Form 10-KSB/A-1

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
      EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1997

                                       OR

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from               to
                               -------------    -------------   

                Commission File Number         69270-NY
                                       ---------------------

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


        Delaware                                          03-0311630
-------------------------------                         -------------------
(State or other jurisdiction of                         (I.R.S. Employer
 incorporation or organization)                         Identification No.)

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

Registrant's telephone number, including area code:               (802) 447-1503
                                                                  --------------

Securities registered pursuant to Section 12(b) of the Act:                 None
                                                                            ----

Securities registered pursuant to Section 12(g) of the Act:

                                  Common Stock

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 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes  X    No
                                      -----    -----

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

The registrant's net sales for 1997 were $9,830,591.

As of April 8, 1998 the aggregate market value of the voting stock held by
non-affiliates of the registrant, based on the closing price of $1.3125 on that
date, was $5,990,292.

As of April 8, 1998 the registrant had issued and outstanding 7,081,666 shares
of Common Stock.

<PAGE>

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

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

RESULTS OF OPERATIONS

Year Ended December 31, 1997 compared to Year Ended December 31, 1996.

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

      Net sales decreased by $993,612 or 9.2% in 1997 compared to 1996. The
major component contributing to this decrease is a 40.1% decline in the Consumer
division sales from $4,437,020 in 1996 to $2,657,354 in 1997. This decline was
offset in part by an increase in Law Enforcement sales to $6,917,627 in 1997
from $6,387,183 in 1996, as well as the additional net sales of $255,609
provided by the Company's new subsidiaries acquired in 1997. Substantially all
categories of the Consumer defense spray market realized a sales decrease in
1997 as compared to 1996, which coincides with the continuing trend exhibited by
the declining defense spray market.

      Gross profit as a percent of sales decreased to 28.7% as compared to 39.1%
in 1996. Gross profit from the Law Enforcement division decreased to 24.0% in
1997 from 33.5% in 1996. Gross profit from the Consumer Division deceased to
38.1% in 1997 from 47.1% in 1996. Decreases in gross profit margins for the Law
Enforcement Division were attributable to a combination of items including the
strenght of the US dollar and its negative impact on export pricing, continued
strong competitive bidding for international business, book to physical
inventory adjustments and additions to inventory reserves for slow moving and
obsolete items. Decreases to gross profit margins for the Consumer Division were
attributable to a change in product mix to lesser margin buy-sell products as
well as additions to inventory reserves for slow moving and obsolete items.

      General, administrative and selling expenses overall increased 0.6% in
1997 compared to 1996. As a percentage of net sales, these expenses increased to
45.8% in 1997 from 41.4% in 1996.

      General and administrative expenses increased by $75,483 or 2.9% in 1997
compared to 1996. As a percent of net sales, these expenses increased from 27.3%
and 24.1% for 1997 and 1996, respectively, as a result of lower sales in 1997.

      Selling expenses decreased by $49,059 or 2.6% in 1997 compared to 1996. As
a percentage of net sales, these expenses increased to 18.6% in 1997 from 17.3%
in 1996.

      Operating loss as a percentage of net sales increased to 17.2% in 1997
from 2.3% in 1996.

      Other income/expense was income of net amounts $8,448 in 1997 compared to
income of $7,175 in 1996. These net amounts are comprised of interest income and
rents from sublets on the Company's leased facility and interest expense on the
Company's term loan with FNB. (See "-Liquidity and Capital Resources)."

      The Company is currently considering acquisitions opportunities in the
event the Transaction with AHI is consummated. Acquisitions will be necessary to
fill the void from the disposal of the Company's Law Enforcement division."

<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

      In October 1996, the Company entered into a credit agreement with KeyBank
National Association ("Key") which provided for a maximum of $2,000,000 of
credit (the "credit agreement") and was subject to a borrowing base formula. The
amounts outstanding under the credit agreement were secured by virtually all of
the Company's then owned and after-acquired assets.

      The credit agreement was separated into two "facilities". One facility
provided for a $750,000 term loan maturing October 1, 2000, calling for monthly
principal payments of $15,625 plus accrued interest at the Key's "base rate"
plus 1.25% (9.5% on December 31, 1996). The Company drew fully on the term loan
and used the proceeds to pay off the term loan with Vermont National Bank that
totaled $395,823, including interest, and used the remaining $354,177 for
working capital purposes.

      The second facility, a $250,000 line of credit, which originally matured
on October 1, 1998 and called for interest to be paid monthly at Key's "base
rate" plus 1.25% (9.25% as of December 31, 1996) was canceled in September,
1997. No amounts were drawn on this facility.

      The credit agreement contained various covenants which included the
maintenance of certain financial ratios and limitations on capital expenditures,
debt and dividends. As of December 31, 1996, the Company was in violation of
most of these covenants. The Company obtained a waiver of these violations for
the year ended December 31, 1996 and for the 10 months ended October 31, 1997.

      In April 1997, the Company's President and the Company's Chairman of the
Board supplied the Company with lines of credit for up to $375,000 each
($750,000 in total) with interest at prime plus 1.25%. The lines of credit
expired in September 1997. No amounts were drawn on these lines.

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

      These facilities are collateralized by the following: (a) assignment of
life insurance owned by the Company on the life of the current President and
Chief Executive Officer; and (b) first priority security interest in all
inventory and all other assets of the Company. All three facilities are
personally guaranteed by the current President and Chief Executive Officer of
the Company. The Company plans to pay off the loan to FNB simultaneously with
the closing of the Transaction with AHI (See "Subsequent Event").

      Prior to this refinancing event, promissory notes to TransTechnology
Coproration relating to the acquisition of the assets of Federal Laboratories,
was paid in full with cash from operations.

      At December 31, 1997, the Company's open orders totalled $1,099,455 as
compared to $1,681,463 for the prior year-end. Open orders are orders that have
not yet been manufactured but are scheduled for production and delivery.

      Inventory decreased $1,251,174 in 1997, including: a) physical count
adjustments relating to the December 31, 1997 physical inventory in the amount
of $418,000, b) an auditor-proposed allowance of $440,000 based on sampling in
connection with their review of production standards and obsolescence, and c)
other production related inventory adjustments in the amount of $159,000 (See
Note 1 to "Notes to Consolidated Financial Statements"). The auditor's sampling
regarding production standards identified inaccurate labor and material
standards (including those relating to both material cost and material
production usage), some of which resulted in work in process and finished goods
inventory valuations in excess of the lower of cost or market. The nature of the
other production related inventory adjustments of $159,000 was a result of the
Company reviewing its labor standards at year-end in light of the reduction in
the Company's typical aerosol production runs. In 1997, aerosol production runs
were shorter than in prior years resulting in higher labor cost per unit. It is
anticipated that added cost accounting expertise, periodic test counts to verify
book inventory balances and timely reviews of costing standards will improve the
Company's internal controls and avoid book to physical adjustments in the
future.

      For the year ended December 31, 1997, capital expenditures were $238,726
compared to $304,403 in 1996. 


                                       2
<PAGE>

      Additionally, the Company is a party to a real estate purchase agreement
with the Vermont Economic Development Authority (VEDA) for the purchase of the
Center and North Wings of its headquarters, after the satisfaction or waiver of
certain contingencies by VEDA. The Company cannot predict when, or if, these
contingencies will be met. The purchase price is $1,000,000, payable by delivery
of $150,000 in cash and a promissory note to VEDA for $850,000 at 4% interest
per annum, based on a 20 year amortization schedule with a balloon payment of
$100,000 due at the end of ten years. (See "Properties"). The Company has
deposited $75,000 of the total cash portion into an escrow account as required
by the agreement. (See Note 10 to "Notes to Financial Statements").

      On April 2, 1998, the Company entered into an agreement (the "Purchase
Agreement") with Armor Holdings, Inc. and its wholly-owned subsidiary (together
"AHI") for the sale of substantially all of the assets of the Company's Law
Enforcement division (the "Transaction"). The terms of the Purchase Agreement
require that, in conjunction with the sale of assets, the Company license to AHI
the use of Mace(R) and relatedtrademarks and a patent for use by AHI in the Law
Enforcement market only. The sale is subject to, among other things, approval by
holders of a majority of the Company's Common Stock and receipt by the Company
of an opinion that the Transaction is fair, from a financial point of view. The
Transaction is expected to close in June 1998.

      The Company expects to apply approximately $175,000 of the purchase price
received to pay off the amount due to FNB under its term loans. In addition, the
Company will deliver $600,000 of the purchase price to AHI to be held in escrow
to secure the Company's obligations under the representations and warranties in
the Purchase Agreement. The remainder of the purchase price will be available to
the Company for the purposes deemed to be appropriate by the Company's Board of
Directors. While the Company has no definitive plans, some or all of the
remaining purchase price may be used for acquisitions, among other things. Such
acquisitions may include companies or assets non consistent with the Company's
historical business.

      Pursuant to the terms of the Purchase Agreement, the Company will sell to
AHI all of the fixed assets, intangibles and inventory of the Law Enforcement
division. AHI will also receive a 99-year paid-up license to exploit the Mace
brand and other related trademarks in the law enforcement market only, which is
made up of law enforcement, military, correctional and certain governmental
agencies. The assets of the law Enforcement division constitute a substantial
part of the Company's assets.

      The agreed purchase price for the fixed assets and intangibles, including
the license fee for the 99-year paid-up license, is the book value as of
December 31, 1997 ($3,117,325) plus an additional amount of $200,000, which the
Company anticipates spending to tranport the assets to AHI. The agreed purchase
price for inventory is the book value at December 31, 1997 ($2,636,325),
increased by inventory purchases since December 31, 1997, valued at the
Company's standard cost and decreased by (I) sales of inventory from December
31, 1997 and (ii) inventory related to unshipped orders that AHI has not agreed
to fill.

      The Company will retain its cash and accounts receivable from the law
Enforcement division, estimated at approximately $2,000,000. The purchase price
will be paid in cash or other immediately available funds. The Company does not
anticipate any material tax implications resulting from the Transaction. To the
extent there is taxable gain resulting from the Transaction, the Company will
utilize its net operating loss carry forward to cover the taxes, if any,
resulting from the sale.


                                       3
<PAGE>

                                   SIGNATURES

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

                                       MACE SECURITY INTERNATIONAL, INC.


                                       By: /s/ Jon E. Goodrich
                                           --------------------------------
                                           Jon E. Goodrich
                                           President and CEO


Date:  May 29, 1998


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

     Signature                         Title                    Date
     ---------                         -----                    ----


/s/ Jon E. Goodrich                    President, CEO           May 29, 1998
------------------------------         And Director             
Jon E. Goodrich                        


/s/ Marvin P. Brown                    Chairman of the          May 29, 1998
------------------------------         Board
Marvin P. Brown                        


/s/ Virginia de Ganahl Russell         Director                 May 29, 1998
------------------------------         
Virginia de Ganahl Russell        


/s/ Howard S. Edelman                  Director                 May 29, 1998
------------------------------         
Howard S. Edelman


/s/ Neil J. Campolungo                 Director                 May 29, 1998
------------------------------         
Neil J. Campolungo


/s Lewis C. Cohen                      Director                 May 29, 1998
------------------------------         
Lewis C. Cohen


/s/ R. David Garwood                   Director                 May 29, 1998
------------------------------         
R. David Garwood


/s/ Mark A. Capone
------------------------------         Treasurer/Chief          May 29, 1998
Mark A. Capone                         Financial Officer

<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS


                                                                       Page No.

Reports of Independent Accountants                                     F-2, F-2A

Consolidated Balance Sheets at December 31, 1997 and 1996              F-3

Consolidated Statements of Operations
  for the Years Ended December 31, 1997 and 1996                       F-4

Consolidated Statements of Stockholders' Equity
  for the Years Ended December 31, 1997 and 1996                       F-5

Consolidated Statements of Cash Flows for the Years
  Ended December 31, 1997 and 1996                                     F-6

Notes to Consolidated Financial Statements                             F-7


                                       F-1
<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS



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


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

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

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


URBACH KAHN & WERLIN PC


Albany, New York
February 26, 1998


                                       F-2
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                                      1997            1996
                                                                                  ------------    ------------
<S>                                                                               <C>             <C>         
ASSETS
Current assets:
   Cash and cash equivalents ..................................................   $  1,146,212    $    345,554
   Accounts receivable, net ...................................................      1,880,565       2,567,920
   Inventories:
      Finished goods ..........................................................      1,712,082       1,729,882
      Work in process .........................................................        788,247       1,184,590
      Raw material and supplies ...............................................      1,474,376       2,311,407
   Prepaid expenses and other .................................................        314,438         171,271
                                                                                  ------------    ------------
      Total current assets ....................................................      7,315,920       8,310,624
Property and equipment, net ...................................................      2,697,961       2,919,230
Intangibles, net ..............................................................      2,718,423       2,761,193
Other assets ..................................................................        136,362         131,543
                                                                                  ------------    ------------

      Total Assets ............................................................   $ 12,868,666    $ 14,122,590
                                                                                  ============    ============


LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Notes payable ..............................................................   $     30,728    $         --
   Current maturities of long-term debt .......................................        113,210         949,827
   Accounts payable ...........................................................        333,735       1,012,777
   Accrued liabilities ........................................................        556,624         411,233
                                                                                  ------------    ------------
      Total current liabilities ...............................................      1,034,297       2,373,837
Long-term debt, net of current maturities .....................................      1,660,205         143,271
                                                                                  ------------    ------------
      Total liabilities .......................................................      2,694,502       2,517,108
                                                                                  ------------    ------------

Commitments and contingencies (Note 10)

Stockholders' equity:
   Preferred stock, par value $.01 per share;
      authorized 2,000,000 shares; no shares issued
   Common stock, par value $.01 per share; authorized 18,000,000 shares; issued
      and outstanding 7,081,666 shares
      in 1997, 6,825,000 shares in 1996 .......................................         70,817          68,250
   Additional paid-in capital .................................................     13,333,191      13,080,133
   Deficit ....................................................................     (3,229,844)     (1,542,901)
                                                                                  ------------    ------------
      Total Stockholders' equity ..............................................     10,174,164      11,605,482
                                                                                  ------------    ------------

      Total Liabilities and Stockholders' equity ..............................   $ 12,868,666    $ 14,122,590
                                                                                  ============    ============
</TABLE>

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


                                       F-3
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 For the Years Ended December 31, 1997 and 1996


                                                     1997              1996
                                                 ------------      ------------

Net sales ..................................     $  9,830,591      $ 10,824,203

Cost of sales ..............................        7,011,829         6,596,992
                                                 ------------      ------------

         Gross profit ......................        2,818,762         4,227,211

Operating expenses:
  General and administrative ...............        2,681,528         2,606,045
  Selling ..................................        1,824,825         1,873,884
                                                 ------------      ------------

         Operating loss ....................       (1,687,591)         (252,718)

Other income (expense):
  Write down of long-lived assets ..........               --           (28,453)
  Interest income ..........................           32,130            22,646
  Interest expense .........................         (121,877)          (97,998)
  Other income .............................           98,195           110,980
                                                 ------------      ------------
                                                        8,448             7,175
                                                 ------------      ------------

         Loss before income tax expense ....       (1,679,143)         (245,543)

Income tax expense .........................            7,800             6,805
                                                 ------------      ------------

         Net loss ..........................     $ (1,686,943)     $   (252,348)
                                                 ============      ============

         Net loss per common share .........     $       (.24)     $       (.04)
                                                 ============      ============

         Weighted average number of
         common shares outstanding .........        6,819,918         6,920,023
                                                 ============      ============

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


                                       F-4
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                 For the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                        Common Stock            Additional
                                                    Shares          Par      Paid-in Capital      Deficit
                                                 ------------   ------------   ------------    ------------
<S>                                              <C>            <C>            <C>             <C>          
Balance at January 1, 1996                          6,805,000   $     68,050   $ 13,025,471    $ (1,290,553)

Shares issued to officer                               20,000            200         27,600              --

Fair value of 30,000 stock options
issued to consultants                                      --             --         27,062              --

Net loss                                                   --             --             --        (252,348)
                                                 ------------   ------------   ------------    ------------
Balance at December 31, 1996                        6,825,000         68,250     13,080,133      (1,542,901)

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

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

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

Balance at December 31, 1997                        7,081,666   $     70,817   $ 13,333,191    ($ 3,229,844)
                                                 ============   ============   ============    ============
</TABLE>

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


                                       F-5
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 For the Years Ended December 31, 1997 and 1996

<TABLE>
<CAPTION>
                                                                   1997           1996
                                                               -----------    -----------
<S>                                                            <C>            <C>         
Operating activities:
    Net loss ...............................................   $(1,686,943)   $  (252,348)
    Adjustments to reconcile net loss to net cash provided
      by operating activities:
           Depreciation ....................................       454,247        445,018
           Amortization ....................................       268,994        267,222
           Allowance for bad debts .........................       (47,905)        53,003
           Gain on sale of assets ..........................        (1,996)       (10,249)
           Write down of long-lived assets .................            --         28,453
           Fair value of stock options issued to consultants            --         27,062
           Shares issued as compensation ...................            --         27,800
    Changes in:
           Accounts receivable .............................       735,260     (1,530,941)
           Inventories .....................................     1,334,307        702,869
           Prepaid expenses and other ......................      (115,087)       265,594
           Accounts payable ................................      (679,042)       394,124
           Accrued liabilities .............................       145,391       (123,683)
           Other assets ....................................       (12,459)       (12,483)
                                                               -----------    -----------
             Net cash provided by operating activities .....       394,767        281,441
                                                               -----------    -----------

Investing activities:
    Purchases of property and equipment ....................      (238,726)      (304,403)
    Proceeds from sale of property and equipment ...........        13,744         29,850
    Acquisition of subsidiaries ............................       (51,372)            --
                                                               -----------    -----------
             Net cash used in investing activities .........      (276,354)      (274,553)
                                                               -----------    -----------

Financing activities:
    Payment of principal on long-term debt .................      (525,933)      (392,080)
    Proceeds from long-term debt ...........................     1,206,250        375,753
    Payment of notes payable ...............................        (3,272)      (127,797)
    Proceeds from notes payable ............................        34,000             --
    Debt issue costs .......................................       (28,800)       (22,848)
                                                               -----------    -----------
            Net cash provided by (used in)
               financing activities ........................       682,245       (166,972)
                                                               -----------    -----------

Net increase (decrease) in cash and cash equivalents .......       800,658       (160,084)

Cash and cash equivalents:
    Beginning of year ......................................       345,554        505,638
                                                               -----------    -----------
    End of year ............................................   $ 1,146,212    $   345,554
                                                               ===========    ===========
</TABLE>

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


                                       F-6
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Description of organization:

            Mace Security International, Inc. (Mace) is incorporated under the
      laws of the state of Delaware. Mace and its subsidiaries' revenues are
      generated primarily through the manufacture, distribution and sale of
      defense sprays, tear gas grenades, projectiles, cartridges and other
      self-defense and personal safety products for the consumer and law
      enforcement markets.

      Summary of significant accounting policies:

      Principles of consolidation:

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

      Revenue recognition:

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

      Cash and cash equivalents:

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

      Accounts receivable:

            Accounts receivable are presented net of an allowance for doubtful
      accounts approximating $54,000 at December 31, 1997 ($102,000 at December
      31, 1996).

      Inventories:

            Inventories, which are stated at the lower of cost (first-out
      method) or market, are net of valuation adjustments of $440,000 and
      $456,000 at December 31, 1997 and 1996 respectively.

            Cost of sales for the year ended December 31, 1997 includes
      approximately $1,017,000 attributable to lower of cost or market write
      downs. This adjustment was made in the fourth quarter of 1997.

      Property and equipment:

            Property and equipment are stated at cost.

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

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

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

      Intangibles:

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

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


                                       F-7
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.    DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)

      Research expense:

            Research and development expense, which is charged to operations as
      incurred, was approximately $81,000 in 1997 and $53,000 in 1996.

      Income taxes:

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

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

      Advertising:

            The Company expenses the production costs of advertising the first
      time the advertising takes place. Advertising expense was approximately
      $249,000 and $213,000 in 1997 and 1996, respectively.

      Net loss per common share:

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

      Use of Estimates:

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

      Disclosures about Fair Value of Financial Instruments:

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

             Cash and Cash Equivalents

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

             Long Term Debt

                  The carrying value approximates fair value for variable rate
                  debt.

      Impairment of long-lived assets

            During 1996, the Company adopted Statement of Financial Accounting
      Standards No. 121, (SFAS No. 121), the Impairment of Long-Lived Assets and
      For Long-Lived Assets to Be Disposed Of".

            SFAS No. 121 requires that long-lived assets, including related
      goodwill, be reviewed for impairment and written down to fair value
      whenever events or changes in circumstances indicate that the carrying
      value may not be recoverable.

            Adoption of SFAS No. 121 resulted in an impairment charge included
      in other expense of $28,453 in 1996. The impaired assets were primarily
      trademarks.


                                       F-8
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

1.    DESCRIPTION OF ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (Continued)

            Measurements of the impairment loss is based on fair value of the
      asset. Generally, fair value is determined using valuation techniques such
      as the present value of expected future cash flows.

      Recent Accounting Pronouncements

            In June 1997, the Financial Accounting Standards Board (the "FASB")
      issued Statement of Financial Accounting Standards No. 130 (SFAS No. 130),
      "Reporting Comprehensive Income", which establishes standards for
      reporting comprehensive income and its components in annual and interim
      financial statements. SFAS No. 130 is effective for fiscal years beginning
      after December 15, 1997. Reclassification of financial statements for
      earlier periods is required. The Company anticipates that adoption of SFAS
      No. 130 may expand or modify disclosures but will not have an impact on
      reported consolidated financial position, results of operations or cash
      flows.

            In June 1997, the FASB issued SFAS No. 131, "Disclosures about
      Segments of an Enterprise and Related Information", which establishes
      standards for companies to report information about operating segments in
      annual financial statements, based on the approach that management
      utilizes to organize the segments within the Company for management
      reporting and decision making. In addition, SFAS No. 131 requires that
      companies report selected information about operating segments in interim
      financial reports. It also establishes standards for related disclosures
      about products and services, and major customers. SFAS No. 131 is
      effective for financial statements for fiscal years beginning after
      December 15, 1997. Financial statement disclosure for prior periods are
      required to be restated. The Company anticiates that adoption of SFAS No.
      131 will expand disclosures but will not have an impact on reported
      consolidated financial positoin, results of operations or cash flows.

2.    SUPPLEMENTARY CASH FLOW INFORMATION

            In September 1997, the Company obtained long-term debt from the
      First National Bank of New England (See Note 7). As part of this
      refinancing, the Key Bank long-term debt of $593,750 was paid. This
      non-cash transaction has been excluded from proceeds from long-term debt,
      as well as payment of principal on long-term debt.

            In October 1996, the Company refinanced $395,823 of its long-term
      debt with Vermont National Bank through the issuance of long-term debt
      from KeyBank (See Note 7). This non-cash transaction has been excluded
      from payment of principal on long term debt and proceeds from long-term
      debt.

3.    PROPERTY AND EQUIPMENT

            The components of property and equipment are summarized below:

<TABLE>
<CAPTION>

                                                 Estimated     
                                              Useful Life (Yrs.)        1997               1996
                                              ------------------    -----------        -----------
<S>                                                  <C>            <C>                <C>        
Office furniture .........................           7              $   128,959        $   127,144
Computer equipment .......................           7                  428,769            386,608
Vehicles .................................           5                   46,501             37,285
Leasehold improvements ...................          31                1,628,553          1,539,976
Machinery and equipment ..................           5                2,217,610          2,130,302
                                                                     -----------        -----------
   Total property and equipment ..........                            4,450,392          4,221,315
Less: Accumulated depreciation ...........                           (1,752,431)        (1,302,085)
                                                                     -----------        -----------
   Property and equipment, net ...........                          $ 2,697,961        $ 2,919,230
                                                                    ===========        ===========
</TABLE>

      Depreciation expense was $454,247 in 1997 and $445,018 in 1996.
      Expenditures for maintenance and repairs are charged to income as incurred
      and amounted to $113,429 in 1997 and $38,290 in 1996.

4.    INTANGIBLES
      
The components of intangibles are summarized below:   
                                                       
                                                          1997         1996
                                                        ----------   ----------
      Trademarks .....................................  $3,099,208   $3,099,208
      Trademark protection costs .....................     154,088      154,088
      Excess purchase price over fair value             
           assigned to assets acquired ...............    634,470      422,405
                                                        ----------   ----------
        Total intangibles ............................  3,887,766    3,675,701
      Less: Accumulated amortization .................  1,169,343      914,508
                                                        ----------   ----------
        Intangibles, net .............................  $2,718,423   $2,761,193
                                                        ==========   ==========
                                                                       
      Amortization expense was $254,834 in 1997 and $251,794 in 1996. 


                                      F-9
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

5.    NOTES PAYABLE

            Notes payable at December 31, 1997 consist of an obligation to a
      financing company, payable in monthly installments with interest at 10.2%
      in 1997, and due Septemer 1998.

            In September 1997, the Company obtained a $250,000 working capital
      line of credit from First National Bank of New England bearing interest at
      prime plus 1% (9.5% at December 31, 1997) due May 31, 1998. No amounts
      have been drawn on this line of credit. The Company is using this line for
      the issuance of letters of credit for international purchases. The Company
      had $52,500 in letters of credit outstanding at December 31, 1997.

6.    ACCRUED LIABILITIES

            The components of accrued liabilities are summarized below:

                                                         1997             1996
                                                       --------         --------
Commissions ..................................         $130,833         $ 51,924
Customer prepayments .........................          107,643           70,482
Payroll and related expenses .................          109,552          120,661
Compensated absences .........................            8,524           22,101
Professional fees ............................           65,000           54,297
Advertising ..................................           64,571           30,000
Other ........................................           70,501           61,768
                                                       --------         --------
                                                       $556,624         $411,233
                                                       ========         ========
7.    LONG-TERM DEBT

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

<TABLE>
<CAPTION>
                                                                                   1997         1996
                                                                                ----------   ----------
<S>                                                                             <C>          <C>    
      Notes payable--First National Bank of New England, bearing 
        interest at prime plus 1.50% (10.0% at December 31, 1997) 
        payable in monthly installments of $23,791, including 
        interest, due October 1, 2007, collateralized by all assets 
        of the Company ......................................................   $1,773,415           --
   
      Note payable--stockholder, payable in quarterly installments
        of $33,957 plus interest at prime in effect at the beginning 
        of each quarter (8.25% at December 31, 1996) maturing January 1997 ..           --       33,957
   
      Note payable--stockholder, payable in quarterly installments 
        in an amount equal to seven percent of annualized net sales 
        of the Federal Laboratories division in excess of an agreed 
        upon base plus interest at prime in effect at the beginning 
        of each quarter (8.25% at December 31, 1996) with no set 
        maturity date; collateralized by the equipment purchased in 
        connection with the Federal Laboratories division acquisition.
        This liability was satisfied in 1997.................................           --      340,391
      
      Note payable--KeyBank bearing interest
        at the Bank's "base rate" plus 1.25% (9.5% at December 31,
        1996) payable in monthly installments of $15,625 plus interest, 
        due October 1, 1998, collateralized by all assets of the Company.  
        This liability was satisfied in 1997.................................           --      718,750
                                                                                ----------   ----------
                                                                                 1,773,415    1,093,098
      Less: Current maturities ..............................................      113,210      949,827
                                                                                ----------   ----------
      Total long-term debt ..................................................   $1,660,205   $  143,271
                                                                                ==========   ==========
</TABLE>


                                      F-10
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

7.    LONG TERM DEBT (continued)

      Scheduled principal repayments on long-term debt are as follows:

      1998                                                             113,210
      1999                                                             125,073
      2000                                                             138,170
      2001                                                             152,638
      2002                                                             168,621
      Thereafter                                                     1,075,703
                                                                     ---------
                                                                     1,773,415
                                                                     =========

            Interest paid was $129,770 in 1997 and $102,408 in 1996.

            In October 1996, the Company entered into a credit agreement with
      KeyBank which provided for a maximum of $2,000,000 of credit (the "credit
      agreement") and was subject to a borrowing base formula. The amounts
      outstanding under the credit agreement were secured by virtually all of
      the Company's then owned and after-acquired assets.

            The credit agreement was separated into two "facilities". One
      facility provided for a $750,000 term loan maturing October 1, 2000,
      calling for monthly principal payments of $15,625 plus accrued interest at
      the Bank's "base rate" plus 1.25% (9.5% on December 31, 1996). The Company
      drew fully on the term loan and used the proceeds to pay off the term loan
      with Vermont National Bank that totaled $395,823, including interest, and
      used the remaining $354,177 for working capital purposes.

            The second facility, a $250,000 line of credit, which originally
      matured on October 1, 1998 and called for interest to be paid monthly at
      the Bank's "base rate" plus 1.25% (9.25% as of December 31, 1996) was
      canceled on September 25, 1997. No amounts were drawn on this facility.

            The credit agreement contained various covenants which included the
      maintenance of certain financial ratios and limitations on capital
      expenditures, debt and dividends. As of December 31, 1996, the Company was
      in violation of most of these covenants. The Company obtained a waiver of
      these violations for the year ended December 31, 1996 and for the 10
      months ended October 31, 1997.

            In April 1997, the Company's President and the Company's Chairman of
      the Board supplied the Company with lines of credit for up to $375,000
      each ($750,000 in total) with interest at prime plus 1.25%. The lines of
      credit expired in September 1997. No amounts were drawn on these lines.

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

            These facilities are collateralized by the following: (a) assignment
      of life insurance owned by the Company on the life of the current
      President and Chief Executive Officer; and (b) first priority security
      interest in all inventory and all other assets of the Company. All three
      facilities are personally guaranteed by the current President and Chief
      Executive Officer of the Company.

            Prior to this refinancing event, the obligation to a stockholder
      relating to the acquisition of the assets of Federal Laboratories, was
      paid in full with cash from operations.


                                      F-11
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.    INCOME TAXES

      The components of income tax expense are:

                                                     1997            1996
                                                  -----------     -----------
            Current                               $     7,800     $     6,805
            Deferred                                       --              --
                                                  -----------     -----------
             Total income tax expense             $     7,800     $     6,805
                                                  ===========     ===========

            The significant components of deferred income tax expense attributed
      to loss from operations for the years ended December 31, 1997 and 1996 are
      as follows:
                                                      1997            1996
                                                  -----------     -----------

             Current deferred tax expense         $    37,336     $   152,618
             Loss carry forward                      (615,707)       (247,244)
             Valuation allowance for deferred
              tax assets                              578,371          94,626
                                                  -----------     -----------
                                                  $        --     $        --
                                                  ===========     ===========

            A comparison of the federal statutory rate to the Company's
      effective rate is as follows:
                                                            1997        1996
                                                          --------    --------

            U.S. statutory rate                                (34%)       (34%)
            State taxes, net of federal benefit                  1%          2%
            Miscellaneous permanent differences                  1%          2%
            Valuation allowance for deferred tax assets         34%         34%
            Adjustments for prior year taxes                    (1%)        (1%)
                                                          --------    --------
            Effective tax rate                                   1%          3%
                                                          --------    --------

            The significant components of deferred tax assets and liabilities
      are as follows:
                                                          1997          1996
                                                      -----------   -----------
            Current assets (liabilities):
            Allowance for doubtful accounts           $    21,587   $    40,077
            Inventories                                    65,869        92,764
            Accrued expenses                                9,128        42,407
            Other                                          12,163         7,449
                                                      -----------   -----------

                  Current deferred assets                 108,747       182,697
            Valuation allowance                          (108,747)     (182,697)
                                                      -----------   -----------
                  Net current deferred tax assets     $        --   $        --
                                                      ===========   ===========

            Noncurrent assets (liabilities):
            Intangibles                                    (4,758)       (7,586)
            Plant, equipment and depreciation            (234,372)     (268,158)
            Net operating loss carry forwards           1,152,000       536,293
                                                      -----------   -----------
                  Net noncurrent deferred assets          912,870       260,549
            Valuation allowance                          (912,870)     (260,549)
                                                      -----------   -----------
                  Net noncurrent deferred tax assets  $        --   $        --
                                                      ===========   ===========


                                      F-12
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

8.    INCOME TAXES (continued)

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

            During the year ended December 31, 1997, the valuation allowance
      increased by $578,371.

            At December 31, 1997, the Company has net operating loss carry
      forward for federal income tax purposes of approximately $2,880,000. The
      federal net operating loss carry forward, if unused, will begin to expire
      during the year ended December 31, 2009.

            Net taxes refunded were $64,628 in 1996.

9.    RELATED PARTY TRANSACTIONS

            The Company paid legal and management/consulting fees to officers
      and directors approximating $57,350 and $35,360 in 1997 and 1996,
      respectively.

10.   COMMITMENTS AND CONTINGENCIES

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

            Operating lease expense for equipment, vehicles and real estate
      amounted to $170,231 and $171,947 for 1997 and 1996, respectively. Certain
      of these leases contain purchase options, renewal provisions, and
      contingent rentals for proportionate share of taxes, utilities, insurance
      and annual cost of living increases. Future minimum rental payments
      required under operating leases that have initial or remaining
      noncancelable lease terms in excess of one year as of December 31, 1997
      are:

            1998                              116,526
            1999                              103,977
            2000                               28,760
                                           ----------
                                           $  249,263
                                           ==========

            The Company has entered into month to month and long-term sublease
         agreements with tenants of their operating facility in Bennington,
         Vermont, including a related party. Total sublease rental income was
         $93,231 and $65,160 in 1997 and 1996, respectively.

            The Company was obligated under a consulting agreement with a
         director/stockholder calling for a monthly consulting fee of $1,930 for
         the period January 1, 1996 to December 31, 1996.

            Future minimum rental receipts required under operating subleases
         that have initial or remaining noncancelable lease terms in excess of
         one year as of December 31, 1997 are:

            1998                               73,404
            1999                               76,404
            2000                               44,569
                                           ----------
                                           $  194,377
                                           ==========

      During 1994, the Company paid $75,000 to a related entity to acquire all
of the rights and obligations under a lease agreement, including an option to
purchase the south wing of its principal operating facility. Amortization of
this deferred cost was $13,440 in 1997 and 1996, respectively. The term of the
lease expires on January 31, 2000, and requires monthly payments of $6,064, plus
the Company's proportionate share of taxes, insurance, utilities and an annual
cost of living increase. The option may be exercised for $600,000 at the end of
the lease term.


                                      F-13
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

10.   COMMITTMENTS AND CONTINGENCIES (Continued)

      The Company is party to a Real Estate Purchase Agreement with the Vermont
Economic Development Authority (VEDA) for the purchase of the center and north
wings of its headquarters, after the satisfaction of certain contingencies by
VEDA. The purchase price is $1,000,000, payable in cash of $150,000 and a
$850,000 promissory note to VEDA at 4% interest, based on a 20 year amortization
schedule with a balloon payment of $100,000 due at the end of ten years. The
Company has temporarily elected to lease the facility for $4,000 per month,
together with taxes, insurance and utilities. The Company is currently
renegotiating its option to extend its lease for an additional five year period.

11.   STOCK OPTIONS AND WARRANTS

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

            The Company applies Accounting Principles Board Opinion No. 25,
      "Accounting for Stock Issued to Employees", in accounting for the stock
      option plans. Accordingly, no employee compensation cost has been
      recognized in 1997 and 1996. Had compensation cost and fair value been
      determined pursuant to Statement of Financial Accounting Standards No. 123
      (SFAS No. 123), "Accounting for Stock-Based Compensation", net loss would
      increase from $1,686,943 to $1,886,293 in 1997 and from $252,348 to
      $454,085 in 1996. Net loss per share would increase from $.24 to $.27 in
      1997 and from $.04 to $.07 in 1996. The weighted average fair value of
      options granted during 1997 and 1996, for the purpose of SFAS No. 123, is
      $1.15 and $.85 per share, respectively.

            In accordance with SFAS No. 123, the fair value of each option
      granted is estimated on the grant date using the Black-Scholes Single
      Option model, assuming no dividend yield and an expected volatility of
      92.2% and 77.6% in 1997 and 1996, respectively. The weighted-average
      remaining contractual life of outstanding options under the plan at
      December 31, 1997 is 13 years. The risk- free interest rate ranges from
      6.06% to 6.86% in 1997 and from 5.95% to 6.78% in 1996.

            Activity with respect to these plans is as follows:

<TABLE>
<CAPTION>
                                                       1997                   1996
                                               ---------------------   ---------------------
                                                            Weighted                Weighted
                                                            Average                 Average
                                                            Exercise                Exercise
                                               Number       Price      Number       Price
                                               -------      -----      -------      -----
<S>                                            <C>          <C>         <C>         <C>  
Shares under option, January 1                 276,400      $1.54       90,100      $5.34
Options granted                                162,500       1.40      270,000       1.44
Options exercised                                   --         --           --         --
Options canceled                                 1,100       5.50       83,700       5.32
                                               -------      -----      -------      -----
Shares under option, December 31               437,800       1.48      276,400       1.54
                                               =======      =====      =======      =====
                                                                     
Options exercisable, December 31               437,800       1.48      276,400       1.54
                                               =======      =====      =======      =====

Shares available for granting of options,
December 31                                    192,200                 353,600
                                               =======                 =======
</TABLE>


                                      F-14
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

11.      STOCK OPTIONS & WARRANTS (continued)

         The following is a summary of the status of options outstanding at
December 31, 1997:

<TABLE>
<CAPTION>
                         Outstanding Options                             Exercisable Options
                         -------------------                             -------------------
                                           Weighted
                                           Average       Weighted                       Weighted
                 Exercise                  Remaining     Average                        Average
                 Price                     Contractual   Exercise                       Exercise
                 Range      Number         Life          Price            Number        Price
                 -----      -------        -----         -----            -------       -----
<S>              <C>          <C>           <C>          <C>                <C>         <C>  
                 $5.50        5,300         5.87         $5.50              5,300       $5.50
                  1.50      320,000        13.69          1.50            320,000        1.50
                  1.25       62,500        14.54          1.25             62,500        1.25
                  1.19       50,000        13.64          1.19             50,000        1.19
</TABLE>
                                                      
            In connection with the initial public offering of the Company's
      securities in November 1993, the Company issued a total of 75,000 common
      stock purchase warrants to the underwriters of the securities. These
      warrants are exercisable over a four-year period which began in November
      1994 at $6.60 per share.

            In August 1994, the Company issued warrants to purchase 60,000
      shares of Mace Security International, Inc. common stock at $4.25 per
      share in connection with the purchase of certain assets of a business. The
      warrants are exercisable over a ten year period, expiring on August 24,
      2004.

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

12.   CONCENTRATION OF CREDIT RISK

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

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

13.   EMPLOYEE BENEFIT PLAN

            The Company maintains a voluntary 401(k) plan covering substantially
      all of its employees. Employees may contribute from 1% to 20% of their
      regular wages, up to the limit permitted by the Department of Labor. The
      Company matches 25% of each dollar contributed by employees up to 16% of
      their wages. The cost of the plan amounted to $28,354 and $30.573 in 1997
      and 1996, respectively.

14.   ACQUISITIONS AND SUBSIDIARIES

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

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


                                      F-15
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

14.  AQUISITIONS AND SUBSIDIARIES (Continued)

            Pro forma results of the MSP and MSPR acquisitions, assuming they
      had been made at the beginning of the periods presented, would not be
      materially different from the results reported.

            The excess of the purchase price over the fair values assigned to
      the assets acquired, approximating $207,000, is being amortized over 15
      years.

            In September 1997, the Company established Mace Security Centers,
      Inc.,a subsidiary corporation formed for the purpose of offering
      franchises for the operation of retail stores which will sell personal
      protection and security products. There has been no operating activity in
      this corporation through December 31, 1997.

15.   SEGMENT INFORMATION

            The Company operates in principally two industry segments: (1), the
      manufacture, distribution and sale of Mace(R) brand defense sprays and
      personal safety products to the civilian consumer market, "Consumer"; and
      (2), the manufacture, distribution and sale of tear gas grenades, defense
      sprays, projectiles and cartridges to law enforcement agencies, "Law
      Enforcement". The Law Enforcement segment represented 70.4% and 59% of
      sales for the Company in 1997 and 1996, respectively. Intersegment sales
      are not material and operating income represents total revenues less
      operating expenses. Identifiable assets are those assets employed in each
      segment's operation, including an allocated value to each segment of cost
      in excess of net assets acquired.

            Information concerning the Company's business segments in fiscal
      1997 and 1996 is as follows:

                                                    1997               1996
                                                ------------       ------------
NET SALES
 Consumer                                       $  2,912,964       $  4,437,020
 Law Enforcement                                   6,917,627          6,387,183
                                                ------------       ------------
    Total net sales                             $  9,830,591       $ 10,824,203
                                                ============       ============

OPERATING (LOSS) INCOME
  Consumer                                          (490,169)           252,739
  Law Enforcement                                 (1,197,422)          (505,457)
                                                ------------       ------------
     Total operating loss                       $ (1,687,591)      $   (252,718)
                                                ============       ============

IDENTIFIABLE ASSETS
  Consumer                                         3,273,180          3,953,740
  Law Enforcement                                  7,257,803          8,969,970
  Unallocated, corporate                           2,337,683(a)       1,198,880
                                                ------------       ------------
     Total assets                               $ 12,868,666       $ 14,122,590
                                                ============       ============

DEPRECIATION AND AMORTIZATION
  Consumer                                           263,554            266,854
  Law Enforcement                                    459,687            445,380
                                                ------------       ------------
    Total depreciation and amortization         $    723,241       $    712,234
                                                ============       ============

CAPITAL EXPENDITURES
   Consumer                                           78,508             41,563
   Law Enforcement                                   111,302            225,783
   Unallocated, corporate                             48,916             37,057
                                                ------------       ------------
     Total capital expenditures                 $    238,726       $    304,403
                                                ============       ============

----------
(a)   Approximately 50% of the assets not allocated to the operating segments
      relate to cash and cash equivalents held by the Company. The substantial
      portion of the remaining assets relates to corporate office furniture and
      equipment not specifically allocable among industry segments.


                                      F-16
<PAGE>

                        MACE SECURITY INTERNATIONAL, INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

15.   SEGMENT INFORMATION (Continued)

      The Company sells its products on a worldwide basis with its principal
      markets listed in the table below where information on export sales is
      summarized for 1997 and 1996 by geographic area for the Company as a
      whole:

                                                    1997                 1996
                                                 ----------           ----------
      GEOGRAPHIC AREA
         Central/South America                   $1,739,000           $1,356,000
         Middle East                              1,170,000              761,000
         Asia                                       213,000              660,000
         Canada                                     136,000              151,000
         Europe                                     126,000              137,000
         Other                                       58,000               92,000
                                                 ----------           ----------
          Total Export Sales                     $3,442,000           $3,157,000
                                                 ==========           ==========

16.      SUBSEQUENT EVENTS

      On April 2, 1998, the Company entered into a purchase agreement with Armor
Holdings, Inc. (AHI) for the sale of substantially all of the assets of the
Company's Law Enforcement division. The terms of the Agreement provide for
certain Law Enforcement division assets, including equipment and intangibles, to
be sold at December 31, 1997 book value, plus an additional amount of $200,000,
which the Company anticipates expending to transport assets to AHI. The purchase
price for these assets, inclusive of a license fee, will approximate $3,117,00.
The purchase price for inventory, which is subject to purchase and cost
adjustments between December 31, 1997 and the closing date, will be determined
based on the Company's standard costs at the date of closing. The Company will
retain its cash and accounts receivable from the Law Enforcement division,
approximating $2,000,000, and will retain responsibility for all Law Enforcement
division payables and other liabilities.

      The Company will also be paid a $650,000 license fee for AHI's use of the
Mace brand, related trademarks and patent use by AHI in the law enforcement
market only.

      The transaction is expected to close in June 1998.


                                      F-17