      The options awarded vested one third upon issuance, one third twelve months
      from
      issuance and one third twenty four months from issuance. The options fully
      vest
      upon a change in control.




Mr.
      Paolino’s August 2006 option grant, was based on a market assessment. The value
      of the options granted was based on the competitive total direct compensation
      in
      the marketplace. The Black Scholes value of the grant, plus his salary, are
      intended to bring Mr. Paolino to an appropriate level for similarly situated
      executives. The market study indicated that the 50 th percentile for Total Direct Compensation (Cash Compensation plus Equity) was
      $1,117,300. The Compensation Committee decided to award Mr. Paolino with options
      that would bridge the gap between his $450,000 cash compensation and the
      $1,117,300 total compensation. This award was 450,000 options. Based on the
      Black-Scholes calculation at the time of the grant, this award was estimated
      to
      have a value of approximately $648,000 which was expensed in 2006. The
      Compensation Committee felt that this would bring his compensation to just
      slightly below the comparative market. These options were immediately
      exercisable. The intent was to reward Mr. Paolino for his performance, and
      provide him with the motivation to stay with the Company and grow the stock
      price to benefit the shareholders.





It
      is the
      intent of the Compensation Committee to review Mr. Paolino’s compensation
      annually during the term of his agreement and continue to make awards that
      will
      keep him in line with the comparator group.





Between
      September and December 2006, additional compensation analyses were performed
      on
      Mr. Krzemien’s, Mr. Kramer’s and Mr. Pirollo’s positions. The option grants were
      made to bring Mr. Krzemien’s, Mr. Kramer’s and Mr. Pirollo’s compensation closer
      to the level of market consensus of the comparator group. In February 2007,
      new
      employment agreements were signed with Mr. Kramer and Mr. Krzemien. The new
      agreements provided that Mr. Kramer and Mr. Krzemien would each receive grants
      of 60,000 options, of which 1/3 vested immediately on the date of grant,
      February 12, 2007, 1/3 vests one year from the date of the grant, and the
      balance vests two years from the grant. These options have a ten year life.
      Mr.
      Pirollo was granted 25,000 options on February 12, 2007 with the same vesting
      schedule and life.





***Change
      of Control Arrangements***





The
      Company has entered into change of control arrangements with Mr. Paolino, Mr.
      Kramer and Mr. Krzemien in order to encourage them to remain employed with
      the
      Company during a time when the Company is changing its business from the car
      wash industry to the security business. The announced sale of the car washes
      created a possibility that there could be a change in control. The Compensation
      Committee was concerned that the uncertain atmosphere could result in Mr.
      Paolino, Mr. Kramer, and Mr. Krzemien seeking employment at another company.
      The
      Compensation Committee believed that it was important to retain its key
      executives as it transitioned its business.




44


Mr.
      Paolino’s change in control payment is linked to the single trigger of a change
      of control event. Mr. Paolino’s change of control payment is in the amount of
      2.99 times his five-year average compensation. The Compensation Committee
      believed that it was appropriate for the Principal Executive Officer to have
      a
      single trigger, which would result in a change of control payment. The 2.99
      amount was selected as it was under the threshold of the amount where an excise
      tax under Section 280G of the Internal Revenue Code would be imposed.
      Compensation Resources, Inc., the Company’s compensation consultant advised the
      Compensation Committee that a payment of 2.99 times total compensation was
      prudent, and that a single trigger was used among companies in the comparator
      group. If Mr. Paolino is paid the change of control payment, he can be
      discharged by the Company, without cause, with no further payment.





Mr.
      Kramer’s and Mr. Krzemien’s payments are linked to three separate events. Mr.
      Kramer and Mr. Krzemien receive a payment of one time their base annual salary
      (currently $230,000) in the event that both a change of control occurs and
      Mr.
      Paolino no longer is Principal Executive Officer of the Company (“Double
      Trigger”). After the Double Trigger occurs, if the Company chooses to terminate
      Mr. Kramer or Mr. Krzemien, respectively, or the Company breaches their
      respective employment agreement, the affected executive receives an additional
      payment of one time his base annual salary (“Triple Trigger”). The Compensation
      Committee after consultation with Compensation Resources, Inc., believed the
      lesser payment and the Double Trigger and Triple Trigger was sufficient to
      encourage the retention of Mr. Kramer and Mr. Krzemien.




Additionally,
      as a further inducement to encourage the continued employment of Mr. Paolino,
      Mr. Kramer, Mr. Krzemien and Mr. Pirollo, the options that were issued to them
      on March 23, 2006, all vest immediately upon a change of control.





***Fiscal
      Year 2006 Change of Control Decisions.***





Louis
      D.
      Paolino, Jr., in August 2006, received a new three-year employment contract.
      Upon a change in control, Mr. Paolino is entitled to a payment of 2.99 times
      Mr.
      Paolino’s average total compensation (base salary plus any bonuses plus the
      value of any option awards, valued using the Black Scholes method) over the
      past
      five years. If Mr. Paolino receives the change of control payment, his
      employment can then be terminated by the Company without cause and with no
      further payment. Prior to a change of control payment, the Company can terminate
      Mr. Paolino, without cause upon the payment of 2.99 times Mr. Paolino’s five
      year average total compensation. The Company computes the 2.99 payment as of
      December 31, 2006 as $3,241,000. On March 1, 2006, the Compensation Committee
      authorized 150,000 stock options for Mr. Paolino which were issued on March
      23,
      2006, as incentive compensation for his 2005 performance. The options vested
      one
      third upon issuance, one third twelve months from issuance and one third
      twenty-four months from issuance. The options fully vest upon a change of
      control. If a change of control occurred on December 31, 2006, Mr. Paolino
      would
      have received $159,590 in value through the vesting of the options.





Mace
      currently employs Gregory M. Krzemien, its Principal Financial Officer and
      Treasurer, under an employment contract entered into on February 12, 2007.
      Under
      the employment contract, Mr. Krzemien is entitled to receive a one time
      retention payment equal to his then annual base compensation upon the occurrence
      of both of: (a) a change in control of the Company; and (b) Louis D. Paolino,
      Jr. ceasing to be the Principal Executive Officer of the Company. Additionally,
      after Mr. Krzemien is paid the retention payment he is entitled to receive
      a
      termination payment equal to his then annual base compensation, if his
      employment contract is terminated without cause, or if the Company breaches
      his
      employment contract. As of March 15, 2007, the annual base compensation of
      Mr.
      Krzemien is $230,000. If a change of control occurred and Mr. Paolino were
      terminated as the Principal Executive Officer on March 15, 2007, Mr. Krzemien
      would receive a retention payment of $230,000. Additionally, if on March 15,
      2007, a change in control occurred and Mr. Paolino was terminated as the
      Principal Executive Officer, and the Company decided to either terminate Mr.
      Krzemien without cause or the Company breached Mr. Krzemien’s employment
      contract, Mr. Krzemien would be paid a total of $460,000.





Mace
      currently employs Robert Kramer, its Executive Vice President and General
      Counsel under an employment contract entered on February 12, 2007. Under the
      employment contract Mr. Kramer is entitled to receive a one time retention
      payment equal to his then annual base compensation upon the occurrence of both
      of: (a) a change in control of the Company; and (b) Louis D. Paolino, Jr.
      ceasing to be the Principal Executive Officer of the Company. Additionally,
      after Mr. Kramer is paid the retention payment he is entitled to receive a
      termination payment equal to his then annual base compensation, if his
      employment contract is terminated without cause, or if the Company breaches
      his
      employment contract. As of March 15, 2007, the annual base compensation of
      Mr.
      Kramer is $230,000. If a change of control occurred and Mr. Paolino were
      terminated as the Principal Executive Officer on March 15, 2007, Mr. Kramer
      would receive a retention payment of $230,000. Additionally, if on March 15,
      2007, a change in control occurred and Mr. Paolino was terminated as the
      Principal Executive Officer, and the Company decided to either terminate Mr.
      Kramer without cause or the Company breached Mr. Kramer’s employment contract,
      Mr. Kramer would be paid a total of $460,000.


45


On
      March
      1, 2006, the Compensation Committee authorized non-qualified stock options
      for
      Mr. Kramer, Mr. Krzemien, and Mr. Pirollo which were issued on March 23, 2006,
      as incentive compensation for their 2005 performance in the respective amounts
      of 75,000, 60,000, and 25,000. The options awarded vested one third upon
      issuance, one-third twelve months from issuance and one-third twenty four months
      from issuance. The options fully vest upon a change in control. If a change
      of
      control occurred on December 31, 2006, Mr. Kramer, Mr. Krzemien and Mr. Pirollo
      would receive $79,795, $63,836 and $26,599 in value, respectively, through
      the
      vesting of the options. The amount of options were chosen to bring the total
      compensation of the named executive at or slightly below the market comparator
      group level.





On
      February 12, 2007, Mr. Krzemien and Mr. Kramer each received an option grant
      for
      60,000 shares of common stock and Mr. Pirollo received an option grant of 25,000
      shares. The options vested one third on the date of the grant, and will vest
      one
      third on February 12, 2008 and one third on February 12, 2009. The options
      will
      fully vest on a change of control. If a change of control occurred on March
      15,
      2007, Mr. Kramer, Mr. Krzemien and Mr. Pirollo would receive in value,
      respectively $74,484, $74,484 and $31,035 through the vesting of the
      options.




***Benefits
      and Perquisites***




With
      limited exceptions, the Committee supports providing benefits and perquisites
      to
      the Executive Officers that are substantially the same as those offered to
      other
      officers of the Company. In the case of the PEO, the Company allows his
      assistant to aid him with his personal business. There is no incremental cost
      to
      the Company of allowing Mr. Paolino’s assistant to aid him with his personal
      business.




***Fiscal
      Year 2006 Benefits and Perquisites Decisions.*** In
      fiscal 2006, Mr. Paolino, per his contract, was entitled to $1,500 per month
      that the Company uses to lease him a premium vehicle. Mr. Kramer and Mr.
      Krzemien as of February 12, 2007 became entitled to a $700 per month car
      allowance. Mr. Pirollo receives a $500 per month car allowance.





***Total
      Compensation***




In
      making
      decisions with respect to any element of an Executive Officer’s compensation,
      the Compensation Committee considers the total compensation that may be awarded
      to the officer, including salary, special awards/bonus and long-term incentive
      compensation. In addition, in reviewing and approving employment agreements
      for
      Executive Officers, the Compensation Committee considers the other benefits
      to
      which the officer is entitled by the agreement, including compensation payable
      upon termination of the agreement under a variety of circumstances. The
      Compensation Committee’s goal is to award compensation that is reasonable when
      all elements of potential compensation are considered.




***Policy
      with respect to the $1 million deduction limit***




Section
      162(m) of the Internal Revenue Code generally disallows a tax deduction to
      public corporations for compensation over $1,000,000 paid for any fiscal year
      to
      the corporation’s Principal Executive Officer and four other most highly
      compensated executive officers as of the end of the fiscal year. However, the
      statute exempts qualifying performance-based compensation from the deduction
      limit if certain requirements are met.




The
      Compensation Committee designs certain components of Executive Officer
      compensation to permit full deductibility. The Compensation Committee believes,
      however, that shareholder interests are best served by not restricting the
      Compensation Committee’s discretion and flexibility in crafting compensation
      programs, even though such programs may result in certain non-deductible
      compensation expenses. Accordingly, the Compensation Committee has from time
      to
      time approved elements of compensation for certain officers that are not fully
      deductible, and reserves the right to do so in the future in appropriate
      circumstances.





**Compensation
      Committee Report**





The
      Compensation Committee of the Company’s Board of Directors consists of directors
      Burton Segal, Mark Alsentzer, and Constantine N. Papadakis, Ph.D, all of whom
      the Board has determined are independent pursuant to the NASD’s Nasdaq Global
      Market Marketplace Rules. This report shall not be deemed incorporated by
      reference into any filing under the Securities Act of 1933, as amended (the
      “Securities Act”), or the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), by virtue of any general statement in such filing incorporating
      this Form 10-K by reference, except to the extent that the Company specifically
      incorporates the information contained in this section by reference, and shall
      not otherwise be deemed filed under either the Securities Act or the Exchange
      Act.


46




The
      Compensation Committee has reviewed and discussed with management the
      Compensation Discussion and Analysis contained in this Annual Report on Form
      10-K. Based on the review and discussions, the Compensation Committee
      recommended to the Board of Directors that the Compensation Discussion and
      Analysis be included in the Annual Report on Form 10-K.




The
                Compensation Committee of the Board of Directors
              
              Constantine
                N. Papadakis, Ph.D.
              Burton
                Segal
              Mark
                Alsentzer


47


The
      following table provides summary information concerning cash and certain other
      compensation paid or accrued by Mace to or on behalf of Mace’s Principal
      Executive Officer and each of the other most highly compensated executive
      officers of Mace whose compensation exceeded $100,000 (the “Named Executive
      Officers”) for the year ended December 31, 2006.





**SUMMARY
                COMPENSATION TABLE(1)**


**Name
                  and Principal****Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus
                  ($)**
              
              **Option**
                **Awards**
                **($)
                  (2)**
              
              **All**
                **Other**
                **Compensation
                  ($) (3)**
              
              **Total**Louis
                  D. Paolino, Jr.
              
              
              2006
              
              $
              417,307
              
              $
              -
              
              $
              790,119
              
              $
              26,728
              
              $
              1,234,154Chairman
                  of the Board, President and Principal Executive OfficerRobert
                  M. Kramer
              
              
              2006
              
              $
              210,000
              
              $
              -
              
              $
              70,812
              
              $
              4,070
              
              $
              284,882Executive
                  Vice President, General Counsel and SecretaryGregory
                  M. Krzemien
              
              
              2006
              
              $
              200,000
              
              $
              -
              
              $
              56,650
              
              $
              1,809
              
              $
              258,459Principal
                  Financial Officer and TreasurerRonald
                  R. Pirollo
              
              
              2006
              
              $
              160,000
              
              $
              -
              
              $
              23,604
              
              $
              5,085
              
              $
              188,689Chief
                  Accounting Officer and Corporate Controller


(1)
            The
                Company (i) granted no restricted stock awards, and (ii) maintained
                no
                other long-term incentive plan for any of the Named Executive Officers,
                in
                each case during the three fiscal years ended December 31, 2006.
                Additionally, the Company has never issued any stock appreciation
                rights
                (SARs).




(2)
            The
                amounts in this column reflect the dollar amount recognized for financial
                statement reporting purposes for the fiscal year ended December 31,
                2006,
                in accordance with FAS 123(R) of awards pursuant to the Stock Option
                Program and thus include amounts from awards granted in and prior
                to 2006.
                Assumptions used in the calculation of this amount are included in
                Note 2
                to the Company’s Audited Financial Statements for the fiscal year ended
                December 31, 2006.




(3)
            Mr.
                Paolino receives a car at a lease cost of $1,500 per month and has
                received a discount of $8,728 on the purchase of security products
                from
                the Company. Mr. Krzemien, Mr. Kramer, and Mr. Pirollo received
                reimbursement for certain commuting expenses. Additionally, the Company
                allows Mr. Paolino’s assistant to aid him with his personal business,
                which has no incremental cost to the
                Company.





***Louis
      D. Paolino, Jr., Employment Agreement***





Mace
      currently employs Louis D. Paolino, Jr., as its President and Principal
      Executive Officer under a three-year Employment Contract dated August 21, 2006
      and expiring on August 21, 2009 (“Paolino Employment Agreement”). The Company
      obtained a Compensation Study from Compensation Resources, Inc., an independent
      third party consulting firm prior to entering into the Paolino Employment
      Agreement.




The
      initial base salary under the Paolino Employment Agreement is $450,000. The
      Paolino Employment Agreement provides for three separate option grants to Mr.
      Paolino for common stock under Mace’s 1999 Stock Option Plan at an exercise
      price equal to the close of market on the date of grant. The first grant was
      issued on August 21, 2006 and was an option exercisable into 450,000 shares
      of
      common stock at an exercise price of $2.30. The second option grant (“Second
      Grant”) is to be awarded within five days of the August 21, 2007 and the third
      option grant (“Third Grant”) is to be awarded within five days of August 21,
      2008. The amount of shares of the Second Grant and Third Grant (“Option Shares”)
      shall be exercisable into is to be determined by the Company’s Compensation
      Committee, based on a then current compensation study of the Principal Executive
      Officer position. The amount of Option Shares, at time of grant, plus the
      $450,000 annual compensation paid to Mr. Paolino is to equal no less than the
      “market consensus total direct compensation”, amount paid by the comparable
      companies to their chief executive officers, as set forth in a compensation
      study to be obtained by the Compensation Committee. The options with respect
      to
      each of the grants shall be fully vested on the date of the grant.





48


Under
      the
      Paolino Employment Agreement, Mr. Paolino is to receive a bonus of (a) one
      percent (1%) of the sales price of any car washes sold (excepting one car wash
      under contract on the date of the Paolino Employment Agreement and which has
      been sold); and (b) three percent (3%) of the purchase or sale price of any
      other business sold or purchased. The three (3%) amount is reduced by the amount
      of any fee paid to an investment banker hired by the Company where the
      investment banker located the transaction and conducted all negotiations. The
      three percent (3%) commission is not reduced for a fee paid to any investment
      banker for a fairness opinion or other valuation.





Upon
      termination of employment by the Company without cause or upon a change in
      control, Mr. Paolino is entitled to a payment of 2.99 times Mr. Paolino’s
      average total compensation (base salary plus any bonuses plus the value of
      any
      option award, valued using the Black Scholes method) over the past five years.
      If Mr. Paolino receives the change of control bonus, his employment can then
      be
      terminated by the Company without cause and without the payment of a second
      2.99
      times payment. The Company computes the 2.99 payment as of December 31, 2006
      as
      $3,241,000.





Under
      the
      Paolino Employment Agreement Mr. Paolino receives a car at a lease cost of
      $1,500 per month and Company standard medical and other employee benefits.
      Mr.
      Paolino is prohibited against competing with the Company during his period
      of
      employment and for a three-month period following a termination of employment.





***Gregory
      M. Krzemien, Employment Agreement***





Mace
      currently employs Gregory M. Krzemien, as its Principal Financial Officer and
      Treasurer under an Employment Contract dated February 12, 2007 and expiring
      on
      February 12, 2010 (“Krzemien Employment Agreement”). The Company’s Compensation
      Committee obtained a Compensation Study from Compensation Resources, Inc. prior
      to entering into the Krzemien Employment Agreement. The initial base salary
      under the Krzemien Employment Agreement is $230,000. In accordance with the
      Krzemien Employment Agreement, Mr. Krzemien received an option grant for 60,000
      shares of common stock under the Company’s Stock Option Plan at an exercise
      price of $2.73, the close of market on the date of grant. The options were
      granted on February 12, 2007. The options vested one-third on the date of the
      grant, and will vest one-third on February 12, 2008 and one-third on February
      12, 2009.





Under
      the
      Krzemien Employment Agreement, Mr. Krzemien will receive a one time retention
      payment equal to Mr. Krzemien’s then annual base compensation upon the
      occurrence of both of: (a) a change in control of the Company and (b) Louis
      D.
      Paolino, Jr. ceasing to be Principal Executive Officer of the Company. After
      Mr.
      Krzemien receives the retention payment, if Mr. Krzemien’s employment is then
      terminated without cause or if the Company breaches the Krzemien Employment
      Agreement, Mr. Krzemien is entitled to an additional one time payment equal
      to
      Mr. Krzemien’s then annual base compensation.





Mr.
      Krzemien receives a car allowance of $700 per month beginning in February 2007
      and the Company’s other standard medical and other employee benefits. Mr.
      Krzemien is prohibited against competing with the Company during his period
      of
      employment and for a three-month period following termination of
      employment.





***Robert
      M. Kramer, Employment Agreement***





Mace
      currently employs Robert M. Kramer, as its Executive Vice President, General
      Counsel and Secretary under an Employment Contract dated February 12, 2007
      and
      expiring on February 12, 2010 (“Kramer Employment Agreement”). The Company’s
      Compensation Committee obtained a Compensation Study from Compensation
      Resources, Inc. prior to entering into the Kramer Employment Agreement. The
      initial base salary under the Kramer Employment Agreement is $230,000. In
      accordance with the Kramer Employment Agreement, Mr. Kramer received an option
      grant for 60,000 shares of common stock under the Company’s Stock Option Plan at
      an exercise price of $2.73, the close of market on the date of grant. The
      options were granted on February 12, 2007. The options vested one-third on
      the
      date of the grant, and will vest one-third on February 12, 2008 and one-third
      on
      February 12, 2009.





Under
      the
      Kramer Employment Agreement, Mr. Kramer will receive a one time retention
      payment equal to Mr. Kramer’s then annual base compensation upon the occurrence
      of both of: (a) a change in control of the Company and (b) Louis D. Paolino,
      Jr.
      ceasing to be Principal Executive Officer of the Company. After Mr. Kramer
      receives the retention payment, if Mr. Kramer’s employment is then terminated
      without cause or if the Company breaches the Kramer Employment Agreement, Mr.
      Kramer is entitled to an additional one time payment equal to Mr. Kramer’s then
      annual base compensation.





49


Mr.
      Kramer receives a car allowance of $700 per month beginning in February 2007
      and
      the Company’s other standard medical and other employee benefits. Mr. Kramer is
      prohibited against competing with the Company during his period of employment
      and for a three-month period following termination of employment.





***Ronald
      R. Pirollo, Employment Agreement***





The
      primary terms of the employment agreement of Ronald R. Pirollo expired on March
      26, 2003. Mr. Pirollo or the Company may terminate Mr. Pirollo’s employment at
      any time. Mr. Pirollo’s salary as of March 15, 2007 is $ 180,000. On June 19,
      2007, Mr. Pirollo and the Company entered into a Retention Agreement providing
      for Mr. Pirollo to be paid a lump sum cash payment equal to Mr. Pirollo’s then
      current annual base salary (currently $180,000) upon the occurrence of both
      of
      the following while Mr. Pirollo is an employee: (a) Louis D. Paolino, Jr. no
      longer serving as the Company’s Chief Executive Officer and (b) an event
      constituting a change in control of the Company as defined in the Retention
      Agreement.





**Option
      and Warrant Grants in Last Fiscal Year**





The
      following table sets forth certain information concerning individual grants
      of
      stock options to the Named Executive Officers during
      the fiscal year ended December 31, 2006.





**GRANTS
      OF PLAN-BASED AWARDS**




**Name**
            
            **Grant
                Date**
            
            **All
                other Option**
              **Awards:**
              **Number
                of Securities**
              **Underlying**
              **Options**
              **(****#)**
            
            **Exercise
                or Base****Price of Option Awards ($/Sh)**
            
            **Grant
                Date Fair Value of Stock and Option Awards**Louis
                D. Paolino, Jr.
            
            
            3/01/2006
              8/21/2006
            
            
            150,000
              450,000
            
            $
              $
            2.40
              2.30
            
            $
              $
            239,385
              648,495Gregory
                M. Krzemien
            
            
            3/01/2006
            
            
            60,000
            
            $
            2.40
            
            $
            95,754Robert
                M. Kramer
            
            
            3/01/2006
            
            
            75,000
            
            $
            2.40
            
            $
            119,693Ronald
                R. Pirollo
            
            
            3/01/2006
            
            
            25,000
            
            $
            2.40
            
            $
            39,898





In
      2006,
      Mr. Paolino received two option grants. The Compensation Committee authorized
      for Mr. Paolino on March 1, 2006 the granting of options exercisable into
      150,000 shares of common stock at an exercise price of $2.40, the closing price
      of the Company’s common stock on March 1, 2006. The option agreement was dated
      March 23, 2006, the day the option agreement was physically prepared and
      delivered. The option for 150,000 shares was awarded to Mr. Paolino for his
      role
      in the Company’s performance in 2005. The 150,000 option grant vests in three
      equal installments of 50,000 each on March 23, 2006, March 23, 2007 and March
      23, 2008. The option fully vests upon a change of control of the Company. On
      August 21, 2006, Mr. Paolino received an option grant exercisable into 450,000
      shares of common stock at an exercise price of $2.30. The option grant was
      based
      on the competitive total direct compensation in the marketplace. The Black
      Scholes value of the option grant, plus Mr. Paolino’s base salary, were intended
      to bring Mr. Paolino to an appropriate level for similarly situated executives.
      The market study prepared by Compensation Resources, Inc. indicated that the
      50 th percentile for Total Direct Compensation (Cash Compensation plus Equity) was
      $1,117,300. The Compensation Committee decided to award Mr. Paolino with the
      amount of options that would bridge the gap between his $450,000 cash
      compensation and the $1,117,300 total compensation. The options exercisable
      into
      450,000 shares were immediately exercisable. The intent was to reward Mr.
      Paolino for his performance, and provide him with the motivation to stay with
      the Company and grow the stock price to benefit the
      shareholders.


On
      March
      1, 2006, the Compensation Committee authorized stock options to Mr. Krzemien,
      Mr. Kramer and Mr. Pirollo as incentive compensation for their 2005 performance
      in the respective amounts of 60,000, 75,000 and 25,000. The options are
      exercisable at $2.40 per share, the closing price of the Company’s common stock
      on March 1, 2006, the day on which these options were granted by the
      Compensation Committee. Although these grants were promptly communicated to
      the
      recipient, the option agreements were dated March 23, 2006, the day when they
      were physically prepared and delivered. The options awarded vested one third
      upon issuance, one third twelve months from issuance and one third twenty-four
      months from issuance. The options fully vest upon change of
      control.


50


**Aggregated
      Option and Warrant Exercises in Last Fiscal Year**





The
      following table sets forth certain information regarding stock options held
      by
      the Named Executive Officers during the fiscal year ended December 31, 2006,
      including the number of exercisable and unexercisable stock options as of
      December 31, 2006 by grant. No options were exercised by any of the Named
      Executive Officers during the fiscal year ended December 31, 2006. In-the-money
      options are those for which the fair market value of the underlying securities
      exceeds the exercise price of the option. The closing transaction price of
      the
      Company’s common stock on December 31, 2006 was $2.56 per share.




**OUTSTANDING
                EQUITY AWARDS AT FISCAL
                YEAR-END**




**Name**
            
            **Number
                of Securities**
              **Underlying
                Unexercised Options**
              **(#)**
              ******Exercisable**
            
            **Number
                of**
              **Securities**
              **Underlying**
              **Unexercised**
              **Options**
              **(#)**
              **Unexercisable**
            
            **Option**
              **Exercise**
              **Price**
              **($)**
            
            **Option**
              **Expiration**
              **Date**Louis
                D. Paolino, Jr.
            
            
            5,000
              87,500
              150,000
              568,182
              14,000
              150,000
              15,000
              50,000
              450,000
            
            
            -
              -
              -
              -
              -
              -
              -
              100,000
              -
            
            
            2.56
              2.36
              1.32
              4.21
              5.35
              5.35
              2.64
              2.40
              2.30
            
            
            10/18/2010
              4/4/2012
              7/14/2013
              11/2/2014
              11/19/2014
              11/19/2014
              10/31/2015
              3/23/2016
              8/21/2016Gregory
                M. Krzemien
            
            
            62,500
              50,000
              37,500
              150,000
              50,000
              20,000
            
            
            -
              -
              -
              -
              -
              40,000
            
            
            5.38
              1.38
              2.36
              1.32
              5.35
              2.40
            
            
            3/26/2009
              3/30/2011
              4/4/2012
              7/14/2013
              11/19/2014
              3/23/2016Robert
                M. Kramer
            
            
            81,395
              18,605
              5,000
              50,000
              37,500
              150,000
              37,500
              75,000
              25,000
            
            
            -
              -
              -
              -
              -
              -
              -
              -
              50,000
            
            
            5.38
              11.00
              2.56
              5.38
              2.36
              1.32
              4.21
              5.35
              2.40
            
            
            3/26/2009
              12/27/2009
              10/18/2010
              3/30/2011
              4/4/2012
              7/14/2013
              11/2/2014
              11/19/2014
              3/23/2016Ronald
                R. Pirollo
            
            
            25,000
              5,000
              30,000
              15,000
              100,000
              25,000
              8,334
            
            
            -
              -
              -
              -
              -
              -
              16,666
            
            
            5.38
              8.63
              1.38
              2.36
              1.69
              5.35
              2.40
            
            
            3/26/2009
              2/24/2010
              3/30/2011
              4/4/2012
              11/14/2013
              11/19/2014
              3/23/2016





51


**Compensation
      Committee Interlocks and Insider Participation**





The
      Compensation Committee of the Company’s Board of Directors consisted of
      directors Burton Segal, Mark Alsentzer, and Constantine N. Papadakis, Ph.D.
      No
      executive officer of Mace served as a director or compensation committee member
      of any entity of which Messrs. Segal, Alsentzer or Papadakis was an executive
      officer or director.





**Potential
      Payments upon Termination or Change In Control**





For
      a
      description and quantification of compensation that would become payable under
      existing arrangements in the event of a change of control or termination of
      each
      named executive officer’s employment under several different circumstances, see
      the discussion under “Fiscal Year 2006 Change of Control Decisions” in the
      Compensation Discussion and Analysis beginning on page 39 of this Annual Report
      on Form 10-K.





**Director
                Compensation**




**Name**
            
            **Fees**
              **Earned
                or**
              **Paid
                in**
              **Cash**
              **($)
                (1)**
            
            **Option**
              **Awards**
              **($)
                (2)**
            
            **All**
              **Other**
              **Compensation**
              **($)**
            
            **Total**Constantine
                N. Papadakis, Ph.D
            
            $
            42,000
            
            $
            34,002
            
            
            -
            
            $
            76,002Mark
                Alsentzer
            
            $
            41,000
            
            $
            34,002
            
            
            -
            
            $
            75,002Burton
                Segal
            
            $
            32,000
            
            $
            25,643
            
            
            -
            
            $
            57,643Matthew
                Paolino (3)
            
            $
            -
            
            $
            25,643
            
            
            -
            
            $
            25,643





1.
            The
                fees earned and paid in cash to the named Directors for their service
                in
                2006 includes a special fee regarding the immigration investigation
                conducted by the Audit Committee in 2006 as follows: Mark
                Alsentzer-$25,000; Constantine N. Papadakis, Ph.D- $25,000; and Burton
                Segal-$15,000.




2.
            The
                aggregate option outstanding at December 31, 2006 were as follows:
                Mark
                Alsentzer-107,500 options; Constantine Papadakis, Ph.D.-102,500 options;
                Burton Segal-55,000 options; and Matthew Paolino-111,500 options.
                Assumptions used in the calculation of these amounts are included
                in Note
                2 to the Company’s Audited Financial Statement for the fiscal year ended
                December 31, 2006.




3.
            For
                year ended December 31, 2006, Mr. Matthew Paolino received a $45,000
                salary as a Vice President of the Company and did not receive any
                Directors fees.





For
      the
      year 2006, the Board of Directors approved of the following fees to be paid
      to
      Directors who are not employees of the Company with respect to their calendar
      year 2006 service: an annual retainer fee of $10,000, prorated for partial
      years
      of service; a $1,000 per day meeting fee for physical attendance at Board of
      Director and related Committee meetings; and a grant of 15,000 options at the
      close of market on October 31, 2005, which vested immediately, to each Director
      including employee Directors.




For
      the
      year 2007, the Board of Directors, after review of a report of Compensation
      Resources, Inc. approved of the following fees to be paid to Directors who
      are
      not employees of the Company with respect to their calendar year 2007 service:
      a
      $15,000 annual cash retainer fee to be paid in a lump sum; a $1,000 fee to
      each
      non-employee Director for each Board of Director or Committee meeting attended
      in person; a $500 fee to each non-employee Director for each Board of Director
      or Committee meeting exceeding thirty minutes in length attended by telephone;
      and a grant of 15,000 options at the close of market on December 12, 2006 to
      each non-employee Director and Matthew Paolino. The option grants vested
      immediately and had a grant date fair market value of $25,643.





52




**ITEM
      12.**  **SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTERS**





**Beneficial
      Ownership**





The
      following beneficial ownership table sets forth information as of June 15,
      2007
      regarding ownership of shares of Mace common stock by the following
      persons:





·
            each
                person who is known to Mace to own beneficially more than 5% of the
                outstanding shares of Mace common stock, based upon Mace’s records or the
                records of the United States Securities and Exchange
                Commission;


·
            each
                director of Mace;


·
            each
                Named Executive Officer; and


·
            all
                directors and executive officers of Mace as a
                group.





Unless
      otherwise indicated, to Mace’s knowledge, all persons listed on the beneficial
      ownership table below have sole voting and investment power with respect to
      their shares of Mace common stock. Shares of Mace common stock subject to
      options or warrants exercisable within 60 days of June 15, 2007 are considered
      outstanding for the purpose of computing the percentage ownership of the person
      holding such options or warrants, but are not deemed outstanding for computing
      the percentage ownership of any other person.




**Name
                and Address of**
              **Beneficial
                Owner**
            
            **Amount
                and Nature of****Beneficial
                Ownership**
            
            **Percentage
                of**
              **Common
                Stock Owned (1)**Louis
                D. Paolino, Jr.
            
            
            2,430,640
            (2)
            
            14.5
            %Lawndale
                Capital Management, LLC
              591
                Redwood Highway, Suite 2345
              Mill
                Valley, CA 94941
            
            
            1,420,615
            (3)
            
            9.3Ancora
                Capital, Inc.
              One
                Chagrin Highlands
              2000
                Auburn Drive, Suite 300
              Cleveland,
                Ohio 44122
            
            
            871,400
            (4)
            
            5.7Mark
                S. Alsentzer
            
            
            607,500
            (5)
            
            3.9Matthew
                J. Paolino
            
            
            313,354
            (6)
            
            2.0Robert
                M. Kramer
            
            
            604,539
            (7)
            
            3.8Gregory
                M. Krzemien
            
            
            435,250
            (8)
            
            2.8Ronald
                R. Pirollo
            
            
            230,000
            (9)
            
            1.5Constantine
                N. Papadakis, Ph.D.
            
            
            112,500
            (10)
            
            *Burton
                Segal
            
            
            55,000
            (11)
            
            *All
                current directors and executive officers as a group (8
                persons)
            
            
            4,788,783
            (12)
            
            26.1
            %




*
      Less
      than 1% of the outstanding shares of Mace common stock.




(1)
            Percentage
                calculation is based on 15,275,382 shares outstanding on June 15,
                2007.


(2)
            Includes
                options to purchase 1,539,682
                shares.


(3)
            According
                to their Schedule 13D filed with the Securities and Exchange Commission
                on
                June 7, 2007, consists of 1,420,615 shares to which Lawndale Capital
                Management, LLC (“Lawndale”) has shared voting and dispositive power. The
                Schedule 13D was filed jointly by Lawndale, Andrew Shapiro and Diamond
                A.
                Partners, L.P. (“Diamond”). Lawndale is the investment advisor to and the
                general partner of Diamond, which is an investment limited partnership.
                Mr. Shapiro is the sole manager of Lawndale. Mr. Shapiro is also
                deemed to
                have shared voting and dispositive power with respect to the shares
                reported as beneficially owned by Lawndale. Diamond has shared voting
                and
                dispositive power with respect to 1,241,038 shares of the
                Company.


53




(4)
            Represents
                shares held by participants in the Ancora Group, which includes Ancora
                Capital; Ancora Securities Inc, the main subsidiary of Ancora Capital;
                Ancora Advisors LLC; Ancora Trust, the master trust for the Ancora
                Mutual
                Funds; Ancora Foundation, a private foundation; Merlin Partners,
                an
                investment limited partnership; various owners and employees of the
                aforementioned entities. The Ancora Group has sole voting and investment
                power with respect to 836,400 shares and shared investment power
                with
                respect to 35,000 shares. Ancora Securities Inc is registered as
                a
                broker/dealer with the Securities and Exchange Commission (the “SEC”) and
                the National Association of Securities Dealers. Ancora Advisors LLC
                is
                registered as an investment advisor with the SEC under the Investment
                Advisors Act, as amended. The Ancora Trust, which includes Ancora
                Income
                Fund, Ancora Equity Fund, Ancora Special Opportunity Fund, Ancora
                Homeland
                Security Fund and Ancora Bancshares, are registered with the SEC
                as
                investment companies under the Investment Company Act, as amended.
                Mr.
                Richard Barone is the controlling shareholder of Ancora Capital,
                controls
                31% of Ancora Advisors, owns approximately 15% of Merlin Partners,
                and is
                Chairman of and has an ownership interest in the various Ancora
                Funds.Ancora Advisors LLC has the power to dispose of the shares
                owned by
                the investment clients for which it acts as advisor, including Merlin
                Partners, for which it is also the General Partner, and the Ancora
                Mutual
                Funds. Ancora Advisors LLC disclaims beneficial ownership of such
                shares,
                except to the extent of its pecuniary interest therein. Ancora Securities
                Inc. acts as the agent for its various clients and has neither the
                power
                to vote nor the power to dispose of the shares. Ancora Securities
                Inc.
                disclaims beneficial ownership of such shares. All entities named
                herein
                (Ancora Group) each disclaim membership in a Group as such term is
                defined
                in Section 13(d)(3) of the Exchange Act and the Rules and Regulations
                promulgated thereunder.


(5)
            Includes
                options to purchase 107,500 shares. Also includes 200,000 shares
                that have
                been delivered by Mr. Alsentzer in street name to Argyll Equities,
                LLC
                (“Argyll”), as collateral for a $600,000 loan obtained by Mr. Alsentzer on
                April 27, 2004 (“Pledged Shares”). Mr. Alsentzer had advised the Company
                that he retained the right to vote the Pledged Shares. By letter
                dated May
                4, 2005, Mr. Alsentzer requested that Argyll confirm in writing that
                the
                Pledged Shares were in Argyll’s possession and were being held as
                collateral, under the terms of Mr. Alsentzer’s agreement with Argyll. To
                date, Mr. Alsentzer has not received the requested confirmation or
                any
                notice of default from Argyll. Based on the information the Company
                has
                received, the Company is not able to determine whether Mr. Alsentzer
                retains beneficial ownership over the Pledged
                Shares.


(6)
            Includes
                options to purchase 111,500 shares.


(7)
            Includes
                options to purchase 525,000 shares.


(8)
            Includes
                options to purchase 410,000 shares.


(9)
            Includes
                options to purchase 225,000 shares.


(10)
            Represents
                options to purchase 102,500 shares.


(11)
            Represents
                options to purchase 55,000 shares.


(12)
            See
                Notes 2 and 5 through 11 above.




**Securities
      Authorized for Issuance Under Equity Compensation Plans**





Stock
      options are issued under the 1999 Stock Option Plan at the discretion of the
      Compensation Committee to employees at an exercise price of no less than the
      then current market price of the common stock and generally expire ten years
      from the date of grant. Allocation of available options and vesting schedules
      are at the discretion of the Compensation Committee and are determined by
      potential contribution to, or impact upon, the overall performance of the
      Company by the executives and employees. Stock options are also issued to
      members of the Board of Directors at the discretion of the Compensation
      Committee. These options may have similar terms as those issued to officers
      or
      may vest immediately. The purpose of the Stock Option Plan, which has been
      approved by the stockholders of the Company, is to provide a means of
      performance-based compensation in order to provide incentive for the Company’s
      employees. Warrants have been issued in connection with the sale of the shares
      of the Company’s stock, the purchase and sale of certain businesses and to a
      director. The terms of the warrants have been established by the Board of
      Directors of the Company. Certain of the warrants have been approved by
      stockholders.





54





The
      following table sets forth certain information regarding the Company’s Stock
      Option Plan and warrants as of December 31, 2006.




**Plan
                Category**
            
            **(a)**
              **Number
                of securities to be issued upon exercise of outstanding options,
                warrants
                and rights**
            
            **(b)**
              **Weighted
                average exercise price of outstanding options, warrants and
                rights**
            
            **(c)**
              **Number
                of securities remaining available for future issuance under equity
                compensation plans (excluding securities reflected in column
                (a))**Equity
                compensation plans approved by stockholders
            
            
            3,995,015
            
            $
            3.63
            
            
            3,095,549Equity
                compensation plans not approved by stockholders
            
            
            433,000
            
            $
            8.02
            
            
            N/ATotal
            
            
            4,428,015
            
            $
            4.06
            
            
            3,095,549




**ITEM
      13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**  **AND
      DIRECTOR INDEPENDENCE**





**Certain
      Relationships and Related Party Transactions**





The
      Company’s Security Segment leases manufacturing and office space under a
      five-year lease with Vermont Mill, Inc. (“Vermont Mill”). Vermont Mill is
      controlled by Jon E. Goodrich, a former director and current employee of the
      Company. In November 2004, the Company exercised an option to continue the
      lease
      through November 2009 at a rate of $10,576 per month. The Company believes
      that
      the lease rate is lower than lease rates charged for similar properties in
      the
      Bennington, Vermont area. On July 22, 2002, the lease was amended to provide
      Mace the option and right to cancel the lease with proper notice and a payment
      equal to six months of the then current rent for the leased space occupied
      by
      Mace. Rent expense under this lease was $127,000 for years ending December
      31,
      2006 and 2005.





On
      September 29, 2005, Louis Paolino III, the son of the Company’s Chief Executive
      Officer, Louis Paolino, Jr., purchased from the Company a warehouse bay in
      Hollywood, Florida that is no longer used in the Company’s operations for
      $306,000 in cash. The Company’s Audit Committee authorized the Company on
      February 14, 2005 to proceed with a sale of the warehouse property to Louis
      Paolino III for $306,000. The Company paid $256,688 for the property in 2003.
      The warehouse property was appraised by a third party independent appraiser
      on
      January 18, 2005 at an estimated market value of $306,000.




The
      Company’s Audit Committee Charter, Section IV.E.(vi), provides that the Audit
      Committee annually reviews all existing related party transactions or other
      conflicts of interest that exist between employees and directors and the
      Company. The Audit Committee Charter also requires that the Audit Committee
      review all proposed related party transactions. As provided in Section IV.E.(iv)
      of the Audit Committee Charter, the Company may not enter into a related party
      transaction, unless the transaction is first approved of by the Audit Committee.
      The Audit Committee Charter is in writing and is available for review on the
      Company’s website at www.mace.com, under
      the Investor Relations heading. The current members of the Audit Committee
      are
      Constantine N. Papadakis, Ph.D., Mark Alsentzer and Burton Segal. When reviewing
      related party transactions, the Audit Committee considers the benefit to the
      Company of the transaction and whether the transaction furthers the Company’s
      interest. The decisions of the Audit Committee are set forth in writing in
      the
      minutes of the meetings of the Audit Committee.





**Director
      Independence**





Mace
      has
      Corporate Governance Guidelines, which we were adopted by the Board and provide
      that a majority of the Company’s directors should be independent, as defined by
      the rules of the NASDAQ Global Market. **** The
      Board **** has
      determined that Messers. Segal and Alsentzer and Dr. Papadakis are independent
      under these rules. In addition, all of the Audit Committee members are
      independent under the Audit Committee independence standards established by
      the
      NASDAQ Global Market and the rules promulgated by the SEC. The Board **** has
      an
      Audit Committee, a Compensation Committee, a Nominating Committee and an Ethics
      and Corporate Governance Committee. The independent directors are the sole
      members of all of the named committees.





55


**ITEM
          14.** **PRINCIPAL
          ACCOUNTANT FEES AND SERVICES**




***Audit
      Fees*** *.* The
      Company was billed $402,542 by Grant Thornton LLP for the audit of Mace’s annual
      financial statements for the fiscal year ended December 31, 2006, and for the
      review of the financial statements included in Mace’s Quarterly Reports on Forms
      10-Q filed during 2006 through May 31, 2007. The Company **** was
      billed **$** 485,083,
      by Grant Thornton LLP for the audit of Mace’s annual financial statements for
      the fiscal year ended December 31, 2005, and for the review of the financial
      statements included in Mace’s Quarterly Reports on Forms 10-Q filed during
      2005.





***Audit
      Related Fees*** .
      The
      Company did not incur any audit related fees during 2006 or 2005.





***Tax
      Fees.*** The
      Company was billed $36,364 and $69,462 for tax compliance services rendered
      by
      Grant Thornton LLP during 2006 and 2005, respectively.





***All
      Other Fees*** **.** The
      Company did not incur any other fees during 2006 or 2005.





***Other
      Matters*** *.* The
      Audit Committee of the Board of Directors has considered whether the provision
      of financial information systems design and implementation services and other
      non-audit services is compatible with maintaining the independence of Mace’s
      independent auditors, Grant Thornton LLP. The Audit Committee pre-approves
      all
      auditing services and permitted non-audit services (including the fees and
      terms
      thereof) to be performed for the Company by its independent auditors. All
      auditing services and permitted non-audit services in 2005 and 2006 were
      pre-approved. The Audit Committee may delegate authority to the chairman, or
      in
      his or her absence, a member designated by the chairmen to grant pre-approvals
      of audit and permitted non-audit services, provided that decisions of such
      person or subcommittee to grant pre-approvals shall be presented to the full
      Audit Committee at its next scheduled meeting.




**PART
      IV**





**ITEM
          15.** **EXHIBITS
          AND FINANCIAL STATEMENT SCHEDULES**





(a)
                (1)
            Consolidated
                Financial Statements:
              Report
                of Independent Registered Public Accounting Firm
              Consolidated
                  Balance Sheets as of December 31, 2006 and 2005
                Consolidated
                  Statements of Operations for the years ended December 31, 2006,
                  2005, and
                  2004
                Consolidated
                  Statements of Stockholders’ Equity for the years ended December 31, 2006,
                  2005, and 2004
                Consolidated
                  Statements of Cash Flows for the years ended December 31, 2006,
                  2005, and
                  2004
                Notes
                  to Consolidated Financial
                  Statements





(a)
                (2)
            The
                requirements of Schedule II have been included in the Notes to
                Consolidated Financial Statements. All other schedules for which
                provision
                is made in the applicable accounting regulations of the United States
                Securities and Exchange Commission (“the Commission”) are not required
                under the related instructions or are inapplicable, and therefore,
                have
                been omitted.





(a)
      (3)
      Exhibits:





The
      following Exhibits are filed as part of this report (exhibits marked with an
      asterisk have been previously filed with the Commission and are incorporated
      herein by this reference):





*
                2.1
            Asset
                Purchase Agreement dated February 28, 2006, between Mace Security
                International, Inc., Mace Car Wash, Inc., Mace Car Wash-Arizona,
                Inc., and
                CW Acquisition, LLC. (Exhibit 10.1 to the February 28, 2006 Form
                8-K filed
                March 6, 2006.)


*2.2
            Asset
                Purchase Agreement dated December 7, 2006, between Mace Security
                International, Inc., Mace Car Wash, Inc., Mace Car Wash-Arizona,
                Inc., and
                Twisted Cactus Enterprises, LLC. (Exhibit 10.1 to the December 7,
                2006
                Form 8-K dated December 13, 2006)


*3.3
            Amended
                and Restated Bylaws of Mace Security International, Inc. (Exhibit
                3.3 to
                the Company’s Report on Form 10-KSB for the year ended December 31, 1999
                (the “1999 Form 10-KSB”))


*3.4
            Amended
                and Restated Certificate of Incorporation of Mace Security International,
                Inc. (Exhibit 3.4 to the 1999 Form
                10-KSB)


*3.5
            Certificate
                of Amendment of Amended and Restated Certificate of Incorporation
                of Mace
                Security International, Inc. (Exhibit 3.5 to the 2000 Form 10-KSB)


56




*3.6
            Certificate
                of Amendment of Amended and Restated Certificate of Incorporation
                of Mace
                Security International, Inc. (Exhibit 3.6 to the 2002 Form
                10-K)


*3.7
            The
                Company’s Amended and Restated Certificate of Incorporation (Exhibit 4.1
                to the June 16, 2004 Form S-3)


*10.3
            1993
                Non-Qualified Stock Option Plan (1) (3)


*10.22
            Trademarks(1)


*10.28
            Warrants
                in connection with the acquisition of the assets of the KinderGard
                Corporation(2)


*10.98
            Mace
                Security International, Inc. 1999 Stock Option Plan. (Exhibit 10.98
                to the
                June 30, 1999 Form 10-QSB dated August 13, 1999)
                (3)


*10.123
            Loan
                Agreement and Promissory Note dated February 17, 2000, between the
                Company, its subsidiary Mace Car Wash - Arizona, Inc. and Bank One,
                Texas,
                NA. (Exhibit 10.123 to the December 31, 1999 Form 10-KSB dated March
                29,
                2000)


*10.124
            Business
                Loan Agreement dated January 31, 2000, between the Company, its subsidiary
                - Colonial Full Service Car Wash, Inc., and Bank One, Texas, N.A.;
                Promissory Note dated February 2, 2000 between the same parties as
                above
                in the amount of $400,000 (pursuant to instruction 2 to Item 601
                of
                Regulation S-K, two additional Promissory Notes, which are substantially
                identical in all material respects except as to the amount of the
                Promissory Notes) are not being filed in the amount of: $19,643.97
                and
                $6,482; and a Modification Agreement dated as of January 31, 2000
                between
                the same parties as above in the amount of $110,801.55 (pursuant
                to
                instruction 2 to Item 601 of Regulation S-K, Modification Agreements,
                which are substantially identical in all material respects except
                to the
                amount of the Modification Agreement) are not being filed in the
                amounts
                of: $39,617.29, $1,947,884.87, $853,745.73, and $1,696,103.31.(Exhibit
                10.124 to the December 31, 1999 Form 10-KSB dated March 29,
                2000)


*10.128
            Form
                of Equity Purchase Agreement to be issued by Mace to Fusion Capital
                (included as Exhibit A to Master Facility Agreement in Exhibit 10.1
                of
                S-3). (Exhibit 4.1 to the Company’s Current Form on S-3 dated April 11,
                2000).


*10.129
            Master
                Facility Agreement, dated as of April 5, 2000, between Mace and Fusion
                Capital (Exhibit 10.1 to the Company’s Current Form on S-3 dated April 11,
                2000).


*10.130
            Loan
                Agreement and Promissory Note dated November 28, 2000, between the
                Company, its subsidiary Eager Beaver Car Wash, Inc. and Bank One,
                Texas,
                N.A. in the amount of $6,754,400. (Exhibit 10.130 to the December
                31, 2000
                Form 10-KSB dated March 20, 2001)


*10.131
            Lease
                Agreement dated August 1, 2000 among Mace Security International,
                Inc. and
                Bluepointe, Inc. (Exhibit 10.131 to the December 31, 2000 Form 10-KSB
                dated March 20, 2001)


*10.132
            Amendment
                dated March 13, 2001, to Business Loan Agreement between the Company,
                its
                subsidiary Colonial Full Service Car Wash, Inc., and Bank One, Texas,
                N.A.
                (pursuant to instruction 2 to Item 601 of Regulation S-K, two additional
                amendments which are substantially identical in all material respects,
                except as to the borrower being Eager Beaver Car Wash, Inc. and Mace
                Car
                Wash - Arizona, Inc., are not being filed).(Exhibit 10.132 to the
                December
                31, 2000 Form 10-KSB dated March 20,
                2001)


*10.133
            Modification
                Agreement between the Company, its subsidiary - Colonial Full Service
                Car
                Wash, Inc., and Bank One, Texas, N.A. in the amount of $2,216,000
                (pursuant to Instruction 2 to Item 601 of Regulation S-K, Modification
                Agreements, which are substantially identical in all material respects
                except to amount and extension date of the Modification Agreement
                are not
                being filed in the original amounts of $984,000 (extended to August
                20,
                2004) and $1,970,000 (extended to June 21, 2004).(Exhibit 10.133
                to the
                June 30, 2001 Form 10-Q dated August 9,
                2001)


*10.134
            Term
                Note dated November 6, 2001, between the Company, its subsidiary,
                Colonial
                Full Service Car Wash, Inc., and Bank One, Texas, N.A. in the amount
                of
                $380,000.(Exhibit 10.134 to the September 30, 2001 Form 10-Q dated
                November 9, 2001)


*10.136
            Amendment
                dated February 25, 2002 to Lease Agreement between the Company and
                Vermont
                Mill Properties, Inc. and original Lease Agreement dated November
                15, 1999
                to which the amendment relates.(Exhibit 10.136 to the December 31,
                2001
                Form 10-K dated March 11, 2002)


*10.138
            Extension
                dated February 6, 2002 of Equity Purchase Agreement between the Company
                and Fusion Capital Fund II, LLC. (Exhibit 10.138 to the December
                31, 2001
                Form 10-K dated March 11, 2002)


*10.139
            Term
                note dated April 30, 2002, between the Company, its subsidiary, Mace
                Truck
                Wash, Inc., and Bank One, Texas, N.A. in the amount of $342,000.(Exhibit
                10.139 to the June 30, 2002 Form 10-Q dated August 14,
                2002)


*10.140
            Master
                Lease Agreement dated June 10, 2002, between the Company, its subsidiary,
                Colonial Full Service Car Wash, Inc., and Banc One Leasing Corporation
                in
                the amount of $193,055. (Exhibit 10.140 to the June 30, 2002 Form
                10-Q
                dated August 14, 2002)


*10.142
            Amendment
                dated July 22, 2002 to Lease Agreement between the Company and Vermont
                Mill Properties, Inc. (Exhibit 10.142 to the June 30, 2002 Form 10-Q
                dated
                August 14, 2002)


*10.144
            Lease
                Schedule and Addendum dated August 28, 2002 in the amount of $39,434
                to
                Master Lease Agreement dated June 10, 2002, between the Company,
                its
                subsidiary, Colonial Full Service Car Wash, Inc., and Banc One Leasing
                Corporation. (Exhibit 10.144 to the September 30, 2002 Form 10-Q
                dated
                November 12, 2002)


57


*10.146
            Line
                of Credit Note and Credit Agreement dated December 15, 2002 between
                the
                Company, its subsidiary, Mace Security Products, Inc. and Bank One
                Texas,
                N.A. in the amount of $500,000. (Exhibit 10.146 to the December 31,
                2002
                Form 10-K dated March 19, 2003)


*10.147
            Amendment
                dated February 21, 2003 to Business Loan Agreement between the Company,
                its subsidiary, Eager Beaver Car Wash, Inc., and Bank One, Texas,
                N.A.
                (pursuant to instruction 2 to Item 601 of Regulation S-K, two additional
                amendments which are substantially identical in all material respects,
                except as to the borrower being Mace Truck Wash, Inc. and Mace Security
                Products, Inc., are not being filed). (Exhibit 10.147 to the December
                31,
                2002 Form 10-K dated March 19,
                2003)


*10.148
            Note
                Modification Agreement dated February 21, 2003, between the Company,
                its
                subsidiary, Colonial Full Service Car Wash, Inc. and Bank One, Texas,
                N.A.
                in the amount of $348,100. (Exhibit 10.148 to the December 31, 2002
                Form
                10-K dated March 19, 2003)


*10.149
            Note
                Modification Agreement dated February 21, 2003, between the Company,
                its
                subsidiary, Mace Car Wash - Arizona, Inc. and Bank One, Texas, N.A.
                in the
                amount of $4,281,578.(Exhibit 10.149 to the December 31, 2002 Form
                10-K
                dated March 19, 2003)


*10.150
            Modification
                Agreement dated March 14, 2003, between the Company, its subsidiary,
                Mace
                Security Products, Inc. and Wachovia Bank, N.A. (Exhibit 10.150 to
                the
                December 31, 2002 Form 10-K dated March 19,
                2003)


*10.151
            Note
                Modification Agreement dated August 5, 2003, effective July 10, 2003,
                between the Company, its subsidiary, Mace Car Wash - Arizona, Inc.
                and
                Bank One, Texas, N.A. in the amount of $731,455. (Exhibit 10.151
                to the
                June 30, 2003 Form 10-Q dated August 12,
                2003)


*10.155
            Modification
                and Extension of Note and Ratification of Mortgage Liens dated November
                28, 2003, between the Company, its subsidiary, Eager Beaver Car Wash,
                Inc.
                and Bank One, Texas, N.A. in the amount of $5,723,079. (Exhibit 10.155
                to
                the December 31, 2004 Form 10-K dated March 12,
                2004.)


*10.156
            Note
                Modification Agreement and Amendment to Credit Agreement dated December
                15, 2003, between the Company, its subsidiary, Mace Security Products,
                Inc. and Bank One, Texas, N.A. in the amount of $500,000.(Exhibit
                10.156
                to the December 31, 2004 Form 10-K dated March 12,
                2004.)


*10.157
            Note
                Modification Agreement and Amendment to Credit Agreement dated January
                21,
                2004, between the Company, its subsidiary, Colonial Full Service
                Car Wash,
                Inc. and Bank One, Texas, N.A. in the amount of $48,725.50.(Exhibit
                10.157
                to the December 31, 2004 Form 10-K dated March 12, 2004.)


*10.158
            Credit
                Agreement dated as of December 31, 2003 between the Company, its
                subsidiary, Eager Beaver Car Wash, Inc., and Bank One Texas, N.A.
                (pursuant to instruction 2 to Item 601of Regulation S-K, four additional
                credit agreements which are substantially identical in all material
                respects, except as to the borrower being Mace Car Wash - Arizona,
                Inc.,
                Colonial Full Service Car Wash, Inc., Mace Security Products, Inc.
                and
                Mace Security International, Inc., are not being filed.)(Exhibit
                10.158 to the December 31, 2004 Form 10-K dated March 12,
                2004.)


*10.159
              Amendment
                    to Credit Agreement dated April 27, 2004, effectiveness of March
                    31, 2004
                    between Mace Security International,
                    Inc., and Bank One Texas, N.A. (Pursant to instruction 2 to Item
                    601 of
                    Regulation S-K, fourAdditional
                    credit agreements which are substantially identical in all material
                    respects, except as to borrowerbeing
                    the Company’s subsidiaries, Mace Car Wash-Arizona, Inc., Colonial Full
                    Service Car Wash, Inc. MaceSecurity
                    Products Inc. and Eager Beaver Car Wash, Inc., are not being
                    filed)
                    (Exhibit 10.159 to the March 31,2004
                    Form 10-Q dated May 5,
                    2004)


*10.160
            Termination
                Agreement dated April 21, 2004, between Mace Security International,
                Inc.
                and Fusion Capital FundII,
                LLC. (Exhibit 10.160 to March 31, 2004 Form 10-Q dated May 5,
                2004.)


*10.161
            Stock
                Restriction Removal Agreement dated April 12, 2004, between Mace
                Security
                International, Inc. and PriceLegacy
                Corporation (Exhibit 10.161 to the March 31, 2004 Form 10-Q dated
                May 5,
                2004.)


*10.162
            Warrant
                dated May 26, 2004 to purchase 183,000 shares of the Company’s common
                stock, issued to LangleyPartners,
                L.P. (Exhibit 4.3 to the June 16, 2004 Form
                S-3)


*10.163
            Securities
                Purchase Agreement dated May 26, 2004 between the Company and Langley
                Partners, L.P. as set forth on the Signature pages therof (Exhibit
                10.1 to
                the June 16, 2004 Form S-3)


*10.164
            Registration
                Rights Agreement dated May 26, 2004 between the Company and Langley
                Partners, L.P. as set forth On the Signature pages thereof (Exhibit
                10.2
                to the June 16, 2004 Form S-3)


*10.165
            First
                Amendment to the Securities Purchase Agreement, dated June 8, 2004
                (Exhibit 10.3 to the June 16, 2004Form
                S-3)


*10.166
            Agreement
                for purchase and Sale of Assets by and among MDI Operating, L.P.
                America
                Building Control,Inc.
                and Mace Security International, Inc.( Exhibit 2.1 to the July 1,
                2004
                Form 8-K)


*10.167
            Modification
                Agreement between the Company , its subsidiary - Colonial Full Service
                Car
                Wash, Inc., and Bank One, Texas, N.A. in the original amount of $984,000
                (pursuant to Instruction 2 to Item 601 of Regulation S-K, Modification
                Agreements, which are substantially identical in all material respects
                except to amount and extension date of the Modification Agreement,
                are not
                being filed in the original amounts of $2,216,000 (extended to August
                20,
                2009) and $380,000 (extended to October 6, 2009)). (Exhibit 10.167
                to the
                September 30, 2004 Form 10-Q dated November 12,
                2004)


58




*10.168
            Promissory
                Note dated September 15, 2004, between the Company, its subsidiary,
                Mace
                Security Products, Inc., and Bank One, Texas, N.A. in the amount
                of
                $825,000. (Exhibit 10.168 to the September 30, 2004 Form 10-Q dated
                November 12, 2004)


*10.169
            First
                Amendment to Asset Purchase Agreement dated August 27, 2004, between
                Vernex, Inc. and Mace Security Products, Inc. (Exhibit 10.169 to
                the
                September 30, 2004 Form 10-Q dated November 12,
                2004)


*10.170
              Securities
                    Purchase Agreement between Mace and Langley Partners, L.P. (Exhibit
                    99.2
                    to the December 14, 2004 Form 8-K dated December 16,
                    2004)


*10.171
            Registration Rights Agreement between Mace and Langley Partners,
                L.P.
                (Exhibit 99.3 to the December 14, 2004 Form 8-K dated December 16,
                2004)


*10.172
            Warrant
                to be issued to Langley Partners, L.P. ( Exhibit 99.4 to the December
                14,
                2004 Form 8-K dated December 16,
                2004)


*10.174
            Registration
                Rights Agreement between Mace and JMB Capital, L.P. ( Exhibit 99.6
                to the
                December 14, 2004 Form 8-K dated December 16, 2004)


*10.175
            Warrant
                to be issued to JMB Capital Partners, L.P. ( Exhibit 99.7 to the
                December
                14, 2004 Form 8-K dated December 16,
                2004)


*10.177
            Note
                Modification Agreement dated December 22, 2004 between the Company,
                its
                subsidiary, Mace Security Products Inc. and Bank One, Texas, N.A.
                in the
                amount of $500,000. (Exhibit 10.1 to the March 31, 2005 Form 10-Q
                dated
                May 10, 2005)


*10.178
            Note
                Modification Agreement dated May 19, 2005 between the Company, its
                subsidiary, Mace Truck Wash, Inc. and Bank One, Texas, N.A. in the
                original amount of $342,000. (Exhibit 10.1 to the June 30, 2005 Form
                10-Q
                dated August 9, 2005)


*10.179
            Note
                Modification Agreement dated December 1, 2005 between the Company,
                its
                subsidiary Mace Security Products, Inc. and JPMorgan Bank One Bank,
                N.A.
                in the amount of $500,000.


*10.180
            Asset
                Purchase Agreement dated February 28, 2006, between Mace Security
                International, Inc., Mace Car Wash, Inc., Mace Car Wash-Arizona,
                Inc., and
                CW Acquisition, LLC. (Exhibit 10.1 to the February 28, 2006 Form
                8-K dated
                March 6, 2006). +


*10.181
            Amendment
                to Credit Agreement dated October 31, 2006, effective September 30,
                2006
                between Mace Security International, Inc., and JP Morgan Chase Bank,
                N.A.
                (Pursuant to instruction 2 to Item 601 of Regulation S-K, five additional
                credit agreements which are substantially identical in all material
                respects, except as to borrower being the Company’s subsidiaries, Mace
                Truck Wash, Inc., Mace Car Wash-Arizona, Inc., Colonial Full Service
                Car
                Wash, Inc., Mace Security Products Inc., and Eager Beaver Car Wash,
                Inc.,
                are not being filed). (Exhibit 10.1 to the September 30, 2006 Form
                10-Q
                dated November 13, 2006)


*10.182
            Employment
                Agreement dated August 21, 2006 between Mace Security International,
                Inc.
                and Louis D. Paolino, Jr. (Exhibit 10.1 to the August 21, 2006 Form
                8-K
                dated August 22, 2006) (3)


*10.183
            Employment
                Agreement dated February 12, 2007 between Mace Security International,
                Inc. and Gregory M. Krzemien (Exhibit 10.1 to the February 8, 2007
                Form
                8-K dated February 14, 2007) (3)


*10.184
              Employment
                    Agreement dated February 12, 2007 between Mace Security International,
                    Inc., and Robert M. Kramer. (Exhibit 10.2 to the February 8,
                    2007 Form 8-K
                    dated February 14, 2007) (3)
 *
                    99.1
                  Global
                          Truck Wash Facility Acquisition Agreement dated December
                          31, 2005, between
                          Eagle United TruckWash, LLC and Mace Truck Wash, Inc. (Exhibit 99.1 to the
                          December 31,
                          2005, Form 10-K. +
 *10.185
                      Retention
                              Agreement between Mace Security International, Inc.
                              and Ronald Pirollo,
                              dated as of June 19, 2007. (Exhibit 10.1 to the June
                              19, 2007 Form 8K
                              dated June 25, 2007)
                              (3)
 10.186
                          Extension
                                  Agreement dated April 6, 2007 to Asset Purchase
                                  Agreement dated December
                                  7, 2006, between Mace Security International, Inc.,
                                  Mace Car Wash, Inc.,
                                  Mace Car Wash-Arizona Inc., and Twisted Cactus
                                  Enterprises,
                                  LLC.
 11
                              Statement
                                        Re: Computation of Per Share
                                        Earnings
 *
                                  14
                                Code
                                        of Ethics and Business Conduct (Exhibit 14
                                        to the December 31, 2003 Form
                                        10-K dated March 12,
                                        2004)
 21
                                      Subsidiaries
                                                  of the
                                                  Company
 23.1
                                          Consent
                                                      of Grant Thornton
                                                      LLP
 24
                                                Power
                                                              of Attorney (included
                                                              on signature
                                                              page)
 31.1
                                                      Certification
                                                                      of Principal
                                                                      Executive Officer
                                                                      pursuant to
                                                                      Section 302
                                                                      of the
                                                                      Sarbanes-Oxley
                                                                      Act of 2002.
 31.2
                                                          Certification
                                                                          of Principal
                                                                          Financial
                                                                          Officer
                                                                          pursuant
                                                                          to Section
                                                                          302 of
                                                                          the
                                                                          Sarbanes-Oxley
                                                                          Act of
                                                                          2002.
 32.1
                                                                  Certification
                                                                                  of
                                                                                  Principal
                                                                                  Executive
                                                                                  Officer
                                                                                  pursuant
                                                                                  to
                                                                                  18
                                                                                  U.S.C.
                                                                                  Section
                                                                                  1350,
                                                                                  as
                                                                                  adopted
                                                                                  pursuant
                                                                                  to
                                                                                  Section
                                                                                  906
                                                                                  of
                                                                                  the
                                                                                  Sarbanes-Oxley
                                                                                  Act
                                                                                  of
                                                                                  2002.
 59
  32.2
                                                                          Certification
                                                                                          of
                                                                                          Chief
                                                                                          Financial
                                                                                          Officer
                                                                                          pursuant
                                                                                          to
                                                                                          18
                                                                                          U.S.C.
                                                                                          Section
                                                                                          1350,
                                                                                          as
                                                                                          adopted
                                                                                          pursuant
                                                                                          to
                                                                                          Section
                                                                                          906
                                                                                          of
                                                                                          the
                                                                                          Sarbanes-Oxley
                                                                                          Act
                                                                                          of
                                                                                          2002.


*
                Incorporated
                                  by
                                  reference
 +
                      Schedules
                                          and other attachments to the indicated
                                          exhibit have been omitted. The
                                          Company agrees to furnishsupplementally
                                          to the Commission upon request a copy of
                                          any omitted schedules or
                                          attachments.
 (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
                                                          Form 10-QSB report for
                                                          the quarter ended
                                                          September 30, 1994 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.
 (3)
                                        Indicates
                                                                  a management contract
                                                                  or compensation
                                                                  plan or
                                                                  arrangement.
 60





**SIGNATURES**


Pursuant
      to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
      1934, the Company has duly caused this Report to be signed on its behalf by
      the
      undersigned, thereunto duly authorized.




**MACE
              SECURITY INTERNATIONAL, INC.**By:   /s/
              Louis D. Paolino, Jr.Louis
                D. Paolino, Jr.
              Chairman
                of the Board,
              Principal
                Executive Officer,
              and
                President




DATED
      the
      2nd day of July, 2007





KNOW
      ALL
      MEN BY THESE PRESENTS that the undersigned does hereby constitute and appoint
      Louis D. Paolino, Jr. and Gregory M. Krzemien, or either of them acting alone,
      his true and lawful attorney-in-fact and agent, with full power of substitution
      and revocation for him and in his name, place and stead, in any and all
      capacities, to sign this Report on Form 10-K of Mace Security International,
      Inc. and any and all amendments to the Report and to file the same with all
      exhibits thereto, and other documents in connection therewith, with the United
      States Securities and Exchange Commission, granting unto said attorneys-in-fact
      and agents full power and authority to do and perform each and every act and
      thing requisite and necessary to be done as fully to all intents and purposes
      as
      he might or could do in person, hereby ratifying and confirming all that said
      attorneys-in-fact and agents, or his or their substitute or substitutes, may
      lawfully do or cause to be done by virtue hereof.





Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Report has
      been
      signed below by the following persons on behalf of the Company and in the
      capacities and on the dates indicated:


Name
              
              Title
              
              Date/s/
                  Louis D. Paolino, Jr.
              
              Chairman
                  of the Board,
              
              7/2/07Louis
                D. Paolino, Jr.
              
              Principal
                      Executive Officer,
                      President
                        and Director
                        (Principal
                          Executive Officer)/s/
                  Gregory M. Krzemien
              
              Principal
                  Financial Officer
              
              7/2/07Gregory
                M. Krzemien
              
              and
                    Treasurer (Principal
                  Financial
                    Officer)/s/
                  Ronald R. Pirollo
              
              Chief
                  Accounting Officer and
              
              7/2/07Ronald
                R. Pirollo
              
              Corporate
                  Controller (Chief
                  Accounting
                    Officer)/s/
                  Matthew J. Paolino
              
              Director
              
              7/2/07Matthew
                  J. Paolino/s/
                  Constantine N. Papadakis, Ph.D.
              
              Director
              
              7/2/07Constantine
                  N. Papadakis, Ph.D./s/
                  Mark S. Alsentzer
              
              Director
              
              7/2/07Mark
                  S. Alsentzer/s/
                  Burton Segal
              
              Director
              
              7/2/07Burton
                  Segal









**Mace
      Security International, Inc.**


**Audited
      Consolidated Financial Statements**


**Years
      ended December 31, 2006, 2005, and 2004**





**Contents**


Report
                  of Independent Registered Public Accounting Firm
              F-2Audited
                  Consolidated Financial StatementsConsolidated
                  Balance Sheets
              F-3Consolidated
                  Statements of Operations
              F-5Consolidated
                  Statements of Stockholders’ Equity
              F-6Consolidated
                  Statements of Cash Flows
              F-7Notes
                  to Consolidated Financial Statements
              F-8
  F-1




**REPORT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 Board
          of
          Directors
 Mace
          Security International, Inc. and Subsidiaries
 
 We
          have
          audited the accompanying consolidated balance sheets of Mace Security
          International, Inc. and Subsidiaries as of December 31, 2006 and 2005 and
          the
          related consolidated statements of operations, changes in stockholders’ equity
          and cash flows for each of the three years in the period ended December
          31,
          2006. These consolidated financial statements are the responsibility of
          the
          Company’s management. Our responsibility is to express an opinion on these
          consolidated financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audits to obtain reasonable assurance about whether the
          consolidated financial statements are free of material misstatement. An
          audit
          includes consideration of internal control over financial reporting as
          a basis
          for designing audit procedures that are appropriate in the circumstances,
          but
          not for the purpose of expressing an opinion on the effectiveness of the
          Company’s internal control over financial reporting. Accordingly, we express no
          such opinion. An audit also includes examining, on a test basis, evidence
          supporting the amounts and disclosures in the consolidated financial statements,
          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 consolidated financial position of Mace Security
          International, Inc. and Subsidiaries as of December 31, 2006 and 2005,
          and the
          consolidated results of its operations and its cash flows for each of the
          three
          years in the period ended December 31, 2006, in conformity with accounting
          principles generally accepted in the United States of America.
 
 As
          discussed in note 2 to the consolidated financial statements, the Company
          adopted Statement of Financial Accounting Standards No. 123(R), Share-Based
          Payment, on January 1, 2006.


/s/
                Grant Thornton LLPPhiladelphia,
              PennsylvaniaJune
                21, 2007




F-2




**Mace
      Security International, Inc.** **** **and
      Subsidiaries**





**Consolidated
      Balance Sheets**





(In
      thousands, except share and par value information)





**December
                31,****2006**
            
            **2005****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            4,055
            
            $
            8,360Short-term
                investments
            
            
            3,571
            
            
            3,020Accounts
                receivable, less allowance for doubtfulaccounts
                of $690 and $593 in 2006 and 2005, respectively
            
            
            2,223
            
            
            2,774Inventories
            
            
            7,170
            
            
            7,901Prepaid
                expenses and other current assets
            
            
            1,797
            
            
            2,556Assets
                held for sale
            
            
            25,745
            
            
            -Total
                current assets
            
            
            44,561
            
            
            24,611Property
                and equipment:Land
            
            
            17,509
            
            
            31,639Buildings
                and leasehold improvements
            
            
            23,291
            
            
            35,986Machinery
                and equipment
            
            
            8,325
            
            
            11,802Furniture
                and fixtures
            
            
            625
            
            
            576Total
                property and equipment
            
            
            49,750
            
            
            80,003Accumulated
                depreciation and amortization
            
            
            (11,443
            )
            
            (14,923
            )Total
                property and equipment, net
            
            
            38,307
            
            
            65,080Goodwill
            
            
            1,623
            
            
            2,820Other
                intangible assets, net of accumulated amortizationof
                $779 and $490 in 2006 and 2005, respectively
            
            
            2,923
            
            
            3,328Other
                assets
            
            
            184
            
            
            272**Total
                assets**
            
            $
            87,598
            
            $
            96,111




*The
      accompanying notes are an integral*


*part
      of these financial statements.*




F-3


**LIABILITIES
                  AND STOCKHOLDERS’ EQUITY**
              
              **December
                  31,****2006**
              
              **2005**Current
                  liabilities:Current
                  portion of long-term debt and capital lease obligations
              
              $
              1,235
              
              $
              2,209Accounts
                  payable
              
              
              4,087
              
              
              4,231Income
                  taxes payable
              
              
              315
              
              
              320Deferred
                  revenue
              
              
              319
              
              
              501Accrued
                  expenses and other current liabilities
              
              
              2,209
              
              
              2,735Liabilities
                  related to assets held for sale
              
              
              9,840
              
              
              -Total
                  current liabilities
              
              
              18,005
              
              
              9,996Long-term
                  debt, net of current portion
              
              
              13,087
              
              
              24,435Capital
                  lease obligations, net of current portion
              
              
              -
              
              
              30Commitments
              
              
              -
              
              
              -Stockholders’
                  equity:Preferred
                      stock, $.01 par value: Authorized shares - 10,000,000, Issued
                      and
                      outstanding shares - none
              
              
              -
              
              
              -Common
                      stock, $.01 par value: Authorized shares - 100,000,000, Issued
                      and
                      outstanding shares of 15,275,382 and 15,272,882 in 2006 and
                      2005,
                      respectively
              
              
              153
              
              
              153Additional
                  paid-in capital
              
              
              89,850
              
              
              88,458Accumulated
                  other comprehensive income
              
              
              413
              
              
              167Accumulated
                  deficit
              
              
              (33,910
              )
              
              (27,128
              )Total
                  stockholders’ equity
              
              
              56,506
              
              
              61,650**Total
                  liabilities and stockholders’ equity**
              
              $
              87,598
              
              $
              96,111




*The
      accompanying notes are an integral*


*part
      of these financial statements.*




F-4




**Mace
      Security International, Inc. and Subsidiaries**


**Consolidated
      Statements of Operations**





(In
      thousands, except share and per share information)


**Year
                  ended December 31,****2006**
              
              **2005**
              
              **2004**Revenues:Car
                  wash and detailing services
              
              $
              19,063
              
              $
              20,460
              
              $
              19,445Lube
                  and other automotive services
              
              
              3,445
              
              
              3,232
              
              
              3,317Fuel
                  and merchandise sales
              
              
              3,341
              
              
              4,162
              
              
              3,624Security
                  sales
              
              
              23,366
              
              
              24,909
              
              
              16,63249,215
              
              
              52,763
              
              
              43,018Cost
                  of revenues:Car
                  wash and detailing services
              
              
              14,733
              
              
              14,523
              
              
              13,691Lube
                  and other automotive services
              
              
              2,727
              
              
              2,441
              
              
              2,553Fuel
                  and merchandise sales
              
              
              3,026
              
              
              3,733
              
              
              3,243Security
                  sales
              
              
              17,427
              
              
              17,658
              
              
              11,98937,913
              
              
              38,355
              
              
              31,476Selling,
                  general and administrative expenses
              
              
              16,868
              
              
              13,116
              
              
              10,753Depreciation
                  and amortization
              
              
              1,621
              
              
              1,539
              
              
              1,497Costs
                  of terminated acquisitions
              
              
              -
              
              
              -
              
              
              53Goodwill
                  and asset impairment charges
              
              
              151
              
              
              1,563
              
              
              6,727Operating
                  loss
              
              
              (7,338
              )
              
              (1,810
              )
              
              (7,488
              )Interest
                  expense, net
              
              
              (961
              )
              
              (869
              )
              
              (885
              )Other
                  income
              
              
              1,093
              
              
              630
              
              
              197Loss
                  from continuing operations before income taxes expenses
                  (benefit)
              
              
              (7,206
              )
              
              (2,049
              )
              
              (8,176
              )Income
                  tax expense (benefit)
              
              
              156
              
              
              2,448
              
              
              (2,943
              )Loss
                  from continuing operations
              
              
              (7,362
              )
              
              (4,497
              )
              
              (5,233
              )Income
                  (loss) from discontinued operations, net of tax expense of $0 in
                  2006, a
                  benefit of $9 in 2005, and a benefit of $101 in 2004
              
              
              580
              
              
              (523
              )
              
              (1,177
              )Net
                  loss
              
              $
              (6,782
              )
              $
              (5,020)
              
              $
              (6,410
              )Per
                  share of common stock (basic and diluted):Loss
                  from continuing operations
              
              $
              (0.48
              )
              $
              (0.30
              )
              $
              (0.38
              )Income
                  (loss) from discontinued operations, net of tax
              
              
              0.04
              
              
              (0.03
              )
              
              (0.09
              )Net
                  loss
              
              $
              (0.44
              )
              $
              (0.33
              )
              $
              (0.47
              )Weighted
                  average shares outstanding:Basic
              
              
              15,274,498
              
              
              15,271,637
              
              
              13,679,604Diluted
              
              
              15,274,498
              
              
              15,271,637
              
              
              13,679,604





*The
      accompanying notes are an integral*


*part
      of these financial statements.*




F-5


**Mace
      Security International, Inc. and Subsidiaries**


**Consolidated
      Statements of Stockholders' Equity**





(In
      thousands, except share information)




**Common
                  Stock**
              
              **Additional**
                **Paid-in**
              
              **Accumulated**
                **Other**
                ******Comprehensive**
              
              **Accumulated****Shares**
              
              **Amount**
              
              **Capital**
              
              **Income
                  (Loss)**
              
              **Deficit**
              
              **Total****Balance
                  at December 31, 2003**
              
              
              12,451,771
              
              
              125
              
              
              69,785
              
              
              -
              
              
              (15,698
              )
              
              54,212Common
                  stock issued in purchase acquisition.
              
              
              55,905
              
              
              -
              
              
              193
              
              
              
              
              
              
              
              
              193Exercise
                  of common stock options
              
              
              448,456
              
              
              4
              
              
              1,872
              
              
              
              
              
              
              
              
              1,876Common
                  stock issued for land and building
              
              
              250,000
              
              
              3
              
              
              1,561
              
              
              
              
              
              
              
              
              1,564Sales
                  of common stock, net of issuance costs of $372
              
              
              2,065,000
              
              
              21
              
              
              9,371
              
              
              
              
              
              
              
              
              9,392Proceeds
                  from removal of restriction on shares, net of income tax of
                  $3,227
              
              
              -
              
              
              -
              
              
              5,725
              
              
              
              
              
              
              
              
              5,725Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,410
              )
              
              (6,410
              )Change
                  in fair value of cash flow hedge
              
              
              
              
              
              
              
              
              
              
              
              (30
              )
              
              
              
              
              (30
              )Total
                  Comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,440
              )**Balance
                  at December 31, 2004**
              
              
              15,271,132
              
              
              153
              
              
              88,507
              
              
              (30
              )
              
              (22,108
              )
              
              66,522Net
                  costs from issuance of common stock
              
              
              
              
              
              
              
              
              (53
              )
              
              
              
              
              
              
              
              (53
              )Exercise
                  of common stock options
              
              
              1,750
              
              
              -
              
              
              4
              
              
              
              
              
              
              
              
              4Change
                  in fair value of cash flow hedge
              
              
              
              
              
              
              
              
              
              
              
              41
              
              
              
              
              
              41Unrealized
                  gain on short-term investments
              
              
              
              
              
              
              
              
              
              
              
              156
              
              
              
              
              
              156Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (5,020
              )
              
              (5,020
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,823
              )**Balance
                  at December 31, 2005**
              
              
              15,272,882
              
              $
              153
              
              $
              88,458
              
              $
              167
              
              $
              (27,128
              )
              $
              61,650Stock-based
                  compensation expense
              
              
              
              
              
              
              
              
              1,388
              
              
              
              
              
              
              
              
              1,388Exercise
                  of common stock options
              
              
              2,500
              
              
              -
              
              
              4
              
              
              
              
              
              
              
              
              4Change
                  in fair value of cash flow hedge
              
              
              
              
              
              
              
              
              
              
              
              6
              
              
              
              
              
              6Unrealized
                  gain on short-term investments
              
              
              
              
              
              
              
              
              
              
              
              240
              
              
              
              
              
              240Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,782
              )
              
              (6,782
              )Total
                  comprehensive loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (6,536
              )**Balance
                  at December 31, 2006**
              
              
              15,275,382
              
              $
              153
              
              $
              89,850
              
              $
              413
              
              $
              (33,910
              )
              $
              56,506




*The
      accompanying notes are an integral*


*part
      of these financial statements.*




F-6


**Mace
      Security International, Inc. and Subsidiaries**


**Consolidated
      Statements of Cash Flows**





(In
      thousands)


**Year
                  ended December 31**,**2006**
              
              **2005**
              
              **2004****Operating
                  activities**Net
                  loss
              
              $
              (6,782
              )
              $
              (5,020
              )
              $
              (6,410
              )Income
                  (loss) from discontinued operations, net of tax
              
              
              580
              
              
              (523
              )
              
              (1,177
              )Loss
                  from continuing operations
              
              
              (7,362
              )
              
              (4,497
              )
              
              (5,233
              )Adjustments
                  to reconcile loss from continuing operations to net cash (used
                  in)
                  provided by operating activities:Depreciation
                  and amortization
              
              
              1,621
              
              
              1,539
              
              
              1,497Stock-based
                  compensation
              
              
              1,373
              
              
              -
              
              
              -Provision
                  for losses on receivables
              
              
              300
              
              
              231
              
              
              216Gain
                  on sale of property and equipment
              
              
              (663
              )
              
              (333
              )
              
              (39
              )Gain
                  on short-term investments
              
              
              (311
              )
              
              (264
              )
              
              -Asset
                  impairment charge-hurricane damage
              
              
              -
              
              
              107
              
              
              -Goodwill
                  and asset impairment charges
              
              
              151
              
              
              1,563
              
              
              6,727Deferred
                  income taxes
              
              
              -
              
              
              2,313
              
              
              (3,470
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              54
              
              
              (263
              )
              
              107Inventories
              
              
              430
              
              
              (217
              )
              
              (1,450
              )Prepaid
                  expenses and other assets
              
              
              862
              
              
              (487
              )
              
              (373
              )Accounts
                  payable
              
              
              (68
              )
              
              9
              
              
              1,502
 Deferred
                  revenue
              
              
              48
              
              
              18
              
              
              71Accrued
                  expenses
              
              
              (531
              )
              
              83
              
              
              314Income
                  taxes payable
              
              
              (50
              )
              
              54
              
              
              229Net
                  cash (used in) provided by operating activities-continuing operations
              
              
              (4,146
              )
              
              (144
              )
              
              98Net
                  cash provided by operating activities-discontinued operations
              
              
              1,029
              
              
              1,425
              
              
              1,146Net
                  cash (used in) provided by operating activities
              
              
              (3,117
              )
              
              1,281
              
              
              1,244**Investing
                  Activities**Acquistion
                  of business, net of cash acquired
              
              
              -
              
              
              (1,900
              )
              
              (5,621
              )Purchase
                  of property and equipment
              
              
              (926
              )
              
              (914
              )
              
              (2,389
              )Proceeds
                  from sale of property and equipment
              
              
              2,845
              
              
              1,086
              
              
              646Purchase
                  of short-term investments
              
              
              -
              
              
              (2,600
              )
              
              -Payments
                  for intangibles
              
              
              (20
              )
              
              (12
              )
              
              (70
              )Net
                  cash provided by (used in) investing activities-continuing
                  operations
              
              
              1,899
              
              
              (4,340
              )
              
              (7,434
              )Net
                  cash used in investing activities-discontinued operations
              
              
              (384
              )
              
              (505
              )
              
              (354
              )Net
                  cash provided by (used in) investing activities
              
              
              1,515
              
              
              (4,845
              )
              
              (7,788
              )**Financing
                  activities**Payments
                  on long-term debt and capital lease obligations
              
              
              (1,699
              )
              
              (1,561
              )
              
              (1,443
              )Proceeds
                  (cost) of issuance of common stock
              
              
              4
              
              
              (49
              )
              
              11,268Gross
                  proceeds from removal of restriction on shares
              
              
              -
              
              
              -
              
              
              8,952Net
                  cash (used in) provided by financing activities-continuing
                  operations
              
              
              (1,695
              )
              
              (1,610
              )
              
              18,777Net
                  cash used in financing activities-discontinued operations
              
              
              (1,008
              )
              
              (965
              )
              
              (1,148
              )Net
                  cash (used in) provided by financing activities
              
              
              (2,703
              )
              
              (2,575
              )
              
              17,629Net
                  (decrease) increase in cash and cash equivalents
              
              
              (4,305
              )
              
              (6,139
              )
              
              11,085Cash
                  and cash equivalents at beginning of year
              
              
              8,360
              
              
              14,499
              
              
              3,414Cash
                  and cash equivalents at end of year
              
              $
              4,055
              
              $
              8,360
              
              $
              14,499


*The
      accompanying notes are an integral*


*part
      of these financial statements.*




F-7




**Mace
      Security International, Inc. and Subsidiaries**


**Notes
      to Consolidated Financial Statements**





**1.**
            
            **Description
                of Business and Basis of
                Presentation**





The
      accompanying consolidated financial statements include the accounts of Mace
      Security International, Inc. and its wholly owned subsidiaries (collectively,
      the “Company” or “Mace”). All significant intercompany transactions have been
      eliminated in consolidation. The
      Company currently operates in two business segments: the Car and Truck Wash
      Segment, supplying complete car care services (including wash, detailing, lube,
      and minor repairs) and the Security Segment, producing for sale consumer safety
      and personal defense products, as well as electronic surveillance and monitoring
      products. The Company’s car and truck wash operations are principally located in
      Texas, Arizona, Florida, Pennsylvania, New Jersey, Delaware, Indiana, and Ohio.
      The Company initiated a plan to sell its Arizona car wash region and in December
      2006 entered into an agreement with Twisted Cactus Enterprises, LLC to sell
      the
      Arizona car washes. Additionally, the Company has entered into agreements as
      of
      December 31, 2006 to sell five of the Northeast region car washes which
      represent substantially all of the revenues within the Northeast region. The
      Company executed a lease-to-sell agreement on December 31, 2005 with Eagle
      United Truck Wash, LLC (“Eagle”) to lease Mace’s five truck washes beginning
      January 1, 2006 for up to two years with an expected sale of the truck washes
      before December 31, 2007. As a result, we do not recognize revenue or operating
      expenses during the term of the lease other than rental income, depreciation
      expense and interest expense. In the year ended December 31, 2006, the results
      for the Arizona car wash region, the five car washes in the Northeast region
      and
      the truck washes have been classified as discontinued operations in the
      statements of operations and the statement of cash flows. Additionally, the
      statement of operations and the statement of cash flows for prior years have
      been restated to reflect the discontinued operations in accordance with
      Statement of Financial Accounting Standards (“SFAS”) 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* .
      (See
      Note 4. Discontinued Operations and Assets Held for Sale). On January 1, 2006,
      we adopted SFAS 123(R) *Share-Based
      Payment* ,
      which
      requires compensation expense to be recognized for all share-based payments
      to
      employees based on the fair value of the award at the date of grant. We adopted
      SFAS 123(R) using the modified prospective method, which results in recognition
      of compensation expense for all share-based awards granted or modified after
      December 31, 2005, as well as for all unvested awards outstanding at the date
      of
      adoption. Under this transition method, the results of operations for prior
      periods have not been restated. We will, however, continue to disclose pro
      forma
      financial information for periods prior to the adoption of SFAS 123(R).




**2.**
            **Summary
                of Significant Accounting
                Policies**




**Revenue
      Recognition**  **and
      Deferred Revenue**





Revenue
      from the Company’s Car and Truck Wash Segment is recognized, net of customer
      coupon discounts, when services are rendered or fuel or merchandise is sold.
      The
      Company records a liability for gift certificates, ticket books, and seasonal
      and annual passes sold at its car care locations but not yet redeemed. The
      Company estimates these unredeemed amounts based on gift certificates and ticket
      book sales and redemptions throughout the year as well as utilizing historical
      sales and redemption rates per the car washes’ point-of-sale systems. Seasonal
      and annual passes are amortized on a straight-line basis over the time during
      which the passes are valid.





Revenue
      from the Company’s Security Segment is recognized when shipments are made, or
      for export sales when title has passed. Shipping and handling charges and costs
      of $647,000, $528,000, and $322,000 in 2006, 2005, and 2004, respectively,
      are
      included in revenues and selling, general, and administrative
      expenses.




**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, and credit card deposits which
      are
      converted into cash within two to three business days.





**Short-Term
      Investments**





At
      December 31, 2006, the Company had approximately $3.6 million of investments
      classified as available for sale in three funds which are stated at market
      value. The Company may exit one of the funds at the end of any calendar quarter
      with 30 days advanced written notice and the other funds may be exited with
      one
      business day notice. In the year ended December 31, 2006, the Company realized
      a
      total  gain
      of
      $323,000. Additionally, an unrealized gain, net of tax, of approximately
      $396,000 is included as a separate component of equity in Accumulated Other
      Comprehensive Income at December 31, 2006.




F-8





**Accounts
      Receivable**





The
      Company’s accounts receivable are due from trade customers. Credit is extended
      based on evaluation of customers’ financial condition and, generally, collateral
      is not required. Accounts receivable payment terms vary and amounts due from
      customers are stated in the financial statements net of an allowance for
      doubtful accounts. Accounts outstanding longer than the payment terms are
      considered past due. The Company determines its allowance by considering a
      number of factors, including the length of time trade accounts receivable are
      past due, the Company’s previous loss history, the customer’s current ability to
      pay its obligation to the Company, and the condition of the general economy
      and
      the industry as a whole. The Company writes off accounts receivable when they
      are deemed uncollectible, and payments subsequently received on such receivables
      are credited to the allowance for doubtful accounts. Risk
      of
      losses from international sales within the Security Segment are reduced by
      requiring substantially all international customers to provide irrevocable
      confirmed letters of credit and/or cash advances.





**Inventories**





Inventories
      are stated at the lower of cost or market. Cost is determined using the first-in
      first-out (FIFO) method for security and car care products. Inventories at
      the
      Company’s car and truck wash locations consist of various chemicals and cleaning
      supplies used in operations and merchandise and fuel for resale to consumers.
      Inventories within the Company’s Security Segment consist of defense sprays,
      child safety products, electronic security monitors, cameras and digital
      recorders, and various other consumer security and safety products.





**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, which are
      generally as follows: buildings and leasehold improvements - 15 to 40 years;
      machinery and equipment - 5 to 20 years; and furniture and fixtures - 5 to
      10
      years. Significant additions or improvements extending assets' useful lives
      are
      capitalized; normal maintenance and repair costs are expensed as incurred.
      Depreciation expense was approximately $1.3 million, $1.4 million and $1.4
      million for the years ended December 31, 2006, 2005, and 2004, respectively.
      Maintenance and repairs are charged to expense as incurred and amounted to
      approximately $614,000, in 2006, $620,000 in 2005 and $525,000 in
      2004.





**Asset
      Impairment Charges**





In
      accordance with Statement of Financial Accounting Standards (“SFAS”) 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* ,
      we
      periodically review the carrying value of our long-lived assets held and used,
      and assets to be disposed of, for possible impairment when events and
      circumstances warrant such a review.





**Goodwill**





In
      accordance with SFAS 142, we also completed our annual impairment tests as
      of
      November 30, 2006, 2005 and 2004 and will be subject to an impairment test
      each
      year thereafter. In the fourth quarter of 2006, as a result of the annual
      impairment test of Goodwill and Other Intangibles in accordance with SFAS 142,
      we recorded an impairment of approximately $111,000 related to our high end
      digital and machine vision cameras and professional imaging components operation
      in Texas. The impairment charge was due to reduction in our future projected
      cash flows as sales levels in this division continue to deviate from historic
      levels as a result of competitive pressures. In the
      fourth quarter of 2005, as a result of the annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 142, we recorded an impairment
      of
      approximately $1.56 million related to our Texas region reporting unit of our
      Car and Truck Wash Segment. This impairment charge was due to reductions in
      our
      future projected cash flows as volumes in this region continue to deviate from
      historic revenue levels. In the fourth quarter of 2004, we recorded an
      impairment of approximately $1.0 million related to our Northeast region
      reporting unit of our Car and Truck Wash Segment. Additionally, we recorded
      an
      impairment of approximately $6.7 million related to our Texas Region reporting
      unit of our Car and Truck Wash Segment, principally due to a reduction in future
      projected cash flows resulting from an extended departure from our historic
      revenue levels due to inclement weather, the lingering effects of a slower
      economy, and increased competition near several of our facilities in Texas
      and
      New Jersey. Significant estimates and assumptions are used in assessing the fair value
      of
      the reporting units and determining impairment to goodwill (See Note 4, *Goodwill* ).  The
      Company cannot guarantee that there will not be impairments in subsequent
      years.




F-9





**Other
      Intangible Assets**





Other
      intangible assets consist primarily of deferred financing costs, trademarks,
      customer lists, product lists, and patent costs. In accordance with SFAS 142,
      our trademarks are considered to have indefinite lives and as such, are not
      subject to amortization. These assets will be tested for impairment annually
      and
      whenever there is an impairment indicator. In 2003, approximately $9,000 related
      to our security product trademarks was written off in accordance with SFAS
      142.
      Customer lists and non-compete agreements are amortized on a straight-line
      basis
      over their respective estimated useful lives. Amortization of other intangible
      assets was approximately $294,000, $183,000 and $119,000 for the years ended
      December 31, 2006, 2005, and 2004, respectively. Deferred financing costs are
      amortized on a straight-line basis over the terms of the respective debt
      instruments.





**Insurance**





Commencing
      July 2002, the Company insures for auto, general liability, and workers’
compensation claims through participation in a captive insurance program with
      other unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to participating in the captive
      insurance program, the Company set aside an actuarially determined amount of
      cash in a restricted “loss fund” account for the payment of claims under the
      policies. The Company fund these accounts annually as required by the captive
      insurance company. Should funds deposited exceed claims incurred and paid,
      unused deposited funds are returned to the Company with interest on or about
      the
      third anniversary of the policy year-end. The captive insurance program is
      further secured by a letter of credit in the amount of $1,079,000 at December
      31, 2006. The Company records a monthly expense for losses up to the reinsurance
      limit per claim based on the Company’s tracking of claims and the insurance
      company’s reporting of amounts paid on claims plus an estimate of reserves for
      possible future losses on reported claims and claims incurred but not
      reported.





**Income
      Taxes**





Deferred
      income taxes are determined based on the difference between the financial
      accounting and tax bases of assets and liabilities. Deferred income tax expense
      (benefit) represents the change during the period in the deferred income tax
      assets and deferred income tax liabilities. Deferred tax assets include tax
      loss
      and credit carryforwards and are reduced by a valuation allowance if, based
      on
      available evidence, it is more likely than not that some portion or all of
      the
      deferred tax assets will not be realized.





**Supplementary
      Cash Flow Information**





Interest
      paid on all indebtedness was approximately $2.0 million, $2.1 million and $2.0
      million for the years ended December 31, 2006, 2005 and 2004,
      respectively.





Income
      taxes paid were approximately $160,000, $86,000 and $340,000 in 2006, 2005,
      and
      2004, respectively.





Noncash
      investing and financing activities of the Company include a property addition
      financed by common stock of $1.6 million, real estate partially funded by a
      mortgage of approximately $825,000, and the sale of property and simultaneous
      pay down of a related mortgage of $325,000, all in 2004.





**Advertising**





The
      Company expenses advertising costs, including advertising production costs,
      as
      they are incurred or the first time advertising takes place. The Company’s costs
      of coupon advertising are recorded as a prepaid asset and amortized to
      advertising expense during the period of distribution and customer response,
      typically two to four months. Prepaid advertising costs were $96,000 and $67,000
      at December 31, 2006 and 2005, respectively. Advertising expense was
      approximately $1.2 million in 2006, $1.1 million in 2005, $861,000 in
      2004.




F-10




**Stock
      Based Compensation**





The
      Company has two stock-based employee compensation plans. Prior to January 1,
      2006, the Company accounted for those plans under the recognition and
      measurement principles of APB 25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. In 2005, stock-based employee compensation costs were
      not reflected in results of operations, as all options granted under the plan
      had exercise prices equal to the market value of the underlying common stock
      on
      the date of grant.





SFAS
      123
      (R) replaces SFAS 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123"), and supersedes APB Opinion 25. SFAS 123, as originally issued in 1995,
      established as preferable a fair-valued-based method of accounting for
      share-based payment transaction with employees. However, SFAS 123 permitted
      entities the option of continuing to apply the guidance in APB 25 as long as
      the
      footnotes to financial statements disclosed what net income would have been
      had
      the preferable fair-valued-based method been used. On
      January 1, 2006, the Company adopted SFAS 123(R), *Share-Based
      Payment,* which
      requires that the compensation cost relating to share-based payment transactions
      be recognized in financial statements. We adopted SFAS 123 (R) using the
      modified prospective method, which results in recognition of compensation
      expense for all share-based awards granted or modified after December 31, 2005
      as well as all unvested awards outstanding at the date of adoption. The cost
      is
      recognized as compensation expense over the life of the instruments, based
      upon
      the grant date fair value of the equity or liability instruments issued. The
      Company’s adoption of SFAS 123(R) resulted in stock compensation expense and
      therefore an increase in loss from continuing operations before income taxes
      of
      income taxes in 2006 of approximately $1.4 million and $15,000 in discontinued
      operations.





Pro
      forma
      information regarding net income and earnings per share is required by SFAS
      123,
      and has been determined as if the Company had accounted for its employee stock
      options under the fair value method of that Statement. The fair values for
      these
      options were estimated at the dates of grant using a Black-Scholes option
      pricing model with the following weighted average assumptions for grants in
      2006, 2005 and 2004; risk-free interest rate ranges of 4.36% to 5.14% in 2006,
      4.06% to 4.57% in 2005 and 3.80% to 4.56% in 2004, dividend yield of 0%;
      expected volatility of the market price of the Company’s common stock ranging
      from 44% to 52% in 2006, 52% to 56% in 2005 and 20% to 64% in 2004; and a
      weighted-average expected life of the option of ten years. The weighted-averages
      of the fair value of stock option grants were $1.53, $1.88 and $2.85 per share
      in 2006, 2005 and 2004, respectively. As of December 31, 2006, total
      unrecognized stock-based compensation expense is $612,000, which has a weighted
      average period of approximately 0.8 years to be recognized.





The
      Black-Scholes option valuation model was developed for use in estimating the
      fair value of traded options which have no vesting restrictions and are fully
      transferable. In addition, option valuation models require the input of highly
      subjective assumptions including the expected stock price volatility. Because
      the Company’s employee stock options have characteristics significantly
      different from those of traded options, and because changes in the subjective
      input assumptions can materially affect the fair value estimate, in management’s
      opinion, the existing models do not necessarily provide a reliable single
      measure of the fair value of its employee stock options.





For
      purposes of pro forma disclosures, the estimated fair value of the options
      is
      amortized to expense over the options’ vesting period. Pro forma results are not
      likely to be representative of the effects on reported or pro forma results
      of
      operations for future years. The Company’s pro forma information is as follows
      (in thousands, except per share data):


**2005**
              
              **2004**Net
                  loss, as reported
              
              $
              (5,020
              )
              $
              (6,410
              )Less:
                  Stock-based compensation costs under fair value based method for
                  all
                  awards
              
              
              (648
              )
              
              (2,089
              )Pro
                  forma net loss
              
              $
              (5,668
              )
              $
              (8,499
              )Loss
                  per share - basicAs
                  reported
              
              $
              (0.33
              )
              $
              (0.47
              )Pro
                  forma
              
              $
              (0.37
              )
              $
              (0.62
              )Loss
                  per share - dilutedAs
                  reported
              
              $
              (0.33
              )
              $
              (0.47
              )Pro
                  forma
              
              $
              (0.37
              )
              $
              (0.62
              )
  F-11




**Use
      of Estimates**





The
      preparation of financial statements in conformity with accounting principles
      generally accepted in the United States 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.





**Fair
      Value of Financial Instruments**





The
      Company’s financial instruments consist primarily of cash and cash equivalents,
      trade receivables, trade payables and debt instruments. The carrying values
      of
      cash and cash equivalents, trade receivables, and trade payables are considered
      to be representative of their respective fair values.





Based
      on
      the borrowing rates currently available to the Company for bank loans with
      similar terms and average maturities, the carrying values and fair values of
      the
      Company’s fixed and variable rate debt instruments at December 31, 2006 and 2005
      were as follows (in thousands):


**2006**
              
              **2005****Carrying
                  Value**
              
              **Fair
                  Value**
              
              **Carrying
                  Value**
              
              **Fair
                  Value**Fixed
                  rate debt
              
              $
              8,820
              
              $
              8,826
              
              $
              11,396
              
              $
              11,828Variable
                  rate debt
              
              
              15,146
              
              
              15,335
              
              
              15,278
              
              
              15,489Total
              
              $
              23,966
              
              $
              24,161
              
              $
              26,674
              
              $
              27,317





The
      majority of the fixed rate debt provides for a pre-payment penalty based on
      an
      interest rate yield maintenance formula. The yield maintenance formula results
      in a significant pre-payment penalty as market interest rates decrease. The
      pre-payment penalty precludes refinancing of this long-term debt.





**Derivative
      Instruments**





SFAS
      133, *Accounting
      for Derivative Instruments and Hedging Activities* (“SFAS
      133"), as amended by SFAS 137 and SFAS 138, specifies the accounting and
      disclosure requirements for such instruments.





On
      October 14, 2004, we entered into an interest rate cap arrangement that
      effectively changes our interest rate exposure on approximately $7 million
      of
      variable rate debt. The variable rate debt floats at prime plus .25% (8.5%
      at
      December 31, 2006). The hedge contract has a 36-month term and caps the interest
      rate on the $7 million of variable rate debt at 6.5%. The derivative is
      designated as a cash flow hedge and, accordingly, is marked to market with
      gains
      and losses on the contract reported as a component of other comprehensive income
      (loss) and is classified into earnings in the earlier of (i) the period the
      hedged transaction affects earnings, or (ii) the termination of the hedge
      contract. At December 31, 2006 the contract which was originally purchased
      for
      $124,000, is included in prepaid expenses and other current assets at its fair
      market value of approximately $84,000.





The
      interest rate cap arrangement was effective in hedging changes in cash flows
      related to certain debt obligations during 2006.





**Business
      Combinations**




In
      accordance with SFAS 141, *Business
      Combinations,* the
      Company allocates the cost of the acquired business to the assets acquired
      and
      the liabilities assumed based on estimates of fair values thereof. These
      estimates are revised during the allocation period as necessary when, and if,
      information regarding contingencies becomes available to define and quantify
      assets acquired and liabilities assumed. The allocation period varies but does
      not exceed one year. To the extent contingencies such as pre-acquisition
      environmental matters, pre-acquisition liabilities including deferred revenues,
      litigation and related legal fees are resolved or settled during the allocation
      period, such items are included in the revised allocation of the purchase price.
      After the allocation period, the effect of changes in such contingencies is
      included in results of operations in the period in which the adjustment is
      determined.




F-12





**New
      Accounting Standards**





In
      November 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS
      151, *Inventory
      Costs - An Amendment of ARB No. 43, Chapter 4* .
      SFAS
      151 amends the guidance in Accounting Research Bulletin (“ARB”) 43, Chapter 4, *Inventory
      Pricing* ,
      to
      clarify the accounting for abnormal amounts of idle facility expense, freight,
      handling costs, and wasted material (spoilage). SFAS 151 is effective for fiscal
      years beginning after June 15, 2005 and is required to be adopted by the Company
      in the first quarter of fiscal 2006. The adoption of SFAS 151 did not have
      a
      material impact on the Company.





In
      December 2004, the FASB issued SFAS 123(R), *Share-Based
      Payment.* SFAS
      123(R) requires that the compensation cost relating to share-based payment
      transactions be recognized in financial statements. The cost is measured based
      on the fair value of the equity or liability instruments issued. SFAS 123(R)
      is
      effective as of the first interim or annual reporting period of the first fiscal
      year beginning on or after June 15, 2005. SFAS 123(R) covers a wide range of
      share-based compensation arrangements including share options, restricted share
      plans, performance-based awards, share appreciation rights, and employee share
      purchase plans. In addition to the accounting standard that sets forth the
      financial reporting objectives and related accounting principles, SFAS 123(R)
      includes an appendix of implementation guidance that provides expanded guidance
      on measuring the fair value of share-based payment awards. SFAS 123(R) replaces
      SFAS 123, *Accounting
      for Stock-Based Compensation* ,
      and
      supersedes APB Opinion 25, *Accounting
      for Stock Issued to Employees* .
      SFAS
      123, as originally issued in 1995, established as preferable a fair-value-based
      method of accounting for share-based payment transactions with employees.
      However, that Statement permitted entities the option of continuing to apply
      the
      guidance in APB Opinion 25, as long as the footnotes to financial statements
      disclosed what net income would have been had the preferable fair-value-based
      method been used. Additionally, in March 2005, the Securities and Exchange
      Commission (the “SEC”) issued Staff Accounting Bulletin (“SAB”) 107, *Share-Based
      Payments* ,
      which
      provides further guidance for the adopation of SFAS 123(R), discussed above.
      The
      Company implemented this new standard in the first quarter of our fiscal year
      2006.





In
      May
      2005, the FASB issued SFAS 154, *Accounting
      Changes and Error Corrections* (“SFAS
      154") which replaces APB Opinion 20, *Accounting
      Changes* and SFAS
      3, *Reporting
      Accounting Changes in Interim Financial*  *Statements
      - An Amendment of APB Opinion 28.* SFAS 154
      provides guidance on the accounting for and reporting of accounting changes
      and
      error corrections. It establishes retrospective application, or the latest
      practicable date, as the required method for reporting a change in accounting
      principle and the reporting of a correction of an error. SFAS 154 is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after December 15, 2005 and, accordingly, is required to be adopted by the
      Company on January 1, 2006. The adoption of SFAS 154 did not have a material
      impact on the Company’s consolidated results of operations and financial
      position.





In
      July
      2006, the FASB issued FASB Interpretation No. 48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48"). FIN 48 clarifies the accounting for income taxes by prescribing a minimum
      probability threshold that a tax position must meet before a financial statement
      benefit is recognized. The minimum threshold is defined in FIN 48 as a tax
      position, that based solely on its technical merits is more likely than not
      to
      be sustained upon examination by the applicable taxing authority. The tax
      benefit to be recognized is measured as the largest amount of benefit that
      is
      greater than fifty percent likely of being realized upon ultimate settlement.
      FIN 48 must be applied to all existing tax positions upon initial adoption.
      The
      cumulative effect of applying FIN 48 at adoption, if any, is to be reported
      as
      an adjustment to opening retained earnings for the year of adoption. FIN 48
      is
      effective for fiscal years beginning after December 15, 2006, although early
      adoption is permitted. The Company is currently assessing the potential effect
      of FIN 48 on its consolidated financial statements. The
      adoption of FIN 48 is not expected to have a material impact on the Company’s
      consolidated results of operations, cash flows, and financial
      position.





In
      September 2006, the FASB issued SFAS 157, *Fair
      Value Measurements.* This
      standard defines fair value, establishes a framework for measuring fair value
      in
      generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS 157 is effective for financial statements issued for
      fiscal years beginning after November 15, 2007 and interim periods within those
      fiscal years. The adoption of SFAS 157 is not expected to have a material impact
      on the Company’s consolidated results of operations, cash flows, and financial
      position.




In
      September 2006, the SEC issued SAB 108,*Considering the Effects of Prior Year Misstatements when Quantifying
      Misstatements in**Current
      Year Financial Statements.*SAB
      108
      is effective for fiscal years ending on or after November 15, 2006 and addresses
      how financial statement errors should be considered from a materiality
      perspective and corrected. The literature provides interpretive guidance on
      how
      the effects of the carryover or reversal of prior year misstatements should
      be
      considered in quantifying a current year misstatement. Historically there have
      been two common approaches used to quantify such errors: (i) the “rollover”
approach, which quantifies the error as the amount by which the current year
      income statement is misstated, and (ii) the “iron curtain” approach, which
      quantifies the error as the cumulative amount by which the current year balance
      sheet is misstated. The SEC Staff believes that companies should quantify errors
      using both approaches and evaluate whether either of these approaches results
      in
      quantifying a misstatement that, when all relevant quantitative and qualitative
      factors are considered, is material. The adoption of SAB 108 did not have a
      material impact on the Company's consolidated results of operations, cash flows,
      and financial position.




F-13





**3.**
            **Business
                Combinations****and
                Divestitures**





From
      April 1, 1999 through July 26, 2000, the Company acquired 62 car care facilities
      and five truck wash facilities through the acquisition of 17 separate businesses
      including: 42 full service facilities, one self service facility, 11 exterior
      only facilities and one lube center in Pennsylvania, New Jersey, Delaware,
      Texas, Florida, and Arizona; 20 facilities were subsequently divested or closed
      through March 15, 2007. The five full service truck wash facilities are located
      in Arizona, Indiana, Ohio, and Texas.





On
      August
      12, 2002, the Company acquired the inventory, certain other assets and the
      operations of Micro-Tech Manufacturing, Inc. (“Micro-Tech”), a manufacturer and
      retailer of electronic security devices. Total consideration under the agreement
      was approximately $505,000. At closing, the Company paid $217,000 cash for
      inventory, $15,625 cash representing the first of twelve equal monthly
      installments totaling $187,500, and 13,158 (pre-reverse split) registered shares
      of common stock of the Company representing the first of eight quarterly
      payments of shares totaling 105,263 (pre-reverse split) shares. This transaction
      was accounted for using the purchase method of accounting in accordance with
      SFAS 141, *Business
      Combinations* .





On
      September 26, 2003, a wholly owned subsidiary within the Company’s Security
      Segment acquired the inventory, certain other assets and the operations of
      Vernex, Inc., a manufacturer and retailer of electronic security monitors.
      Total
      consideration under the agreement was $213,000 cash for inventory and the
      issuance of 42,747 registered shares of the Company’s common stock. This
      transaction was accounted for using the purchase method of accounting in
      accordance with SFAS 141, *Business
      Combinations*




On
      November 12, 2003, the Company sold, through a wholly owned subsidiary, the
      assets of our car wash facility located in Voorhees, New Jersey, for
      approximately $600,000.





On
      July
      1, 2004, the Company, through its wholly owned subsidiary, Mace Security
      Products, Inc., acquired substantially all of the operating assets of Industrial
      Vision Source®(“IVS”) and SecurityandMore®(“S&M”) from American Building
      Control, Inc. The results of operations of IVS and S&M have been included in
      the consolidated financial statements of the Company since July 1, 2004. S&M
      supplies video surveillance and security equipment and IVS is a distributor
      of
      technologically advanced imaging components and video equipment. The acquisition
      of IVS and S&M furthers the Company’s expansion of our Security Products
      Segment, and specifically the Electronic Surveillance Products Division. The
      acquisition also expands our presence in the southwestern part of the United
      States and provides us with new mass merchant opportunities, an active
      e-commerce web site, a catalog sales channel and a high-end digital and fiber
      optics camera product line. The purchase price for IVS and S&M consisted of
      approximately $5.62 million of cash and the assumption of $290,000 of current
      liabilities. The purchase was allocated as follows: approximately $1.86 million
      for inventory; $1.37 million for accounts receivable; $100,000 for equipment;
      and the remainder of $2.58 million allocated to goodwill and other intangible
      assets. Of the $2.58 million of acquired intangible assets, $830,000 was
      assigned to registered trademarks and $531,000 was assigned to goodwill, neither
      of which is subject to amortization expense. The remaining intangible assets
      were assigned to customer lists for $630,000 and product lists for $590,000.
      Customer and product lists were assigned a useful life of 10 years. The
      acquisition was accounted for as a business combination in accordance with
      SFAS
      141 *,Business
      Combinations* .




F-14


The
      proforma financial information presented below gives effect to the IVS and
      S&M acquisition as if it had occurred as of the beginning of our fiscal year
      2003. The information presented below is for illustrative purposes only and
      is
      not necessarily indicative of results that would have been achieved if the
      acquisition actually had occurred as of the beginning of 2003 or results which
      may be achieved in the future. Unaudited proforma financial information is
      as
      follows (in thousands, except per shares amounts):


**Twelve
                  Months Ended**
                **December
                  31,****2004**Revenues
              
              $
              53,451Net
                  loss
              
              $
              (6,269
              )Loss
                  per share-basic and dilutive
              
              $
              (0.46
              )





On
      August
      3, 2004, the Company **** sold
      an
      exterior-only car wash facility in New Jersey. Proceeds from the sale of this
      facility, which was producing marginal cash flow, were approximately $645,000;
      slightly more than the site’s net book value.





On
      November 23, 2005, the Company, through its wholly owned subsidiary, Mace
      Security Products, Inc., acquired the inventory and customer accounts of
      Securetek, Inc. (“Securetek”) which specializes in the sale of electronic video
      surveillance system components to security alarm dealers and installers. The
      results of operations of Securetek have been included in the consolidated
      financial statements of the Company since November 23, 2005. The purchase price
      for Securetek consisted of $1.9 million cash. The purchase price was allocated
      $489,000 to inventory with the remainder to goodwill and other intangible
      assets. Of the $1.53 million of acquired intangible assets, $485,000 was
      assigned to customer lists, $85,000 to trademarks and a covenant-not-to-compete
      and the remainder of $957,000 to goodwill. Customer lists and the
      covenant-not-to compete were assigned useful lives of 10 years and 3.5 years,
      respectively. The acquired business was relocated and integrated into the
      Company’s existing security operation in Ft. Lauderdale, Florida. The
      acquisition was accounted for as a business combination in accordance with
      SFAS
      141, *Business
      Combinations.*





On
      December 20, 2005, the Company, through a wholly owned subsidiary, sold an
      exterior-only car wash facility in Pennsylvania. Proceeds from the sale of
      this
      facility were approximately $400,000, resulting in a $240,000 gain on
      disposal.





On
      June
      19, 2006, the Company, through a wholly owned subsidiary, sold an exterior-only
      car wash facility in New Jersey. Proceeds from the sale of this facility were
      approximately $1.0 million, resulting in a $202,000 gain on disposal.





On
      September 28, 2006, the Company, through a wholly owned subsidiary, sold a
      full
      service car wash facility in Dallas, Texas. Proceeds from the sale of this
      facility were approximately $1.85 million, resulting in a $461,000 gain on
      disposal.




**4.
      Discontinued Operations**  **and**  **Assets
      Held for Sale**





On
      February 28, 2006, the Company signed an agreement to sell its Arizona car
      wash
      region to CW Acquisition, LLC (“CW Acquisition”) for $19.5 million. CW
      Acquisition was unable to arrange its funding by August 4, 2006, and the
      transaction was terminated. Mace retained a $312,500 deposit on the transaction
      as liquidated damages as provided for in the agreement of sale. The $312,500
      deposit was recorded in other income in 2006 within income from discontinued
      operations. The Company signed a new agreement with Twisted Cactus Enterprises,
      LLC on December 7, 2006 to sell the twelve Arizona car washes for $19.2 million
      in cash. This transaction closed on May 17, 2007. Additionally, the Company
      has
      entered into agreements as of December 31, 2006 to sell five of the Northeast
      region car washes which represent substantially all of the revenues within
      the
      Northeast region. The Company executed a lease-to-sell agreement on December
      31,
      2005 with Eagle United Truck Wash, LLC (“Eagle”) to lease Mace’s five truck
      washes beginning January 1, 2006 for up to two years. As a result, we do not
      recognize revenue or operating expenses during the term of the lease other
      than
      rental income, depreciation expense and interest expense. Accordingly, for
      financial statement purposes, the assets, liabilities, results of operations
      and
      cash flows of these operations have been segregated from those of continuing
      operations and are presented in the Company’s consolidated financial statements
      as discontinued operations and assets and liabilities held for
      sale.





Revenues
      from discontinued operations were $14.1 million, $15.5 million and $14.6 million
      for the years ended December 31, 2006, 2005 and 2004, respectively. Operating
      income (loss) from discontinued operations was $953,000, $337,000 and $(343,000)
      for the years ended December 31, 2006, 2005 and 2004, respectively.




F-15


Assets
      and liabilities held for sale are comprised of the following at December 31,
      2006 (in thousands):




Assets
                  held for sale:
              
              Arizona
                Region
              
              Northeast
                  Region Region
              
              Truck
                Washes
              
              Texas
                Site
              
              TotalInventory
              
              $
              269
              
              $
              42
              
              $
              -
              
              $
              -
              
              $
              311Property,
                  plant and equipment, net
              
              
              17,180
              
              
              5,771
              
              
              994
              
              
              273
              
              
              24,218Goodwill
              
              
              -
              
              
              1,092
              
              
              -
              
              
              -
              
              
              1,092Intangibles
              
              
              17
              
              
              106
              
              
              1
              
              
              -
              
              
              124Total
                  assets
              
              $
              17,466
              
              $
              7,011
              
              $
              995
              
              $
              273
              
              $
              25,745Liabilities
                  related to assets held for sale:Current
                  portion of long-term debt
              
              $
              1,090
              
              $
              -
              
              $
              10
              
              $
              -
              
              $
              1,100Long-term
                  debt, net of current portion
              
              
              8,281
              
              
              -
              
              
              264
              
              
              -
              
              
              8,545Deferred
                  revenue
              
              
              141
              
              
              54
              
              
              -
              
              
              -
              
              
              195Total
                  liabilities
              
              $
              9,512
              
              $
              54
              
              $
              274
              
              $
              -
              
              $
              9,840





**5.
      Goodwill**





We
      completed our 2004 annual testing of goodwill and intangible assets determined
      to have indefinite lives in accordance with SFAS 142 as of November 30, 2004.
      The methodology applied was consistent with prior year’s annual test. The growth
      rate applied to future cash flows beyond detailed projections was 3%. The
      discount rates used varied from 7.25% to 15.0% for our security business and
      approximately 11% for our car and truck wash operations. In the fourth quarter
      of 2004, as a result of the annual impairment test of Goodwill and Other
      Intangibles in accordance with SFAS 142, we recorded an impairment of
      approximately $1.0 million related to our Northeast region reporting unit of
      our
      Car and Truck Wash Segment. Additionally, we recorded an impairment of
      approximately $6.7 million related to our Texas region reporting unit of our
      Car
      and Truck Wash Segment. These impairments were principally due to reductions
      in
      future projected cash flows as determined during our 2005 budgeting process,
      which we completed in December, 2004. The projections of cash flows from these
      reporting units were reduced primarily due to two successive years of reductions
      in number of cars washed. We projected our car wash volume for 2004 based on
      the
      number of cars washed in these reporting units in the previous five years.
      We
      believe that fewer cars were actually washed during 2004 as a result of more
      inclement weather than in 2003, and increased competition near certain of our
      facilities in Texas and New Jersey. In the fourth quarter of 2005, we recorded
      an additional impairment of approximately $1.56 million related to our Texas
      region reporting unit of our Car and Truck Wash Segment. This impairment charge
      was due to reductions in our future projected cash flows as volumes in this
      region continue to deviate from historic revenue levels. The methodology applied
      in our 2005 annual impairment testing was consistent with that of our previous
      testing. We anticipate that the volume of cars washed in these regions will
      increase, if weather patterns return to the patterns existing in prior years.
      Impairment of goodwill and intangible assets with indefinite lives must be
      tested on at least an annual basis and whenever there is an impairment
      indicator. In the fourth quarter of 2006, as a result of the annual impairment
      test of Goodwill and Other Intangibles in accordance with SFAS142, we recorded
      an impairment of approximately $111,000 related to our high end digital and
      machine vision cameras and professional imaging components operation in Texas.
      The impairment charge was due to reduction in our future projected cash flows
      as
      sales levels in this division continue to deviate from historic levels as a
      result of competitive pressures. The Company cannot guarantee that there will
      not be impairments in subsequent years. The
      changes in the carrying amount of goodwill for the years ended December 31,
      2004, 2005 and 2006 are as follows (in thousands):




F-16




**Northeast**
                
                **Texas**
                
                **Security**
                      **Products**
                
                **Total**Balance
                    at December 31, 2003
                
                $
                2,090
                
                $
                8,291
                
                $
                242
                
                $
                10,623Impairment
                    loss
                
                
                (998
                )
                
                (6,727
                )
                
                -
                
                
                (7,725
                )Reallocation
                    of purchase price
                
                
                -
                
                
                -
                
                
                158
                
                
                158Acquisition
                    of IVS and S&M
                
                
                -
                
                
                -
                
                
                531
                
                
                531Balance
                    at December 31, 2004
                
                
                1,092
                
                
                1,564
                
                
                931
                
                
                3,587Impairment
                    loss
                
                
                -
                
                
                (1,564
                )
                
                -
                
                
                (1,564
                )Reallocation
                    of purchase price
                
                
                -
                
                
                -
                
                
                (160
                )
                
                (160
                )Acquisition
                    of Securetek
                
                
                -
                
                
                -
                
                
                957
                
                
                957Balance
                    at December 31, 2005
                
                
                1,092
                
                
                -
                
                
                1,728
                
                
                2,820Impairment
                    loss
                
                
                -
                
                
                -
                
                
                (105
                )
                
                (105
                )Reclass
                    to assets held for sale
                
                
                (1,092
                )
                
                -
                
                
                -
                
                
                (1,092
                )Balance
                    at December 31, 2006
                
                $
                -
                
                $
                -
                
                $
                1,623
                
                $
                1,623





**6.**
            **Allowance
                for Doubtful Accounts**


The
          changes in the allowance for doubtful accounts are summarized as
          follows:
  **Year
                    ended December 31,****2006**
                
                **2005**
                
                **2004**(In
                    thousands)Balance
                    at beginning of year
                
                $
                593
                
                $
                449
                
                $
                263Additions
                    (charged to expense)
                
                
                302
                
                
                232
                
                
                225Adjustments
                
                
                (12
                )
                
                -
                
                
                125Deductions
                
                
                (193
                )
                
                (88
                )
                
                (164
                )Balance
                    at end of year
                
                $
                690
                
                $
                593
                
                $
                449





**7.**
            **Inventories**





Inventories
      consist of the following:


**As
                of December 31,****2006**
            
            **2005**(In
                thousands)Finished
                goods
            
            $
            5,929
            
            $
            6,094Work
                in process
            
            
            77
            
            
            67Raw
                materials and supplies
            
            
            337
            
            
            508Fuel,
                merchandise inventory and car wash supplies
            
            
            827
            
            
            1,232$
            7,170
            
            $
            7,901




F-17





**8.**
            **Other
                Intangible Assets**





**December
                  31, 2006**
              
              **December
                  31, 2005****Gross**
                **Carrying**
                **Amount**
              
              **Accumulated**
                **Amortization**
              
              **Gross**
                **Carrying**
                **Amount**
              
              **Accumulated**
                **Amortization****(In
                  thousands)**Amortized
                  intangible assets:Non-compete
                  agreement
              
              $
              98
              
              $
              46
              
              $
              98
              
              $
              21Customer
                  lists
              
              
              1,184
              
              
              356
              
              
              1,184
              
              
              165Product
                  lists
              
              
              590
              
              
              148
              
              
              590
              
              
              89Patent
                  Costs
              
              
              5
              
              
              -
              
              
              -
              
              
              -Deferred
                  financing costs
              
              
              387
              
              
              229
              
              
              416
              
              
              215Total
                  amortized intangible assets
              
              
              2,264
              
              
              779
              
              
              2,288
              
              
              490Non-amortized
                  intangible assets:Trademarks
                  - Security Segment
              
              
              1,438
              
              
              -
              
              
              1,424
              
              
              -Service
                  mark - Car and Truck Wash Segment
              
              
              -
              
              
              -
              
              
              106
              
              
              -Total
                  non-amortized intangible assets
              
              
              1,438
              
              
              -
              
              
              1,530
              
              
              -Total
                  intangible assets
              
              $
              3,702
              
              $
              779
              
              $
              3,818
              
              $
              490




The
      following sets forth the estimated amortization expense on intangible assets
      for
      the fiscal years ending December 31 (in thousands):




2007
              
              $
              2642008
              
              $
              2352009
              
              $
              1992010
              
              $
              1912011
              
              $
              191




Amortization
      expense of other intangible assets was approximately $294,000, $183,000 and
      $119,000 for the years ended December 31, 2006, 2005, and 2004, respectively.
      The weighted average useful life of amortizing intangible assets was 9.6 years
      at December 31, 2006.





**9.**  **Long-Term
      Debt, Notes Payable, and Capital Lease Obligations**





Long-term
      debt, notes payable, and capital lease obligations, including debt related
      to
      discontinued operations, consist of the following:


**As
                  of December 31,****2006**
              
              **2005**(In
                  thousands)Notes
                  payable to Capmark Finance, Inc. (“Capmark”), interest rate of 8.52%, due
                  in monthly installments totaling $145,936 including interest, through
                  September 2013, collateralized by real property, equipment and
                  inventory
                  of certain of the Arizona region Car Wash locations
              
              $
              8,789
              
              $
              9,746Note
                  payable to JPMorgan Chase Bank, N.A. (“Chase”), the successor of Bank One,
                  Texas, N.A., interest rate of prime plus 0.25% (8.50% at December
                  31,
                  2006), is due in monthly installments of $59,235 including interest
                  (adjusted annually), trough November 2008, collateralized by real
                  property
                  and equipment of Eager Beaver Car Wash, Inc.
              
              
              4,683
              
              
              4,995
  F-18
  Notes
                  payable to Chase, interest rate of prime plus 0.25% (8.50% at December
                  31,
                  2006) due in monthly installments totaling $44,604 per month including
                  interest (adjusted annually) through various dates ranging from
                  February
                  2008 to October 2009, collateralized by real property and equipment
                  of
                  certain of the Colonial Car Wash locations
              
              
              2,835
              
              
              3,132Note
                  payable to Chase, which refinanced a note payable to Cornett Ltd.
                  Partnership on February 17, 2000. The Chase note, which provides
                  for an
                  interest rate of prime plus 0.25% (8.50% at December 31, 2006),
                  is due in
                  monthly installments of $45,248including
                  interest (adjusted annually), renewed throughSeptember, 2009, collateralized by real property and equipment
                  of the
                  Genie Car Wash locations .
              
              
              3,280
              
              
              3,532Note
                  payable to Western National Bank, interest rate of 5.20%,(the interest
                  rate is established every 5 years, based on prime rate plus 0.5%),
                  due in
                  monthly installments of $20,988 including interest, through October
                  2014,
                  collateralized by real property and equipment in Lubbock,
                  Texas
              
              
              1,425
              
              
              1,565Note
                  payable to Business Loan Express, interest rate of prime plus 2.5%
                  (10.25%
                  at December 31, 2006), is due in monthly installments of $14,254
                  including
                  interest (adjusted annually), through December 2022, collateralized
                  by
                  real property and equipment of the Blue Planet Car Wash in Dallas,
                  Texas.
              
              
              1,307
              
              
              1,338Note
                  payable to Merriman Park J.V., interest rate of 7.0% due in monthly
                  installments of $10,147 including interest, through November 2011,
                  collateralized by real property and equipment of a Colonial Car
                  Wash
                  location sold in September 2006.
              
              
              -
              
              
              588Note
                  payable to Chase, interest rate of prime plus 0.25% (8.50% at at
                  December
                  31, 2006), is due in monthly installments of $8,019 including interest
                  (adjusted annually), through July 2008, collateralized by real
                  property
                  and equipment of the Superstar Kyrene Car Wash in Tempe,
                  Arizona.
              
              
              582
              
              
              623Note
                  payable to Chase, interest rate of prime plus 0.25% (8.50% at December
                  31,
                  2006), is due in monthly installments of $2,705 including interest
                  (adjusted annually) through April 2010, collateralized by real
                  property
                  and equipment of the Red Baron Amarillo Truck Wash
              
              
              274
              
              
              283Capital
                  leases payable to various creditors, interest rates ranging from
                  7.75% to
                  9.97%, due in monthly installments totaling $5,930 including interest,
                  through July 2007, collateralized by certain equipment of the
                  Company
              
              
              31
              
              
              85Note
                  payable to Chase, interest rate of prime plus 0.25% (8.50% at December
                  31,
                  2006) due in monthly installments of $7,363 including interest
                  (adjusted
                  annually), through September 2009, collateralized by real property
                  and
                  equipment of Mace Security Products, Inc. in Farmers Branch,
                  Texas.
              
              
              760
              
              
              78723,966
              
              
              26,674Less:
                  current portion
              
              
              10,879
              
              
              2,209$
              13,087
              
              $
              24,465





Of
      the 46
      car washes owned or leased by us at December 31, 2006, 24 properties and related
      equipment with a net book value totaling $38.8 million secured first mortgage
      loans totaling $22.9 million.






F-19




Our
        two
        most significant borrowings, including borrowings related to discontinued
        operations, are secured notes payable to Capmark Finance Inc. (“Capmark”), the
        successor of General Motors Acceptance Corp., in the amount of $8.8 million,
        included in current liabilities in liabilities related to assets held for
        sale,
        and secured notes payable to JPMorgan Chase Bank, N.A. (“Chase”) the successor
        of Bank One, Texas, N.A. in the amount of $12.4 million, $11.4 million of
        which
        was classified as non-current debt at December 31, 2006. The Capmark and
        Chase
        agreements contain affirmative and negative covenants, including the maintenance
        of certain levels of tangible net worth, maintenance of certain levels of
        unencumbered cash and marketable securities, limitations on capital spending,
        the maintenance of certain debt coverage ratios on a consolidated level and
        certain financial reporting requirements. The Chase agreement is our only
        debt
        agreement that contains an expressed prohibition on incurring additional
        debt
        for borrowed money without the approval of the lender. None of our other
        agreements contain such a prohibition. Our warehouse and office facility
        in
        Farmers Branch, Texas, twenty four car washes and one truck wash are encumbered
        by mortgages.
 
 At
        December 31, 2006, we were not in compliance with our semi-annual consolidated
        debt coverage ratio of at least 1.25:1 related to our Capmark notes payable.
        The
        Company’s debt coverage ratio related to the Capmark notes payable was .15: 1 at
        December 31, 2006. Capmark previously granted us a waiver of acceleration
        related to the non-compliance with the debt coverage
        ratio covenant at March 31, 2006, and for measurement periods through April
        1,
        2007. Capmark did not grant us a further waiver of acceleration. Accordingly,
        as
        noted above, the Capmark notes payable in the amount of $8.8 million are
        reported as a current liability included in liabilities related to assets
        held
        for sale. We repaid this debt on May 17, 2007 with proceeds from the sale
        of the
        Arizona car washes to Twisted Cactus Enterprises, LLC.
 
 The
        Company entered into amendments to the Chase term loan agreements effective
        September 30, 2006. The amended debt coverage ratio with Chase eliminated
        the
        Company’s requirement to maintain a ratio of consolidated earnings before
        interest, income taxes, depreciation and amortization to debt service.
        Additionally, the
        Chase term loan agreement also limits capital expenditures annually to $1.0
        million, requires
        the Company to provide Chase with a Form 10-K and audited financial statements
        within 120 days of the Company’s fiscal year end and a Form 10-Q within 60 days
        after the end of each fiscal quarter, and requires the maintenance of a minimum
        total unencumbered cash and marketable securities balance of $5 million.
        The
        Company incurred capital expenditures of $1.3 million in 2006 and did not
        timely
        provide the required financial statements and, accordingly, was not in
        compliance with the Chase loan agreement covenants. The Company received
        a
        waiver of acceleration from Chase at December 31, 2006 and for measurement
        periods through January 1, 2008 related to exceeding the annual capital
        expenditure limit and its untimely filing of financial statements, accordingly,
        a portion of the Chase notes payable was reflected as non-current on our
        financial statements at December 31, 2006. If we are unable to satisfy these
        covenants and we cannot obtain further waivers, the Chase notes may be reflected
        as current in future balance sheets and as a result our stock price may decline.
  Our
        ongoing ability to comply with the debt covenants under our credit arrangements
        and refinance our debt depends largely on our achievement of adequate levels
        of
        cash flow. Our cash flow has been and could continue to be adversely affected
        by
        weather patterns and economic conditions. In the future, if our cash flows
        are
        less than expected or debt service, including interest expense, increases
        more
        than expected, we may continue to be out of compliance with the Chase covenants
        and may need to seek additional waivers or amendments.
 
 If
        we
        default on any of the Chase covenants and are not able to obtain further
        amendments or waivers of acceleration, Chase debt totaling $12.4 million,
        including debt recorded as long-term debt at December 31, 2006, could become
        due
        and payable on demand, and Chase could foreclose on the assets pledged in
        support of the relevant indebtedness. If our assets (including up to 16 of
        our
        car wash facilities and one truck wash as of May 31, 2007) are foreclosed
        upon,
        revenues from our Car and Truck Wash Segment, which comprised 53% of our
        total
        revenues for fiscal years 2006 and 2005, would be severely impacted and we may
        be unable to continue to operate our business. Even if the debt were accelerated
        without foreclosure, it would be very difficult for us to continue to operate
        our business and we may go out of business.
 F-20
 Certain
        machinery and equipment notes payable discussed above have been classified
        as
        capital lease obligations in the balance sheet.
 
 Maturities
        of long-term debt, including debt related to discontinued operations, are
        as
        follows: 2007 - $10.9 million, 2008 - $8.2 million, 2009 - $2.9 million,
        2010 -
        $256,000, 2011 -
        $272,000, 2012 and thereafter - $1.5 million.
 
 **10.**
              **Accrued
                  Expenses and Other Current
                  Liabilities**
 
 Accrued
        expenses and other current liabilities consist of the following:
 
 **As
                  of December 31,****2006**
              
              **2005**(In
                  thousands)Accrued
                  compensation
              
              $
              782
              
              $
              928Property
                  and other non-income taxes
              
              
              158
              
              
              462Other
              
              
              1,269
              
              
              1,345$
              2,209
              
              $
              2,735
 
 **11.**
              **Interest
                  Expense, net**
 
 Interest
        expense, net of interest income consists of the following (in
        thousands):
 
 Year
                  Ended December 31**2006**
              
              **2005**
              
              **2004**Interest
                  expense
              
              $
              (1,146
              )
              $
              (1,160
              )
              $
              (1,004
              )Interest
                  income
              
              
              185
              
              
              291
              
              
              119$
              (961
              )
              $
              (869
              )
              $
              (885
              )
  **12.**
              **Other
                  Income (Expense)**
 
 Other
        income (expense) consists of the following (in thousands):


**Year
                  Ended December 31****2006**
              
              **2005**
              
              **2004**Investment
                  income
              
              $
              323
              
              $
              266
              
              $
              -Rental
                  income
              
              
              78
              
              
              135
              
              
              128Gain
                  on sale of fixed assets
              
              
              663
              
              
              333
              
              
              39Hurricane
                  damage loss
              
              
              -
              
              
              (107
              )
              
              -Other
              
              
              29
              
              
              3
              
              
              30$
              1,093
              
              $
              630
              
              $
              197
 
 **13.**
              **Stock
                  Option Plans**
 
 During
        September 1993, the Company adopted the 1993 Stock Option Plan (“the 1993
        Plan”). The 1993 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 1993 Plan. The
        options
        are non-qualified stock options and are not transferable by the recipient.
        The
        1993 Plan is administered by the Compensation Committee (“the 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.  
 F-21
 In
        December 1999, the Company’s stockholders approved the 1999 Stock Option Plan
        (“the 1999 Plan”) providing for the granting of incentive stock options or
        nonqualified stock options to directors, officers, or employees of the Company.
        Under the 1999 Plan, 15,000,000 shares of common stock are reserved for
        issuance. Incentive stock options and nonqualified options have terms which
        are
        determined by the Committee with exercise prices not less than the market
        value
        of the shares on the date of grant. The options generally expire ten years
        from
        the date of grant and are exercisable based upon graduated vesting schedules
        as
        determined by the Committee. As of December 31, 2006, 5,162,444 options have
        been granted under the 1993 and 1999 Plans including 3,719,760 nonqualified
        stock options.
 
 Activity
        with respect to these plans is as follows:
  **2006**
                
                **2005**
                
                **2004****Number**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**
                
                **Number**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**
                
                **Number**
                
                **Weighted**
                  **Average**
                  **Exercise**
                  **Price**Options
                    outstanding beginning of period
                
                
                3,108,682
                
                $
                4.00
                
                
                2,971,264
                
                $
                4.03
                
                
                1,957,033
                
                $
                4.27Options
                    granted
                
                
                984,500
                
                $
                2.36
                
                
                300,000
                
                $
                2.73
                
                
                1,539,932
                
                $
                4.05Options
                    exercised
                
                
                (2,500
                )
                $
                1.80
                
                
                (1,750
                )
                $
                1.85
                
                
                (448,456
                )
                $
                4.19Options
                    canceled
                
                
                (95,667
                )
                $
                2.73
                
                
                (160,832
                )
                $
                2.30
                
                
                (77,245
                )
                $
                9.04Options
                    outstanding end of period
                
                
                3,995,015
                
                $
                3.63
                
                
                3,108,682
                
                $
                4.00
                
                
                2,971,264
                
                $
                4.03Options
                    exercisable
                
                
                3,479,015
                
                
                
                
                
                2,696,684
                
                
                
                
                
                2,329,764Shares
                    available for granting of options
                
                
                3,095,549
                
                
                
                
                
                3,984,382
                
                
                
                
                
                4,123,550
  Stock
        options outstanding at December 31, 2006 under both plans are summarized
        as
        follows:




**Range
                  of Exercise Prices**
              
              **NumberOutstanding**
              
              **Weighted
                  Avg.RemainingContractual Life**
              
              **Weighted
                  Avg. Exercise Price**$1.28-$1.91
              
              
              747,209
              
              
              6.2
              
              $
              1.43$1.94-$2.97
              
              
              1,552,646
              
              
              8.4
              
              $
              2.42$3.00-$4.45
              
              
              849,642
              
              
              7.8
              
              $
              3.95$5.00-$5.59
              
              
              632,291
              
              
              5.8
              
              $
              5.34$8.63-$11.75
              
              
              71,160
              
              
              3.1
              
              $
              10.06$13.25-$19.50
              
              
              132,067
              
              
              2.5
              
              $
              15.22$22.00
              
              
              10,000
              
              
              2.4
              
              $
              22.003,995,015




In
      1999,
      the Company issued warrants to purchase a total of 1,328,250 shares of the
      Company’s common stock at a weighted average exercise price of $4.22 per share
      (shares and exercise price are adjusted for one-for-two reverse stock split)
      in
      connection with the purchase of certain businesses and to a director. The terms
      of the warrants have been established by the Board of Directors. The warrants
      are exercisable at various dates through August 2, 2009 and have exercise prices
      ranging from $2.75 to $18.50 per share. Through December 31, 2005, 281,818
      warrants to purchase common stock have been exercised and 996,432 warrants
      to
      purchase common stock have expired.





In
      2004,
      the Company issued warrants to purchase a total of 383,000 shares of the
      Company’s common stock at a weighted average price of $6.65 per share which
      expire in 2009. The Company has a total of 433,000 warrants to purchase common
      stock outstanding at December 31, 2005, all of which are
      exercisable.





During
      the exercise period, 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.


F-22


**14.**
            **Income
                Taxes**





Deferred
      income taxes reflect the net tax effects of temporary differences between the
      carrying amounts of assets and liabilities for financial reporting purposes
      and
      the amounts used for income tax purposes. Significant components of the
      Company's deferred tax assets and liabilities at December 31, 2006 and 2005
      are
      as follows:





As
                of December 31,2006
            
            2005(In
                thousands)Deferred
                tax assets:Allowance
                for doubtful accounts
            
            $
            267
            
            $
            267Inventories
            
            
            28
            
            
            28Net
                operating loss carryforwards
            
            
            9,229
            
            
            6,543Deferred
                revenue
            
            
            201
            
            
            197Compensation
            
            
            39
            
            
            45Car
                damage reserve
            
            
            109
            
            
            49Accrued
                workers compensation costs
            
            
            38
            
            
            16Federal
                Tax Credit
            
            
            179
            
            
            179Vesting
                Stock Options
            
            
            547
            
            
            -Other,
                net
            
            
            53
            
            
            72Total
                deferred tax assets
            
            
            10,690
            
            
            7,396Valuation
                allowance for deferred tax assets
            
            
            (6,750
            )
            
            (4,126
            )Deferred
                tax assets after valuation allowance
            
            
            3,940
            
            
            3,270Deferred
                tax liabilities:Property,
                equipment and intangibles
            
            
            (3,940
            )
            
            (3,270
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -




At
      December 31, 2006, the Company had U.S. federal net operating loss carryforwards
      of approximately $25.0 million. The U.S. federal net operating loss
      carryforwards expire as follows:





Year
                of Expiration
            
            Amount2018
            
            $
            9892019
            
            
            4,0062020
            
            
            3,2392021
            
            
            1,5832022
            
            
            2,8222023
            
            
            4,4112025
            
            
            1,2502026
            
            
            6,729$
            25,029





Additionally,
      the Company has $1.3 million of acquired corporation’s preacquisition state net
      operating loss carryforwards expiring from 2008 through 2018.





Realization
      of the future tax benefits related to the deferred tax assets is dependent
      upon
      many factors, including the Company’s ability to generate taxable income in
      future years. The Company performed a detailed review of the considerations
      influencing our ability to realize the future benefit of the NOLs, including,
      the extent of recently used NOLs, the turnaround of future deductible temporary
      differences, the duration of the NOL carryforward period, and the Company’s
      future projection of taxable income. The Company increased its valuation
      allowance against deferred tax assets by $2.6 million in 2006 and $3.2 million
      in 2005 with a total valuation allowance of $6.75 million at December 31, 2006
      representing the amount of its deferred income tax assets in excess of the
      Company’s deferred income tax liabilities. The valuation allowance was recorded
      because management was unable to conclude that realization of the net deferred
      income tax asset was more likely than not. This determination was a result
      of
      the Company’s continued losses in its fiscal year ended December 31, 2006, the
      uncertainty of the timing of the Company’s transition from the Car Wash
      business, and the ultimate extent of growth in the Company’s Security Segment.


F-23


The
      components of income tax expense (benefit) are:




**Year
                  ended December 31,****2006**
              
              **2005**
              
              **2004**(In
                  thousands)Current
                  (principally state taxes)
              
              $
              156
              
              $
              126
              
              $
              112Deferred
              
              
              -
              
              
              2,313
              
              
              (3,156
              )Total
                  income tax expense(benefit)
              
              $
              156
              
              $
              2,439
              
              $
              (3,044
              )




The
      significant components of deferred income tax expense(benefit) attributed to
      the
      loss for the years ended December 31, 2006, 2005, and 2004 are as follows
      :




**Year
                  ended December 31,****2006**
              
              **2005**
              
              **2004**(In
                  thousands)Deferred
                  tax expense (benefit)
              
              $
              62
              
              $
              133
              
              $
              (1,780
              )Loss
                  carryforward
              
              
              (2,686
              )
              
              (1,110
              )
              
              (1,400
              )Valuation
                  allowance for deferred tax assets
              
              
              2,624
              
              
              3,290
              
              
              24$
              -
              
              $
              2,313
              
              $
              (3,156
              )




A
      reconciliation of income tax benefit computed at the U.S. federal statutory
      tax
      rates to total income tax expense (benefit) is as follows:




**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**(In
                thousands)Tax
                at U.S. federal statutory rate
            
            $
            (2,322
            )
            $
            (903
            )
            $
            (3,175
            )State
                taxes, net of federal benefit
            
            
            (151
            )
            
            40
            
            
            (124
            )Goodwill
                impairment
            
            
            -
            
            
            -
            
            
            349Nondeductible
                costs and other acquisitionaccounting
                adjustments
            
            
            5
            
            
            12
            
            
            16Valuation
                allowance for deferred tax assets
            
            
            2,624
            
            
            3,290
            
            
            24Other
                adjustments
            
            
            -
            
            
            -
            
            
            (134
            )Total
                income tax expense (benefit)
            
            $
            156
            
            $
            2,439
            
            $
            (3,044
            )





**15.**
            **Loss
                Per Share**





The
      following table sets forth the computation of basic and diluted loss per share:
      (in thousands except loss per share)





**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**Numerator
                (In thousands):Net
                loss
            
            $
            (6,782
            )
            $
            (5,020
            )
            $
            (6,410
            )Denominator:Denominator
                for basic lossper
                share - weighted average shares
            
            
            15,274,498
            
            
            15,271,637
            
            
            13,679,604Dilutive
                effect of options and warrants
            
            
            -
            
            
            -
            
            
            -Denominator
                for diluted lossper
                share - weighted average shares
            
            
            15,274,498
            
            
            15,271,637
            
            
            13,679,604Basic
                loss per share:Net
                loss
            
            $
            (0.44
            )
            $
            (0.33
            )
            $
            (0.47
            )Diluted
                loss per share:Net
                loss
            
            $
            (0.44
            )
            $
            (0.33
            )
            $
            (0.47
            )


F-24


The
      dilutive effect of options and warrants of 334,055, 275,044 and 491,082 at
      December 31, 2006, 2005 and 2004, respectively, have not been included in the
      calculation of diluted earnings per share because they are
      anti-dilutive.





**16.**
            **Concentration
                of Credit Risk**





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





**17.**
            **Commitments
                and Contingencies**





The
      Company is obligated under various operating leases, primarily for certain
      equipment, vehicles, and real estate. Certain of these leases contain purchase
      options, renewal provisions, and contingent rentals for the proportionate share
      of taxes, utilities, insurance, and annual cost of living increases. Future
      minimum lease payments under operating leases with initial or remaining
      noncancellable lease terms in excess of one year as of December 31, 2006 for
      continuing operations are as follows: 2007 - $605,000; 2008 - $486,000; 2009
      -
      $437,000; 2010 - $308,000; 2011 - $297,000 and thereafter - $1.2 million. Rental
      expense under these leases was $898,000, $834,000 and $802,000 for the years
      ended December 31, 2006, 2005, and 2004, respectively.




The
      Company subleases a portion of the building space at several of its car wash
      facilities either on a month-to-month basis or under cancellable leases. During
      fiscal 2006, 2005, and 2004 revenues under these leases were approximately
      $85,000, $140,000 and $132,000, respectively. These amounts are classified
      as
      other income in the accompanying statements of operations.





The
      Company is subject to federal and state environmental regulations, including
      rules relating to air and water pollution and the storage and disposal of oil,
      other chemicals, and waste. The Company believes that it complies, in all
      material respect, with all applicable laws relating to its
      business.





Certain
      of the Company’s executive officers have entered into employee stock option
      agreements whereby options issued to them shall be entitled to immediate vesting
      upon a change in control of the Company. Additionally, the employment agreement
      of the Company’s Principal Executive Officer, Louis D. Paolino, Jr., dated
      August 21, 2006, entitles Mr. Paolino to a payment of 2.99 times Mr. Paolino’s
      average total compensation (base salary plus any bonuses plus the value of
      any
      option award, valued using the Black-Scholes method) over the past five years,
      upon termination of employment under certain conditions or upon a change in
      control. The employment agreement also provides that if Mr. Paolino receives
      the
      change of control bonus, his employment agreement can then be terminated without
      an additional payment.





In
      December 2003, one of the Company’s car wash subsidiaries was named as a
      defendant in a suit filed by Kristen Sellers in the Circuit Court of the Twelfth
      Judicial Circuit in and for Sarasota County, Florida. The suit alleged that
      the
      plaintiff was entitled to damages in excess of $15,000 due to psychological
      injury and emotional distress sustained when an employee of the car wash
      allegedly assaulted Ms. Sellers with sexually explicit acts and words. The
      case
      has been settled and the Company’s insurer has paid the plaintiff $200,000 in
      compensation and approximately $55,000 in reimbursement of litigation costs.




On
      March
      13, 2006, the Company was served with a search warrant issued by the United
      States District Court for the District of New Jersey relating to a criminal
      immigration investigation. A search of the Company’s headquarters and four out
      of the Company’s 48 car washes was conducted by representatives of the United
      States Department of Investigations and Customs Enforcement and certain other
      agencies. Three of the car washes searched are located in Pennsylvania and
      the
      fourth is located in New Jersey. Documents were seized and a number of car
      wash
      employees of Car Care, Inc., a wholly-owned subsidiary of the Company, were
      taken into custody by the United States immigration authorities. The Company
      was
      also served with a federal grand jury subpoena seeking similar documents. The
      Company has completed its response to the subpoena. The Company has been
      informed by the government that it is a subject of the government’s
      investigation. The Company’s Audit Committee retained independent outside
      counsel (“Special Counsel”) to conduct an independent investigation of the
      Company’s hiring practices at the Company’s car washes and other related
      matters. Special Counsel provided a written summary of findings on April 18,
      2006 to the Company’s Audit Committee. The investigative finding included, among
      other things, a finding that the Company’s internal controls for financial
      reporting at the corporate level are adequate and appropriate, and that there
      is
      no financial statement impact implicated by the Company’s hiring practices,
      except for a potential contingent liability. Beginning on April 21, 2006,
      Special Counsel began to receive for review some additional and previously
      requested but unavailable documents and information, including the documents
      the
      government seized on March 13, 2006. On May 18, 2006, Special Counsel issued
      its
      Review of Information Supplemental to Internal Investigation which stated that
      the review of the additional documents and information had not changed the
      conclusions contained in the April 18, 2006 summary of
      findings. See
      Item
      3, Legal Proceedings. From March 13, 2006 through December 31, 2006, the Company
      incurred $433,000 in legal, consulting and accounting expenses associated with
      the Audit Committee investigations and $796,000 associated with the governmental
      investigation and Company’s defense and negotiations with the government. In
      accordance with the Company’s By-Laws, the Company is obligated to indemnity and
      advance legal costs for its officers and directors. The
      Company has hired a Human Resources Manager and has incorporated additional
      internal control procedures at the corporate, regional and site level to further
      enhance the existing internal controls with respect to the Company’s hiring
      procedures at the car
      wash
      locations to prevent the hiring of undocumented workers. There is a possibility
      that the United States Attorney for the Eastern District of Pennsylvania may
      prosecute the Company at the conclusion of its investigation. Violations of
      law
      may result in civil, administrative or criminal fines or penalties. Due to
      the
      ongoing nature of the criminal investigation, it is not possible at this time
      to
      predict the outcome of the investigation or the impact of costs of ultimately
      resolving this matter on our results of operations or financial condition.
      However, any fees, expenses, fines or penalties which might be incurred by
      the
      Company in connection with the hiring of undocumented workers may have a
      material impact on the Company’s results of operations and financial condition.
      The Company has made no provision for any future costs associated with the
      investigations or any future costs associated with the Company’s defense or
      negotiations with governmental authorities to resolve these outstanding
      issues.




F-25




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.





**18.**
            **Asset
                Impairment Charges**





In
      accordance with SFAS 144, *Accounting
      for the Impairment or Disposal of Long-Lived Assets* (“SFAS144” *)* ,
      we
      periodically review the carrying value of our long-lived assets held and used,
      and assets to be disposed of, for possible impairment when events and
      circumstances warrant such a review. Assets classified as held for sale are
      measured at the lower of carrying value or fair value, net of costs to sell.





***Continuing
      Operations***





In
      the
      fourth quarter of 2005, as a result of the annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 144, we recorded an impairment
      of
      approximately $1.56 million related to our Texas region reporting unit of our
      Car and Truck Wash Segment. In the fourth quarter of 2004, we recorded an
      impairment of approximately $6.7 million related to our Texas reporting unit.
      These 2005 and 2004 impairments were principally due to reductions in future
      projected cash flows resulting from extended departures from our historic
      revenue levels as a result of inclement weather, and increased competition
      near
      several of our facilities in Texas. During the quarter ended September 30,
      2006,
      we wrote down assets related to a full service car wash in Fort Worth, Texas
      by
      approximately $40,000. We determined that based on current data utilized to
      estimate the fair value of this car wash facility, the future expected cash
      flows would not be sufficient to recover its carrying value. Additionally,
      in
      the fourth quarter of 2006, as a result of the annual impairment test of
      Goodwill and Other Intangibles in accordance with SFAS 142, we recorded an
      impairment of approximately $111,000 related to our high end digital and machine
      vision cameras and professional imaging components operation in Texas. The
      impairment charge was due to reduction in our future projected cash flows as
      sales levels in this division continue to deviate from historic levels as a
      result of competitive pressures.





***Discontinued
      Operations***





During
      the year ended December 31, 2004, we wrote down assets related to our truck
      wash
      operations determined to be impaired by approximately $500,000 and we wrote
      these assets down an additional $966,000 during the quarter ended September
      30,
      2005 as a result of our SFAS 144 quarterly reviews. We have determined that
      due
      to a reduction in truck wash volumes resulting from an increase in inclement
      weather, increased competition, the significant increase in fuel costs which
      had
      the effect of reducing spending on truck washing, and demographic changes to
      certain of our facilities, their future expected cash flows would not be
      sufficient to recover their respective carrying values. The Company executed
      a
      lease-to-sell agreement on December 31, 2005 with Eagle to lease Mace’s five
      truck washes beginning January 1, 2006 for up to two years. During
      the quarter ended September 30, 2006, we wrote down assets related to a full
      service car wash in Moorestown, New Jersey, by approximately $40,000. We
      determined that based on current data utilized to estimate the fair value of
      this car wash facility, the future expected cash flows would not be sufficient
      to recover its carrying value.


F-26


**19.**
            **Related
                Party Transactions**





The
      Company’s Security Segment leases manufacturing and office space under a
      five-year lease with Vermont Mill, Inc. (“Vermont Mill”). Vermont Mill is
      controlled by Jon E. Goodrich, a former director and current employee of the
      Company. In November 2004, the Company exercised an option to continue the
      lease
      through November 2009 at a rate of $10,576 per month. The Company believes
      that
      the lease rate is lower than lease rates charged for similar properties in
      the
      Bennington, Vermont area. On July 22, 2002, the lease was amended to provide
      Mace the option and right to cancel the lease with proper notice and a payment
      equal to six months of the then current rent for the leased space occupied
      by
      Mace. Rent expense under this lease was $127,000 for years ending December
      31,
      2006 and 2005.





On
      September 29, 2005, Louis Paolino III, the son of the Company’s Chief Executive
      Officer, Louis Paolino, Jr., purchased from the Company a warehouse bay in
      Hollywood, Florida that is no longer used in the Company’s operations for
      $306,000 in cash. The Company’s Audit Committee authorized the Company on
      February 14, 2005 to proceed with a sale of the warehouse property to Louis
      Paolino III for $306,000. The Company paid $256,688 for the property in 2003.
      The warehouse property was appraised by a third party independent appraiser
      on
      January 18, 2005 at an estimated market value of $306,000.




**20.**
            **Segment
                Reporting**





The
      Company currently operates in two segments: the Car and Truck Wash Segment,
      supplying complete car care services (including wash, detailing, lube, and
      minor
      repairs), fuel, and merchandise sales; and the Security Segment.





The
      Company evaluates performances and allocates resources based on operating income
      of each reportable segment rather than at the operating unit level. The Company
      defines operating income as revenues less cost of revenues, selling, general
      and
      administrative expense, and depreciation and amortization expense. The
      accounting policies of the reportable segments are the same as those described
      in the *Summary
      of Significant Accounting Policies* (see
      Note 2). There is no intercompany profit or loss recognized on intersegment
      sales.





The
      Company’s reportable segments are business units that offer different services
      and products. The reportable segments are each managed separately because they
      provide distinct services or produce and distribute distinct products through
      different processes.





Selected
      financial information for each reportable segment is as follows:




**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**Revenues:
            
            (In
                thousands)Car
                and truck wash - external customers
            
            $
            25,849
            
            $
            27,854
            
            $
            26,386Security
                - external customers
            
            
            23,366
            
            
            24,909
            
            
            16,632$
            49,215
            
            $
            52,763
            
            $
            43,018Segment
                Operating (loss) income:Corporate
                (1)
            
            $
            (6,291
            )
            $
            (3,450
            )
            $
            (3,485
            )Car
                and truck wash
            
            
            1,571
            
            
            3,231
            
            
            3,145Security
            
            
            (2,467
            )
            
            (28
            )
            
            (368
            )$
            (7,187
            )
            $
            (247
            )
            $
            (708
            )Assets:Car
                and truck wash
            
            $
            42,771
            
            $
            75,876
            
            $
            83,978Security
            
            
            19,082
            
            
            20,235
            
            
            18,779$
            61,853
            
            $
            96,111
            
            $
            102,757Capital
                expenditures:Corporate
            
            $
            12
            
            $
            10
            
            $
            5Car
                and truck wash
            
            
            594
            
            
            484
            
            
            969Security
            
            
            320
            
            
            424
            
            
            3,809$
            926
            
            $
            918
            
            $
            4,783Depreciation
                and amortization:Corporate
            
            $
            32
            
            $
            43
            
            $
            62Car
                and truck wash
            
            
            1,072
            
            
            1,097
            
            
            1,175Security
            
            
            517
            
            
            399
            
            
            260$
            1,621
            
            $
            1,539
            
            $
            1,497




( 1)
      Corporate functions include the corporate treasury, legal, financial reporting,
      information technology, corporate tax, corporate insurance, human resources,
      investor relations, and other typical centralized administrative
      functions.


F-27
  A
        reconciliation of operating income for reportable segments to total reported
        operating loss is as follows:




**Year
                ended December 31,****2006**
            
            **2005**
            
            **2004**(In
                thousands)Total
                operating loss for reportable segments
            
            $
            (7,187
            )
            $
            (247
            )
            $
            (708
            )Costs
                of terminated acquisitions
            
            
            -
            
            
            -
            
            
            (53
            )Goodwill
                and asset impairment charges
            
            
            (151
            )
            
            (1,563
            )
            
            (6,727
            )Total
                reported operating loss
            
            $
            (7,338
            )
            $
            (1,810
            )
            $
            (7,488
            )




**21.**
            **Subsequent
                Events**





Subsequent
      to December 31, 2006, the Company sold 21 car washes including: three full
      service car washes in the Philadelphia area on January 29, 2007 and a full
      service car wash in Cherry Hill, New Jersey on February 1, 2007 for a total
      of
      $7.8 million in cash at a gain of approximately $1.0 million; an exterior car
      wash in Moorestown, New Jersey on January 5, 2007 for $350,000 cash, which
      approximates book value; an exterior car wash in Philadelphia, Pennsylvania
      on
      March 1, 2007 for $475,000 in cash at a gain of approximately $141,000 ; a
      full
      service car wash in Fort Worth, Texas on March 7, 2007 for $285,000 in cash
      at a
      gain of approximately $9,000; an exterior car wash in Yeadon, Pennsylvania
      on
      May 14, 2007 for $100,000 in cash at a gain of approximately $90,000; twelve
      full service car washes in the Phoenix, Arizona area representing our entire
      Arizona region on May 17, 2007 for $19,380,000 in cash at a gain of
      approximately $413,000; and an exterior car wash in Smyrna, Delaware on May
      31,
      2007 for $220,000 in cash at a gain of approximately $202,000.





On
      April
      18, 2007 and May 17, 2007, the Company received two separate Nasdaq Staff
      Determinations that it was not in compliance with Marketplace Rule 4310(c)(14)
      regarding the requirements to file with the Nasdaq Stock Market all documents
      required to be filed with the Securities and Exchange Commission. The April
      18,
      2007 Nasdaq Staff Determination was issued due to the Company not timely filing
      its Annual Report on Form 10-K for the year ended December 31, 2006
      (“Form10-K”). The May 17, 2007 Nasdaq Staff Determination was issued due to the
      Company not timely filing its Quarterly Report on Form 10-Q for the quarter
      ended March 31, 2007 (Form 10-Q”). In accordance with the procedures for the
      Nasdaq Stock Market, the Company requested that the Nadaq Hearing Qualifications
      Panel (“Panel”) grant the Company an exception to Marketplace Rule 4310(c)(14)
      that would allow the Company’s stock to remain listed. A hearing before the
      Panel was held on May 31, 2007. The Panel has not yet issued its ruling. There
      can be no assurance that the Panel will grant an exception allowing the
      Company’s common stock to remain listed.





**22.**
            **Florida
                Security Division**





In
      April
      2007, we determined that the former divisional controller of the Florida
      Security division embezzled funds from the Company. We initially conducted
      an
      internal investigation, and our Audit Committee subsequently engaged a
      consulting firm to conduct an independent forensic investigation. As a result
      of
      the investigation, we identified that the amount embezzled by the employee
      during fiscal 2006 was approximately $240,000, with an additional $99,000 in
      the
      first quarter of fiscal 2007. The embezzlement occurred from a local petty
      cash
      checking account and from diversion of customer cash payments at the Florida
      Security division. Additionally, the investigation uncovered an unexplained
      inventory shortage in 2006 in the Florida Security division of approximately
      $350,000 which may be due to theft. We filed a civil complaint against the
      former employee in June, 2007 and intend to pursue all legal measures to recover
      our losses. SG&A expenses for fiscal 2006 include a charge of $240,000
      representing embezzled funds at our Florida Security division. If we recover
      any
      of the embezzled funds, such amounts will be recorded as recoveries in future
      periods when they are received.




F-28




**23.**
            **Selected
                Quarterly Financial Information (In thousands, except per share
                information) (Unaudited)**





**Year
                Ended December 31, 2006****1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            13,367
            
            $
            12,799
            
            $
            11,727
            
            $
            11,322
            
            $
            49,215Gross
                profit
            
            $
            3,557
            
            $
            3,026
            
            $
            2,569
            
            $
            2,150
            
            $
            11,302Loss
                from continuing operations
            
            $
            (933
            )
            $
            (1,914
            )
            $
            (2,052
            )
            $
            (2,463
            )
            $
            (7,362
            )(Loss)
                income from discontinued operations
            
            $
            (33
            )
            $
            35
            
            $
            (217
            )
            $
            795
            
            $
            580Net
                loss
            
            $
            (966
            )
            $
            (1,879
            )
            $
            (2,269
            )
            $
            (1,668
            )
            $
            (6,782
            )Diluted
                (loss) income per share:Continuing
                operations
            
            $
            (0.06
            )
            $
            (0.12
            )
            $
            (0.14
            )
            $
            (0.15
            )
            $
            (0.48
            )Discontinued
                operations
            
            $
            0.00
            
            $
            0.00
            
            $
            (0.01
            )
            $
            0.05
            
            $
            0.04Net
                loss
            
            $
            (0.06
            )
            $
            (0.12
            )
            $
            (0.15
            )
            $
            (0.10
            )
            $
            (0.44
            )





**Year
                Ended December 31, 2005****1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            13,242
            
            $
            14,568
            
            $
            12,353
            
            $
            12,600
            
            $
            52,763Gross
                profit
            
            $
            3,695
            
            $
            4,154
            
            $
            3,144
            
            $
            3,415
            
            $
            14,408Income
                (loss) from continuing operations
            
            $
            22
            
            $
            229
            
            $
            (477
            )
            $
            (4,271
            )
            $
            (4,497
            )(Loss)
                income from discontinued operations
            
            $
            (11
            )
            $
            210
            
            $
            (651
            )
            $
            (71
            )
            $
            (523
            )Net
                income (loss)
            
            $
            11
            
            $
            439
            
            $
            (1,128
            )
            $
            (4,342
            )
            $
            (5,020
            )Diluted
                income (loss) per share:Continuing
                operations
            
            $
            0.00
            
            $
            0.02
            
            $
            (0.03
            )
            $
            (0.28
            )
            $
            (0.30
            )Discontinued
                operations
            
            $
            0.00
            
            $
            0.01
            
            $
            (0.04
            )
            $
            0.00
            
            $
            (0.03
            )Net
                income (loss)
            
            $
            0.00
            
            $
            0.03
            
            $
            (0.07
            )
            $
            (0.28
            )
            $
            (0.33
            )





**Year
                Ended December 31, 2004****1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            8,847
            
            $
            8,630
            
            $
            13,125
            
            $
            12,416
            
            $
            43,018Gross
                profit
            
            $
            2,628
            
            $
            2,322
            
            $
            3,228
            
            $
            3,364
            
            $
            11,542Income
                (loss) from continuing operations
            
            $
            58
            
            $
            (146
            )
            $
            (260
            )
            $
            (4,885
            )
            $
            (5,233
            )(Loss)
                income from discontinued operations
            
            $
            159
            
            $
            132
            
            $
            31
            
            $
            (1,499
            )
            $
            (1,177
            )Net
                income (loss)
            
            $
            217
            
            $
            (14
            )
            $
            (229
            )
            $
            (6,384
            )
            $
            (6,410
            )Diluted
                income (loss) per share:Continuing
                operations
            
            $
            0.01
            
            $
            (0.01
            )
            $
            (0.02
            )
            $
            (0.34
            )
            $
            (0.38
            )Discontinued
                operations
            
            $
            0.01
            
            $
            0.01
            
            $
            0.00
            
            $
            (0.10
            )
            $
            (0.09
            )Net
                income (loss)
            
            $
            0.02
            
            $
            0.00
            
            $
            (0.02
            )
            $
            (0.44
            )
            $
            (0.47
            )





All
      quarters have been restated to reflect our Arizona car wash region, our Truck
      washes, and certain of our East region sites as discontinued operations,
      consistent with our presentation at December 31, 2006.





In
      the
      fourth quarter of 2006, the Company recorded adjustments, (i) to reverse
      previously recorded depreciation expense on assets held for sale of
      approximately $357,000, (ii) to reverse an accrual for accounting fees of
      approximately $120,000, and (iii) adjustments to certain balance sheet accounts
      as a result of our investigation into the irregularities in the accounting
      information in Florida Security Products division (approximately $500,000 in
      additional expenses, including approximately $130,000 of embezzled funds.)
      These
      adjustments which total a net expense of approximately $23,000, related to
      activity in the first three quarters of 2006 and were recorded in the fourth
      quarter of 2006.




In
      the
      fourth quarter of 2004, the Company recorded an adjustment to reflect the
      appropriate balances for certain assets classified as buildings and leasehold
      improvements that had been depreciated using incorrect useful lives.
      Specifically, the Company recognized $338,000 in additional depreciation and
      amortization expense in its consolidated statement of operation for the quarter
      ended December 31, 2004 to correct the aforementioned error in
      accounting.




F-29




**EXHIBIT
      INDEX**


**Exhibit
                  No.**
              
              **Description**10.186
              
              Extension
                  Agreement dated April 6, 2007 to Asset Purchase Agreement dated
                  December
                  7, 2006, between Mace Security International, Inc., Mace Car Wash,
                  Inc.,
                  Mace Car Wash-Arizona Inc., and Twisted Cactus Enterprises,
                  LLC.11
              
              Statement
                  Re: Computation of Per Share Earnings21
              
              Subsidiaries
                  of the Company23.1
              
              Consent
                  of Grant Thornton LLP24
              
              Power
                  of Attorney (included on signature page)31.1
              
              Certification
                  of Principal Executive Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.31.2
              
              Certification
                  of Principal Financial Officer pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certification
                  of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of
                the
                  Sarbanes-Oxley Act of 2002.32.2
              
              Certification
                  of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,
                  as
                  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                  2002.