**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,
                2007**
            Commission
                File No. **0-22810**




**MACE
      SECURITY INTERNATIONAL, INC.**


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




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




**401
      East Las Olas Boulevard, Suite 1570, Fort Lauderdale, Florida 33301**


(Address
      of Principal Executive Offices)   (Zip
      Code)





Registrant's
      Telephone Number, Including Area Code: (954) 449-1300





**1000
      Crawford Place, Suite 400, Mount Laurel, New Jersey 08054**


(Former
      Address)





**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**




**Name
      of each exchange on which registered: The NASDAQ Global
      Market**





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 oNo 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 oNo
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. o





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




Large
      accelerated filer o Accelerated
      filer o Non-accelerated
      filer o Smaller
      reporting company x





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 registrant
      on June 30, 2007 was approximately $35,670,000. 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, 2007. For purposes of determining this
      amount only, the registrant has defined affiliates as including (a) the
      executive officers and directors of the Registrant on June 30, 2007 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,
      2007.





The
      number of shares of Common Stock, par value $.01 per share, of registrant
      outstanding as of March 25, 2008 was 16,465,253.














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


**Form
      10-K**


**Year
      Ended December 31, 2007**





**Contents**





**Page****PART
                I**Item
                1.
            
            Business
            
            3Item
                1A.
            
            Risk
                Factors
            
            10Item
                1B.
            
            Unresolved
                Staff Comments
            
            19Item
                2.
            
            Properties
            
            19Item
                3.
            
            Legal
                Proceedings
            
            20Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            22**PART
                II**Item
                5.
            
            Market
                for Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            22Item
                6.
            
            Selected
                Financial Data
            
            25Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            26Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            40Item
                8.
            
            Financial
                Statements and Supplementary data
            
            40Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            40Item
                9A(T).
            
            Controls
                and Procedures
            
            40Item
                9B.
            
            Other
                Information
            
            41**PART
                III**Item
                10.
            
            Directors,
                Executive Officers and Corporate Governance
            
            41Item
                11.
            
            Executive
                Compensation
            
            43Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters
            
            57Item
                13.
            
            Certain
                Relationships and Related Transactions, and Director
                Independence
            
            59Item
                14.
            
            Principal
                Accountant Fees and Services
            
            59**PART
                IV**Item
                15.
            
            Exhibits,
                Financial Statement Schedules
            
            60




2




**PART
      I**




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





**GENERAL**





Mace
      Security International, Inc. (the “Company” or “Mace”) was incorporated in
      Delaware on September 1, 1993. Our operations are currently conducted through
      three segments: Security, Digital Media Marketing, 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,
      distributors, 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
      Digital Media Marketing Segment focuses on marketing and customer acquisition
      on
      the internet. We market and acquire customers for third party advertisers
      through an on-line marketing platform. We also develop our own products that
      are
      offered to consumers for purchase. The products developed by us are offered
      to
      consumers on a proprietary e-commerce internet platform.





Our
      Car
      and Truck Wash Segment owns a total of 15 car washes. We currently operate
      14
      car washes and lease one car wash which is contracted to be sold to the tenant
      of the car wash.




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 (the
      “SEC”), can be accessed through the Company’s website at
      www.mace.com.





**LINES
      OF BUSINESS**





**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, 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 47.3%, 54.8% and 54.4% of our revenues in fiscal
      years
      2007, 2006, and 2005, respectively.





**Digital
      Media Marketing Segment** .
      The
      Digital Media Marketing Segment is an online marketing and e-commerce business
      which has two business divisions: (1) online marketing and (2) e-commerce.
      The
      segment uses proprietary technologies and software to provide marketing services
      to third party advertisers and to sell products on the internet.





The
      online marketing division, PromoPath, is an online affiliate marketing company
      that locates customers or leads for the clients who hire PromoPath. The
      advertising clients who hire PromoPath pay us based on a set fee per customer,
      prospect or lead acquired. The online media marketing industry refers to the
      arrangement of acquiring customers, prospects or leads for advertisers on a
      fee
      basis per customer as the cost-per-acquisition (“CPA”) model. PromoPath helps
      companies create effective performance driven marketing campaigns and provides
      design, brand and technical support services in order to acquire customers
      for
      its advertising clients. PromoPath works with many large publishers to reach
      many areas of interactive media. PromoPath’s advertising clients are typically
      established direct-response advertisers with well recognized brands and broad
      consumer appeal such as NetFlix, Discover credit cards and Bertelsmann Group.
      PromoPath generates CPA revenue, both brokered and through co-partnered sites.




3





In
      addition to CPA revenue PromoPath, has two other types of revenue streams.
      List
      management revenue, a second type of revenue stream, is based on a relationship
      between a data owner and a list management company. The data owner, PromoPath,
      compiles, collects, owns and maintains a proprietary computerized database
      composed of consumer information. The PromoPath, the data owner, grants a list
      manager a non-exclusive, non-transferable, revocable worldwide license to
      manage, make use and have access to the data pursuant to defined terms and
      conditions for which PromoPath is paid revenue. A third type of revenue stream
      is lead generation or Cost per Lead (“CPL”). Advertisers who purchase potential
      customers, on a CPL basis are interested in collecting data from consumers
      expressing interest in a product or service. CPL varies from CPA in that no
      credit card information for the potential customer needs to be provided to
      the
      advertiser for the fee to be paid for the lead.





Linkstar,
      which is our e-commerce division, is a direct-response product business that
      develops markets and sells products directly to consumers through the internet.
      We reach the customers predominately through online advertising on both the
      PromoPath platform and third-party websites. The products include: Vioderm,
      an
      anti-wrinkle skin care product (www.vioderm.com); Purity by Mineral Science,
      a
      mineral cosmetic (www.mineralscience.com); TrimDayTM, a weight-loss supplement
      (www.trimday.com); and Eternal Minerals, a dead sea spa product line
      ( www.eternalminerals.com ); as well
      as Mace’s pepper sprays and surveillance products. We continuously develop and
      test product offerings to determine customer acquisition costs and revenue
      potential, as well as to identify the most efficient marketing
      programs.





Revenues
      within the Digital Media Marketing Segment from the acquisition date of the
      business, July 20, 2007, were approximately $7.6 million; consisting of $3.4
      million, or 44.7%, from the online marketing division and $4.2 million, or
      55.3%, from the e-commerce division. (See Note 20, *Segment
      Reporting,* to the
      consolidated financial statements accompanying this report.)





**Car
      and Truck Wash Segment** .
      The
      Company, through its subsidiaries, owned and operated 21 car washes as of
      December 31, 2007. As of March 20, 2008, the Company owns 15 car washes in
      Texas, having sold 6 car washes from January 1, 2008 through March 3, 2008.
      Of
      the 15 car washes, 14 are operated by the Company and one is leased by the
      Company to a third party. The leased location has been contracted to be sold
      to
      the third party tenant. The 15 locations consist of 14 full service car washes
      and one oil change location. 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. On December
      31, 2007, we sold five truck washes located in Arizona, Indiana, Ohio and Texas.





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 14 locations), oil and lubrication services (currently offered at
      7
      locations), gasoline dispensing services (currently offered at 11 locations),
      state inspection services (currently offered at 6 locations), convenience store
      sales (currently offered at one location), and merchandise sales (currently
      offered at 14 locations). The Car and Truck Wash Segment provided 36.5%, 45.2%
      and 45.6% of our revenues in fiscal years 2007, 2006 and 2005, 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.





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* .





**BUSINESS
      STRATEGIES**





**Security
      Segment** .





***Internal
      Growth.*** ** The
      Security Segment designs, manufacturers, markets and sells a wide range of
      security products. For the year ended December 31, 2007, revenues from the
      Security Segment were $22.3 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 $12.1 million in 2007. 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.




4





The
      Company sells its defense sprays in the law enforcement market under the brand
      name of TakeDown®. The Mace® name when representing aerosol defense sprays is
      used in the law enforcement market by Armor Holdings, Inc., pursuant to an
      agreement dated July 1998. The Mace Trademark Corporation, a subsidiary of
      Mace
      Security International, Inc., manages the correct use of the Mace® trademark by
      Mace Security International, Inc. and Armor Holdings, Inc. (See also Trademarks
      and Patents, page 8). We believe that the total consumer defense spray market
      is
      approximately $18 million to $20 million in annual revenues and that the law
      enforcement market is approximately $5 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.





**Digital
      Media Marketing Segment** .





***Sales.*** ** We
      plan
      to increase sales for both the online advertising and e-commerce divisions
      of
      our Digital Media Marketing segment. Our plan to increase sales will require
      us
      to incur additional expenses for marketing and the addition of sales personnel
      throughout the next several quarters. We operate in a variety of online
      channels, including email, search, lead generation and traditional banner
      marketing, and we plan to expand marketing for all of the channels throughout
      2008. We have been increasing sales and customer acquisition efforts and
      expenses in our e-commerce division, especially for our recently launched Purity
      cosmetics product line. The Purity cosmetics product line increased
      significantly during the fourth quarter of 2007 and is anticipated to continue
      to be a more significant percentage of our e-commerce revenue. We also
      anticipate additional growth from the launch of new products and continued
      expansion of current product lines.





***Operating
      Efficiency.***  In
      an
      effort to streamline and strengthen internal operations, we have consolidated
      all internal operations of our Digital Media Marketing segment in our Wexford,
      PA office, a suburb of Pittsburgh, PA. We maintain a sales presence throughout
      the country. We have also consolidated the Digital Media Marketing Segment’s
      e-commerce divisions shipping and fulfillment functions within our security
      warehouse and shipping facility in Farmers Branch, Texas. We believe that the
      consolidation will lead to significant savings in operating costs, overhead,
      and
      personnel.





***Acquisition.*** On
      July
      20, 2007, the Digital Media Marketing segment was added to our operations when
      all of the outstanding common stock of Linkstar was purchased from Linkstar’s
      shareholders. The acquisition of Linkstar enables us to expand the marketing
      of
      our security products through online channels and provides us with a presence
      in
      the online and digital media services industry. We paid approximately $10.5
      million to the Linkstar shareholders consisting of $7.0 million in cash at
      closing, $500,000 of promissory notes bearing a 5% interest rate due on January
      3, 2008 and 1,176,471 unregistered shares of the Company’s common stock. The
      Company’s stock was issued based on a closing price of $2.55 per share or a
      total value of $3.0 million.





**Car
      and Truck Wash Segment.**





***Sales.*** We
      intend to maintain our revenues of the car washes we own while we continue
      to
      sell the car washes. We intend to maintain the revenues 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.




5





***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 washes we own. In addition to our truck
      washes, from December 2005 to March 3, 2008, we have sold 34 car washes
      including all of our car washes in the Northeast, Arizona and Florida
      regions.





On
      January 4, 2008 we completed the sale of our car wash located in Bradenton,
      Florida for $1.3 million at a gain of approximately $548,000. Also on January
      4,
      2008, we sold four full service car wash facilities in the Sarasota, Florida
      area for approximately $10.3 million, resulting in a gain of approximately
      $6.3
      million. Additionally, on March 3, 2008, we sold our North Sarasota, Florida
      car
      wash for approximately $875,000, resulting in gains of approximately
      $177,000.





We
      currently own 15 car washes all located in Texas. Of the 15 car washes, 14
      are
      operated by the Company and one is leased by the Company to a third party.
      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 and Digital Media
      Marketing Segments. We seek to grow the Security and Digital Media Marketing
      Segments through acquisitions, new product development and new market
      penetration.





**MARKETING**




**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, 2007. 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.





**Digital
      Media Marketing.** All
      online marketing and e-commerce products and services are created and marketed
      with a broad audience base as the target audience. We are continuing to increase
      the marketing of our Linkstar e-commerce division, especially with our launch
      in
      the third quarter of 2007 of a new product line of mineral cosmetics, Purity.
      We
      intend to concentrate on expanding our existing product lines, building brand
      awareness, and launching one to two new product lines in 2008.





PromoPath’s
      advertising clients are typically established direct-response advertisers with
      well recognized brands and broad consumer appeal such as NetFlix, Discover
      credit cards and Bertelsmann Group. We do not believe that the loss of any
      single Digital Media Marketing Segment customer would have a material adverse
      effect on our business or results of operations.




**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 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, 2007. We do not believe that the loss of any single
      customer would have a material adverse effect on our business or results of
      operations.




6


**PRODUCTION
      AND SUPPLIES**




**Security
      Segment.** Our
      electronic surveillance products and system component requirements are
      established at our Ft. Lauderdale, Florida facility and 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.





**Digital
      Media Marketing Segment.** Our
      Linkstar e-commerce division is located in Wexford, Pennsylvania (a suburb
      of
      Pittsburgh). Shipping and fulfillment for the e-commerce division is performed
      in the Company’s Dallas, Texas warehouse location. The Products sold by the
      e-commerce division are manufactured within the US as well as China and other
      foreign countries. The packaging of products is also currently obtained through
      suppliers in the US and China.





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




**COMPETITION**





**Security
      Segment.** Our
      video systems and security products 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. Customers of IVS who achieve a
      high Sony® product purchasing level, qualify for purchasing directly from Sony®.
      IVS occasionally loses high volume customers to Sony. Additionally, our foreign
      manufacturers of electronic surveillance products 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.





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 and 2007.
      We attribute the increased sales to improved marketing as well as an increase
      in
      government spending on purchasing our TG Guard systems for embassy, prison
      and
      safe room installations.





**Digital
      Media Marketing Segment.** PromoPath,
      o ur
      online
      marketing division competes with interactive advertising agencies, traditional
      advertising agencies that perform internet advertising and marketing as part
      of
      their services to clients, and other companies that provide online marketing
      and
      customer acquisition services. We also compete with third-party affiliate
      marketing and online direct marketing companies. We believe that the competitive
      factors affecting the internet advertising market are data analysis
      capabilities, client service, strategy, ad serving technology, creative
      innovation, functionality and price. Linkstar, our e-commerce division competes
      with product development and marketing companies, both on and offline. Our
      success relies on creating innovative products attractive to consumers, and
      being able to gain and protect market share for successful product lines. We
      compete with numerous well-established national and regional companies such
      as
      ValueClick, Think Partnership, Syndero, Intelligent Beauty, Guthy-Renker, and
      Bare Escentuals.





**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.




7


**TRADEMARKS
      AND PATENTS**




**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 .
      We also
      license the pending patent for our new Pepper Gun product.





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.





**Digital
      Media Marketing.** We
      are
      applying for trademarks and service marks for the brands we sell on the
      internet.





**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 our Texas regions under locally recognizable names such as
      Colonial Car Wash, Dallas, Texas and Genie Car Wash, Austin, Texas.





**GOVERNMENT
      REGULATION/ENVIRONMENTAL COMPLIANCE**





**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 the sale and marketing of 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.





During
      January 2008, the Environmental Protection Agency (“EPA”) conducted a site
      investigation at the Company’s Bennington, Vermont location and the building the
      facility is located within. The Company does not own the building or land and
      leases 44,000 square feet of the building from Vermont Mill Properties, Inc
      (“Vermont Mill”). During February 2008, a search of the Company’s Bennington,
      Vermont location and the building it is located within was conducted under
      a
      search warrant issued by the U.S. District Court for the District of Vermont.
      Both the site investigation and search were focused on discovering whether
      hazardous substances were being improperly stored. Subsequent to the
      investigation and search, the EPA notified the Company and the building owner
      that remediation of certain hazardous wastes are required. The hazardous
      materials and waste identified by the EPA were (i) metal contaminated soils
      on
      the building grounds (waste from sand blasting paint from the building, the
      Company believes that the building owner and not Mace is responsible for any
      soil clean up); (ii) approximately 130 drums of hazardous waste (waste gases
      generated from testing the defense spray units sold by the Company and defective
      spray units); (iii) 55 thousand pounds of 2-chlorobenzalmalononitrile stored
      in
      eight pound plastic containers (a chemical used to make tear gas); and (iv)
      three steal drums containing a chemical used to make pyrotechnic grenades (this
      material is held for resale). The EPA is requiring the Company and the building
      owner to remove and properly dispose of the hazardous waste and properly store
      of all hazardous material. The EPA in findings of fact issued on February 20,
      2008 estimated the cost for the removal and proper storage at $300,000,
      including the cost for any soil clean up which is not the responsibility of
      the
      Company. We estimate the range of possible loss attributable to the Company
      to
      be from approximately $285,000 to $365,000 including the cost of disposal of
      the
      waste materials, as well as expenses incurred with environmental engineers
      and
      legal counsel. An accrual of approximately $285,000 has been recorded as of
      December 31, 2007 for this matter representing management’s best estimate of
      probable loss, as defined by SFAS No. 5, *Accounting
      for Contingencies* .
      The
      EPA, the Company and the building owner have entered into an Administrative
      Consent Order which will govern the removal of hazardous waste and storage
      of
      hazardous material. The Administrative Consent Order requires that the Company
      provide a $500,000 bond to secure its obligations under the Administrative
      Consent Order. The Company is unable at this time to determine whether further
      action will be taken by the United States Attorney or if any charges, fines
      or
      penalties will be sought from the Company.




8





**Digital
      Media Marketing.** We
      believe that we currently comply with all state and federal laws within our
      online marketing practices. However, the online marketing segment has come
      under
      increased scrutiny by the Federal Trade Commission (“FTC”) and several state
      Attorney Generals in regards to online lead generation practices. Since our
      online marketing and e-commerce sites could be impacted, we are closely
      monitoring any changes to state or federal laws and FTC guidelines. In addition,
      any changes to laws impacting the import or sale of any products within our
      e-commerce division could adversely impact revenues, although we believe this
      to
      be of minimal risk in the near future.





**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.





**RESEARCH
      AND DEVELOPMENT**





**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 2007, 2006 or
      2005.





**Digital
      Media Marketing.** We
      spend
      funds on internally developing software used in this business. We also have
      employees whose duties are to perform market research and testing of new product
      ideas and improve existing products within the e-commerce division.





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





**INSURANCE**





We
      maintain various insurance policies for our assets and operations. These
      policies provide property insurance 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 companies. 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
      than the fifth anniversary of the policy year-end. The captive insurance program
      is further secured by a letter of credit in the amount of $1,065,000 at December
      31, 2007. 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.




9





**U.S.
      BASED BUSINESS**





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. Our Digital Media Market Segment
      products are manufactured within the US as well as China and other foreign
      countries. All of our car and truck wash business is conducted in the United
      States. Approximately 3.8%, (or $841,000), 4.1%, (or $956,000) and 6.0% (or
      $1.5
      million) of the 2007, 2006 and 2005 revenues, respectively, from our Security
      Segment were derived from customers outside of the United States. Additionally,
      revenues of approximately 0.2%, or $18,000, of our newly acquired Digital Media
      Marketing Segment in 2007 were derived from customers outside of the United
      States.





**EMPLOYEES**





As
      of
      March 25, 2008, we had approximately 593 employees, of which approximately
      454
      were employed in the Car and Truck Wash Segment, 87 employed in the Security
      Segment, 35 employed in the Digital Media Marketing Segment, 14 in corporate
      clerical and administrative positions in our corporate and finance departments,
      and three in executive management. None of our employees are covered by a
      collective bargaining agreement.





**AVAILABLE
      INFORMATION**





For
      more
      information about Mace Security International, Inc., please visit our web site
      at www.mace.com .
      Our
      electronic filings with the SEC (including all annual reports on Form 10-K,
      quarterly reports on Form 10-Q and current reports on Form 8-K, and any
      amendments to these reports), including the exhibits, are available free of
      charge through our web site as soon as reasonably practicable after we
      electronically file them with or furnish them to the SEC.





**ITEM
      1A. RISK FACTORS**





**Risks
      Related to Our Business**





***If
      we are unable to finance the growth of our business, our stock price could
      decline.*** ** Our
      business plan involves growing our Security Segment and Digital Media Marketing
      Segments through acquisitions and internal development, and divesting of our
      car
      washes through third party sales. The growth of our Security Segment and Digital
      Media 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 capital for equipment purchases.
      Although we had positive working capital of $17.8 million as of December 31,
      2007, 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
      decreased by approximately $8.8 million from December 31, 2006 to December
      31,
      2007 principally due to the purchase of Linkstar in the quarter ended September
      30, 2007. To the extent that we lack cash to meet our future capital needs,
      we
      will need to raise additional funds through bank borrowings and 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 have generated cash from the sale of our car washes, there is no
      guarantee that we will be able to sell our remaining car washes.





***If
      we fail to manage the growth of our business, our stock price could
      decline.*** ** 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.




10





***We
      have debt secured by mortgages, which can be foreclosed upon if we default
      on
      the debt.*** Our
      bank
      debt borrowings as of December 31, 2007 were $13.6 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 (including up to 15 of our car wash facilities and one truck wash
      at
      December 31, 2007). Our most significant borrowings are secured notes payable
      to
      JP Morgan Chase Bank, N.A. (“Chase”) in the amount of $10.5 million. We have in
      the past violated loan covenants in our Chase agreements. We have obtained
      waivers for our violations of the Chase agreements. 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 15 of our car wash
      facilities at December 31, 2007) are foreclosed upon, revenues from our Car
      and
      Truck Wash Segment, which comprised 36.5% of our total revenues for the fiscal
      year 2007, would be severely impacted and we may go out of business.





***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 $10.5 million, $4.9 million of which was
      classified as non-current debt at December 31, 2007. 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, and certain
      financial reporting requirements. Our Chase agreements are the only debt
      agreements that contain an express prohibition on incurring additional debt
      without the approval of the lender. None of our other agreements contain such
      a
      prohibition. The Chase term loan agreements also limit 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. 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, 2007, 2006, 2005 and 2004
      and we reported negative cash flow from operating activities from continuing
      operations in 2007, 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), 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.





***We
      compete with many companies, some of whom are more established and better
      capitalized than us.*** We
      compete with a variety of companies on a worldwide basis.  Some of these
      companies are larger and better capitalized than us.  There are also few
      barriers to entry in our markets and thus above average profit margins will
      likely attract additional competitors.  Our competitors may develop
      products and services that are superior to, or have greater market acceptance
      than our products and services. For example, many of our current and potential
      competitors have longer operating histories, significantly greater financial,
      technical, marketing and other resources and larger customer bases than
      us.  These factors may allow our competitors to respond more quickly than
      we can to new or emerging technologies and changes in customer
      requirements.  Our competitors may engage in more extensive research and
      development efforts, undertake more far-reaching marketing campaigns and adopt
      more aggressive pricing policies which may allow them to offer superior products
      and services.




***Failure
      or circumvention of our controls or procedures could seriously harm our
      business.*** An
      internal control system, no matter how well designed and operated, can provide
      only reasonable, not absolute, assurance that the control system’s objectives
      will be met. Further, the design of a control system must reflect the fact
      that
      there are resource constraints, and the benefits of controls must be considered
      relative to their costs. Because of the inherent limitations in all control
      systems, no system of controls can provide absolute assurance that all control
      issues, mistakes and instances of fraud, if any, within the Company have been
      or
      will be detected. The design of any system of controls is based in part upon
      certain assumptions about the likelihood of future events, and we cannot assure
      you that any design will succeed in achieving its stated goals under all
      potential future conditions. Any failure of our controls and procedures to
      detect error or fraud could seriously harm our business and results of
      operations.





***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.




11





***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 fifth
      anniversary of the policy year-end. The captive insurance program is further
      secured by a letter of credit from Mace in the amount of $1,065,000 at December
      31, 2007. 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.





**Risks
      Related to our Security Segment**





***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 provide the specifications for most of our security
      products and contract with independent suppliers to engineer and 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. Some 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.





***If
      our Mace brand name falls into common usage, we could lose the exclusive right
      to the brand name.*** The
      Mace
      registered name and trademark is important to our security business and defense
      spray 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.





***The
      businesses that manufacturer our electronic surveillance products are located
      in
      foreign countries, making it difficult to recover damages, if the manufacturers
      fail to meet their obligations.*** Our
      electronic surveillance products are manufactured on an OEM basis. Most of
      the
      OEM suppliers we deal with are located in Asian countries and are paid a
      significant portion of an order in advance of the shipment of the product.
      We
      also have limited information on the OEM suppliers from which we purchase,
      including their financial strength, location and ownership of the actual
      manufacturing facilities producing the goods. If any of the OEM suppliers
      defaulted on their agreement with the Company, it would be difficult for the
      Company to obtain legal recourse because of the suppliers’ assets being located
      in foreign countries.





***If
      our original equipment manufacturers (“OEMs”) fail to adequately supply our
      products, our security products sales may suffer.*** Reliance
      upon OEMs, as well as industry supply conditions generally involves several
      additional 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.




12





***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.





***If
      governmental regulations regarding defense sprays 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
      defense sprays use hazardous materials which if not properly handled would
      result in our being liable for damages under environmental laws.*** 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. 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. The Environmental Protection Agency conducted
      a site investigation at our Bennington, Vermont facility in January, 2008 and
      found the facility in need of remediation. See *Item
      3.*  *Legal
      Proceedings* .





**Risks
      Related to our Digital Media Marketing Segment**





***Our
      online marketing business lacks long-term contracts with
      clients.*** Our clients who retain us to perform online marketing of their products hire
      us
      under contracts of less than twelve months.  As a result, our online
      marketing revenues are difficult to predict and may vary significantly. 
Because we sometimes incur costs based on expectations of future revenues,
      our
      failure to predict future revenues accurately could have a material adverse
      effect on our business, results of operations, and financial
      condition.




***Our
      e-commerce brands are not well known.*** Our e-commerce brands of Vioderm (anti-wrinkle products), TrimDay (diet
      supplement) and Purity by Mineral Science (mineral based facial makeup) are
      relatively new. We have not yet been able to develop widespread awareness of
      our
      e-commerce brands.  Lack of brand awareness could harm the success of our
      marketing campaigns, which could have a material adverse effect on our business,
      results of operations, financial condition and the trading price of our common
      stock.




***We
      have a concentration of our e-commerce business in limited products.*** E-Commerce
      revenues are currently generated from three product lines. The concentration
      of
      our business in limited products creates the risk of adverse financial impact
      if
      we are unable to continue to sell these products or unable to develop new
      additional products. We believe that we can mitigate the financial impact of
      any
      decrease in sales by the development of new products, however we cannot predict
      the timing of or success of new products.





***We
      compete with many established e-commerce companies that have been in business
      longer than us.*** Current
      and potential e-commerce and online marketing competitors are making, and are
      expected to continue to make, strategic acquisitions or establish cooperative,
      and, in some cases, exclusive relationships with significant companies or
      competitors to expand their businesses or to offer more comprehensive products
      and services.  To the extent these competitors or potential competitors
      establish exclusive relationships with major portals, search engines and ISPs,
      our ability to reach potential members through online advertising may be
      restricted.  Any of these competitors could cause us difficulty in
      attracting and retaining online registrants and converting registrants into
      customers and could jeopardize our existing affiliate program and relationships
      with portals, search engines, ISPs and other internet properties.  Failure
      to compete effectively including by developing and enhancing our services
      offerings would have a material adverse effect on our business, results of
      operations, financial condition and the trading price of our common
      stock.




***We
      need to attract and retain a large number of e-commerce customers who purchase
      our products on a reoccurring basis*** . 
      Our e-commerce model is driven by the need to attract a large number of
      customers to our continuity program and to maintain customers for an extended
      period of time. We have fixed costs in obtaining an initial customer which
      can
      be defrayed only by a customer making further purchases. For our business to
      be
      profitable, we must convert a certain percentage of our initial customers to
      customers that purchase our products on a reoccurring monthly basis for a period
      of time. To do so, we must continue to invest significant resources in order
      to
      enhance our existing products and to introduce new high-quality products and
      services.  There is no assurance we will have the resources, financial or
      otherwise, required to enhance or develop products and services.  Further,
      if we are unable to predict user preferences or industry changes, or if we
      are
      unable to improve our products and services on a timely basis, we may lose
      existing members and may fail to attract new customers.  Failure to enhance
      or develop products and services or to respond to the needs of our customers
      in
      an effective or timely manner could have a material adverse effect on our
      business, results of operations, financial condition and the trading price
      of
      our common stock.




13





***Our
      member acquisition costs may increase significantly.*** The customer acquisition cost of our business depends in part upon our ability
      to purchase advertising at a reasonable cost.  Advertising costs vary over
      time, depending upon a number of factors, some of which are beyond our
      control.  Historically, we have used online advertising as the sole means
      of marketing our products.  In general, the costs of online advertising
      have increased substantially and are expected to continue to increase as long
      as
      the demand for online advertising remains robust.  We may not be able to
      pass these costs on in the form of higher product prices.  Continuing
      increases in advertising costs could thus have a material adverse effect on
      our
      business, results of operations, financial condition and the trading price
      of
      our common stock.




***Our
      online marketing business must keep pace with rapid technological change to
      remain competitive*** . 
      Our online marketing business operates in a market characterized by rapidly
      changing technology, evolving industry standards, frequent new product and
      service announcements, enhancements, and changing customer demands.  We
      must adapt to rapidly changing technologies and industry standards and
      continually improve the speed, performance, features, ease of use and
      reliability of our services and products.  Introducing new technology into
      our systems involves numerous technical challenges, requires substantial amounts
      of capital and personnel resources, and often takes many months to
      complete.  We may not successfully integrate new technology into our
      websites on a timely basis, which may degrade the responsiveness and speed
      of
      our websites.  Technology, once integrated, may not function as
      expected.  Failure to generally keep pace with the rapid technological
      change could have a material adverse effect on our business, results of
      operations, financial condition and the trading price of our common
      stock.




***We
      depend on our merchant and banking relationships, as well as strategic
      relationships with third parties, who provide us with payment processing
      solutions.*** Our e-commerce products are sold by us on the internet and are paid for by
      customers through credit card. From time to time, VISA and MasterCard increase
      the fees that they charge processors. We may attempt to pass these increases
      along to our customers, but this might result in the loss of those customers
      to
      our competitors who do not pass along the increases. Our revenues from merchant
      account processing are dependent upon our continued merchant relationships
      which
      are highly sensitive and can be canceled if customer charge-backs escalate
      and
      generate concern that the company has held back sufficient funds in reserve
      accounts to cover these charge-backs. Cancellation by our merchant providers
      would most likely result in the loss of new customers and lead to a reduction
      in
      our revenues.





***We
      depend on credit card processing for a majority of our e-commerce business,
      to
      include but not be limited to Visa, MasterCard, American Express, and
      Discover.*** Significant changes to the merchant operating regulations, merchant rules and
      guidelines, card acceptance methods and or card authorization methods could
      significantly impact our revenues. Additionally our e-commerce membership
      programs are accepted under a negative option billing term (customers are
      charged monthly until they cancel), and change in regulation of negative option
      billing could significantly impact our revenue.





***We
      are exposed to risks associated with credit card fraud and credit
      payment.*** Our customers use credit cards to pay for our e-commerce products and for the
      products we market for third parties.  We have suffered losses, and may
      continue to suffer losses, as a result of orders placed with fraudulent credit
      card data, even though the associated financial institution approved
      payment.  Under current credit card practices, a merchant is liable for
      fraudulent credit card transactions when the merchant does not obtain a
      cardholder’s signature.  A failure to adequately control fraudulent credit
      card transactions would result in significantly higher credit card-related
      costs
      and could have a material adverse effect on our business, results of operations,
      financial condition and the trading price of our common stock.




***Security
      breaches and inappropriate internet use could damage our Digital Media Marketing
      business.*** Failure
      to successfully prevent security breaches could significantly harm our business
      and expose us to lawsuits.  Anyone who is able to circumvent our security
      measures could misappropriate proprietary information, including customer credit
      card and personal data, cause interruptions in our operations, or damage our
      brand and reputation.  Breach of our security measures could result in the
      disclosure of personally identifiable information and could expose us to legal
      liability.  We cannot assure you that our financial systems and other
      technology resources are completely secure from security breaches or sabotage.
      We have experienced security breaches and attempts at “hacking.”  We may be
      required to incur significant costs to protect against security breaches or
      to
      alleviate problems caused by breaches.   All of these factors could
      have a material adverse effect on our business, results of operations, financial
      condition and the trading price of our common stock.




14




***Our
      online marketing business depends on strategic relationships with our partners.*** We
      expect
      to generate significant commerce and advertising revenues from strategic
      relationships with certain outside companies. It is our business plan that
      our
      websites and the websites of strategic partners will be jointly promoted.
      However, there can be no assurance that our existing relationships will be
      maintained through their initial terms or that additional third-party alliances
      will be available to the Company on acceptable commercial terms, or at all.
      The
      inability to enter into new strategic alliances or to maintain any one or more
      of our existing strategic alliances could result in decreased third-party paid
      advertising and product and service sales revenue. Even if we are able to
      maintain our strategic alliances, there can be no assurance that these alliances
      will be successful or that our infrastructure of hardware and software will
      be
      sufficient to handle any potential increased traffic or sales volume resulting
      from these alliances.





***Changes
      in government regulation and industry standards, could decrease demand for
      our
      products and services and increase our costs of doing
      business.*** **** Laws
      and
      regulations that apply to internet communications, commerce and advertising
      are
      becoming more prevalent. These regulations could affect the costs of
      communicating on the web and could adversely affect the demand for our
      advertising solutions or otherwise harm our business, results of operations
      and
      financial condition. The United States Congress has enacted internet legislation
      regarding children’s privacy, copyrights, sending of commercial email (e.g., the
      Federal CAN-SPAM Act of 2003), and taxation. The United States Congress has
      pending legislation regarding spyware (e.g., H.R. 964, “the Spy Act of 2007”).
      Other laws and regulations have been adopted and may be adopted in the
      future, and may address issues such as user privacy, spyware, “do not
      email” lists, pricing, intellectual property ownership and infringement,
      copyright, trademark, trade secret, export of encryption technology,
      click-fraud, acceptable content, search terms, lead generation, behavioral
      targeting, taxation, and quality of products and services. This legislation
      could hinder growth in the use of the web generally and adversely affect our
      business. Moreover, it could decrease the acceptance of the web as a
      communications, commercial and advertising medium. The Company does not use
      any
      form of spam or spyware and has policies to prohibit abusive internet
      behavior, including prohibiting the use of spam and spyware by our web publisher
      partners.




***Government
      enforcement actions could result in a decrease demand for our products and
      services.*** **** The
      Federal Trade Commission and other governmental or regulatory bodies have
      increasingly focused on issues impacting online marketing practices and consumer
      protection. The Federal Trade Commission has conducted investigations of
      competitors and filed law suits against competitors. Some of the investigations
      and law suits have been settled by consent orders which have imposed fines
      and
      changes with regard to how competitors conduct business. The New York Attorney
      General’s office has sued a major Internet marketer for alleged violations of
      legal restrictions against false advertising and deceptive business practices
      related to spyware. In our judgment, the marketing claims we make in
      advertisements we place to obtain new e-commerce customers are legally
      permissible. Governmental or regulatory bodies may make a different judgment
      about the legally permissibility of the advertising we place and the marketing
      claims we make. We could be subject to regulatory proceedings for past marketing
      campaigns, or could be required to make changes in our future marketing claims,
      either of which could adversely affect our revenues.





***Our
      business could be subject to regulation by foreign countries, new unforeseen
      laws and unexpected interpretations of existing laws, resulting in an increase
      cost of doing business.*** Due
      to
      the global nature of the web, it is possible that, although our transmissions
      originate in California and Pennsylvania, the governments of other states or
      foreign countries might attempt to regulate our transmissions or levy sales
      or
      other taxes relating to our activities. In addition, the growth and development
      of the market for internet commerce may prompt calls for more stringent
      consumer protection laws, both in the United States and abroad, that
      may impose additional burdens on companies conducting business over the
      Internet. The laws governing the internet remain largely unsettled, even in
      areas where there has been some legislative action. It may take years to
      determine how existing laws, including those governing intellectual property,
      privacy, libel and taxation, apply to the Internet and Internet advertising.
      Our
      business, results of operations and financial condition could be materially
      and
      adversely affected by the adoption or modification of industry standards, laws
      or regulations relating to the Internet, or the application of existing laws
      to
      the Internet or Internet-based advertising.




***If
      the technology that we currently use to deliver online advertisements is
      restricted, our expenses would increase.*** Websites
      typically place small files of non-personalized (or “anonymous”) information,
      commonly known as cookies, on an Internet user’s hard drive. Cookies generally
      collect information about users on a non-personalized basis to enable websites
      to provide users with a more customized experience. Cookie information is passed
      to the website through an Internet user’s browser software. We currently use
      cookies to track an Internet user’s movement through our advertiser customer’s
      websites and to monitor and prevent fraudulent activity on our networks. Most
      currently available Internet browsers allow Internet users to modify their
      browser settings to prevent cookies from being stored on their hard drive,
      and
      some users currently do so. Internet users can also delete cookies from their
      hard drives at any time. Some Internet commentators and privacy advocates have
      suggested limiting or eliminating the use of cookies, and legislation has been
      introduced in some jurisdictions to regulate the use of cookie technology.
      The
      effectiveness of our technology could be limited by any reduction or limitation
      in the use of cookies. If the use or effectiveness of cookies were limited,
      we
      would have to switch to other technologies to gather demographic and behavioral
      information. While such technologies currently exist, they are substantially
      less effective than cookies. We would also have to develop or acquire other
      technology to monitor and prevent fraudulent activity on our networks.
      Replacement of cookies could require significant reengineering time and
      resources, might not be completed in time to avoid losing customers or
      advertising inventory, and might not be commercially feasible. Our use of cookie
      technology or any other technologies designed to collect Internet usage
      information may subject us to litigation or investigations in the future.
      Any litigation or government action against us could be costly and time
      consuming, could require us to change our business practices and could divert
      management’s attention.




15




***We
      could lose customers or advertising inventory if we fail to measure impressions,
      clicks and actions on advertisements in a manner that is acceptable to our
      advertisers and web publishers.*** We
      earn
      revenue from advertisers and make payments to web publishers based on the number
      of impressions, clicks and actions from advertisements delivered on our networks
      of websites. Advertisers’ and web publishers’ willingness to use our products
      and services and join our networks will depend on the extent to which they
      perceive our measurements of impressions, clicks and actions to be accurate
      and
      reliable. Advertisers and web publishers often maintain their own technologies
      and methodologies for counting impressions, clicks and actions, and from time
      to
      time we have had to resolve differences between our measurements and theirs.
      Any
      significant dispute over the proper measurement of user responses to
      advertisements could cause us to lose customers or advertising
      inventory.




***Competition
      from other internet advertising companies could result in less revenue and
      smaller margins.*** Competition
      for advertising placements among current and future suppliers of Internet
      navigational and informational services, high-traffic websites and Internet
      service providers (“ISPs”), as well as competition with other media for
      advertising placements, could result in significant price competition, declining
      margins and reductions in advertising revenue. Google has made available offline
      public-domain works through its search engine, which creates additional
      competition for advertisers. In addition, as we continue our efforts to expand
      the scope of our web services, we may compete with a greater number of web
      publishers and other media companies across an increasing range of different
      web
      services, including in vertical markets where competitors may have
      advantages in expertise, brand recognition and other areas. If existing or
      future competitors develop or offer products or services that provide
      significant performance, price, creative or other advantages over those offered
      by us, our business, results of operations and financial condition would be
      negatively affected. We also compete with traditional advertising media, such
      as
      direct mail, television, radio, cable, and print, for a share of advertisers’
total advertising budgets. Many current and potential competitors enjoy
      competitive advantages over us, such as longer operating histories, greater
      name
      recognition, larger customer bases, greater access to advertising space on
      high-traffic websites, and significantly greater financial, technical, sales,
      and marketing resources. As a result, we may not be able to compete
      successfully. If we fail to compete successfully, we could lose customers or
      advertising inventory and our revenue and results of operations could
      decline.




***We
      depend on third parties to manufacture all of the products we sell within our
      e-commerce division, and if we are unable to maintain these manufacturing and
      product supply relationships or enter into additional or different arrangements,
      we may fail to meet customer demand and our net sales and profitability may
      suffer as a result. In addition, shortages of raw ingredients, especially
      for our Purity mineral cosmetics line, could affect our supply chain and impede
      current and future sales and net revenues.*** ****** All
      of
      our products are contract manufactured or supplied by third parties. The fact
      that we do not have long-term contracts with our other third-party manufacturers
      means that they could cease manufacturing these products for us at any time
      and
      for any reason. In addition, our third-party manufacturers are not restricted
      from manufacturing our competitors’ products, including mineral-based products.
      If we are unable to obtain adequate supplies of suitable products because of
      the
      loss of one or more key vendors or manufacturers, our business and results
      of
      operations would suffer until we could make alternative supply arrangements.
      In
      addition, identifying and selecting alternative vendors would be time-consuming
      and expensive, and we might experience significant delays in production during
      this selection process. Our inability to secure adequate and timely supplies
      of
      merchandise would harm inventory levels, net sales and gross profit, and
      ultimately our results of operations .




***The
      quality of our e-commerce products depend on quality control of third party
      manufacturers.*** For
      our
      e-commerce products, third-party manufacturers may not continue to produce
      products that are consistent with our standards or current or future regulatory
      requirements, which would require us to find alternative suppliers of our
      products. Our third-party manufacturers may not maintain adequate controls
      with
      respect to product specifications and quality and may not continue to produce
      products that are consistent with our standards or applicable regulatory
      requirements. If we are forced to rely on products of inferior quality, then
      our
      customer satisfaction and brand reputation would likely suffer, which would
      lead
      to reduced net sales.




***Within
      our e-commerce division, we manufacture and market health and beauty consumer
      products that are ingestible or applied topically. These products may cause
      unexpected and undesirable side effects that could limit their use, require
      their removal from the market or prevent further development. In addition,
      we
      are vulnerable to claims that our products are not as effective as we claim
      them
      to be. We also may be vulnerable to product liability claims from their
      use.*** ****** Unexpected
      and undesirable side effects caused by our products for which we have not
      provided sufficient label warnings could result in our recall or discontinuance
      of sales of our products. Unexpected and undesirable side effects could prevent
      us from achieving or maintaining market acceptance of the affected products
      or
      could substantially increase the costs and expenses of commercializing new
      products. In addition, consumers or industry analysts may assert claims that
      our
      products are not as effective as we claim them to be. Unexpected and undesirable
      side effects associated with our products or assertions that our products are
      not as effective as we claim them to be also could cause negative publicity
      regarding our company, brand or products, which could in turn harm our
      reputation and net sales. Our business exposes us to potential liability risks
      that arise from the testing, manufacture and sale of our beauty products.
      Plaintiffs in the past have received substantial damage awards from other
      cosmetics companies based upon claims for injuries allegedly caused by the
      use
      of their products. We currently maintain general liability insurance 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. Any claims brought
      against us may exceed our existing or future insurance policy coverage or
      limits. Any judgment against us that is in excess of our policy limits would
      have to be paid from our cash reserves, which would reduce our capital
      resources. Any product liability claim or series of claims brought against
      us
      could harm our business significantly, particularly if a claim were to result
      in
      adverse publicity or damage awards outside or in excess of our insurance policy
      limits.




16




**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, 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:





·
            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 a 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





***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:




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


·
            discharge
                of storm water; and


·
            underground
                storage tanks.




17




If
      uncontrolled hazardous substances are found on any of our properties, including
      leased property, or if we are 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, , and leaks from our underground gasoline
      storage tanks. If we improperly dispose of oil or other hazardous substances,
      or
      if our 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 of a leaking underground storage tank typically range from
      $30,000 to $75,000.





***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.





***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 and our Digital Marketing
      Media Segment. Our business 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.





***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 $1.44
      at
      the close of the market on March 25, 2008. 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.




18





***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.





***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
      1B. UNRESOLVED STAFF COMMENTS**





At
      March
      25, 2008, there were no unresolved comments from the SEC staff regarding our
      periodic or current reports.





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





Our
      corporate headquarter is located in Fort Lauderdale, Florida and our corporate
      accounting and finance office is located in Horsham, Pennsylvania. We rent
      approximately 3,800 square feet of space at a current annual cost of
      approximately $159,000 in Fort Lauderdale, Florida and approximately 5,000
      square feet of space at a current annual cost of approximately $114,000 in
      Horsham, Pennsylvania.





**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. 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. We also warehouse our Digital Media Marketing Segment
      e-commerce division product at our Farmers Branch Facility. The Farmers Branch
      facility is secured by a first mortgage loan in the amount of $724,000 at
      December 31, 2007.




19





**Digital
      Media Marketing Properties** .
      The
      operations of our Digital Media Marketing Segment were consolidated in November
      of 2007 into a 5,000 square foot leased space in Wexford, PA, a suburb of
      Pittsburgh, PA, at an annual cost of approximately $90,000. We leased additional
      2,000 square foot of space in March 2008 at an additional $40,000 annual costs.
      This additional space allows for expansion. We previously leased 3,872 square
      feet of space in San Francisco, California under an 18 month sublease agreement
      at an annual cost of approximately $81,000. We in turn entered into a sublease
      agreement for this space with a third party effective March 1, 2008. As noted
      above, we warehouse and ship our e-commerce division products from our Farmers
      Branch, Texas facility.





**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 21
      car wash facilities operated by us as of December 31, 2007 are situated on
      sites
      we own or lease. As of December 31, 2007, we owned 19 and leased 2 of our car
      wash facilities. As of March 3, 2008, we own 13 and lease two car wash
      facilities. We have sold six car wash facilities since December 31, 2007. 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, 2007**
            
            **Number
                of Facilities as of**
              **March
                3, 2008**Dallas,
                Texas Area
            
            Full
                Service
              Self
                Serve /Lube
            
            6
              1
            
            6
              1Austin,
                Texas
            
            Full
                Service
            
            3
            
            3Lubbock,
                Texas
            
            Full
                Service
            
            3
            
            3San
                Antonio, Texas (3)
            
            Full
                Service
            
            2
            
            2Sarasota,
                FL Area (4)
            
            Full
                Service
            
            6
            
            0





(1)
            The
                majority of our locations are owned, except for 2 locations in Dallas,
                Texas which are leased.


(2)
            Several
                locations also offer other consumer products and related car care
                services, such as professional detailing services (currently offered
                at 14
                locations), oil and lubrication services (currently offered at 7
                locations), gasoline dispensing services (currently offered at 11
                locations), state inspection services (currently offered at 6 locations),
                convenience store sales (currently offered at 1 location) and merchandise
                store sales (currently offered at 14
                locations).


(3)
            We
                entered into agreements on March 15, 2008 with a third party to lease
                and
                ultimately purchase one of our full service car washes in San Antonio,
                Texas. Pursuant to the agreements, the lessee must pay us $3,325
                per month
                to lease the car wash, and is responsible for all underlying property
                and
                operating expenses. By May 1, 2009, the lessee is obligated under
                a sale
                agreement to purchase the car wash site for $500,000 cash. If the
                purchase
                obligation is not satisfied, we will regain possession of the car
                wash and
                the lessee will forfeit to us a $35,000 deposit made at the commencement
                of the agreements.


(4)
            As
                of March 3, 2008, all of our Florida car wash sites have been
                sold.





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
      adequately.





Many
      of
      our car washes are encumbered by first mortgage loans. Of the 21 car washes
      owned or leased by us at December 31, 2007, 15 properties and related equipment
      with a net book value totaling $24.1 million secured first mortgage loans
      totaling $12.3 million and six properties were not encumbered.





**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 of
      the Company’s then 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
      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.




20




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.





During
      January 2008, the Environmental Protection Agency (“EPA”) conducted a site
      investigation at the Company’s Bennington, Vermont location and the building the
      facility is located within. The Company does not own the building or land and
      leases 44,000 square feet of the building from Vermont Mill Properties, Inc
      (“Vermont Mill”). During February 2008, a search of the Company’s Bennington,
      Vermont location and the building it is located within was conducted under
      a
      search warrant issued by the U.S. District Court for the District of Vermont.
      Both the site investigation and search were focused on discovering whether
      hazardous substances were being improperly stored. Subsequent to the
      investigation and search, the EPA notified the Company and the building owner
      that remediation of certain hazardous wastes are required. The hazardous
      materials and waste identified by the EPA were (i) metal contaminated soils
      on
      the building grounds (waste from sand blasting paint from the building, the
      Company believes that the building owner and not Mace is responsible for any
      soil clean up); (ii) approximately 130 drums of hazardous waste (waste gases
      generated from testing the defense spray units sold by the Company and defective
      spray units); (iii) 55 thousand pounds of 2-chlorobenzalmalononitrile stored
      in
      eight pound plastic containers (a chemical used to make tear gas); and (iv)
      three steal drums containing a chemical used to make pyrotechnic grenades (this
      material is held for resale). The EPA is requiring the Company and the building
      owner to remove and properly dispose of the hazardous waste and properly store
      of all hazardous material. The EPA in findings of fact issued on February 20,
      2008 estimated the cost for the removal and proper storage at $300,000,
      including the cost for any soil clean up which is not the responsibility of
      the
      Company. We estimate the range of possible loss attributable to the Company
      to
      be from approximately $285,000 to $365,000 including the cost of disposal of
      the
      waste materials, as well as expenses incurred with environmental engineers
      and
      legal counsel. An accrual of approximately $285,000 has been recorded as of
      December 31, 2007 for this matter representing management’s best estimate of
      probable loss, as defined by SFAS No. 5, *Accounting
      for Contingencies* .
      The
      EPA, the Company and the building owner have entered into an Administrative
      Consent Order which will govern the removal of hazardous waste and storage
      of
      hazardous material. The Administrative Consent Order requires that the Company
      provide a $500,000 bond to secure its obligations under the Administrative
      Consent Order. The Company is unable at this time to determine whether further
      action will be taken by the United States Attorney or if any charges, fines
      or
      penalties will be sought from the Company.




21


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





The
      Annual Meeting of the stockholders of Mace Security International, Inc. was
      held
      on December 14, 2007. Proposals for the election of six directors to the Board
      of Directors for one-year terms and the ratification of the Audit Committee’s
      appointment of Grant Thornton as Mace’s registered public accounting firm for
      fiscal year 2007 were submitted to a vote.





The
      proposals were adopted by the shareholders. The voting was as
      follows:





Votes
                WithheldDirectors:
            
            Votes
                For
            
            or
                Against
            
            AbstentionsLouis
                D. Paolino, Jr.
            
            
            12,079,551
            
            
            1,120,607
            
            
            -Mark
                S. Alsentzer
            
            
            12,093,451
            
            
            1,106,707
            
            
            -Gerald
                T. LaFlamme
            
            
            12,523,196
            
            
            676,962
            
            
            -John
                C. Mallon
            
            
            12,535,794
            
            
            664,364
            
            
            -Constantine
                N. Papadakis, Ph.D
            
            
            12,303,094
            
            
            897,064
            
            
            -Dennis
                Raefield
            
            
            12,536,489
            
            
            663,669
            
            
            -Ratify
                appointment ofGrant
                Thornton LLP
            
            
            12,360,560
            
            
            635,526
            
            
            204,072




**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.




**HIGH**
            
            **LOW**Year
                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
            
            
            2.37Third
                Quarter
            
            
            2.70
            
            
            1.85Fourth
                Quarter
            
            
            2.39
            
            
            1.84Year
                Ending December 31, 2008First
                Quarter, through March 25, 2008
            
            $
            2.05
            
            $
            1.40




The
      closing price for our common stock on March 25, 2008, was $1.44. 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 of 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
      March 25, 2008, we had 110 stockholders of record and approximately 2,400
      beneficial owners of our common stock. We did not pay dividends in the preceding
      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.




22





For
      information regarding our equity compensation plans, See *Item
      12, Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters* .





**(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)




page23




(1)
            The
                Selected Peer Group Index for the current year is comprised of securities
                of Command Security Corp, Goldleaf Financial Solutions, Innodata
                Isogen,
                Inc., Kintera, Inc., Lasercard Corp, Looksmart Ltd., Napco Security
                Systems, Inc., RAE Systems, Inc., Taser International, Inc., Think
                Partnership, Inc., Track data Corp., Tumbleweed Comm. Co., and Versar,
                Inc. The current peer group includes security product, e-commerce
                and
                digital media marketing companies to more appropriately reflect Mace’s
                business. The peer group used in the prior year was comprised of
                IPIX
                Corporation, Lo Jack Corp., Napco Security Systems Inc., Rockford
                Corporation, Taser International Inc., and Vicon Industries Inc.
                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.





23


**COMPARISON
      OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG MACE SECURITY**


**INTERNATIONAL,
      INC., THE NASDAQ MARKET INDEX, AND SELECTED PEER GROUP**




December
                31,2002
            
            2003
            
            2004
            
            2005
            
            2006
            
            2007Mace
                Security International, Inc.
            
            
            100.00
            
            
            100.00
            
            
            229.67
            
            
            118.18
            
            
            122.49
            
            
            97.13Selected
                New Peer Group
            
            
            100.00
            
            
            203.38
            
            
            357.08
            
            
            153.80
            
            
            140.82
            
            
            168.36Selected
                Old Peer Group
            
            
            100.00
            
            
            243.21
            
            
            757.53
            
            
            413.28
            
            
            356.07
            
            
            494.63Nasdaq
                Market Index
            
            
            100.00
            
            
            150.36
            
            
            163.00
            
            
            166.58
            
            
            183.68
            
            
            201.91





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 of 1933, as amended (the “Securities Act”) or
      the Exchange Act.





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





On
      July
      20, 2007, the Company completed the purchase of all of the outstanding common
      stock of Linkstar Interactive, Inc. (“Linkstar”) from Linkstar’s shareholders by
      paying approximately $10.5 million to the Linkstar shareholders consisting
      of
      $7.0 million in cash at closing and $500,000 of promissory notes bearing a
      5%
      interest rate due in January 2008. As part of the consideration paid for
      Linkstar, the Company issued 1,176,471 unregistered shares of the Company’s
      common stock with a total value of $3.0 million to the six prior shareholders
      of
      Linkstar Interactive, Inc.





In
      undertaking this issuance, the Company relied on an exemption from registration
      under Section 4(2) of the Securities Act.





**(e)
      Issuer Purchases of Securities**





The
      following table summarizes our equity security repurchase during the three
      months ended December 31, 2007:





**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, 2007
            
            
            -
            
            
            -
            
            
            -
            
            $
            1,964,000November
                1 to November 30, 2007
            
            
            -
            
            
            -
            
            
            -
            
            $
            1,964,000December
                1 to December 31, 2007
            
            
            36,538
            
            
            2.01
            
            
            36,538
            
            $
            1,888,000Total
            
            
            36,538
            
            
            2.01
            
            
            36,538





(1)  On
      August
      13, 2007, the Company’s Board of Directors approved a share repurchase program
      to allow the Company to repurchase up to an aggregate $2,000,000 of its common
      shares in the future if the market conditions so dictate. As of December 31,
      2007, 53,909 shares had been repurchased under this program at a cost of
      approximately $112,000.





24


**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 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 “ *Item
      7.*  *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 31,2007
            
            2006
            
            2005
            
            2004
            
            2003(In
                thousands, except share information)Revenues:Car
                wash and detailing services
            
            $
            11,704
            
            $
            12,881
            
            $
            13,835
            
            $
            12,553
            
            $
            14,118Lube
                and other automotive services
            
            
            3,091
            
            
            3,445
            
            
            3,232
            
            
            3,317
            
            
            3,977Fuel
                and merchandise
            
            
            2,391
            
            
            2,928
            
            
            3,771
            
            
            3,251
            
            
            2,815Security
            
            
            22,278
            
            
            23,366
            
            
            24,909
            
            
            16,632
            
            
            5,581Digital
                media marketing
            
            
            7,625
            
            
            -
            
            
            -
            
            
            -
            
            
            -47,089
            
            
            42,620
            
            
            45,747
            
            
            35,753
            
            
            26,491Cost
                of revenues:Car
                wash and detailing services
            
            
            9,494
            
            
            10,187
            
            
            10,289
            
            
            9,359
            
            
            10,684Lube
                and other automotive services
            
            
            2,464
            
            
            2,727
            
            
            2,441
            
            
            2,553
            
            
            3,041Fuel
                and merchandise
            
            
            2,250
            
            
            2,769
            
            
            3,504
            
            
            3,032
            
            
            2,603Security
            
            
            16,223
            
            
            17,427
            
            
            17,658
            
            
            11,989
            
            
            3,485Digital
                media marketing
            
            
            6,120
            
            
            -
            
            
            -
            
            
            -
            
            
            -36,551
            
            
            33,110
            
            
            33,892
            
            
            26,933
            
            
            19,813Selling,
                general and administrative expenses
            
            
            18,344
            
            
            16,150
            
            
            12,257
            
            
            10,109
            
            
            7,099Depreciation
                and amortization
            
            
            1,431
            
            
            1,342
            
            
            1,242
            
            
            1,221
            
            
            998Costs
                of terminated acquisitions
            
            
            -
            
            
            -
            
            
            -
            
            
            53
            
            
            -Goodwill
                and asset impairment charges
            
            
            627
            
            
            151
            
            
            1,563
            
            
            6,726
            
            
            9Operating
                loss
            
            
            (9,864
            )
            
            (8,133
            )
            
            (3,207
            )
            
            (9,289
            )
            
            (1,428
            )Interest
                expense, net
            
            
            (450
            )
            
            (709
            )
            
            (661
            )
            
            (731
            )
            
            (719
            )Other
                income
            
            
            1,045
            
            
            851
            
            
            346
            
            
            115
            
            
            43Loss
                from continuing operations before income taxes
            
            
            (9,269
            )
            
            (7,991
            )
            
            (3,522
            )
            
            (9,905
            )
            
            (2,104
            )Income
                tax expense (benefit)
            
            
            98
            
            
            156
            
            
            2,186
            
            
            (3,206
            )
            
            482Loss
                from continuing operations
            
            
            (9,367
            )
            
            (8,147
            )
            
            (5,708
            )
            
            (6,699
            )
            
            (2,586
            )Income
                (loss) from discontinued operations, net of tax
            
            
            2,782
            
            
            1,365
            
            
            688
            
            
            289
            
            
            (947
            )Net
                loss
            
            $
            (6,585
            )
            $
            (6,782
            )
            $
            (5,020
            )
            $
            (6,410
            )
            $
            (3,533
            )Basic
                and Diluted loss per shareLoss
                from continuing operations
            
            $
            (0.60
            )
            $
            (0.53
            )
            $
            (0.38
            )
            $
            (0.49
            )
            $
            (0.21
            )Income
                (loss) from discontinued operations, net of tax
            
            $
            0.18
            
            $
            0.09
            
            
            0.05
            
            
            0.02
            
            
            (0.07
            )Net
                loss
            
            $
            (0.42
            )
            $
            (0.44
            )
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )Weighted
                average number of shares outstanding
            
            
            15,810,705
            
            
            15,274,498
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816




25




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**
            
            **2004**
            
            **2003**(In
                thousands)Balance
                Sheet Data (at end of period):Working
                capital
            
            $
            17,764
            
            $
            26,556
            
            $
            14,615
            
            $
            17,471
            
            $
            270Intangible
                assets, net
            
            $
            13,796
            
            $
            4,546
            
            $
            6,148
            
            $
            6,522
            
            $
            11,614Total
                assets
            
            $
            75,436
            
            $
            87,598
            
            $
            96,111
            
            $
            102,757
            
            $
            90,602Long-term
                debt, including current maturities
            
            $
            13,558
            
            $
            23,966
            
            $
            26,674
            
            $
            29,195
            
            $
            31,286Stockholders’
                equity
            
            $
            53,566
            
            $
            56,506
            
            $
            61,650
            
            $
            66,522
            
            $
            54,212





**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, 2007, 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**





***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 sourcing
      and selection of electronic surveillance products and components that it
      produces and sells, primarily to installing dealers, system integrators,
      retailers 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, 2007 for the Security Segment were
      comprised of approximately 35.2% from our professional electronic surveillance
      operation in Florida, 44.4% from our consumer direct electronic surveillance
      and
      machine vision camera and video conferencing equipment operation in Texas,
      and
      20.4% from our personal defense and law enforcement aerosol operation in
      Vermont.





***Digital
      Media Marketing***





Our
      Digital Media Marketing Segment is an online marketing and e-commerce business
      which has two business divisions: (1) online marketing and (2) e-commerce.
      The
      segment uses proprietary technologies and software to provide marketing services
      to third party advertisers and to sell products on the internet.




26


Our
      online marketing division, PromoPath, is an online affiliate marketing company
      that drives customer acquisitions or leads for advertising clients principally
      using the cost-per-acquisition (“CPA”) model. PromoPath helps companies create
      effective performance driven marketing campaigns and provides design, brand
      and
      technical support services in order to achieve these goals. PromoPath works
      with
      many large publishers to reach many areas of interactive media. PromoPath’s
      advertising clients are typically established direct-response advertisers with
      well recognized brands and broad consumer appeal such as NetFlix, Discover
      credit cards and Bertelsmann Group. PromoPath generates CPA revenue, both
      brokered and through co-partnered sites, as well as list management and lead
      generation revenues. CPA revenue or “Cost per Acquisition” in the digital
      marketing marketplace refers to paying a fee for the acquisition of a new
      customer, prospect or lead. List management revenue is based on a relationship
      between a data owner and a list management company. The data owner compiles,
      collects, owns and maintains a proprietary computerized database composed of
      consumer information. The data owner grants a list manager a non-exclusive,
      non-transferable, revocable worldwide license to manage, make use and have
      access to the Data pursuant to defined terms and conditions for which the data
      owner is paid revenue. Lead Generation is referred to as CPL “Cost per Lead” in
      the digital media marketplace. Advertisers purchasing media on a Cost per Lead
      basis are interested in collecting data from consumers expressing interest
      in a
      product or service. Cost per Lead varies from Cost per Acquisition in that
      no
      credit card information needs to be provided to the advertiser for the
      publishing source to be paid for the lead.





Our
      e-commerce division is a direct-response product business that develops, markets
      and sells products directly to consumers through the internet. We reach our
      customers predominately
      through online advertising on both the PromoPath platform as well as third-party
      websites. Our products include: Vioderm, an anti-wrinkle skin care product
      ( www.vioderm.com );
      Purity
      by Mineral Science, a mineral cosmetic ( www.mineralscience.com );
      TrimDayTM, a weight-loss supplement ( www.trimday.com );
      and
      Eternal Minerals, a dead sea spa product line (www.eternalminerals.com); as
      well
      as Mace’s pepper sprays and surveillance products. We continuously develop and test product offerings to determine
      customer acquisition costs and revenue potential, as well as to identify the
      most efficient marketing programs.





Revenues
      within our Digital Media Marketing Segment from the acquisition date, July
      20,
      2007, were approximately $7.6 million; consisting of $3.4 million, or 44.7%,
      from our online marketing division and $4.2 million, or 55.3%, from our
      e-commerce division.





***Car
      and Truck Wash Services***





At
      December 31, 2007, we owned full service and self-service car wash locations
      in
      Florida 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 2007 for the Car and
      Truck Wash Segment were comprised of approximately 68% from car washing and
      detailing, 18% from lube and other automotive services, and 14% from fuel and
      merchandise. Additionally, our Arizona, Florida and 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 $10.0 million, $20.7 million and $22.5 million
      for
      the years ended December 31, 2007, 2006 and 2005, respectively. Operating income
      from discontinued operations was $714,000, $1.75 million and $1.73 million
      for
      the years ended December 31, 2007, 2006 and 2005 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 paid Mace $9,000 per month to
      lease the Company’s truck washes, and was responsible for all underlying
      property expenses. On December 31, 2007 Eagle completed the purchase of 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. The
      $920,000 note has a five-year term, with principal and interest paid on a
      15-year amortization schedule. As a result, we did not recognize revenue or
      operating expenses during the term of the lease other than rental income 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.





**Cost
      of Revenues**





***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.




27





***Digital
      Media Marketing***




Cost
      of
      revenues within the Digital Media Marketing Segment consist primarily of amounts
      we pay to website publishers that are directly related to revenue-generating
      events, including the cost to enroll new members, fulfillment and warehousing
      costs, including direct labor and related taxes and fringe benefits and
      e-commerce product costs.





***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.





**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, and changes to
      the
      valuation allowance.





28




**Results
      of Operations for the Three Years Ended December 31, 2007, 2006 and
      2005**





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





**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Revenues
            
            
            100
            %
            
            100.0
            %
            
            100.0
            %Cost
                of revenues
            
            
            77.6
            
            
            77.7
            
            
            74.1Selling,
                general and administrative expenses
            
            
            39.0
            
            
            37.9
            
            
            26.8Depreciation
                and amortization
            
            
            3.0
            
            
            3.1
            
            
            2.7Goodwill
                and asset impairment charges
            
            
            1.3
            
            
            0.4
            
            
            3.4Operating
                loss
            
            
            (20.9
            )
            
            (19.1
            )
            
            (7.0
            )Interest
                expense, net
            
            
            (1.0
            )
            
            (1.6
            )
            
            (1.4
            )Other
                income
            
            
            2.2
            
            
            2.0
            
            
            0.8Loss
                from continuing operations before income taxes
            
            
            (19.7
            )
            
            (18.7
            )
            
            (7.6
            )Income
                tax expense
            
            
            0.2
            
            
            0.4
            
            
            4.8Loss
                from continuing operations
            
            
            (19.9
            )
            
            (19.1
            )
            
            (12.4
            )Income
                from discontinued operations, net of tax
            
            
            5.9
            
            
            3.2
            
            
            1.5Net
                loss
            
            
            (14.0
            )%
            
            (15.9
            )%
            
            (10.9
            )%





**Revenues**





***Security***





Revenues
      were approximately $22.3 million, $23.4 million and $24.9 million for the years
      ended December 31, 2007, 2006 and 2005, respectively. Of the $22.3 million
      of
      revenues for the year ended December 31, 2007, $7.8 million, or 35%, was
      generated from our professional electronic surveillance operation in Florida,
      $9.9 million, or 44%, from our consumer direct electronic surveillance and
      high
      end digital and machine vision cameras and professional imaging components
      operation in Texas, and $4.6 million, or 21%, from our personal defense and
      law
      enforcement aerosol operation in Vermont. 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 operations 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%, for our personal defense and law enforcement aerosol operations in
      Vermont.





The
      decrease in revenues within the Security Segment in 2007 as compared to 2006
      was
      due principally to a decrease in sales of our consumer direct electronic
      surveillance and machine vision camera and video conferencing equipment in
      Texas
      and our professional electronic surveillance operation in Florida. The decrease
      in sales in our professional electronic surveillance operation was partially
      a
      result of sales of discontinued and refurbished products at lower selling
      prices, the inability of some of Mace’s vendors to supply high volume products
      in a timely manner, competitive pressures and the impact on operations and
      management of the Florida embezzlement investigation. The decrease in sales
      of
      our consumer direct electronic surveillance operations in Texas was largely
      a
      result of increased competition and inventory shortages of certain components.
      The Company’s machine vision camera and video conferencing equipment operation
      was impacted by competition and certain large customers purchasing direct from
      its main supplier. This decrease in revenue was partially offset by a $1.05
      million or 30% increase in revenue in our personal defense and law enforcement
      aerosol operations with a noted increase in sales in our Mace aerosol defense
      sprays and TG Guard® products. 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.




29





***Digital
      Media Marketing***





Revenues
      within our Digital Media Marketing Segment from the acquisition date, July
      20,
      2007, were approximately $7.6 million, consisting of $3.4 million from our
      online marketing division and $4.2 million from our e-commerce division. Of
      the
      $3.4 million of revenues in the online marketing division, $2.2 million, or
      66%,
      was cost-per-action (“CPA”) revenue, $576,000, or 17%, was lead generation
      revenue, and $559,000, or 17%, was list management revenue.





***Car
      and Truck Wash Services***





Revenues
      for the year ended December 31, 2007 were $17.2 million as compared to $19.2
      million for the year ended December 31, 2006, a decrease of $2.0 million or
      10.4%. Of the $17.2 million of revenues for the year ended December 31, 2007,
      $11.7 million or 68% was generated from car wash and detailing, $3.1 million
      or
      18% from lube and other automotive services, and $2.4 million or 14% from fuel
      and merchandise sales. Of the $19.2 million of revenues for the year ended
      December 31, 2006, $12.9 million or 67% was generated from car wash and
      detailing, $3.4 million or 18% from lube and other automotive services, and
      $2.9
      million or 15% from fuel and merchandise sales. The decrease in wash and detail
      revenues in 2007 was principally due to the sale of car washes and reduced
      car
      wash volumes in the Texas market due to unfavorable weather. Overall car wash
      volumes declined by 150,000 cars, or 19%, in 2007 as compared to 2006, 16%
      excluding the impact of a car wash volume reduction of approximately 38,900
      cars
      from the closure and divestiture of four car wash locations in Texas since
      September 2006 included in continuing operations. Partially offsetting this
      decline in volume, the Company experienced an increase in average car wash
      and
      detailing revenues per car to $18.69 in 2007, from $16.60 in 2006. 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 decrease in fuel and merchandise revenues was primarily
      the
      result of selling less volume of fuel as a result of higher fuel prices. The
      decrease in merchandise sales in our car wash lobbies corresponds with the
      reduction in our car wash volumes and site traffic.





Revenues
      for the year ended December 31, 2006 were $19.2 million as compared to $20.8
      million for the year ended December 31, 2005, a decrease of $1.6 million or
      8%.
      This decrease was primarily attributable to a decrease in wash and detail
      services. Of the $19.2 million of revenues for the year ended December 31,
      2006,
      $12.9 million or 67% was generated from car wash and detailing, $3.4 million
      or
      18% from lube and other automotive services, and $2.9 million or 15% from fuel
      and merchandise sales. Of the $20.8 million of revenues for the year ended
      December 31, 2005, $13.8 million or 66% was generated from car wash and
      detailing, $3.2 million or 16% from lube and other automotive services, and
      $3.8
      million or 18% 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 in all of our Texas markets. Car wash volumes declined 48,000
      cars or 6% in 2006 as compared to 2005. The closure and divestiture of one
      of
      our Texas car wash locations since September 2006 resulted in a car wash
      reduction of 5,700 cars of the overall car reduction of 48,000 in 2006. In
      addition to this decline in volume, the Company experienced a slight decrease
      in
      average wash and detailing revenue per car to $16.60 in 2006, from $16.77 in
      2005.





**Cost
      of Revenues**





***Security***





Costs
      of
      revenues were $16.2 million, or 73% of revenues, $17.4 million or 74% of
      revenues and $17.7 million or 71% of revenues for 2007, 2006 and 2005,
      respectively. The slight decrease in cost of revenues as a percentage of
      revenues in 2007 as compared to 2006 is due principally to a change in customer
      and product mix and a conscious effort to reduce discounting of list prices,
      offset partially by an increase in sale of discontinued products and refurbished
      items at lower profit margins.





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 in 2006 to address customer
      needs as we continue to grow in this segment.





***Digital
      Media Marketing***





Cost
      of
      revenues within our Digital Media Marketing Segment from July 20, 2007, the
      date
      we acquired the segment, were approximately $6.1 million; $3.2 million related
      to our online marketing division and $2.9 related to our e-commerce
      division. ******




30





***Car
      and Truck Wash Services***





Cost
      of
      revenues for the year ended December 31, 2007 were $14.2 million or 83% of
      revenues with car washing and detailing costs at 81% of respective revenues,
      lube and other automotive services costs at 80% of respective revenues, and
      fuel
      and merchandise costs at 94% of respective revenues. Cost of revenues for the
      year ended December 31, 2006 was $15.7 million, or 81% of revenues with car
      wash
      and detailing costs at 79% of respective revenues, lube and other automotive
      services costs at 79% of respective revenues, and fuel and merchandise costs
      at
      95% of respective revenues. Cost of revenues, as a percent of revenues, was
      relatively consistent between 2007 and 2006. The Company experienced a slight
      decline in wash and detailing operating margins in 2007 due to an increase
      in
      cost of labor as a percent of car wash and detailing revenues from 52.4% in
      2006
      to 53.6% in 2007 as a result of reduced volumes.





Cost
      of
      revenues for the year ended December 31, 2006 were $15.7 million, or 81% of
      revenues, with car washing and detailing costs at 79% of respective revenues,
      lube and other automotive services costs at 79% of respective revenues, and
      fuel
      and merchandise costs at 95% of respective revenues. Cost of revenues for the
      year ended December 31, 2005 were $16.2 million, or 78% of revenues, with car
      washing and detailing costs at 74% of respective revenues, lube and other
      automotive services costs at 76% of respective revenues, and fuel and
      merchandise costs at 93% 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 50.4% in 2005
      to
      52.4% in 2006, combined with an increase in workers’ compensation and car damage
      claims, utility costs, and wash and detail chemicals and supplies.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses for the year ended December 31,
      2007 were $18.3 million compared to $16.1 million for the same period in 2006.
      SG&A expenses as a percent of revenues was 39% and 38% for the years ended
      December 31, 2007 and 2006, respectively. The increase in SG&A expenses is
      primarily the result of the acquisition of Linkstar which added SG&A
      expenses of $2.0 million in 2007 and a commission payment related to the
      Linkstar acquisition which added SG&A expenses of $310,000 in 2007. In April
      2007, we determined that our former Florida security based divisional controller
      embezzled funds from the Company. The Company initially conducted an internal
      investigation, and our Audit Committee subsequently engaged an independent
      consulting firm to conduct an independent forensic investigation. As a result
      of
      our investigation, we estimated that the amount embezzled by the employee was
      approximately $240,000 in fiscal 2006 and $99,000 in the first quarter of fiscal
      2007. SG&A expenses for the year ending December 31, 2007 also include an
      accrual for approximately $285,000 for the waste remediation at our personal
      defense and law enforcement aerosol operation in Vermont and approximately
      $310,000 of legal, consulting and accounting fees related to the Florida
      embezzlement investigation. If we recover any of the embezzled funds, such
      amounts will be recorded as recoveries in future periods when they are received.
      The increase was partially offset by a decrease in costs related to the ongoing
      immigration investigation. SG&A expenses include $674,000 of legal,
      consulting and accounting fees in 2007 relating to the ongoing immigration
      investigation as compared to $1.5 million in 2006. SG&A expenses also
      include non-cash compensation expense of approximately $895,000 million and
      $1.35 million in the fiscal years 2007 and 2006, respectively. Management
      expects SG&A expenses to increase in the future as the Company continues to
      expand its security and digital media marketing operations.





SG&A
      expenses for the year ended December 31, 2006 were $16.1 million compared to
      $12.3 million for the same period in 2005, an increase of approximately $3.8
      million or 31%. SG&A expenses as a percent of revenues were 38% for the year
      ended December 31, 2006 as compared to 27% for the year ended December 31,
      2005.
      The increase in SG&A expenses 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 expenses in
      2006; $1.35 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. As noted above, the 2006 SG&A expenses include a charge of
      $240,000 representing the embezzlement that 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 are pursuing all legal measures to recover our losses of the embezzled
      funds at our Florida Security division.





**Depreciation
      and Amortization**





Depreciation
      and amortization totaled $1.4 million, $1.3 million and $1.2 million for 2007,
      2006 and 2005, respectively. The increase in depreciation and amortization
      expense, principally in 2007 as compared to 2006, was related to amortization
      expense on Linkstar acquired intangible assets.




31


**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. There were no such expenses in 2007, 2006 or 2005.





**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. This impairment was 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. Additionally, during the quarter ended December 31,
      2007,
      we wrote down assets related to a full service car wash in San Antonio, Texas
      by
      approximately $180,000.We determined that based on current data utilized to
      estimate the fair value of these car wash facilities, the future expected cash
      flows would not be sufficient to recover their carrying values. Further, in
      the
      fourth quarter of 2006, as a result of our annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 142, we recorded an impairment
      of
      goodwill of approximately $105,000 related to our high end digital and machine
      vision cameras and professional imaging components operation in Texas. In the
      fourth quarter of 2007, as a result of our annual impairment test of goodwill
      and other intangibles, we recorded an impairment of goodwill of approximately
      $280,000 and an impairment of trademarks of approximately $66,000 related to
      our
      consumer direct electronic surveillance operations and an impairment of
      trademarks of approximately $101,000 related to our high end digital and machine
      vision cameras and professional imaging components operations, both located
      in
      Texas. These goodwill and trademark impairment charges were due to reductions
      in
      our future projected cash flows as sales levels in these divisions continue
      to
      deviate from historic levels as a result of competitive pressures.





***Discontinued
      Operations***





During
      the quarter ended September 30, 2005, we wrote down assets related to our truck
      wash operations determined to be impaired by approximately $500,000 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, future expected cash flows of our truck wash operations 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, 2007 was
      $450,000 compared to $709,000 for the year ended December 31, 2006. The decrease
      in net interest expense is due to a slight increase in interest expense of
      approximately $17,000 as a result of increasing interest rates despite a
      reduction in outstanding debt due to routine principal payments offset by an
      increase in interest income of approximately $276,000 with the Company’s
      increase in cash and cash equivalents.





Interest
      expense, net of interest income, for the year ended December 31, 2006 was
      $709,000 compared to $661,000 for the year ended December 31, 2005. This
      increase in interest expense was the result of a decrease in interest income
      in
      2006 as compared to 2005.





**Other
      Income**





Other
      income was $1.05 million, $851,000 and $346,000 for 2007, 2006 and 2005,
      respectively. Other income during 2007 included approximately $47,000 of gains
      on the sale of three Texas car wash sites in 2007, $752,000 of earnings on
      short-term investments and the recovery of a previously written-off acquisition
      deposit of $150,000. Other income in 2006 included a $461,000 gain on the sale
      of a Dallas, Texas car wash site and $323,000 of earnings on short term
      investments. Included in other income in 2005 are gains on short-term
      investments of $266,000.




32




**Income
      Taxes**





We
      recorded income tax expense of $98,000, $156,000 and $2.2 million for the years
      ended December 31, 2007, 2006 and 2005, respectively. Income tax expense
      (benefit) reflects the recording of income taxes on loss before income taxes
      at
      effective rates of approximately (1.1)%, (2.0)%, and (94.5)% for the years
      ended
      December 31, 2007, 2006, and 2005, 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 $3.3 million in 2005, $2.6 million
      in
      2006, and $3.9 million in 2007 with a total valuation allowance of $10.7 million
      at December 31, 2007 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 and Digital Media Marketing
      Segments.





**Liquidity
      and Capital Resources**





***Liquidity***





Cash,
      cash equivalents and short-term investments were $12.4 million at December
      31,
      2007. The ratio of our total debt to total capitalization, which consists of
      total debt plus stockholders’ equity, was 20.2% at December 31, 2007, and 29.8%
      at December 31, 2006. **** The
      improvements in the Company’s total debt to total capitalization ratio is
      directly related to routine principal payments on debt and the payoff of debt
      related to the sale of car and truck wash sites 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 and
      Digital Media Marketing 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, 2007, we had working capital of approximately $17.8 million.
      Working capital was approximately $26.6 million and $14.6 million at December
      31, 2006 and 2005, respectively. Our positive working capital decreased by
      approximately $8.8 million from December 31, 2006 to December 31, 2007,
      principally due to the purchase of Linkstar in the quarter ended September
      30,
      2007. The increase in working capital at December 31, 2006 from 2005 was
      principally due to the reclassification at December 31, 2006 of assets and
      liabilities of our Arizona region, certain of our Northeast regions car washes
      and our truck washes as assets and related liabilities, held of
      sale.





During
      the years ended December 31, 2007, 2006 and 2005, we made capital expenditures
      of $536,000, $957,000 and $1.14 million, (including $171,000, $806,000, and
      $942,000 related to discontinued operations) respectively, within our Car and
      Truck Wash Segment. We believe our current cash and short-term investment
      balance at December 31, 2007 of $12.4 million, cash flow from operating
      activities in 2008, 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 2008, we
      estimate that our Car and Truck Wash Segment will require annual capital
      expenditures of $250,000 to $500,000 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 2008
      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 $205,000, $341,000, and $455,000
      for
      the fiscal years ending December 31, 2007, 2006, and 2005, respectively. We
      used
      $1.9 million of cash for the acquisition of Securetek in November 2005. We
      estimate capital expenditures for the Security Segment at approximately $100,000
      to $200,000 for 2008, principally related to facility improvements and equipment
      for our Farmers Branch, Texas and Ft. Lauderdale, Florida
      operations.





We
      expect
      to invest significant resources and capital to grow our new Digital Media
      Marketing Segment. We expect to continue to invest in engineering staff and
      in
      the development of new services and technologies within our online marketing
      division as well as additional products within our e-commerce division. Further,
      we may need to expend additional capital resources in member acquisition costs
      and in integrating new technologies to improve the speed, performance, features,
      ease of use and reliability of our consumer services in order to adapt to
      rapidly changing industry standards. As usage of our websites increases, we
      will
      need to increase networking equipment to maintain adequate data transmission
      speeds, the availability of which may be limited or the cost of which may be
      significant. Our online marketing division will also require the infusion of
      additional capital as we grow because of our advertising customers, who are
      billed at the end of the month with payment terms of approximately 45 days,
      while we typically pay our website publishers in approximately 15 days.
      Additionally, as we introduce new e-commerce products, upfront capital spending
      is required to purchase inventory as well as pay for upfront media costs to
      enroll new e-commerce members.




33




We
      intend
      to continue to expend significant cash for the purchasing of inventory as we
      grow and introduce new video surveillance products in 2008 and in years
      subsequent to 2008. We anticipate that inventory purchases will be funded from
      cash collected from sales and working capital. At December 31, 2007, 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 2008 and in years
      subsequent to 2008 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 $12.4 million at December 31, 2007, the
      revolving credit facility, and cash generated from the sale of our car wash
      operations, will provide for growth in 2008. 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 $12.4 million at December 31, 2007, 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 2008.





In
      December 2004, the Company announced that it was exploring the sale of its
      car
      and truck washes. From December 2005 through March 3, 2008, we sold 34 car
      washes and five truck washes with total cash proceeds generated of approximately
      $33.7 million, net of pay-off of related mortgage debt. 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 2008 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. 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.





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





At
      December 31, 2007, we had borrowings, including capital lease obligations,
      of
      approximately $13.6 million. We had three letters of credit outstanding at
      December 31, 2007, totaling $1,149,000 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, 2007. The Company also maintains a $300,000
      bank
      commitment for commercial letters of credit for the importation of inventory.
      There were outstanding commercial letters of credit of $153,000 under this
      commitment at December 31, 2007.




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.





The
      Company entered into amendments to the Chase term loan agreements effective
      September 30, 2006. The amended loan agreements with Chase eliminated the
      Company’s requirement to maintain a ratio of consolidated earnings before
      interest, income taxes, depreciation and amortization to debt service. The
      Chase
      term loan agreements also limit 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. If we are unable to satisfy these covenants and we cannot
      obtain waivers, the Chase notes may be reflected as current in future balance
      sheets and as a result our stock price may decline.




34




If
      we
      default on any of the Chase covenants and are not able to obtain amendments
      or
      waivers of acceleration, Chase debt totaling $10.5 million at December 31,
      2007,
      including debt recorded as long-term debt at December 31, 2007, 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 15 of
      our
      car wash facilities as of December 31, 2007) are foreclosed upon, revenues
      from
      our Car and Truck Wash Segment, which comprised 36.5% of our total revenues
      for
      fiscal year 2007 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 and we may go out of
      business.





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 $10.5
      million, including debt recorded as long-term debt at December 31, 2007, 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.





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, 2007, the Company
      incurred $704,000 in legal, consulting and accounting expenses associated with
      the Audit Committee investigations in fiscal 2006 and $1.47 million ($674,000
      and $796,000, in fiscal 2007 and 2006, respectively) associated with the
      governmental investigation and the 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 when they
      are made party to an action, suit or proceeding by reason of the fact that
      such
      officers or directors are officers or directors of the Company. 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 2008 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 at December 31, 2007, including debt related to discontinued
      operations and liabilities related to assets held for sale (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)
            
            $
            13,558
            
            $
            5,795
            
            $
            3,953
            
            $
            1,541
            
            $
            2,269Minimum
                operating lease payments
            
            
            4,302
            
            
            998
            
            
            1,422
            
            
            931
            
            
            951$
            17,860
            
            $
            6,793
            
            $
            5,375
            
            $
            2,472
            
            $
            3,220




35





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)
            
            
            1,302
            
            
            1,302
            
            
            -
            
            
            -
            
            
            -$
            1,302
            
            $
            1,302
            
            $
            -
            
            $
            -
            
            $
            -





(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 $960,000.




(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, 2007.




(4)
      The
      Company also maintains a $300,000 bank commitment for commercial letters of
      credit with Chase for the importation of inventory. There were outstanding
      commercial letters of credit under this commitment of approximately $153,000
      at
      December 31, 2007. Additionally, outstanding letters of credit of $1,149,000
      represent collateral for workers’ compensation insurance policies.





Mace
      currently employs Louis D. Paolino, Jr. as its President and Chief Executive
      Officer under a three-year employment agreement dated August 21, 2006. The
      principal terms of the employment agreement include: an annual salary of
      $450,000; three annual stock option grants fully vested on the date of each
      grant; certain bonus payments for the sale or purchase of businesses; a car
      allowance at a cost of $1,500 per month; provision for certain medical and
      other
      employee benefits; and prohibition against competing with Mace during employment
      and for a three-month period following a termination of employment. Mr.
      Paolino’s employment agreement also provides for 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. Additionally, if Mr. Paolino receives such change of control
      bonus, his employment agreement can then be terminated without an additional
      payment. Of the three stock option grants provided for in Mr. Paolino’s
      employment agreement, the first grant, exercisable into 450,000 shares of the
      Company’s common stock, was made on August 21, 2006. The second grant,
      exercisable into 300,000 shares of the Company’s common stock, was made February
      22, 2008 and the third grant is expected be made on or about August 21, 2008.
      Because the grants are fully vested on the date of grant, they do not provide
      an
      incentive against Mr. Paolino resigning his employment.





***Cash
      Flows***





*Operating
      Activities.* Net cash
      used in operating activities totaled $9.3 million for the year ended December
      31, 2007. Cash used in operating activities in 2007 was primarily due to a
      net
      loss from continuing operations of $9.4 million, which included $896,000 in
      non-cash stock-based compensation charges and $1.5 million of depreciation
      and
      amortization. Cash was also impacted by an increase in accounts payable and
      accrued expenses of $1.3 million and an increase in inventory of $2.2 million.





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 $8.1 million offset partially by $1.4 million
      in non-cash stock based compensation charges and $2.1 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 the loss from continuing operations
      of
      $5.7 million, which included $1.2 million of depreciation and amortization,
      and
      $3.4 million of cash provided by discontinued operations.





*Investing
      Activities* .
      Cash
      provided by investing activities totaled approximately $15.1 million for the
      year ended December 31, 2007, which includes cash provided by investing
      activities from discontinued operations of $22.4 million related to the sale
      of
      24 car wash sites and five truck washes in the year ended December 31, 2007
      offset by the acquisition of Linkstar Interactive, Inc. of $6.9 million.
      Investing activity in 2007 also included capital expenditures of $365,000
      related to ongoing car wash operations, $252,000 for Security Segment operations
      and Corporate and $172,000 for discontinued operations. Cash provided by
      investing activities totaled approximately $1.5 million for the year ended
      December 31, 2006, which includes capital expenditures of $151,000 related
      to
      ongoing car wash operations and proceeds of approximately $1.85 million from
      the
      sale of a Dallas, Texas car wash site, $353,000 for Security Segment operations
      and Corporate, and $806,000 for discontinued operations and proceeds of
      approximately $1.0 million from the sale of our Deptford, New Jersey
      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, $197,000 for capital expenditures relating to ongoing car care
      operations, $465,000 for capital expenditures relating to the Security Segment
      operations and Corporate, $942,000 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.




36




*Financing
      Activities* .
      Cash
      used in financing activities was approximately $1.8 million for the year ended
      December 31, 2007, which includes $892,000 of routine principal payments on
      debt
      from continuing operations and $824,000 from routine principal payments on
      debt
      related to discontinued operations. Cash used in financing activities was
      approximately $2.7 million for the year ended December 31, 2006, which includes
      $860,000 of routine principal payments on debt related to continuing operations,
      $1.3 million of routine principal payments on debt related to discontinued
      operations, and $527,000 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,
      and $1.3 million from discontinued operations.





**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
      in
      the past by having operations in diverse geographic regions. The Company does
      not believe its security or digital media marketing 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
      is
      based upon the Company's consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States. 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.





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***





The
      Company’s recognizes revenue in accordance with Staff Accounting Bulletin
      (“SAB”) No. 104, *Revenue Recognition in Financial Statements*. Under SAB
      No. 104, the Company recognizes revenue when the following criteria have been
      met: persuasive evidence of an arrangement exists, the fees are fixed and
      determinable, no significant obligations remain and collection of the related
      receivable is reasonably assured. Allowances for sales returns, discounts and
      allowances, are estimated and recorded concurrent with the recognition of the
      sale and are primarily based on historical return rates.





Revenues
      from the Company’s Security Segment are recognized when shipments are made and
      title has passed.




Revenues
      from the Company’s Digital Media Marketing Segment are recognized in accordance
      with SAB No. 104, *Revenue Recognition in Financial Statements*. The
      ecommerce division recognizes revenue and the related product costs for trial
      product shipments after the expiration of the trial period. Marketing costs
      incurred by the ecommerce division are recognized as incurred. The online
      marketing division recognizes revenue and cost of sales consistent with the
      provisions of the Emerging Issues Task Force (“EITF”) Issue No. 99-19,
*Reporting Revenue Gross as a Principal versus Net as an Agent*, the
      Company records revenue based on the gross amount received from advertisers
      and
      the amount paid to the publishers placing the advertisements as cost of sales.


37




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.





***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, e-commerce 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.
      Inventories within the e-commerce division of the Digital Media Marketing
      segment consist of several health and beauty products. The Company continually
      reviews the book value of slow moving inventory items, as well as, discontinued
      product lines to determine if inventory items are property valued. The Company
      identifies slow moving or discontinued product lines and assesses the ability
      to
      dispose of them at a price greater than costs. If it is determined that costs
      is
      less than market value, then cost is used for inventory valuation. If market
      value is less then costs, then an adjustment is made to the Company’s
      obsolescence reserve to adjust the inventory to market value.





***Advertising
      and Marketing Costs***





The
      Company expenses advertising costs in its Security and Car Wash Segments,
      including advertising production cost, as the costs are incurred or the first
      time the advertisement appears. Marketing costs in the Company’s Digital Media
      Marketing Segment, which consist of the costs to acquire new members for its
      e-commerce business, are expensed as incurred rather than deferred and amortized
      over the expected life of a customer, based on the Company’s application of
      Statement of Position (“SOP”) 93-7. Under SOP 93-7, a company could capitalize
      and amortize direct-response advertising costs in a stable, established market
      where a company can demonstrate a history of profitability in the related
      product or advertising campaign. The Company’s determination is that neither the
      history nor stable market criteria are currently met.





***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 completes its annual impairment tests as of November 30 of each year.
      In
      addition, an impairment test is conducted 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.




38




***Other
      Intangible Assets***





Other
      intangible assets consist primarily of deferred financing costs, non-compete
      agreements, customer lists, software costs, product lists and trademarks. 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 determining whether or not they will occur cannot be
      predicted with any certainty. Deferred financing costs are amortized on a
      straight-line basis over the terms of the respective debt instruments. Customer
      lists, product lists, software costs, patents and non-compete agreements are
      amortized on a straight-line or accelerated basis over their respective assigned
      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. In establishing the provision for
      income taxes and deferred income tax assets and liabilities, and valuation
      allowances against deferred tax assets, the Company makes judgments and
      interpretations based on enacted laws, published tax guidance and estimates
      of
      future earnings. 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. 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. In the
      year
      ended December 31, 2007, the adoption of SFAS 123(R) resulted in stock
      compensation expense and therefore a reduction of income from before income
      taxes of $924,300 ($895,000 in continuing operations-SG&A, $800 in
      continuing operations-cost of revenues and $28,500 in discontinued operations).
      SG&A stock compensation expense includes a $335,800 non-cash compensation
      charge related to a grant of fully vested options to Louis D. Paolino, Jr.,
      the
      Company’s Principal Executive Officer, pursuant to the terms of his employment
      agreement dated August 21, 2006. Mr. Paolino’s employment agreement provides for
      fully vested stock option grants at the signing date and on the first and second
      anniversary dates of the employment agreement. Under the provisions of the
      employment agreement, the Company accounted for the forthcoming grant to Mr.
      Paolino based on the effective service inception date of August 2007 and accrued
      the $648,000 as an estimate in the quarter ended September 30, 2007 based on
      the
      value of the prior year grant. Mr. Paolino was ultimately granted 300,000 fully
      vested stock options, under the provisions of Mr. Paolino’s contract, on
      February 22, 2008 which were valued at $335,800 based on the Black Scholes
      valuation model. The actual amount of the grant was based on an independent
      compensation study commissioned by the Company’s Compensation Committee. An
      adjustment to the amount of the estimated stock-based compensation charge of
      $313,000 based on the compensation study and actual grant on February 22, 2008
      was recorded in the fourth quarter of 2007.





In
      the
      year ended December 31, 2006, SFAS 123(R) resulted in stock compensation expense
      and therefore a reduction of income before income taxes of $1.4 million ($1.36
      million in continuing operations-SG&A expense and $28,500 in discontinued
      operations). The Company expects the application of SFAS 123(R) to result in
      stock compensation expense and therefore a reduction of income before income
      taxes in 2008 of $1.1 million to $1.2 million. The Company’s actual stock
      compensation expense in 2008 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.





39


**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**





With
      the
      payoff of the Arizona fixed rate mortgages in the second quarter of 2007, nearly
      100% of the Company’s debt at December 31, 2007, including debt related to
      discontinued operations, 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,
      2007. The impact of increasing interest rates by one percent would be an
      increase in interest expense of approximately $141,000 in 2007.





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. The interest rate cap contract
      had a 36-month term and capped the interest rate on the $7 million of variable
      rate debt at 6.5%. The contract expired at September 30, 2007.





**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(T)** .  **CONTROLS
      AND PROCEDURES**





**(a)
      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 that it
      files
      or submits under the Exchange Act, is recorded, processed, summarized and
      reported, within the time periods specified in the SEC’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, 2007 required by Rule 13a-15(b)
      under
      the Exchange Act 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 effective as of December 31, 2007. In making this
      assessment, management used the criteria set forth by the Committee of
      Sponsoring Organizations of the Treadway Commission (“COSO”) in *Internal
      Control-Integrated Framework* .
      This
      annual report does not include an attestation report of the Company’s registered
      public accounting firm regarding internal control over financial reporting.
      Management’s report was not subject to attestation by the Company’s registered
      public accounting firm pursuant to temporary rules of the Securities and
      Exchange Commission that permit the Company to provide only management’s report
      in this annual report.





**(b)
      Management’s Annual Report on Internal Control over Financial
      Reporting**





The
      management of Mace Security International, Inc. and its subsidiaries is
      responsible for establishing and maintaining adequate internal control over
      financial reporting. With the participation of the Principal Executive Officer
      and the Principal Financial Officer, management has evaluated the effectiveness
      of its internal control over financial reporting as of December 31, 2007. Based
      on such evaluation, management has concluded that Mace Security International,
      Inc.’s internal control over financial reporting is effective as of December 31,
      2007.





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





As
      we
      previously disclosed in our Annual Report on Form 10-K for the year ended
      December 31, 2006 and our Quarterly Reports on Form 10-Q for the quarters ending
      March 31, 2007, June 30, 2007 and September 30, 2007, we began the remediation
      of the material weakness in our internal controls over cash and financial
      reporting associated with the Company’s Florida based security operation
      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; and (v) increased
      corporate supervision of regional accounting personnel. We have completed the
      remediation and will continue to closely monitor the effectiveness of our
      processes, procedures and controls, and will make further changes as management
      determines appropriate.




40




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





None.





**PART
      III**





**ITEM
      10.**  **DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERANCE**





**DIRECTORS**




**Name**
            
            **Age**
            
            **Position**Louis
                D. Paolino, Jr.
            
            51
            
            Director,
                Chairman of the BoardMark
                S. Alsentzer
            
            52
            
            DirectorGerald
                T. LaFlamme
            
            68
            
            DirectorJohn
                C. Mallon
            
            72
            
            Director,
                Lead Independent DirectorConstantine
                N. Papadakis, Ph.D
            
            62
            
            DirectorDennis
                Raefield
            
            59
            
            Director





All
      of
      Mace’s directors serve for terms of one year each until their successors are
      elected and qualified. All of the above directors were elected on December
      14,
      2007.





**Louis
      D. Paolino, Jr.** has
      served as the Chairman of the Board, President and Chief 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.





**Mark
      S. Alsentzer** has
      served as a director since December 15, 1999. From January 2006 to the present,
      Mr. Alsentzer has been the Chief Executive Officer and Director of Pure Earth,
      Inc. From December 1996 to October 2005, Mr. Alsentzer was a director of U.S.
      Plastic Lumber Corporation (a plastic lumber and recycling company). From
      December 1996 to July 2004, Mr. Alsentzer was the President and Chief Executive
      Officer of U.S. Plastic Lumber Corporation (a plastic lumber and recycling
      company). From 1992 to December 1996, Mr. Alsentzer was Vice President of
      Republic Environmental System, Inc. (an environmental services company). 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 is no longer Chairman, a
      director, President or Chief Executive Officer of U.S. Plastic Lumber
      Corporation.





**Gerald
      T. LaFlamme** has
      served as a director since December 14, 2007. From 2004 to the present, Mr.
      LaFlamme has been President of JL Development Company, Inc. (a real estate
      development and consulting company). From 2001 to 2004, Mr. LaFlamme was Senior
      Vice President and CFO of Davidson Communities, LLC (a regional home builder).
      From 1978 to 1997, Mr. LaFlamme was Area Managing Partner for Ernst & Young,
      LLP, and a predecessor accounting firm in San Diego, CA. Mr. LaFlame is a
      director and Chairman of the Audit Committee of Arlington Hospitality Inc.
      On
      August 31, 2005, Arlington Hospitality Inc. filed a voluntary petition under
      Chapter 11 of the United States Bankruptcy Code. At the time of the Chapter
      11
      filing, Mr. LaFlamme was a director.





**John
      C. Mallon** has
      served as a director since December 14, 2007. From 1994 to the present, Mr.
      Mallon has been the Managing Director of Mallon Associates (an investment bank
      and broker specializing in the security industry). From 1994 to 2006, Mr. Mallon
      was the Editor and Publisher of Mallon’s Security Investing and Mallon’s
      Security Report (financial newsletters tracking more than 250 public security
      companies). Mr. Mallon is a director of and Chairman of the Audit Committee
      of
      Good Harbor Partners Acquisition Corporation (a public special purpose
      acquisition corporation focusing on acquisitions in the global security market).
      Mr. Mallon is a director of and Chairman of the Board of IBI Armored Services,
      Inc. (a privately held national armored trucking, and money processing
      company).




41




**Constantine
      N. Papadakis, Ph.D.** has
      served as a director since May 24, 1999. From 1995 to the present, Dr. Papadakis
      has been the President of Drexel University. From 1986 to 1995, Dr. Papadakis
      was Dean of the College of Engineering at the University of Cincinnati. Dr.
      Papakakis is a director of Met-Pro Corporation, The Philadelphia Stock Exchange,
      Amkor Technology, Inc., Aqua America, Inc., CDI, Inc., The Executive Committee
      of the Greater Philadelphia Chamber of Commerce, the Opera Company of
      Philadelphia, the National Commission for Cooperative Education, and the World
      Trade Center of Philadelphia.





**Dennis
      Raefield** has
      served as a director since October 16, 2007. From April 2007 to the present,
      Mr.
      Raefield has been the President of Reach Systems, Inc. (formerly Edge
      Integration Systems, Inc.) (a manufacturer of security access control systems).
      From February 2005 to February 2006, Mr. Raefield was President of Rosslare
      Security Products, Inc. (a manufacturer of diverse security products). From
      February 2004 to February 2005, Mr. Raefield was President of NexVision
      Consulting (security business consultant). From January 2003 to February 2004,
      Mr. Raefield was President of Ortega InfoSystems (a software developer). From
      October 1998 to November 2002, Mr. Raefield was President of Ademco and
      Honeywell Access Systems (a division of Honeywell, Inc. that manufactured access
      control systems).





**EXECUTIVE
      OFFICERS**




**Name**
            
            **Age**
            
            **Position**Louis
                D. Paolino, Jr.
            
            51
            
            President
                and Chief Executive OfficerRobert
                M. Kramer
            
            55
            
            Executive
                Vice President, General Counsel and SecretaryGregory
                M. Krzemien
            
            48
            
            Chief
                Financial Officer and Treasurer





**Louis
      D. Paolino, Jr.** has
      served as the Chairman of the Board, President and Chief 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.





**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 Chief 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.





**CORPORATE
      GOVERNANCE**





**Audit
      Committee and Audit Committee Financial Expert**





The
      Board
      of Directors has determined that Gerald T. LaFlamme, 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. 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 Gerald
      T. LaFlamme, 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. The Charter of the Audit
      Committee is posted on our website at www.mace.com.




42


**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 SEC 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 2007 were made on a timely basis, except that
      Form 3 Reports required to be filed within ten days of a person being elected
      as
      a director were filed late by Gerald T. LaFlamme, John C. Mallon and Dennis
      Raefield.





**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.





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.





**Nominating
      Committee** ****





The
      Corporation has a Nominating Committee composed of all independent directors.
      The Nominating Committee has a charter that is available for inspection on
      the
      Company’s web site,  www.mace.com under the
      heading of Investors Relations. The Nominating Committee considers candidates
      for Board membership suggested by its members, other Board members, and
      management. The Nominating Committee will also consider recommendations by
      stockholders of nominees for directors to be elected at the Company’s annual
      meeting of stockholders, if they are received on or before September 1 of the
      year of the meeting. In evaluating nominations received from stockholders,
      the
      Committee will apply the same criteria and follow the same process used to
      evaluate candidates recommended by members of the Nominating Committee.
      Stockholders wishing to recommend a nominee for director are to submit such
      nomination in writing, along with any other supporting materials the stockholder
      deems appropriate, to the Secretary of the Company at the Company’s offices at
      240 Gibraltar Road, Suite 220, Pennsylvania Business Campus, Horsham,
      Pennsylvania 19044. There were no material changes to the procedures by which
      stockholders may recommend nominees to the Company’s board of directors in 2007.





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





**COMPENSATION
      DISCUSSION AND ANALYSIS**





***Introduction.*** 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, Chief Executive Officer
                (“CEO”), and President;




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


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




d)
            Ronald
                R. Pirollo, the Chief Accounting Officer and Corporate Controller.
                Mr.
                Pirollo was employed for part of 2007, having resigned on July 25,
                2007.





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 in establishing base executive compensation
      which is comparable to the median base compensation paid by comparable companies
      with bonuses tied to the execution of business strategies approved by the Board.
      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 true in 2007, as the Company was 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
      is critical to the success of Mace. The Compensation Committee also recognizes
      the importance of continuity of management through the time of transition and
      believes that Mr. Paolino’s management team is experienced and capable.




43




***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 the 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 intended to do business in the future.
      The
      comparator group used by the Company was modified in December 2007. The reason
      for the modification was to select companies that the Compensation Committee
      believed were more closely aligned to the Company.





The
      comparator companies used when establishing the compensation for Mr. Paolino’s
      August 21, 2006 Employment Contract and Mr. Krzemein’s and Mr. Kramer’s February
      12, 2007 Employment Contracts were:




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
                TechnologyWaste
                Services, Inc.




In
      addition to the comparator group above, Compensation Resources, Inc., the
      Company’s compensation consultant used in connection with Mr. Paolino’s 2006
      Employment Contract and Mr. Krzemien’s and Mr. Kramer’s 2007 Employment
      Contract, examined 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.





The
      comparator companies used by the Company were modified in December 2007. The
      Hay
      Group, the Company’s compensation consultant used the comparator companies set
      forth below in connection with determining the second option grant made to
      Mr.
      Paolino under Mr. Paolino’s Employment Agreement dated August 21,
      2006.




Command
                Security Corp
            
            Lasercard
                Corp
            
            Taser
                International, Inc.Goldleaf
                Financial Solutions
            
            Looksmart
                Ltd
            
            Think
                Partnership, Inc.Innodata
                Isogen, Inc.
            
            Napco
                Security Systems, Inc
            
            Track
                Data CorpKintera,
                Inc.
            
            RAE
                Systems, Inc.
            
            Tumbleweed
                Comm. CoVersar,
                Inc.




44


***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
                CEO;




·
            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 CEO and
                other
                Executive Officers and reviewing other benefit programs presented
                to the
                Compensation Committee by the CEO.





***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;


·
            Structured
                performance bonuses (with respect to Mr. Paolino’s Employment Contract),
                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
      Consideration.*** 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.





***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 2007 compensation for the Executive
      Officers.





***Base
      Salary.*** Base
      salary is designed to attract and retain experienced executives who can drive
      the achievement of the Company’s business goals. 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. 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, an executive who has significant experience and
      tenure and has demonstrated sustained superior performance over time may have
      salaries above the market median.





The
      minimum salary for the CEO, CFO, and General Counsel are established by
      employment agreement. The amount of any increase over this minimum for the
      CEO,
      CFO and General Counsel, and salary in the case of Mr. Pirollo (whose salary
      was
      not specified in an employment 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;


·
            The
                recommendations of the CEO (except in the case of his own compensation),
                and


·
            The
                amount of structured bonuses paid under the executive’s Employment
                Contract (in the case of Mr.
                Paolino.




45




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





***Fiscal
      Year 2007 Base Salary Decisions*** .
      Among
      Mace’s Chief Executive Officer and the other most highly compensated executive
      officers whose compensation exceeded $100,000 (the “Named Executive Officers”),
      Mr. Paolino, Mr. Krzemien, and Mr. Kramer are employed pursuant to agreements
      described under Employment Agreements below. Mr. Paolino’s base salary was not
      increased during fiscal year 2007. Mr. Paolino’s base salary of $450,000 was
      established in his Employment Contract dated August 21, 2006. Mr. Paolino’s
      Employment Contract was entered into after a compensation analysis was conducted
      in July and August of 2006. In August of 2006, Mr. Paolino’s base salary was
      changed from $400,000 to $450,000 for the remainder of 2006. Mr. Paolino’s base
      salary was not changed in 2007. The competitive market was utilized in
      establishing the base salary in Mr. Paolino’s Employment Contract. The analysis
      and the data showed that cash compensation (base salary and cash bonus) in
      2006,
      for the CEO position at the 50 th percentile, was $480,000. The Compensation Committee felt that base salary
      cash
      compensation of $450,000 was sufficient for Mr. Paolino. The Compensation
      Committee did not change Mr. Paolino’s base compensation in 2007. When
      considering whether or not to change Mr. Paolino’s base compensation, the
      Compensation Committee considered the performance of the Company during 2007
      and
      the amount of structured bonuses paid to Mr. Paolino under the terms of his
      Employment Contract. As the Company lost $6.2 million in 2007 and Mr. Paolino
      received $637,000 in structured bonuses, the Compensation Committee did not
      consider any increase in base salary for Mr. Paolino in 2007. The structured
      bonuses paid to Mr. Paolino under the terms of his Employment Agreement are
      described under the “ *Annual
      Incentives for Named Executive Officers* ”
heading
      below.





Between
      September 2006 and December 2006, compensation analyses were performed for
      Mr.
      Krzemien’s position, Mr. Kramer’s position and Mr. Pirollo’s position by
      Compensation Resources, Inc. Taking into account the results of the studies
      and
      the performance of the Named Executive Officers, the Compensation Committee
      increased the base salary of Mr. Krzemien, Mr. Kramer and Mr. Pirollo and
      entered into Employment Contracts, with Mr. Krzemien and Mr. Kramer. Mr.
      Krzemien’s base salary 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 the
      individual performance of the Named Executive Officers. The base salaries 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 the Named Executive Officers
      for
      annual results. It is the opinion of the Compensation Committee and management
      that due to the current nature of the business, and the Company’s exit from the
      car wash segment, an Annual Incentive Plan and appropriate goal setting during
      this time of reorganization is extremely difficult, and could potentially reward
      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 will focus on key
      financial, operational, and individual goals when the business model stabilizes.
      Implementation of a formal incentive plan may occur in 2008.





Under
      the
      terms of Mr. Paolino’s August 21, 2006 Employment Contract, he 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). In 2007, all Transaction Bonuses totaled $637,000. The
      Company’s 2006 Compensation Committee believed that the Company would save
      significantly by providing a Transaction Bonus to the CEO, and thereby avoiding
      the larger fees that would be paid to an Investment Banking Firm that
      specializes in this area. Mr. Paolino brings special skills and abilities to
      the
      Company, and for which the 2006 Compensation Committee decided to reward and
      encourage through the structured Transaction Bonus.





The
      Compensation Committee has discretion to provide bonuses to the Executive
      Officers for exceptional results, special circumstances, and other
      non-quantitative measures. In 2007, no annual bonuses, special awards or
      recognition were granted by the Compensation Committee, and none of the
      Executive Officers received any annual incentive payments, other than the
      Transaction Bonus paid to Mr. Paolino under the terms of his Employment
      Contract.





***Long-term
      Incentive Compensation.*** 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. The Company
      uses stock options as its long-term incentive compensation. Awards granted
      to
      individual executives are discretionary and may be made annually under the
      Company’s 1999 Stock Option Plan (the “Option Plan”). 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.




46




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 each Executive Officer’s compensation and
                performance is 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-public
                information.


·
            Except
                for inducement grants for new employees, Executive Officers recommend
                an
                award of stock options based on a review of the employee’s performance and
                compensation.


·
            The
                grant date of the stock options is always the date the Compensation
                Committee authorizes the grant or a date in the
                future.


·
            The
                exercise price is the closing price of the underlying common stock
                on the
                grant date authorized by the Compensation
                Committee.


·
            Stock
                option awards for Executive Officers are promptly announced on aForm
                4 filing.





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 Compensation 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.





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.





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 2007 Stock Option Decisions.*** In
      fiscal 2007, 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 Chief Executive Officer, the recommendations of the Chief Executive
      Officer.





Mr.
      Paolino’s Employment Contract provides that he was to receive an option grant
      within five days of August 21, 2007, based on a market assessment. The amount
      of
      option shares which were required to be granted are determined by the Company’s
      Compensation Committee, based on a current compensation study of the Chief
      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 comparable
      companies to their chief executive officers, as set forth in a compensation
      study to be obtained by the Compensation Committee. The Compensation Committee
      obtained a compensation study for the Chief Executive Officer position from
      the
      Hay Group. The compensation study indicated that the median market consensus
      for
      Total Direct Compensation was $722,834 and the 75 th percentile market consensus for total direct compensation was $970,238. The
      Compensatory Committee decided to award Mr. Paolino with an amount of options
      that would equal $335,800 in Black Scholes value. On February 22, 2008, Mr.
      Paolino was issued 300,000 options in satisfaction of the employment contract
      obligation. The options with respect to the grant are fully vested on the date
      of the grant.





Between
      September 2006 and December 2006, compensation analyses were performed on Mr.
      Krzemien’s, Mr. Kramer’s and Mr. Pirollo’s positions. 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 one-third vested immediately on the date of grant,
      February 12, 2007, one-third vests one year from the date of the grant, and
      the
      balance 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.




47




***Change
      of Control Arrangements.*** The
      Company entered into a change of control arrangement with Mr. Paolino in 2006
      and with Mr. Kramer and Mr. Krzemien in 2007. The Company entered into the
      arrangements in order to encourage the executives to remain employed with the
      Company during a period when the Company is changing its business from the
      car
      wash industry to the security business and e-commerce business. 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
      2006 and 2007 Compensation Committee believed that it was important to retain
      its key executives as the Company transitioned its business.





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 Chief 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 one-time payment of their base annual salary
      (currently $230,000) in the event that both a change of control occurs and
      Mr.
      Paolino no longer is Chief 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 Officer would receive an additional
      one-time payment of 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. Kramer,
      Mr.
      Krzemien and Mr. Pirollo, the options that were issued to them on February12,
      2007 all vest immediately upon a change of control.





***Details
      of Change of Control Provision for Mr. Paolino.*** 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, 2007 as $3,851,000.





***Details
      of Change of Control Provision for Mr. Krzemien.*** Mace
      currently employs Gregory M. Krzemien, its Chief 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 Chief 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 December 31, 2007, the annual base compensation
      of
      Mr. Krzemien was $230,000. If a change of control occurred and Mr. Paolino
      was
      terminated as the Chief Executive Officer on December 31, 2007, Mr. Krzemien
      would have received a retention payment of $230,000. Additionally, if on
      December 31, 2007, a change in control occurred and Mr. Paolino was terminated
      as the Chief 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 have been paid a total of $460,000.





***Details
      of Change of Control Provision for Mr. Kramer.*** 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 Chief 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 December 31, 2007, the annual base compensation of Mr. Kramer was $230,000.
      If a change of control had occurred and Mr. Paolino was terminated as the Chief
      Executive Officer on December 31, 2007, Mr. Kramer would have received a
      retention payment of $230,000. Additionally, if on March 15, 2007, a change
      in
      control had 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 have
      been paid a total of $460,000.




48




***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 CEO, the Company allowed his
      assistant to aid him with his personal business during the first half of 2007.
      There is no incremental cost to the Company of allowing Mr. Paolino’s assistant
      to aid him with his personal business. In fiscal 2007, 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 received a $500 per
      month car allowance.





***Total
      Compensation.*** In
      making
      decisions with respect to elements of an Executive Officers’ compensation, the
      Compensation Committee considers the total compensation that may be awarded
      to
      the executive, 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 the 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 INTERLOCKS AND INSIDER PARTICIPATION**





The
      Compensation Committee of the Company’s Board of Directors for year ended
      December 31, 2007 consisted of directors (i) Burton Segal, Mark Alsentzer,
      and
      Constantine N. Papadakis, Ph.D. from January 1, 2007 to December 14, 2007,
      and
      (ii) Constantine Papadakis, Ph.D., Dennis Raefield and John C. Mallon from
      December 14, 2007 to December 31, 2007. No executive officer of Mace served
      as a
      director or compensation committee member of any entity of which Messrs. Segal,
      Alsentzer, Papadakis, Mallon or Raefield was an executive officer or
      director.





**COMPENSATION
      COMMITTEE REPORT**





The
      Compensation Committee of the Company’s Board of Directors consists of directors
      Constantine N. Papadakis, Ph.D, John C. Mallon and Dennis Raefield of whom
      the
      Board has determined are independent pursuant to the Nasdaq Stock Market, Inc.’s
      Marketplace Rules. This report 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.





The
      Compensation Committee has reviewed and discussed with management the Executive
      Compensation Discussion and Analysis contained in this Form 10-K Annual Report
      for year ended December 31, 2007. Based on the review and discussions, the
      Compensation Committee recommended to the Board of Directors that the Executive
      Compensation Discussion and Analysis be included in the Proxy Statement.




The
      Compensation Committee of the Board of Directors




Constantine
      N. Papadakis, Ph.D.


John
      C.
      Mallon


Dennis
      Raefield


49


**EXECUTIVE
      COMPENSATION TABLES** **AND NARRATIVES**





The
      following table provides summary information concerning cash and certain other
      compensation paid or accrued by Mace to, or on behalf of the Named Executive
      Officers for the years ended December 31, 2007 and 2006.





**SUMMARY
                COMPENSATION TABLE(1)****Name
                and Principal**
              **Position**
            
            **Year**
            
            **Salary**
              **($)**
            
            **Bonus
                ($)(2)**
            
            **Option**
              **Awards**
              **($)
                (3)**
            
            **All**
              **Other**
              **Compensation
                ($) (4)**
            
            **Total**Louis
                D. Paolino, Jr.
              Chairman
                of the Board, President and Chief Executive Officer
            
            
            2007
              
              2006
            
            $
              
              $
            450,000
              
              417,307
            
            $
              
              $
            637,000
              
              -
            
            $
              
              $
            415,630
              
              790,119
            
            $
              
              $
            19,545
              
              26,728
            
            $
              
              $
            1,522,175
              
              1,234,154Robert
                M. Kramer
              Executive
                Vice President, General Counsel and Secretary
            
            
            2007
              
              2006
            
            $
              
              $
            227,308
              
              210,000
            
            $
              $
            -
              -
            
            $
              
              $
            109,721
              
              70,812
            
            $
              
              $
            7,431
              
              4,070
            
            $
              
              $
            344,460
              
              284,882Gregory
                M. Krzemien
              Chief
                Financial Officer and Treasurer
            
            
            2007
              
              2006
            
            $
              
              $
            225,962
              
              200,000
            
            $
              $
            -
              -
            
            $
              
              $
            101,742
              
              56,650
            
            $
              
              $
            7,731
              
              1,809
            
            $
              
              $
            335,435
              
              258,459Ronald
                R. Pirollo (5)
              Chief
                Accounting Officer and Corporate Controller
            
            
            2007
              
              2006
            
            $
              
              $
            103,385
              
              160,000
            
            $
              $
            -
              -
            
            $
              
              $
            17,455
              
              23,604
            
            $
              
              $
            2,907
              
              5,085
            
            $
              
              $
            123,747
              
              188,689





(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 fiscal year ended December 31, 2007. Additionally, the Company has
      never issued any stock appreciation rights (SARs).




(2)  Total
      of
      Transaction Bonus paid to Mr. Paolino during 2007 under the terms of his
      Employment Contract.




(3)  The
      amounts in this column reflect the dollar amount recognized for financial
      statement reporting purposes for the fiscal years ended December 31, 2007 and
      2006, in accordance with SFAS 123(R) for all existing stock option awards and
      thus include amounts from awards granted in and prior to 2007. 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, 2007.




(4)  Mr.
      Paolino receives a car at a lease cost of $1,500 per month through May 2007
      and
      a car allowance of $1,500 per month beginning in June 2007 for the remainder
      of
      2007 upon expiration of his then current car lease. Mr. Paolino also received
      a
      discount of $1,545 and $8,728 on the purchase of security products from the
      Company during the fiscal years ended December 31, 2007 and 2006, respectively.
      Mr. Krzemien, Mr. Kramer, and Mr. Pirollo received reimbursement for certain
      commuting expenses. Additionally, during the first half of 2007 and in 2006
      the
      Company allowed Mr. Paolino’s assistant to aid him with his personal business,
      which has no incremental cost to the Company.




(5)  Mr.
      Pirollo resigned on July 25, 2007.




50




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





Mace
      currently employs Louis D. Paolino, Jr., as its President and Chief 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 options grant (“Second
      Grant”) was to be awarded within five days of the August 21, 2007 (this award in
      the amount of 300,000 was made on February 22, 2008) and the third options
      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.





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. In 2007 the described bonus
      paid to Mr. Paolino equaled $637,000.





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, 2007
      as
      $3,851,000.





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 from 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 Chief 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, 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 (currently
      $230,000) upon the occurrence of both of (a) a change in control of the Company
      and (b) Louis D. Paolino, Jr. ceasing to be Chief 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. The
      current total amount of both the retention payment and termination payment
      is
      $460,000.





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


51


**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, 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 (currently $230,000)
      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. The current total amount of both the
      retention payment and termination payment is $460,000.





Mr.
      Kramer receives a car allowance of $700 per month beginning in February 2007,
      and the Company’s 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**





Mr.
      Pirollo was employed during all of 2006. Mr. Pirollo resigned on July 25, 2007.
      The primary terms of the employment agreement of Ronald R. Pirollo expired
      on
      March 26, 2003. Mr. Pirollo or the Company was entitled to terminate Mr.
      Pirollo’s employment at any time. Mr. Pirollo’s salary during 2006 through March
      15, 2007 was $160,000 annually. From March 15, 2007 to Mr. Pirollo’s
      resignation, his annual salary was $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 ($180,000) upon the occurrence of both of the following while Mr. Pirollo
      was 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. The Retention Agreement is no
      longer in effect as Mr. Pirollo is no longer an employee of the
      Company.





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





For
      a
      description of compensation that would become payable under existing
      arrangements in the event of a change of control or termination of each Named
      Executive officers employment under several different circumstances, see the
      discussion under Change of Control Arrangements in the Compensation Discussion
      and Analysis Sub-Section which is part of the Executive Compensation Section
      of
      this report. The following table quantifies the amounts payable upon a change
      of
      control or the termination of each of the current Named Executive
      Officers.





Change
      of
      Control Payment and Termination Payments - Louis D. Paolino, Jr., Chief
      Executive Officer




Event
                Triggering Payment
            
            Severance
                Payment(1)
            
            Acceleration
                of Option Awards(10)Change
                of Control(2)
            
            $
            3,851,000
            
            $
            -Termination
                by Company before Change of Control(3)
            
            $
            3,851,000
            
            $
            -Termination
                by Company after Change of Control Payment(4)
            
            $
            -
            
            $
            -Termination
                by Mr. Paolino(5)
            
            $
            3,851,000
            
            $
            -




Change
      of
      Control Payment and Termination Payments - Gregory Krzemien, Chief Financial
      Officer




Event
                Triggering Payment
            
            Severance
                Payment(7)
            
            Acceleration
                of Option Awards (10)Change
                of Control and Mr. Paolino ceasing to be CEO(2)(6)
            
            $
            230,000
            
            $
            -Termination
                by Company without Cause(8)
            
            $
            230,000
            
            $
            -Termination
                by Mr. Krzemien(9)
            
            $
            230,000
            
            $
            -




52


Change
      of
      Control Payment and Termination Payments - Robert M. Kramer, Executive Vice
      President, General Counsel and Secretary




Event
                Triggering Payment
            
            Severance
                Payment(7)
            
            Acceleration
                of Option Awards (10)Change
                of Control and Mr. Paolino ceasing to be CEO(2)(6)
            
            $
            230,000
            
            $
            -Termination
                by Company without Cause(8)
            
            $
            230,000
            
            $
            -Termination
                by Mr. Kramer(9)
            
            $
            230,000
            
            $
            -





(1)
      The
      amount to be paid is 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 formula) over the past five years. The stated amount was
      calculated based on Mr. Paolino’s average total compensation over the past five
      years as of December 31, 2007.




(2)
      A
      Change of Control Event is defined in the Named Executive Officer’s Employment
      Agreement as any of the events set forth in items (i) through and including
      (iii) below: (i) the acquisition in one or more transactions by any “Person,”
excepting the employee, as the term “Person” is used for purposes of Sections
      13(d) or 14(d) of the Exchange Act, of “Beneficial Ownership” (as the term
      beneficial ownership is used for purposes or Rule 13d-3 promulgated under the
      Exchange Act) of the fifty percent (50%) or more of the combined voting power
      of
      the Company’s then outstanding voting securities (the “Voting Securities”), for
      purposes of this item (i), Voting Securities acquired directly from the Company
      and from third parties by any Person shall be included in the determination
      of
      such Person’s Beneficial Ownership of Voting Securities; (ii) the approval by
      the shareholders of the Company of: (A) a merger, reorganization or
      consolidation involving the Company, if the shareholders of the Company
      immediately before such merger, reorganization or consolidation do not or will
      not own directly or indirectly immediately following such merger, reorganization
      or consolidation, more than fifty percent (50%) of the combined voting power
      of
      the outstanding Voting Securities of the corporation resulting from or surviving
      such merger, reorganization or consolidation in substantially the same
      proportion as their ownership of the Voting Securities immediately before such
      merger, reorganization or consolidation, or (B) a complete liquidation or
      dissolution of the Company, or (C) an agreement for the sale or other
      disposition of 50% or more of the assets of the Company and a distribution
      of
      the proceeds of the sale to the shareholders; or (iii) the acceptance by
      shareholders of the Company of shares in a share exchange, if the shareholders
      of the Company immediately before such share exchange do not or will not own
      directly or indirectly following such share exchange own more than fifty percent
      (50%) of the combined voting power of the outstanding Voting Securities of
      the
      corporation resulting from or surviving such share exchange in substantially
      the
      same proportion as the ownership of the Voting Securities outstanding
      immediately before such share exchange.




(3)
      Termination by majority vote of the Board of Directors, without cause. The
      payment is not due upon a termination based on the inability of Mr. Paolino
      to
      perform his duties for 120 consecutive days because of illness, or termination
      based on Mr. Paolino causing $500,000 or more in expenses to the Company due
      to
      Mr. Paolino engaging in willful misconduct or a felony.




(4)
      If
      the Change of Control Payment is made to Mr. Paolino, the Board of Directors
      may
      terminate him without any further payment.




(5)
      If
      the Company requires Mr. Paolino to perform his duties from an office more
      than
      a fifty mile radius from Fort Lauderdale, Florida or changes Mr. Paolino’s
      duties and authority as the Company’s Chief Executive Officer, Mr. Paolino may
      terminate his Employment Agreement, and the Company is then obligated to pay
      Mr.
      Paolino 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
      formulae) over the past five years. The stated amount was calculated based
      on
      Mr. Paolino’s average total compensation over the past five years as of December
      31, 2007.




(6)
      Payment is due (“Retention Payment”) on the occurrence of a Change of Control
      Event plus Mr. Paolino no longer serving as the Company’s Chief Executive
      Officer, either before or after the Change of Control Event.




(7)
      Payment is the amount of the Named Executive Officer’s then current annual base
      salary. The named Executive’s current base salary as of December 31, 2007 is
      $230,000.




(8)
      The
      payment is not due upon a termination based on the inability of the Named
      Executive Officer to perform his duties for 120 consecutive days because of
      illness or termination or based on the Named Executive Officer being terminated
      for Cause. Cause is the Named Executive Officer committing fraud,
      misrepresentation, theft or embezzlement against the Company, conviction of
      a
      felony, material intentional violations of the Company’s policies or a material
      breach by the Named Executive Officer of his Employment Agreement. The Company
      does not have the right to terminate without cause, until the Retention Payment
      has been paid (see footnote 6 above).




(9)
      If
      the Company breaches or defaults the Named Executive Officer’s Employment
      Agreement, the Named Executive Officer may terminate his Employment Agreement
      and the Company is then obligated to pay the Named Executive Officer his then
      annual base salary. Upon termination by the Named Executive Officers upon a
      breach by the Company, the Company remains obligated to pay the Retention
      Payment, if it would have become due but for the breach or default of the
      Company.




(10)
      Assumes exercise of all in-the-money stock options for which vesting accelerated
      at $2.03 per share (the closing price of the Company’s common stock on December
      31, 2007).


53


**Grants
      of Stock Options**





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, 2007.





**GRANTS
      OF PLAN-BASED AWARDS**




**Name**
            
            **Grant
                Date**
            
            **All
                other Option**
              **Awards:**
              **Number
                of Securities**
              **Underlying**
              **Options**
            
            **Exercise
                Price of Option Awards per Share**
            
            **Grant
                Date Fair Value of Stock and Option Awards**Louis
                D. Paolino, Jr.
            
            
            -
            
            
            -
            
            
            -
            
            
            -Gregory
                M. Krzemien
            
            
            2/12/2007
            
            
            60,000
            
            $
            2.73
            
            $
            111,726Robert
                M. Kramer
            
            
            2/12/2007
            
            
            60,000
            
            $
            2.73
            
            $
            111,726Ronald
                R. Pirollo
            
            
            2/12/2007
            
            
            25,000
            
            $
            2.73
            
            $
            46,553





On
      February 22, 2008, Mr. Paolino received an option to purchase 300,000 shares
      of
      common stock at an exercise price of $1.69 per share. 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, was intended
      to bring Mr. Paolino to an appropriate level for similarly situated executives.
      The market study prepared by Hay Group indicated that the median market
      consensus for Total Direct Compensation (Cash Compensation plus Equity) was
      $722,834 and the 75th percentile market consensus for Total Direct Compensation
      was $970,238. The Compensation Committee decided to award Mr. Paolino with
      an
      amount of options that would equal $335,800 in Black Scholes value. The option
      to purchase 300,000 shares was 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. Under
      Mr.
      Paolino’s August 21, 2006, Employment Agreement, the option was required to have
      been awarded within five days of August 21, 2007. The Compensation Committee
      did
      not make the stock option award by the required date because the Compensation
      Committee wanted to take more time to decide on the proper amount of the
      award.





**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, 2007,
      including the number of exercisable and un-exercisable stock options as of
      December 31, 2007 by grant. No options were exercised by any of the Named
      Executive Officers during the fiscal year ended December 31, 2007.


54





**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
                Grant Date**
            
            **Option**
              **Expiration**
              **Date**Louis
                D. Paolino, Jr.(1)
            
            
            5,000
            
            
            -
            
            
            2.56
            
            
            10/18/2000
            
            
            10/18/201087,500
            
            
            -
            
            
            2.36
            
            
            4/4/2002
            
            
            4/4/2012150,000
            
            
            -
            
            
            1.32
            
            
            7/14/2003
            
            
            7/14/2013568,182
            
            
            -
            
            
            4.21
            
            
            11/2/2004
            
            
            11/2/201414,000
            
            
            -
            
            
            5.35
            
            
            11/19/2004
            
            
            11/19/2014150,000
            
            
            -
            
            
            5.35
            
            
            11/19/2004
            
            
            11/19/201415,000
            
            
            -
            
            
            2.64
            
            
            10/31/2005
            
            
            10/31/2015100,000
            
            
            50,000
            
            
            2.40
            
            
            3/23/2006
            
            
            3/23/2016450,000
            
            
            -
            
            
            2.30
            
            
            8/21/2006
            
            
            8/21/2016Gregory
                M. Krzemien (2)
            
            
            62,500
            
            
            -
            
            
            5.38
            
            
            3/26/1999
            
            
            3/26/200950,000
            
            
            -
            
            
            1.38
            
            
            3/30/2001
            
            
            3/30/201137,500
            
            
            -
            
            
            2.36
            
            
            4/4/2002
            
            
            4/4/2012150,000
            
            
            -
            
            
            1.32
            
            
            7/14/2003
            
            
            7/14/201350,000
            
            
            -
            
            
            5.35
            
            
            11/19/2004
            
            
            11/19/201440,000
            
            
            20,000
            
            
            2.40
            
            
            3/23/2006
            
            
            3/23/201620,000
            
            
            40,000
            
            
            2.73
            
            
            2/12/2007
            
            
            2/12/2017Robert
                M. Kramer (3)
            
            
            81,395
            
            
            -
            
            
            5.38
            
            
            3/26/1999
            
            
            3/26/200918,605
            
            
            -
            
            
            11.00
            
            
            12/27/1999
            
            
            12/27/20095,000
            
            
            -
            
            
            2.56
            
            
            10/18/2000
            
            
            10/18/201050,000
            
            
            -
            
            
            5.38
            
            
            3/30/2001
            
            
            3/30/201137,500
            
            
            -
            
            
            2.36
            
            
            4/4/2002
            
            
            4/4/2012150,000
            
            
            -
            
            
            1.32
            
            
            7/14/2003
            
            
            7/14/201337,500
            
            
            -
            
            
            4.21
            
            
            11/2/2004
            
            
            11/2/201475,000
            
            
            -
            
            
            5.35
            
            
            11/19/2004
            
            
            11/19/201450,000
            
            
            25,000
            
            
            2.40
            
            
            3/23/2016
            
            
            3/23/201620,000
            
            
            40,000
            
            
            2.73
            
            
            2/12/2007
            
            
            2/12/2017




(1)
            All
                options are fully vested, except for the option for 150,000 shares
                granted
                to Mr. Paolino on March 23, 2006, of which 100,000 options are vested
                and
                50,000 are not vested. The 50,000 unvested options vest on March
                23,
                2008.




(2)
            All
                options are fully vested, except for the option for 60,000 shares
                granted
                to Mr. Krzemien on March 23, 2006 and the option for 60,000 shares
                granted
                on February 12, 2007. The 20,000 shares unvested of the March 23,
                2006
                grant, fully vest on March 23, 2008. 20,000 shares of the 60,000
                shares
                granted on February 12, 2007 vested immediately, 20,000 shares vested
                on
                February 12, 2008 and 20,000 will vest on February 12,
                2009.




(3)
            All
                options are fully vested, except for the option for 75,000 shares
                granted
                to Mr. Kramer on March 23, 2006 and the option for 60,000 shares
                granted
                on February 12, 2007. The 25,000 shares unvested of the March 23,
                2006
                grant fully vest on March 23, 2008. 20,000 shares of the 60,000 shares
                granted on February 12, 2007 vested immediately, 20,000 shares vested
                on
                February 12, 2008 and 20,000 will vest on February 12,
                2009




55




**DIRECTOR
      COMPENSATION**




The
      following table provides summary information concerning cash and certain other
      compensation paid or accrued by Mace to or on behalf of Mace’s Directors for the
      year ended December 31, 2007, other than Louis D. Paolino, Jr. whose
      compensation is described on page 53 of this Form 10-K Annual Report for fiscal
      year ended December 31, 2007.





Name
            
            Fees
              Earned
                or
              Paid
                in
              Cash
              ($)
            
            Option
              Awards
              ($)
                (1)
            
            All
              Other
              Compensation
              ($)
            
            TotalConstantine
                N. Papadakis, Ph.D
            
            $
            34,500
            
            $
            -
            
            $
            -
            
            $
            34,500Mark
                Alsentzer
            
            $
            32,000
            
            $
            -
            
            $
            -
            
            $
            32,000Burton
                Segal
            
            $
            32,000
            
            $
            -
            
            $
            -
            
            $
            32,000Matthew
                Paolino (2)
            
            $
            25,500
            
            $
            -
            
            $
            -
            
            $
            25,500Dennis
                Raefield
            
            $
            2,000
            
            $
            -
            
            $
            -
            
            $
            2,000Gerald
                T. LaFlamme
            
            $
            1,500
            
            $
            -
            
            $
            -
            
            $
            1,500John
                C. Mallon
            
            $
            1,500
            
            $
            -
            
            $
            -
            
            $
            1,500





1.
            The
                aggregate options outstanding at December 31, 2007 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, 2007. The amounts in this column reflect the dollar
                amount
                recognized, in accordance with the Statement of Financial Accounting
                Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS 123(R)”),
                for financial reporting purposes for the fiscal year ended December
                31,
                2007. There were no options granted to non-employee directors in
                2007. In
                2006, each non-employee Director and Mathew Paolino received a grant
                of
                15,000 options which grants vested immediately and had a grant date
                fair
                market value of $25,643. The 2006 grant was made as part payment
                for
                serving on the Board during 2007.


2.
            For
                the year ended December 31, 2007, Matthew Paolino received $4,327
                in
                salary as a Vice President of the Company and did not receive any
                directors fees. Matthew Paolino’s position as a Vice President was
                terminated on January 26, 2007.





For
      the
      year 2007, 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 2008 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; and 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 grants vested immediately and had a grant date fair market value
      of
      $25,643. For the year 2008, 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 2008 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 January 8, 2008 to each non-employee Director. The grants
      vested immediately.


56


**ITEM
      12**





**SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
      MATTER** **S**





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





The
      Company has two Stock Option Plans that have been approved by the shareholders.
      The plans are the 1999 Stock Option Plan and the 1993 Stock Option Plan. Stock
      options are issued under the 1999 Stock Option Plan and 1993 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 both Stock Option
      Plans 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.





The
      following table sets forth certain information regarding the Company’s Stock
      Option Plan and warrants as of December 31, 2007.




**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)**1993
                Stock Option Plan
            
            
            18,959
            
            $
            3.11
            
            
            56,9991999
                Stock Option Plan
            
            
            4,421,056
            
            $
            3.51
            
            
            2,580,147Total
                of both Equity Compensation Plans approved by stockholders
            
            
            4,440,015
            
            $
            3.31
            
            
            2,637,146Equity
                compensation plans not approved by stockholders
            
            
            433,000
            
            $
            8.02
            
            
            N/ATotal
            
            
            4,873,015
            
            $
            3.91
            
            
            2,637,146




**Beneficial
      Ownership**





The
      following beneficial ownership table sets forth information as of February
      29,
      2008 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 SEC;





·
            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 February 29, 2008 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.




57




**Name
                and Address of****Beneficial
                Owner**
            
            **Amount
                and Nature of Beneficial****Ownership**
            
            **Percentage
                of**
              **Common
                Stock****Owned (1)**Louis
                D. Paolino, Jr.
            
            
            2,780,640
            (2)
            
            15.1
            %Lawndale
                Capital Management, LLC
              591
                Redwood Highway, Suite 2345
              Mill
                Valley, CA 94941
            
            
            1,574,479
            (3)
            
            9.6Ancora
                Capital, Inc.
              One
                Chagrin Highlands
              2000
                Auburn Drive, Suite 300
              Cleveland,
                Ohio 44122
            
            
            1,327,500
            (4)
            
            8.1Robert
                M. Kramer
            
            
            649,539
            (5)
            
            3.8Mark
                S. Alsentzer
            
            
            622,500
            (6)
            
            3.8Gregory
                M. Krzemien
            
            
            475,250
            (7)
            
            2.8Constantine
                N. Papadakis, PhD.
            
            
            127,500
            (8)
            
            *Dennis
                Raefield
            
            
            25,000
            (9)
            
            *Gerald
                T. LaFlamme
            
            
            15,000
            (10)
            
            *John
                C. Mallon
            
            
            15,000
            (11)
            
            *All
                current directors and executive officers as a group (8
                persons)
            
            
            4,710,429
            (12)
            
            24.0
            %





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




(1)  Percentage
      calculation is based on 16,465,253 shares outstanding on February 29, 2008.




(2)  Includes
      options to purchase 1,889,682 shares.




(3)  According
      to their Schedule 13D Amendment 7 filed with the SEC on October 16, 2007,
      consists of 1,574,479 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.




(4)  According
      to their Schedule 13D Amendment 4 filed with the SEC on January 14, 2008, Ancora
      Group, which includes Ancora Capital, Inc.; Ancora Securities, Inc., the main
      subsidiary of Ancora Capital, Inc.; Ancora Advisors, LLC; Ancora Trust, the
      master trust for the Ancora Mutual Funds; Ancora Foundation, a private
      foundation; Merlin Partners, an investment limited partnership; and various
      owners and employees of the aforementioned entities have aggregate beneficial
      ownership of 1,327,700 shares. Ancora Securities, Inc. is registered as a
      broker/dealer with 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 of 1940, 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 of 1940, as
      amended. Mr. Richard Barone is the controlling shareholder of Ancora Capital,
      controls 31% of Ancora Advisors, LLC 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 each disclaim membership in a Group
      within the meaning of Section 13(d)(3) of the Exchange Act and the Rules and
      Regulations promulgated there under.




58




(5)  Includes
      options to purchase 570,000 shares.




(6)  Includes
      options to purchase 122,500 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 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.




(7)  Includes
      options to purchase 450,000 shares.




(8)  Includes
      options to purchase 117,500 shares.




(9)  Includes
      options to purchase 15,000 shares.




(10)  Represents
      options to purchase 15,000 shares.




(11)  Includes
      options to purchase 15,000




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





**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 2007.





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 Gerald LaFlamme. 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. The Corporate Governance Guidelines provide
      that a majority of the Company’s directors should be independent, as defined by
      the rules of the NASDAQ Global Market and Section 3.14 of the Company’s
      ByLaws. **** Section
      3.14 of the Company’s ByLaws is available for review on the Company’s website at www.mace.com, under
      the Investor Relations heading. The Board **** has
      determined that Messers. Alsentzer, LaFlamme, Mallon, Papadakis and Raefield
      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.





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




***Audit
      Fees*** *.* The
      Company was billed $273,781 by Grant Thornton LLP for the audit of Mace’s annual
      financial statements for the fiscal year ended December 31, 2007, and for the
      review of the financial statements included in Mace’s Quarterly Reports on Forms
      10-Q filed during 2007 through March 25, 2008. The Company **** was
      billed $456,314, 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.




59




***Audit
      Related Fees*** .
      The
      Company did not incur any audit related fees during 2007 or 2006.





***Tax
      Fees.*** The
      Company was billed $36,428 and $64,553 for tax compliance services rendered
      by
      Grant Thornton LLP during 2007 and 2006, respectively.





***All
      Other Fees*** **.** The
      Company did not incur any other fees during 2007 or 2006.





***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 2007 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 Chairman 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,
      FINANCIAL STATEMENT SCHEDULES**





(a)
                (1)
            
            Consolidated
                Financial Statements:Report
                of Independent Registered Public Accounting FirmConsolidated
                Balance Sheets as of December 31, 2007 and 2006Consolidated
                Statements of Operations for the years ended December 31, 2007, 2006,
                and
                2005Consolidated
                Statements of Stockholders’ Equity for the years ended December 31, 2007,
                2006, and 2005Consolidated
                Statements of Cash Flows for the years ended December 31, 2007, 2006,
                and
                2005Notes
                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 SEC 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):




*2.2
            
            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
                3.1 to
                the Company’s Current Report on Form 8-K dated October 16,
                2007.*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)*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)*3.8
            
            Amended
                and Restated ByLaws of the Company dated October 16, 2007 (Exhibit
                3.1 to
                the October 16, 2007 Form 8K dated October 16, 2007)*10.1
            
            1993
                Non-Qualified Stock Option Plan (1)*10.2
            
            Trademarks(1)*10.3
            
            Warrants
                in connection with the acquisition of the assets of the KinderGard
                Corporation (2)*10.4
            
            Mace
                Security International, Inc. 1999 Stock Option Plan. (Exhibit 10.98
                to the
                June 30, 1999 Form 10-QSB dated August 13, 1999)
                (3)




60




*10.5
            
            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)*10.6
            
            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)*10.7
            
            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, one additional
                amendment which is substantially identical in all material respects,
                except as to the borrower being Eager Beaver Car Wash, Inc., is not
                being
                filed). (Exhibit 10.132 to the December 31, 2000 Form 10-KSB dated
                March
                20, 2001)*10.8
            
            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)*10.9
            
            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)*10.10
            
            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)*10.11
            
            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)*10.12
            
            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)*10.13
            
            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)*10.14
            
            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)*10.15
            
            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)*10.16
            
            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)*10.17
            
            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.)*10.18
            
            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)*10.19
            
            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)*10.20
            
            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.)




61




*10.21
            
            Amendment
                to Credit Agreement dated April 27, 2004, effectiveness of March
                31, 2004
                between Mace Security International, Inc., and Bank One Texas, N.A.
                (Pursuant to instruction 2 to Item 601 of Regulation S-K, four Additional
                credit agreements which are substantially identical in all material
                respects, except as to borrower being the Company’s subsidiaries, 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 10.159 to the March 31, 2004 Form 10-Q dated May 5,
                2004)*10.22
            
            Warrant
                dated May 26, 2004 to purchase 183,000 shares of the Company’s common
                stock, issued to Langley Partners, L.P. (Exhibit 4.3 to the June
                16, 2004
                Form S-3)*10.23
            
            Securities
                Purchase Agreement dated May 26, 2004 between the Company and Langley
                Partners, L.P. as set forth on the Signature pages thereof (Exhibit
                10.1
                to the June 16, 2004 Form S-3)*10.24
            
            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)*10.25
            
            First
                Amendment to the Securities Purchase Agreement, dated June 8, 2004
                (Exhibit 10.3 to the June 16, 2004 Form S-3)*10.26
            
            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)*10.27
            
            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)*10.28
            
            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)*10.29
            
            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)*10.30
            
            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)*10.31
            
            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)*10.32
            
            Warrant
                to be issued to Langley Partners, L.P. (Exhibit 99.4 to the December
                14,
                2004 Form 8-K dated December 16, 2004)*10.33
            
            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)*10.34
            
            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)*10.35
            
            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)*10.36
            
            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. (Exhibit 10.179 to the December 31, 2005
                Form
                10-K dated July 14, 2006)*10.37
            
            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) +*10.38
            
            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)*10.39
            
            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)*10.40
            
            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)




62




*10.41
            
            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)*10.42
            
            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
                8-K
                dated June 25, 2007) (3)*10.43
            
            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.
                (Exhibit
                10.186 to the December 31, 2006 Form 10-K dated July 2,
                2007)*10.44
            
            Stock
                Purchase Agreement, dated July 12, 2007, by and among Mace Security
                International, Inc., Linkstar Interactive, Inc. and Maurry Mendelovich,
                Colin McIntyre, Michael Katz, Shawn Mendelovich, Christine McIntyre
                and
                Emily Pender. (Exhibit 2.1 to the July 12, 2007 Form 8-K dated July
                18,
                2007)*10.45
            
            Asset
                Purchase Agreement dated November 8, 2007, among Mace Security
                International, Inc., Eager Beaver Car Wash Inc. and Wash Depot Holdings,
                Inc. (Exhibit 10.1 to the November 8, 2007 Form 8-K dated November
                15,
                2007)*10.46
            
            Global
                Truck Wash Facility Acquisition Agreement dated December 31, 2005,
                between
                Eagle United Truck Wash, LLC and Mace Truck Wash, Inc. (Exhibit 99.1
                to
                the December 31, 2005 Form 10-K dated July 14, 2006) +11
            
            Statement
                Regarding: 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 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 Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.*99.1
            
            Corporate
                Governance Guidelines dated October 16, 2007 (Exhibit 99.1 to the
                October
                16, 2007 8-K dated October 16,
                2007)





*Incorporated
      by reference




+Schedules
      and other attachments to the indicated exhibit have been omitted. The Company
      agrees to furnish supplementally to the Commission upon request a copy of any
      omitted schedules or attachments.





(10)
            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.




(11)
            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.




(12)
            Indicates
                a management contract or compensation plan or
                arrangement.




63


**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 31 day of March, 2008





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,
            
            March
                31, 2008Louis
                D. Paolino, Jr.
            
            Chief
                Executive Officer,
              President
                and Director(Principal
                Executive Officer)/s/
                Gregory M. Krzemien
            
            Chief
                Financial Officer
            
            March
                31, 2008Gregory
                M. Krzemien
            
            and
                Treasurer
              (Principal
                  Financial Officer)/s/
                Mark S. Alsentzer
            
            Director
            
            March
                31, 2008Mark
                S. Alsentzer/s/
                Constantine N. Papadakis, Ph.D.
            
            Director
            
            March
                31, 2008Constantine
                N. Papadakis, Ph.D./s/
                Gerald T. LaFlamme
            
            Director
            
            March
                31, 2008Gerald
                T. LaFlamme/s/
                John C. Mallon
            
            Director
            
            March
                31, 2008John
                C. Mallon/s/
                Dennis Raefield
            
            Director
            
            March
                31, 2008Dennis
                Raefield




64







**Mace
      Security International, Inc.**


**Audited
      Consolidated Financial Statements**


**Years
      ended December 31, 2007, 2006, and 2005**




**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. (a Delaware corporation) and Subsidiaries (the Company)
      as
      of December 31, 2007 and 2006 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, 2007. 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 audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company is not required to
      have, nor were we engaged to perform, an audit of its internal control over
      financial reporting. Our audit included 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 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, 2007 and 2006, and
      the
      consolidated results of its operations and its cash flows for each of the three
      years in the period ended December 31, 2007, 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 LLP


Philadelphia,
      Pennsylvania


March
      31,
      2008




F-2


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





**Consolidated
      Balance Sheets**





(In
      thousands, except share and par value information)





**December
                31,****2007**
            
            **2006****ASSETS**Current
                assets:Cash
                and cash equivalents
            
            $
            8,103
            
            $
            4,055Short-term
                investments
            
            
            4,249
            
            
            3,571Accounts
                receivable, less allowance for doubtfulaccounts
                of $791 and $690 in 2007 and 2006, respectively
            
            
            2,920
            
            
            2,223Inventories
            
            
            9,296
            
            
            7,170Prepaid
                expenses and other current assets
            
            
            2,241
            
            
            1,797Assets
                held for sale
            
            
            5,665
            
            
            25,745Total
                current assets
            
            
            32,474
            
            
            44,561Property
                and equipment:Land
            
            
            12,322
            
            
            17,509Buildings
                and leasehold improvements
            
            
            17,418
            
            
            23,291Machinery
                and equipment
            
            
            6,353
            
            
            8,325Furniture
                and fixtures
            
            
            558
            
            
            625Total
                property and equipment
            
            
            36,651
            
            
            49,750Accumulated
                depreciation and amortization
            
            
            (8,477
            )
            
            (11,443
            )Total
                property and equipment, net
            
            
            28,174
            
            
            38,307Goodwill
            
            
            8,231
            
            
            1,623Other
                intangible assets, net of accumulated amortizationof
                $1,123 and $779 in 2007 and 2006, respectively
            
            
            5,565
            
            
            2,923Other
                assets
            
            
            992
            
            
            184**Total
                assets**
            
            $
            75,436
            
            $
            87,598




*The
      accompanying notes are an integral*


*part
      of these financial statements.*





F-3




**December
                31,****2007**
            
            **2006****LIABILITIES
                AND STOCKHOLDERS’ EQUITY**Current
                liabilities:Current
                portion of long-term debt and notes payable
            
            $
            2,022
            
            $
            1,235Accounts
                payable
            
            
            4,661
            
            
            4,087Income
                taxes payable
            
            
            778
            
            
            315Deferred
                revenue
            
            
            174
            
            
            319Accrued
                expenses and other current liabilities
            
            
            2,581
            
            
            2,209Liabilities
                related to assets held for sale
            
            
            4,494
            
            
            9,840Total
                current liabilities
            
            
            14,710
            
            
            18,005Long-term
                debt, net of current portion
            
            
            7,160
            
            
            13,087Commitments
            
            
            -
            
            
            -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 16,465,253 and 15,275,382 in 2007 and 2006,
                respectively
            
            
            165
            
            
            153Additional
                paid-in capital
            
            
            93,685
            
            
            89,850Accumulated
                other comprehensive income
            
            
            322
            
            
            413Accumulated
                deficit
            
            
            (40,495
            )
            
            (33,910
            )53,677
            
            
            56,506Less
                treasury stock at cost - 53,909 shares
            
            
            (111
            )
            
            -Total
                stockholders’ equity
            
            
            53,566
            
            
            56,506**Total
                liabilities and stockholders’ equity**
            
            $
            75,436
            
            $
            87,598




*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,****2007**
            
            **2006**
            
            **200****5**Revenues:Car
                wash and detailing services
            
            $
            11,704
            
            $
            12,881
            
            $
            13,835Lube
                and other automotive services
            
            
            3,091
            
            
            3,445
            
            
            3,232Fuel
                and merchandise
            
            
            2,391
            
            
            2,928
            
            
            3,771Security
            
            
            22,278
            
            
            23,366
            
            
            24,909Digital
                media marketing
            
            
            7,625
            
            
            -
            
            
            -47,089
            
            
            42,620
            
            
            45,747Cost
                of revenues:Car
                wash and detailing services
            
            
            9,494
            
            
            10,187
            
            
            10,289Lube
                and other automotive services
            
            
            2,464
            
            
            2,727
            
            
            2,441Fuel
                and merchandise
            
            
            2,250
            
            
            2,769
            
            
            3,504Security
            
            
            16,223
            
            
            17,427
            
            
            17,658Digital
                media marketing
            
            
            6,120
            
            
            -
            
            
            -36,551
            
            
            33,110
            
            
            33,892Selling,
                general and administrative expenses
            
            
            18,344
            
            
            16,150
            
            
            12,257Depreciation
                and amortization
            
            
            1,431
            
            
            1,342
            
            
            1,242Goodwill
                and asset impairment charges
            
            
            627
            
            
            151
            
            
            1,563Operating
                loss
            
            
            (9,864
            )
            
            (8,133
            )
            
            (3,207
            )Interest
                expense, net
            
            
            (450
            )
            
            (709
            )
            
            (661
            )Other
                income
            
            
            1,045
            
            
            851
            
            
            346Loss
                from continuing operations before income tax expense
            
            
            (9,269
            )
            
            (7,991
            )
            
            (3,522
            )Income
                tax expense
            
            
            98
            
            
            156
            
            
            2,186Loss
                from continuing operations
            
            
            (9,367
            )
            
            (8,147
            )
            
            (5,708
            )Income
                from discontinued operations, net of tax expense of $0 in 2007, $0
                in
                2006, and $253 in 2005
            
            
            2,782
            
            
            1,365
            
            
            688Net
                loss
            
            $
            (6,585
            )
            $
            (6,782
            )
            $
            (5,020
            )Per
                share of common stock (basic and diluted):Loss
                from continuing operations
            
            $
            (0.60
            )
            $
            (0.53
            )
            $
            (0.38
            )Income
                from discontinued operations, net of tax
            
            
            0.18
            
            
            0.09
            
            
            0.05Net
                loss
            
            $
            (0.42
            )
            $
            (0.44
            )
            $
            (0.33
            )Weighted
                average shares outstanding:Basic
            
            
            15,810,705
            
            
            15,274,498
            
            
            15,271,637Diluted
            
            
            15,810,705
            
            
            15,274,498
            
            
            15,271,637





*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**
            
            **Treasury****Shares**
            
            **Amount**
            
            **Capital**
            
            **Income
                (Loss)**
            
            **Deficit**
            
            **Stock**
            
            **Total****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, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            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, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            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
            )
            
            
            
            
            56,506Common
                stock issued in purchase acquisition
            
            
            1,176,471
            
            
            12
            
            
            2,883
            
            
            -
            
            
            -
            
            
            -
            
            
            2,895Exercise
                of common stock options
            
            
            13,400
            
            
            -
            
            
            28
            
            
            -
            
            
            -
            
            
            -
            
            
            28Purchase
                of treasury stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (111
            )
            
            (111
            )Stock-based
                compensation expense
            
            
            -
            
            
            -
            
            
            924
            
            
            -
            
            
            -
            
            
            -
            
            
            924Change
                in fair value of cash flow hedge
            
            
            -
            
            
            -
            
            
            -
            
            
            (17
            )
            
            -
            
            
            -
            
            
            (17
            )Unrealized
                gain (loss) on short-term investments, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            (74
            )
            
            -
            
            
            -
            
            
            (74
            )Net
                loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,585
            )
            
            -
            
            
            (6,585
            )Total
                comprehensive loss
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (6,676
            )**Balance
                at December 31, 2007**
            
            
            16,465,253
            
            $
            165
            
            $
            93,685
            
            $
            322
            
            $
            (40,495
            )
            $
            (111
            )
            $
            53,566






*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**,**2007**
              
              **2006**
              
              **2005****Operating
                  activities**Net
                  loss
              
              $
              (6,585
              )
              $
              (6,782
              )
              $
              (5,020
              )Income
                  from discontinued operations, net of tax
              
              
              2,782
              
              
              1,365
              
              
              688Loss
                  from continuing operations
              
              
              (9,367
              )
              
              (8,147
              )
              
              (5,708
              )Adjustments
                  to reconcile loss from continuing operations to net cash (used
                  in)
                  provided by operating activities:Depreciation
                  and amortization
              
              
              1,456
              
              
              1,341
              
              
              1,242Stock-based
                  compensation
              
              
              896
              
              
              1,360
              
              
              -Provision
                  for losses on receivables
              
              
              377
              
              
              300
              
              
              231Gain
                  on sale of property and equipment
              
              
              (3
              )
              
              (663
              )
              
              (333
              )Gain
                  on short-term investments
              
              
              (752
              )
              
              (311
              )
              
              (264
              )Asset
                  impairment charge-hurricane damage
              
              
              -
              
              
              -
              
              
              107Goodwill
                  and asset impairment charges
              
              
              627
              
              
              151
              
              
              1,563Deferred
                  income taxes
              
              
              -
              
              
              -
              
              
              2,313Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (40
              )
              
              61
              
              
              (262
              )Inventories
              
              
              (2,227
              )
              
              446
              
              
              (198
              )Prepaid
                  expenses and other assets
              
              
              (447
              )
              
              854
              
              
              (478
              )Accounts
                  payable
              
              
              435
              
              
              (173
              )
              
              (92
              )Deferred
                  revenue
              
              
              46
              
              
              47
              
              
              46Accrued
                  expenses
              
              
              884
              
              
              (403
              )
              
              (85
              )Income
                  taxes payable
              
              
              66
              
              
              (55
              )
              
              (209
              )Net
                  cash used in operating activities-continuing operations
              
              
              (8,049
              )
              
              (5,192
              )
              
              (2,127
              )Net
                  cash (used in) provided by operating activities-discontinued operations
              
              
              (1,207
              )
              
              2,075
              
              
              3,408Net
                  cash (used in) provided by operating activities
              
              
              (9,256
              )
              
              (3,117
              )
              
              1,281**Investing
                  Activities**Acquisition
                  of business, net of cash acquired
              
              
              (6,947
              )
              
              -
              
              
              (1,900
              )Purchase
                  of property and equipment
              
              
              (617
              )
              
              (504
              )
              
              (627
              )Proceeds
                  from sale of property and equipment
              
              
              297
              
              
              1,845
              
              
              1,086Purchase
                  of short-term investments
              
              
              -
              
              
              -
              
              
              (2,600
              )Payments
                  for intangibles
              
              
              (15
              )
              
              (20
              )
              
              (12
              )Net
                  cash (used in) provided by investing activities-continuing
                  operations
              
              
              (7,282
              )
              
              1,321
              
              
              (4,053
              )Net
                  cash provided by (used in) investing activities-discontinued
                  operations
              
              
              22,385
              
              
              194
              
              
              (792
              )Net
                  cash provided by (used in) investing activities
              
              
              15,103
              
              
              1,515
              
              
              (4,845
              )**Financing
                  activities**Payments
                  on long-term debt and capital lease obligations
              
              
              (892
              )
              
              (1,387
              )
              
              (1,249
              )Proceeds
                  (cost) of issuance of common stock
              
              
              28
              
              
              4
              
              
              (49
              )Payments
                  to repurchase stock
              
              
              (111
              )
              
              -
              
              
              -Net
                  cash used in financing activities-continuing operations
              
              
              (975
              )
              
              (1,383
              )
              
              (1,298
              )Net
                  cash used in financing activities-discontinued operations
              
              
              (824
              )
              
              (1,320
              )
              
              (1,277
              )Net
                  cash used in financing activities
              
              
              (1,799
              )
              
              (2,703
              )
              
              (2,575
              )Net
                  increase (decrease) in cash and cash equivalents
              
              
              4,048
              
              
              (4,305
              )
              
              (6,139
              )Cash
                  and cash equivalents at beginning of year
              
              
              4,055
              
              
              8,360
              
              
              14,499Cash
                  and cash equivalents at end of year
              
              $
              8,103
              
              $
              4,055
              
              $
              8,360




*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 three business segments: the Security Segment,
      producing for sale, consumer safety and personal defense products, as well
      as
      electronic surveillance and monitoring products; the Digital Media Marketing
      Segment, providing online marketing services and selling consumer products
      on
      the internet; and the Car and Truck Wash Segment, supplying complete car care
      services (including wash, detailing, lube, and minor repairs). The Company
      entered the Digital Media Marketing business with its acquisition of Linkstar
      Interactive, Inc. (“Linkstar”) on July 20, 2007 (See Note 4. Business
      Acquisitions and Divestitures). The Company’s remaining car and truck wash
      operations as of December 31, 2007 were located in Texas and Florida. The
      Company entered into two separate agreements in November 2007 to sell five
      of
      its six Florida full service car washes and a third agreement in January 2008
      to
      sell the Company’s final car wash in the Sarasota, Florida area. All six Florida
      car washes were sold from January 4, 2008 to March 3, 2008. The Company also
      completed the sale of its Arizona car wash region in May 2007 and completed
      the
      divesture of its Northeast car wash region in August 2007. Additionally, the
      Company completed the sale of five truck washes on December 31, 2007 subject
      to
      a lease-to-sell agreement entered into on December 31, 2005 with Eagle United
      Truck Wash, LLC (“Eagle”) to lease Mace’s five truck washes for two years
      beginning January 1, 2006. The Company did not recognize revenue or operating
      expenses of the truck washes during the term of the lease other than rental
      income, depreciation expense and interest expense. As of December 31, 2007,
      the
      results for the Arizona, Northeast, and Florida car wash regions and the
      Company’s truck washes have been classified as discontinued operations in the
      statement of operations and the statement of cash flows. The statements of
      operations and the statements of cash flows for the 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 5. Discontinued Operations and Assets Held for Sale).




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





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





The
      Company’s recognizes revenue in accordance with Staff Accounting Bulletin
      (“SAB”) No. 104, *Revenue Recognition in Financial Statements*. Under SAB
      No. 104, the Company recognizes revenue when the following criteria have been
      met: persuasive evidence of an arrangement exists, the fees are fixed and
      determinable, no significant obligations remain and collection of the related
      receivable is reasonably assured. Allowances for sales returns, discounts and
      allowances, are estimated and recorded concurrent with the recognition of the
      sale and are primarily based on historical return rates.





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 $713,000, $745,000 and $478,000 in 2007, 2006, and 2005, respectively, are
      included in revenues and selling, general, and administrative (SG&A)
      expenses.




Revenues
      from the Company’s Digital Media Marketing Segment are recognized in accordance
      with SAB No. 104, *Revenue Recognition in Financial Statements*. The
      ecommerce division recognizes revenue and the related product costs for trial
      product shipments after the expiration of the trial period. Marketing costs
      incurred by the ecommerce division are recognized as incurred. The online
      marketing division recognizes revenue and cost of sales consistent with the
      provisions of the Emerging Issues Task Force (“EITF”) Issue No. 99-19,
*Reporting Revenue Gross as a Principal versus Net as an Agent*, the
      Company records revenue based on the gross amount received from advertisers
      and
      the amount paid to the publishers placing the advertisements as cost of sales.
      Shipping and handling charges related to the ecommerce division of $384,000
      are
      included in SG&A expenses for the year ended December 31, 2007.





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.
      Sales tax collected from customers and remitted to the applicable taxing
      authorities is accounted for on a net basis, with no impact to revenues. 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.




F-8


**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, 2007, the Company had approximately $4.3 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. The Company realized a total  gain
      of
      $752,000, $323,000 and $266,000, respectively, in the years ended December
      31,
      2007, 2006 and 2005. Additionally, a cumulative unrealized gain, net of tax,
      of
      approximately $322,000 is included as a separate component of equity in
      Accumulated Other Comprehensive Income at December 31, 2007.




**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, e-commerce 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.
      Inventories within the e-commerce division of the Digital Media Marketing
      segment consist of several health and beauty products. The Company continually
      reviews the book value of slow moving inventory items, as well as, discontinued
      product lines to determine if inventory items are property valued. The Company
      identifies slow moving or discontinued product lines and assesses the ability
      to
      dispose of them at a price greater than costs. If it is determined that costs
      is
      less than market value, then cost is used for inventory valuation. If market
      value is less then costs, then an adjustment is made to the Company’s
      obsolescence reserve to adjust the inventory to market value.





**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 is approximately $1.0 million, $1.1 million and $1.1
      million for the years ended December 31, 2007, 2006, and 2005, respectively.
      Maintenance and repairs are charged to expense as incurred and amounted to
      approximately $431,000, in 2007, $456,000 in 2006 and $443,000 in
      2005.





**Asset
      Impairment Charges**





In
      accordance with the 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, 2007, 2006 and 2005 and will be subject to an impairment test
      each
      year thereafter. In the fourth quarter of 2007, as a result of the annual
      impairment test, we recorded an impairment of goodwill of approximately $280,000
      related to our consumer-direct electronic surveillance operation in Texas.
      In
      the fourth quarter of 2006, as a result of the annual impairment test, we
      recorded an impairment of approximately $105,000 related to our high end digital
      and machine vision cameras and professional imaging components operation in
      Texas. These impairment charges were due to reductions in our future projected
      cash flows as sales levels in these divisions continue to deviate from historic
      levels as a result of competitive pressures. Additionally, in the fourth quarter
      of 2005, as a result of the annual impairment test, 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. Significant estimates and assumptions are used in
      assessing the fair value of the reporting units and determining impairment
      to
      goodwill (See Note 5, *Goodwill* ).
      The
      Company cannot guarantee that there will not be impairments in subsequent
      years.




F-9





**Other
      Intangible Assets**





Other
      intangible assets consist of deferred financing costs, trademarks, customer
      lists, non-compete agreements, 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. As a result
      of our annual impairment testing in 2007, we recorded an impairment of
      trademarks of approximately $66,000 related to our consumer direct electronic
      surveillance operations and an impairment of trademarks of approximately
      $101,000 related to our high end digital and machine vision cameras and
      professional imaging components operations, both located in Texas. 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 $417,000, $283,000 and $172,000 for the years ended December
      31, 2007, 2006, and 2005, respectively. Deferred financing costs are amortized
      on a straight-line basis over the terms of the respective debt instruments.





**Insurance**





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 funds
      these accounts annually as required by the captive insurance company. Should
      funds deposited exceed claims ultimately incurred and paid, unused deposited
      funds are returned to the Company with interest on or about the fifth
      anniversary of the policy year-end. The captive insurance program is further
      secured by a letter of credit in the amount of $1,065,000 at December 31, 2007.
      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 as well as 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.  Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), an interpretation of FASB Statement No. 109 (“SFAS 109”). FIN 48
      prescribes a model for the recognition and measurement of a tax position taken
      or expected to be taken in a tax return, and provides guidance on derecognition,
      classification, interest and penalties, disclosure and transition.
      Implementation of FIN 48 did not result in a cumulative effect adjustment to
      retained earnings. At December 31, 2007, the Company did not have any
      significant unrecognized tax benefits.





**Supplementary
      Cash Flow Information**





Interest
      paid on all indebtedness was approximately $1.5 million, $2.0 million and $2.1
      million for the years ended December 31, 2007, 2006 and 2005, respectively.





Income
      taxes paid were approximately $81,000, $146,000 and $86,000 in 2007, 2006,
      and
      2005, respectively.





Noncash
      investing and financing activity of the Company include the recording of a
      $500,000 note payable to Company Shareholders issued as part of the
      consideration paid for the acquisition of Linkstar, a $920,000 note receivable
      recorded as part of the consideration received from the sale of the Company’s
      truck washes on December 31, 2007, and the sale of property and simultaneous
      pay
      down of related mortgages of $9.2 million, all in 2007.




F-10


**Advertising**





The
      Company expenses advertising costs, including advertising production costs,
      as
      they are incurred or when 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,
      which is typically two to four months. Prepaid advertising costs were $22,000
      and $96,000 at December 31, 2007 and 2006, respectively. Advertising expense
      was
      approximately $767,000 in 2007, $980,000 in 2006 and $947,000 in
      2005.




**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 the 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 on a straight-line basis over the life of
      the
      instruments, based upon the grant date fair value of the equity or liability
      instruments issued. Total stock compensation expense is approximately $924,300
      in 2007 ($895,000 included in SG&A expense, $800 included in cost of revenue
      and $28,500 in discontinued operations) and $1.4 million in 2006 ($1.36 million
      included in SG&A expense and $28,500 in discontinued operations).





The
      fair
      values of the Company’s options were estimated at the dates of grant using a
      Black-Scholes option pricing model with the following weighted average
      assumptions:





Year
                ended December 31,2007
            
            2006
            
            2005Expected
                term (years)
            10
            
            10
            
            10Risk-free
                interest rate
            4.24%
                to 5.16%
            
            4.36%
                to 5.14%
            
            4.06%
                to 4.57%Volatility
            52%
            
            44%
                to 52%
            
            52%
                to 56%Dividend
                yield
            0%
            
            0%
            
            0%




Expected
      term: The Company’s expected life is based on the period the options are
      expected to remain outstanding. The Company estimated this amount based on
      historical experience of similar awards, giving consideration to the contractual
      terms of the awards, vesting requirements and expectations of future
      behavior.





Risk-free
      interest rate: The Company uses the risk-free interest rate of a U.S. Treasury
      Note with a similar term on the date of the grant.





Expected
      volatility: The Company calculates the volatility of the stock price based
      on
      historical value and corresponding volatility of the Company’s stock price over
      the prior three years.





Dividend
      yield: The Company uses a 0% expected dividend yield as the Company has not
      paid
      and does not anticipate declaring dividends in the near future.





Forfeitures:
      The Company estimates forfeitures based on historical experience and factors
      of
      known historical or future projected work force reduction actions to anticipate
      the projected forfeiture rates.





The
      weighted-averages of the fair value of stock option grants are $1.67, $1.53
      and
      $1.88 per share in 2007, 2006 and 2005, respectively. As of December 31, 2007,
      total unrecognized stock-based compensation expense is $591,000, which has
      a
      weighted average period to be recognized of approximately 1.3
      years.




F-11




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**Net
                loss, as reported
            
            $
            (5,020
            )Less:
                Stock-based compensation costs under fairvalue
                based method for all awards
            
            
            (648
            )Pro
                forma net loss
            
            $
            (5,668
            )Loss
                per share - basicAs
                reported
            
            $
            (0.33
            )Pro
                forma
            
            $
            (0.37
            )Loss
                per share - dilutedAs
                reported
            
            $
            (0.33
            )Pro
                forma
            
            $
            (0.37
            )





**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, 2007 and
      2006, including debt recorded as liabilities related to assets held for sale,
      were as follows (in thousands):





**2007**
            
            **2006****Carrying**
              **Value**
            
            **Fair**
              **Value**
            
            **Carrying**
              **Value**
            
            **Fair**
              **Value**Fixed
                rate debt
            
            $
            500
            
            $
            500
            
            $
            8,820
            
            $
            8,826Variable
                rate debt
            
            
            13,058
            
            
            13,279
            
            
            15,146
            
            
            15,335Total
            
            $
            13,558
            
            $
            13,779
            
            $
            23,966
            
            $
            24,161




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.




F-12





**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 changed our interest rate exposure on approximately $7 million
      of
      variable rate debt. The variable rate debt floated at prime plus .25%. The
      hedge
      contract had a 36-month term and capped the interest rate on the $7 million
      of
      variable rate debt at 6.5%. The contract expired on September 30,
      2007.





The
      interest rate cap arrangement was effective in hedging changes in cash flows
      related to certain debt obligations during 2007, 2006 and 2005.





**Business
      Combinations**





In
      accordance with SFAS 141, *Business
      Combinations,* the
      Company allocates the cost of an 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.





**New
      Accounting Standards**





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
      February 2007, the FASB issued SFAS 159, *The
      Fair Value Option for Financial Assets and Financial Liabilities-Including
      an
      amendment of FASB Statement No. 115* (“SFAS
      159"). SFAS 159 expands the use of fair value accounting but does not affect
      existing standards, which require assets and liabilities to be carried at fair
      value. Under SFAS 159, a company may elect to use fair value to measure accounts
      and loans receivable, available-for-sale and held-to-maturity securities, equity
      method investments, accounts payable, guarantees, issued debt and other eligible
      financial instruments. SFAS 159 is effective for fiscal years beginning after
      November 15, 2007. The adoption of SFAS 159 is not expected to have a material
      impact on the Company’s consolidated results of operations, cash flows or
      financial position.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), an interpretation of FASB Statement No. 109 (“SFAS 109”). FIN 48
      prescribes a model for the recognition and measurement of a tax position taken
      or expected to be taken in a tax return, and provides guidance on derecognition,
      classification, interest and penalties, disclosure and transition.
      Implementation of FIN 48 did not result in a cumulative effect adjustment to
      retained earnings. At December 31, 2007, the Company did not have any
      significant unrecognized tax benefits.





In
      December 2007, the FASB issued SFAS No. 141 (revised 2007), *Business
      Combinations* .
      This
      statement replaces SFAS No. 141, *Business
      Combinations* ,
      requires an acquirer to recognize the assets acquired, the liabilities assumed
      and any noncontrolling interest in the acquiree at the acquisition date,
      measured at their fair values as of that date, with limited exceptions. SFAS
      No.
      141R requires costs incurred to effect the acquisition to be recognized
      separately from the acquisition as period costs. SFAS No. 141R also requires
      the
      acquirer to recognize restructuring costs that the acquirer expects to incur,
      but is not obligated to incur, separately from the business combination. In
      addition, this statement requires an acquirer to recognize assets and
      liabilities assumed arising from contractual contingencies as of the acquisition
      date, measured at their acquisition-date fair values. Other key provisions
      of
      this statement include the requirement to recognize the acquisition-date fair
      values of research and development assets separately from goodwill and the
      requirement to recognize changes in the amount of deferred tax benefits that
      are
      recognizable due to the business combination in either income from continuing
      operations in the period of the combination or directly in contributed capital,
      depending on the circumstances. With the exception of certain tax-related
      aspects described above, this statement applies prospectively to business
      combinations for which the acquisition date is on or after the beginning of
      the
      first annual reporting period after December 15, 2008. The Company will comply
      with the provisions of SFAS No. 141R should the Company complete an acquisition
      subsequent to December 31, 2008.




F-13





**3.**  **Business
      Acquisitions**  **and
      Divestitures**





***Acquisitions***





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
      July
      20, 2007, the Company completed the purchase of all of the outstanding common
      stock of Linkstar Interactive, Inc. (“Linkstar”) from Linkstar’s shareholders.
      Linkstar is an online internet advertising and e-commerce direct marketing
      company. Linkstar’s primary assets are inventory, accounts receivable,
      proprietary software, customer contracts, and its business methods. The
      acquisition of Linkstar enables the Company to expand the marketing of its
      security products through online channels and provides the Company with a
      presence in the online and digital media services industry. The Company paid
      approximately $10.5 million to the Linkstar shareholders consisting of $7.0
      million in cash at closing, $500,000 of promissory notes bearing a 5% interest
      rate due on January 3, 2008 and 1,176,471 unregistered shares of the Company’s
      common stock. The Company’s stock was issued based on a closing price of $2.55
      per share or a total value of $2.9 million, net of estimated costs to register
      the stock. In addition to the $10.5 million of consideration at closing, the
      Company incurred approximately $261,000 in related acquisition costs and
      recorded an additional estimated receivable of $160,000 for working capital
      acquired below the minimum working capital requirement of $500,000, as per
      the
      purchase agreement. The purchase price was allocated as follows: approximately
      (i) $248,000 cash; (ii) $183,000 for inventory; (iii) $1.12 million for accounts
      receivable; (iv) $41,000 for prepaids; (v) $80,000 for equipment; (vi) the
      assumption of $1.26 million of liabilities, and (vii) the remainder, or $10.18
      million, allocated to goodwill and other intangible assets. Of the $10.18
      million of acquired intangible assets, $478,000 was assigned to trademarks
      and
      $6.89 million was assigned to goodwill, neither of which is subject to
      amortization expense. The remaining intangible assets were assigned to customer
      relationships for $1.57 million, non-compete agreements for $367,000 and
      software for $883,000. The allocation of the purchase price of the Linkstar
      acquisition reflects certain reclasses from the allocation reported as of
      September 30, 2007 as a result of refinements to certain data utilized for
      the
      acquisition valuation. Customer relationships, non-compete agreements, and
      software costs were assigned a life of nine, seven, and six years, respectively.
      The acquisition was accounted for as a business combination in accordance with
      SFAS 141, *Business
      Combinations* .
      The
      proforma financial information presented below gives effect to the Linkstar
      acquisition as if it had occurred as of the beginning of our fiscal year 2006.
      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 2006 or results which
      may be achieved in the future.





Unaudited
      proforma financial information, assuming the Linkstar acquisition occurred
      on
      January 1, 2005, is as follows (in thousands, except per shares
      amounts):





**Year
                Ended December 31,****2007**
            
            **2006**
            
            **2005**Revenues
            
            $
            57,840
            
            $
            54,894
            
            $
            48,040Net
                Loss
            
            $
            (6,458
            )
            $
            (7,147
            )
            $
            (5,405
            )Loss
                per share-basic and dilutive
            
            $
            (0.39
            )
            $
            (0.
                43
            )
            $
            (0.33
            )





***Divestitures***





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.




F-14





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.





In
      the
      first quarter ended March 31, 2007, the Company sold seven car washes consisting
      of: (i) 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;
      (ii) an exterior car wash in Moorestown, New Jersey on January 5, 2007 for
      $350,000 cash, which approximates book value; (iii) an exterior car wash in
      Philadelphia, Pennsylvania on March 1, 2007 for $475,000 in cash at a gain
      of
      approximately $141,000; and (iv) 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.





In
      the
      second quarter ended June 30, 2007, the Company sold 14 car washes consisting
      of: (i) an exterior car wash in Yeadon, Pennsylvania on May 14, 2007 for
      $100,000 in cash at a gain of approximately $90,000; (ii) 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
      (iii) an exterior car wash in Smyrna, Delaware on May 31, 2007 for $220,000
      in
      cash at a gain of approximately $202,000.





In
      the
      third quarter ended September 30, 2007, the Company sold its two remaining
      exterior car wash sites in Camden and Sicklerville, New Jersey on August 3,
      2007
      for total cash consideration of $1.38 million at a gain of approximately
      $179,000.





In
      the
      fourth quarter ending December 31, 2007, the Company sold two of its San
      Antonio, Texas car wash sites in two separate transactions on November 8, 2007
      and November 13, 2007 for total cash consideration of $2.96 million at a total
      gain of approximately $38,000.




Additionally,
      on December 31, 2007, the Company completed its sale of its five truck washes
      under its lease-to-sell agreement with Eagle United Truck Wash, LLC (“Eagle”).
      Eagle purchased the five truck washes for total consideration of $1.2 million,
      consisting of $280,000 cash and a $920,000 five year note payable to Mace
      secured by mortgages on the truck washes. The current portion of the note
      payable, approximately $28,000, is included in prepaid expenses and other
      current assets and the non-current portion, approximately $892,000 is included
      in other assets. The Company recorded a gain of approximately $279,000 on the
      sale.





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





On
      December 7, 2006, the Company signed an agreement with Twisted Cactus
      Enterprises, LLC to sell its Arizona car washes. This transaction closed on
      May
      17, 2007. Additionally, the Company sold nine of its Northeast region car washes
      in the nine months ended September 30, 2007 which represent all of the revenues
      within the Northeast region. The Company completed the sale of its truck washes
      on December 31, 2007 under a lease-to-sell agreement executed on December 31,
      2005 with Eagle to lease Mace’s five truck washes beginning January 1, 2006
      through December 31, 2007. The Company did not recognize revenue or operating
      expenses during the term of the lease other than rental income, depreciation
      expense and interest expense. The Company also entered into two separate
      agreements on November 8, 2007 and November 19, 2007 to sell five of its six
      full service car washes and a third agreement in January 2008 to sell its final
      car wash in the Sarasota, Florida area. All six Florida car washes were sold
      from January 4, 2008 to March 3, 2008. Accordingly, for financial statement
      purposes, the assets, liabilities, results of operations and cash flows of
      the
      operations of our Arizona, Northeast and Florida car washes and our truck washes
      have been segregated from those of continuing operations and are presented
      in
      the Company’s consolidated financial statements as discontinued operations.





Revenues
      from discontinued operations were $10.0 million, $20.1 million and $22.5 million
      for the fiscal years 2007, 2006 and 2005, respectively. Operating income from
      discontinued operations was $714,000, $1.7 million and $1.7 million for the
      fiscal years 2007, 2006 and 2005, respectively.





In
      the
      third quarter ended September 30, 2007, the Company signed agreements to sell
      a
      full service car wash in Fort Worth, Texas in addition to the five Florida
      full
      service car wash agreements entered into in November 2007 as noted above. These
      six car washes are presented in the Company’s consolidated financial statements
      as assets and liabilities held for sale.




F-15




Assets
      and liabilities held for sale are comprised of the following at December 31,
      2007 (in thousands):





**Assets
                held for sale:**
            
            **Fort
                Worth,**
              **Texas**
            
            **Florida**
            
            **Total**Inventory
            
            $
            61
            
            $
            133
            
            $
            194Property,
                plant and equipment, net
            
            
            918
            
            
            4,471
            
            
            5,389Intangibles
            
            
            -
            
            
            82
            
            
            82Total
                assets
            
            $
            979
            
            $
            4,686
            
            $
            5,665Liabilities
                related to assets held for sale:Deferred
                Revenue
            
            $
            -
            
            $
            118
            
            $
            118Current
                portion of long-term debt
            
            
            180
            
            
            3,592
            
            
            3,772Long-term
                debt, net of current portion
            
            
            604
            
            
            -
            
            
            604Total
                liabilities
            
            $
            784
            
            $
            3,710
            
            $
            4,494





**5.
      Goodwill**





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. 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 $105,000 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 2007, as a result
      of the annual impairment test of Goodwill and Other Intangibles in accordance
      with SFAS 142, we recorded an impairment of goodwill of approximately $280,000
      related to our consumer direct electronic surveillance operation located in
      Texas. 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, 2005, 2006 and 2007 are as follows (in thousands):


**Northeast
                  Car Washes**
              
              **Texas
                  Car Washes**
              
              **Security**
                **Segment**
              
              **Digital
                  Media Marketing Segment**
              
              **Total**Balance
                  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
              
              
              -
              
              
              1,623Acquisition
                  of Linkstar
              
              
              -
              
              
              -
              
              
              -
              
              
              6,888
              
              
              6,888Impairment
                  loss
              
              
              -
              
              
              -
              
              
              (280
              )
              
              -
              
              
              (280
              )Balance
                  at December 31, 2007
              
              $
              -
              
              $
              -
              
              $
              1,343
              
              $
              6,888
              
              $
              8,231




F-16




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





The
      changes in the allowance for doubtful accounts are summarized as
      follows:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Balance
                at beginning of year
            
            $
            690
            
            $
            593
            
            $
            449Additions
                (charged to expense)
            
            
            354
            
            
            302
            
            
            232Adjustments
            
            
            (4
            )
            
            (12
            )
            
            -Deductions
            
            
            (249
            )
            
            (193
            )
            
            (88
            )Balance
                at end of year
            
            $
            791
            
            $
            690
            
            $
            593





**7.**  **Inventories**





Inventories
      consist of the following:




**As
                of December 31,****2007**
            
            **2006**(In
                thousands)Finished
                goods
            
            $
            8,171
            
            $
            5,929Work
                in process
            
            
            69
            
            
            77Raw
                materials and supplies
            
            
            413
            
            
            337Fuel,
                merchandise inventory and car wash supplies
            
            
            643
            
            
            827$
            9,296
            
            $
            7,170





The
      changes in the reserve for obsolete inventory accounts are summarized as
      follows:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Balance
                at beginning of year
            
            $
            833
            
            $
            569
            
            $
            510Additions
                (charged to expense)
            
            
            338
            
            
            451
            
            
            481Adjustments
            
            
            -
            
            
            -
            
            
            (150
            )Deductions
            
            
            (144
            )
            
            (187
            )
            
            (272
            )Balance
                at end of year
            
            $
            1,027
            
            $
            833
            
            $
            569




F-17




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





**December
                31, 2007**
            
            **December
                31, 2006****Gross
                Carrying Amount**
            
            **Accumulated**
              **Amortization**
            
            **Gross
                Carrying Amount**
            
            **Accumulated**
              **Amortization****(In
                thousands)**Amortized
                intangible assets:Non-compete
                agreement
            
            $
            465
            
            $
            91
            
            $
            98
            
            $
            46Customer
                lists
            
            
            2,751
            
            
            591
            
            
            1,184
            
            
            356Product
                lists
            
            
            590
            
            
            207
            
            
            590
            
            
            148Software
            
            
            883
            
            
            61
            
            
            -
            
            
            -Patent
                Costs
            
            
            5
            
            
            -
            
            
            5
            
            
            -Deferred
                financing costs
            
            
            231
            
            
            173
            
            
            387
            
            
            229Total
                amortized intangible assets
            
            
            4,925
            
            
            1,123
            
            
            2,264
            
            
            779Non-amortized
                intangible assets:Trademarks
                - Security Segment
            
            
            1,285
            
            
            -
            
            
            1,438
            
            
            -Trademarks
                - Digital Media Marketing Segment
            
            
            478
            
            
            -
            
            
            -
            
            
            -Total
                non-amortized intangible assets
            
            
            1,763
            
            
            -
            
            
            1,438
            
            
            -Total
                intangible assets
            
            $
            6,688
            
            $
            1,123
            
            $
            3,702
            
            $
            779





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





2008
            
            $
            5962009
            
            $
            5602010
            
            $
            5512011
            
            $
            5512012
            
            $
            542





Amortization
      expense of other intangible assets was approximately $417,000, $283,000 and
      $172,000 for the years ended December 31, 2007, 2006, and 2005, respectively.
      The weighted average useful life of amortizing intangible assets was 8.4 years
      at December 31, 2007.




F-18




**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,****2007**
            
            **2006**(In
                thousands)Notes
                payable to Capmark Finance, Inc. (“Capmark”), interest rate of 8.52%,
                collateralized by real property, equipment and inventory of certain
                of the
                Arizona region Car Wash locations. Paid in full, May 18,
                2007.
            
            $
            -
            
            $
            8,789Note
                payable to JPMorgan Chase Bank, N.A. (“Chase”), the successor of Bank One,
                Texas, N.A., interest rate of prime plus 0.25% (7.50% at December
                31,
                2007), is due in monthly installments of $61,109 including interest
                (adjusted annually), through November 2008, collateralized by real
                property and equipment of Eager Beaver Car Wash, Inc. Paid in full,
                March
                3, 2008.
            
            
            4,311
            
            
            4,683Notes
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2007) due in monthly installments totaling $45,083 per month including
                interest (adjusted annually) through various dates ranging from August
                2009 to February 2013, collateralized by real property and equipment
                of
                certain of the Colonial Car Wash locations.
            
            
            2,512
            
            
            2,835Note
                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% (7.50% at December 31, 2007), is
                due in
                monthly installments of $46,811including
                interest (adjusted annually), renewed throughFebruary, 2013, collateralized by real property and equipment of
                the Genie
                Car Wash locations.
            
            
            2,990
            
            
            3,280Note
                payable to Western National Bank, interest rate of 5.25%,(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.
            
            
            1,246
            
            
            1,425Note
                payable to Business Loan Express, interest rate of prime plus 2.5%
                (9.75%
                at December 31, 2007), is due in monthly installments of $13,473
                including
                interest (adjusted annually), through December 2022, collateralized
                by
                real property and equipment of the Blue Planet Car Wash in Dallas,
                Texas.
            
            
            1,275
            
            
            1,307Note
                payable to Chase, interest rate of prime plus 0.25%, collateralized
                by
                real property and equipment of the Superstar Kyrene Car Wash in Tempe,
                Arizona. Paid in full, May 18, 2007.
            
            
            -
            
            
            582Note
                payable to Chase, interest rate of prime plus 0.25%, collateralized
                by
                real property and equipment of the Red Baron Amarillo Truck Wash.
                Paid in
                full, December 31, 2007.
            
            
            -
            
            
            274Capital
                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.
            
            
            -
            
            
            31Note
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2007) due in monthly installments of $8,202 including interest (adjusted
                annually), through September 2009, collateralized by real property
                and
                equipment of Mace Security Products, Inc. in Farmers Branch,
                Texas.
            
            
            724
            
            
            760Term
                note payable to Linkstar shareholders as part of purchase, interest
                rate
                5%. Payment due January 2008 (principal plus interest).
            
            
            500
            
            
            -13,558
            
            
            23,966Less:
                current portion
            
            
            6,398
            
            
            10,879$
            7,160
            
            $
            13,087





Of
      the 21
      car washes owned or leased by us at December 31, 2007, 15 properties and related
      equipment with a net book value totaling $24.1 million had secured first
      mortgage loans totaling $12.3 million.




At
      December 31, 2007, we had borrowings, including borrowings related to
      discontinued operations, of approximately $13.6 million, substantially all
      of
      which is secured by mortgages against certain of our real property. Of such
      borrowings, approximately $6.4 million, including $4.4 million of long-term
      debt
      included in liabilities related to assets held for sale, is reported as current
      as it is due or expected to be repaid in less than twelve months from December
      31, 2007. Current debt includes $500,000 of notes payable to Company
      shareholders issued as part of the consideration for the acquisition of Linkstar
      Interactive, Inc. on July 20, 2007. The notes payable were paid in January
      2008
      along with accrued interest at 5%.





We
      have
      three letters of credit outstanding at December 31, 2007, totaling $1,149,000
      as
      collateral relating to workers’ compensation insurance policies. We maintain a
      $500,000 revolving credit facility to provide financing for additional
      electronic surveillance product inventory purchases. There were no borrowings
      outstanding under the revolving credit facility at December 31,
      2007. **** The
      Company also maintains a $300,000 bank commitment for commercial letters of
      credit for the importation of inventory. There were outstanding commercial
      letters of credit under this commitment totaling $153,000 at December 31,
      2007.




F-19





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: 2008 - $5.795 million, 2009 - $3.26 million, 2010 - $693,000, 2011
      -
      $744,000, 2012 - $797,000, 2013 and thereafter - $2.269 million.





**10.**  **Accrued
      Expenses and Other Current Liabilities**





Accrued
      expenses and other current liabilities consist of the following:





**As
                of December 31,****2007**
            
            **2006**(In
                thousands)Accrued
                compensation
            
            $
            662
            
            $
            782Property
                and other non-income taxes
            
            
            217
            
            
            158Other
            
            
            1,702
            
            
            1,269$
            2,581
            
            $
            2,209





**11.**  **Interest
      Expense, net**





Interest
      expense, net of interest income consists of the following (in
      thousands):





**Year
                Ended December 31****2007**
            
            **2006**
            
            **2005**Interest
                expense
            
            $
            (906
            )
            $
            (889
            )
            $
            (947
            )Interest
                income
            
            
            456
            
            
            180
            
            
            286$
            (450
            )
            $
            (709
            )
            $
            (661
            )




**12.**  **Other
      Income**





Other
      income consists of the following (in thousands):





**Year
                Ended December 31****2007**
            
            **2006**
            
            **2005**Investment
                income
            
            $
            752
            
            $
            323
            
            $
            266Deposit
                recovery
            
            
            150
            
            
            -
            
            
            -Rental
                income
            
            
            39
            
            
            43
            
            
            78Gain
                on sale of fixed assets
            
            
            47
            
            
            461
            
            
            92Hurricane
                damage loss
            
            
            -
            
            
            -
            
            
            (123
            )Other
            
            
            57
            
            
            24
            
            
            33$
            1,045
            
            $
            851
            
            $
            346





F-20


**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.




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, 2007, 5,717,444 options have
      been granted under the 1993 and 1999 Plans including 4,274,760 nonqualified
      stock options.





Activity
      with respect to these plans is as follows:




**2007**
            
            **2006**
            
            **2005****Number**
            
            **Weighted
                Average Exercise**
              **Price**
            
            **Number**
            
            **Weighted
                Average Exercise**
              **Price**
            
            **Number**
            
            **Weighted
                Average Exercise**
              **Price**Options
                outstanding beginning of period
            
            
            3,995,015
            
            
            3.63
            
            
            3,108,682
            
            $
            4.00
            
            
            2,971,264
            
            $
            4.03Options
                granted
            
            
            555,000
            
            
            2.45
            
            
            984,500
            
            $
            2.36
            
            
            300,000
            
            $
            2.73Options
                exercised
            
            
            (13,400
            )
            
            2.10
            
            
            (2,500
            )
            $
            1.80
            
            
            (1,750
            )
            $
            1.85Options
                forfeited
            
            
            (96,600
            )
            
            2.63
            
            
            (95,667
            )
            $
            2.73
            
            
            (160,832
            )
            $
            2.30Options
                outstanding end of period
            
            
            4,440,015
            
            
            3.51
            
            
            3,995,015
            
            $
            3.63
            
            
            3,108,682
            
            $
            4.00Options
                exercisable
            
            
            3,767,013
            
            
            
            
            
            3,479,015
            
            
            
            
            
            2,696,684Shares
                available for granting of options
            
            
            2,637,149
            
            
            
            
            
            3,095,549
            
            
            
            
            
            3,984,382





Stock
      options outstanding at December 31, 2007 under both plans are summarized as
      follows:





**Range
                of****Exercise
                Prices**
            
            **Number**
              **Outstanding**
            
            **Weighted
                Avg.**
              **Remaining**
              **Contractual
                Life**
            
            **Weighted**
              **Avg.
                Exercise**
              **Price**$1.28-$1.91
            
            
            747,209
            
            
            5.2
            
            
            1.43$1.94-$2.97
            
            
            2,009,313
            
            
            5.0
            
            
            2.42$3.00-$4.45
            
            
            837,974
            
            
            6.6
            
            
            3.94$5.00-$5.59
            
            
            632,291
            
            
            4.8
            
            
            5.34$8.63-$11.75
            
            
            71,160
            
            
            2.1
            
            
            10.06$13.25-$19.50
            
            
            132,068
            
            
            1.5
            
            
            15.22$22.00
            
            
            10,000
            
            
            1.4
            
            
            22.00




F-21





The
      Company received cash from options exercised during the fiscal years 2007,
      2006
      and 2005 of $28,000, $4,500 and $3,200, respectively. The impact of these cash
      receipts are included in financing activities in the accompanying consolidated
      statements of cash flows.





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 were 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, 2007, 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.





**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, 2007 and 2006
      are
      as follows:





As
                of December 31,2007
            
            2006(In
                thousands)Deferred
                tax assets:Allowance
                for doubtful accounts
            
            $
            329
            
            $
            267Inventories
            
            
            28
            
            
            28Net
                operating loss carryforwards
            
            
            11,452
            
            
            9,229Deferred
                revenue
            
            
            111
            
            
            201Compensation
            
            
            39
            
            
            39Car
                damage reserve
            
            
            84
            
            
            109Accrued
                workers compensation costs
            
            
            38
            
            
            38Federal
                Tax Credit
            
            
            152
            
            
            179Vesting
                Stock Options
            
            
            547
            
            
            547Other,
                net
            
            
            188
            
            
            53Total
                deferred tax assets
            
            
            12,968
            
            
            10,690Valuation
                allowance for deferred tax assets
            
            
            (10,683
            )
            
            (6,750
            )Deferred
                tax assets after valuation allowance
            
            
            2,285
            
            
            3,940Deferred
                tax liabilities:Property,
                equipment and intangibles
            
            
            (2,285
            )
            
            (3,940
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





F-22


At
      December 31, 2007, the Company had U.S. federal net operating loss carryforwards
      of approximately $ 27.6 million. The U.S. federal net operating loss
      carryforwards expire as follows:




Year
                of Expiration
            
            Amount2018
            
            $
            1,1192019
            
            
            4,5072020
            
            
            3,2412021
            
            
            1,5832022
            
            
            2,8222023
            
            
            4,4112024
            
            
            52025
            
            
            1,2502026
            
            
            6,8972027
            
            
            1,807$
            27,642





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. Utilization of our net operating loss
      and
      tax credit carryforwards may be subject to annual limitations due to the
      ownership change limitations provided by the Internal Revenue Code and similar
      state provisions. Such an annual limitation could result in the expiration
      of
      the net operating loss or tax credits before utilization. The Company increased
      its valuation allowance against deferred tax assets by $3.9 million in 2007
      and
      $2.6 million in 2006 with a total valuation allowance of $10.6 million at
      December 31, 2007 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,
      2007, 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 Digital Media
      Marketing and Security Segments.





Effective
      January 1, 2007, the Company adopted the provisions of FASB Interpretation
      No.
      48, *Accounting
      for Uncertainty in Income Taxes* (“FIN
      48”), an interpretation of FASB Statement No. 109 (“SFAS 109”). FIN 48
      prescribes a model for the recognition and measurement of a tax position taken
      or expected to be taken in a tax return, and provides guidance on derecognition,
      classification, interest and penalties, disclosure and transition.
      Implementation of FIN 48 did not result in a cumulative effect adjustment to
      retained earnings. At December 31, 2007, the Company did not have any
      significant unrecognized tax benefits. The total amount of interest and
      penalties recognized in the statements of operations for each of the years
      in
      the three-year period ended December 31, 2007 was insignificant and when
      incurred is reported as interest expense.





The
      components of income tax expense (benefit) are:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Current
                (principally state taxes)
            
            $
            98
            
            $
            156
            
            $
            126Deferred
            
            
            -
            
            
            -
            
            
            2,313Total
                income tax expense (benefit)
            
            $
            98
            
            $
            156
            
            $
            2,439




F-23




The
      significant components of deferred income tax expense (benefit) attributed
      to
      the loss for the years ended December 31, 2007, 2006, and 2005 are as
      follows:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Deferred
                tax (benefit) expense
            
            $
            (1,710
            )
            $
            62
            
            $
            133Loss
                carryforward
            
            
            (2,223
            )
            
            (2,686
            )
            
            (1,110
            )Valuation
                allowance for deferred tax assets
            
            
            3,933
            
            
            2,624
            
            
            3,290$
            -
            
            $
            -
            
            $
            2,313




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




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Tax
                at U.S. federal statutory rate
            
            $
            (3,728
            )
            $
            (2,322
            )
            $
            (903
            )State
                taxes, net of federal benefit
            
            
            (107
            )
            
            (151
            )
            
            40Nondeductible
                costs and other acquisitionaccounting
                adjustments
            
            
            -
            
            
            5
            
            
            12Valuation
                allowance for deferred tax assets
            
            
            3,933
            
            
            2,624
            
            
            3,290Total
                income tax expense (benefit)
            
            $
            98
            
            $
            156
            
            $
            2,439





**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,****2007**
            
            **2006**
            
            **2005**Numerator
                (In thousands):Net
                loss
            
            
            (6,585
            )
            $
            (6,782
            )
            $
            (5,020
            )Denominator:Denominator
                for basic lossper
                share - weighted average shares
            
            
            15,810,705
            
            
            15,274,498
            
            
            15,271,637Dilutive
                effect of options and warrants
            
            
            -
            
            
            -
            
            
            -Denominator
                for diluted lossper
                share - weighted average shares
            
            
            15,810,705
            
            
            15,274,498
            
            
            15,271,637Basic
                loss per share:Net
                loss
            
            $
            (0.42
            )
            $
            (0.44
            )
            $
            (0.33
            )Diluted
                loss per share:Net
                loss
            
            $
            (0.42
            )
            $
            (0.44
            )
            $
            (0.33
            )




The
      dilutive effect of options and warrants of 375,292, 334,055, and 275,044 at
      December 31, 2007, 2006, and 2005, 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.





F-24


**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, 2007 for
      continuing operations are as follows: 2008 - $998,000; 2009 - $778,000; 2010
      -
      $644,000; 2011 - $480,000; 2012 - $451,000 and thereafter - $951,000 million.
      Rental expense under these leases was $878,000, $782,000 and $711,000 for the
      years ended December 31, 2007, 2006, and 2005, 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 cancelable leases. During
      fiscal 2007, 2006, and 2005 revenues under these leases were approximately
      $39,000, $43,000 and $78,000, 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
      was settled in April 2006 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. The Company incurred $704,000 in legal, consulting and
      accounting expenses associated with the Audit Committee investigations in fiscal
      2006 and $1.47 million ($674,000 and $796,000, in fiscal 2007 and 2006,
      respectively) of legal fees 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. The Company 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





During
      January 2008, the Environmental Protection Agency (“EPA”) conducted a site
      investigation at the Company’s Bennington, Vermont location and the building the
      facility is located within. The Company does not own the building or land and
      leases 44,000 square feet of the building from Vermont Mill Properties, Inc
      (“Vermont Mill”). During February 2008, a search of the Company’s Bennington,
      Vermont location and the building it is located within was conducted under
      a
      search warrant issued by the U.S. District Court for the District of Vermont.
      Both the site investigation and search were focused on discovering whether
      hazardous substances were being improperly stored. Subsequent to the
      investigation and search, the EPA notified the Company and the building owner
      that remediation of certain hazardous wastes are required. The hazardous
      materials and waste identified by the EPA were (i) metal contaminated soils
      on
      the building grounds (waste from sand blasting paint from the building, the
      Company believes that the building owner and not Mace is responsible for any
      soil clean up); (ii) approximately 130 drums of hazardous waste (waste gases
      generated from testing the defense spray units sold by the Company and defective
      spray units); (iii) 55 thousand pounds of 2-chlorobenzalmalononitrile stored
      in
      eight pound plastic containers (a chemical used to make tear gas); and (iv)
      three steal drums containing a chemical used to make pyrotechnic grenades (this
      material is held for resale). The EPA is requiring the Company and the building
      owner to remove and properly dispose of the hazardous waste and properly store
      of all hazardous material. The EPA in findings of fact issued on February 20,
      2008 estimated the cost for the removal and proper storage at $300,000,
      including the cost for any soil clean up which is not the responsibility of
      the
      Company. We estimate the range of possible loss attributable to the Company
      to
      be from approximately $285,000 to $365,000 including the cost of disposal of
      the
      waste materials, as well as expenses incurred with environmental engineers
      and
      legal counsel. An accrual of approximately $285,000 has been recorded as of
      December 31, 2007 for this matter representing management’s best estimate of
      probable loss, as defined by SFAS No. 5, *Accounting
      for Contingencies* .
      The
      EPA, the Company and the building owner have entered into an Administrative
      Consent Order which will govern the removal of hazardous waste and storage
      of
      hazardous material. The Administrative Consent Order requires that the Company
      provide a $500,000 bond to secure its obligations under the Administrative
      Consent Order. The Company is unable at this time to determine whether further
      action will be taken by the United States Attorney or if any charges, fines
      or
      penalties will be sought from the Company.





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 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. This impairment was 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. Additionally, during the quarter ended December 31,
      2007,
      we wrote down assets related to a full service car wash in San Antonio, Texas
      by
      approximately $180,000.We determined that based on current data utilized to
      estimate the fair value of these car wash facilities, the future expected cash
      flows would not be sufficient to recover their carrying values. Further, in
      the
      fourth quarter of 2006, as a result of our annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 142, we recorded an impairment
      of
      goodwill of approximately $105,000 related to our high end digital and machine
      vision cameras and professional imaging components operation in Texas. In the
      fourth quarter of 2007, as a result of our annual impairment test of goodwill
      and other intangibles, we recorded an impairment of goodwill of approximately
      $280,000 and an impairment of trademarks of approximately $66,000 related to
      our
      consumer direct electronic surveillance operations and an impairment of
      trademarks of approximately $101,000 related to our high end digital and machine
      vision cameras and professional imaging components operations, both located
      in
      Texas. These goodwill and trademark impairment charges were due to reductions
      in
      our future projected cash flows as sales levels in these divisions continue
      to
      deviate from historic levels as a result of competitive pressures.




F-26


***Discontinued
      Operations***





During
      the quarter ended September 30, 2005, we wrote down assets related to our truck
      wash operations determined to be impaired by approximately $500,000 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.





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





The
      Company’s Security Segment leases manufacturing and office space under a
      five-year lease with 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, 2007, 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 three segments: the Security Segment, the Digital
      Media Marketing Segment, and the Car and Truck Wash 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.




F-27





Selected
      financial information for each reportable segment from continuing operations
      is
      as follows:




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**Revenues:
            
            (In
                thousands)Car
                and truck wash - external customers
            
            $
            17,186
            
            $
            19,254
            
            $
            20,838Security
                - external customers
            
            $
            22,278
            
            $
            23,366
            
            $
            24,909Digital
                media marketing - external customers
            
            $
            7,625
            
            $
            -
            
            $
            -$
            47,089
            
            $
            42,620
            
            $
            45,747Segment
                Operating (loss) income:Corporate
                (1)
            
            $
            (6,186
            )
            $
            (6,291
            )
            $
            (3,450
            )Car
                and truck wash
            
            
            79
            
            
            777
            
            
            1,834Security
            
            
            (2,445
            )
            
            (2,468
            )
            
            (28
            )Digital
                media marketing
            
            
            (685
            )
            
            -
            
            
            -$
            (9,237
            )
            $
            (7,982
            )
            $
            (1,644
            )Assets:Car
                and truck wash
            
            $
            37,962
            
            $
            42,771
            
            $
            75,876Security
            
            
            18,748
            
            
            19,082
            
            
            20,235Digital
                media marketing
            
            
            13,062
            
            
            -
            
            
            -$
            69,772
            
            $
            61,853
            
            $
            96,111Capital
                expenditures:Corporate
            
            
            35
            
            $
            12
            
            $
            10Car
                and truck wash
            
            
            365
            
            
            151
            
            
            197Security
            
            
            205
            
            
            341
            
            
            455Digital
                media marketing
            
            
            12
            
            
            -
            
            
            -617
            
            $
            504
            
            $
            662Depreciation
                and amortization:Corporate
            
            
            30
            
            $
            32
            
            $
            43Car
                and truck wash
            
            
            739
            
            
            793
            
            
            800Security
            
            
            497
            
            
            517
            
            
            399Digital
                media marketing
            
            
            165
            
            
            -
            
            
            -$
            1,431
            
            $
            1,342
            
            $
            1,242




(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.





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




**Year
                ended December 31,****2007**
            
            **2006**
            
            **2005**(In
                thousands)Total
                operating loss for reportable segments
            
            $
            (9,237
            )
            $
            (7,982
            )
            $
            (1,644
            )Goodwill
                and asset impairment charges
            
            
            (627
            )
            
            (151
            )
            
            (1,563
            )Total
                reported operating loss
            
            $
            (9,864
            )
            $
            (8,133
            )
            $
            (3,207
            )





**21.
      Subsequent Events**





Subsequent
      to December 31, 2007, the Company sold six car washes in the Sarasota, Florida
      area from January 4, 2008 to March 3, 2008. On January 4, 2008 the Company
      completed the sale of the car wash located in Brandenton, Florida for $1.3
      million at a gain of approximately $548,000 on disposal. Also on January 4,
      2008, the Company sold four full service car wash facilities in the Sarasota,
      Florida area for approximately $10.3 million, resulting in a gain of
      approximately $6.3 million on disposal. Finally, on March 3, 2008 the Company
      sold its North Sarasota, Florida car wash, the Company’s final car wash site in
      Florida, for approximately $875,000, resulting in gains of approximately
      $177,000. Included in Assets held for sales and Liabilities related to assets
      held for sale at December 31, 2007 are the five Florida car washes sold in
      January 2008.




F-28





We
      entered into agreements on March 15, 2008 with a third party to lease and
      ultimately purchase one of our full service car wash in San Antonio, Texas.
      Pursuant to the agreements, the lessee must pay us $3,325 per month to lease
      the
      car wash, and is responsible for all underlying property and operating expenses.
      By May 1, 2009, the lessee is obligated under a sale agreement to purchase
      the
      car wash site for $500,000 cash. If the purchase obligation is not satisfied,
      we
      will regain possession of the car wash and the lessee will forfeit to us a
      $35,000 deposit made at the commencement of the agreements.





**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 include charges of $240,000 and $99,000 in fiscal
      year 2006 and 2007, respectively, 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-29


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





**Year
                Ended December 31, 2007**




**1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            9,815
            
            $
            9,814
            
            $
            12,991
            
            $
            14,469
            
            $
            47,089Gross
                profit
            
            $
            2,187
            
            $
            2,042
            
            $
            2,746
            
            $
            3,563
            
            $
            10,538Loss
                from continuing operations
            
            $
            (2,209
            )
            $
            (1,984
            )
            $
            (3,227
            )
            $
            (1,947
            )
            $
            (9,367
            )Income
                (loss) from discontinued operations
            
            $
            1,551
            
            $
            720
            
            $
            (2
            )
            $
            513
            
            $
            2,782Net
                loss
            
            $
            (658
            )
            $
            (1,264
            )
            $
            (3,229
            )
            $
            (1,434
            )
            $
            (6,585
            )Diluted
                (loss) income per share:Continuing
                operations
            
            $
            (0.14
            )
            $
            (0.13
            )
            $
            (0.20
            )
            $
            (0.12
            )
            $
            (0.60
            )Discontinued
                operations
            
            $
            0.10
            
            $
            0.05
            
            $
            0.00
            
            $
            0.03
            
            $
            0.18Net
                loss
            
            $
            (0.04
            )
            $
            (0.08
            )
            $
            (0.20
            )
            $
            (0.09
            )
            $
            (0.42
            )





**Year
                Ended December 31, 2006**




**1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            11,248
            
            $
            11,138
            
            $
            10,579
            
            $
            9,655
            
            $
            42,620Gross
                profit
            
            $
            2,811
            
            $
            2,591
            
            $
            2,432
            
            $
            1,676
            
            $
            9,510Loss
                from continuing operations
            
            $
            (1,377
            )
            $
            (2,236
            )
            $
            (1,904
            )
            $
            (2,631
            )
            $
            (8,147
            )Income
                (loss) from discontinued operations
            
            $
            411
            
            $
            356
            
            $
            (365
            )
            $
            963
            
            $
            1,365Net
                loss
            
            $
            (966
            )
            $
            (1,879
            )
            $
            (2,269
            )
            $
            (1,668
            )
            $
            (6,782
            )Diluted
                (loss) income per share:Continuing
                operations
            
            $
            (0.09
            )
            $
            (0.14
            )
            $
            (0.13
            )
            $
            (0.17
            )
            $
            (0.53
            )Discontinued
                operations
            
            $
            0.03
            
            $
            0.02
            
            $
            (0.02
            )
            $
            0.06
            
            $
            0.09Net
                loss
            
            $
            (0.06
            )
            $
            (0.12
            )
            $
            (0.15
            )
            $
            (0.11
            )
            $
            (0.44
            )





**Year
                Ended December 31, 2005**




**1****st****Quarter**
            
            **2****nd****Quarter**
            
            **3****rd****Quarter**
            
            **4****th****Quarter**
            
            **Total**Revenues
            
            $
            11,126
            
            $
            12,878
            
            $
            10,866
            
            $
            10,877
            
            $
            45,747Gross
                profit
            
            $
            2,756
            
            $
            3,558
            
            $
            2,721
            
            $
            2,820
            
            $
            11,855Income
                (loss) from continuing operations
            
            $
            (527
            )
            $
            (9
            )
            $
            (543
            )
            $
            (4,629
            )
            $
            (5,708
            )Income
                (loss) from discontinued operations
            
            $
            539
            
            $
            448
            
            $
            (585
            )
            $
            286
            
            $
            688Net
                income (loss)
            
            $
            11
            
            $
            439
            
            $
            (1,128
            )
            $
            (4,342
            )
            $
            (5,020
            )Diluted
                income (loss) per share:Continuing
                operations
            
            $
            (0.03
            )
            $
            0.00
            
            $
            (0.03
            )
            $
            (0.30
            )
            $
            (0.38
            )Discontinued
                operations
            
            $
            0.03
            
            $
            0.03
            
            $
            (0.04
            )
            $
            0.02
            
            $
            0.05Net
                income (loss)
            
            $
            0.00
            
            $
            0.03
            
            $
            (0.07
            )
            $
            (0.28
            )
            $
            (0.33
            )





All
      quarters have been restated to reflect our Arizona, Northeast and Florida car
      wash regions and our Truck washes as discontinued operations, consistent with
      our presentation at December 31, 2007.





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, which related
      to
      activity in the first three quarters of 2006, were recorded in the fourth
      quarter of 2006.





In
      the
      fourth quarter of 2007, the Company recorded an adjustment to reclass an
      unrealized gain on short-term investments of $167,000 from Other Comprehensive
      Income to a realized gain on short-term investments in other income. The
      realized gains related to prior years .




F-30




**EXHIBIT
      INDEX**




**Exhibit****No.**
            
            **Description**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.





F-31