**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, 2005**   Commission
      File No. **0-22810**





**MACE
      SECURITY INTERNATIONAL, INC.**


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


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





**1000
                  Crawford Place, Suite 400,
                  Mt. Laurel, NJ**
                **(Address
                  of Principal Executive
                  Offices)**
              **08054******
                **(Zip
                  Code)**




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





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





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





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





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


Yes
o
      No x





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




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




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





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




Large accelerated filer  o
            Accelerated filer  o
            Non-accelerated filer  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 the
      Registrant on June 30, 2005 was approximately $31,956,000. Such aggregate market
      value was computed by reference to the closing price of the common stock as
      reported on the Nasdaq National Market on June 30, 2005. For purposes of
      determining this amount only, Registrant has defined affiliates as including
      (a)
      the executive officers and directors of Registrant on June 30, 2005, 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,
      2005.





The
      number of shares of Common Stock, par value $.01 per share, of the Registrant
      outstanding as of June 13, 2006 was 15,275,382.










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


**Form
      10-K**


**Year
      Ended December 31, 2005**




**Contents**


**Page****PART
                I**
            
            
            
            3Item
                1. -
            
            Business
            
            3Item
                1A.
            
            Risk
                Factors
            
            8Item
                2.
            
            Properties
            
            16Item
                3.
            
            Legal
                Proceedings
            
            17Item
                4.
            
            Submission
                of Matters to a Vote of Security Holders
            
            18**PART
                II**
            
            
            
            19Item
                5.
            
            Marketfor
                Registrant’s Common Equity, Related Stockholder Matters and Issuer
                Purchases of Equity Securities
            
            19Item
                6.
            
            Selected
                Financial data
            
            21Item
                7.
            
            Management’s
                Discussion and Analysis of Financial Condition and Results of
                Operations
            
            22Item
                7A.
            
            Quantitative
                and Qualitative Disclosures About Market Risk
            
            34Item
                8.
            
            Financial
                Statements and Supplementary data
            
            34Item
                9.
            
            Changes
                in and Disagreements with Accountants on Accounting and Financial
                Disclosure
            
            34Item
                9A.
            
            Controls
                and Procedures
            
            34Item
                9B.
            
            Other
                Information
            
            35**PART
                III**
            
            
            
            35Item
                10.
            
            Directors
                and Executive Officers of the Registrant
            
            35Item
                11.
            
            Executive
                Compensation
            
            37Item
                12.
            
            Security
                Ownership of Certain Beneficial Owners and Management and Related
                Stockholder Matters.
            
            45Item
                13.
            
            Certain
                Relationships and Related Transactions
            
            46Item
                14.
            
            Principal
                Accountant Fees and Service
            
            46**PART
                IV**
            
            
            
            48Item
                15.
            
            Exhibits
                and Financial Statement Schedules
            
            48




2




**PART
      I**


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





**GENERAL**





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





Our
      Security Segment designs, manufactures, assembles, markets and sells a wide
      range of security products. Our primary focus in the Security Segment is
      electronic surveillance products and components that we purchase from Asian
      manufacturers who design equipment to our requirements. We sell the electronic
      surveillance products and components primarily to installing dealers, system
      integrators and end users. Other products in our Security Segment are
      less-than-lethal defense sprays and other security devices such as biometric
      locks, monitors and high-end digital and fiber optic cameras. The main marketing
      channels for our products are industry shows, trade publications, catalogs,
      the
      internet, a call center and mass merchants. Prior to 2002, this segment’s main
      business was primarily the production and sale of less-than-lethal defense
      sprays.





We
      currently own and operate 48 car washes. We own, but do not operate, five truck
      washes. The truck washes are leased to a third party, pursuant to a lease under
      which we are paid $9,000 per month.




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





**LINES
      OF BUSINESS**





**Car
      and Truck Wash Segment** .
      The
      Company, through its subsidiaries, owns and operates 48 car washes.  We
      operate 11 car wash locations in the region surrounding Philadelphia,
      Pennsylvania, which are located in New Jersey, Pennsylvania and Delaware. We
      also operate six car wash locations in or near the Sarasota, Florida area,
      12
      car wash locations in the Phoenix, Arizona area, and 19 car wash locations
      in
      Texas.  Except
      for seven of the Philadelphia area car washes, which provide only exterior
      washing, and one Texas location, which is a self-serve wash and lube facility,
      the rest of our locations are full service car washes. The full service car
      washes provide exterior washing and drying, vacuuming of the interior of the
      vehicle, dusting of dashboards and door panels, and cleaning of all windows
      and
      glass. In
      addition, we own five truck washes located in
      Arizona, Indiana, Ohio and Texas. The
      Company executed a lease-to-sell agreement on December 31, 2005 with Eagle
      United Truck Wash, LLC (“Eagle”) to lease Mace’s five truck washes beginning
      January 1, 2006 for up to two years. Pursuant to the terms of the agreement,
      Eagle must pay Mace $9,000 per month to lease the Company’s truck washes, and is
      responsible for all underlying property expenses. Within the next two years,
      Eagle is obligated under the agreement to purchase the truck washes and be
      delivered title to the assets for $1.2 million, consideration consisting of
      $280,000 cash and a $920,000 note payable to Mace secured by mortgages on the
      truck washes. When issued, the $920,000 note will have a five-year term, with
      principal and interest paid on a 15-year amortization schedule. If Eagle does
      not fulfill its obligation to purchase the truck washes, the Company will regain
      possession of the truck washes and Eagle will be obligated to pay $200,000
      as
      liquidated damages.





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 (offered
      at 40 locations), oil and lubrication services (offered at 11 locations),
      gasoline dispensing services (offered at 18 locations), state inspection
      services (offered at six locations), convenience store sales (offered at one
      location), and merchandise sales (offered at 40 locations). The Car and Truck
      Wash Segment provided 63.5%, 71.1% and 88.6% of our revenues in fiscal years
      2005, 2004 and 2003, respectively. (See Note 19, 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* ,
      on page
      32.





**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, display units (monitors), matrix
      switching equipment for video distribution, robotic camera dome systems, system
      controls, and consoles for system assembly markets. Other products offered
      are defense
      sprays, personal alarms, biometric locks, home security alarms, whistles, door
      jammers, and window and door lock alarms. We
      also
      offer the KinderGard® product line of child proof 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 a tear gas system used in
      prisons.


3





Our
      electronic surveillance products and system component requirements are
      established by our operating and marketing staffs in Ft. Lauderdale, Florida
      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
      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 36.5%, 28.9%, and 11.4% of our revenues in fiscal
      years 2005, 2004, and 2003, respectively. (See Note 19, *Segment
      Reporting,* to the
      consolidated financial statements accompanying this report.)





**BUSINESS
      STRATEGIES**





**Car
      and Truck Wash Segment.**





***Internal
      Growth.*** ** Our
      strategy is to maintain and increase our sales in our current markets by
      providing superior service and through our existing marketing efforts. To
      maintain and increase 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. We believe that
      by
      developing a strong brand reputation, known for consistent quality and safe,
      dependable service across locations, we can increase consumer participation
      rates and generate internal growth from existing locations. Our
      pricing policy is to selectively implement increases when competitive market
      conditions allow increases.





***Operating
      Efficiency*** ***.*** ** We
      have
      reduced the total operating expenses of our businesses by implementing
      centralized financial controls. In addition, we are continually implementing
      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. We
      did
      not acquire any car or truck washes since December 2000.  During
      2005 we sold one car wash and leased the five truck washes under an agreement
      that obligates the lessee to purchase the truck washes by December 31, 2007.
      If
      Eagle does not fulfill its obligation to purchase the truck washes, the Company
      will regain possession of the truck washes and Eagle will be obligated to pay
      $200,000 as liquidated damages.





On
      December 9, 2004, we announced that we engaged Legg Mason Wood Walker,
      Incorporated for the purpose of identifying potential purchasers for of all
      of
      our car and truck washes. We currently own and operate 48 car washes. Stifel,
      Nicolause & Company, Incorporated, the successor of Legg Mason Wood Walker,
      Incorporated, continues to advise us on potential sales of car washes. 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 significant capital for the growth of our Security Segment. We
      seek
      to grow the Security Segment through acquisitions, new product development
      and
      new market penetration. On February 28, 2006, we entered into an agreement
      with
      CW Acquisition, LLC to sell our 12 Phoenix, Arizona area car washes. The sale
      price is $19.5 million. We expect the transaction to close by July 31, 2006.
      On
      June 16, 2006, we completed the sale of our car wash located in Deptford, New
      Jersey for a sale price of $1,025,000. Additionally, we have received other
      offers from other parties for either all of our remaining car washes or for
      individual regions or car washes. We have not accepted any of the other offers
      as the Company did not believe the offers were for sufficient consideration.
      There can be no assurances that the transaction with CW Acquisition, LLC will
      close or that any other transactions will occur.




4


**Security
      Segment** .





***Internal
      Growth.*** ** The
      Security Segment designs, manufacturers, markets and sells a wide range of
      security products. For the year ended December 31, 2005, revenues from the
      Security Segment were $24.9 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 $380,000 of revenue in 2002 to $2.8 million in 2003,
      $14.0 million in 2004 and $21.8 million in 2005. 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 in 2004 and 2005.





For
      the
      five years prior to July 14, 2003, the Company was prohibited from selling
      defense sprays to the law enforcement market, under a non-competition agreement
      with Armor Holdings, Inc. We are now selling our defense sprays in the law
      enforcement market under the brand name of TakeDown® .
      We
      believe that the total consumer defense spray market is approximately $10
      million to $12 million in annual revenues and that the law enforcement market
      is
      approximately $3 million in annual revenues. Our newly developed Pepper Gel
      has
      increased sales in Law Enforcement and Consumer markets. Pepper Gel 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 fiber optic cameras, 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 video surveillance system components 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.





**MARKETING**




**Car
      and Truck Wash Segment.** The car
      care industry services customers on a local and regional basis. We employ
      operational and customer service people at our operating locations. The
      operational and customer service people are supervised by the management of
      the
      operating locations. We emphasize providing quality services as well as customer
      satisfaction and retention, and believe that we will attract customers in the
      future because of our reputation for quality service. We market our services
      through regional coupon advertising, direct mail marketing programs and radio
      and television advertisements. We spend 2% to 3% of regional revenue on regional
      advertising campaigns. We have a diverse customer base, with no single customer
      accounting for 5% or more of our consolidated revenues for the fiscal year
      ended
      December 31, 2005. We do not believe that the loss of any single customer would
      have a material adverse effect on our business or results of
      operations.





**Security
      Segment.** Our
      electronic surveillance products and components are marketed through several
      sales channels, such as dealers, system integrators, 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.




5


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, 2005. We do not believe that the loss of any single Security
      Segment customer would have a material adverse effect on our business or results
      of operations.





**PRODUCTION
      AND SUPPLIES**





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





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





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





**COMPETITION**





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





**Security
      Segment.** Our
      video systems and components face competition from many larger companies such
      as
      Sony, Panasonic, and others. A number of these competitors have significantly
      greater financial, marketing, and other resources than us. 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.





Domestically,
      there continues to be a number of companies marketing defense sprays to civilian
      consumers. 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 2005
      attributable to improved marketing as well as an increase in demand for Pepper
      Gel.





**TRADEMARKS
      AND PATENTS**




**Car
      and Truck Wash Business** .
      We own
      a registered service mark for *Super
      Bright* ® . We have
      selected *Super
      Bright* ®
as
      our
      brand name for regions in which we do not have a well recognized name. During
      2002, we upgraded the signage and appearance of many of our car wash facilities
      while branding certain of our Pennsylvania, New Jersey, San Antonio, Texas
      and
      Lubbock, Texas locations as *Super
      Bright* ®.
      We
      operate our car washes in other geographic regions under locally recognizable
      names such as Eager Beaver Car Wash, Genie Car Wash, Colonial Car Wash, and
      Weiss Guys Car Wash.





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


6





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, Window Jammer Ô ,
      Sonic
      Alert Ô ,
      Safety
      Flasher Ô ,
      Sport
      Strobe Ô ,
      Window
      Alert Ô ,
      Motion
      Alert Ô ,
      Emergency Whistle Ô ,
      Auto
      Alert Ô ,
      Screecher ® ,
      Peppergard ® ,
      Slam ® ,
      Mace
      (Mexico) ® ,
      Viper ® defense
      spray, KinderGard ® ,
      TG
      Guard ®
and
      TakeDown® .





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





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





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





**GOVERNMENT
      REGULATION/ENVIRONMENTAL COMPLIANCE**





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





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





**RESEARCH
      AND DEVELOPMENT**





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





**Security
      Segment.** Our
      staff in our Ft. Lauderdale, Florida facility determines 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 2005, 2004 or
      2003.




7


**INSURANCE**





We
      maintain various insurance coverages for our assets and operations. These
      coverages include property coverages including business interruption protection
      for each location. We maintain commercial general liability coverage in the
      amount of $1 million per occurrence and $2 million in the aggregate with an
      umbrella policy which provides coverage up to $25 million. We also maintain
      workers’ compensation policies in every state in which we operate. Commencing
      July 2002, as a result of increasing costs of the Company’s insurance program,
      including auto, general liability, and workers’ compensation coverage, we are
      insured through participation in a captive insurance program with other
      unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to our auto, general liability, and
      workers’ compensation policies, we are required to set aside an actuarially
      determined amount of cash in a restricted “loss fund” account for the payment of
      claims under the policies. We expect to fund these accounts annually as required
      by the captive insurance company. Should funds deposited exceed claims incurred
      and paid, unused deposited funds are returned to us with interest upon the
      captive insurance company deciding a distribution is appropriate but no earlier
      then the third anniversary of the policy year-end. The captive insurance program
      is further secured by a letter of credit in the amount of $973,000 at December
      31, 2005. 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 their estimate of reserves
      for possible future payments. There can be no assurance that our insurance
      will
      provide sufficient coverage in the event a claim is made against us, or that
      we
      will be able to maintain in place such insurance at reasonable prices. An
      uninsured or under insured claim against us of sufficient magnitude could have
      a
      material adverse effect on our business and results of operations.





**U.S.
      BASED BUSINESS**





All
      of
      our car and truck wash businesses are conducted in the United States.
      Approximately 6%, (or $1.5 million), 4% (or $673,000), and 4% (or $246,000)
      of
      the 2005, 2004 and 2003 revenues, respectively, from our Security Segment were
      derived from customers outside of the United States. Our Electronic Surveillance
      products are manufactured in Korea, China, and other foreign countries. All
      of
      our property and equipment is located in the United States. We do not believe
      we
      are currently subject to any material risks associated with any foreign
      operations.





**EMPLOYEES**





As
      of
      June 16, 2006, we had approximately 1,428 employees, of which approximately
      1,316 were
      employed in the Car Wash Segment, 90 employed in the Security Segment,
      18 in
      corporate clerical and administrative positions, and four in executive
      management. None of our employees are covered by a collective bargaining
      agreement.





**ITEM
      1A. RISK FACTORS**





**Risks
      Related to Our Business**





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





Our
      business plan involves growing through acquisitions and internal development,
      each of which requires significant capital. Our capital requirements also
      include working capital for daily operations and significant capital for
      equipment purchases. Although we had positive working capital of $14.9 million
      as of December 31, 2005, 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 declined by $2.9 million from December 31, 2004 to December
      31,
      2005. To the extent that we lack cash to meet our future capital needs, we
      will
      need to raise additional funds through bank borrowings and significant
      additional equity and/or debt financings, which may result in significant
      increases in leverage and interest expense and/or substantial dilution of our
      outstanding equity. If we are unable to raise additional capital, we may need
      to
      substantially reduce the scale of our operations and curtail our business
      plan.





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


8





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





***If
      we violate the financial covenants with our lenders, our borrowings may be
      accelerated.***





Our
      bank
      debt borrowings as of December 31, 2005 were $26.7 million, substantially all
      of
      which is secured by mortgages against certain of our real property. Of such
      borrowings, $2.2 million is classified as current as it is due in less than
      12
      months from December 31, 2005. Our two most significant borrowings are secured
      notes payable to General Motors Acceptance Corp. (“GMAC”) in the amount of $9.7
      million, $8.8 million of which was classified as non-current debt at December
      31, 2005, and secured notes payable to JPMorgan Chase Bank, N.A. (“Chase”) the
      successor of Bank One, Texas, N.A. in the amount of $13.4 million, $12.4 million
      of which was classified as non-current debt at December 31, 2005. The GMAC
      and
      Chase agreements contain affirmative and negative covenants, including financial
      reporting requirements, the maintenance of certain levels of tangible net worth,
      maintenance of certain levels of unencumbered cash and marketable securities,
      limitations on capital spending and the maintenance of certain debt coverage
      ratios on a consolidated level. The Chase agreement is our only debt agreement
      that contains an express prohibition on incurring additional debt for borrowed
      money without the approval of the lender. None of our other agreements contain
      such a prohibition. Our warehouse and office facility in Farmers Branch, Texas,
      twenty five car washes and one truck wash are encumbered by mortgages. At
      December 31, 2005, we were not in compliance with our semi-annual consolidated
      debt coverage ratio of at least 1.25:1 related to our GMAC notes payable. The
      Company’s debt coverage ratio related to the GMAC notes payable was 1.07:1 at
      December 31, 2005. Additionally, the Mace guaranty agreement with GMAC requires
      the Company to provide GMAC audited, reviewed or compiled financial statements
      by the Company’s independent certified public accountants within 90 days of the
      Company’s fiscal year end. The Company was not able to timely provide the
      required year end audited financial statements. GMAC granted us a waiver of
      acceleration related to the non-compliance with the debt coverage ratio covenant
      and delinquency in providing the Company’s year end audited financial statements
      at December 31, 2005, and for measurement periods through April 1, 2007 and,
      accordingly, a portion of the GMAC notes payable was reflected as non-current
      on
      our consolidated financial statements at December 31, 2005. If we are not able
      to achieve a debt coverage ratio of at least 1.25:1, and we cannot obtain
      further waivers of acceleration, the GMAC notes may be reflected as current
      in
      future balance sheets and as a result our stock price may decline.





The
      Company entered into amendments to the Chase term loan agreements effective
      March 31, 2004. The amended debt coverage ratio with Chase requires the
      Company to maintain a ratio of consolidated earnings before interest, income
      taxes, depreciation and amortization to debt service of 1.05:1 at September
      30,
      2004 and thereafter. The Company’s debt coverage ratio related to the Chase term
      loan agreement was 1.09:1 at December 31, 2005, which was in compliance with
      this Chase covenant, as amended. The amended Chase term loan agreement also
      limits annual capital expenditures to $1.0 million and 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, as well as internal certified financial
      statements and a Form 10-Q within 60 days after the end of each fiscal quarter.
      The Company was not able to timely provide the required year end audited
      financial statements or the first quarter Form 10-Q. The Company incurred
      capital expenditures of $1.4 million in 2005 and, accordingly, was not in
      compliance with this Chase covenant. The Company received a waiver of
      acceleration from Chase at December 31, 2005 and for measurement periods through
      January 1, 2007 related to exceeding the annual capital expenditure limit and
      the untimely financial statement filings at December 31, 2005 and for
      measurement periods through January 1, 2007 and, accordingly, a portion of
      the
      Chase notes payable was reflected as non-current on our consolidated financial
      statements at December 31, 2005. The Chase amendment also requires the
      maintenance of a minimum total unencumbered cash and marketable securities
      balance of $5.0 million. This cash balance requirement will be lowered to $1
      million upon the Company returning to a debt coverage ratio of at least 1.10:1.
      If we are unable to satisfy these covenants and we cannot obtain further
      waivers, the Chase notes may be reflected as current in future balance sheets
      and as a result our stock price may decline.





Our
      ongoing ability to comply with the debt covenants under our credit arrangements
      and refinance our debt depends largely on our achievement of adequate levels
      of
      cash flow. Our cash flow has been and could continue to be adversely affected
      by
      weather patterns and economic conditions. In the future, if our cash flows
      are
      less than expected or debt service, including interest expense, increases more
      than expected, we may continue to be out of compliance with the Chase and GMAC
      covenants and need to seek additional waivers or amendments.


9





If
      we
      default on any of the Chase or GMAC covenants and are not able to obtain further
      amendments or waivers of acceleration, Chase debt totaling $13.4 million and
      GMAC debt totaling $9.7 million, including debt recorded as long-term debt
      at
      December 31, 2005, could become due and payable on demand, and Chase and/or
      GMAC
      could foreclose on the assets pledged in support of the relevant indebtedness.
      If our assets (including up to 25 of our car wash facilities and one truck
      wash)
      are foreclosed upon, revenues from our Car and Truck Wash Segment, which
      comprised approximately 71% and 64% of our total revenues for fiscal year 2004
      and 2005, respectively, would be severely impacted and we may be unable to
      continue to operate our business. Even if the debt were accelerated without
      foreclosure, it would be very difficult for us to continue to operate our
      business and we may go out of business.





***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.***





For
      the
      year ended December 31, 2005, we reported a net loss although our business
      as a
      whole generated positive cash flow from operations. The majority of the reported
      losses in recent years related to non-cash impairment charges of intangible
      assets. Under Statement of Financial Accounting Standards (“SFAS”) 142, which
      became effective on January 1, 2002, we no longer amortize goodwill and certain
      intangible assets determined to have indefinite useful lives. 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 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. The primary term of the employment agreements of Robert
      M. Kramer, Gregory M. Krzemien, and Ronald R. Pirollo expired on March 26,
      2003.
      Mr. Kramer is the chief operating officer of our Car and Truck Wash Segment,
      and
      our general counsel and secretary; Mr. Krzemien is our chief financial officer
      and treasurer; and Mr. Pirollo is our chief accounting officer and corporate
      controller. Messrs. Kramer and Krzemien are working on a month-to-month at-will
      basis, under the provisions of their employment agreements. Mr. Pirollo is
      working on an at will basis under the provisions of his employment contract.
      Without long term employment contracts, we may lose the services of any one
      or
      more of Messrs. Kramer, Krzemien and Pirollo, each of whom has been involved
      in
      our management for several years and would be difficult to replace. In addition,
      we do not maintain key-man life insurance policies on our executive officers.





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





We
      maintain various insurance coverages for our assets and operations. These
      coverages include property coverages including business interruption protection
      for each location. We maintain commercial general liability coverage in the
      amount of $1 million per occurrence and $2 million in the aggregate with an
      umbrella policy which provides coverage up to $25 million. We also maintain
      workers’ compensation policies in every state in which we operate. Commencing
      July 2002, as a result of increasing costs of the Company’s insurance program,
      including auto, general liability, and workers’ compensation coverage, we are
      insured through participation in a captive insurance program with other
      unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to our auto, general liability, and
      workers’ compensation policies, we are required to set aside an actuarial
      determined amount of cash in a restricted “loss fund” account for the payment of
      claims under the policies. We expect to fund these accounts annually as required
      by the insurance company. Should funds deposited exceed claims incurred and
      paid, unused deposited funds are returned to us with interest after the third
      anniversary of the policy year-end. The captive insurance program is further
      secured by a letter of credit from Mace in the amount of $973,000 at December
      31, 2005. 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 their estimate of reserves
      for possible future payments. 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**





***If
      we are not able to operate our Electronic Surveillance Products Division
      effectively, our business will suffer.***


10





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





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





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





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





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





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





***If
      people are injured by our consumer safety products, we could be held liable
      and
      face damage awards.***





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


11





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





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





Some
      of
      our consumer defense spray manufacturing operations currently incorporate
      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 believe that we are in compliance with
      all
      current state and local statutes governing our handling and disposal of these
      hazardous materials, but if there are any changes in environmental permit or
      regulatory requirements, or if we fail to comply with any environmental
      requirements, these changes or failures may expose us to significant liabilities
      that would have a material adverse effect on our business and financial
      condition.





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





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





On
      March
      13, 2006, the Company learned that the United States Attorney for the Eastern
      District of Pennsylvania is investigating the Company for the alleged hiring
      of
      undocumented workers at the Company’s car washes. The Company’s Audit Committee
      retained independent outside counsel (“Special Counsel”) to conduct an
      independent investigation of the Company’s hiring practices at the Company’s car
      washes and other related matters. Special Counsel provided a written summary
      of
      findings on April 18, 2006 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, the Special Counsel began to receive for review
      some additional and previously requested but unavailable documents and
      information. On May 18, 2006, Special Counsel issued its Review of Information
      Supplemental to Internal Investigation which states that the review of the
      additional documents and information has 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 negotitations 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 that perform manual labor at the car washes we own.
      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 that 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


12





·
            claims
                for violations of wage and hour
                requirements.





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





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





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





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





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





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





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





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


ii.
            discharge
                of storm water; and


iii.
            underground
                storage tanks.





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





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





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




13


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





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





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





Stifel,
      Nicolaus & Company, Incorporated is advising us on the possible sale of our
      car washes. On February 28, 2006, we entered into an agreement with C.W.
      Acquisition, LLC to sell our 12 Phoenix, Arizona car washes for $19.5 million.
      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. If the transaction with C.W.
      Acquisition, LLC is completed, the revenues within our car and truck wash
      segment will decrease. In addition if we are able to sell our remaining car
      washes, our total revenues will decrease and our business will become reliant
      on
      the success of our Security Segment. Our Security Segment faces significant
      risks as set forth herein and may impact our ability to generate positive
      operating income or cash flows from operations, may cause our financial results
      to become more volatile, or may otherwise materially adversely affect
      us.





**Risks
      Related to our Stock**





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




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




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





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





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





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





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





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





·
            additions
                or departures of our key personnel;





·
            operating
                losses by us;





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





·
            our
                ability to maintain our common stock listing on the Nasdaq National
                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
      have failed to file our Form 10-K for the year ended December 31, 2005 and
      our
      Form 10-Q for the quarter ended March 31, 2006 when required, and the failure
      will result in the loss of our listing on the Nasdaq National Market if we
      do
      not file the March 31, 2006 Form 10-Q by August 15, 2006. The loss of our Nasdaq
      National Market listing would make our stock significantly less liquid and
      would
      adversely affect its value.***


14





On
      May
      17, 2006, the Company received a Nasdaq Staff Determination that the Company
      was
      not in compliance with Marketplace Rule 4310(c)(14)
      for failing to timely file its Quarterly Report on Form 10-Q
      for
      the quarter ended March 31, 2006 (“Form 10-Q”). The May 17, 2006 Staff
      Determination was in addition to the Nasdaq Staff Determination received by
      the Company on April 19,
      2006,
      regarding the Company being in violation of Marketplace Rule 4310(c)(14) for
      not
      timely filing its Annual Report on Form 10-K
      for
      the year ended December 31,
      2005
      (“Form 10-K”). The non-compliance with Marketplace Rule 4310(c)(14) makes the
      Company’s common stock subject to being delisted from The Nasdaq Stock Market.
      On May 25, 2006, the Company attended a hearing with respect to the May 17,
      2006
      and April 19, 2006 Nasdaq Staff Determinations before the Nasdaq Listing
      Qualifications Panel (“Panel”) to request an exception to its non-compliance
      with Marketplace Rule 4310(c)(14).
      By operation of Marketplace Rule 4805(a), the delisting of the Company’s common
      stock is stayed pending the Panel’s review and determination. The Panel issued
      its ruling on June 28, 2006. The Panel granted an exception to the Company
      allowing the Company's common stock to remain listed provided the Form 10-K
      and
      Form 10-Q are filed by August 15, 2006 and the Company remains in compliance
      with all other listing requirements. There can be no assurance that the Company
      will file its March 31, 2006 Form 10-Q by August 15, 2006.





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





***We
      could lose our listing on the Nasdaq National 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 the Nasdaq National Market with a bid price of $2.37
      at the close of the market on June 16, 2006. Although the recent closing prices
      of our stock have been well in excess of $1.00, in 2004 our stock traded at
      a
      price as low as $1.78. If the price of our common stock falls below $1.00 and
      for 30 consecutive days remains below $1.00, we are subject to being delisted
      from the Nasdaq National Market. Upon delisting from the Nasdaq National 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 can regain
      our listing on the Nasdaq National 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 National 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 will be even more limited if our price
      must be published on the “Pink Sheets.”





***Because
      we are a Delaware corporation, it may be difficult for a third party to acquire
      us, which could affect our stock price.***





We
      are
      governed by Section 203 of the Delaware General Corporation Law, which prohibits
      a publicly held Delaware corporation from engaging in a “business combination”
with an entity who is an “interested stockholder” for a period of three years,
      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.


15





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





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





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





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





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





**Car
      and Truck Wash Properties** .
      Our
      principal fixed assets are our car wash facilities used for performing car
      care
      services which are described under *Item
      1. Business* .
      The 48
      car wash facilities operated by us as of December 31, 2005 are situated on
      sites
      we own or lease. We own 40 and lease 8 of our car wash facilities. The locations
      of our car washes and the services offered at the locations are set forth in
      summary fashion in the chart below.




**Locations****(1)**
            
            **Type
                of**
              **Car
                Wash********(2)**
            
            **Number
                of**
              **Facilities**Philadelphia,
                Pennsylvania Area
            
            Full
                Service
              Exterior
                Washes
            
            3
              2Southern
                New Jersey Area
            
            Full
                Service
              Exterior
                Washes
            
            1
              4Smyrna,
                Delaware
            
            Exterior
                Wash
            
            1Phoenix,
                Arizona Area
            
            Full
                Service
            
            12Dallas,
                Texas Area
            
            Full
                Service
              Self
                Serve /Lube
            
            8
              1Austin,
                Texas
            
            Full
                Service
            
            3Lubbock,
                Texas
            
            Full
                Service
            
            3Sarasota,
                Florida Area
            
            Full
                Service
            
            6San
                Antonio, Texas
            
            Full
                Service
            
            4




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





(i)
            Philadelphia,
                Pennsylvania (2)


(ii)
            Smyrna,
                Delaware (1)


16





(iii)
            Phoenix,
                Arizona Area(3)


(iv)
            Dallas,
                Texas Area(2)





(2)
            Several
                locations also offer other consumer products and related car care
                services, such as professional detailing services (offered at 40
                locations), oil and lubrication services (offered at 10 locations),
                gasoline dispensing services (offered at 19 locations), state inspection
                services (offered at seven locations), convenience store sales (offered
                at
                one location) and merchandise store sales (offered at 40
                locations).





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





Many
      of
      our car washes are encumbered by first mortgage loans. Of the 48 car washes
      owned or leased by us at December 31, 2005, 25 properties and related equipment
      with a net book value totaling $40.4 million secured first mortgage loans
      totaling $25.5 million and 23 properties were not encumbered.





We
      also
      own five truck wash facilities. We own the buildings and equipment at each
      of
      our truck washes, and lease the land for all of our truck wash facilities except
      for the Amarillo, Texas land which we own and which is encumbered by debt of
      $283,000 at
      December 31, 2005. The truck wash facilities are leased to a third
      party.





**Security
      Segment Properties** .
      The
      operations of our Security Segment are located in Ft. Lauderdale, Florida,
      Farmers Branch, Texas and Bennington, Vermont. The operations of our
      less-than-lethal defense spray 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
      $126,800. Vermont Mill is controlled by Jon E. Goodrich, a director of the
      Company through December 2003, a current employee of the Company, and President
      of Mark Sport. 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. Commencing December 2005, we lease
      approximately 3,000 square feet of administrative office space in Ft.
      Lauderdale, Florida to support our security segment operations at an annual
      cost
      of approximately $121,000. In August 2004, we purchased a 45,000 square foot
      facility in Farmers Branch, Texas where our consumer “do it yourself” electronic
      surveillance products and components and our high end camera products are
      warehoused and sold. The Farmers Branch facility is secured by a first mortgage
      loan in the amount of $787,000 at December 31, 2005.





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





On
      March
      13, 2006, the Company was served with a search warrant issued by the United
      States District Court for the District of New Jersey relating to a criminal
      immigration investigation. A search of the Company’s headquarters and four out
      of the Company’s 48 car washes was conducted by representatives of the United
      States Department of Investigations and Customs Enforcement and certain other
      agencies. Three of the car washes searched are located in Pennsylvania and
      the
      fourth is located in New Jersey. Documents were seized and a number of car
      wash
      employees of Car Care, Inc., a wholly-owned subsidiary of the Company, were
      taken into custody by the United States immigration authorities. The Company
      was
      also served with a federal grand jury subpoena seeking similar documents. The
      Company is in the process of responding 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 states that
      the review of the additional documents and information has not changed the
      conclusions contained in the April 18, 2006 summary of findings. The Company
      has
      hired a Human Resources Manager and has incorporated additional internal control
      procedures at the corporate, regional and site level to further enhance the
      existing internal controls with respect to the Company’s hiring procedures at
      the car wash locations to prevent the hiring of undocumented workers. There
      is a
      possibility that the United States Attorney for the Eastern District of
      Pennsylvania may prosecute the Company at the conclusion of its investigation.
      Violations of law may result in civil, administrative or criminal fines or
      penalties. Due to the ongoing nature of the criminal investigation, it is not
      possible at this time to predict the outcome of the investigation or the impact
      of costs of ultimately resolving this matter on our results of operations or
      financial condition. However, any fees, expenses, fines or penalties which
      might
      be incurred by the Company in connection with the hiring of undocumented workers
      may have a material impact on the Company’s results of operations and financial
      condition. The Company has made no provision for any future costs associated
      with the investigations or any future costs associated with the Company’s
      defense or negotiations with governmental authorities to resolve these
      outstanding issues.




17





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




The
      Company has produced documents requested in subpoena issued in connection with
      an investigation conducted by the United States Securities and Exchange
      Commission of possible securities law violations. The subpoena was issued on
      October 27, 2003. The Company produced all documents that were requested and
      has
      not been contacted by the United States Securities and Exchange Commission
      regarding the investigation since February, 2004. The Company intends to fully
      cooperate with the United States Securities and Exchange Commission's
      investigation.




In
      July
      20, 2004, the Company received a letter from the United States Securities and
      Exchange Commission. This letter requested that the Company voluntarily provide
      information and documents relating to Price legacy Corporation's sale of
      1,875,000 shares of the Company's common stock on the open market in April,
      2004
      and Price Legacy Corporation's payment of $8.95 million to the Company in
      exchange for the Company removing a sales restriction from 1,750,000 of the
      shares that were sold. The Company supplied the information in August of 2004.
      The Company has not been contacted by the Securities and Exchange
      Commission since supplying the information. The Company intends to fully
      cooperate with the United States Securities and Exchange Commission in this
      matter.


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





Although
      the Company is not aware of any substantiated claim of permanent personal injury
      from its products, the Company is aware of reports of incidents in which, among
      other things, defense sprays have been mischievously or improperly used, in
      some
      cases by minors; have not been instantly effective; or have been ineffective
      against enraged or intoxicated individuals.





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





The
      Annual Meeting of the stockholders of Mace Security International, Inc. was
      held
      December 12, 2005. The following proposals were submitted to a vote: (i)
      Election of five directors to the Board of Directors for one-year terms, (ii)
      Approval and Adoption of an amendment to Mace’s Amended and Restated Certificate
      of Incorporation to decrease the authorized shares of Common Stock from
      100,000,000 to 35,000,000 and decrease the number of authorized shares of
      Preferred Stock from 10,000,000 to 5,000,000, and (iii) Ratification of the
      Board’s appointment of Grant Thornton LLP as Mace’s independent registered
      public accounting firm for fiscal year 2005.





Proposals
      (i) and (iii) were adopted by the shareholders. The voting was as
      follows:





Directors:
            
            Votes
                For
            
            Votes
                Against
            
            Abstentions
            
            Broker
                Non-VotesLouis
                D. Paolino, Jr.
            
            
            12,986,942
            
            
            1,274,424
            
            
            -
            
            
            -Mark
                S. Alsentzer
            
            
            12,957,456
            
            
            1,303,910
            
            
            -
            
            
            -Matthew
                J. Paolino
            
            
            12,879,209
            
            
            1,382,157
            
            
            -
            
            
            -Constantine
                N. Papadakis, Ph.D
            
            
            12,994,942
            
            
            1,266,424
            
            
            -
            
            
            -Burton
                Segal
            
            
            12,923,194
            
            
            1,338,172
            
            
            -
            
            
            -Approve
                and adopt amendment of the Mace Amended and Restated Certificate
                of
                Incorporation to decrease authorized shares
            
            
            6,284,406
            
            
            160,753
            
            
            14,735
            
            
            7,832,849Ratify
                appointment of Grant Thornton LLP
            
            
            13,539,126
            
            
            704,805
            
            
            17,435
            
            
            31,377




18




**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 National 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
                Ended December 31, 2004First
                Quarter
            
            $
            2.29
            
            $
            1.78Second
                Quarter
            
            
            14.80
            
            
            2.00Third
                Quarter
            
            
            5.55
            
            
            2.50Fourth
                Quarter
            
            
            6.20
            
            
            2.83Year
                Ending December 31, 2005First
                Quarter
            
            $
            4.90
            
            $
            2.55Second
                Quarter
            
            
            2.96
            
            
            2.05Third
                Quarter
            
            
            3.55
            
            
            2.32Fourth
                Quarter
            
            
            2.92
            
            
            2.28Year
                Ending December 31, 2006First
                Quarter
            
            $
            2.87
            
            $
            2.28Second
                Quarter
            
            
            2.77
            
            
            2.28(Through
                June 16, 2006)





The
      closing price for our common stock on June 16, 2006 was $2.37. For purposes
      of
      calculating the aggregate market value of our shares of common stock held by
      non-affiliates, as shown on the cover page of this report, it has been assumed
      that all the outstanding shares were held by non-affiliates except for the
      shares held by our directors and executive officers and stockholders owning
      10%
      or more of our outstanding shares. However, this should not be deemed to
      constitute an admission that all such persons are, in fact, affiliates of the
      Company, or that there are not other persons who may be deemed to be affiliates
      of the Company. For further information concerning ownership of our securities
      by executive officers, directors and principal stockholders, see *Item
      12, Security Ownership of Certain Beneficial Owners and Management and Related
      Stockholders Matters.*





As
      of
      June 16, 2006, we had 139 stockholders of record and approximately 5,100
      beneficial owners of our common stock. We have not paid dividends in the
      proceeding two years and do not anticipate paying any cash dividends in the
      foreseeable future. We intend to retain all working capital and earnings, if
      any, for use in our operations and in the expansion of our business. Any future
      determination with respect to the payment of dividends will be at the discretion
      of our Board of Directors and will depend upon, among other things, our results
      of operations, financial condition and capital requirements, the terms of any
      then existing indebtedness, general business conditions, and such other factors
      as our Board of Directors deems relevant. Certain of our credit facilities
      prohibit or limit the payment of cash dividends without prior bank
      approval.


**(b)
        Recent Sales of Unregistered Securities**
 
 During
        2005, we did not sell any securities that were not registered under the
        Securities Act of 1933 at the time of sale.




19


**(c)
      Issuer Purchases of Securities**





**Period**
            
            **Total
                Number of Shares Purchased**
            
            **Average
                Price Paid per Share**
            
            **Total
                Number of Share Purchased as part of Publicly Announced Plans or
                Programs**
            
            **Approximate
                Dollar Value of Shares that May Yet Be Purchased Under the Plans
                or
                Programs (1)**October
                1 to October 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000November
                1 to November 30, 2005
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000December
                1 to December 31, 2005
            
            
            -
            
            
            -
            
            
            -
            
            $
            3,000,000Total
            
            
            -
            
            
            -
            
            
            -





(1)
            On
                July 29, 2004, the Company’s Board of Directors approved a share
                repurchase program to allow the Company to repurchase up to an aggregate
                $3,000,000 of its common shares in the future if market conditions
                so
                dictate. During 2005, the Company did not repurchase any shares.




20


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





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





**Statement
                of Operations Data:**
            
            **Year
                ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**(In
                thousands, except share information)Revenues:Car
                wash and detailing services
            
            $
            35,081
            
            $
            33,381
            
            $
            35,655
            
            $
            36,696
            
            $
            39,859Lube
                and other automotive services
            
            
            3,437
            
            
            3,504
            
            
            4,147
            
            
            4,219
            
            
            4,487Fuel
                and merchandise sales
            
            
            4,815
            
            
            4,130
            
            
            3,613
            
            
            3,217
            
            
            3,638Security
                sales
            
            
            24,909
            
            
            16,632
            
            
            5,581
            
            
            2,498
            
            
            -Operating
                agreements
            
            
            -
            
            
            -
            
            
            -
            
            
            80
            
            
            24068,242
            
            
            57,647
            
            
            48,996
            
            
            46,710
            
            
            48,224Cost
                of revenues:Car
                wash and detailing services
            
            
            25,274
            
            
            23,754
            
            
            25,983
            
            
            25,674
            
            
            27,417Lube
                and other automotive services
            
            
            2,627
            
            
            2,729
            
            
            3,188
            
            
            3,301
            
            
            3,446Fuel
                and merchandise sales
            
            
            4,220
            
            
            3,577
            
            
            3,156
            
            
            2,802
            
            
            3,234Security
                sales
            
            
            17,658
            
            
            11,989
            
            
            3,485
            
            
            1,523
            
            
            -49,779
            
            
            42,049
            
            
            35,812
            
            
            33,300
            
            
            34,097Selling,
                general and administrative expenses
            
            
            15,054
            
            
            12,642
            
            
            9,486
            
            
            8,432
            
            
            7,366Depreciation
                and amortization
            
            
            2,353
            
            
            2,509
            
            
            1,958
            
            
            1,953
            
            
            2,813Costs
                of terminated acquisitions
            
            
            -
            
            
            53
            
            
            -
            
            
            57
            
            
            135Goodwill
                and asset impairment charges
            
            
            2,529
            
            
            8,225
            
            
            3,798
            
            
            1,165
            
            
            -Operating
                (loss) income
            
            
            (1,473
            )
            
            (7,831
            )
            
            (2,058
            )
            
            1,803
            
            
            3,813Interest
                expense, net
            
            
            (1,794
            )
            
            (1,890
            )
            
            (1,963
            )
            
            (2,219
            )
            
            (2,885
            )Other
                income
            
            
            686
            
            
            267
            
            
            438
            
            
            327
            
            
            514(Loss)
                income before income taxes
            
            
            (2,581
            )
            
            (9,454
            )
            
            (3,583
            )
            
            (89
            )
            
            1,442Income
                tax expense (benefit)
            
            
            2,439
            
            
            (3,044
            )
            
            (50
            )
            
            (32
            )
            
            534(Loss)
                income before cumulative effect of change in accounting
                principle
            
            
            (5,020
            )
            
            (6,410
            )
            
            (3,533
            )
            
            (57
            )
            
            908Cumulative
                effect of change in accounting principle, net of tax benefitof
                $2,188
            
            
            -
            
            
            -
            
            
            -
            
            
            (5,733
            )
            
            -Net
                (loss) income
            
            $
            (5,020
            )
            $
            (6,410
            )
            $
            (3,533
            )
            $
            (5,790
            )
            $
            908Basic
                (loss) income per share(Loss)
                income before cumulative effect of change in accounting
                principle
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            $
            -
            
            $
            0.07Cumulative
                effect of change in accounting principle
            
            
            -
            
            
            -
            
            
            -
            
            
            (0.46
            )
            
            -Net
                (loss) income
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            $
            (0.46
            )
            $
            0.07Weighted
                average number of shares outstanding
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816
            
            
            12,630,964
            
            
            12,724,282Diluted
                (loss) income per share(Loss)
                income before cumulative effect of change in accounting
                principle
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            $
            -
            
            $
            0.07Cumulative
                effect of change in accounting principle
            
            
            -
            
            
            -
            
            
            -
            
            
            (0.46
            )
            
            -Net
                (loss) income
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )
            $
            (0.46
            )
            $
            0.07Weighted
                average number of shares outstanding
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816
            
            
            12,630,964
            
            
            12,742,122








**Year
                ended December 31,****2005**
            
            **2004**
            
            **2003**
            
            **2002**
            
            **2001**(In
                thousands)Balance
                Sheet Data (at end of period):Working
                capital (deficit)
            
            $
            14,615
            
            $
            17,471
            
            $
            270
            
            $
            (2,210
            )
            $
            4,809Intangible
                assets, net
            
            $
            6,148
            
            $
            6,522
            
            $
            11,614
            
            $
            14,389
            
            $
            21,132Total
                assets
            
            $
            96,111
            
            $
            102,757
            
            $
            90,602
            
            $
            96,288
            
            $
            104,670Long-term
                debt, including current maturities
            
            $
            26,674
            
            $
            29,195
            
            $
            31,286
            
            $
            33,312
            
            $
            34,349Stockholders’
                equity
            
            $
            61,650
            
            $
            66,522
            
            $
            54,212
            
            $
            57,669
            
            $
            63,856




21


**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, 2005, and should be read in conjunction with our
      Consolidated Financial Statements and related notes thereto included elsewhere
      herein.





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





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




**Introduction**


**Revenues**





***Car
      and Truck Wash Services***





We
      own
      full service, exterior only and self-service car wash locations in New Jersey,
      Pennsylvania, Delaware, Texas, Florida and Arizona, as well as truck washes
      in
      Arizona, Indiana, Ohio and Texas. We earn revenues from washing and detailing
      automobiles; performing oil and lubrication services, minor auto repairs, and
      state inspections; selling fuel; and selling merchandise through convenience
      stores within the car wash facilities. Revenues generated for 2005 for the
      Car
      and Truck Wash Segment were comprised of approximately 81% from car washing
      and
      detailing, 8% from lube and other automotive services, and 11% from fuel and
      merchandise. 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.





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





***Security***





Our
      Security Segment designs, manufactures, markets and sells a wide range of
      products. The Company’s primary focus in the Security Segment is the design of
      electronic surveillance products and components that it produces and sells,
      primarily to installing dealers, system integrators and end users. Other
      products in our Security Segment include, but are not limited to,
      less-than-lethal defense sprays, personal alarms, biometric locks, high-end
      digital and fiber optic cameras and plasma monitors. The main marketing channels
      for our products are industry shows, outside sales representatives, catalogs,
      internet, sales through a call center and sales through mass merchants and
      trade
      publications.


22


**Cost
      of Revenues**





***Car
      and Truck Wash Services***





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





***Security***





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





**Selling,
      General and Administrative Expenses**





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





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





**Depreciation
      and Amortization**





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





**Other
      Income**





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





**Income
      Taxes**





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


23




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





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


**Year
                  ended December 31,****2005**
              
              **2004**
              
              **2003**Revenues
              
              
              100.0
              %
              
              100.0
              %
              
              100.0
              %Cost
                  of revenues
              
              
              72.9
              
              
              73.0
              
              
              73.1Selling,
                  general and administrative expenses
              
              
              22.1
              
              
              21.9
              
              
              19.4Depreciation
                  and amortization
              
              
              3.5
              
              
              4.3
              
              
              4.0Costs
                  of terminated acquisitions
              
              
              -
              
              
              0.1
              
              
              -Goodwill
                  and asset impairment charges
              
              
              3.7
              
              
              14.3
              
              
              7.7Operating
                  loss
              
              
              (2.2
              )
              
              (13.6
              )
              
              (4.2
              )Interest
                  expense, net
              
              
              (2.6
              )
              
              (3.3
              )
              
              (4.0
              )Otherincome
              
              
              1.0
              
              
              0.5
              
              
              0.9Loss
                  before income taxes
              
              
              (3.8
              )
              
              (16.4
              )
              
              (7.3
              )Income
                  tax expense (benefit)
              
              
              3.6
              
              
              (5.3
              )
              
              (0.1
              )Net
                  loss
              
              
              (7.4
              )%
              
              (11.1
              )%
              
              (7.2
              )%




**Revenues**





***Car
      and Truck Wash Services***





Revenues
      for the year ended December 31, 2005 were $43.3 million as compared to $41.0
      million for the year ended December 31, 2004, an increase of $2.3 million or
      5.6%. Of the $43.3 million of revenues for the year ended December 31, 2005,
      $35.1 million or 81% was generated from car wash and detailing, $3.4 million
      or
      8% from lube and other automotive services, and $4.8 million or 11% from fuel
      and merchandise sales. Of the $41.0 million of revenues for the year ended
      December 31, 2004, $33.4 million or 81% was generated from car wash and
      detailing, $3.5 million or 9% from lube and other automotive services, and
      $4.1
      million or 10% from fuel and merchandise sales. The increase in wash and
      detailing revenues was principally due **** to **** an
      overall increase in consumer spending combined with an improvement in weather
      trends in the Company’s Arizona and East regions. This improvement was partially
      offset by a decline in volumes and revenues in the Florida region as a result
      of
      several severe hurricanes and related storm warnings. The Company also
      experienced reduced volumes in 2005 from the divesting of two of its car wash
      locations in the first half of 2004. Overall car wash volumes increased 6.4%
      in
      2005 as compared to 2004. In addition to this increase in volume, the Company
      experienced an increase in average car wash and detailing revenues per car
      to
      $15.21 in 2005, from $15.14 in 2004. This increase in average wash and detailing
      revenue per car was the result of management’s continued focus on aggressively
      selling detailing and additional on-line car wash services. The increase in
      fuel
      and merchandise revenues is primarily the result of higher fuel prices and
      the
      addition of higher quality merchandise in our car wash lobbies. Management
      expects car wash volumes and revenues to continue at historic levels consistent
      with weather patterns.


Revenues
      for the year ended December 31, 2004 were $41.0 million as compared to $43.4
      million for the year ended December 31, 2003, a decrease of $2.4 million or
      5.5%. Of the $41.0 million of revenues for the year ended December 31, 2004,
      $33.4 million or 81% was generated from car wash and detailing, $3.5 million
      or
      9% from lube and other automotive services, and $4.1 million or 10% from fuel
      and merchandise sales. Of the $43.4 million of revenues for the year ended
      December 31, 2003, $35.7 million or 82% was generated from car wash and
      detailing, $4.1 million or 10% from lube and other automotive services, and
      $3.6
      million or 8% from fuel and merchandise sales. The decrease in wash and
      detailing revenues was principally due to an overall car wash volume decline
      of
      10.2% in 2004 from 2003, including 3.9% from the closing or divesting of five
      car wash locations. Partially offsetting this decline in volume, the Company
      experienced an increase in average wash and detailing revenue per car to $15.14
      in 2004, from $14.52 in 2003, a 4.3% increase. 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. Revenue
      from lube and other automotive services was approximately $3.5 million in 2004
      compared to $4.1 million in 2003, a decrease of $0.6 million or 15%. This
      decrease in revenue, principally within our Texas region, is the result of
      the
      reduction in car wash volume within this market combined with increased
      competition. The increase in fuel and merchandise revenues is primarily the
      result of higher fuel prices and the addition of higher quality merchandise
      in
      our car wash lobbies.





24




***Security***





Revenues
      of the Security Segment were approximately $24.9 million, $16.6 million and
      $5.6
      million in 2005, 2004 and 2003, respectively. The increase in revenues is due
      principally to internal growth of approximately $2.5 million in sales within
      our
      Florida based electronic surveillance equipment operation, $5.2 million of
      sales
      growth generated by IVS and S&M in 2005, which we acquired in July of 2004,
      and therefore contributed revenues for only six months in 2004, and sales growth
      of $0.8 million generated by the Company’s personal defense products operations.
      Management expects revenues to continue to increase in the electronic
      surveillance systems and personnel defense areas where the Company is expanding
      its sales staff and marketing efforts.





**Cost
      of Revenues**





***Car
      and Truck Wash Services***





Cost
      of
      revenues for the year ended December 31, 2005 were $32.1 million or 74% of
      revenues with car washing and detailing costs at 72% of respective revenues,
      lube and other automotive services costs at 76% of respective revenues, and
      fuel
      and merchandise costs at 88% of respective revenues. Cost of revenues for the
      year ended December 31, 2004 was $30.1 million, or 73% of revenues with car
      wash
      and detailing costs at 71% of respective revenues, lube and other automotive
      services costs at 78% of respective revenues, and fuel and merchandise costs
      at
      87% of respective revenues. Cost of revenues, as a percent of revenues, was
      relatively consistent between 2004 and 2005.The Company experienced a slight
      decline in wash and detailing operating margins in 2005.





Cost
      of
      revenues for the year ended December 31, 2004 was $30.1 million or 73% of
      revenues with car washing and detailing costs at 71% of respective revenues,
      lube and other automotive services costs at 78% of respective revenues, and
      fuel
      and merchandise costs at 87% of respective revenues. Cost of revenues for the
      year ended December 31, 2003 was $32.3 million, or 74% of revenues with car
      wash
      and detailing costs at 73% of respective revenues, lube and other automotive
      services costs at 78% of respective revenues, and fuel and merchandise costs
      at
      87% of respective revenues. The Company experienced a slight improvement in
      wash
      and detailing operating margins in 2004, despite a decrease in wash volume
      of
      10.2% as compared to the prior year, as a result of a decline in insurance
      related claim costs, lease termination costs recorded in the prior year related
      to an underperforming car wash property closed in 2003, and the divestiture
      or
      closing of five unprofitable or marginally profitable car wash sites in 2003
      and
      2004. Additionally, due to management’s emphasis on monitoring labor staffing on
      a daily basis, we were successful in maintaining relatively stable labor costs
      as a percent of revenues in 2004 and 2003 despite the decrease in
      volume.





***Security***





Cost
      of
      revenues were $17.7 million, or 71% of revenues, $12.0 million or 72% of
      revenues and $3.5 million or
      62 %
      of
      revenues for 2005, 2004 and 2003, respectively. The increase in cost of revenues
      in 2005 and 2004 as compared to 2003 is principally due to: growth in sales
      of
      advanced imaging components and video equipment sold by IVS, which we began
      selling in July 2004 when we acquired IVS, which have gross profit margins
      typically lower than less-then-lethal defense sprays; an increase in sales
      of
      monitors; and an increase in sales to larger distributors and systems installers
      at lower profit margins.





**Selling,
      General and Administrative Expenses**





Selling,
      general and administrative (“SG&A”) expenses for the year ended December 31,
      2005 were $15.0 million
      compared to $12.6 million for the same period in 2004 ,
      an
      increase of approximately $2.4 million or 19%. SG&A costs as a percent of
      revenues were 21.9 %
      in both
      2005 and 2004. The increase in SG&A costs is primarily the result of growth
      of the Security Segment, which added $2.1 million of SG&A costs in 2005. The
      SG&A cost increase in the Security Segment was comprised of $1.2 million
      related to the “do it yourself” video surveillance system business and the
      advanced imaging components and video equipment business acquired in July 2004
      as well as a $700,000 increase in costs of our existing Ft. Lauderdale,
      Florida-based electronic
      surveillance equipment operation. These increases were in the areas of marketing
      and selling costs and administrative personnel costs as additional staff were
      added to handle planned growth. Corporate SG&A costs decreased slightly in
      2005 as compared to 2004 due to a reduction in payroll costs and legal expenses,
      partially offset by increased insurance costs and increased auditing and
      consulting fees related to preparation of the audit of internal controls over
      financial reporting as required by Section
      404 of the Sarbanes Oxley Act of 2002. Management expects SG&A costs to
      increase in the future as the Company continues to expand its security
      operations.





25




Selling,
      general and administrative expenses for the year ended December 31, 2004 were
      $12.6 million
      compared to $9.5 million for the same period in 2003 ,
      an
      increase of approximately $3.1 million or 33%. SG&A costs as a percent of
      revenues were 21.9 %
      for
      2004 as compared to 19.4% in 2003. The increase in SG&A costs is primarily
      the result of growth of the Security Segment, which added $2.5 million of
      SG&A costs in 2004, and an increase of $497,000 in Corporate SG&A costs.
      The SG&A cost increase in the Security Segment was comprised of $1.6 million
      related to the “do it yourself” video surveillance system business and the
      advanced imaging components and video equipment camera business acquired in
      July
      2004 including $105,000 of transaction and integration costs as well as
      increases in costs of our existing Ft. Lauderdale, Florida based video
      surveillance systems operation. These increases were in the areas of marketing
      and selling costs and administration personnel costs as additional staff was added
      to
      handle planned growth. Corporate cost increases related principally to increased
      insurance costs, the cost of settling a legal matter for $55,000, and a
      management bonus and increased corporate salaries totaling $298,000 in
      2004.





**Depreciation
      and Amortization**





Depreciation
      and amortization totaled $2.4 million, $2.5 million
      and $2.0 million for
      2005, 2004 and 2003, respectively. In the fourth quarter of 2004, the Company
      recorded an adjustment to reflect the appropriate balances for certain assets
      classified as buildings and leasehold improvements that had been depreciated
      using incorrect useful lives. Specifically, the Company recognized $338,000
      in
      additional depreciation and amortization expense in its consolidated statement
      of operation for the quarter ended December 31, 2004 to correct the
      aforementioned error in accounting. We decided to record the correction in
      the
      current period
      and not restate our previously issued financial statements after taking into
      consideration (i) that the adjustment, net of applicable income taxes, did
      not
      have a material impact on the financial statements of prior interim or annual
      periods taken as
      a
      whole; and (ii) that the cumulative impact of the adjustment on stockholders’
equity was not material to the financial statements of prior interim or annual
      periods.





**Costs
      of Terminated Acquisitions**





Our
      policy is to charge as an expense any previously capitalized expenditures
      relating to proposed acquisitions that in our current opinion will not be
      consummated. The costs of previously capitalized expenditures related to
      proposed acquisitions totaled approximately $0, $53,000 and $0 in 2005, 2004
      and
      2003, respectively. These costs, which principally related to several possible
      acquisitions we pursued in the Security Segment, are primarily related to due
      diligence costs.





**Asset
      Impairment Charges**


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, 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.
      During the year ended December 31, 2002, we wrote down assets determined to
      be
      impaired by approximately $1.2 million. The asset write-down related to one
      of
      our full service car wash sites in Texas and two full service car wash sites
      in
      Arizona. We have determined that due to changing demographics and increased
      competition in the geographic areas of these sites, their future expected cash
      flows will not be sufficient to recover their respective carrying values. During
      the quarter ended June 30, 2003, we further wrote down the assets related to
      one
      of the full service car wash sites in Arizona, which we partially wrote down
      at
      December 31, 2002, by an additional $351,000. The additional write-down was
      the
      result of the impending loss of a significant customer of this site resulting
      in
      an additional reduction of the future expected cash flows of this site and
      the
      ability to recover the site’s carrying value. We closed the facility effective
      September 30, 2003. During the quarter ended June 30, 2004, we sold the other
      Arizona car wash site recording a loss of $51,000 on the
      disposition. **** We
      continue to market the Texas site for sale and have written down these assets
      to
      their estimated fair market values. Additionally, during the year ended December
      31, 2004, we wrote down assets related to our truck wash operations determined
      to be impaired by approximately $500,000 and we wrote these assets down an
      additional $966,000 during the quarter ended September 30, 2005 as a result
      of
      our SFAS 144 quarterly reviews. We have determined that due to a reduction
      in
      truck wash volumes resulting from an increase in inclement weather, increased
      competition, the significant increase in fuel costs which had the effect of
      reducing spending on truck washing, and demographic changes to certain of our
      facilities, their future expected cash flows would not be sufficient to recover
      their respective carrying values. The Company executed a lease-to-sell agreement
      on December 31, 2005 with Eagle United Truck Wash, LLC (“Eagle”) to lease Mace’s
      five truck washes beginning January 1, 2006 for up to two years. Pursuant to
      the
      terms of the agreement, Eagle must pay Mace $9,000 per month to lease the
      Company’s truck washes, and is responsible for all underlying property expenses.
      Within the next two years, Eagle is obligated under the agreement to purchase
      the truck washes and be delivered title to the assets for $1.2 million,
      consideration consisting of $280,000 cash and a $920,000 note payable to Mace
      secured by mortgages on the truck washes. When issued, the $920,000 note will
      have a five-year term, with principal and interest paid on a 15-year
      amortization schedule. If Eagle does not fulfill its obligation to purchase
      the
      truck washes, the Company will regain possession of the truck washes and Eagle
      will be obligated to pay $200,000 as liquidated damages.





26




In
      the
      fourth quarter of 2005, as a result of the annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 142, we recorded an impairment
      of
      approximately $1.56 million related to our Texas region reporting unit of our
      Car and Truck Wash Segment. In the fourth quarter of 2004, we recorded
      impairments of approximately $1.0 million and $6.7 million related to our
      Northeast and Texas reporting units, respectively. Additionally, in the fourth
      quarter of 2003, we recorded an impairment of approximately $3.4 million related
      to our Northeast region reporting unit of our Car and Truck Wash Segment. These
      2005, 2004 and 2003 impairments were principally due to reductions in future
      projected cash flows resulting from extended departures from our historic
      revenue levels as a result of inclement weather, and increased competition
      near
      several of our facilities in Texas and New Jersey.





**Interest
      Expense, Net**





Interest
      expense, net of interest income, for the year ended December 31, 2005, was
      $1.8
      million compared to $1.9 million for 2004. This decrease in our net interest
      expense was the result of an increase in interest income, partially offset
      by an
      increase in interest rates in 2005 on approximately 50% of our long-term debt
      which has interest rates tied to the prime rate.





Interest
      expense, net of interest income, for the year ended December 31, 2004, was
      $1.9
      million compared to $2.0 million for 2003. This decrease in our interest expense
      was the result of a reduction in our outstanding debt as a result of routine
      monthly principal payments, partially offset by an increase in interest rates
      in
      the last quarter of 2004 on approximately 50% of our long-term debt which has
      interest rates tied to the prime rate.





**Other
      Income**





Other
      income was $686,000, $267,000, and $438,000 for 2005, 2004 and 2003,
      respectively. Included
      in 2005 are gains on the sale of fixed assets totaling $333,000 and gains on
      short-term investments of $264,000. Included
      in 2003 is a $107,000 gain on the sale of a car wash facility in our Northeast
      region.





**Supplementary
      Cash Flow Information**





Interest
      paid on all indebtedness was approximately $2.1 million, $2.0 million and $2.0
      million for the years ended December 31, 2005, 2004 and 2003, respectively.
      Income taxes paid were approximately $86,000, $340,000 and $144,000 for the
      years ended December 31, 2005, 2004 and 2003, respectively. Noncash investing
      and financing activities of the Company excluded from the statement of cash
      flows include a property addition financed by common stock of $1.6 million,
      real
      estate partially funded by a mortgage of approximately $825,000, and the sale
      of
      property and simultaneous pay down of a related mortgage of $325,000, all in
      2004
      and property additions financed by debt of $343,000 in 2003.





**Income
      Taxes**





We
      recorded income tax expense of $2.4 million and income tax benefits of $3.0
      million and $50,000 for
      the
      years ended December 31, 2005, 2004, and 2003, respectively. Income
      tax expense (benefit) reflects the recording of income taxes on loss before
      income taxes at effective rates of approximately (95)%, 32 %,
      and 1%
      for the years ended December 31, 2005, 2004, and 2003, respectively. In 2004
      and
      2003 no income tax benefit was recorded with respect to the Northeast region
      reporting unit goodwill impairment charges of approximately $1.0 million and
      $3.4 million, respectively, due to the non-deductibility of the goodwill. 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. In 2005 we wrote off
      approximately $120,000 of state net operating loss carryforwards (“NOL”) related
      to our truck washes.




27


Realization
      of the future tax benefits related to the deferred tax assets is dependent
      upon
      many factors, including the Company’s ability to generate taxable income in
      future years. The Company performed a detailed review of the considerations
      influencing our ability to realize the future benefit of the NOLs, including,
      the extent of recently used NOLs, the turnaround of future deductible temporary
      differences, the duration of the NOL carryforward period, and the Company’s
      future projection of taxable income. The Company increased its valuation
      allowance against deferred tax assets by $3.2 million in 2005 with a total
      valuation allowance of $4.1 million at December 31, 2005 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, 2005, the uncertainty of the timing
      of the Company’s transition from the Car Wash business, and the ultimate extent
      of growth in the Company’s Security Segment.





**Liquidity
      and Capital Resources**





***Liquidity***





Cash
      and
      cash equivalents were $8.4 million at December 31, 2005. The ratio of our total
      debt to total capitalization, which consists of total debt plus stockholders’
equity, was 30.2% at December 31, 2005, and 30.5% at December 31,
      2004. **** The
      improvements in the Company’s total debt to total capitalization ratio is
      directly related to routine principal payments on debt as noted below.





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





As
      of
      December 31, 2005, we had working capital of approximately $14.6 million. At
      December 31, 2004, working capital was approximately $17.5 million and $270,000
      at December 31, 2003. The reduction in working capital at December 31, 2005
      was
      principally due to a use of $1.9 million of cash for the acquisition of
      Securetek in November 2005. We experienced a significant improvement in working
      capital at December 31, 2004, primarily attributable to: 1) $8.95 million of
      proceeds received from the removal of a restriction on outstanding shares of
      the
      Company’s common stock; 2) $9.4 million of proceeds, net of issuance costs, from
      the sale of approximately 1.9 million shares of the Company’s common stock to
      two private institutions through three separate sale transactions and the sale
      of 150,000 shares of the Company’s stock to Fusion under a Master Facility
      Agreement; 3) $1.9 million of proceeds from the exercise of common stock
      options; and 4) $795,000 of proceeds from the sale of an exterior-only car
      wash
      in New Jersey and a full-service car wash in Arizona. Working capital was also
      positively affected in 2004 by the renewal and reclassification to non-current
      liabilities of approximately $3.3 million of 15-year amortizing loans with
      Chase. The increase in working capital in 2004 was partially offset by the
      use
      of $5.6 million of cash for the acquisitions of IVS and S&M on July 1, 2004;
      capital expenditure investments for further growth within the Car and Truck
      Wash
      Segment and the Security Segment, as more fully detailed below; and the
      reclassification to current liabilities of an additional loan for $290,000
      which
      was renewed in April 2005. Although the Company has been successful in renewing
      similar loans with the current lender in the past, including the renewal of
      loans in 2005 and 2004 totaling $290,000 and $3.3 million, respectively, there
      can be no assurance that our lender will continue to provide us with renewals
      or
      with renewals at favorable terms.





During
      the years ended December 31, 2005 and 2004, we made capital expenditures of
      $1.14 million and $1.46 million, respectively, within our Car and Truck Wash
      Segment. We estimate aggregate capital expenditures for our Car and Truck Wash
      Segment of approximately $800,000 for the year ending December 31, 2006. The
      Company believes its current cash and short-term investment balance at December
      31, 2005 of $11.4 million and cash flow from operating activities in the
      remainder of 2006 will be sufficient to meet its car wash capital expenditure
      funding needs through at least the next twelve months. In years subsequent
      to
      2006, we estimate that our Car and Truck Wash Segment will require annual
      capital expenditures of $650,000 to $800,000. 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 2006 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 $424,000 and $3.8 million for the
      fiscal years ending December 31, 2005 and 2004, respectively. We used $1.9
      million of cash for the acquisition of Securetek in November 2005. We spent
      approximately $4.9 million through June 30, 2004 in the initial development
      of
      our video surveillance systems operations in Ft. Lauderdale, Florida including
      the acquisition costs of Micro-Tech and Vernex and the cost of developing and
      purchasing inventory for our expanded product line. Additionally, on July 1,
      2004 the Company paid approximately $5.6 million of cash for the acquisition
      of
      the S&M and IVS security operations. We also made capital expenditures in
      2004 of approximately $1.9 million for the purchase and furnishing of a new
      facility in Farmers Branch, Texas for our S&M and IVS security operations.
      Approximately $825,000 of the Farmers Branch, Texas facility purchase price
      was
      financed with debt. We estimate capital expenditures for the Security Segment
      at
      approximately $100,000 for 2006, principally related to facility improvements
      and equipment for our Farmers Branch, Texas and Ft. Lauderdale, Florida
      operations.




28


We
      intend
      to continue to expend significant cash for the purchasing of inventory as we
      grow and introduce new video surveillance products in 2006 and in years
      subsequent to 2006. We anticipate that inventory purchases will be funded from
      cash collected from sales and working capital. At December 31, 2005, we
      maintained an unused $500,000 revolving credit facility with Chase to provide
      financing for additional video surveillance product inventory purchases. This
      revolving credit facility is subject to an availability calculation based on
      inventory and accounts receivable (as defined in our bank agreement). Based
      upon
      availability calculations at December 31, 2005, the full amount of the revolving
      credit facility is currently available. The amount of capital that we will
      spend
      in 2006 and in years subsequent to 2006 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 $11.4 million at December
      31, 2005 and the revolving credit facility will provide for growth in 2006.
      Unless our operating cash flow improves, our growth will be limited if we
      deplete our cash balance.




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 current debt service coverage ratios on existing
        loans
        also adversely impacts our ability to obtain additional financing. We are
        reluctant to sell common stock at market prices below our per share book
        value.
        For the twelve month period ended December 31, 2005 we were in default on
        certain of our debt covenants. We obtained waivers from our lenders through
        January 1, 2007. 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, 2005, we had borrowings, including capital lease obligations,
      of
      approximately $26.7 million. We had three letters of credit outstanding at
      December 31, 2005, totaling $1,078,000 as collateral relating to workers’
compensation insurance policies. We maintain a $500,000 revolving credit
      facility, subject to an availability calculation based on inventory and accounts
      receivable, to provide financing for additional video surveillance product
      inventory purchases. There were no borrowings outstanding under the revolving
      credit facility at December 31, 2005. The Company also maintains a $600,000
      line
      of credit for commercial letters of credit for the importation of inventory.
      There were no outstanding commercial letters of credit under this commitment
      at
      December 31, 2005.




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





At
      December 31, 2005, we were not in compliance with our semi-annual consolidated
      debt coverage ratio of at least 1.25:1 related to our GMAC notes payable. The
      Company’s debt coverage ratio related to the GMAC notes payable was 1.07:1 at
      December 31, 2005. Additionally, the Mace guaranty agreement with GMAC requires
      the Company to provide GMAC audited, reviewed, or compiled financial statements
      by the Company’s independent certified public accountants within 90 days of the
      Company’s fiscal year end. The Company was not able to timely provide the
      required year end audited financial statements. GMAC granted us a waiver of
      acceleration related to the non-compliance with the debt coverage ratio covenant
      and delinquency in providing the Company’s year end audited financial statements
      at December 31, 2005, and for measurement periods through April 1, 2007 and,
      accordingly, a portion of the GMAC notes payable was reflected as non-current
      on
      our financial statements at December 31, 2005. If we are not able to increase
      our debt coverage ratio to at least 1.25:1, or we cannot obtain further waivers
      of acceleration, the GMAC notes may be reflected as current in future balance
      sheets and as a result our stock price may decline.


The
      Company has entered into amendments to the Chase term loan agreements effective
      March 31, 2004. The amended debt coverage ratio with Chase requires the
      Company to maintain a ratio of consolidated earnings before interest, income
      taxes, depreciation and amortization to debt service of 1.05:1 at December
      31,
      2005 and thereafter. The Company’s debt coverage ratio was 1.09:1 at December
      31, 2005 which was in compliance with this Chase covenant as amended. The
      amended Chase term loan agreement also limits capital expenditures annually
      to
      $1.0 million and
      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 as well as internal
      certified financial statements and a Form 10-Q within 60 days after the end
      of
      each fiscal quarter. The Company was not able to timely provide the required
      year end audited financial statements or the first quarter Form
      10-Q. The
      Company incurred capital expenditures of $1.4 million in 2005 and, accordingly,
      was not in compliance with this Chase covenant. The Company received a waiver
      of
      acceleration from Chase at December 31, 2005 and for measurement periods through
      January 1, 2007 related to exceeding the annual capital expenditure limit and
      the untimely financial statement filings and, accordingly, a portion of the
      Chase notes payable was reflected as non-current on our financial statements
      at
      December 31, 2005. The Chase amendment also requires the maintenance of a
      minimum total unencumbered cash and marketable securities balance of $5 million.
      This cash balance requirement will be lowered to $1 million upon the Company
      returning to a debt coverage ratio of at least 1.10 to 1. If we are unable
      to
      satisfy these covenants or obtain further waivers, the Chase notes may be
      reflected as current in future balance sheets and as a result our stock price
      may decline.





29




The
      Company sold or closed six unprofitable or marginally profitable car wash
      facilities and a lube facility in 2003, 2004 and 2005 and increased its prices
      in March 2004 within the Car and Truck Wash Segment to help improve cash flows
      for fiscal 2004 and 2005. If our future cash flows are less than expected or
      debt service including interest expense increases more than expected causing
      us
      to further default on any of the Chase covenants or the GMAC covenant in the
      future, the Company will need to obtain further amendments or waivers from
      these
      lenders. If the Company is unable to obtain waivers or amendments in the future,
      Chase debt currently totaling $13.4 million and GMAC debt currently totaling
      $9.7 million, including debt recorded as long-term debt at December 31, 2005,
      would become payable on demand by the financial institution upon expiration
      of
      the current waivers.





The
      Company’s ongoing ability to comply with its debt covenants under its credit
      arrangements and refinance its debt depends largely on the achievement of
      adequate levels of cash flow. 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 reoccur, 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.
      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 May 31, 2006, the Company incurred $390,000 in legal, consulting and
      accounting expenses associated with the Audit Committee investigations and
      $375,000 associated with the governmental investigation and Company’s defense
      and negotiations with the government. In accordance with the Company’s By-Laws,
      the Company is obligated to indemnify and advance legal costs for its officers
      and directors. Due to the ongoing nature of the criminal investigation, it
      is
      not possible at this time to predict the outcome of the investigation or the
      impact of costs of ultimately resolving this matter. However, we believe that
      additional legal and other costs and expenses through the remainder of 2006
      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, 2005 (in thousands):




**Payments
                  Due By Period****Contractual
                  Obligations(1)**
              
              **Total**
              
              **Less
                  than**
                **One
                  Year**
              
              **One
                  to Three Years**
              
              **Three
                  to Five Years**
              
              **More
                  Than Five Years**Long-term
                  debt (2)
              
              $
              26,589
              
              $
              2,154
              
              $
              9,430
              
              $
              8,604
              
              $
              6,401Capital
                  leases (2)
              
              
              85
              
              
              55
              
              
              30
              
              
              -
              
              
              -Minimum
                  operating lease payments
              
              
              5,812
              
              
              919
              
              
              1,608
              
              
              969
              
              
              2,316$
              32,486
              
              $
              3,128
              
              $
              11,068
              
              $
              9,573
              
              $
              8,717


30


**Amounts
                  Expiring Per Period****Other Commercial
                  Commitments**
              
              **Total**
              
              **Less
                  Than One Year**
              
              **One
                  to Three Years**
              
              **Three
                  to Five Years**
              
              **More
                  Than Five Years**Line
                  of credit (3)
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -
              
              $
              -Standby
                  letters of credit (4)
              
              
              1,078
              
              
              1,078
              
              
              -
              
              
              -
              
              
              -$
              1,078
              
              $
              1,078
              
              $
              -
              
              $
              -
              
              $
              -


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


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


(3)
      The
      Company maintains a $500,000 line of credit with Chase. There were no borrowings
      outstanding under this line of credit at December 31, 2005.


(4)
      The
      Company also maintains a $600,000 line of credit for commercial letters of
      credit with Chase for the importation of inventory. There were no outstanding
      commercial letters of credit under this commitment at December 31, 2005.
      Outstanding letters of credit of $1,078,000 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 12, 2003. The
      principal terms of the employment agreement include: an annual salary of
      $400,000; a car at a lease cost of $1,500 per month, provision for certain
      medical and other employee benefits; prohibition against competing with Mace
      during employment and for a three-month period following a termination of
      employment; and a $2.5 million payment in the event that Mr. Paolino's
      employment is terminated for certain reasons set forth in the employment
      agreement. The termination payment is not due in the event of termination due
      to
      death or disability or certain prohibited conduct, as more fully set forth
      in
      the employment agreement. The termination payment is due if Mr. Paolino is
      terminated for unsatisfactory job performance. The employment agreement also
      entitles Mr. Paolino to a $2.5 million change-of-control bonus.





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





***Cash
      Flows***





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





Net
      cash
      provided by operating activities totaled $1.2 million for the year ended
      December 31, 2004 and $137,000 in 2003. The Company generated approximately
      $147,000 in cash from working capital accounts. The cash generated from working
      capital was mainly due to increases in accounts payable and accrued expenses.
      This was partially offset by growth in the Company's inventory of approximately
      $1.4 million from December 31, 2003 to December 31, 2004. The increase in
      inventory was due primarily to growth within our existing Ft. Lauderdale,
      Florida and recently acquired Farmers Branch, Texas video surveillance systems
      and components operations. The Company also incurred $2.5 million of non-cash
      depreciation and amortization expense.





31




*Investing
      Activities* .
      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, $1.0 million for capital expenditures relating to ongoing car care
      operations, $420,000 for capital expenditures relating to the Security Segment,
      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.




Cash
      used
      in investing activities totaled $7.8 million for the year ended December 31,
      2004, which includes $5.6 million for the July 1, 2004 acquisition of IVS and
      S&M, $1.5 million for capital expenditures relating to ongoing car care
      operations, and $1.4 million for capital expenditures relating to the Security
      Segment. These expenditures were partially offset by proceeds of approximately
      $795,000 received from the sale of an exterior-only car wash in New Jersey
      and a
      full-service car wash in Arizona. Cash used in investing activities totaled
      $569,000 for the year ended December 31, 2003 which includes $873,000 for
      capital expenditures relating to ongoing car care operations, and $234,000
      for
      the Security Segment. These amounts were partially offset by $598,000 of cash
      proceeds from the sale of a car wash facility in our Northeast
      region.




*Financing
      Activities* .
      Cash
      used in financing activities was $2.6 million for the year ended December 31,
      2005, which consisted primarily of routine principal payments on
      debt.





Cash
      provided by financing activities was $17.6 million for the year ended December
      31, 2004 which includes $11.3 million of proceeds from the issuance of common
      stock and the exercise of stock options and $8.95 million of proceeds from
      the
      removal of restrictions on shares, partially offset by routine principal
      payments on debt of $2.6 million. Cash used in financing activities was $2.3
      million for the year ended December 31, 2003 which was principally for routine
      principal payments on debt.





**Seasonality
      and Inflation**





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





The
      Company believes that inflation and changing prices have not had, and are not
      expected to have, a material adverse effect on its results of operations in
      the
      near future.





**Summary
      of Critical Accounting Policies**





The
      discussion and analysis of our financial condition and results of operations
      are
      based upon the Company's consolidated financial statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America. The preparation of these financial statements requires
      the Company to make estimates and judgments that affect the reported amounts
      of
      assets and liabilities, revenues and expenses, and related disclosures of
      contingent assets and liabilities at the date of the Company's financial
      statements. Actual results may differ from these estimates under different
      assumptions or conditions.





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





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





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





32




Revenues
      from the Company’s Security Segment are recognized when shipments are made.
      Shipping and handling charges billed
      are included in revenues; the cost of which is included in selling, general
      and
      administrative (“SG&A”) expenses.





***Cash
      and Cash Equivalents***





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





***Short-Term
      Investments***





At
      December 31, 2005, the Company had approximately $3.0 million of investments
      classified as available for sale in three funds which are stated at market
      value. The Company may exit one of the funds at the end of any calendar quarter
      with 30 days advanced written notice and the other funds may be exited with
      one business
      day notice. In the year ended December 31, 2005, the Company realized a total
      gain of $264,000. Additionally, an unrealized gain, net of tax, of approximately
      $156,000 is included  as a separate component of equity in Accumulated
      Other Comprehensive Income (Loss) at December 31, 2005.




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





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





***Goodwill***





In
      accordance with SFAS 142, *Goodwill
      and Other Intangible Assets* ,
      the
      Company completed annual impairment tests as of November 30, 2005, 2004, and
      2003, and will be subject to an impairment test each year thereafter and
      whenever there is an impairment indicator. The Company’s annual impairment
      testing corresponds with the Company’s determination of its annual operating
      budgets for the upcoming year. The Company’s valuation of goodwill is based on a
      discounted cash flow model applying an appropriate discount rate to future
      expected cash flows and management’s annual review of historical data and future
      assessment of certain critical operating factors, including security product
      sales and related costs, car wash volumes, average car wash and detailing
      revenue rates per car, wash and detailing labor cost percentages, weather trends
      and recent and expected operating cost levels. Estimating cash flows requires
      significant judgment including factors beyond our control and our projections
      may vary from cash flows eventually realized. Adverse business conditions could
      affect recoverability of goodwill in the future and, accordingly, the Company
      may record additional impairments in subsequent years.





***Other
      Intangible Assets***





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





***Income
      Taxes***





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





33


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





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





**Interest
      Rate Exposure**





A
      significant portion of our debt is at fixed rates, and as such, changes in
      market interest rates would not significantly impact operating results unless
      and until such debt would need to be refinanced at maturity. 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 and Libor rates
      would not have a material effect on the fair value of our variable rate debt
      at
      December 31, 2005 and would have had the impact of increasing interest expense
      by approximately $160,000 in 2005.





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% (7.50% at December 31, 2005).
      The hedge contract has a 36-month term and caps the interest rate on the $7
      million of variable rate debt at 6.5%. The derivative is designated as a cash
      flow hedge and, accordingly, is marked to market with gains and losses on the
      contract reported as a component of other comprehensive income (loss) and is
      classified into earnings in the earlier of (i) the period the hedged transaction
      affects earnings, or (ii) the termination of the hedge contract. At December
      31,
      2005, the contract which was originally purchased for $124,000, is included
      in
      other assets at its fair market value of approximately $130,000.





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





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





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





None





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





**Disclosure
      Controls and Procedures**





The
      Company’s disclosure controls and procedures are designed to ensure that
      information required to be disclosure by the Company in the reports that its
      files or submits under Securities Exchange Act of 1934, as amended, is recorded,
      processed, summarized and reported, within the time periods specified in the
      Securities and Exchange Commissions’ 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, 2005 required by Rule 13a-15(b) under the Securities Exchange
      Act
      of 1934, as amended, and conducted by the Company’s chief executive officer and
      chief financial officer, such officers concluded that the Company’s disclosures
      controls and procedures were not effective as of December 31, 2005. That
      conclusion was based on the fact that, during the first quarter of 2006, the
      Company identified a material weakness in its internal control over financial
      reporting.





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




34


Specifically,
      the material weakness identified by the Company related to control and
      monitoring of its regional and site car wash management personnel for compliance
      with the Company’s field policies and procedures for hiring and terminating car
      wash site employees, and the maintenance of personnel files located at the
      car
      wash locations. Management determined that the material weakness did not have
      a
      financial statement impact.




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





In
      March
      2006, we began the remediation of the material weakness in our internal control
      over financial reporting relating to the hiring and termination policies and
      procedures for car wash field personnel through: (i) the hiring of a Human
      Resource Manager to focus on training, monitoring, and enforcement of field
      hiring and termination policies and procedures; (ii) enhancements to current
      regional management monitoring and testing for adherence to field policies
      and
      control procedures by field car wash management; (iii) the addition of certain
      corporate level quarterly testing and monitoring procedures of regional and
      field car wash management for adherence to policies and procedures; and (iv)
      enhancements to car wash personnel files maintenance procedures. We will
      continue to closely monitor the effectiveness of our processes, procedures
      and
      controls, and will make further changes as management determines
      appropriate.





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





None


**PART
      III**





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




**Name**
              
              **Age**
              
              **Position**Louis
                  D. Paolino, Jr.
              
              50
              
              Chairman
                  of the Board, President, and Chief Executive OfficerRobert
                  M. Kramer
              
              53
              
              Executive
                  Vice President, Chief Operating Officer of the Car
                and
                  Truck Wash Segment,General Counsel and SecretaryGregory
                  M. Krzemien
              
              46
              
              Chief
                  Financial Officer and TreasurerRonald
                  R. Pirollo
              
              47
              
              Chief
                  Accounting Officer and Corporate ControllerMatthew
                  J. Paolino
              
              41
              
              Director,
                  Vice PresidentMark
                  S. Alsentzer
              
              51
              
              DirectorConstantine
                  N. Papadakis, Ph.D.
              
              60
              
              DirectorBurton
                  Segal
              
              62
              
              Director




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





**Louis
      D. Paolino, Jr.** **** has
      served as the Chairman of the Board, President and 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. Mr. Paolino is
      the
      brother of Matthew J. Paolino.





**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 since July 2000. 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.





35




**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 and is a certified public accountant.





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





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





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





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





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





**Independence**





The
      Board
      has determined that the Messrs. Alsentzer, Papadakis and Segal are independent
      directors within the meaning of Rule 4200 (a) (15) of National Association
      of
      Securities Dealers’ Nasdaq National Market listing standards.





**Audit
      Committee Financial Expert**





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





**Audit
      Committee**





36




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





**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.





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





Section
      16(a) of the Exchange Act requires Mace’s directors and executive officers, as
      well as persons beneficially owning more than 10% of Mace’s outstanding shares
      of common stock and certain other holders of such shares (collectively, “Covered
      Persons”), to file with the Commission and the Nasdaq Stock Market (the
“Nasdaq”), within specified time periods, initial reports of ownership, and
      subsequent reports of changes in ownership, of common stock and other equity
      securities of Mace. Based upon Mace’s review of copies of such reports furnished
      to it and upon representations of Covered Persons that no other reports were
      required, to Mace’s knowledge, all of the Section 16(a) filings required to be
      made by the Covered Persons with respect to 2005 were made on a timely
      basis.





**ITEM
      11.**  **EXECUTIVE
      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 Chief Executive
      Officer and each of the other most highly compensated executive officers of
      Mace
      whose compensation exceeded $100,000 (the “Named Executive Officers”) for the
      three years ended December 31, 2005.





**SUMMARY
        COMPENSATION TABLE(1)**
  **NAME
                AND**
              
              **Fiscal
                  Year**
                **ended**
              
              **Annual
                  Compensation**
              
              **Long-Term**
                **Compensation**
                **Awards**
                **Securities**
                **Underlying****PRINCIPAL
                  POSITIONS**
              
              **December
                  31,**
              
              **Salary**
              
              **Bonus**
              
              **Options**Louis
                  D. Paolino, Jr.
                Chairman
                  of the Board, President and Chief Executive Officer
              
              2005
                2004
                2003
              
              $400,000
                $400,000$346,769
              
              -
                $200,000
                -
              
              15,000
                732,182
                150,000Robert
                  M. Kramer
                Executive
                  Vice President,
                Chief
                  Operating Officer of the
                Car
                  and Truck Wash Segment,
                General
                  Counsel and Secretary
              
              2005
                2004
                2003
              
              $210,000
                  $163,438 $155,692
              
              -
                -
                -
              
              -
                112,500
                150,000Gregory
                  M. Krzemien
                Chief
                  Financial Officer and Treasurer
              
              2005
                2004
                2003
              
              $200,000
                  $144,485 $135,492
              
              -
                -
                -
              
              -
                50,000
                150,000Ronald
                  R. Pirollo
                Chief
                  Accounting Officer
                and
                  Corporate Controller
              
              2005
                2004
                2003
              
              $164,123
                  $130,137 $118,427
              
              -
              
              -
                25,000
                100,000




37


(1)
            The
                columns captioned “Annual Compensation - Other Annual Compensation,”
                “Long-Term Compensation - Restricted Stock Awards,” “LTIP Payouts,” and
                “All Other Compensation” have been omitted because none of the Named
                Executive Officers received other annual compensation except for
                Mr.
                Paolino who receives a car at a lease cost of $1,500 per month.
                Additionally, the Company paid legal fees in 2004 to Mr. Paolino’s
                attorney of approximately $38,800 which were incurred in connection
                with
                Mr. Paolino’s obligation to file Forms 4 and Schedules D in connection
                with his ownership of the Company’s common stock. The Company (i) granted
                no restricted stock awards, and (ii) maintained no long-term incentive
                plan for any of the Named Executive Officers, in each case during
                the
                three fiscal years ended December 31, 2005. Additionally, the Company
                has
                not issued any stock appreciation rights (SARs) in any of the past
                three
                years.





**Director
      Compensation**





Prior
      to
      June 30, 2004, Mace did not pay fees to directors, but paid non-employee
      directors reasonable travel and out-of-pocket expenses relating to their
      attendance at meetings. On June 29, 2004, the Independent Directors approved
      a
      compensation package for the Independent Directors consisting of (a) an annual
      fee of $4,000, prorated for partial years of service, (b) a $750 fee for
      in-person attendance at each Board meeting, and (c) a $300 fee for in-person
      attendance at each committee meeting. On October 6, 2005, the Independent
      Directors approved an update to the Independent Directors compensation
      consisting of an annual fee of $10,000 for 2006 services, prorated for partial
      years of service, and a $1,000 per day meeting fee for physical attendance
      at
      Board of Director and related Committee meetings.





On
      October 6, 2005, Mace’s directors, Louis D. Paolino, Jr., Matthew J. Paolino,
      Mark S. Alsentzer, Burton Segal, and Constantine N. Papadakis, Ph.D., were
      each
      granted options to purchase 15,000 shares of Mace common stock at $2.64 per
      share for their service on the Board of Directors in 2005.





On
      August
      10, 2004, Mace’s then current outside directors, Mark S. Alsentzer, Burton
      Segal, and Constantine N. Papadakis, Ph.D., were each granted options to
      purchase 11,000 shares of Mace common stock at $3.04 per share for their service
      on the Board of Directors in 2004. Additionally, on November 2, 2004, Mark
      S.
      Alsentzer was granted options to purchase 25,000 shares of Mace common stock
      at
      $5.00 per share to compensate him for not being able to exercise a warrant
      for
      25,000 shares prior to expiration due to the Company’s insider trading policy.
      On November 19, 2004, Louis D. Paolino, Jr., Matthew J. Paolino, Mark S.
      Alsentzer, Burton Segal, and Constantine N. Papadakis, Ph.D., were each granted
      options to purcahse 14,000 shares of Mace common stock at $5.35 per share for
      their services on the Board of Directors in 2004.





On
      April
      4, 2002, Mace’s then current outside directors, Richard B. Muir, Mark S.
      Alsentzer and Constantine N. Papadakis, Ph.D., were each granted options to
      purchase 12,500 shares of Mace common stock at $2.36 per share for their service
      on the Board of Directors in 2002.





All
      of
      the above grants were made under the 1999 Stock Option Plan.





**Equity
      Compensation Plan Information**





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







38


The
      following table sets forth certain information regarding the Company’s Stock
      Option Plan and warrants as of December 31, 2005.




**Plan
                  Category**
              
              **(a)**
                **Number
                  of securities to be issued upon exercise of outstanding options,
                  warrants
                  and rights**
              
              **(b)**
                **Weighted
                  average exercise price of outstanding options, warrants and
                  rights**
              
              **(c)**
                **Number
                  of securities remaining available for future issuance under equity
                  compensation plans (excluding securities reflected in column
                  (a))**Equity
                  compensation plans approved by stockholders
              
              
              3,108,682
              
              $
              4.00
              
              
              3,984,382Equity
                  compensation plans not approved by stockholders
              
              
              433,000
              
              $
              8.02
              
              
              N/A




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





The
      following table sets forth certain information concerning individual grants
      of
      stock options to the Named Executive Officers during the fiscal year ended
      December 31, 2005.





**OPTION
      GRANTS IN LAST FISCAL YEAR (1)**


**(Individual
      Grants)**


**Number
                  of Securities Underlying Options********Granted**
              
              **%
                  of Total Options Granted to Employees in**
              
              **Exercise
                  Price**
              
              **Expiration**
              
              **Potential
                  Realizable Value at Assumed Rates of Stock Price Appreciation
                  for****Option Term****Name**
              
              
              **(#)**
              
              
              **FiscalYear
                  (1)**
              
              
              **PerShare($)**
              
              
              **Date**
              
              
              **5%**
              
              
              **10%**Louis
                  D. Paolino, Jr.
              
              
              15,000
              
              
              5.0
              %
              $
              2.64
              
              
              10/31/15
              
              $
              24,900
              
              $
              63,150


(1)
            The
                Company granted options to employees and directors to purchase a
                total
                300,000 shares of common stock during the fiscal year ended December
                31,
                2005. All of these grants were made at exercise prices equal to the
                fair
                market value of the common stock at the date of
                grant.





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





39




The
      following table sets forth certain information regarding stock options held
      by
      the Named Executive Officers during the fiscal year ended December 31, 2005,
      including the number and value of exercisable and unexercisable stock options
      as
      of December 31, 2005. No options were exercised by any of the Named Executive
      Officers during the fiscal year ended December 31, 2005. In-the-money options
      are those for which the fair market value of the underlying securities exceeds
      the exercise price of the option. The closing transaction price of the Company’s
      common stock on December 31, 2005 was $2.47 per share.





**AGGREGATED
      OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES**




**Number
                  of Securities Underlying Unexercised Options****at Fiscal Year End 2005**
              
              **Value
                  of Unexercised In-the-money Options/SARs at Fiscal
                  Year********End
                  2005****Name**
              
              ******Exercisable**
              
              **Unexercisable**
              
              **Exercisable**
              
              **Unexercisable**Louis
                  D. Paolino, Jr.
              
              
              989,682
              
              
              -
              
              $
              182,215
              
              $
              -Gregory
                  M. Krzemien
              
              
              350,000
              
              
              -
              
              $
              231,375
              
              $
              -Robert
                  M. Kramer
              
              
              455,000
              
              
              -
              
              $
              231,375
              
              $
              -Ronald
                  R. Pirollo
              
              
              200,000
              
              
              -
              
              $
              112,500
              
              $
              -




**Employment
      Agreements**





***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 agreement dated August 12, 2003. The
      principal terms of the employment agreement include: annual salary of $400,000;
      a car allowance not to exceed $1,500 per month; provision of certain medical
      and
      other employee benefits; prohibition against competing with Mace during
      employment and for a three-month period following a termination of employment;
      and a $2.5 million payment in the event that Mr. Paolino's employment is
      terminated for certain reasons set forth in the employment agreement. The
      termination payment is not due in the event of termination due to death or
      disability or certain prohibited conduct, as more fully set forth in the
      employment agreement. The termination payment is due if Mr. Paolino is
      terminated for unsatisfactory job performance. The employment agreement also
      entitles Mr. Paolino to a $2.5 million change-of-control bonus.





***Other
      Executive Employment Agreements***





The
      primary terms of the employment agreements for Robert M. Kramer, Gregory M.
      Krzemien, and Ronald R. Pirollo expired on March 26, 2003. Messrs. Kramer and
      Krzemien are working on a month-to-month, at-will basis under the provisions
      of
      their employment agreements. Mr. Pirollo or the Company may terminate Mr.
      Pirollo’s employment at any time. Under the employment agreements, Mace granted
      in 1999 to each of these executive officers options to purchase shares of Mace
      common stock at $5.375 per share that vested over a period of four years. The
      table below discloses the current salary and initial option grants for these
      executive officers.




**Name**
              
              **Office**
              
              **Current****Annual Salary**
              
              **Initial****Option Grant**Robert
                  M. Kramer
              
              Chief
                  Operating Officer of the Car
                  and
                    Truck Wash Segment, Executive
                    Vice
                      President, General Counsel
                      and
                        Secretary
              
              $210,000
              
              100,000Gregory
                  M. Krzemien
              
              Chief
                  Financial Officer
                  and
                    Treasurer
              
              $200,000
              
              62,500Ronald
                  R. Pirollo
              
              Chief
                  Accounting Officer
                  and
                    Corporate Controller
              
              $160,000
              
              25,000




40




**Compensation
      Committee Interlocks and Insider Participation**





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





**Compensation
      Committee Report on Executive Compensation**




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




***General*** **.** The
      Committee is responsible for matters related to compensation, including
      compensation policy and the review and approval, or recommendation to the Board
      for approval, of salaries, bonus and other compensation of the Company’s
      officers. The Company’s compensation policies for executives are 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 for the development and growth
      of the Company.




***Components
      of Executive Compensation***





The
      Company’s current compensation package consists of three components: base
      salaries, bonuses and stock options. Together, these elements comprise total
      compensation value. In determining specific levels of compensation for the
      Company’s executives, the Committee considers the achievement of corporate and
      individual goals, financial performance of the Company, recommendations of
      management and benchmarks provided by comparative data of peer companies. The
      Committee seeks to ensure that the appropriate relationship exists between
      executive compensation and corporate performance. In addition, the total
      compensation paid to the Company’s executive officers is influenced
      significantly by the need (i) to attract management employees with a high level
      of expertise, and (ii) to motivate and retain key executives for the long-term
      success of the Company and its stockholders.





***Base
      Compensation*** **.** In
      setting and adjusting base salary levels for each individual executive, the
      Compensation Committee considers factors such as the executive’s scope of
      responsibility, the executive’s performance, the performance of the Company,
      future potential and benchmarks of comparable positions at other companies.
      In
      making salary decisions, the Compensation Committee exercises subjective
      judgement using no specific weights for the previously discussed factors. In
      setting 2004 base salaries of executives other than the Chief Executive Officer,
      the Committee has attempted to keep base salaries as low as possible while
      still
      retaining its executives. Comparative data provided by Amper, Politziner and
      Mattia, P.C. reflects that base cash compensation levels are near the
      25 th percentile of peer companies surveyed for Mr. Kramer, Mr. Krzemien and Mr.
      Pirollo. Peer companies included companies providing consumer services on a
      national basis. For 2005, the Committee maintained the same annual base salary
      levels for its executives as in 2004. In reviewing the base salaries of the
      Company’s executive officers for 2005, the Committee considered the individual
      performance of each executive, the Company’s financial performance in 2005,
      management’s efforts to maximize operating profits from its Car and Truck Wash
      Segment, the Company’s goal to sell its car and truck washes, the continuing
      growth of its Security Segment ,
      and
      keeping the Company’s overhead as low as possible.





***Stock
      Options*** **.** The
      Company grants stock options to its executive management under its 1999 employee
      stock option plan. Option grants are intended to offer significant returns
      if
      the Company is successful and, therefore, create significant incentives to
      devote the effort called for in order to implement the Company’s strategic plan.
      The Compensation Committee believes that executives’ interests are directly tied
      to enhanced stockholder value. Thus, stock options are used to provide the
      executive management team with a strong incentive to perform in a manner that
      should result in the long-term success of the Company. The Compensation
      Committee authorized stock options for Mr. Kramer, Mr. Krzemien and Mr. Pirollo
      on March 1, 2006 as incentive compensation for their 2005 performance in the
      respective amounts of 75,000, 60,000 and 25,000. All awarded options had an
      exercise price of $2.40, the close of market on March 1, 2006. The options
      were
      issued on March 23, 2006. The options awarded to the Executive Officers vest
      one
      third upon issuance, one third twelve months from issuance and one third
      twenty-four months from issuance.





***Performance
      Bonuses*** **.** The
      Company maintains the option to supplement base compensation with awards of
      performance bonuses in the form of cash to reward efforts undertaken by its
      key
      executive officers which are extraordinary in nature. No discretionary bonuses
      were paid to executive officers for 2005.




41





**Compensation
      of the Chief Executive Officer**





The
      compensation of Louis D. Paolino, Jr., the Chief Executive Officer, for 2005
      was
      primarily made up of base salary and stock options. Mr. Paolino’s base salary
      was set at $400,000 in the employment agreement he entered into with the Company
      in August 2003. As discussed above, in 2004, the Committee reviewed comparative
      data provided by Amper, Politziner and Mattia, P.C. and determined that Mr.,
      Paolino’s base salary was near the median of the peer companies surveyed. Mr.
      Paolino’s salary was not adjusted in 2004 or 2005. In addition, Mr. Paolino
      received 15,000 stock options in 2005 for his service on the Board of Directors.
      The Compensation Committee authorized Mr. Paolino to receive 150,000 stock
      options at an exercise price of $2.40 on March 1, 2006 for his role in the
      Company’s performance in 2005, including overseeing progress in the Company’s
      efforts to sell its car and truck washes and the continuing growth of its
      Security Segment. The options were issued on March 23, 2006.




The
      Compensation Committee of the Board of Directors




Burton
      Segal


Mark
      Alsentzer


Constantine
      N. Papadakis, Ph.D.




42


**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) “Selected
      Peer Group Index”). (1)









(1)
              The
                  Selected Peer Group Index is comprised of securities of IPIX Corporation,
                  Lo Jack Corp., Napco Security SystemsInc.,
                  Rockford Corporation, Taser International Inc.,
                  Vicon Industries Inc.There can be no assurance that the Company’sstock
                  performance will continue into the future with the same or similar
                  trends
                  depicted by the graph above. The Companyneither
                  makes nor endorses any predictions as to future stock
                  performance.





43




(1)
            The
                Selected Peer Group Index is comprised of securities of IPIX Corporation,
                Lo Jack Corp., Napco Security Systems Inc., Rockford Corporation,
                Taser
                International Inc.,
                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.




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





December
                  31,2000
              
              2001
              
              2002
              
              2003
              
              2004
              
              2005Mace
                  Security International, Inc.
              
              
              100.0
              
              
              94.92
              
              
              115.34
              
              
              115.34
              
              
              264.90
              
              
              136.31Selected
                  Peer Group
              
              
              100.0
              
              
              86.50
              
              
              71.42
              
              
              126.88
              
              
              317.72
              
              
              253.96Nasdaq
                  Market Index
              
              
              100.0
              
              
              79.71
              
              
              55.60
              
              
              83.60
              
              
              90.63
              
              
              92.62





44




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





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





**Beneficial
      Ownership**





The
      following beneficial ownership table sets forth information as of January 31,
      2006 regarding beneficial ownership of shares of Mace common stock by the
      following persons:





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


l
            each
                director of Mace;


l
            each
                Named Executive Officer; and


l
            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 January 31, 2006, are deemed
      outstanding for the purpose of computing the percentage ownership of the person
      holding such options or warrants, but are not deemed outstanding for computing
      the percentage ownership of any other person.


**Name
                  and Address of  B****eneficial
                  Owner**
              
              **Amount
                  and Nature of****Beneficial
                  Ownership**
              
              **Percentage
                  of****Common
                  Stock Owned (1)**Louis
                  D. Paolino, Jr.
                1000
                  Crawford Place, Suite 400
                Mt.
                  Laurel, NJ 08054
              
              
              1,880,640(2
              )
              
              11.6
              %Mark
                  S. Alsentzer
              
              
              592,500(3
              )
              
              3.9Matthew
                  J. Paolino
              
              
              298,354(4
              )
              
              1.9Robert
                  M. Kramer
              
              
              524,824(5
              )
              
              3.3Gregory
                  M. Krzemien
              
              
              375,250(6
              )
              
              2.4Ronald
                  R. Pirollo
              
              
              205,000(7
              )
              
              1.3Constantine
                  N. Papadakis, Ph.D.
              
              
              87,500(8
              )
              
              *Burton
                  Segal
              
              
              40,000(9
              )
              
              *All
                  current directors and executive officers as a group (8
                  persons)
              
              
              4,004,068(10
              )
              
              22.8
              %





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




(1)
            Percentage calculation is based on 15,272,882 shares
              outstanding on January 31, 2006.


(2)
            Includes
                options to purchase 989,682 shares.


(3)
            Includes
                options to purchase 92,500 shares.




45




(4)
            Includes
                options to purchase 96,500 shares.


(5)
            Includes
                options to purchase 455,000 shares. (6)
            Includes options to purchase 350,000
              shares. (7)
            Includes options to purchase 200,000
              shares.


(8)
            Represents
                options to purchase 87,500 shares. (9)
            Represents options to purchase 40,000
              shares. (10)
            See Notes 2 through 9
              above.




**Equity
      Compensation Plan Information**





See
      the
      information contained under the heading “Equity Compensation Plan Information”
within Item 11 of this Form 10-K regarding shares authorized for issuance under
      equity compensation plans approved by stockholders and not approved by
      stockholders.





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





**Certain
      Relationships and Related Party Transactions**





From
      November, 2001 through July 2002, the Company
      prepaid LP Learjets, LLC $5,109 per month for the right to use a
      Learjet
      31A for 100 hours per year. LP Learjets, LLC is a company owned by Louis D.
      Paolino, Jr., the Company’s Chairman,
      Chief Executive Officer and President. When the Learjet 31A is used, the prepaid
      amount is reduced by the hourly
      usage charge as approved by the Audit Committee, and the Company pays to third
      parties unaffiliated with Louis D.
      Paolino, Jr., the direct costs of the Learjet’s per-hour use, which include
      fuel, pilot fees, engine insurance and landing fees.
      The
      balance of unused prepaid flight fees totaled $31,659 at December 31,
      2005.





Louis
      D.
      Paolino, Jr. purchased approximately $44,600 and $20,600 of the Company’s
      products in fiscal 2005 and 2004, respectively, at a discount from the prices
      charged to distributors. The total of the discount given to Mr. Paolino was
      approximately $18,300 and $6,600 in fiscal 2005 and 2004,
      respectively.




The
      Company’s Security Segment leases manufacturing and office space under a
      five-year lease with Vermont Mill, Inc. (“Vermont
      Mill”), which provided for monthly lease payments of $9,167 through November
      2004. Vermont Mill is controlled
      by Jon E. Goodrich, a former director and current employee of the Company.
      The
      Company has 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 $126,000, $111,000 and $110,000 for 2005, 2004, and 2003,
      respectively.





From
      January 1, 2004 through December 31, 2005, the Company’s Security Segment sold
      approximately $146,300 of electronic security equipment to two companies, each
      of which Louis Paolino, III, the son of the Company’s CEO, Louis D. Paolino,
      Jr., is a partial owner. The pricing extended to these companies is no more
      favorable than the pricing given to third party customers who purchase in
      similar volume. **** At
      December 31, 2005, $13,529 was owed from one of these companies to
      Mace.





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.


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




46




***Audit
      Fees*** *.* The
      Company **** was
      billed **$** 384,050
      through May 31, 2006, by Grant Thornton LLP for the audit of Mace’s annual
      financial statements for the fiscal year ended December 31, 2005, and for the
      review of the financial statements included in Mace’s Quarterly Reports on Forms
      10-Q filed during 2005. **** The
      Company was billed $184,201 by Grant Thornton LLP for the audit of Mace’s annual
      financial statements for the fiscal year ended December 31, 2004, and for the
      review of the financial statements included in Mace’s Quarterly Reports on Forms
      10-Q filed during 2004.





***Audit
      Related Fees*** .
      The
      Company did not incur any audit related fees during 2005 or 2004.





***Tax
      Fees.*** The
      Company was billed $50,463 and $17,684 for tax compliance services rendered
      by
      Grant Thornton LLP during 2005 and 2004, respectively.





***All
      Other Fees*** **.** Mace
      was
      billed $46,788 for non-audit or non-tax services, rendered by Grant Thornton
      LLP
      during 2004. There were no other fees in 2005.





***Other
      Matters*** *.* The
      Audit Committee of the Board of Directors has considered whether the provision
      of financial information systems design and implementation services and other
      non-audit services is compatible with maintaining the independence of Mace’s
      independent auditors, Grant Thornton LLP. The Audit Committee pre-approves
      all
      auditing services and permitted non-audit services (including the fees and
      terms
      thereof) to be performed for the Company by its independent auditors. All
      auditing services and permitted non-audit services in 2004 and 2005 were
      preapproved. The Audit Committee may delegate authority to the chairman,
      or in his or her absence, a member designated by the chairmen to grant
      pre-approvals of audit and permitted non-audit services, provided that decisions
      of such person or subcommittee to grant pre-approvals shall be presented to
      the
      full Audit Committee at its next scheduled meeting.




47




**PART
      IV**





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





(a)
                (1)
            
            Consolidated
                Financial Statements:Report
                of Independent Registered Public Accounting FirmConsolidated
                Balance Sheets as of December 31, 2005 and 2004Consolidated
                Statements of Operations for the years ended December 31, 2005, 2004,
                and
                2003Consolidated
                Statements of Stockholders’ Equity for the years ended December 31, 2005,
                2004, and 2003Consolidated
                Statements of Cash Flows for the years ended December 31, 2005, 2004,
                and
                2003Notes
                to Consolidated Financial Statements(a)
                (2)
            
            The
                requirements of Schedule II have been included in the Notes to
                Consolidated Financial Statements. All other schedules for which
                provision
                is made in the applicable accounting regulations of the United States
                Securities and Exchange Commission (“the Commission”) are not required
                under the related instructions or are inapplicable, and therefore,
                have
                been omitted.





(a)
      (3)
      Exhibits:





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




*
                2.1
            
            Asset
                Purchase Agreement dated February 28, 2006, between Mace Security
                International, Inc., Mace Car Wash, Inc., Mace Car Wash-Arizona,
                Inc., and
                CW Acquisition, LLC. (Exhibit 10.1 to the February 28, 2006 Form
                8-K filed
                March 6, 2006.)*3.3
            
            Amended
                and Restated Bylaws of Mace Security International, Inc. (Exhibit
                3.3 to
                the Company’s Report on Form 10-KSB for the year ended December 31, 1999
                (the “1999 Form 10-KSB”))*3.4
            
            Amended
                and Restated Certificate of Incorporation of Mace Security International,
                Inc. (Exhibit 3.4 to the 1999 Form 10-KSB)*3.5
            
            Certificate
                of Amendment of Amended and Restated Certificate of Incorporation
                of Mace
                Security International, Inc. (Exhibit 3.5 to the 2000 Form 10-KSB)*3.6
            
            Certificate
                of Amendment of Amended and Restated Certificate of Incorporation
                of Mace
                Security International, Inc. (Exhibit 3.6 to the 2002 Form
                10-K)*3.7
            
            The
                Company’s Amended and Restated Certificate of Incorporation (Exhibit 4.1
                to the June 16, 2004 Form S-3)*10.3
            
            1993
                Non-Qualified Stock Option Plan (1) (3)*10.22
            
            Trademarks(1)*10.28
            
            Warrants
                in connection with the acquisition of the assets of the KinderGard
                Corporation(2)*10.71
            
            Employment
                Contract between Mace Security International, Inc. and Robert M.
                Kramer
                dated March 26, 1999 (3)*10.72
            
            Employment
                Contract between Mace Security International, Inc. and Gregory M.
                Krzemien
                dated March 26, 1999 (3)*10.73
            
            Amendment
                No. 1 to Merger Agreement between Louis D. Paolino, Red Mountain
                Holding,
                Ltd. and Mace Security International, Inc. dated April 13, 1999*10.74
            
            Amendment
                No. 1 to Stock purchase Agreement, between Louis Paolino, Jr. and
                Mace
                Security International, Inc. dated April 13, 1999*10.98
            
            Mace
                Security International, Inc. 1999 Stock Option Plan (3).(Exhibit
                10.98 to
                the June 30, 1999 Form 10-QSB dated August 13, 1999)*10.123
            
            Loan
                Agreement and Promissory Note dated February 17, 2000, between the
                Company, its subsidiary Mace Car Wash - Arizona, Inc. and Bank One,
                Texas,
                NA. (Exhibit 10.123 to the December 31, 1999 Form 10-KSB dated March
                29,
                2000)*10.124
            
            Business
                Loan Agreement dated January 31, 2000, between the Company, its subsidiary
                - Colonial Full Service Car Wash, Inc., and Bank One, Texas, N.A.;
                Promissory Note dated February 2, 2000 between the same parties as
                above
                in the amount of $400,000 (pursuant to instruction 2 to Item 601
                of
                Regulation S-K, two additional Promissory Notes, which are substantially
                identical in all material respects except as to the amount of the
                Promissory Notes) are not being filed in the amount of: $19,643.97
                and
                $6,482; and a Modification Agreement dated as of January 31, 2000
                between
                the same parties as above in the amount of $110,801.55 (pursuant
                to
                instruction 2 to Item 601 of Regulation S-K, Modification Agreements,
                which are substantially identical in all material respects except
                to the
                amount of the Modification Agreement) are not being filed in the
                amounts
                of: $39,617.29, $1,947,884.87, $853,745.73, and $1,696,103.31.(Exhibit
                10.124 to the December 31, 1999 Form 10-KSB dated March 29,
                2000)




48




*10.128
            
            Form
                of Equity Purchase Agreement to be issued by Mace to Fusion Capital
                (included as Exhibit A to Master Facility Agreement in Exhibit 10.1
                of
                S-3). (Exhibit 4.1 to the Company’s Current Form on S-3 dated April 11,
                2000).*10.129
            
            Master
                Facility Agreement, dated as of April 5, 2000, between Mace and Fusion
                Capital (Exhibit 10.1 to the Company’s Current Form on S-3 dated April 11,
                2000).*10.130
            
            Loan
                Agreement and Promissory Note dated November 28, 2000, between the
                Company, its subsidiary Eager Beaver Car Wash, Inc. and Bank One,
                Texas,
                N.A. in the amount of $6,754,400. (Exhibit 10.130 to the December
                31, 2000
                Form 10-KSB dated March 20, 2001)*10.131
            
            Lease
                Agreement dated August 1, 2000 among Mace Security International,
                Inc. and
                Bluepointe, Inc. (Exhibit 10.131 to the December 31, 2000 Form 10-KSB
                dated March 20, 2001)*10.132
            
            Amendment
                dated March 13, 2001, to Business Loan Agreement between the Company,
                its
                subsidiary Colonial Full Service Car Wash, Inc., and Bank One, Texas,
                N.A.
                (pursuant to instruction 2 to Item 601 of Regulation S-K, two additional
                amendments which are substantially identical in all material respects,
                except as to the borrower being Eager Beaver Car Wash, Inc. and Mace
                Car
                Wash - Arizona, Inc., are not being filed).(Exhibit 10.132 to the
                December
                31, 2000 Form 10-KSB dated March 20, 2001)*10.133
            
            Modification
                Agreement between the Company, its subsidiary - Colonial Full Service
                Car
                Wash, Inc., and Bank One, Texas, N.A. in the amount of $2,216,000
                (pursuant to Instruction 2 to Item 601 of Regulation S-K, Modification
                Agreements, which are substantially identical in all material respects
                except to amount and extension date of the Modification Agreement
                are not
                being filed in the original amounts of $984,000 (extended to August
                20,
                2004) and $1,970,000 (extended to June 21, 2004).(Exhibit 10.133
                to the
                June 30, 2001 Form 10-Q dated August 9, 2001)*10.134
            
            Term
                Note dated November 6, 2001, between the Company, its subsidiary,
                Colonial
                Full Service Car Wash, Inc., and Bank One, Texas, N.A. in the amount
                of
                $380,000.(Exhibit 10.134 to the September 30, 2001 Form 10-Q dated
                November 9, 2001)*10.135
            
            Amendment
                dated February 21, 2002 to Management Agreement between the Company
                and
                Mark Sport, Inc. and original Management Agreement dated February
                1, 2000
                to which the amendment relates.(Exhibit 10.135 to the December 31,
                2001
                Form 10-K dated March 11, 2002)*10.136
            
            Amendment
                dated February 25, 2002 to Lease Agreement between the Company and
                Vermont
                Mill Properties, Inc. and original Lease Agreement dated November
                15, 1999
                to which the amendment relates.(Exhibit 10.136 to the December 31,
                2001
                Form 10-K dated March 11, 2002)*10.137
            
            Promissory
                Note between the Company and Vermont Mill Properties, Inc. dated
                February
                22, 2002 in the amount of $228,671. (Exhibit 10.137 to the December
                31,
                2001 Form 10-K dated March 11, 2002)*10.138
            
            Extension
                dated February 6, 2002 of Equity Purchase Agreement between the Company
                and Fusion Capital Fund II, LLC. (Exhibit 10.138 to the December
                31, 2001
                Form 10-K dated March 11, 2002)*10.139
            
            Term
                note dated April 30, 2002, between the Company, its subsidiary, Mace
                Truck
                Wash, Inc., and Bank One, Texas, N.A. in the amount of $342,000.(Exhibit
                10.139 to the June 30, 2002 Form 10-Q dated August 14,
                2002)*10.140
            
            Master
                Lease Agreement dated June 10, 2002, between the Company, its subsidiary,
                Colonial Full Service Car Wash, Inc., and Banc One Leasing Corporation
                in
                the amount of $193,055. (Exhibit 10.140 to the June 30, 2002 Form
                10-Q
                dated August 14, 2002)*10.141
            
            Amendment
                dated July 22, 2002 to Management Agreement between the Company and
                Mark
                Sport, Inc. (Exhibit 10.141 to the June 30, 2002 Form 10-Q dated
                August
                14, 2002)*10.142
            
            Amendment
                dated July 22, 2002 to Lease Agreement between the Company and Vermont
                Mill Properties, Inc. (Exhibit 10.142 to the June 30, 2002 Form 10-Q
                dated
                August 14, 2002)*10.143
            
            Asset
                Purchase Agreement dated as of August 12, 2002, by and among Micro-Tech
                Manufacturing, Inc. and Moshe Luski on the one hand, and Mace Security
                Products, Inc., a wholly owned subsidiary of Mace Security International,
                Inc. (Exhibit 10.143 to September 30, 2002 Form 10-Q dated November
                12,
                2002)*10.144
            
            Lease
                Schedule and Addendum dated August 28, 2002 in the amount of $39,434
                to
                Master Lease Agreement dated June 10, 2002, between the Company,
                its
                subsidiary, Colonial Full Service Car Wash, Inc., and Banc One Leasing
                Corporation. (Exhibit 10.144 to the September 30, 2002 Form 10-Q
                dated
                November 12, 2002)*10.145
            
            Promissory
                Note and Loan Agreement dated October 31, 2002 between the Company,
                its
                subsidiary, Mace Security Products, Inc. and Wachovia Bank, N.A.
                in the
                amount of $480,000.(Exhibit 10.145 to the December 31, 2002 Form
                10-K
                dated March 19, 2003)*10.146
            
            Line
                of Credit Note and Credit Agreement dated December 15, 2002 between
                the
                Company, its subsidiary, Mace Security Products, Inc. and Bank One
                Texas,
                N.A. in the amount of $500,000. (Exhibit 10.146 to the December 31,
                2002
                Form 10-K dated March 19, 2003)




49




*10.147
            
            Amendment
                dated February 21, 2003 to Business Loan Agreement between the Company,
                its subsidiary, Eager Beaver Car Wash, Inc., and Bank One, Texas,
                N.A.
                (pursuant to instruction 2 to Item 601 of Regulation S-K, two additional
                amendments which are substantially identical in all material respects,
                except as to the borrower being Mace Truck Wash, Inc. and Mace Security
                Products, Inc., are not being filed). (Exhibit 10.147 to the December
                31,
                2002 Form 10-K dated March 19, 2003)*10.148
            
            Note
                Modification Agreement dated February 21, 2003, between the Company,
                its
                subsidiary, Colonial Full Service Car Wash, Inc. and Bank One, Texas,
                N.A.
                in the amount of $348,100. (Exhibit 10.148 to the December 31, 2002
                Form
                10-K dated March 19, 2003)*10.149
            
            Note
                Modification Agreement dated February 21, 2003, between the Company,
                its
                subsidiary, Mace Car Wash - Arizona, Inc. and Bank One, Texas, N.A.
                in the
                amount of $4,281,578.(Exhibit 10.149 to the December 31, 2002 Form
                10-K
                dated March 19, 2003)*10.150
            
            Modification
                Agreement dated March 14, 2003, between the Company, its subsidiary,
                Mace
                Security Products, Inc. and Wachovia Bank, N.A. (Exhibit 10.150 to
                the
                December 31, 2002 Form 10-K dated March 19, 2003)*10.151
            
            Note
                Modification Agreement dated August 5, 2003, effective July 10, 2003,
                between the Company, its subsidiary, Mace Car Wash - Arizona, Inc.
                and
                Bank One, Texas, N.A. in the amount of $731,455. (Exhibit 10.151
                to the
                June 30, 2003 Form 10-Q dated August 12, 2003)*10.152
            
            Employment
                Contract dated August 12, 2003, between Mace Security International,
                Inc.
                and Louis D. Paolino, Jr. (Exhibit 10.152 to the June 30, 2003 Form
                10-Q
                dated August 12, 2003) (3)*10.153
            
            Consolidated
                Promissory Note and Amended and Restated Loan Agreement dated October
                20,
                2003 between the Company, its wholly owned subsidiary, Mace Security
                Products, Inc. and Wachovia Bank, N.A. in the amount of $728,800.
                (Exhibit
                10.153 to the September 30, 2003 Form 10-Q dated November 12,
                2003)*10.154
            
            Amendment
                dated October 25, 2003 to Employment Contract dated August 12, 2003
                by and
                between Mace Security International, Inc. and Louis D. Paolino, Jr.
                (Exhibit 10.154 to the September 30, 2003 Form 10-Q dated November
                12,
                2003) (3)*10.155
            
            Modification
                and Extension of Note and Ratification of Mortgage Liens dated November
                28, 2003, between the Company, its subsidiary, Eager Beaver Car Wash,
                Inc.
                and Bank One, Texas, N.A. in the amount of $5,723,079. (Exhibit 10.155
                to
                the December 31, 2004 Form 10-K dated March 12, 2004.)*10.156
            
            Note
                Modification Agreement and Amendment to Credit Agreement dated December
                15, 2003, between the Company, its subsidiary, Mace Security Products,
                Inc. and Bank One, Texas, N.A. in the amount of $500,000.(Exhibit
                10.156
                to the December 31, 2004 Form 10-K dated March 12,
                2004.)*10.157
            
            Note
                Modification Agreement and Amendment to Credit Agreement dated January
                21,
                2004, between the Company, its subsidiary, Colonial Full Service
                Car Wash,
                Inc. and Bank One, Texas, N.A. in the amount of $48,725.50.(Exhibit
                10.157
                to the December 31, 2004 Form 10-K dated March 12, 2004.)*10.158
            
            Credit
                Agreement dated as of December 31, 2003 between the Company, its
                subsidiary, Eager Beaver Car Wash, Inc., and Bank One Texas, N.A.
                (pursuant to instruction 2 to Item 601of Regulation S-K, four additional
                credit agreements which are substantially identical in all material
                respects, except as to the borrower being Mace Car Wash - Arizona,
                Inc.,
                Colonial Full Service Car Wash, Inc., Mace Security Products, Inc.
                and
                Mace Security International, Inc., are not being filed.) (Exhibit
                10.158
                to the December 31, 2004 Form 10-K dated March 12,
                2004.)*10.159
            
            Amendment
                to Credit Agreement dated April 27, 2004, effectiveness of March
                31, 2004
                between Mace Security International, Inc., and Bank One Texas, N.A.
                (Pursant to instruction 2 to Item 601 of Regulation S-K, 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)*10.160
            
            Termination
                Agreement dated April 21, 2004, between Mace Security International,
                Inc.
                and Fusion Capital Fund II, LLC. (Exhibit 10.160 to March 31, 2004
                Form
                10-Q dated May 5, 2004.)*10.161
            
            Stock
                Restriction Removal Agreement dated April 12, 2004, between Mace
                Security
                International, Inc. and Price Legacy Corporation (Exhibit 10.161
                to the
                March 31, 2004 Form 10-Q dated May 5, 2004.)*10.162
            
            Warrant
                dated May 26, 2004 to purchase 183,000 shares of the Company’s common
                stock, issued to Langley Partners, L.P. (Exhibit 4.3 to the June
                16, 2004
                Form S-3)*10.163
            
            Securities
                Purchase Agreement dated May 26, 2004 between the Company and Langley
                Partners, L.P. as set forth on the Signature pages therof (Exhibit
                10.1 to
                the June 16, 2004 Form S-3)




50




*10.164
            
            Registration
                Rights Agreement dated May 26, 2004 between the Company and Langley
                Partners, L.P. as set forth On the Signature pages thereof (Exhibit
                10.2
                to the June 16, 2004 Form S-3)*10.165
            
            First
                Amendment to the Securities Purchase Agreement, dated June 8, 2004
                (Exhibit 10.3 to the June 16, 2004
              Form
                S-3)*10.166
            
            Agreement
                for purchase and Sale of Assets by and among MDI Operating, L.P.
                America
                Building Control, Inc. and Mace Security International, Inc.( Exhibit
                2.1
                to the July 1, 2004 Form 8-K)*10.167
            
            Modification
                Agreement between the Company , its subsidiary - Colonial Full Service
                Car
                Wash, Inc., and Bank One, Texas, N.A. in the original amount of $984,000
                (pursuant to Instruction 2 to Item 601 of Regulation S-K, Modification
                Agreements, which are substantially identical in all material respects
                except to amount and extension date of the Modification Agreement,
                are not
                being filed in the original amounts of $2,216,000 (extended to August
                20,
                2009) and $380,000 (extended to October 6, 2009)). (Exhibit 10.167
                to the
                September 30, 2004 Form 10-Q dated November 12, 2004)*10.168
            
            Promissory
                Note dated September 15, 2004, between the Company, its subsidiary,
                Mace
                Security Products, Inc., and Bank One, Texas, N.A. in the amount
                of
                $825,000. (Exhibit 10.168 to the September 30, 2004 Form 10-Q dated
                November 12, 2004)*10.169
            
            First
                Amendment to Asset Purchase Agreement dated August 27, 2004, between
                Vernex, Inc. and Mace Security Products, Inc. (Exhibit 10.169 to
                the
                September 30, 2004 Form 10-Q dated November 12, 2004)*10.170
            
            Securities
                Purchase Agreement between Mace and Langley Partners, L.P. (Exhibit
                99.2
                to the December 14, 2004 Form 8-K dated December 16,
                2004)*10.171
            
            Registration
                Rights Agreement between Mace and Langley Partners, L.P. (Exhibit
                99.3 to
                the December 14, 2004 Form 8-K dated December 16, 2004)*10.172
            
            Warrant
                to be issued to Langley Partners, L.P. ( Exhibit 99.4 to the December
                14,
                2004 Form 8-K dated December 16, 2004)*10.174
            
            Registration
                Rights Agreement between Mace and JMB Capital, L.P. ( Exhibit 99.6
                to the
                December 14, 2004 Form 8-K dated December 16, 2004)*10.175
            
            Warrant
                to be issued to JMB Capital Partners, L.P. ( Exhibit 99.7 to the
                December
                14, 2004 Form 8-K dated December 16, 2004)10.176
            
            Compensatory
                Arrangements with Certain Executive Officers and Directors.
                (3)*10.177
            
            Note
                Modification Agreement dated December 22, 2004 between the Company,
                its
                subsidiary, Mace Security Products Inc. and Bank One, Texas, N.A.
                in the
                amount of $500,000. (Exhibit 10.1 to the March 31, 2005 Form 10-Q
                dated
                May 10, 2005).*10.178
            
            Note
                Modification Agreement dated May 19, 2005 between the Company, its
                subsidiary, Mace Truck Wash, Inc. and Bank One, Texas, N.A. in the
                original amount of $342,000. (Exhibit 10.1 to the June 30, 2005 Form
                10-Q
                dated August 9, 2005).10.179
            
            Note
                Modification Agreement dated December 1, 2005 between the Company,
                its
                subsidiary Mace Security Products, Inc. and JPMorgan Bank One Bank,
                N.A.
                in the amount of $500,000.*10.180
            
            Asset
                Purchase Agreement dated February 28, 2006, between Mace Security
                International, Inc., Mace Car Wash, Inc., Mace Car Wash-Arizona,
                Inc., and
                CW Acquisition, LLC. (Exhibit 10.1 to the February 28, 2006 Form
                8-K dated
                March 6, 2006)





11
            
            Statement
                Re: Computation of Per Share Earnings*
                14
            
            Code
                of Ethics and Business Conduct (Exhibit 14 to the December 31, 2003
                Form
                10-K dated March 12, 2004)21
            
            Subsidiaries
                of the Company23.1
            
            Consent
                of Grant Thornton LLP24
            
            Power
                of Attorney (included on signature page)31.1
            
            Certification
                of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.31.2
            
            Certification
                of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                Act of 2002.32.1
            
            Certification
                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.




51




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
            
            Global
                Truck Wash Facility Acquisition Agreement dated December 31, 2005,
                between
                Eagle United Truck Wash, LLC and Mace Truck Wash,
                Inc.





*
            Incorporated
                by reference


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





(1)
            Incorporated
                by reference to the exhibit of the same number filed with the Company's
                registration statement on Form SB-2 (33-69270) that was declared
                effective
                on November 12, 1993.


(2)
            Incorporated
                by reference to the Company's Form 10-QSB report for the quarter
                ended
                September 30, 1994 filed on November 14, 1994. It should be noted
                that
                Exhibits 10.25 through 10.34 were previously numbered 10.1 through
                10.10
                in that report.


(3)
            Indicates
                a management contract or compensation plan or
                arrangement.


52




**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,
              Chief
                Executive Officer,
              and
                President


DATED
      the
      14 th day of
      July, 2006





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,Louis
                D. Paolino, Jr.
            
            Chief
                Executive Officer,
              President
                and Director
              (Principal
                Executive Officer)
            
            7/14/06/s/ Gregory M.
              Krzemien
            
            Chief Financial OfficerGregory
                M. Krzemien
            
            and
                Treasurer (Principal
              Financial
                Officer)
            
            7/14/06/s/ Ronald R.
              Pirollo
            
            Chief Accounting Officer
              and
            
            7/14/06Ronald
              R. Pirollo
            
            Corporate
                Controller (Principal
              Accounting
                Officer)




53


/s/ Matthew J.
                Paolino
              
              Director, Vice PresidentMatthew
                  J. Paolino
              
              
              
              7/14/06/s/ Constantine N.
                Papadakis,
                Ph.D.
              
              DirectorConstantine
                N. Papadakis, Ph.D.
              
              
              
              7/14/06/s/ Mark S. Alsentzer
              
              Director
              
              7/14/06Mark
                S. Alsentzer/s/ Burton Segal
              
              Director
              
              7/14/06Burton
                Segal
 54




**Mace
      Security International, Inc.**


**Audited
      Consolidated Financial Statements**


**Years
      ended December 31, 2005, 2004, and 2003**




**Contents**





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




F-1




Report
      of Independent Registered Public Accounting Firm





Board
      of
      Directors


Mace
      Security International, Inc. and Subsidiaries





We
      have
      audited the accompanying consolidated balance sheets of Mace Security
      International, Inc. and Subsidiaries as of December 31, 2005 and 2004 and the
      related consolidated statements of operations, stockholders’ equity
      and cash flows for each of the three years in the period ended December 31,
      2005. 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 audits 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, 2005 and 2004, and
      the
      consolidated results of their operations and their cash flows for each of the
      three years in the period ended December 31, 2005, in conformity with accounting
      principles generally accepted in the United States of America.








/s/
      Grant Thornton LLP


Philadelphia,
      Pennsylvania


June
      16,
      2006 (except for Note 20 (paragraphs 5 and 6) as to which the date is July
      14, 2006)




F-2


**Mace
        Security International, Inc.** **** **and
        Subsidiaries**
 
 **Consolidated
        Balance Sheets**


(In
      thousands, except share and par value information)


**ASSETS**
              
              **December
                  31,****2005**
              
              **2004**Current
                  assets:Cash
                  and cash equivalents
              
              $
              8,360
              
              $
              14,499Short-term
                  investments
              
              
              3,020
              
              
              -Accounts
                  receivable, less allowance for doubtful
                accounts
                  of $593 and $449 in 2005 and 2004, respectively
              
              
              2,774
              
              
              2,556Inventories
              
              
              7,901
              
              
              7,067Deferred
                  income taxes
              
              
              -
              
              
              321Prepaid
                  expenses and other current assets
              
              
              2,556
              
              
              2,102Assets
                  held for sale
              
              
              -
              
              
              600Total
                  current assets
              
              
              24,611
              
              
              27,145Property
                  and equipment:Land
              
              
              31,639
              
              
              31,629Buildings
                  and leasehold improvements
              
              
              35,986
              
              
              36,263Machinery
                  and equipment
              
              
              11,802
              
              
              11,456Furniture
                  and fixtures
              
              
              576
              
              
              527Total
                  property and equipment
              
              
              80,003
              
              
              79,875Accumulated
                  depreciation and amortization
              
              
              (14,923
              )
              
              (13,003
              )Total
                  property and equipment, net
              
              
              65,080
              
              
              66,872Goodwill
              
              
              2,820
              
              
              3,587Other
                  intangible assets, net of accumulated amortization
                of
                  $490 and $309 in 2005 and 2004, respectively
              
              
              3,328
              
              
              2,935Deferred
                  income taxes
              
              
              -
              
              
              2,008Other
                  assets
              
              
              272
              
              
              210**Total
                  assets**
              
              $
              96,111
              
              $
              102,757




*See
      accompanying notes.*




F-3




**LIABILITIES
                AND STOCKHOLDERS’ EQUITY**
            
            **December
                31,****2005**
            
            **2004**Current
                liabilities:Current
                portion of long-term debt and capital lease obligations
            
            $
            2,209
            
            $
            2,634Accounts
                payable
            
            
            4,231
            
            
            4,077Income
                taxes payable
            
            
            320
            
            
            278Deferred
                revenue
            
            
            501
            
            
            469Accrued
                expenses and other current liabilities
            
            
            2,735
            
            
            2,216Total
                current liabilities
            
            
            9,996
            
            
            9,674Long-term
                debt, net of current portion
            
            
            24,435
            
            
            26,480Capital
                lease obligations, net of current portion
            
            
            30
            
            
            81CommitmentsStockholders’
                equity:Preferred
                stock, $.01 par value:Authorized
                shares - 10,000,000Issued
                and outstanding shares - none
            
            
            -
            
            
            -Common
                stock, $.01 par value:Authorized
                shares - 100,000,000Issued
                and outstanding shares of 15,272,882 and 15,271,132 in 2005 and 2004,
                respectively
            
            
            153
            
            
            153Additional
                paid-in capital
            
            
            88,458
            
            
            88,507Accumulated
                other comprehensive income (loss)
            
            
            167
            
            
            (30
            )Accumulated
                deficit
            
            
            (27,128
            )
            
            (22,108
            )Total
                stockholders’ equity
            
            
            61,650
            
            
            66,522**Total
                liabilities and stockholders’ equity**
            
            $
            96,111
            
            $
            102,757




*See
      accompanying notes.*




F-4




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


**Consolidated
      Statements of Operations**





(In
      thousands, except share and per share information)




**Year
                ended December 31,****2005**
            
            **2004**
            
            **2003**Revenues:Car
                wash and detailing services
            
            $
            35,081
            
            $
            33,381
            
            $
            35,655Lube
                and other automotive services
            
            
            3,437
            
            
            3,504
            
            
            4,147Fuel
                and merchandise sales
            
            
            4,815
            
            
            4,130
            
            
            3,613Security
                sales
            
            
            24,909
            
            
            16,632
            
            
            5,58168,242
            
            
            57,647
            
            
            48,996Cost
                of revenues:Car
                wash and detailing services
            
            
            25,274
            
            
            23,754
            
            
            25,983Lube
                and other automotive services
            
            
            2,627
            
            
            2,729
            
            
            3,188Fuel
                and merchandise sales
            
            
            4,220
            
            
            3,577
            
            
            3,156Security
                sales
            
            
            17,658
            
            
            11,989
            
            
            3,48549,779
            
            
            42,049
            
            
            35,812Selling,
                general and administrative expenses
            
            
            15,054
            
            
            12,642
            
            
            9,486Depreciation
                and amortization
            
            
            2,353
            
            
            2,509
            
            
            1,958Costs
                of terminated acquisitions
            
            
            -
            
            
            53
            
            
            -Goodwill
                and asset impairment charges
            
            
            2,529
            
            
            8,225
            
            
            3,798Operating
                loss
            
            
            (1,473
            )
            
            (7,831
            )
            
            (2,058
            )Interest
                expense, net
            
            
            (1,794
            )
            
            (1,890
            )
            
            (1,963
            )Other
                income
            
            
            686
            
            
            267
            
            
            438Loss
                before income taxes
            
            
            (2,581
            )
            
            (9,454
            )
            
            (3,583
            )Income
                tax expense (benefit)
            
            
            2,439
            
            
            (3,044
            )
            
            (50
            )Net
                loss
            
            $
            (5,020
            )
            $
            (6,410
            )
            $
            (3,533
            )Basic
                loss per share
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )Weighted
                average number of shares outstanding
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816Diluted
                loss per share
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )Weighted
                average number of shares outstanding
            
            
            15,271,637
            
            
            13,679,604
            
            
            12,414,816





*See
      accompanying notes.*




F-5


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


**Consolidated
      Statements of Stockholders' Equity**




(In
      thousands, except share information)




**Common
                Stock**
            
            
            Additional
              **Paid-in**
            
            
            **Accumulated
                Other**
              **Comprehensive**
            
            
            **Accumulated****Shares**
            
            
            **Amount**
            
            
            **Capital**
            
            
            **Income
                (Loss)**
            
            
            **Deficit**
            
            
            **Total****Balance
                at December 31, 2002**
            
            
            12,407,655
            
            $
            124
            
            $
            69,710
            
            
            -
            
            $
            (12,165
            )
            $
            57,669Common
                stock issued in purchase
              acquisitions
            
            
            26,316
            
            
            
            
            
            50
            
            
            
            
            
            
            
            
            50Exercise
                of common stock options
            
            
            30,000
            
            
            1
            
            
            39
            
            
            
            
            
            
            
            
            40Shares
                purchased and retired
            
            
            (12,200
            )
            
            
            
            
            (14
            )
            
            
            
            
            
            
            
            (14
            )Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3,533
            )
            
            (3,533
            )**Balance
                at December 31, 2003**
            
            
            12,451,771
            
            
            125
            
            
            69,785
            
            
            -
            
            
            (15,698
            )
            
            54,212Common
                stock issued in purchase acquisition
            
            
            55,905
            
            
            -
            
            
            193
            
            
            
            
            
            
            
            
            193Exercise
                of common stock options
            
            
            448,456
            
            
            4
            
            
            1,872
            
            
            
            
            
            
            
            
            1,876Common
                stock issued for land and building
            
            
            250,000
            
            
            3
            
            
            1,561
            
            
            
            
            
            
            
            
            1,564Sales
                of common stock, net of issuance costs of $372
            
            
            2,065,000
            
            
            21
            
            
            9,371
            
            
            
            
            
            
            
            
            9,392Proceeds
                from removal of restriction on shares, net of
              income
                tax of $3,227
            
            
            -
            
            
            -
            
            
            5,725
            
            
            
            
            
            
            
            
            5,725Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,410
            )
            
            (6,410
            )Change
                in fair value of cash flow hedge
            
            
            
            
            
            
            
            
            
            
            
            (30
            )
            
            
            
            
            (30
            )Total
                Comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (6,440
            )**Balance
                at December 31, 2004**
            
            
            15,271,132
            
            
            153
            
            
            88,507
            
            
            (30
            )
            
            (22,108
            )
            
            66,522Net
                costs from issuance of common stock
            
            
            
            
            
            
            
            
            (53
            )
            
            
            
            
            
            
            
            (53
            )Exercise
                of common stock options
            
            
            1,750
            
            
            -
            
            
            4
            
            
            
            
            
            
            
            
            4Change
                in fair value of cash flow hedge
            
            
            
            
            
            
            
            
            
            
            
            41
            
            
            
            
            
            41Unrealized
                gain on short-term investments
            
            
            
            
            
            
            
            
            
            
            
            156
            
            
            
            
            
            156Net
                loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (5,020
            )
            
            (5,020
            )Total
                comprehensive loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (4,823
            )**Balance
                at December 31, 2005**
            
            
            15,272,882
            
            $
            153
            
            $
            88,458
            
            $
            167
            
            $
            (27,128
            )
            $
            61,650




*See
      accompanying notes.*




F-6


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


**Consolidated
      Statements of Cash Flows**





(In
      thousands)


**Year
                  ended December 31**,**2005**
              
              **2004**
              
              **2003****Operating
                  activities**Net
                  loss
              
              $
              (5,020
              )
              $
              (6,410
              )
              $
              (3,533
              )Adjustments
                  to reconcile net loss to net cash provided
                by
                  operating activities, net of effects of acquisition:Depreciation
                  and amortization
              
              
              2,353
              
              
              2,509
              
              
              1,958Provision
                  for losses on receivables
              
              
              232
              
              
              225
              
              
              86Gain
                  on short-term investments
              
              
              (264
              )
              
              -
              
              
              -Asset
                  impairment charge-hurricane damage
              
              
              107
              
              
              -
              
              
              -Goodwill
                  and asset impairment charges
              
              
              2,529
              
              
              8,225
              
              
              3,798(Gain)
                  loss on disposal of property and equipment
              
              
              (333
              )
              
              18
              
              
              (104
              )Deferred
                  income taxes
              
              
              2,313
              
              
              (3,470
              )
              
              (155
              )Changes
                  in operating assets and liabilities:Accounts
                  receivable
              
              
              (450
              )
              
              120
              
              
              (845
              )Inventory
              
              
              (239
              )
              
              (1,428
              )
              
              (1,105
              )Accounts
                  payable
              
              
              155
              
              
              1,419
              
              
              60Deferred
                  revenue
              
              
              32
              
              
              67
              
              
              22Accrued
                  expenses
              
              
              262
              
              
              157
              
              
              (197
              )Income
                  taxes
              
              
              42
              
              
              122
              
              
              (39
              )Prepaid
                  expenses and other assets
              
              
              (438
              )
              
              (310
              )
              
              191Net
                  cash provided by operating activities
              
              
              1,281
              
              
              1,244
              
              
              137


**Investing
                  activities**Acquisition
                  of businesses, net of cash acquired
              
              
              (1,900
              )
              
              (5,621
              )
              
              -Purchase
                  of property and equipment
              
              
              (1,419
              )
              
              (2,876
              )
              
              (1,112
              )Proceeds
                  from sale of property and equipment
              
              
              1,086
              
              
              795
              
              
              598Purchase
                  of short-term investments
              
              
              (2,600
              )
              
              -
              
              
              -Payments
                  for intangibles
              
              
              (12
              )
              
              (86
              )
              
              (55
              )Net
                  cash used in investing activities
              
              
              (4,845
              )
              
              (7,788
              )
              
              (569
              )**Financing
                  activities**Proceeds
                  from long term debt
              
              
              -
              
              
              -
              
              
              11Payments
                  on long-term debt and capital lease obligations
              
              
              (2,526
              )
              
              (2,591
              )
              
              (2,380
              )(Costs)
                  proceeds from issuance of common stock
              
              
              (49
              )
              
              11,268
              
              
              40Gross
                  proceeds from removal of restriction on shares
              
              
              -
              
              
              8,952
              
              
              -Payments
                  to purchase stock
              
              
              -
              
              
              -
              
              
              (14
              )Net
                  cash (used in) provided by financing activities
              
              
              (2,575
              )
              
              17,629
              
              
              (2,343
              )Net
                  (decrease) increase in cash and cash equivalents
              
              
              (6,139
              )
              
              11,085
              
              
              (2,775
              )Cash
                  and cash equivalents at beginning of year
              
              
              14,499
              
              
              3,414
              
              
              6,189Cash
                  and cash equivalents at end of year
              
              $
              8,360
              
              $
              14,499
              
              $
              3,414


*See
      accompanying notes.*




F-7




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


**Notes
      to Consolidated Financial Statements**





**1.**
            
            **Basis
                of Presentation and Principles of
                Consolidation**





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.





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





**Description
      of Business**





The
      Company currently operates in two business segments: the Car and Truck Wash
      Segment, supplying complete car care and truck wash services (including wash,
      detailing, lube, and minor repairs) and the Security Segment, producing for
      sale
      consumer safety and personal defense products, as well as electronic
      surveillance and monitoring products. Beginning January 1, 2006, the truck
      washes are leased to a third party pursuant to a December 31, 2005 agreement
      with Eagle United Truck Wash, LLC. **** The
      Company’s car care and truck wash operations are principally located in Texas,
      Arizona, Florida, Pennsylvania, New Jersey, Delaware, Indiana, and Ohio.





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





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





Revenue
      from the Company’s Security Segment is recognized when shipments are made, or
      for export sales when title has passed. Shipping and handling charges and costs
      of $528,000, $322,000, and $98,000 in 2005, 2004, and 2003, respectively, are
      included in revenues and selling, general, and administrative
      expenses.




**Cash
      and Cash Equivalents**





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





**Short-Term
      Investments**





At
      December 31, 2005, the Company had approximately $3.0 million of
      investments classified as available for sale in three funds which are
      stated at market value. The Company may exit one of the funds at the end of
      any
      calendar quarter with 30 days advanced written notice and the other funds may
      be
      exited with one business day notice. In the year ended December 31, 2005, the
      Company realized a total gain of $264,000. Additionally, an unrealized gain,
      net
      of tax, of approximately $156,000 is included as a separate component of
      equity in Accumulated Other Comprehensive Income (Loss) at December 31,
      2005.





**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**


F-8


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





**Assets
      Held for Sale**





The
      Company owned two warehouse bays in Hollywood, FL which were previously utilized
      in the Security Segment. At December 31, 2004, the bays were classified at
      their
      fair market values, net of estimated disposal cost, in our balance sheet as
      assets held for sale. Both bays were sold in 2005. Selling prices for the two
      bays were $420,000 and $306,000 and gains on the sales were $33,000 and $59,000,
      respectively.





**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 - 2 to 20 years; and furniture and fixtures - 5 to
      10
      years. Significant additions or improvements extending assets' useful lives
      are
      capitalized; normal maintenance and repair costs are expensed as incurred.
      Depreciation expense was approximately $2.2 million, $2.5 million and $1.9
      million for the years ended December 31, 2005, 2004, and 2003, respectively.
      Maintenance and repairs are charged to expense as incurred and amounted to
      approximately $1.1 million, in 2005, $950,000 in 2004 and $900,000 in
      2003.





**Asset
      Impairment Charges**





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





**Goodwill**





In
      accordance with SFAS 142, we also completed our annual impairment tests as
      of
      November 30, 2005, 2004 and 2003 and will be subject to an impairment test
      each
      year thereafter.  In
      the
      fourth quarter of 2005, as a result of the annual impairment test of Goodwill
      and Other Intangibles in accordance with SFAS 142, we recorded an impairment
      of
      approximately $1.56 million related to our Texas region reporting unit of our
      Car and Truck Wash Segment. This impairment charge was due to reductions in
      our
      future projected cash flows as volumes in this region continue to deviate from
      historic revenue levels. In the fourth quarter of 2004, we recorded an
      impairment of approximately $1.0 million related to our Northeast region
      reporting unit of our Car and Truck Wash Segment. Additionally, we recorded
      an
      impairment of approximately $6.7 million related to our Texas Region reporting
      unit of our Car and Truck Wash Segment. These were principally due to a
      reduction in future projected cash flows resulting from an extended departure
      from our historic revenue levels due to inclement weather, the lingering effects
      of a slower economy, and increased competition near several of our facilities
      in
      Texas and New Jersey.  In the
      fourth quarter of 2003, as a result of the annual impairment test of Goodwill
      and Other Intangibles, we recorded an impairment of approximately $3.4 million
      related to our Northeast region reporting unit of our Car and Truck Wash
      Segment. Significant estimates and assumptions are used in assessing the fair value
      of
      the reporting units and determining impairment to goodwill (See Note 4, *Goodwill* ).  The
      Company cannot guarantee that there will not be impairments in subsequent
      years.





**Other
      Intangible Assets**





Other
      intangible assets consist primarily of deferred financing costs, trademarks,
      customer lists, product lists, and establishing a registered national brand
      name. In accordance with SFAS 142, our trademarks and brand name are considered
      to have indefinite lives and as such, are not subject to amortization. These
      assets will be tested for impairment annually and whenever there is an
      impairment indicator. In 2003, approximately $9,000 related to our security
      product trademarks was written off in accordance with SFAS 142. Customer lists
      and non-compete agreements are amortized on a straight-line basis over their
      respective estimated useful lives. Amortization of other intangible assets
      was
      approximately $185,000, $120,000 and $53,000 for the years ended December 31,
      2005, 2004, and 2003, respectively. Deferred financing costs are amortized
      on a
      straight-line basis over the terms of the respective debt instruments.


F-9





**Insurance**





Commencing
      July 2002, the Company insures for auto, general liability, and workers’
compensation claims through participation in a captive insurance program with
      other unrelated businesses. The Company maintains excess coverage through
      occurrence-based policies. With respect to participating in the captive
      insurance program, the Company set aside an actuarially determined amount of
      cash in a restricted “loss fund” account for the payment of claims under the
      policies. The Company fund these accounts annually as required by the captive
      insurance company. Should funds deposited exceed claims incurred and paid,
      unused deposited funds are returned to the Company with interest on or about
      the
      third anniversary of the policy year-end. The captive insurance program is
      further secured by a letter of credit in the amount of $973,000 at December
      31,
      2005. 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 their estimate of reserves
      for possible future payments and claims.





**Income
      Taxes**





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





**Supplementary
      Cash Flow Information**





Interest
      paid on all indebtedness was approximately $2.1 million, $2.0 million and $2.0
      million for the years ended December 31, 2005, 2004 and 2003,
      respectively.





Income
      taxes paid were approximately $86,000, $340,000 and $144,000 in 2005, 2004,
      and
      2003, respectively.





Noncash
      investing and financing activities of the Company include a property addition
      financed by common stock of $1.6 million, real estate partially funded by a
      mortgage of approximately $825,000, and the sale of property and simultaneous
      pay down of a related mortgage of $325,000, all in 2004 and property additions
      financed by debt of $343,000 in 2003.





**Advertising**





The
      Company expenses advertising costs, including advertising production costs,
      as
      they are incurred or the first time advertising takes place. The Company’s costs
      of coupon advertising are recorded as a prepaid asset and amortized to
      advertising expense during the period of distribution and customer response,
      typically two to three months. Prepaid advertising costs were $67,000 and
      $25,000 at December 31, 2005 and 2004, respectively. Advertising expense was
      approximately $1.5 million in 2005, $1.2 million in 2004, $1.1 million in
      2003.





**Stock
      Based Compensation**





The
      Company has two stock-based employee compensation plans, which are more fully
      described in Note 12. The Company accounts for those plans under the recognition
      and measurement principles of Accounting Principles Board Opinion (“APB”) No.
      25, *Accounting
      for Stock Issued to Employees* ,
      and
      related interpretations. Stock-based employee compensation costs are not
      reflected in net income, as all options granted under the plan had exercise
      prices equal to the market value of the underlying common stock on the date
      of
      grant. The table below illustrates the effect on net loss and loss per share
      if
      the Company had applied the fair value recognition provisions of SFAS 123, *Accounting
      for Stock-Based Compensation,* to
      stock-based employee compensation.





As
      permitted by SFAS 123, the Company has elected to follow APB 25, and related
      Interpretations in accounting for its employee stock options. Under APB 25,
      if
      the exercise price of the Company’s employee stock options equals the market
      price of the underlying stock on the date of grant, no compensation expense
      is
      recognized. In
      December 2004, the FASB issued SFAS 123(R) *Share-Based
      Payment.* SFAS
      123
      (R) requires that the compensation cost relating to share-based payment transactions
      be recognized in financial statements. That cost will be measured based on
      the
      fair value of the equity or liability instruments issued. This statement is
      effective as of the first interim or annual reporting period of the first fiscal
      year beginning on or after June 15, 2005, which is January 1, 2006.


F-10


Pro
      forma
      information regarding net income and earnings per share is required by SFAS
      123,
      and has been determined as if the Company had accounted for its employee stock
      options under the fair value method of that Statement. The fair values for
      these
      options were estimated at the dates of grant using a Black-Scholes option
      pricing model with the following weighted average assumptions for grants in
      2005, 2004 and 2003; risk-free interest rate ranges of 4.06% to 4.57% in 2005,
      3.80% to 4.56% in 2004 and 3.29% to 4.45% in 2003, dividend yield of 0%;
      expected volatility of the market price of the Company’s common stock ranging
      from 52% to 56% in 2005, 20% to 64% in 2004 and 21% in 2003; and a
      weighted-average expected life of the option of ten years. The weighted-averages
      of the fair value of stock option grants were $1.88, $2.85 and $0.63 per share
      in 2005, 2004 and 2003, respectively.





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):





**Year
                Ended December 31,****2005**
            
            **2004**
            
            **2003**Net
                loss, as reported
            
            $
            (5,020
            )
            $
            (6,410
            )
            $
            (3,533
            )Less:
                Stock-based compensation costs under fair value based method for
                all
                awards
            
            
            (648
            )
            
            (2,089
            )
            
            (401
            )Pro
                forma net loss
            
            $
            (5,668
            )
            $
            (8,499
            )
            $
            (3,934
            )Loss
                per share - basicAs
                reported
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )Pro
                forma
            
            $
            (0.37
            )
            $
            (0.62
            )
            $
            (0.32
            )Loss
                per share - dilutedAs
                reported
            
            $
            (0.33
            )
            $
            (0.47
            )
            $
            (0.28
            )Pro
                forma
            
            $
            (0.37
            )
            $
            (0.62
            )
            $
            (0.32
            )





**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, 2005 were as
      follows:




**Carrying
                Value**
            
            **Fair
                Value**(In
                thousands)Fixed
                rate debt
            
            $
            11,396
            
            $
            11,828Variable
                rate debt
            
            
            15,278
            
            
            15,489Total
            
            $
            26,674
            
            $
            27,317




F-11


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





**Derivative
      Instruments**





Statement
      of Financial Accounting Standard (“SFAS”) No. 133, *Accounting
      for Derivative Instruments and Hedging Activities* (“SFAS
      133"), as amended by SFAS No. 137 and SFAS No. 138, specifies the accounting
      and
      disclosure requirements for such instruments.





On
      October 14, 2004, we entered into an interest rate cap arrangement that
      effectively changes our interest rate exposure on approximately $7 million
      of
      variable rate debt. The variable rate debt floats at prime plus .25% (7.50%
      at
      December 31, 2005). The hedge contract has a 36-month term and caps the interest
      rate on the $7 million of variable rate debt at 6.5%. The derivative is
      designated as a cash flow hedge and, accordingly, is marked to market with
      gains
      and losses on the contract reported as a component of other comprehensive income
      (loss) and is classified into earnings in the earlier of (i) the period the
      hedged transaction affects earnings, or (ii) the termination of the hedge
      contract. At December 31, 2005 the contract which was originally purchased
      for
      $124,000, is included in other assets at its fair market value of approximately
      $130,000.





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





**Business
      Combinations**





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





**New
      Accounting Standard**





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





In
      December 2004, the FASB issued SFAS 153, *Exchange
      of Nonmonetary Assets - An Amendment of APB Opinion No. 18 Accounting for
      Nonmonetary Transactions* .
      SFAS
      153 eliminates the exception from fair value measurement for nonmonetary
      exchanges of similar productive assets in paragraph 21(b) of Accounting
      Principles Board (“APB”) Opinion 29, and replaces it with an exception for
      exchanges that do not have commercial substance. SFAS 153 is effective for
      fiscal periods beginning after June 15, 2005. The adoption of SFAS 153 did
      not
      have a material impact on the Company.





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




F-12




The
        Company expects the adoption of SFAS 123(R) to result in stock compensation
        expense and therefore a reduction of income before income taxes in 2006 between
        $650,000 and $700,000. The Company’s actual stock compensation expense in 2006
        could differ materially from this estimate depending on the timing and magnitude
        of new awards, the number of new awards and changes in the market price or
        the
        volatility of the Company’s common stock.




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





**3.**  **Business
      Combinations**





From
      April 1, 1999 through July 26, 2000, the Company acquired 62 car care facilities
      and five truck wash facilities through the acquisition of 17 separate businesses
      including: 42 full service facilities, one self service facility, 11 exterior
      only facilities and one lube center in Pennsylvania, New Jersey, Delaware,
      Texas, Florida, and Arizona; 13 facilities were subsequently divested or closed.
      The five full service truck wash facilities are located in Arizona, Indiana,
      Ohio, and Texas.





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





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





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





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




F-13




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


**Twelve
                Months Ended December 31,****2004**
            
            **2003**Revenues
            
            $
            68,080
            
            $
            70,469Net
                loss
            
            $
            (6,269
            )
            $
            (2,853
            )Loss
                per share-basic and dilutive
            
            $
            (0.46
            )
            $
            (0.23
            )





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





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





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





**4.**  **Goodwill**





We
      completed our 2003 annual testing of goodwill and intangible assets determined
      to have indefinite lives in accordance with SFAS 142 as of November 30, 2003.
      The methodology applied was consistent with that of our transitional impairment
      testing and our 2002 annual test. The growth rate applied to future cash flows
      beyond detailed projections reward was 3%. The discount rates used varied from
      7.25% to 15.0% for our security business and approximately 11% for our car
      and
      truck wash operations. In the fourth quarter of 2003, as a result of the annual
      impairment test of Goodwill and Other Intangibles, we recorded an impairment
      of
      approximately $3.4 million related to our Northeast region reporting unit of
      our
      Car and Truck Wash Segment. This was principally due to a reduction in future
      projected cash flows resulting from extended departures from our historic
      revenue levels due to inclement weather and a slower economy. Additionally,
      in
      the fourth quarter of 2004, as a result of the annual impairment test of
      Goodwill and Other Intangibles in accordance with SFAS 142, we recorded an
      impairment of approximately $1.0 million related to our Northeast region
      reporting unit of our Car and Truck Wash Segment. Additionally, we recorded
      an
      impairment of approximately $6.7 million related to our Texas region reporting
      unit of our Car and Truck Wash Segment. These impairments were principally
      due
      to reductions in future projected cash flows as determined during our 2005
      budgeting process, which we completed in December, 2004. The projections of
      cash
      flows from these reporting units were reduced primarily due to two successive
      years of reductions in number of cars washed. We projected our car wash volume
      for 2004 based on the number of cars washed in these reporting units in the
      previous five years. We believe that fewer cars were actually washed during
      2004
      as a result of more inclement weather than in 2003, and increased competition
      near certain of our facilities in Texas and New Jersey. In the fourth quarter
      of
      2005, we recorded an additional impairment of approximately $1.56 million
      related to our Texas region reporting unit of our Car and Truck Wash Segment.
      This impairment charge was due to reductions in our future projected cash flows
      as volumes in this region continue to deviate from historic revenue levels.
      The
      methodology applied in our 2005 annual impairment testing was consistent with
      that of our previous testing. We anticipate that the volume of cars washed
      in
      these regions will increase, if weather patterns return to the patterns existing
      in prior years. Impairment of goodwill and intangible assets with indefinite
      lives must be tested on at least an annual basis and whenever there is an
      impairment indicator. The Company cannot guarantee that there will not be
      impairments in subsequent years. The
      changes in the carrying amount of goodwill for the years ended December 31,
      2004
      and 2005 are as follows (in thousands):


F-14





**Northeast**
            
            **Texas**
            
            **Security
                Products**
            
            **Total**Balance
                at December 31, 2002
            
            $
            5,528
            
            $
            7,620
            
            $
            282
            
            $
            13,430Reallocation
                of purchase price
            
            
            -
            
            
            671
            
            
            (40
            )
            
            631Impairment
                loss
            
            
            (3,438
            )
            
            -
            
            
            -
            
            
            (3,438
            )Balance
                at December 31, 2003
            
            $
            2,090
            
            $
            8,291
            
            $
            242
            
            $
            10,623Impairment
                Loss
            
            
            (998
            )
            
            (6,727
            )
            
            -
            
            
            (7,725
            )Reallocation
                of purchase price
            
            
            -
            
            
            -
            
            
            158
            
            
            158Acquisition
                of IVS and S&M
            
            
            -
            
            
            -
            
            
            531
            
            
            531Balance
                at December 31, 2004
            
            
            1,092
            
            
            1,564
            
            
            931
            
            
            3,587Impairment
                Loss
            
            
            -
            
            
            (1,564
            )
            
            -
            
            
            (1,564
            )Reallocation
                of Purchase Price
            
            
            -
            
            
            -
            
            
            (160
            )
            
            (160
            )Acquisition
                of Securetek
            
            
            -
            
            
            -
            
            
            957
            
            
            957Balance
                at December 31, 2005
            
            $
            1,092
            
            $
            -
            
            $
            1,728
            
            $
            2,820




**5.**  **Allowance
      for Doubtful Accounts**





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


**Year
                ended December 31,****2005**
            
            **2004**
            
            **2003**(In
                thousands)Balance
                at beginning of year
            
            $
            449
            
            $
            263
            
            $
            198Additions
                (charged to expense)
            
            
            232
            
            
            225
            
            
            86Adjustments
            
            
            -
            
            
            125
            
            
            -Deductions
            
            
            (88
            )
            
            (164
            )
            
            (21
            )Balance
                at end of year
            
            $
            593
            
            $
            449
            
            $
            263





**6.**  **Inventories**





Inventories
      consist of the following:




**As
                of December 31,****2005**
            
            **2004**(In
                thousands)Finished
                goods
            
            $
            6,094
            
            $
            5,402Work
                in process
            
            
            67
            
            
            112Raw
                materials and supplies
            
            
            508
            
            
            527Fuel,
                merchandise inventory and car wash supplies
            
            
            1,232
            
            
            1,026$
            7,901
            
            $
            7,067


F-15


**7.**  **Other
      Intangible Assets**





**December
                31, 2005**
            
            **December
                31, 2004****Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**
            
            **Gross
                Carrying Amount**
            
            **Accumulated
                Amortization**Amortized
                intangible assets:Non-compete
                agreement
            
            $
            98
            
            $
            21
            
            $
            28
            
            $
            13Customer
                lists
            
            
            1,184
            
            
            165
            
            
            699
            
            
            79Product
                lists
            
            
            590
            
            
            89
            
            
            590
            
            
            29Deferred
                financing costs
            
            
            416
            
            
            215
            
            
            421
            
            
            188Total
                amortized intangible assets
            
            
            2,288
            
            
            490
            
            
            1,738
            
            
            309Non-amortized
                intangible assets:Trademarks
                - Security Segment
            
            
            1,424
            
            
            -
            
            
            1,400
            
            
            -Service
                mark - Car and Truck Wash Segment
            
            
            106
            
            
            -
            
            
            106
            
            
            -Total
                non-amortized intangible assets
            
            
            1,530
            
            
            -
            
            
            1,506
            
            
            -Total
                intangible assets
            
            $
            3,818
            
            $
            490
            
            $
            3,244
            
            $
            309





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





2006
            $2172007
            $2152008
            $2122009
            $2002010
            $192




Amortization
      expense of other intangible assets was approximately $185,000, $120,000 and
      $53,000, for the years ended December 31, 2005, 2004, and 2003, respectively.
      The weighted average useful life of amortizing intangible assets was 10.2 years
      at December 31, 2005.




F-16




**8.**  **Long-Term
        Debt, Notes Payable, and Capital Lease Obligations**
 
 Long-term
        debt, notes payable, and capital lease obligations consist of the
        following:


**As
                of December 31,****2005**
            
            **2004**(In
                thousands)Notes
                payable to GMAC Commercial Mortgage (“GMAC”), interest rate of 8.52%, due
                in monthly installments totaling $145,936 including interest, through
                September 2013, collateralized by real property, equipment and inventory
                of certain of the Millennia Car Wash locations
            
            $
            9,746
            
            $
            10,625Note
                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,
                2005), is due in monthly installments of $59,235 including interest
                (adjusted annually), through November 2008, collateralized by real
                property and equipment of Eager Beaver Car Wash, Inc.
            
            
            4,995
            
            
            5,306Notes
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2005) due in monthly installments totaling 44,797 per month including
                interest (adjusted annually) through various dates ranging from January
                2005 to October 2009, collateralized by real property and equipment
                of
                certain of the Colonial Car Wash locations
            
            
            3,132
            
            
            3,480Note
                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, 2005), is
                due in
                monthly installments of $41,255 including interest (adjusted annually),
                renewed through February 2008, collateralized by real property and
                equipment of the Genie Car Wash locations
            
            
            3,532
            
            
            3,785Note
                payable to Western National Bank, interest rate of 8.75%, due in
                monthly
                installments of $20,988 including interest, through October 2014,
                collateralized by real property and equipment in Lubbock,
                Texas
            
            
            1,565
            
            
            1,671Note
                payable to Business Loan Express, interest rate of prime plus 2.5%
                (9.75%
                at December 31, 2005), is due in monthly installments of $13,003
                including
                interest (adjusted annually), through December 2022, collateralized
                by
                real property and equipment of the Blue Planet Car Wash
            
            
            1,338
            
            
            1,372Note
                payable to Merriman Park J.V., interest rate of 7.0% (adjusted annually),
                due in monthly installments of $10,147 including interest, through
                November 2011, collateralized by real property and equipment of certain
                of
                the Colonial Car Wash locations
            
            
            588
            
            
            671Note
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2005), is due in monthly installments of $7,315 including interest
                (adjusted annually), through July 2006, collateralized by real property
                and equipment of the Superstar Kyrene Car Wash
            
            
            623
            
            
            665Note
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2005), is due in monthly installments of $2,705 including interest
                (adjusted annually) through April 2010, collateralized by real property
                and equipment of the Red Baron Amarillo Truck Wash
            
            
            283
            
            
            295Note
                payable to Wachovia, interest rate of one month LIBOR plus 2.50%
                (4.91% at
                December 31, 2004), was due in monthly principal payments of $4,049
                plus
                accrued interest, and was collateralized by real property of Mace
                Security
                Products, Inc.
            
            
            -
            
            
            337Capital
                lease payable to Columbia Credit Company, interestrate of 14.5%,
                due in
                monthly installments of $8,314 including interest, through May 2005,
                and
                was collateralized by certain equipment of the Shammy Man Car Wash
                location
            
            
            -
            
            
            32Capital
                leases payable to various creditors, interest rates ranging from
                7.75% to
                9.97%, due in monthly installments of $5,930 including interest,
                through
                July 2007, collateralized by certain equipment of the
                Company
            
            
            85
            
            
            141Note
                payable to Chase, interest rate of prime plus 0.25% (7.50% at December
                31,
                2005) due in monthly Installments of $7,363 including interest (adjusted
                annually), through September 2009, collateralized by real property
                and
                equipment of Mace Security Products, Inc.
            
            
            787
            
            
            81526,674
            
            
            29,195Less:
                current portion
            
            
            2,209
            
            
            2,634$
            24,465
            
            $
            26,561




F-17





Of
      the 48
      car washes owned or leased by us at December 31, 2005, 25 properties and related
      equipment with a net book value totaling $40.4 million secured first mortgage
      loans totaling $25.5 million.





The
      Company has available a short-term line of credit with Chase, Texas, N.A. which
      provides borrowing for inventory and accounts receivable financing up to
      $500,000 for the Company’s electronic surveillance operations. The availability
      under this line of credit is subject to an inventory and accounts receivable
      borrowing formula. There were no borrowings outstanding under this line of
      credit at December 31, 2005.





At
      December 31, 2005, the Company had three letters of credit outstanding totaling
      $1,078,000 as collateral relating to workers’ compensation insurance
      policies.





Several
      of our debt agreements, as amended, contain certain affirmative and negative
      covenants including certain financial reporting requirements, 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 coverage ratios on a consolidated level. At December
      31, 2005 we were not in compliance with our consolidated debt coverage ratios
      related to our GMAC notes payable and the limitation on capital spending related
      to our Chase notes payable. With respect to the GMAC notes payable, the
      Company’s debt service coverage requirement is 1.25:1. At December 31, 2005, the
      Company’s debt service coverage ratio was 1.07:1 and accordingly was not in
      compliance with the GMAC covenant. Additionally, the Mace guaranty agreement
      with GMAC requires the Company to provide GMAC audited, reviewed, or compiled
      financial statements by the Company’s independent certified public accountants
      within 90 days of the Company’s fiscal year end. The Company was not able to
      timely provide the required year end audited financial statements. GMAC granted
      us a waiver of acceleration related to the non-compliance with the debt coverage
      ratio covenant and delinquency in providing the Company’s year end audited
      financial statements at December 31, 2005, and for measurement periods through
      April 1, 2007 and, accordingly, a portion of the GMAC notes payable was
      reflected as non-current on our consolidated financial statements at December
      31, 2005. Additionally, the Company has entered into amendments to the Chase
      term loan agreements effective March 31, 2004. The amended debt coverage ratio
      with Chase requires the Company to maintain a consolidated earnings before
      interest, income taxes, depreciation and amortization (“EBITDA”) to debt service
      (collectively “ the debt service coverage ratio”) of 1.05:1 at December 31, 2004
      and thereafter. The Company’s debt service coverage ratio was 1.09:1 at December
      31, 2005 and accordingly was in compliance with this Chase covenant, as amended.
      The amended Chase term loan agreement also limits capital expenditures annually
      to $1.0 million and 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 as
      well as internal certified financial statements and a Form 10-Q within 60 days
      after the end of each fiscal quarter. The Company was not able to timely provide
      the required year end audited financial statements or the first quarter Form
      10-Q. The Company incurred capital expenditures of $1.4 million in 2005 and,
      accordingly, was not in compliance with this Chase covenant. The Company
      received a waiver of acceleration from Chase at December 31, 2005 and for
      measurement periods through January 1, 2007 related to exceeding the annual
      capital expenditure limit and the untimely financial statement filings and,
      accordingly, a portion of the Chase notes payable was reflected as non-current
      on our consolidated financial statements at December 31, 2005. The
      Chase amendment also requires the maintenance of a minimum total unencumbered
      cash and marketable securities balance of $5 million. This cash balance
      requirement will be lowered to $1 million upon the Company returning to a debt
      coverage ratio of at least 1.10:1.





The
      Company sold or closed six unprofitable or marginally profitable car wash
      facilities and a lube facility from 2003 through 2005 and increased its prices
      in March 2004 within the Car and Truck Wash Segment to help improve cash flows
      for fiscal 2004. If our future cash flows are less than expected or debt service
      including interest expense increases more than expected causing us to further
      default on any of the Chase covenants or the GMAC covenant in the future, the
      Company will need to obtain further amendments or waivers from these lenders.
      If
      the Company is unable to obtain waivers or amendments in the future, Chase
      debt
      currently totaling $13.4 million and GMAC debt currently totaling $9.7 million,
      including debt recorded as long-term debt at December 31, 2005, would become
      payable on demand by the financial institution upon expiration of the current
      waivers. The
      Company’s ongoing ability to comply with its debt covenants under its credit
      arrangements and refinance its debt depends largely on the achievement of
      adequate levels of cash flow. Our cash flow has been and could continue to
      be
      adversely affected by weather patterns, economic conditions, and the
      requirements to fund our security business that we are attempting to grow.
      In
      the event that non-compliance with the debt covenants should reoccur, 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. 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.




F-18





Certain
      machinery and equipment notes payable discussed above have been classified
      as
      capital lease obligations in the balance sheet.





Maturities
      of long-term debt are as follows: 2006 - $2.2 million, 2007 - $2.4 million,
      2008
      - $7.1 million, 2009 - $7.0 million, 2010 -
      $1.6 million, 2011 and thereafter - $6.4 million.





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





Accrued
      expenses and other current liabilities consist of the following:





**As
                of December 31,****2005**
            
            **2004**(In
                thousands)
            
            (In
                thousands)Accrued
                compensation
            
            $
            928
            
            $
            945Property
                and other non-income taxes
            
            
            462
            
            
            317Other
            
            
            1,345
            
            
            954$
            2,735
            
            $
            2,216





**10.**  **Interest
      Expense, net**





Interest
      expense, net of interest income consists of the following:





**Year
                Ended December 31**
            ********
            ****
            **2005**
            ****
            **2004**
            ****
            **2003**Interest
                expense
            
            $
            (2,086
            )
            $
            (2,010
            )
            $
            (2,006
            )Interest
                income
            
            
            292
            
            
            120
            
            
            43$
            (1,794
            )
            $
            (1,890
            )
            $
            (1,963
            )




**11.**  **Other
      Income (Expense)**





Other
      income(expense) consists of the following:





**Year
                Ended December 31****2005**
            
            **2004**
            
            **2003**Investment
                income
            
            $
            266
            
            $
            -
            
            $
            -Rental
                income
            
            
            169
            
            
            159
            
            
            208Gain
                (loss) on sale of fixed assets
            
            
            333
            
            
            (15
            )
            
            107Hurricane
                damage loss
            
            
            (107
            )
            
            -
            
            
            -Business
                interruption insurance proceeds
            
            
            -
            
            
            59
            
            
            115Reserve
                for note receivable
            
            
            -
            
            
            -
            
            
            (100
            )Other
            
            
            25
            
            
            64
            
            
            108$
            686
            
            $
            267
            
            $
            438




F-19




**12.** **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, 2005, 4,177,944 options
          have
          been granted under the 1993 and 1999 Plans including 3,719,760 nonqualified
          stock options.
 
 Activity
          with respect to these plans is as follows:
 
 **2005**
                
                **2004**
                
                **2003****Number**
                
                **Weighted
                    Average Exercise Price**
                
                **Number**
                
                **Weighted
                    Average Exercise Price**
                
                **Number**
                
                **Weighted
                    Average Exercise Price**Options
                    outstanding beginning of period
                
                
                2,971,264
                
                $
                4.03
                
                
                1,957,033
                
                $
                4.27
                
                
                1,305,283
                
                $
                5.72Options
                    granted
                
                
                300,000
                
                $
                2.73
                
                
                1,539,932
                
                $
                4.05
                
                
                791,000
                
                $
                1.42Options
                    exercised
                
                
                (1,750
                )
                $
                1.85
                
                
                (448,456
                )
                $
                4.19
                
                
                (30,000
                )
                $
                1.32Options
                    canceled
                
                
                (160,832
                )
                $
                2.30
                
                
                (77,245
                )
                $
                9.04
                
                
                (109,250
                )
                $
                1.81Options
                    outstanding end of period
                
                
                3,108,682
                
                $
                4.00
                
                
                2,971,264
                
                $
                4.03
                
                
                1,957,033
                
                $
                4.27Options
                    exercisable
                
                
                2,696,684
                
                
                
                
                
                2,329,764
                
                
                
                
                
                1,417,895
                
                $
                5.28Shares
                    available for granting of options
                
                
                3,984,382
                
                
                
                
                
                4,123,550
                
                
                
                
                
                5,586,237
 
 Stock
          options outstanding at December 31, 2005 under both plans are summarized
          as
          follows:
 
 **Range
                    of Exercise Prices**
                
                **NumberOutstanding**
                
                **Weighted
                    Avg.Remaining Contractual Life**
                
                **Weighted
                    Avg. Exercise Price**$1.28-$1.91
                
                
                749,709
                
                
                7.2
                
                $
                1.43$1.94-$2.97
                
                
                653,147
                
                
                7.7
                
                $
                2.53$3.00-$4.45
                
                
                860,308
                
                
                8.8
                
                $
                3.93$5.00-$5.59
                
                
                632,291
                
                
                6.8
                
                $
                5.34$8.63-$11.75
                
                
                71,160
                
                
                4.1
                
                $
                10.06$13.25-$19.50
                
                
                132,067
                
                
                3.5
                
                $
                15.22$22.00
                
                
                10,000
                
                
                3.4
                
                $
                22.003,108,682
  F-20
  In
        1999,
        the Company issued warrants to purchase a total of 1,328,250 shares of the
        Company’s common stock at a weighted average exercise price of $4.22 per share
        (shares and exercise price are adjusted for one-for-two reverse stock split)
        in
        connection with the purchase of certain businesses and to a director. The
        terms
        of the warrants have been established by the Board of Directors. The warrants
        are exercisable at various dates through August 2, 2009 and have exercise
        prices
        ranging from $2.75 to $18.50 per share. Through December 31, 2005, 281,818
        warrants to purchase common stock have been exercised and 996,432 warrants
        to
        purchase common stock have expired. In 2004, the Company issued warrants
        to
        purchase a total of 383,000 shares of the Company’s common stock at a weighted
        average price of $6.65 per share which expire in 2009. The Company has a
        total
        of 433,000 warrants to purchase common stock outstanding at December 31,
        2005,
        all of which are exercisable.
  During
        the exercise period, the Company will reserve a sufficient number of shares
        of
        its common stock to provide for the exercise of the rights represented by
        option
        and warrant holders.
 
 **13.**  **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, 2005 and 2004
        are
        as follows:
  **As
                  of December 31,****2005**
              
              **2004**(In
                  thousands)
              
              (In
                  thousands)Deferred
                  tax assets:Allowance
                  for doubtful accounts
              
              $
              267
              
              $
              134Inventories
              
              
              28
              
              
              28Net
                  operating loss carryforwards
              
              
              6,543
              
              
              6,202Deferred
                  revenue
              
              
              197
              
              
              184Compensation
              
              
              45
              
              
              117Car
                  damage reserve
              
              
              49
              
              
              28Accrued
                  workers compensation costs
              
              
              16
              
              
              16Federal
                  Tax Credit
              
              
              179
              
              
              179Other,
                  net
              
              
              72
              
              
              -Total
                  deferred tax assets
              
              
              7,396
              
              
              6,888Valuation
                  allowance for deferred tax assets
              
              
              (4,126
              )
              
              (896
              )Deferred
                  tax assets after valuation allowance
              
              
              3,270
              
              
              5,992Deferred
                  tax liabilities:Property,
                  equipment and intangibles
              
              
              (3,270
              )
              
              (3,663
              )Net
                  deferred tax assets
              
              $
              -
              
              $
              2,329
  F-21
  At December 31, 2005, the Company had U.S. federal net
        operating loss carryforwards of approximately $18.015 million. The U.S. federal
        net operating loss carryforwards expire as follows:
 **Year
                  of Expiration**
              ****
              ****
              **Amou**nt2018
              
              $
              9892019
              
              
              4,0062020
              
              
              3,2392021
              
              
              1,5832022
              
              
              2,8222023
              
              
              4,4112025
              
              
              965$
              18,015
 
 Additionally,
        the Company has $1.3 million of acquired corporation’s preacquisition state net
        operating loss carryforwards expiring from 2008 through 2018.
  Realization
        of the future tax benefits related to the deferred tax assets is dependent
        upon
        many factors, including the Company’s ability to generate taxable income in
        future years. The Company performed a detailed review of the considerations
        influencing our ability to realize the future benefit of the NOLs, including,
        the extent of recently used NOLs, the turnaround of future deductible temporary
        differences, the duration of the NOL carryforward period, and the Company’s
        future projection of taxable income. The Company increased its valuation
        allowance against deferred tax assets by $3.2 million in 2005 with a total
        valuation allowance of $4.1 million at December 31, 2005 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, 2005, the uncertainty of the
        timing
        of the Company’s transition from the Car Wash business, and the ultimate extent
        of growth in the Company’s Security Segment.
 
 The
        components of income tax expense (benefit) are (in thousands):
 
 **Year
                  ended December 31,****2005**
              
              **2004**
              
              **2003**(In
                  Thousands)Current
                  (principally state taxes)
              
              $
              126
              
              $
              112
              
              $
              106Deferred
              
              
              2,313
              
              
              (3,156
              )
              
              (156
              )Total
                  income tax expense(benefit)
              
              $
              2,439
              
              $
              (3,044
              )
              $
              (50
              )
  The
        significant components of deferred income tax expense(benefit) attributed
        to the
        loss for the years ended December 31, 2005, 2004, and 2003 are as follows
        (In
        thousands):
  **Year
                  ended December 31,****2005**
              
              **2004**
              
              **2003**Deferred
                  tax expense (benefit)
              
              $
              133
              
              $
              (1,780
              )
              $
              2,074Loss
                  carryforward
              
              
              (1,110
              )
              
              (1,400
              )
              
              (2,002
              )Valuation
                  allowance for deferred tax assets
              
              
              3,290
              
              
              24
              
              
              (228
              )$
              2,313
              
              $
              (3,156
              )
              $
              (156
              )
  F-22
  A
        reconciliation of income tax benefit computed at
        the U.S. federal statutory tax rates to total income tax expense (benefit)is as
        follows:
  **Year
                  ended December 31,****2005**
              
              **2004**
              
              **2003**(In
                  thousands)Tax
                  at U.S. federal statutory rate
              
              $
              (903
              )
              $
              (3,175
              )
              $
              (1,255
              )State
                  taxes, net of federal benefit
              
              
              40
              
              
              (124
              )
              
              233Goodwill
                  impairment
              
              
              -
              
              
              349
              
              
              1,203Nondeductible
                  costs and other acquisition accounting adjustments
              
              
              12
              
              
              16
              
              
              7Valuation
                  allowance for deferred tax assets
              
              
              3,290
              
              
              24
              
              
              (228
              )Other
                  adjustments
              
              
              -
              
              
              (134
              )
              
              (10
              )Total
                  income tax expense (benefit)
              
              $
              2,439
              
              $
              (3,044
              )
              $
              (50
              )
  **14.
        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,****2005**
              
              **2004**
              
              **2003**Numerator
                  (In thousands):Net
                  loss
              
              $
              (5,020
              )
              $
              (6,410
              )
              $
              (3,533
              )Denominator:Denominator
                  for basic lossper
                  share - weighted average shares
              
              
              15,271,637
              
              
              13,679,604
              
              
              12,414,816Dilutive
                  effect of options and warrants
              
              
              -
              
              
              -
              
              
              -Denominator
                  for diluted lossper share - weighted average shares
              
              
              15,271,637
              
              
              13,679,604
              
              
              12,414,816Basic
                  loss per share:Net
                  loss
              
              $
              (0.33
              )
              $
              (0.47
              )
              $
              (0.28
              )Diluted
                  loss per share:Net
                  loss
              
              $
              (0.33
              )
              $
              (0.47
              )
              $
              (0.28
              )
 
 The
        dilutive effect of options and warrants of 275,044, 491,082, and 40,399 at
        December 31, 2005, 2004 and 2003, respectively, have not been included in
        the
        calculation of diluted earnings per share because they are
        anti-dilutive.
 **15.**  **Concentration
          of Credit Risk**
 
 The
          Company maintains its cash accounts in high quality financial institutions.
          At
          times, these balances may exceed insured amounts.
 
 **16.**  **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, 2005
          are as
          follows: 2006 - $919,000 million; 2007 - $874,000; 2008 - $734,000; 2009
          -
          $545,000; 2010 - $424,000 and thereafter - $2.3 million. Rental expense under
          these leases was $1.3 million, $1.3 million and $1.7 million for the years
          ended
          December 31, 2005, 2004, and 2003, respectively.
 
 F-23
  The
          Company has produced documents requested in subpoena issued in connection
          with
          an investigation conducted by the United States Securities and Exchange
          Commission of possible securities law violations. The subpoena was issued
          on
          October 27, 2003. The Company produced all documents that were requested
          and has
          not been contacted by the United States Securities and Exchange Commission
          regarding the investigation since February, 2004. The Company intends to
          fully
          cooperate with the United States Securities and Exchange Commission's
          investigation.
  On
          July 20, 2004, the Company received a letter from
          the United States Securities and Exchange Commission. This letter requested
          that
          the Company voluntarily provide information and documents relating to Price
          Legacy Corporation's sale of 1,875,000 shares of the Company's common stock
          on
          the open market in April, 2004 and Price Legacy Corporation's payment of
          $8.95
          million to the Company in exchange for the Company removing a sales restriction
          from 1,750,000 of the shares that were sold. The Company supplied the
          information in August of 2004. The Company has not been contacted by the
          Securities and Exchange Commission since supplying the information. The
          Company
          intends to fully cooperate with the United States Securities and Exchange
          Commission in this matter.
  The
          Company subleases a portion of the building space at several of its car
          wash
          facilities either on a month-to-month basis or under cancellable leases.
          During
          fiscal 2005, 2004, and 2003 revenues under these leases were approximately
          $179,000, $163,000 and $214,000, 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 should the officer be terminated
          upon a
          change in control of the Company. Additionally, the employment agreement
          of the
          Company’s Chief Executive Officer, Louis D. Paolino, Jr., entitles Mr. Paolino
          to receive a fee of $2.5 million upon termination of employment under certain
          conditions. The employment agreement also provides for a bonus of $2.5
          million
          upon a change in control.
 
 In
          December 2003, one of the Company’s car wash subsidiaries was named as a
          defendant in a suit filed by Kristen Sellers in the Circuit Court of the
          Twelfth
          Judicial Circuit in and for Sarasota County, Florida. The suit alleged
          that the
          plaintiff was entitled to damages in excess of $15,000 due to psychological
          injury and emotional distress sustained when an employee of the car wash
          allegedly assaulted Ms. Sellers with sexually explicit acts and words.
          The case
          has been settled and the Company’s insurer has paid the plaintiff $200,000 in
          compensation and approximately $55,000 in reimbursement of litigation costs.
 
 The
          Company is a party to various legal proceedings related to its normal business
          activities. In the opinion of the Company’s management, none of these
          proceedings are material in relation to the Company’s results of operations,
          liquidity, cash flows, or financial condition.
 
 **17.
          Asset Impairment Charges**
 
 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, 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.
          During the year ended December 31, 2002, we wrote down assets determined
          to be
          impaired by approximately $1.2 million. The asset write-down related to
          one of
          our full service car wash sites in Texas and two full service car wash
          sites in
          Arizona. We have determined that due to changing demographics and increased
          competition in the geographic areas of these sites, their future expected
          cash
          flows will not be sufficient to recover their respective carrying values.
          During
          the quarter ended June 30, 2003, we further wrote down the assets related
          to one
          of the full service car wash sites in Arizona which we partially wrote
          down at
          December 31, 2002, by an additional $351,000. The additional write-down
          was the
          result of the impending loss of a significant customer of this site resulting
          in
          an additional reduction of the future expected cash flows of this site
          and the
          ability to recover the site’s carrying value. We closed the facility effective
          September 30, 2003. During the quarter ended June 30, 2004, we sold the
          other
          Arizona car wash site recording a loss of $51,000 on the
          disposition. **** We
          continue to market the Texas site for sale and have written down these
          assets to
          their estimated fair market values. Additionally, as a result of our SFAS144
          quarterly review during the year ended December 31, 2004, we wrote down
          assets
          related to our truck wash operations determined to be impaired by approximately
          $500,000 and an additional $966,000 during the quarter ended September
          30, 2005
          as a result of our SFAS 144 quarterly reviews. We have determined that
          due to a
          reduction in truck wash volumes resulting from an increase in inclement
          weather,
          increased competition, the significant increase in fuel costs which had
          the
          effect of reducing spending on truck washing, and demographic changes to
          certain
          of our facilities, their future expected cash flows would not be sufficient
          to
          recover their respective carrying values. The Company executed a lease-to-sell
          agreement on December 31, 2005 with Eagle United Truck Wash, LLC (“Eagle”) to
          lease Mace’s five truck washes beginning January 1, 2006 for up to two years.
          Pursuant to the terms of the agreement, Eagle must pay Mace $9,000 per
          month to
          lease the Company’s truck washes, and is responsible for all underlying property
          expenses. Within the next two years, Eagle is obligated under the agreement
          to
          purchase the truck washes and be delivered title to the assets for $1.2
          million,
          consideration consisting of $280,000 cash and a $920,000 note payable to
          Mace
          secured by mortgages on the truck washes. When issued, the $920,000 note
          will
          have a five-year term, with principal and interest paid on a 15-year
          amortization schedule. If Eagle does not fulfill its obligation to purchase
          the
          truck washes, the Company will regain possession of the truck washes and
          Eagle
          will be obligated to pay $200,000 as liquidated damages.
 
 **18.**  **Related
          Party Transactions**
 
 From
          November, 2001 through July 2002, the Company
          prepaid LP Learjets, LLC $5,109 per month for the right to use a
          Learjet
          31A for 100 hours per year. LP Learjets, LLC is a company owned by Louis
          D.
          Paolino, Jr., the Company’s Chairman,
          Chief Executive Officer and President. When the Learjet 31A is used, the
          prepaid
          amount is reduced by the hourly
          usage charge as approved by the Audit Committee, and the Company pays to
          third
          parties unaffiliated with Louis D.
          Paolino, Jr., the direct costs of the Learjet’s per-hour use, which include
          fuel, pilot fees, engine insurance and landing fees.
          The
          balance of unused prepaid flight fees totaled $31,659 at December 31, 2005.
 
 F-24
  Louis
          D.
          Paolino, Jr. purchased approximately $44,600 and $20,600 of the Company’s
          products in fiscal 2005 and 2004, respectively, at a discount from the
          prices
          charged to distributors. The total of the discount given to Mr. Paolino
          was
          approximately $18,300 and $6,600 in fiscal 2005 and 2004,
          respectively.
  The
          Company’s Security Segment leases manufacturing and office space under a
          five-year lease with Vermont Mill, Inc. (“Vermont
          Mill”), which provided for monthly lease payments of $9,167 through November
          2004. Vermont Mill is controlled
          by Jon E. Goodrich, a former director and current employee of the Company.
          The
          Company has 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 $126,000, $111,000 and $110,000 for 2005, 2004, and 2003,
          respectively.
 
 From
          January 1, 2004 through December 31, 2005, the Company’s Security Segment sold
          approximately $146,300 of electronic security equipment to two companies,
          each
          of which Louis Paolino, III, the son of the Company’s CEO, Louis D. Paolino,
          Jr., is a partial owner. The pricing extended to these companies is no
          more
          favorable than the pricing given to third party customers who purchase
          in
          similar volume. **** At
          December 31, 2005, $13,529 was owed from one of these companies to
          Mace.
 
 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.
 
 **19.
          Segment Reporting**
 
 The
          Company currently operates in two segments: the Car and Truck Wash Segment,
          supplying complete car care services (including wash, detailing, lube,
          and minor
          repairs), fuel, and merchandise sales; and the Security Segment.
 
 The
          Company evaluates performances and allocates resources based on operating
          income
          of each reportable segment rather than at the operating unit level. The
          Company
          defines operating income as revenues less cost of revenues, selling, general
          and
          administrative expense, and depreciation and amortization expense. The
          accounting policies of the reportable segments are the same as those described
          in the *Summary
          of Significant Accounting Policies* (see
          Note 2). There is no intercompany profit or loss recognized on intersegment
          sales.
 
 The
          Company’s reportable segments are business units that offer different services
          and products. The reportable segments are each managed separately because
          they
          provide distinct services or produce and distribute distinct products through
          different processes.
 
 Selected
          financial information for each reportable segment is as follows:
 
 **Year
                    ended December 31,****2005**
                
                **2004**
                
                **2003**Revenues:
                
                (In
                    thousands)Car
                    and truck wash - external customers
                
                $
                43,333
                
                $
                41,015
                
                $
                43,415Security
                    - external customers
                
                
                24,909
                
                
                16,632
                
                
                5,581$
                68,242
                
                $
                57,647
                
                $
                48,996Segment
                    Operating (loss) income:Corporate
                    (1)
                
                $
                (3,450
                )
                $
                (3,485
                )
                $
                (2,987
                )Car
                    and truck wash
                
                
                4,534
                
                
                4,300
                
                
                4,917Security
                
                
                (28
                )
                
                (368
                )
                
                (190
                )$
                1,056
                
                $
                447
                
                $
                1,740Assets:Car
                    and truck wash
                
                $
                75,876
                
                $
                83,978
                
                $
                83,262Security
                
                
                20,235
                
                
                18,779
                
                
                7,340$
                96,111
                
                $
                102,757
                
                $
                90,602Capital
                    expenditures:Corporate
                
                $
                10
                
                $
                5
                
                $
                5Car
                    and truck wash
                
                
                1,140
                
                
                1,456
                
                
                872Security
                
                
                424
                
                
                3,809
                
                
                578$
                1,574
                
                $
                5,270
                
                $
                1,455Depreciation
                    and amortization:Corporate
                
                $
                43
                
                $
                62
                
                $
                62Car
                    and truck wash
                
                
                1,911
                
                
                2,187
                
                
                1,795Security
                
                
                399
                
                
                260
                
                
                101$
                2,353
                
                $
                2,509
                
                $
                1,958
 
 (1)
          Corporate functions include the corporate treasury, legal, financial reporting,
          information technology, corporate tax, corporate insurance, human resources,
          investor relations, and other typical centralized administrative
          functions.
  F-25
  A
          reconciliation of operating income for reportable segments to total reported
          operating loss is as follows:
 
 **Year
                    ended December 31,****2005**
                
                **2004**
                
                **2003**(In
                    thousands)Total
                    operating income for reportable segments
                
                $
                1,056
                
                $
                447
                
                $
                1,740Costs
                    of terminated acquisitions
                
                
                -
                
                
                (53
                )
                
                -Goodwill
                    and asset impairment charges
                
                
                (2,529
                )
                
                (8,225
                )
                
                (3,798
                )Total
                    reported operating loss
                
                $
                (1,473
                )
                $
                (7,831
                )
                $
                (2,058
                )
 
 **20.
          Subsequent Events**
 
 (Unaudited)
          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 is in the process of responding 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 states that the review of the additional documents
          and
          information has not changed the conclusions contained in the April 18,
          2006
          summary of findings. See
          Item
          3, Legal Proceedings. From March 13, 2006 through May 31, 2006, the Company
          incurred $390,000 in legal, consulting and accounting expenses associated
          with
          the Audit Committee investigations and $375,000 associated with the governmental
          investigation and Company’s defense and negotiations with the government. In
          accordance with the Company’s By-Laws, the Company is obligated to indemnity and
          advance legal costs for its officers and directors. The
          Company has hired a Human Resources Manager and has incorporated additional
          internal control procedures at the corporate, regional and site level to
          further
          enhance the existing internal controls with respect to the Company’s hiring
          procedures at the car wash locations to prevent the hiring of undocumented
          workers. There is a possibility that the United States Attorney for the
          Eastern
          District of Pennsylvania may prosecute the Company at the conclusion of
          its
          investigation. Violations of law may result in civil, administrative or
          criminal
          fines or penalties. Due to the ongoing nature of the criminal investigation,
          it
          is not possible at this time to predict the outcome of the investigation
          or the
          impact of costs of ultimately resolving this matter on our results of operations
          or financial condition. However, any fees, expenses, fines or penalties
          which
          might be incurred by the Company in connection with the hiring of undocumented
          workers may have a material impact on the Company’s results of operations and
          financial condition. The Company has made no provision for any future costs
          associated with the investigations or any future costs associated with
          the
          Company’s defense or negotiations with governmental authorities to resolve these
          outstanding issues.
 
 F-26
  On
          February 28, 2006, the Company signed an agreement to sell its Arizona
          car wash
          region to CW Acquisition, LLC for $19.5 million. The purchase price consists
          of
          $18.5 million in cash and $1.0 million to be paid to the Company in the
          form of
          a three-year promissory note bearing 7.5% interest. The note , when issued,
          would have a $250,000 principal payment due on each of the first and second
          anniversary dates of the promissory note’s issuance, with the balance of
          $500,000 due and payable on the third anniversary. The transaction is expected
          to close by July 31, 2006.
  On
          June 16, 2006, the Company sold its Deptford, New
          Jersey exterior only car wash for $1.025 million in cash.
 
 On
          April 19, 2006 and May 17, 2006, the Company
          received two separate Nasdaq Staff Determinations that it was not in compliance
          with Marketplace Rule 4310(c) (14) regarding the requirement to file with
          The
          Nasdaq Stock Market all documents required to be filed with the Securities
          and
          Exchange Commission. The April 19, 2006, Nasdaq Staff Determination was
          issued
          due to the Company not timely filing its Annual Report on Form 10-K for
          the year
          ended December 31, 2005 ("Form 10-K"). The May 17, 2006 Nasdaq Staff
          Determination was issued due to the Company not timely filing its Quarterly
          Report on Form 10-Q for the quarter ended March 31, 2006 ("Form 10-Q"). In
          accordance with the procedures for the Nasdaq Stock Market, the Company
          requested that the Nasdaq Hearing Qualifications Panel ("Panel") grant
          the
          Company an exception to Marketplace Rule 4310(c) (14) that would allow
          the
          Company's stock to remain listed. A hearing before the Panel was held on
          May 25,
          2006. The Panel issued its ruling on June 28, 2006. The Panel's ruling
          granted an exception allowing the Company's common stock to remain listed,
          provided that the Company files its Form 10-K and Form 10-Q on or before
          August
          15, 2006 and demonstrated compliance with all other requirements for continued
          listing on The Nasdaq National Market.
  On
          June 27, 2006, the Company signed an agreement to
          sell its car wash in Norristown, Pennsylvania for $2 million cash.  Among
          other items, the agreement calls for the closing to occur by September
          10,
          2006.
  On
          July 12, 2006, the Company received an updated
          letter from GMAC granting a waiver of acceleration related to non-compliance
          with its debt coverage ratio covenant requirement and its delinquency in
          providing the Company's year end audited financial statements. The waiver
          was
          granted as of December 31, 2005, and for measurement periods through April
          1,
          2007.
  **21.
          Selected Quarterly Financial Information (In thousands, except per share
          information) (Unaudited)**
 
 **Year
                    Ended December 31, 2005****1****st****Quarter**
                
                **2****nd****Quarter**
                
                **3****rd****Quarter**
                
                **4****th****Quarter**
                
                **Total**Revenues
                
                $
                16,851
                
                $
                18,773
                
                $
                16,086
                
                $
                16,532
                
                $
                68,242Gross
                    profit
                
                $
                4,577
                
                $
                5,381
                
                $
                4,004
                
                $
                4,501
                
                $
                18,463Net
                    income (loss)
                
                $
                11
                
                $
                439
                
                $
                (1,128
                )
                $
                (4,342
                )
                $
                (5,020
                )Diluted
                    net income(loss)
                    per share
                
                $
                -
                
                $
                0.03
                
                $
                (0.07
                )
                $
                (0.28
                )
                $
                (0.33
                )
 
 **Year
                    Ended December 31, 2004****1****st****Quarter**
                
                **2****nd****Quarter**
                
                **3****rd****Quarter**
                
                **4****th****Quarter**
                
                **Total**Revenues
                
                $
                12,675
                
                $
                12,605
                
                $
                16,647
                
                $
                15,720
                
                $
                57,647Gross
                    profit
                
                $
                3,677
                
                $
                3,459
                
                $
                4,157
                
                $
                4,305
                
                $
                15,598Net
                    income (loss)
                
                $
                217
                
                $
                (14
                )
                $
                (229
                )
                $
                (6,384
                )
                $
                (6,410
                )Diluted
                    net income(loss)
                    per share
                
                $
                0.02
                
                $
                -
                
                $
                (0.02
                )
                $
                (0.44
                )
                $
                (0.47
                )
 
 **Year
                    Ended December 31, 2003****1****st****Quarter**
                
                **2****nd****Quarter**
                
                **3****rd****Quarter**
                
                **4****th****Quarter**
                
                **Total**Revenues
                
                $
                12,611
                
                $
                12,317
                
                $
                11,897
                
                $
                12,171
                
                $
                48,996Gross
                    profit
                
                $
                3,680
                
                $
                3,387
                
                $
                2,949
                
                $
                3,168
                
                $
                13,184Net
                    income (loss)
                
                $
                342
                
                $
                (88
                )
                $
                (182
                )
                $
                (3,605
                )
                $
                (3,533
                )Diluted
                    net income(loss)
                    per share
                
                $
                0.03
                
                $
                (0.01
                )
                $
                (0.01
                )
                $
                (0.29
                )
                $
                (0.28
                )
  F-27
  In
          the
          fourth quarter of 2004, the Company recorded an adjustment to reflect the
          appropriate balances for certain assets classified as buildings and leasehold
          improvements that had been depreciated using incorrect useful lives.
          Specifically, the Company recognized $338,000 in additional depreciation
          and
          amortization expense in its consolidated statement of operation for the
          quarter
          ended December 31, 2004 to correct the aforementioned error in accounting.
          We
          decided to record the correction in the current period and not restate
          our
          previously issued financial statements after taking into consideration
          (i) that
          the adjustment, net of applicable income taxes, did not have a material
          impact
          on the financial statements of prior interim or annual periods taken as
          a whole;
          and (ii) that the cumulative impact of the adjustment on stockholders’ equity
          was not material to the financial statements of prior interim or annual
          periods.
  F-28
 
 **EXHIBIT
          INDEX**
 **Exhibit**
                    **No.**
                  
                  **Description**10.176
                  
                  Compensation
                      Arrangements with Certain Executive Officers and
                      Directors10.179
                  
                  Note
                      Modification Agreement dated December 1, 2005 between the Company,
                      its
                      subsidiary Mace Security Products, Inc. and JPMorgan Chase
                      Bank, N.A. in
                      the amount of $500,000.11
                  
                  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 Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                      Act of 2002.31.2
                  
                  Certification
                      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
                      Act of 2002.32.1
                  
                  Certification
                      of Chief 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
                  
                  Global
                      Truck Wash Facility Acquisition Agreement dated December 31,
                      2005, between
                      Eagle United Truck Wash, LLC and Mace Truck Wash,
                      Inc.
  F-29