<PAGE>   1
 
================================================================================
 
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
 
                                   FORM 10-K
 
(MARK ONE)
      [X]        ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
 
                                       OR
 
      [ ]      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                         COMMISSION FILE NUMBER: 0-9463
 
                                  ULTRAK, INC.
             (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>                                            <C>
                  DELAWARE                                      75-2626358
        (State or other jurisdiction                         (I.R.S. Employer
      of incorporation or organization)                     Identification No.)
       1220 CHAMPION CIRCLE, SUITE 100
              CARROLLTON, TEXAS                                    75006
  (Address of principal executive offices)                      (Zip Code)
</TABLE>
 
       Registrant's telephone number, including area code: (972) 280-9675
 
        Securities registered pursuant to Section 12(b) of the Act: NONE
 
 Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
                                   PAR VALUE
 
     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-K is not contained herein, and will not be contained, to the
best of 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.  [ ]
 
     The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of February 28, 1997 was $219,915,000. As of that date,
14,083,656 shares of the Company's Common Stock were outstanding.
 
                      DOCUMENTS INCORPORATED BY REFERENCE:
 
                                      NONE
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                                     PART I
 
ITEM 1. BUSINESS
 
GENERAL
 
     Ultrak, Inc. (the "Company" or "Ultrak") is a leading supplier of
closed-circuit television ("CCTV"), access control and related products in the
United States, with a growing presence in international markets. The Company
designs, manufactures, markets and services CCTV, access control and related
products for use in security and surveillance, industrial, mobile video, traffic
management, dental and medical and other applications. Primarily by operating
through highly focused selling groups organized by target market and working
closely with customers to identify and develop products faster than its
competitors and acquiring products and companies that complement its objectives,
the Company has generated rapid growth, with sales increasing from $1.8 million
in 1987 to $136.6 million in 1996. Ultrak is one of the three largest suppliers
of CCTV and access control products in the United States, and its objective is
to become the world's leading supplier of such products.
 
     The Company was incorporated in Colorado in 1980 and reincorporated in
Delaware in December 1995. The Company's principal executive offices are located
at 1220 Champion Circle, Suite 100, Carrollton, Texas 75006 and its telephone
number is (972) 280-9675.
 
RECENT DEVELOPMENTS
 
     On March 11, 1997, the Company executed an agreement with Checkpoint
Systems, Inc. ("Checkpoint"), pursuant to which the Company has agreed to merge
with Checkpoint. Each share of Common Stock, $.01 par value ("Common Stock") of
the Company will be exchanged for 1.15 shares of Common Stock, $.10 par value of
Checkpoint. The consummation of the transaction is subject to customary
conditions such as shareholder approval and proper regulatory approvals and is
expected to close by June 30, 1997.
 
INDUSTRY BACKGROUND AND MARKETS SERVED
 
     CCTV is a system of relaying video and audio signals from a camera to a
monitor or a recording device. The term CCTV refers to a closed-circuit system
sending signals to select receivers compared to a system broadcasting signals to
the general public. While CCTV is mostly associated with crime detection and
prevention, CCTV applications have expanded well beyond security uses. For
example, CCTV is now used for industrial, mobile video, traffic management,
dental and medical applications and monitoring of infants and the infirm. CCTV
products are sold to distributors, installing dealers, mass merchants, specialty
retailers, systems integrators and governmental entities.
 
     The security and surveillance market segment is expanding primarily because
of the rapid rise in the cost of crime and the resulting desire of businesses
and consumers to protect their facilities, personnel and assets from loss, harm
and false liability claims. The 1996 national retail security survey performed
by the University of Florida indicated that 1995 retail inventory shrinkage rate
was 1.87% of total retail sales. Likewise, business and insurer costs for
employee and customer personal injury liability claims have increased
significantly. Moreover, the FBI's 1994 Uniform Crime Report stated that there
were approximately 2.7 million burglaries in the United States in 1994. CCTV is
an effective way to deter or record criminal activity such as employee theft,
shoplifting and burglary, and fraudulent "slip-and-fall" claims and other
property damage or destruction. Technological developments have increased the
use of CCTV systems for security and surveillance by expanding the capabilities
while reducing the costs of such systems.
 
     The use of CCTV systems for other applications also arises from the desire
of businesses or organizations to more closely monitor some form of activity. In
these applications, CCTV is used as a tool to observe or record precision,
remote or high speed activities. The development of smaller and better quality
cameras, higher definition monitors and more advanced accessories have helped
facilitate increased use of CCTV systems in a wide range of applications.
 
     Each of the major CCTV markets, as defined by the Company, is described
below.
 
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  Security and Surveillance
 
     The security and surveillance market consists of two major
segments -- professional and consumer.
 
     - Professional CCTV systems can be very simple or tremendously complex.
       While a convenience store might employ a system consisting of a single
       camera and monitor, an airport system would likely include hundreds of
       cameras, monitors and video recorders along with computer-based control
       equipment and video multiplexers. These systems are typically sold
       through professional distributors, dealers and systems integrators which
       specialize in the sale and installation of CCTV equipment. Professionally
       installed CCTV systems are used in retail stores, banks, warehouses,
       office buildings, industrial sites, government facilities, casinos,
       mines, airports, prisons and, increasingly, in private homes.
 
       The United States CCTV industry for security and surveillance is
       projected to have 1996 revenues of $2.4 billion at the end-user level,
       according to STAT Resources, most of which was generated through
       professional channels. This market is expected to grow by 11% annually
       through the year 2000, according to the same study. Another study,
       performed by Frost & Sullivan, a market intelligence firm, estimates an
       annual growth rate of 16% for the period from 1994 through the year 2001.
       CCTV suppliers are only now beginning to serve the residential market for
       professionally installed CCTV systems.
 
     - The consumer security and surveillance market segment consists of those
       applications in which end users purchase security and surveillance
       systems and install the systems themselves in their small businesses or
       homes. CCTV products sold into this market are characterized by
       affordability, aesthetically appealing designs, ease of installation and
       maintenance and mobility. The typical consumer market CCTV system
       consists of a camera, monitor, switcher and, optionally, a video
       recorder, which system can be wired or wireless. Consumer CCTV products
       are sold through mass merchandisers, wholesale clubs, electronic retail
       stores and office and juvenile product superstores, as well as through
       retail catalogs. According to the United States Census Bureau, there were
       approximately 5.1 million businesses with less than 100 employees and 95
       million households in the United States in 1993.
 
  Industrial
 
     CCTV cameras are used for machine vision, computer imaging, robotics,
high-speed inspection and monitoring of high-temperature furnaces. Cameras are
used in integrated circuit lead bonders, surface mount pick-and-place equipment,
automated assembly lines, bottling plants, nuclear reactors and steel mills.
CCTV-based machine vision offers more precise assessment than human visual
inspection, and can measure image parameters which are imperceptible to the
human eye. CCTV systems are also used to remotely monitor automated assembly
lines to ensure that each process on the assembly line is accurately and
completely performed.
 
     Cameras used in industrial applications face stringent resolution and speed
requirements. They must operate in poor and changing lighting situations and
hazardous environments. The types of cameras used in industrial environments
vary widely, depending on application. They range from miniature board-level
cameras with pinhole lenses and high image resolution levels to cameras mounted
in water-cooled steel enclosures. In this market, CCTV products are typically
purchased by systems integrators who assemble and sell equipment incorporating
vision to manufacturers who use the equipment in their production processes.
 
     New industrial applications are emerging as new equipment is developed and
as production automation levels increase. According to Frost & Sullivan, the
market for cameras for manufacturing applications is expected to grow at a
compound annual rate of 15% through 1999.
 
  Mobile Video
 
     The mobile video products market consists of CCTV systems for mass transit
vehicles, school buses, police and emergency vehicles and vehicles requiring
rear vision, such as airport courtesy buses. Through the
 
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use of CCTV products, the activities of those in or near mass transit vehicles,
school buses and police and emergency vehicles can be monitored and recorded.
Additional information, such as the speed of the vehicle and when brake, stop
and emergency warning lights are in use, can also be recorded. Rear-vision
mobile video products allow the driver of any large vehicle to see the activity
or obstacles at the rear of the vehicle. CCTV systems sold to the mobile video
products market typically consist of a high-resolution camera with built-in
microphone and a specially-designed rugged system housing and, optionally, a
monitor or video recorder.
 
     The public school bus market alone consists of over 400,000 buses,
according to School Transportation News, an industry publication. According to
the American Public Transit Association, there were approximately 67,500 public
transit vehicles in use in the United States in 1994, and the markets for police
and emergency vehicles are also sizeable, reflecting the increasing
opportunities for new applications for CCTV products.
 
  Traffic Management
 
     The traffic management market, consisting of governmental entities and
agencies, is a relatively new CCTV market in the United States. By installing
cameras on light poles, signal lights, buildings or other structures to monitor
critical intersections or stretches of highways, traffic control operators can
intervene from a central control room by modifying the sequence of traffic
lights, or by providing up-to-date traffic information through changeable
message signs and local radio stations. In the event of an accident, police and
emergency vehicles can be dispatched more quickly. CCTV systems also enable
transportation authorities to count vehicles on highways and at intersections,
important information necessary for long-term road-planning. As side benefits,
reductions in traffic congestion and delays reduce fuel consumption and improve
air quality. CCTV products can also be used to assist in determining
responsibility for traffic accidents and ensuring compliance with vehicle
licensing procedures.
 
  Dental and Medical
 
     The dental and medical market consists of intraoral CCTV cameras for the
dental market and medical vision applications, such as otoscopes for eardrum
examinations and cameras for microscopy, endoscopy, telemedicine and various
surgical applications.
 
     CCTV products assist dentists in diagnosing problems for patients and help
in explaining the proposed treatment to the patient, thereby increasing the rate
of patient acceptance of proposed treatments. By means of a video printer,
dentists can print pictures of the patient's teeth, providing documentation for
insurance and legal purposes, as well as for the dentist's patient file. The
primary dental target market for CCTV systems consists of the approximately
113,000 general dentistry practitioners, about 70% of whom currently do not own
an intraoral camera system, according to a survey conducted for Dental Products
Report in 1995. According to the same survey, 53% of the surveyed dentists have
considered or are considering buying an intraoral camera.
 
     Telemedicine is an emerging CCTV application that allows doctors to study
images over long distances using regular telephone or cellular phone lines,
microwave signals and even satellite links to examine patients in ambulances and
instruct paramedics on emergency treatment. Rural areas with few hospitals can
also benefit from telemedicine by bringing patient and specialist together
through video link. Frost & Sullivan has estimated that the market for cameras
in medical applications will grow at a compound annual growth rate of 13%
through 1999.
 
  Other Markets
 
     Other emerging markets and applications for products used in conjunction
with CCTV include:
 
     - Electronic Article Surveillance ("EAS") -- a theft-prevention system used
       in retail stores. When the EAS system triggers an alarm, a CCTV camera
       automatically records the shoplifter leaving the store with the stolen
       goods.
 
     - Access control systems -- computer-controlled systems which
       electronically activate door locks. When an individual enters a pass code
       or swipes a card through an entry device mounted near the door, a
 
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       CCTV camera activates and records the person. CCTV systems are often used
       with access control systems to monitor individuals entering or leaving a
       facility and to provide a video record of alarm events generated by the
       access control system. The systems are used primarily at commercial
       facilities because they provide a much higher level of physical security
       and management control than traditional keys and mechanical door locks.
 
     - Radar systems used to record vehicle speeds -- systems that can be
       combined with police CCTV systems. When the radar detects a speeding
       vehicle, the video system automatically activates to record the speeding
       vehicle.
 
  International
 
     The Company believes that the international potential for CCTV, access
control and related products is at least equal to the U.S. market. In general,
the same types of products are used worldwide. Acceptance and penetration levels
of CCTV products vary depending on the market and application. In Japan and
Western Europe, the CCTV market currently consists primarily of high-end
systems; therefore, the current limited use of simpler consumer and
small-business applications offers future growth potential. In other
international markets, the CCTV market is largely underdeveloped, providing
growth opportunities in a wide range of applications.
 
     The European market for CCTV and access control products is fragmented and
highly competitive. There are many small and mid-sized suppliers in each
country, many of which are limited in their growth potential because they cannot
offer the right product mix, or because they do not have the resources to expand
into other countries. Given these limitations, certain of these companies may
pursue joint ventures or business combinations as a way to expand their future
growth potential. According to a 1994 study performed by Frost & Sullivan, the
European CCTV market was $940 million in 1992, with a projected annual growth
rate of 14% through 1997.
 
     The Japanese CCTV and access control markets are expanding. The market is
dominated by large Japanese companies such as Panasonic, Mitsubishi, Ikegami and
others who sell directly or reach installing dealers through their own
distributors.
 
STRATEGY
 
     Ultrak's objective is to become the world leader in the design,
manufacture, marketing and service of CCTV, access control and related products.
This objective includes the development, through internal growth and
acquisitions, of a comprehensive line of technologically advanced CCTV and
access control products and a worldwide marketing organization that can quickly
and efficiently bring such products to market. The Company seeks to achieve this
objective through the following strategies:
 
     Highly focused sales and marketing. The Company operates through focused
selling groups organized by target market. The Company believes that this
focused approach permits the selling groups to respond more quickly to customer
needs, identify and pursue market opportunities, achieve better market
penetration and increase market share. As the Company enters into new markets
for its existing and new products, new selling groups are created or acquired to
address these new markets, leveraging the Company's corporate infrastructure.
See "-- Marketing and Sales."
 
     Customer-driven product development. The Company's highly focused sales and
marketing strategy allows the selling groups to work closely with customers to
understand their needs. Based on the information collected by the selling
groups, the Company's engineering staff, working independently and with the
engineering staffs of the Company's contract manufacturers, identifies and
develops new products that will satisfy these needs. Ultrak believes that this
method has enabled it to develop innovative products responsive to customer
needs faster than its competitors. See "-- Product Design and Development."
 
     Cost-effective product design and production. The Company utilizes contract
manufacturers to augment its product design efforts and to cost-effectively
manufacture products. The CCTV and access control industry is characterized by
technological change and, to remain competitive, the ability to develop and
manufacture
 
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cost-effective products is vital. The Company believes that, by relying on
contract manufacturers to produce most of its products, it is able to avoid
significant capital expenditures for manufacturing equipment, gain access to
technologically advanced production equipment, take advantage of the engineering
resources of its contract manufacturers and concentrate its resources on
engineering, marketing and sales. See "-- Product Design and Development."
 
     Delivery of innovative, value-oriented products. Ultrak seeks to provide
innovative products that offer a strong price-value relationship to its
customers. The Company endeavors to offer products that deliver greater or
differentiated operating features at highly competitive prices. The Company's
strategy of selling through multiple distribution channels results in increased
sales of its products, thereby lowering unit production costs. See
"-- Products."
 
     Growth through acquisitions. The Company anticipates that it will continue
to complement its internal growth, both in number of products and distribution
channels, through acquisitions. The Company has found that acquisitions are an
effective means of adding experienced personnel and obtaining or expanding
technologies, products and markets. In 1996, the Company completed acquisitions
and made a minority investment in one company, adding products to broaden its
product offerings and providing entry into new target geographic and customer
markets. The Company continues to evaluate opportunities for acquisitions or
joint ventures. See "-- Acquisitions."
 
     Expansion of international sales. The Company is aggressively pursuing
international opportunities for its products. The Company began its
international marketing effort in 1995 and has significantly expanded its
international presence through the recent acquisitions of MAXPRO Systems Pty.
Ltd. ("MAXPRO")(Australia), Groupe Bisset, s.a. ("Bisset") (France), VideV GmbH
("VideV") (Germany) and Intervision Express Limited ("Intervision") (England)
and a pending acquisition in Italy. The Company believes that, based on the
results of these initial efforts, the international potential for its products
is substantial in regards to efficient distribution, marketing, profitability
and new product introduction. See "-- Marketing and Sales."
 
ACQUISITIONS
 
     Acquisitions have contributed significantly to the Company's recent growth.
The Company believes that acquisitions are an effective way to obtain new CCTV,
access control and related products and technologies, add experienced personnel,
access additional channels of distribution, expand into new geographic
territories, diversify its customer base and improve operating efficiencies
through economies of scale. The Company believes that the CCTV industry is in
the process of consolidating, which should present additional opportunities for
growth through acquisitions. During 1995, the Company completed three
acquisitions, during 1996 the Company has completed three acquisitions, made a
minority investment in one company and executed a definitive agreement on
another and thus far in 1997 the Company completed two acquisitions and executed
a definitive agreement on another.
 
  1995 Acquisitions -- Koyo, Diamond and GPS
 
     In March 1995, Ultrak acquired certain assets of the CCTV division of Koyo
International, Inc. of America ("Koyo"), adding the patented ball camera, which
is ideal for museum, residential and high-end commercial installations and
offers a high level of performance and installation simplicity. In July 1995,
Ultrak acquired Diamond Electronics, Inc. ("Diamond"), a manufacturer of
commercial video CCTV security and surveillance systems used by large retailers
and municipalities and of viewing systems used by industry in hazardous
settings. The acquisition of Diamond added industrial viewing equipment and high
speed dome-mounted camera systems. In November 1995, Ultrak acquired G.P.S.
Standard U.S.A. ("GPS"), adding a complete range of advanced CCTV accessories,
including camera housings, mounting brackets, camera pan-and-tilt mechanisms,
perimeter protection systems and software-driven camera control systems. Diamond
was acquired for $3.8 million in Common Stock and Koyo and GPS were acquired for
aggregate consideration of approximately $1.5 million in cash and Common Stock.
Diamond's net sales during its last full fiscal year prior to the acquisition
were approximately $11.8 million and Koyo's and GPS's net sales prior to their
acquisitions were immaterial.
 
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  MAXPRO
 
     Effective July 1, 1996, Ultrak acquired approximately 75% of the
outstanding stock of MAXPRO in exchange for approximately $8.2 million in cash,
plus deferred consideration payable in restricted Common Stock with a minimum
value of $900,000 payable over a two-year period ending August 1, 1998. On
February 17, 1997, the Company acquired the remainder of the outstanding stock
of MAXPRO for 175,000 shares of restricted Common Stock. MAXPRO, a manufacturer
and distributor of CCTV products based in Perth, Western Australia, adds large
scale CCTV switching systems to the Company's product line and enables the
Company to enter several new target geographic and customer markets. MAXPRO's
CCTV switching systems consist of sophisticated, matrix video switching software
that is coupled to a computer-controlled security input and output network. The
systems allow a virtually unlimited number of input and output devices,
including cameras, domes, VCRs and access control devices, to work together
seamlessly. MAXPRO's systems are the base component of large CCTV systems, and
the acquisition should provide Ultrak with enhanced opportunities for additional
sales of peripherals such as domes, computer-based control equipment and
accessories manufactured by Diamond. MAXPRO's CCTV systems are installed
worldwide in casinos, airports, mines, nuclear power plants, prisons, military
bases, office buildings and city surveillance systems. The three founders of
MAXPRO active in its operations have entered into employment agreements with
MAXPRO whereby they will remain actively involved in its day-to-day operations.
 
     MAXPRO established a U.S. sales office in Las Vegas in February 1996 and,
since the close of the acquisition, this office, working with Ultrak selling
groups, has sold integrated Ultrak CCTV systems to several customers including
Harrah's Casino in Las Vegas. MAXPRO's installation sites include London's
Heathrow Airport, the Singapore Airport, major casinos in Australia including
the Sydney Harbour Casino, downtown streets in the city of Perth, prisons and
one of the world's largest diamond mines. In addition, MAXPRO has installations
in Indonesia, Ireland, Malaysia, New Zealand, Thailand, Taiwan and South Africa.
The product has applications in any industry that requires surveillance
utilizing video or alarm monitoring.
 
     MAXPRO's net sales were approximately $8.0 million for its fiscal year
ended June 30, 1996.
 
  Bisset
 
     In September 1996, Ultrak acquired all of the outstanding share capital of
Bisset, based in Paris and one of France's largest distributors of CCTV
products, for $5.0 million in cash, 289,855 shares of restricted Common Stock,
$2.5 million in deferred consideration payable in cash and restricted Common
Stock and up to an additional $2.5 million payable in cash and restricted Common
Stock, if certain pre-tax income levels are attained by Bisset over a one-year
period beginning July 1, 1996. Bisset distributes products from manufacturers
such as Diamond, Mitsubishi, Samsung, Sanyo, Ikegami and Pentax. It sells to
installing dealers and systems integrators and provides technical support and
full warranty repair and service. Bisset also designs, markets and sells audio
equipment including mixers, equalizers, speakers and public address equipment
under its own brand, BST, for the professional audio market. Bisset provides the
Company with a prominent entry into the strategically important French market
and provides the Company with expanded sales opportunities in Western Europe.
The two former owners of Bisset active in its operations have entered into
employment agreements with Bisset whereby they will remain actively involved in
its day-to-day operations.
 
     Bisset's net sales were approximately $17.8 million for the year ended
December 31, 1995.
 
  Lenel
 
     In September 1996, Ultrak acquired approximately 24% of the outstanding
stock of Lenel Systems International, Inc. ("Lenel"), a privately-held software
company specializing in security access control based in Fairport, New York, for
$2.6 million in cash. Additionally, Ultrak received a warrant that enables it to
increase its equity ownership in Lenel over time and signed a reseller agreement
with Lenel whereby Ultrak is a worldwide reseller of Lenel's products (excluding
Norway and Sweden). Ultrak also has a right of first refusal with respect to the
stock of Lenel's founders and has the right to designate one director of Lenel
(and one additional director for each five additional directors serving on
Lenel's Board of Directors). Lenel's flagship product, OnGuard Plus, is an
integrated multimedia security system, offering identification manage-
 
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ment, access control and alarm monitoring. The software, which runs on Windows,
Windows 95 and Windows NT platforms, provides advanced security and facility
management via open systems architecture, flexibility, modularity and an easy to
use Graphical User Interface (GUI). The investment in Lenel and the reseller
agreement with Lenel demonstrate the Company's implementation of its strategy to
add access control products to its CCTV security and surveillance systems. Lenel
sells its products to installing security dealers and systems integrators.
Installation sites include Yale University, the University of Rochester and the
Bank of Norway. The two founders of Lenel have entered into employment
agreements with Lenel whereby they will remain actively involved in its
day-to-day operations.
 
     Lenel's net sales were $1.5 million for the year ended December 31, 1996.
The Company accounts for its investment in Lenel using the equity method.
 
  VideV
 
     In December 1996, the Company acquired all of the outstanding share capital
of VideV, based in Dusseldorf and one of Germany's largest distributors of CCTV
products, for 4,000,000 Deutsche Marks ($2.7 million U.S. Dollars) in cash,
2,000,000 Deutsche Marks ($1.3 million U.S. Dollars) in deferred consideration
payable in cash and restricted Common Stock and up to an additional 2,000,000
Deutsche Marks payable in cash and restricted Common Stock if certain pre-tax
income levels are attained over the one-year period ending December 31, 1997.
VideV designs and distributes its own line of CCTV products under the brand name
VideV Systems and also distributes products from manufacturers such as Costar,
Grundig, HiSharp and Ikegami. VideV sells primarily to installing dealers and
systems integrators. The acquisition of VideV provides the Company with a
significant entry into Germany's CCTV market and increases the Company's overall
presence in Western Europe.
 
     VideV's net sales were approximately $13.0 million for the year ended
December 31, 1995.
 
  Intervision
 
     In February 1997, the Company acquired all of the outstanding share capital
of Intervision, based in Preston, England (near Manchester), a distributor of
CCTV products for 500,000 British Pounds ($814,000 U.S. Dollars) in promissory
notes and 38,882 shares of restricted Common Stock (valued at $700,000).
Intervision sells primarily to small- and medium-sized installing dealers and
systems integrators. Intervision distributes products from manufacturers such as
Dedicated Micros, Toa, Hitachi and Mitsubishi. The acquisition of Intervision
gives the Company a presence in the United Kingdom market and continues the
expansion of its European operations.
 
     Intervision's net sales were approximately $7.4 million for the year ended
December 31, 1996.
 
  Monitor Dynamics
 
     In February 1997, the Company acquired Monitor Dynamics, Inc. ("MDI"),
based in Rancho Cucamonga, California, which designs, manufactures, markets and
sells high-end security and access control systems for $25 million and
additional consideration based on the shareholders' equity of MDI as of March
31, 1997. MDI's computer-based integrated security and access control systems
are sold under the SAFEnet brandname and are used in very high-end government,
defense, industrial, financial and commercial applications throughout the United
States and Europe. MDI's systems are sold primarily through dealers and systems
integrators.
 
     MDI's net sales are estimated to be approximately $13.8 million for its
fiscal year ending March 31, 1997.
 
  Veravision
 
     In December 1996, the Company agreed to acquire all of the outstanding
shares of capital stock of Veravision, Inc. ("Veravision"), based in San
Clemente, California, which manufactures intra-oral camera products for use
primarily in the dental market, for $150,000 in promissory notes, assumed debt
of $1,500,000 and 10% of the outstanding shares of capital stock of Dental
Vision Direct, Inc., a wholly owned subsidiary of
 
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the Company, which are convertible into shares of restricted Common Stock using
a formula set forth in the definitive agreement. The effective date of the
acquisition for accounting purposes will be February 1, 1997.
 
     Veravision's net sales were approximately $1,800,000 for the year ended
December 31, 1996.
 
  Videosys Group
 
     On March 8, 1997, the Company executed a definitive agreement to acquire
Casarotto Security, SpA, and Videosys Limited (collectively, the "Videosys
Group") for total consideration of $9.55 million consisting of $5.55 million in
cash and $4 million in shares of restricted Common Stock. The transaction is
expected to close by April 4, 1997. The Videosys Group designs, imports and
distributes CCTV and related security products primarily in Italy, under the
Videosys brand name. The Videosys Group sells primarily to installing dealers
and systems integrators. The acquisition of the Videosys Group will provide the
Company with a significant presence into Italy's CCTV market.
 
     The Videosys Group's net sales were approximately $14.2 million for the
year ended December 31, 1996.
 
MARKETING AND SALES
 
     Ultrak operates through highly focused selling groups organized according
to Ultrak's target markets: security and surveillance, industrial, mobile video,
traffic management and dental and medical applications. Ultrak's
customer-focused structure allows for individual attention to each target
market, quick response to customer needs and early identification of market
requirements and new product ideas. Generally, the Company reaches each target
market through regional sales professionals supported by telemarketing,
catalogs, direct mail, magazine advertising and industry trade shows.
 
     The Company uses different brand names for products sold through each of
its selling groups to maximize market penetration of each selling group, to
minimize market channel conflicts and to differentiate products by features,
applications and price. The Company's brand names include Ultrak, Exxis, Smart
Choice, Mobile Video Products, Diamond Electronics, Industrial Vision Source,
MAXPRO, BST, VideV Euroline, Point Guard, BabyCam, EasyWatch, SAFEnet and
UltraCam. Approximately 82% of the products sold by the Company in 1996 carried
Ultrak brand names. The Company also sells brands such as Panasonic, Mitsubishi,
Dedicated Micros and Sony.
 
     The professional security and surveillance customer market consists of
three tiers: wholesale distributors of CCTV equipment, dealers and systems
integrators who install systems and certain end users. Ultrak has historically
maintained three distinct selling groups that target these markets. As a result
of its expanding product line and desire to minimize potential future channel
conflicts, the Company combined three selling groups into one consolidated
selling group in January 1997 restricting new sales to distributors, dealers and
systems integrators. Management believes that streamlining the manner in which
it serves the professional security market will result in operating efficiencies
and stronger relationships with installing dealers and systems integrators. The
professional security and surveillance market is Ultrak's largest market.
 
     The Company continually attempts to develop services and marketing tools to
enhance the efforts of each of its marketing personnel. For example, as part of
its customer-driven sales approach, Ultrak has designed and developed its CCTV
Designer(TM) software, a new software system that allows Ultrak's installing
dealers to design complex CCTV systems with very little technical knowledge.
This proprietary system capitalizes on Ultrak's technical knowledge and improves
the efficiency of the selling process. Once an installing dealer has used the
CCTV Designer software, the dealer places a call to Ultrak's host computer which
configures the system using Ultrak components. In addition, Ultrak arranges
third party leasing services for its business customers. The ability to present
leasing as an option to customers is an important selling tool -- it makes the
equipment more affordable, helps close sales and enables the customer to
maintain the most up-to-date equipment and the newest CCTV technology.
 
                                        9
<PAGE>   10
 
     In the consumer security and surveillance market, Ultrak helped pioneer the
retailing of CCTV equipment for sale directly to the consumer. The Company
addresses this market by offering video observation kits (both wired and
wireless) designed and packaged specifically for small business and residential
applications. These products are sold under the Exxis label at Sam's Wholesale
Clubs and under the Smart Choice and other labels elsewhere. The Company was the
first to introduce wireless CCTV systems for sale to the consumer market; these
products are sold under the BabyCam trademark to the juvenile products market,
and under the EasyWatch(TM) trademark to the general surveillance market. Uses
of the EasyWatch system include the remote monitoring of reception areas in
small businesses, entranceways and pool areas, and "keeping an eye on" the
infirm. Retailers offering Ultrak products to consumers include wholesale clubs,
mass retailers, office product superstores and electronics superstores. The
consumer security and surveillance market is Ultrak's second largest market.
 
     Ultrak sells products to the industrial market through its Industrial
Vision Source group. Sales to this market are made primarily to systems
integrators, primarily through telemarketing, field visits and direct mail. As a
division of Ultrak, Industrial Vision Source benefits from Ultrak's engineering
support and purchasing power, which provides an advantage over its known
competitors in this market. With the backing of its engineering staff, the
Company provides custom camera solutions for OEM applications. The Company
maintains a large inventory of products on hand, allowing it to ship most
products within 24 hours of receipt of the order, resulting in high customer
satisfaction.
 
     Sales to the mobile video market are made by Ultrak's Mobile Video Products
group. The Company primarily markets its products in this market through a
network of dealers that target customers, including school districts, police and
fire departments and other owners of fleets of transportation vehicles. During
1995, Ultrak developed a special line of transit bus observation systems that
allow up to four cameras to be recorded onto one tape by means of a multiplexer.
During 1995, Ultrak purchased United States Patent No. 5,319,394 covering
"Systems for Recording and Modifying Behavior of Passenger [sic] in Passenger
Vehicles." Ultrak is now licensing this patent to other manufacturers of school
and transit bus video systems, and believes it has become a leader in the market
covered by the patent.
 
     Ultrak targets the traffic management market through Diamond. Diamond
markets its traffic management products primarily through direct marketing to
governmental entities and systems integrators. For example, Diamond sold its
CCTV domes directly to the city of Columbus, Ohio for installation at major
intersections. Diamond also sold a system to Montgomery County, Maryland, which
uses the Company's domes to monitor traffic; scenes recorded by these domes can
be viewed by county residents on a special cable TV channel.
 
     Ultrak markets its UltraCam intraoral camera to dentists through an
extensive dealer network. These dealers specialize in products for the dental
market. The Company believes that this method allows it to maximize sales growth
with a minimum of overhead, and views this network as a competitive advantage
since most of the Company's competitors in this market have direct sales forces.
Additionally, the Company believes that UltraCam is the market leader in
intraoral camera systems for dental offices with more than one treatment room.
 
     Ultrak began actively pursuing the international market in 1995. In 1995
and early 1996, Ultrak sold its products in a number of countries including
Mexico, Brazil, Argentina, England, France, Germany, Denmark, India, China,
South Korea, Japan, The Philippines and Australia. The Company believes that the
international potential for its products is at least equal to the United States
market. In late 1995, the Company created a separate selling group to focus on
the Far Eastern markets. Other international markets are reached through the
efforts of the existing domestic selling groups. Since the second quarter of
1996, the Company acquired MAXPRO, Bisset, VideV and Intervision and signed a
definitive agreement with Casarotto Security, which have and will continue to
substantially expand the Company's presence internationally.
 
PRODUCT DESIGN AND DEVELOPMENT
 
     Ultrak's engineering and product development staff works directly with its
customers to design new products and product enhancements, and coordinates with
its contract suppliers to manufacture certain Ultrak
 
                                       10
<PAGE>   11
 
branded products. Ultrak has developed a highly competent engineering staff to
work with its selling and marketing groups to develop new products and product
line extensions that promptly respond to customer needs. As a result, Ultrak
believes that it can develop technologically superior products with
customer-desired performance capabilities that address new applications at lower
prices than competitive products.
 
The Company believes that one of the major accomplishments of the engineering
and development group has been the recent design and development of the DAVE
Technology(TM) (Duplex Analog Video Encoding) technology, a system designed to
provide complete, continuous video coverage of large areas by employing a large
array of cameras connected to a single loop of coaxial cable. DAVE is targeted
for sale to large retailers and other end users who require extensive
surveillance systems. Management expects commercial installations of DAVE
products to commence in the second quarter of 1997.
 
     Diamond announced the development of the SmartScan III system in the third
quarter of 1996, a major upgrade of its high speed pan & tilt dome system. The
SmartScan III system, which fits into 6" or 9" dome housings, is substantially
faster and quieter than Diamond's current surveillance systems because it is
smaller and has been developed with a unique mechanical design. The Company
believes it is the fastest system currently available on the market. Management
expects SmartScan III to be available for commercial installation by the second
quarter of 1997.
 
     Developed by MAXPRO's engineering group, the MAX-1000 CCTV management
system was first introduced in 1988. In order to ensure that the highest
functionality can be realized from new technologies in peripheral equipment, the
development of the MAX-1000 is ongoing. New hardware is developed and introduced
every year, and the software is now in its fourth generation.
 
     Bisset designs the audio equipment it sells under the BST brand name. The
equipment is manufactured in the Far East by contract manufacturers. Bisset
endeavors to offer the most innovative products with the newest features
available in the French audio market. Bisset's product design and development
efforts are currently focused on expanding its product offering for the public
address (PA) market, a market that is synergistic with the CCTV market because
it is often the same dealer who installs the CCTV and PA systems.
 
     As of December 31, 1996, the Company had a full-time engineering staff of
59 employees compared to four as of December 31, 1994. Because of the complex
and highly specialized requirements of Ultrak products, these employees are
experienced in a wide range of engineering disciplines including charged-couple
device ("CCD") technology, analog and digital signal processing and systems
integration. In addition, the Company's primary international contract
manufacturer employs a number of engineers who are primarily dedicated to
research and development efforts of products sold by Ultrak.
 
PRODUCTS
 
     The Company's motto, "Quality Products That Make a Difference," summarizes
the Company's strategy of developing technologically advanced and cost-effective
products that are unique and solve customers' specific needs or problems.
Through in-house product development, and with the product lines the Company
obtained through acquisitions, Ultrak offers a broad line of Ultrak branded CCTV
products. The Company's brand names include Ultrak, Exxis, Smart Choice, Mobile
Video Products, Diamond Electronics, Industrial Vision Source, MAXPRO, BST,
VideV Euroline, Point Guard, BabyCam, EasyWatch, SAFEnet and UltraCam. The
Company also sells brands such as Panasonic, Mitsubishi, Dedicated Micros and
Sony. The Company's net sales of products bearing Ultrak brand names were 70%
and 82% in 1995 and 1996, respectively.
 
     The Company's CCTV products include a broad line of cameras, lenses,
high-speed dome systems, monitors, time-lapse recorders, multiplexers, quad
processors, switchers, wireless video transmission systems, computerized
observation and security systems, control matrix switching systems and
accessories. Other products include access control systems, electronic article
surveillance systems, patient education systems and professional audio products.
 
                                       11
<PAGE>   12
 
     Ultrak's CCTV and access control product categories can generally be
divided into components and systems, and include the following:
 
  Components
 
     Cameras. Today's cameras all use CCD's, a type of integrated circuit, to
sense emitted light. Ultrak sells a complete line of general purpose cameras
sold under several brand names, including a patented ball camera which was made
available by the 1995 acquisition of Koyo's CCTV division, as well as covert
cameras. Specialized camera features include color imaging, low-light
sensitivity, high resolution, back light compensation and miniature size.
 
     Lenses. Much like high-grade photographic cameras, most CCTV cameras are
not sold with a lens installed. Users select from an array of fixed focal length
and zoom lenses to fit their application. Some lenses include motors to operate
the zoom feature by remote control. Ultrak offers lenses from all major lens
manufacturers.
 
     Camera housings. Camera housings protect cameras from tampering, dust,
dirt, water, extreme temperature and other hazards of the environment. Ultrak
offers a complete line of Ultrak brand housings and mounting hardware, including
a line of unique, low-cost housings made from a new polymer compound called
UltraDur(TM).
 
     Pan-and-Tilts. "Pan-and-tilts" are motorized robotic devices which support
a CCTV camera and allow it to be pointed by remote control. Typically, a
pan-and-tilt device can move a camera at a rate of up to 60 degrees per second.
Ultrak acquired its own line of pan-and-tilt products, including control
systems, with the acquisitions of GPS and Diamond.
 
     Domes. A dome is a camera enclosure shaped like a sphere. Typically, the
dome includes a pan-and-tilt mechanism as described above. Some domes, such as
those manufactured by Diamond, include fast, compact pan-and-tilt mechanisms
which can move cameras very rapidly -- pan speeds of up to 125 degrees per
second and tilt speeds of up to 60 degrees per second. Ultrak's domes are
available in four different finishes (clear, smoked, silver and gold) and are
frequently used in retail stores and highway systems.
 
     Monitors. Ultrak offers black-and-white and color video monitors with
screen sizes ranging from 9 inches to 32 inches. Professional-grade CCTV
monitors typically offer higher resolution than basic television sets.
 
     Video recorders. Professional grade VCRs offer much longer useful lives
than their consumer equivalents. Longer recording times are achieved by
recording fewer pictures per second than standard television consumer recorders.
In addition to offering its own recorders, the Company markets and sells
Mitsubishi recorders based on a long-term strategic partnership arrangement with
Mitsubishi.
 
     Multiplexers. Video multiplexers allow the images from multiple cameras to
be recorded on a single video tape; most units also control the display of
multiple pictures on a single monitor. During playback, the multiplexer ensures
that only images from the desired cameras are displayed. Most multiplexers can
accept input from up to 16 cameras. Ultrak offers multiplexers from all major
manufacturers.
 
     Quad processors. Quad processors "split" the monitor's image into four
"windows," each capable of displaying an image from a different camera. Quads
are an economical solution to the problem of viewing and recording multiple
cameras in relatively small systems. In early 1996, Ultrak introduced a family
of new quad observation systems, which Ultrak believes offers superior
performance at lower cost.
 
     Switchers. Video switchers allow the input to a monitor or video recorder
to be selected from one of many cameras. Small switchers are the most economical
way to route the images from multiple cameras to a monitor but have the
disadvantage, unlike quad processors and multiplexers, of only displaying one
image at a time. Sophisticated switchers are used in very large systems that
eclipse the capacity of multiplexers and quad processors. Ultrak offers a line
of competitive switchers, as well as large switchers as part of integrated dome
systems.
 
                                       12
<PAGE>   13
 
     Illuminators. Ultrak offers both LED and infrared illuminators that allow
cameras to "see" in complete darkness. Such systems are ideal for the covert use
of CCTV at night and in areas where light is not desired, such as in hospital
patient rooms.
 
  Systems
 
     Control Matrix Video Systems. The acquisition of MAXPRO added sophisticated
computer-controlled matrix video switching systems to the Company's product
line. MAXPRO's CCTV switching systems consist of sophisticated, matrix video
switching software that is coupled to a computer-controlled security input and
output network. The systems allow a virtually unlimited number of output
devices, including cameras, domes, VCRs and access control devices, to work
together seamlessly.
 
     DAVE Technology(TM) system. In the Company's view, its DAVE Technology(TM)
represents a significant innovation in CCTV design. Products based on the DAVE
Technology allow many cameras to be connected to a single coaxial cable, thereby
significantly reducing the installation cost of large CCTV systems. DAVE
products also offer a significant reduction in the cost of the control and
display equipment for large systems as compared to standard multiplexer
technology. Management expects commercial installations of DAVE products to
commence in the second quarter of 1997.
 
     Access Control Systems. The acquisition of MDI, the investment in Lenel and
the development of the PointGuard(TM) System has provided the Company with a
broad line of software and hardware for security access control systems that
offers features such as multimedia identification management, access control and
alarm monitoring. All three systems provide advanced security and facility
management via open systems architecture, flexibility, modularity and easy to
use Graphical User Interface (GUI).
 
     Video transmission systems. Video transmission systems allow pictures from
CCTV systems to be transmitted over great distance through telephone lines. Such
systems are useful to verify the cause of alarms at remote locations and for
general surveillance of unmanned and high-value facilities. Ultrak currently
sells video transmission systems manufactured by several suppliers.
 
     VisiTrak(TM) system. The VisiTrak system is one of a new generation of
computer-based control systems entering the market. The VisiTrak system
automatically commands a remote pan-and-tilt camera to lock on and follow a
moving object within a spotter camera's view.
 
     Intraoral camera systems. Ultrak's intraoral camera systems, sold under the
UltraCam trademark, consist of a miniature camera mounted in a wand, a color
video monitor, a color video printer and a mobile cart. Ultrak's UltraCam
intraoral camera is one of the most advanced and complete vision systems in the
dental market. The system can easily be expanded to cover dental offices with
multiple treatment rooms.
 
     Video observation systems. A video observation system typically consists of
one or more cameras and a monitor with built-in switcher or quad, sold together
as an easy-to-install kit system.
 
     Wireless observation systems. Ultrak's wireless observation systems, sold
under the BabyCam and EasyWatch trademarks, consist of a small camera with a
built-in microphone that transmits image and sound to a lightweight, portable
monitor.
 
     School and transit bus observation systems. These observation systems,
designed specifically to meet the needs of the passenger transportation market,
typically consist of one or more rugged cameras, a video recorder to record the
activity and a heavy gauge steel housing for the VCR.
 
     RearVision(TM) system. Ultrak's RearVision system consists of a small,
rugged camera that can be mounted on the back of any large vehicle, and a small
monitor mounted on the dashboard of the vehicle.
 
  Other
 
     Patient education system. Ultrak offers a CD-based patient education system
(UltraView(TM)) that is marketed and sold to dentists along with the intraoral
camera system. It allows patients to learn about various dental related topics
while waiting for the dentist or hygienist.
 
                                       13
<PAGE>   14
 
     Audio Products. The acquisition of Bisset provided the addition of a line
of audio products including mixers, equalizers, speakers and public address
equipment under Bisset's own brand, BST, for the professional audio market.
 
OPERATIONS
 
     Through the use of non-affiliated contract manufacturers that manufacture
most of its branded products, the Company is able to focus its efforts on
design, engineering, product development, sales and marketing and customer
service. The Company purchases products from suppliers in the United States and
imports other products from contract manufacturers in South Korea, Japan,
England, Hong Kong, Taiwan and China. The Company has exclusive and
non-exclusive sales and marketing rights for certain of the CCTV products it
sells, including certain CCTV cameras and systems manufactured in Japan and
South Korea. The Company believes that its relationships with its suppliers are
good. In most of these relationships, the Company believes that the relationship
is as important to the supplier as it is to the Company. Thus, the Company
believes that there is a strong, mutually advantageous basis for the trading
relationship to continue and grow.
 
     Delivery times for products imported into the United States vary from one
week to two months, depending on the mode of transportation. Because of foreign
production lead times, the Company normally makes purchase commitments to these
foreign suppliers three to six months in advance of shipment. Therefore,
management believes it is necessary for the Company to commit to and carry
larger levels of inventory than would be necessary if it used only domestic
suppliers. Given order lead times, accurate inventory forecasting is critical.
 
     Substantially all of the Company's purchases from its non-affiliated
manufacturers are made in United States dollars with the remaining purchases
made in Japanese yen and English pounds. To date, the Company has not been
materially adversely affected by fluctuations in the valuation of the yen or
pound. It is expected that the Company will continue to purchase the vast
majority of its products in United States dollars.
 
     A critical element of the Company's domestic operations is its management
information systems. The systems include sales order, materials requirements
planning (MRP) and accounting applications. Substantially all inventory,
accounts receivable, purchasing, payroll and other corporate business functions
are controlled through this integrated computer system located in its
Carrollton, Texas headquarters. All domestic sales locations are linked real
time through a nationwide network which allows for orders to be entered and
shipped from multiple locations.
 
     Ultrak believes that one of the keys to its success is its commitment to
provide excellent response and service to its customers. Domestic orders can be
entered into the Company's Carrollton, Texas-based computer system either
directly by the customer through electronic data interchange, by traveling sales
representatives using laptop computers or by in-house sales personnel. After the
computer system performs an automated check of the customer's account and credit
limit, the order is released to be shipped from available inventory at one of
the six domestic stocking warehouse locations. Because the Company maintains a
relatively large inventory of products, it ships most items within 24 hours of
receipt of the order. The Company's domestic stocking warehouse locations are
Carrollton (Dallas), Texas; Broomfield (Denver), Colorado; Annapolis, Maryland;
Poway (San Diego), California; and Carroll (Columbus), Ohio. Approximately 85%
of all domestic shipments are made from the Carrollton, Texas warehouse.
 
     To ensure complete customer service and satisfaction, Ultrak offers third
party leasing services and after-sale service for all equipment sold by the
Company.
 
     Ultrak offers a limited warranty on all products shipped. The Company
generally warrants that its products will conform with Ultrak's published
specifications and be free from defects in materials and workmanship. For
products sold under the Ultrak name, the Company offers a two-year warranty on
cameras, most monitors, observation systems and quad processors. For all other
Ultrak equipment, a warranty of one year is offered. Ultrak specifically
disclaims any liability for personal injury or property loss by burglary,
robbery, fire or otherwise and disclaims any warranty that its products will
provide adequate warning or protection or that its products will not be
compromised or circumvented. The Company makes no warranty for
 
                                       14
<PAGE>   15
 
products sold under third party brand names (although the warranty, if any, of
the product's manufacturer may apply).
 
     When goods are delivered to Ultrak, a random sampling quality assurance
procedure is performed. Selected units are verified for functionality, proper
packaging, labeling and documentation. The Company's primary contract
manufacturer as well as Videv in Germany are ISO9001 certified. The quality
assurance procedures in the Company's Ohio plant and MDI facility comply with
ISO9001 specifications.
 
BACKLOG
 
     As of December 31, 1995 and 1996, the Company had approximately $6.7
million and $9.4 million, respectively, in order backlog which it considered to
be firm. Because purchase orders are subject to cancellation or delay by
customers with limited or no penalty, the Company's backlog is not necessarily
indicative of future revenues or earnings. Since the Company ships most products
within 24 hours of receipt of the order, the Company believes that backlog is
not a significant measurement of the Company's financial position.
 
INTELLECTUAL PROPERTY
 
     As part of its ongoing engineering and development activities, Ultrak seeks
patent protection on inventions covering new products and improvements when
appropriate. Ultrak currently holds a number of United States patents and has a
number of pending patent applications. Although the Company's patents have
value, the Company believes that the success of its business depends more on
innovation, sales efforts, technical expertise and knowledge of its personnel
and other factors. The Company also relies upon trade secret protection for its
confidential and proprietary information.
 
MANUFACTURING
 
     For the twelve months ended December 31, 1996, approximately 12% of the
Company's revenues were attributable to CCTV products manufactured at the
Company's Carroll (Columbus), Ohio manufacturing facility and approximately 3%
were attributable to MAXPRO branded products manufactured at its Perth, Western
Australia manufacturing facility. The Company believes that these facilities,
the VideV facility in Germany and the MDI facility in Rancho Cucamonga,
California meet its current and anticipated manufacturing needs for the products
which it currently manufactures. In addition, Ultrak's product development staff
designs and coordinates with its contract suppliers to manufacture certain of
its Ultrak branded products as well as coordinates and supervises the assembly
and packaging of certain other products by its own employees.
 
COMPETITION
 
     The Company faces substantial competition in each of its target markets.
Significant competitive factors in the Company's markets include price, quality
and performance, breadth of product line and customer service and support. Some
of the Company's existing and potential competitors have substantially greater
financial, manufacturing, marketing and other resources than the Company. To
compete successfully, the Company must continue to make substantial investments
in its engineering and development, marketing, sales, customer service and
support activities. There can be no assurance that competitors will not develop
products that offer price or performance features superior to those of the
Company's products.
 
     The Company considers its major CCTV competitors to be the CCTV operations
of Sensormatic Electronics Corporation, Burle (part of Philips Communication &
Security Systems, Inc.), Alarmex, Inc., a division of Checkpoint Systems, Inc.,
Panasonic and Vicon Industries, Inc. The Company's major access control
competitors are CardKey Systems, Casi, Software House, Inc. and Northern.
 
                                       15
<PAGE>   16
 
EMPLOYEES
 
     As of December 31, 1996, the Company had 482 full-time employees employed
worldwide at eight primary locations and seven field sales offices, of which 171
were sales and sales support personnel, 120 were warehouse/manufacturing
personnel, 59 were technical/service personnel, 59 were engineering and product
development personnel and 73 were administrative and managerial personnel.
 
     The Company's future success will depend in large part upon its ability to
attract and retain highly skilled technical, managerial, financial and marketing
personnel, in a market where such people are in demand. No employee is
represented by a union or covered by a collective bargaining agreement, and the
Company has not experienced a work stoppage or strike. The Company considers its
employee relations to be good.
 
     The Company has a formal employee partnership philosophy that the Company
believes contributes significantly to its success. During monthly "partners'
meetings," all employee-partners are informed about the state of the Company and
key events that took place during the preceding month and given the opportunity
to ask questions, make suggestions and comment.
 
     The Company's employee partnership philosophy statement is as follows:
 
     Everyone working at Ultrak is considered to be a partner. Each
employee-partner pitches in to get the job done, is encouraged to grow both
professionally and personally, is recognized for individual achievement, and
works in a cheerful and friendly team environment. There is no room for prima
donnas or hierarchies. All employee-partners share in the Company's profits.
Ultrak extends its partnership philosophy to its suppliers and customers as
well.
 
ITEM 2. PROPERTIES
 
     The Company's headquarters are currently located in approximately 69,000
square feet of leased office and warehouse space in Carrollton, Texas, pursuant
to a lease expiring in May 1999. Although the Company believes this facility is
adequate to meet its present needs, the Company has leased on a short-term basis
additional office space and has purchased approximately 14 acres of land in
Lewisville, Texas for the construction of an approximately 140,000 square foot
new office and warehouse facility it intends to sell to a financing institution
and leaseback under an operating lease. The Company also leases additional
office/warehouse space in Broomfield, Colorado; Annapolis, Maryland; Fort
Lauderdale, Florida; Atlanta, Georgia; Chicago, Illinois; Poway (San Diego),
California; Paris, France; and Dusseldorf, Germany. In 1997, as a result of the
acquisitions of Intervision and MDI, and the pending acquisition of Videosys
Group, the Company also leases or will lease additional office/warehouse space
near Preston (Manchester), England; in Rancho Cucamonga (Ontario), California
and in San Vendemiano (Venice), Italy.
 
     The Company owns its 72,000 square foot manufacturing facility in Carroll
(Columbus), Ohio and leases its 9,900 square foot manufacturing facility in
Perth, Western Australia. The Company believes that its Ohio manufacturing
facility and Australian manufacturing facility are adequate to meet the
Company's present and anticipated manufacturing needs for products that it
currently manufactures.
 
ITEM 3. LEGAL PROCEEDINGS
 
     The Company is not aware of any material pending or threatened legal
proceedings to which the Company is or may be a party. The Company knows of no
other legal proceedings pending or threatened or judgments entered against any
director or officer of the Company in their capacity as such.
 
     On June 16, 1995, P.A.T. Co. and Kustom Signals, Inc., each a Kansas
corporation, filed suit against Ultrak in the United States District Court for
the District of Kansas (P.A.T. Co. and Kustom Signals, Inc., Plaintiffs v.
Ultrak, Inc., Defendant), claiming unspecified damages for, and seeking
injunctive relief against, patent infringement, trademark infringement, common
law infringement and unfair competition relating to The Witness(R) product, a
vehicle mounted surveillance and video recording system. The plaintiffs charged
that Ultrak has infringed upon their Patent Nos. 4,789,904 ("Vehicle Mounted
Surveillance and Video Taping System") and 4,949,186 ("Vehicle Mounted
Surveillance System"). Ultrak has denied the allegations and
 
                                       16
<PAGE>   17
 
asserted affirmative defenses of non-infringement, invalidity and
unenforceability, and asserted counterclaims of monopolization and attempt to
monopolize, conspiracy to monopolize and unfair competition. Discovery in the
case is substantially complete and the case is presently scheduled to trial in
late 1997. There can be no assurance that the Company will prevail in this
litigation, or that the Company will be able to license any valid or infringed
patent on reasonable terms, if at all, if the Company does not prevail. The
Company's total sales of The Witness product were approximately $100,000,
$250,000 and $400,000 in 1994, 1995 and 1996, respectively. In the opinion of
the Company's management, if the legal proceeding described above is determined
adversely to the Company, it should not have a material adverse effect upon the
Company's business, financial position or results of operations.
 
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of 1996.
 
                                       17
<PAGE>   18
 
                                    PART II
 
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
MARKET PRICE AND DIVIDENDS
 
     The Common Stock commenced trading on the Nasdaq Stock Market's Nasdaq
National Market ("Nasdaq National Market") on January 18, 1994 under the symbol
"ULTK." Prior to that time, the Common Stock was traded in the over-the-counter
market. Prices shown do not include adjustments for retail markups, markdowns or
commissions. The following table sets forth the high and low closing prices on
the Nasdaq National Market for the periods indicated:
 
<TABLE>
<CAPTION>
                                                               HIGH      LOW
                                                              ------    ------
<S>                                                           <C>       <C>
1995
  First quarter.............................................  $ 7.25    $ 5.63
  Second quarter............................................    9.50      6.38
  Third quarter.............................................    7.38      5.63
  Fourth quarter............................................    6.44      4.75
1996
  First quarter.............................................  $ 9.75    $ 6.38
  Second quarter............................................   19.38      9.25
  Third quarter.............................................   29.00     15.63
  Fourth quarter............................................   33.25     24.13
</TABLE>
 
     As of February 28, 1997, there were approximately 1,300 holders of record
of the Common Stock.
 
     The Company has never paid cash dividends on the Common Stock. The Company
presently intends to retain earnings to finance the development and expansion of
its business. The declaration in the future of any cash dividends on the Common
Stock will be at the discretion of the Board of Directors and will depend upon
the earnings, capital requirements and financial position of the Company,
general economic conditions and other pertinent factors. The Company intends to
continue to pay dividends on outstanding shares of Series A Preferred Stock, all
of which are owned by George K. Broady, the Chairman, Chief Executive Officer
and President of the Company. Dividends in the amount of $117,210 have been paid
annually to Mr. Broady since the issuance of the Series A Preferred Stock.
 
RECENT SALES OF UNREGISTERED SECURITIES
 
     On September 27, 1996, the Company issued an aggregate of 289,855 shares of
Common Stock to the owners of Bisset (residents of France) in connection with
the acquisition of Bisset by the Company. The share price used for such issuance
was $17.25 per share. Exemption from registration was claimed under Section 4(2)
of the Securities Act of 1933, as amended (the "Act").
 
     On February 17, 1997, the Company issued 175,000 shares of Common Stock to
the owner of the remaining 25% of the outstanding stock of MAXPRO not owned by
the Company in exchange for such 25% ownership interest in MAXPRO. The share
price used for such issuance was $17.49 per share. Exemption from registration
was claimed under Section 4(2) of the Act.
 
                                       18
<PAGE>   19
 
ITEM 6. SELECTED FINANCIAL DATA
 
     The following selected consolidated financial data for the Company as of
and for the five fiscal years ended December 31, 1996, have been derived from
the consolidated financial statements of the Company and its subsidiaries, which
have been audited by Grant Thornton LLP, independent public accountants. The
selected consolidated financial data includes the effects of businesses acquired
in 1994, 1995 and 1996. This data should be read in conjunction with the
information set forth in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and the Consolidated Financial Statements
and related notes which are included elsewhere herein.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                 -------------------------------------------------
                                                  1992      1993      1994       1995       1996
                                                 -------   -------   -------   --------   --------
<S>                                              <C>       <C>       <C>       <C>        <C>
INCOME STATEMENT DATA:
Net sales......................................  $28,864   $52,412   $79,063   $101,232   $136,636
Cost of sales..................................   21,496    39,554    59,350     76,319     95,786
                                                 -------   -------   -------   --------   --------
Gross profit...................................    7,368    12,858    19,713     24,913     40,850
Marketing and sales expenses...................    4,579     7,025    11,201     13,255     18,766
General and administrative expenses............    1,510     2,178     3,133      5,542     10,307
                                                 -------   -------   -------   --------   --------
          Total operating expenses.............    6,089     9,203    14,334     18,797     29,073
                                                 -------   -------   -------   --------   --------
Operating profit...............................    1,279     3,655     5,379      6,116     11,777
Other expense..................................      709       635     1,076      1,881        285
                                                 -------   -------   -------   --------   --------
Income from continuing operations before income
  taxes........................................      570     3,020     4,303      4,235     11,492
Incomes taxes..................................       26       382     1,514      1,540      3,893
                                                 -------   -------   -------   --------   --------
Income from continuing operations..............      544     2,638     2,789      2,695      7,599
Income (loss) from discontinued operations.....      294    (1,834)     (190)        --         --
                                                 -------   -------   -------   --------   --------
          Net income...........................      838       804     2,599      2,695      7,599
Dividend requirements on preferred stock.......      117       117       117        117        117
                                                 -------   -------   -------   --------   --------
Net income allocable to common stockholders....  $   721   $   687   $ 2,482   $  2,578   $  7,482
                                                 =======   =======   =======   ========   ========
Weighted average shares
  outstanding -- primary.......................    6,846     6,790     6,819      7,148     10,028
Income per common share from continuing
  operations -- primary........................  $  0.06   $  0.37   $  0.39   $   0.36   $   0.75
Net income per common share -- primary.........  $  0.11   $  0.10   $  0.36   $   0.36   $   0.75
</TABLE>
 
<TABLE>
<CAPTION>
                                                                 AS OF DECEMBER 31,
                                                  ------------------------------------------------
                                                   1992      1993      1994      1995       1996
                                                  -------   -------   -------   -------   --------
<S>                                               <C>       <C>       <C>       <C>       <C>
BALANCE SHEET DATA:
Working capital.................................  $ 5,585   $ 4,966   $ 5,676   $ 9,880   $119,163
Total assets....................................   16,199    25,385    36,353    52,955    172,578
Short-term debt.................................    7,135    12,875    18,244    24,482         --
Long-term debt..................................      285        --        --     1,535         --
Stockholders' equity............................    6,818     7,541    10,070    16,497    155,961
</TABLE>
 
                                       19
<PAGE>   20
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS
 
OVERVIEW
 
     The consolidated financial statements include the accounts of Ultrak and
its nine consolidated subsidiaries. The Company is further organized into
separate selling divisions, all supported by common administrative functions
such as credit, accounting, payroll, purchasing, warehousing, training and
computer services. All significant intercompany balances and transactions among
subsidiaries and divisions have been eliminated in consolidation.
 
     The Company has experienced substantial growth in recent years. During the
past eight years, net sales have grown from $1.8 million in 1987 to $136.6
million in 1996. Increases in net sales have come from increased volume of sales
of existing products to all of the markets served by the Company, introduction
and sales of new products in the CCTV and related markets, creation of new
selling groups to focus on new CCTV and related markets and acquisitions of
businesses in the CCTV industry.
 
     During 1995, the Company completed three acquisitions. The largest company
acquired was Diamond, a manufacturer of commercial CCTV security and
surveillance systems used by large retailers, of traffic management systems used
by municipalities and of viewing systems used by industry in hazardous settings.
The transaction was accounted for as a purchase and the operations have been
included in the Company's financial statements since July 1, 1995. Diamond's
sales for the six months ended December 31, 1995 were approximately $6.9
million.
 
     In 1996, the Company completed three international acquisitions and made a
minority investment in a third company. Effective July 1, 1996, Ultrak acquired
approximately 75% of the outstanding stock of MAXPRO, a manufacturer of large
scale CCTV switching systems based in Perth, Western Australia. The transaction
was accounted for as a purchase and MAXPRO's operations have been included in
the Company's financial statements since the date of acquisition. On February
17, 1997, the Company acquired the remainder of the outstanding stock of MAXPRO.
On September 26, 1996, Ultrak acquired all of the outstanding share capital of
Bisset, a distributor of CCTV and professional audio products based in Paris,
France. The transaction was accounted for as a purchase and Bisset's operations
have been included in the Company's financial statements since October 1, 1996.
On September 6, 1996, Ultrak acquired approximately 24% of the outstanding stock
of Lenel, a domestic security access control software company. The Company
accounts for its investment in Lenel using the equity method. On December 16,
1996, Ultrak acquired all of the outstanding stock of VideV, a distributor of
CCTV products based in Dusseldorf, Germany. The transaction was accounted for as
a purchase and the operations have been included in the Company's financial
statements since the date of acquisition.
 
     Product sales are recorded when goods are shipped to the customer. Most of
the Company's sales are made to its domestic customers on net 30 day credit
terms after a credit review has been performed to establish creditworthiness and
to determine an appropriate credit line. The Company's international sales are
made under varying terms depending upon the creditworthiness of the customer,
and include the use of letters of credit, payment in advance of shipment or open
trade terms. Sales to one customer accounted for approximately 19% and 12% of
total sales during 1995 and 1996, respectively.
 
     Cost of sales for most of the Company's products includes the cost of the
product shipped plus freight, customs and other costs associated with delivery
from foreign contract manufacturers or from domestic suppliers. Cost of sales
for products manufactured by Ultrak includes direct labor and overhead as well
as an allocated portion of indirect overhead.
 
     Marketing and sales expenses are costs related to the Company's sales
efforts, which include costs incurred by both direct employees of the Company
and independent sales representatives. Marketing and sales expenses consist
primarily of salaries, commissions and related benefits, depreciation,
telephone, advertising, warranty, printing, product literature, sales promotion
and travel-related costs.
 
                                       20
<PAGE>   21
 
     General and administrative expenses include costs of all corporate and
general administrative functions that support the existing selling divisions as
well as provide the infrastructure for future growth. General and administrative
expenses consist primarily of salaries and related benefits of executive,
administrative, operations and engineering, research and development personnel,
legal, audit and other professional fees, depreciation, supplies, other
engineering costs and travel-related costs. During 1995 and 1996, the Company
added new corporate management in several areas to help facilitate and manage
its growth.
 
     Engineering, research and product development costs are included in general
and administrative expenses and consist primarily of salaries, overhead and
material costs associated with the development of new products offered by the
Company. All such costs are expensed when incurred. The Company's investment in
engineering, research and product development increased significantly during
1995, and continued to increase on an absolute basis in 1996.
 
     During 1995 and 1996, the Company incurred legal costs associated with a
patent infringement lawsuit and the enforcement of rights it obtained from a
patent acquired during 1995, and the Company expects to continue incurring such
costs until the lawsuit is resolved. See "Business -- Legal Proceedings."
 
     The Company's consolidated financial statements are denominated in dollars
and, accordingly, changes in the exchange rate between the Company's
subsidiaries' local currency and the dollar will affect the conversion of such
subsidiaries' financial results into dollars for purposes of reporting the
Company's consolidated financial results. Conversion adjustments are reported as
a separate component of stockholders' equity. To date, such adjustments have not
been material to the Company's financial statements.
 
     A substantial portion of the Company's purchases and sales are derived from
operations outside the United States. Since the revenues and expenses of the
Company's foreign operations are generally denominated in local currency,
exchange rate fluctuations between local currencies and the dollar subject the
Company to currency exchange risks with respect to the results of its foreign
operations. Therefore, the Company is subject to these risks to the extent it is
unable to denominate its purchases or sales in dollars or otherwise shift to its
customers or suppliers the effects of currency exchange rate fluctuations. The
Company currently does not engage in currency hedging transactions but may do so
in the future. Such fluctuations in exchange rates could have a material adverse
effect on the Company's results of operations.
 
     The following discussion should be read in conjunction with the
Consolidated Financial Statements and notes thereto incorporated by reference in
this Report.
 
RESULTS OF OPERATIONS
 
     The following table sets forth the percentage of net sales represented by
certain items in the Company's consolidated summary of income for the indicated
periods.
 
<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31,
                                                              -----------------------
                                                              1994     1995     1996
                                                              -----    -----    -----
<S>                                                           <C>      <C>      <C>
Net sales...................................................  100.0%   100.0%    100%
Cost of sales...............................................   75.1     75.4     70.1
                                                              -----    -----    -----
Gross profit................................................   24.9     24.6     29.9
Marketing and sales expenses................................   14.2     13.1     13.8
General and administrative expenses.........................    3.9      5.5      7.5
                                                              -----    -----    -----
          Total operating expenses..........................   18.1     18.6     21.3
                                                              -----    -----    -----
Operating profit............................................    6.8      6.0      8.6
Other expense...............................................    1.4      1.8      0.2
                                                              -----    -----    -----
Income from continuing operations before income taxes.......    5.4      4.2      8.4
Income taxes................................................    1.9      1.5      2.8
                                                              -----    -----    -----
Income from continuing operations...........................    3.5      2.7      5.6
Loss from discontinued operations...........................   (0.2)      --       --
                                                              -----    -----    -----
Net income..................................................   3.3%     2.7%     5.6%
                                                              =====    =====    =====
</TABLE>
 
                                       21
<PAGE>   22
 
  Year Ended December 31, 1996, Compared with Year Ended December 31, 1995
 
     For the year ended December 31, 1996, net sales were $136.6 million, an
increase of $35.4 million (35%) over 1995. This increase was due to the effect
of new acquisitions during 1996, sales of new products introduced during 1996
and increased volume of sales of existing CCTV products to most of the markets
served by the Company.
 
     Cost of sales were $95.8 million for 1996, an increase of $19.5 million
(26%) over 1995. Gross profit margins on net sales increased to 29.9% in 1996
from 24.6% in 1995. This increase was due to increased sales levels of
Ultrak-branded products, cost reductions realized on certain Ultrak-branded
products, the effect of the acquisitions of Diamond and MAXPRO (the manufactured
products of which carry higher gross profit margins than other products sold by
the Company) and Bisset and higher margins earned on new products introduced
during 1996.
 
     Marketing and sales expenses were $18.8 million for 1996, an increase of
$5.5 million (42%) over 1995. Marketing and sales expenses for 1996 were 13.8%
of net sales, up from 13.1% in 1995. This increase was due to the effect of
acquisitions during 1995 and 1996 and the effect in 1996 of hiring additional
sales, sales support and marketing and product management personnel, in
anticipation of new product introductions and resulting sales activities, as
well as the increased travel, printing, product literature, advertising and
promotion costs associated with the introduction of new products.
 
     General and administrative expenses were $10.3 million for 1996, an
increase of $4.8 million (86%) over 1995. General and administrative expenses
for 1996 were 7.5% of net sales, up from 5.5% of net sales in 1995. This
increase was a result of the acquisitions in 1995 and 1996, including Diamond,
MAXPRO and Bisset, which maintain certain separate administrative functions and
have greater research and development costs, as a percentage of net sales, than
Ultrak's other operations and the hiring of additional research and development
and administrative staff to support the anticipated growth in sales.
 
     Other expenses were approximately $285,000 for 1996, a decrease of $1.6
million from 1995. This decrease was due primarily to lower interest expense
resulting from the repayment of bank and other lender borrowings in June 1996,
from the proceeds of the sale of Common Stock in June and November 1996.
 
  Year Ended December 31, 1995, Compared with Year Ended December 31, 1994
 
     For the year ended December 31, 1995, net sales were $101.2 million, an
increase of $22.2 million (28%) over 1994. This increase was due to the effect
of new acquisitions during 1995, increased volume of sales of existing CCTV
products to all of the markets that the Company serves and sales of new products
introduced during 1995.
 
     Cost of sales was $76.3 million for 1995, an increase of $17.0 million
(29%) over 1994. This increase was comparable to the overall increase in sales
between the two periods. Gross profit margins decreased slightly to 24.6% in
1995 from 24.9% in 1994. This decrease was due to price competition in the CCTV
market, offset partially by the effect of higher margins on new products and
products marketed by companies acquired during 1995.
 
     Marketing and sales expenses were $13.3 million for 1995, an increase of
$2.1 million (18%) over 1994. This increase was due to the effect in 1995 of new
acquisitions and the effect of hiring additional CCTV sales and support staff as
well as the increased travel and related costs incurred to support the increased
level of business. Marketing and sales expenses during 1995 were 13.1% of net
sales, down from 14.2% of net sales during 1994.
 
     General and administrative expenses were $5.5 million for 1995, an increase
of $2.4 million (77%) over 1994. General and administrative expenses during 1995
were 5.5% of net sales, up from 3.9% of net sales during 1994. This increase was
due to the effect in 1995 of new acquisitions, the creation of a separate
engineering, research and product development function and the hiring of
additional purchasing, operations and other administrative staff and related
costs necessary to support the increased level of business.
 
                                       22
<PAGE>   23
 
     Other expenses were $1.9 million for 1995, an increase of $805,000 (75%)
over 1994. The increase was due primarily to increased interest rates on higher
borrowings outstanding during the year.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company had a net increase in cash for 1996 of approximately $70.5
million. Net cash used in operating activities for the year was approximately
$1.4 million, primarily consisting of increases in accounts and notes
receivable, inventory and advances for inventory purchases required by increased
sales and decreases in trade accounts payable arising from the Company's
decision to actively pursue early payment to earn discounts. Net cash used in
investing activities was approximately $22.0 million consisting of purchases of
property and equipment and cash payments made for acquisitions. Net cash
provided by financing activities was approximately $93.9 million consisting of
net proceeds from the sale of Common Stock in two public offerings, offset by
the repayment of borrowings on bank and other lender revolving lines of credit,
the purchase of approximately $246,000 in treasury stock and the payment of
dividends on the Series A Preferred Stock.
 
     On July 26, 1996, the Company entered into a three-year credit facility
with a bank. The credit facility initially provides up to $20.0 million in
revolving credit with interest at the Prime Rate minus 0.25% or LIBOR plus 0.75%
payable quarterly. Borrowings under the facility are collateralized by
substantially all assets of the Company. The credit facility contains certain
restrictive covenants and conditions, including debt to cash flow, tangible net
worth and fixed charge coverage ratios.
 
     As of December 31, 1996, the Company had no outstanding borrowing under the
revolving lines of credit under its bank facility. The Company was in compliance
with all of its covenants as of December 31, 1996.
 
     The Company believes that internally generated funds, available borrowings
under the credit facility, current amounts of cash and the net proceeds from the
sale of Common Stock in November 1996 will be sufficient to meet its presently
anticipated needs for working capital, capital expenditures and acquisitions, if
any, for at least the next 12 months.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     The consolidated financial statements of the Company and its subsidiaries
which are required by this Item 8 are listed in Part IV Item 14(a) of this
report. Such consolidated financial statements are included herein beginning on
page F-1.
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE
 
     Not applicable.
 
                                       23
<PAGE>   24
 
                                    PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
MANAGEMENT
 
     The following table sets forth certain information concerning the executive
officers and directors of the Company.
 
<TABLE>
<CAPTION>
                   NAME                     AGE                    POSITION
                   ----                     ---                    --------
<S>                                         <C>   <C>
George K. Broady..........................  58    Chairman of the Board, Chief Executive
                                                  Officer and President
James D. Pritchett........................  50    Executive Vice President, Chief Operating
                                                    Officer and Director
Tim D. Torno..............................  39    Vice President-Finance, Secretary,
                                                  Treasurer and Chief Financial Officer
Anne De Greef-Safft.......................  34    Vice President-Marketing
Albert J. Gold............................  65    Vice President-Sales
Jeffrey D. Blum...........................  34    Vice President-Professional Security
A. Neal Cooper............................  37    Vice President-Research and Development
William C. Lee(1).........................  57    Director
Charles C. Neal(1)........................  38    Director
Robert F. Sexton(1).......................  62    Director
Roland Scetbon............................  51    Director and Managing Director of Bisset
</TABLE>
 
---------------
 
(1) Member of the Audit and Compensation Committees.
 
     George K. Broady became Chairman of the Board, President and Chief
Executive Officer of the Company in March 1991. From 1988 to 1991, Mr. Broady
was the President and owner of Geneva Merchant Bankers of Dallas, Texas. Prior
to 1988, Mr. Broady was Chairman and Chief Executive Officer of Network Security
Corporation, a company that he founded in 1970. Mr. Broady received his Bachelor
of Science degree (cum laude) from Iowa State University in 1960.
 
     James D. Pritchett joined the Company in September 1988 as Chief Operating
Officer. He was elected Director in August 1989 and became Executive Vice
President in October 1991. From October 1980 to September 1988, Mr. Pritchett
was Executive Vice President and Chief Operating Officer of Booth, Inc., a
manufacturer of electronic equipment. Mr. Pritchett received his Bachelor of
Science degree in Mechanical Engineering from the University of Texas at
Arlington in 1969, and his Masters of Science degree in Mechanical Engineering
in 1972 from Southern Methodist University.
 
     Tim D. Torno has been the Vice President-Finance, Secretary, Treasurer and
Chief Financial Officer of the Company since August 1988. From May 1980 to
August 1988, Mr. Torno was employed by KPMG Peat Marwick in Denver, New York and
Corpus Christi, Texas, in various capacities, including senior manager. Mr.
Torno received a Bachelor of Business Administration degree in Accounting (cum
laude) from Texas A & M University in 1979 and a Masters of Business
Administration degree (with honors) in 1993 from the University of Phoenix,
Denver, Colorado and is a Certified Public Accountant.
 
     Anne De Greef-Safft has been the Vice President-Marketing of the Company
since July 1996. Ms. De Greef-Safft joined the Company in December 1995 as its
Managing Director of Marketing. Ms. De Greef-Safft was employed as Director of
Marketing and Sales of C-Power Products, Inc. of Dallas, Texas from 1993 to
December 1995. From 1990 to 1993, Ms. De Greef-Safft was a Senior Market
Development Engineer for Rogers Corp. of Rogers, Connecticut. She received her
Bachelor of Science and Master of Science in
 
                                       24
<PAGE>   25
 
Electronics Engineering (with Distinction), from the University of Louvain,
Belgium in June 1985 and a Master of Business Administration (Summa Cum Laude)
from Babson College in May 1995. Ms. De Greef-Safft speaks fluent Dutch, French
and German in addition to English.
 
     Albert J. Gold has been the Vice President-Sales of the Company since 1993.
Mr. Gold joined the Company in June 1991 as Managing Director of National
Accounts. Mr. Gold was employed as Vice President-Sales and Marketing of Koyo,
based in New York, from 1977 to 1991. Mr. Gold has served as Co-Founder and
Executive Vice President of the Closed Circuit Television Manufacturers
Association. Prior to 1977, Mr. Gold had a long career with CBS.
 
     Jeffrey D. Blum has been the Vice President-Professional Security of the
Company since joining the Company in July 1995. Mr. Blum was employed by
Presearch, Inc., based in Virginia, as Program Director from 1987 to June 1995,
where he was responsible for engineering, marketing and sales. Mr. Blum holds
one patent. Mr. Blum received his B.S. in Industrial Engineering from Lehigh
University in 1984 and he currently serves as a Director of the Security
Industry Association.
 
     A. Neal Cooper has been the Vice President-Research and Development of the
Company since January 1997. Mr. Cooper joined the Company in September 1994 as
Managing Director of Product Development. Mr. Cooper was employed by Texas
Instruments of Dallas from 1980 to September 1994 where he was most recently
held the position of Manager of Systems Development for the Image Sensor
Products Division of the Semiconductor Group. Mr. Cooper holds five patents and
has over ten patents pending. Mr. Cooper received his Bachelor of Science in
Electrical Engineering from Southern Methodist University in 1985.
 
     William C. Lee became a director of the Company in May 1994. Mr. Lee has
been the Chief Financial Officer of the Annuity Board of the Southern Baptist
Convention, a pension and insurance management company, since July 1991. Mr. Lee
served as a Managing Director of Geneva Merchant Bankers of Dallas, Texas from
1989 until 1991. Mr. Lee earned his Bachelor of Business Administration degree
from Texas A & M University in 1962 and his Masters of Business Administration
degree from Southern Methodist University in 1966 and is a Certified Public
Accountant.
 
     Charles C. Neal became a Director of the Company in May 1994. Mr. Neal has
been President of Chas. A. Neal & Company of Miami, Oklahoma, a company which
owns interests in oil and gas properties and in various corporations in several
industries, including banking, since 1989. From 1985 to 1989, Mr. Neal was with
Merrill Lynch & Co. Mr. Neal received his Bachelor of Arts degree in Economics
from the University of Oklahoma in 1981 and a Juris Doctor/Masters of Business
Administration degree from the University of Chicago Law School and Graduate
School of Business in 1985.
 
     Robert F. Sexton became a Director of the Company in May 1995. Mr. Sexton
has been President of Bakery Associates, Inc., a company which brokers bakery
packaging goods, since 1983. From 1973 to 1983, Mr. Sexton was Executive Vice
President and a director of Campbell Taggart, Inc., a baking company. Mr. Sexton
is also a director of Republic Group, Inc., a New York Stock Exchange-listed
manufacturer and distributor of paperboard. Mr. Sexton earned his Bachelor of
Business Administration degree in Industrial Management in 1956 from the
University of Texas.
 
     Roland Scetbon became a Director of the Company in September 1996. Mr.
Scetbon was one of the two principal owners of Bisset and has served as
President and Managing Director of Bisset since the Company purchased it in
September 1996. Prior to that time, Mr. Scetbon had been associated with Bisset
since 1966, most recently serving as President. Mr. Scetbon's election as a
Director of the Company was in conjunction with the acquisition of Bisset.
 
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
 
     Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors and persons who own more than 10% of the Common Stock or
securities convertible into Common Stock, to file with the Securities and
Exchange Commission ("SEC") and the Nasdaq National Market reports of ownership
and reports of changes in ownership in the Common Stock and securities
convertible into Common
 
                                       25
<PAGE>   26
 
Stock of the Company. Such officers, directors and greater than 10% stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16(a) forms they file.
 
     To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during its fiscal year ended December 31, 1996, all
Section 16(a) filing requirements applicable to its officers, directors and
greater than 10% stockholders were complied with, except that Mr. Scetbon was
late in filing a Form 3 on his election to the board of directors and Messrs.
Gold, Blum and Cooper and Ms. De Greef-Safft were late in filing a Form 3 on
their election as executive officers.
 
ITEM 11. EXECUTIVE COMPENSATION
 
     The following summary sets forth all annual and long-term compensation paid
or accrued to the Company's Chief Executive Officer and each of the Company's
executive officers earning in excess of $100,000 during 1996 for services
rendered to the Company during the fiscal years ended December 31, 1996, 1995
and 1994.
 
                           SUMMARY COMPENSATION TABLE
 
<TABLE>
<CAPTION>
                                        ANNUAL                            LONG-TERM
                                     COMPENSATION                       COMPENSATION
                       -----------------------------------------   -----------------------
                                                                           AWARDS
                                                                   -----------------------
                                                                                SECURITIES
      NAME AND                                         OTHER       RESTRICTED   UNDERLYING
      PRINCIPAL                                        ANNUAL        STOCK       OPTIONS/       ALL OTHER
      POSITION         YEAR    SALARY     BONUS     COMPENSATION     AWARDS      SARS(2)     COMPENSATION(3)
      ---------        ----   --------   -------    ------------   ----------   ----------   ---------------
<S>                    <C>    <C>        <C>        <C>            <C>          <C>          <C>
George K. Broady,      1996   $289,440        --(1)      --            --             --         $2,286
  Chief Executive      1995   $268,000        --         --            --         50,000         $2,179
  Officer and          1994   $240,000   $84,000         --            --             --         $1,613
  President
James D. Pritchett,    1996   $213,864        --(1)      --            --             --         $3,800
  Executive Vice       1995   $198,000        --         --            --         37,500         $3,657
  President            1994   $164,000   $57,400         --            --             --         $2,737
Tim D. Torno,          1996   $149,040        --(1)      --            --             --         $2,327
  Vice President-      1995   $138,000        --         --            --         18,750         $2,296
  Finance, Secretary,  1994   $105,000   $36,750         --            --             --         $1,872
  Treasurer and Chief
  Financial Officer
</TABLE>
 
---------------
 
(1) Bonuses have not been finally determined for 1996.
 
(2) SARs are defined as stock appreciation rights.
 
(3) Company's contribution to employee's 401(k).
 
NONQUALIFIED STOCK OPTION PLAN
 
     The Company adopted a Nonqualified Stock Option Plan (the "Plan") on April
15, 1988. The Plan (amended November 1, 1991 and December 28, 1993) relates to a
total of 833,333 shares of Common Stock. Options to purchase such shares may be
issued to full-time employees, including officers, chosen by the Compensation
Committee of the Board of Directors. The options vest based upon full-time
employment with the Company at the rate of 20% per year over a five-year period.
The options expire ten years from the date of grant. The option exercise price
is based upon the approximate current value of the Company's Common Stock on the
date of grant. Options which are vested may be exercised at any time thereafter
and prior to the expiration of the option.
 
                                       26
<PAGE>   27
 
     The options may be exercised for the entire amount of optioned shares
granted in the event (i) the optionee dies or becomes disabled, (ii) the Company
is merged, consolidated or reorganized, (iii) the Company is dissolved or
liquidated, (iv) substantially all property and assets of the Company are sold,
(v) if more than 50% ownership of the Company is transferred, or (vi) if the
employee is terminated, but not for cause, and his written employment agreement
so provides. Further, if an employee is dismissed for cause, unexercised options
to the extent vested may be exercised for 30 days before automatically expiring.
 
     As of December 31, 1996, options to purchase 658,775 shares were
outstanding at exercise prices ranging from $1.20 per share to $28.75 per share.
Of the total options, options to purchase 420,101 shares were subject to options
held by the three executive officers of the Company. The option exercise price
is set by the Compensation Committee of the Board of Directors on the date of
grant near or at the then verifiable market price of the Company's Common Stock.
During 1996, 47,000 options were granted to employees of the Company at the then
market price. During 1996, 21,850 options were exercised by 10 employees and
options to purchase 33,250 shares were cancelled.
 
     In January 1997, the Compensation Committee approved the grant on April 1,
1997 of approximately 140,000 options to various employees. The options will be
priced using the closing price of the Common Stock on April 1, 1997 and are
based upon achievement of economic value added and market value added
considerations for 1996.
 
OPTION/SAR GRANTS, EXERCISES AND HOLDINGS
 
     There were no exercises of stock options (or tandem SARs) and freestanding
SARs during 1996 by the named executive officers. The unexercised options owned
by the named executive officers as of December 31, 1996 are presented below:
 
<TABLE>
<CAPTION>
                                                             NUMBER OF
                                                             SECURITIES          VALUE OF
                                                             UNDERLYING        UNEXERCISED
                                                            UNEXERCISED        IN-THE-MONEY
                                                            OPTIONS/SARS       OPTIONS/SARS
                                    SHARES       VALUE      AT 12/31/96        AT 12/31/96
                                  ACQUIRED ON   REALIZED    EXERCISABLE/       EXERCISABLE/
              NAME                EXERCISE #      ($)      UNEXERCISABLE      UNEXERCISABLE
              ----                -----------   --------   --------------   ------------------
<S>                               <C>           <C>        <C>              <C>
George K. Broady................      --           --      148,851/40,000   $4,183,737/994,800
James D. Pritchett..............      --           --      124,166/30,000   $3,493,590/746,100
Tim D. Torno....................      --           --       93,750/23,333   $1,466,388/627,207
</TABLE>
 
EMPLOYEE BENEFIT PLANS
 
     The Company does not sponsor any defined benefit or actuarial plans.
However, the Company does sponsor a 401(k) plan for all eligible employees
whereby the Company matched 40% during 1996 of the employees' contribution up to
6% of the employee's base salary. In 1996, Messrs. Broady, Pritchett and Torno
received $2,286, $3,800 and $2,327, respectively, in matching 401(k)
contributions under the program.
 
     During 1996, the Company provided a medical insurance program for its
full-time employees of which it paid 60% of the premium. As of December 31,
1996, the Company did not have any life insurance or any defined benefit
retirement or pension plans for its employees, officers or directors.
 
     The Company has a policy that all loans from the Company or its
subsidiaries to its officers, directors and key employees or their affiliates
must be approved by a majority of disinterested directors. There were no loans
to officers, directors and/or key employees or their affiliates during 1996.
 
COMPENSATION OF DIRECTORS
 
     Each director of the Company serves until the next annual meeting of the
Company's stockholders or until his successor is elected and qualified. Each
independent director receives an annual fee $16,500, and officers and directors
are generally reimbursed for out-of-pocket expenses incurred in connection with
attendance at Board of Directors and committee meetings.
 
                                       27
<PAGE>   28
 
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
 
     Messrs. James D. Pritchett, Executive Vice President of the Company and Tim
D. Torno, Vice President-Finance, Secretary, Treasurer and Chief Financial
Officer, have written employment agreements with the Company with varying terms
and provisions. The Company has no termination of employment or
change-in-control arrangements, except as to the substantive effect of Mr.
Broady's stock ownership.
 
     Mr. Pritchett's employment agreement, entered into in 1995, provides for a
two year term, but automatically extends for one year periods. Mr. Torno's
employment agreement was also entered into in 1995 and provides for a one year
term but automatically extends for one year periods. The employment agreements
set Mr. Pritchett and Mr. Torno's base salaries at $198,000 and $138,000,
respectively, however, the Board of Directors may decide to compensate the two
at higher rates.
 
     The employment agreements also contain standard provisions relating to the
employee being entitled to participation in the Company's 1988 Nonqualified
Stock Option Plan and participation in a bonus program. The agreements provide
that the employee is to be reimbursed for reasonable expenses incurred in
connection with the Company's business and certain relocation expenses. The
agreements further provide for standard paid vacations, other health and
accident coverage and insurance benefits.
 
     The Company may terminate the employment agreements if the employee commits
a breach of the agreement, is convicted of a criminal offense, becomes bankrupt,
grossly neglects the performance of his duties or becomes chemically addicted to
alcohol, drugs or any controlled substance. If terminated by the Company for any
of those reasons, it is considered cause, and upon termination for cause, all
benefits, including all stock options previously granted to the employee, are
cancelled and rendered null and void. In the event the Company terminates the
employee without cause, then all options become exercisable for the full amount
of the optioned shares and the employee is entitled to receive all compensation
he would otherwise have been entitled to receive under the terms of the
agreement and all other benefits for a period of 18 months for Mr. Pritchett and
a period of one year for Mr. Torno. If the employee terminates the agreement for
any reason, he is entitled to exercise only those options which have been fully
vested at the time of termination and he must exercise them within 30 days of
the date of termination.
 
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
     William C. Lee, Charles C. Neal and Robert F. Sexton are members of the
Compensation Committee of the Board of Directors. Each of Messrs. Lee, Neal and
Sexton is an independent director.
 
                                       28
<PAGE>   29
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock and Series A Preferred Stock
as of December 31, 1996 by (i) each person who is known to the Company to own
beneficially more than five percent of the outstanding shares of Common Stock or
the outstanding shares of Series A Preferred Stock of the Company and their
address, (ii) each executive officer and director, (iii) each nominee for
director and (iv) all executive officers and directors as a group.
 
<TABLE>
<CAPTION>
                                                                      SERIES A PREFERRED
                                              COMMON STOCK(1)              STOCK(1)
                                          -----------------------    ---------------------
                                           SHARES      PERCENTAGE    SHARES     PERCENTAGE
                                          ---------    ----------    -------    ----------
<S>                                       <C>          <C>           <C>        <C>
George K. Broady(2).....................  2,190,435       15.2%      195,351      100.0%
Pilgrim Baxter & Associates, Ltd.(3)....  1,098,700        7.9%           --         --
James D. Pritchett(4)...................    161,996        1.2%           --         --
Roland Scetbon(5).......................    131,944        1.0%           --         --
Tim D. Torno(6).........................     53,750       *               --         --
Anne De Greef-Safft.....................      1,590       *               --         --
Albert J. Gold(7).......................     21,667       *               --         --
Jeffrey D. Blum(8)......................      4,500       *               --         --
A. Neal Cooper(9).......................      5,000       *               --         --
William C. Lee..........................     29,667       *               --         --
Charles C. Neal(10).....................    156,909        1.1            --         --
Robert F. Sexton(11)....................    103,066       *               --         --
All executive officers and directors as
  a group (eleven persons)(12)..........  2,860,524       19.6%      195,351      100.0%
</TABLE>
 
---------------
 
 *  less than 1%
 
 (1) Except as otherwise indicated, the persons named in the table possess sole
     voting and investment power with respect to all shares shown as
     beneficially owned.
 
 (2) Includes 166,667 shares held by a trust for the benefit of members of Mr.
     Broady's extended family, of which Mr. Broady serves as sole trustee,
     148,851 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days and 406,981 shares issuable upon
     conversion of shares of the Series A Preferred Stock owned by Mr. Broady.
     Mr. Broady disclaims beneficial ownership of the shares of Common Stock
     owned by the trust. Mr. Broady owns all 195,351 outstanding shares of
     Series A Preferred Stock and each share of Series A Preferred Stock has
     16.667 votes on all matters submitted to a vote of stockholders. Through
     his ownership of Common Stock and the Series A Preferred Stock, Mr. Broady
     controls approximately 28.6% of the voting power of all outstanding shares
     of capital stock. Mr. Broady's address is 1220 Champion Circle, Suite 100,
     Carrollton, Texas 75006.
 
 (3) Pilgrim Baxter & Associates, Ltd.'s address is 11255 Drummer Lane, Suite
     300, Wayne, Pennsylvania 19087.
 
 (4) Includes 124,167 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days held by Mr. Pritchett.
 
 (5) All of the shares are owned by Frida, S.A., a corporation owned by Mr.
     Scetbon.
 
 (6) Includes 53,750 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days held by Mr. Torno.
 
 (7) Includes 13,167 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days held by Mr. Gold, 6,000 shares
     owned by his wife and 2,500 shares owned jointly by his wife and daughter.
 
 (8) Includes 2,000 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days held by Mr. Blum.
 
 (9) Includes 2,000 shares issuable upon exercise of stock options currently
     exercisable or exercisable within 60 days held by Mr. Cooper.
 
(10) Comprised of 9,650 shares owned by Pantheon, Incorporated, a corporation
     owned by Mr. Neal and his wife, and 147,259 shares owned by Chas. A. Neal &
     Company, a corporation of which Mr. Neal is President.
 
(11) Includes 5,556 shares owned by Mr. Sexton's wife.
 
(12) Includes options to purchase an aggregate of 343,935 shares held by Messrs.
     Broady, Pritchett, Torno, Gold, Blum and Cooper.
 
                                       29
<PAGE>   30
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     Since July 1993, the Company has provided Veravision, Inc. ("Veravision")
with a working capital line of credit in return for interest on the borrowed
funds and warrants to purchase Veravision's capital stock. On December 30, 1994,
Mr. Broady, the Chairman of the Board, Chief Executive Officer and President of
the Company, guaranteed the repayment of certain indebtedness of Veravision to
the Company. Prior to the Company making the line of credit available to
Veravision, Mr. Broady had no relationship with Veravision. Prior to Mr.
Broady's guarantee, Veravision had granted the Company warrants to purchase 59%
of Veravision's capital stock on a fully-diluted basis. Mr. Broady guaranteed
certain amounts due under notes made by Veravision to the Company. At December
31, 1996, the amount guaranteed by Mr. Broady was approximately $470,000 and the
total amount of indebtedness of Veravision to the Company was $1,000,000. In
consideration of his guaranty, the Company transferred warrants to purchase
approximately 30% of Veravision's capital stock to Mr. Broady. Should the amount
covered by Mr. Broady's guaranty increase, the Company would be obligated to
transfer warrants to purchase additional shares of Veravision stock to Mr.
Broady. Veravision is a supplier of certain dental camera products to the
Company. Purchases by the Company of Veravision products in 1996 totaled
approximately $1,399,000. At present, Mr. Broady's only relationship with
Veravision is in his capacity as a guarantor of certain debt owed to the Company
by Veravision (as described above) and as the holder of warrants to acquire
approximately 30% of Veravision's stock. Mr. Broady is neither an officer nor
director of Veravision. In December, 1996, Veravision entered into an agreement
with a subsidiary of the Company pursuant to which Veravision will merge into
such subsidiary and become a wholly owned subsidiary of the Company.
 
     During 1996 the Company made purchases of approximately $427,000 from
Ultrak Electronics Limited, a Hong Kong corporation of which Mr. Broady owns
approximately 49% of the capital stock. The Company believes that the terms of
these purchases were made at prices and on terms at least as favorable to the
Company as those which could have been obtained in an arm's length transaction
with an unaffiliated party.
 
     In September 1996, the Company acquired all of the outstanding share
capital of Bisset for $5.0 million in cash, 289,855 shares of Common Stock, $2.5
million in deferred consideration payable in cash and Common Stock and up to an
additional $2.5 million payable in cash and Common Stock, if certain pre-tax
income levels are attained by Bisset over a one-year period beginning July 1,
1996. Roland Scetbon, a director of the Company, was one of the owners of Bisset
and was elected as a director in conjunction with the acquisition of Bisset.
 
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
 
  (a) Financial Statements
 
     The Financial Statements listed below are filed as part of this Annual
Report on Form 10-K.
 
        Financial Statements
 
        Report of Independent Certified Public Accountants.
 
        Consolidated Balance Sheets as of December 31, 1996 and 1995.
 
        Consolidated Statements of Income for the years ended December 31, 1996,
         1995 and 1994.
 
        Consolidated Statements of Stockholders' Equity for the years ended
         December 31, 1996, 1995 and 1994.
 
        Consolidated Statements of Cash Flows for the years ended December 31,
         1996, 1995 and 1994.
 
        Notes to Consolidated Financial Statements.
 
                                       30
<PAGE>   31
 
  Financial Statement Schedule
 
     Report of Independent Certified Public Accountants
 
     Schedule II -- Valuation and Qualifying Accounts
 
  (b) Reports on Form 8-K
 
     A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on October 11, 1996 reporting the acquisition of Bisset and the
investment in Lenel.
 
     A Current Report on Form 8-K/A (Amendment No. 1) was filed with the
Securities and Exchange Commission on October 18, 1996, setting forth the
opinion of KPMG Chartered Accountants.
 
     A Current Report on Form 8-K/A (Amendment No. 1) was filed with the
Securities and Exchange Commission on October 21, 1996 setting forth the
required financial statements with respect to Bisset.
 
     A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on December 31, 1996 reporting the acquisition of VideV.
 
     A Current Report on Form 8-K was filed with the Securities and Exchange
Commission on March 6, 1997 reporting the acquisition of MDI, Intervision and
Veravision.
 
  (c) Exhibits
 
<TABLE>
<CAPTION>
<C>                      <S>
          3.1            -- Certificate of Incorporation of the Company (filed as
                            Exhibit 3.1 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1995)
          3.2            -- By-Laws of the Company (filed as Exhibit 3.2 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995)
          4.1            -- Form of certificate representing shares of the Common
                            Stock (filed as Exhibit 4.1 the Company's Registration
                            Statement on Form S-2, Registration No. 333-02891)
         10.1            -- Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed
                            as Exhibit 10.6 to the Company's Registration Statement
                            on Form S-1, Registration No. 55-3-31110)
         10.2            -- Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock
                            Option Plan (filed as Exhibit 10 to the Company's Current
                            Report on Form 8-K dated December 28, 1993)
         10.3            -- Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock
                            Option Plan
         10.4            -- Agreement and Plan of Reorganization, dated as of April
                            28, 1995, among Diamond Electronics, Inc., the
                            shareholders of Diamond signing the Agreement, the
                            Company and Diamond Purchasing Corp. (filed as Annex A to
                            the Company's Registration Statement on Form S-4
                            Registration No. 33-919)
         10.5            -- Employment Agreement, dated May 25, 1995, between the
                            Company and James D. Pritchett (filed as Exhibit 10.21 to
                            the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1995)
         10.6            -- Employment Agreement, dated May 25, 1995, between the
                            Company and Tim D. Torno (filed as Exhibit 10.22 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995)
         10.7            -- Loan and Security Agreement, dated July 26, 1996 among
                            NationsBank of Texas, N.A. and the Company, Ultrak
                            Operating, L.P., Dental Vision Direct, Inc., Diamond
                            Electronics, Inc. and JAK Pacific Video Warranty and
                            Repair Services, Inc. (filed as Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the quarter
                            ended June 30, 1996)
</TABLE>
 
                                       31
<PAGE>   32
<TABLE>
<CAPTION>
<C>                      <S>
         10.8            -- Stock Purchase Agreement dated August 7, 1996 among Chris
                            Davies, Kim Rhodes, Scott Rhodes, Rhodes Davies &
                            Associates Pty Ltd. and the Company (filed as Exhibit
                            10.1 to the Company's Current Report on Form 8-K dated
                            August 23, 1996)
         10.09           -- Stock Purchase Agreement dated September 26, 1996 among
                            Maurice Scetbon, Monda, S.A., Frida, S.A., the Company
                            and Ultrak Holdings Limited (filed as Exhibit 10.1 to the
                            Company's Current Report on Form 8-K dated October 11,
                            1996)
         10.10           -- Purchase Agreement of German GmbH Share Capital, dated
                            December 16, 1996, among all of the shareholders of VideV
                            GmbH, Ultrak and Ultrak Holdings Limited (filed as
                            Exhibit 1 to the Company's Current Report on Form 8-K
                            dated December 31, 1996)
         10.11           -- Agreement and Plan of Merger dated February 10, 1997
                            among Monitor Dynamics, Inc., all of the shareholders of
                            Monitor Dynamics, Inc., Ultrak, Inc. and MDI Acquisition
                            Corp. (filed as Exhibit 1 to the Company's Current Report
                            on Form 8-K dated February 19, 1997)
         11.1            -- Computation of Per Share Data
         21.1            -- Subsidiaries of the Company
         27.1            -- Financial Data Schedule
</TABLE>
 
                                       32
<PAGE>   33
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 21st day of
March, 1997.
 
                                            ULTRAK, INC.
 
                                            By:     /s/ GEORGE K. BROADY
                                             -----------------------------------
                                                      George K. Broady
                                                 Chief Executive Officer and
                                                           President
 
     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
Registrant and in the capacities and on the dates indicated.
 
<TABLE>
<CAPTION>
                        NAME                                         TITLE                        DATE
                        ----                                         -----                        ----
<C>                                                    <S>                                 <C>
 
                /s/ GEORGE K. BROADY                   Chairman of the Board, Chief          March 21, 1997
-----------------------------------------------------    Executive Officer and President
                  George K. Broady                       (Principal Executive Officer)
 
               /s/ JAMES D. PRITCHETT                  Executive Vice President and          March 21, 1997
-----------------------------------------------------    Director
                 James D. Pritchett
 
                  /s/ TIM D. TORNO                     Vice President-Finance, Secretary,    March 21, 1997
-----------------------------------------------------    Treasurer and Chief Financial
                    Tim D. Torno                         Officer (Principal Financial and
                                                         Accounting Officer)
 
                 /s/ WILLIAM C. LEE                    Director                              March 21, 1997
-----------------------------------------------------
                   William C. Lee
 
                 /s/ CHARLES C. NEAL                   Director                              March 21, 1997
-----------------------------------------------------
                   Charles C. Neal
 
                /s/ ROBERT F. SEXTON                   Director                              March 21, 1997
-----------------------------------------------------
                  Robert F. Sexton
 
                 /s/ ROLAND SCETBON                    Director                              March 21, 1997
-----------------------------------------------------
                   Roland Scetbon
</TABLE>
 
                                       33
<PAGE>   34
 
               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
 
     We have audited the accompanying consolidated balance sheets of Ultrak,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ultrak, Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the consolidated results
of their operations and their consolidated cash flows for each of the three
years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
 
GRANT THORNTON LLP
 
Dallas, Texas
February 14, 1997, except for Note K as to
  which the date is March 13, 1997
 
                                       F-1
<PAGE>   35
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
 
                                     ASSETS
 
<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              ---------------------------
                                                                  1996           1995
                                                              ------------    -----------
<S>                                                           <C>             <C>
CURRENT ASSETS
  Cash and cash equivalents.................................  $ 71,810,707    $ 1,306,482
  Trade accounts receivable, less allowance for doubtful
     accounts of $764,118 and $439,104 at December 31, 1996
     and 1995, respectively.................................    23,800,284     15,619,459
  Notes receivable..........................................     1,109,534        288,968
  Inventories...............................................    29,698,137     21,293,216
  Advances for inventory purchases..........................     4,921,481      5,038,951
  Prepaid expenses and other current assets.................     3,156,489        313,460
  Deferred income taxes.....................................     1,283,788        943,046
                                                              ------------    -----------
          Total current assets..............................   135,780,420     44,803,582
PROPERTY, PLANT AND EQUIPMENT, at cost......................     7,718,605      5,694,265
  Less accumulated depreciation and amortization............    (2,606,498)    (1,576,366)
                                                              ------------    -----------
                                                                 5,112,107      4,117,899
GOODWILL, net of accumulated amortization of $611,383 and
  $212,894 at December 31, 1996 and 1995, respectively......    28,027,964      2,470,839
OTHER ASSETS................................................     3,657,624      1,562,475
                                                              ------------    -----------
          Total assets......................................  $172,578,115    $52,954,795
                                                              ============    ===========
 
                          LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Accounts payable -- trade.................................  $ 11,228,246    $ 6,988,550
  Current portion of long-term debt.........................            --        180,960
  Notes payable.............................................            --     24,301,147
  Accrued expenses..........................................     2,835,733      1,613,925
  Federal and state income taxes payable....................       720,304        954,716
  Other current liabilities.................................     1,832,723        884,410
                                                              ------------    -----------
          Total current liabilities.........................    16,617,006     34,923,708
LONG-TERM DEBT..............................................            --      1,534,548
COMMITMENTS AND CONTINGENCIES...............................            --             --
STOCKHOLDERS' EQUITY
  Preferred stock, $5 par value, issuable in series;
     2,000,000 shares authorized; Series A, 12% cumulative
     convertible; authorized, issued and outstanding,
     195,351 shares.........................................       976,755        976,755
  Common stock, $.01 par value; 20,000,000 shares
     authorized; issued and outstanding, 13,863,101 and
     7,326,935 shares at December 31, 1996 and 1995,
     respectively...........................................       138,631         73,269
  Deferred issuance related to companies acquired (91,802
     common shares).........................................           918             --
  Additional paid-in capital................................   143,716,645     11,518,801
  Cumulative translation adjustment.........................       (35,000)            --
  Retained earnings.........................................    11,409,228      3,927,714
  Less treasury stock, at cost (35,000 common shares).......      (246,068)            --
                                                              ------------    -----------
          Total stockholders' equity........................   155,961,109     16,496,539
                                                              ------------    -----------
          Total liabilities and stockholders' equity........  $172,578,115    $52,954,795
                                                              ============    ===========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       F-2
<PAGE>   36
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                       CONSOLIDATED STATEMENTS OF INCOME
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                    -------------------------------------------
                                                        1996            1995           1994
                                                    ------------    ------------    -----------
<S>                                                 <C>             <C>             <C>
Net sales.........................................  $136,636,124    $101,232,305    $79,062,711
Cost of sales.....................................    95,785,995      76,319,278     59,349,708
                                                    ------------    ------------    -----------
     Gross profit.................................    40,850,129      24,913,027     19,713,003
Other operating costs:
  Marketing and sales.............................    18,765,892      13,254,921     11,201,460
  General and administrative......................    10,307,631       5,542,529      3,132,856
                                                    ------------    ------------    -----------
                                                      29,073,523      18,797,450     14,334,316
                                                    ------------    ------------    -----------
     Operating profit.............................    11,776,606       6,115,577      5,378,687
Other expense (income):
  Interest expense................................     1,066,651       1,963,535      1,091,400
  Interest income.................................      (628,178)       (123,046)            --
  Minority interest...............................        67,981              --             --
  Other, net......................................      (221,564)         40,502        (15,245)
                                                    ------------    ------------    -----------
                                                         284,890       1,880,991      1,076,155
                                                    ------------    ------------    -----------
     Income before income taxes...................    11,491,716       4,234,586      4,302,532
Provision for income taxes........................     3,892,992       1,539,529      1,513,020
                                                    ------------    ------------    -----------
     Income from continuing operations............     7,598,724       2,695,057      2,789,512
Loss on disposal of discontinued operations.......            --              --        190,000
                                                    ------------    ------------    -----------
     NET INCOME...................................     7,598,724       2,695,057      2,599,512
Dividend requirements on preferred stock..........      (117,210)       (117,210)      (117,210)
                                                    ------------    ------------    -----------
Net income allocable to common stockholders.......  $  7,481,514    $  2,577,847    $ 2,482,302
                                                    ============    ============    ===========
Income per share:
  Primary.........................................  $        .75    $        .36    $       .36
                                                    ============    ============    ===========
  Assuming full dilution..........................  $        .73    $        .36    $       .36
                                                    ============    ============    ===========
Number of common shares used in computations:
  Primary.........................................    10,028,235       7,147,904      6,818,999
                                                    ============    ============    ===========
  Assuming full dilution..........................    10,476,069       7,576,329      7,236,985
                                                    ============    ============    ===========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       F-3
<PAGE>   37
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                      -----------------------------------------
                                                          1996           1995           1994
                                                      ------------    -----------    ----------
<S>                                                   <C>             <C>            <C>
COMMON STOCK
  Beginning of year.................................  $     73,269    $    73,254    $   72,489
  Public offerings of common stock..................        59,800             --            --
  Change in par value...............................            --        (39,714)           --
  Acquisitions of businesses........................         2,913         39,457            --
  Exercise of stock options and warrants............         2,649            272           765
                                                      ------------    -----------    ----------
     End of year....................................  $    138,631    $    73,269    $   73,254
                                                      ============    ===========    ==========
DEFERRED ISSUANCE RELATED TO
  COMPANIES ACQUIRED
  Beginning of year.................................  $         --    $        --    $       --
  Acquisitions of businesses........................           918             --            --
                                                      ------------    -----------    ----------
     End of year....................................  $        918    $        --    $       --
                                                      ============    ===========    ==========
ADDITIONAL PAID-IN CAPITAL
  Beginning of year.................................  $ 11,518,801    $ 7,213,747    $7,167,765
  Public offerings of common stock, net of
     expenses.......................................   120,201,438             --            --
  Change in par value...............................            --         39,714            --
  Acquisitions of businesses........................    10,068,887      4,238,462            --
  Exercise of stock options and warrants............     1,927,519         26,878        45,982
                                                      ------------    -----------    ----------
     End of year....................................  $143,716,645    $11,518,801    $7,213,747
                                                      ============    ===========    ==========
CUMULATIVE TRANSLATION ADJUSTMENT
  Beginning of year.................................  $         --    $        --    $       --
  Translation adjustments...........................       (35,000)            --            --
                                                      ------------    -----------    ----------
     End of year....................................  $    (35,000)   $        --    $       --
                                                      ============    ===========    ==========
TREASURY STOCK
  Beginning of year.................................  $         --    $        --    $       --
  Treasury stock purchases..........................      (246,068)            --            --
                                                      ------------    -----------    ----------
     End of year....................................  $   (246,068)   $        --    $       --
                                                      ============    ===========    ==========
</TABLE>
 
                                       F-4
<PAGE>   38
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
         CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY -- (CONTINUED)
 
<TABLE>
<CAPTION>
                                                               YEARS ENDED DECEMBER 31,
                                                        ---------------------------------------
                                                           1996           1995          1994
                                                        -----------    ----------    ----------
<S>                                                     <C>            <C>           <C>
RETAINED EARNINGS (ACCUMULATED DEFICIT)
  Beginning of year...................................  $ 3,927,714    $1,806,632    $ (675,670)
  Preferred stock dividends...........................     (117,210)     (117,210)     (117,210)
  Accumulated deficit of pooled company (Note B)                 --      (456,765)           --
  Net income..........................................    7,598,724     2,695,057     2,599,512
                                                        -----------    ----------    ----------
     End of year......................................  $11,409,228    $3,927,714    $1,806,632
                                                        ===========    ==========    ==========
COMMON SHARES
  Beginning of year...................................    7,326,935     6,555,619     6,538,352
  Public offerings of common stock....................    5,979,977            --            --
  Acquisitions of businesses..........................      291,316       762,816            --
  Exercise of stock options and warrants..............      264,873         8,500        17,267
                                                        -----------    ----------    ----------
                                                         13,863,101     7,326,935     6,555,619
                                                        ===========    ==========    ==========
COMMON STOCK TO BE ISSUED
  Beginning of year...................................           --            --            --
  Acquisitions of businesses..........................       91,802            --            --
                                                        -----------    ----------    ----------
     End of year......................................       91,802            --            --
                                                        ===========    ==========    ==========
TREASURY SHARES -- COMMON
  Beginning of year...................................           --            --            --
  Treasury stock purchases............................       35,000            --            --
                                                        -----------    ----------    ----------
     End of year......................................       35,000            --            --
                                                        ===========    ==========    ==========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       F-5
<PAGE>   39
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
<TABLE>
<CAPTION>
                                                              YEARS ENDED DECEMBER 31,
                                                     ------------------------------------------
                                                         1996           1995           1994
                                                     ------------    -----------    -----------
<S>                                                  <C>             <C>            <C>
Cash flows from operating activities:
  Net income.......................................  $  7,598,724    $ 2,695,057    $ 2,599,512
  Adjustments to reconcile net income to net cash
     used in operating activities:
     Depreciation and amortization.................     1,436,374        890,987        447,280
     Provision for losses on accounts receivable...       168,293         49,114        532,344
     Provision for inventory obsolescence..........       128,423        411,915         52,408
     Deferred income taxes.........................      (218,742)      (152,782)       227,012
     Changes in operating assets and liabilities:
       Accounts and notes receivable...............    (4,551,066)    (3,140,518)    (3,705,743)
       Inventories.................................    (2,665,733)    (4,145,192)    (3,360,827)
       Advances for inventory purchases............       117,470        342,486     (2,871,341)
       Prepaid expenses and other current assets...    (3,735,440)       (82,284)       (77,803)
       Noncurrent notes and other assets...........      (420,897)       (84,681)      (346,847)
       Accounts and notes payable..................       720,027       (677,814)     1,839,485
       Accrued expenses and other current
          liabilities..............................        41,552        875,300        945,218
       Net assets of discontinued operations.......            --             --        197,125
                                                     ------------    -----------    -----------
          Net cash used in operating activities....    (1,381,015)    (3,018,412)    (3,522,177)
Cash flows from investing activities:
  Purchases of property and equipment..............    (1,541,311)    (1,055,055)    (1,346,369)
  Acquisitions, net of cash acquired...............   (20,503,325)    (1,016,633)      (573,000)
                                                     ------------    -----------    -----------
          Net cash used in investing activities....   (22,044,636)    (2,071,688)    (1,919,369)
Cash flows from financing activities:
  Net borrowings (repayments) on notes payable.....   (27,941,212)     5,844,401      5,654,144
  Issuance of common stock.........................   122,191,406         27,150         46,747
  Purchase of treasury stock.......................      (246,068)            --             --
  Payment of preferred stock dividends.............      (117,210)      (117,210)      (117,210)
                                                     ------------    -----------    -----------
          Net cash provided by financing
            activities.............................    93,886,916      5,754,341      5,583,681
Effect of exchange rate changes on cash............        42,960             --             --
                                                     ------------    -----------    -----------
Net increase in cash and cash equivalents..........    70,504,225        664,241        142,135
Cash and cash equivalents at beginning of the
  year.............................................     1,306,482        642,241        500,106
                                                     ------------    -----------    -----------
Cash and cash equivalents at end of the year.......  $ 71,810,707    $ 1,306,482    $   642,241
                                                     ============    ===========    ===========
Supplemental cash flow information:
  Cash paid during the period for:
     Interest......................................  $  1,238,894    $ 1,812,415      1,109,361
                                                     ============    ===========    ===========
     Income taxes..................................  $  4,379,656    $ 1,431,581    $   804,158
                                                     ============    ===========    ===========
Supplemental schedule of noncash investing and
  financing:
  Acquisition of businesses
     Assets acquired...............................  $ 39,692,802    $ 8,490,799    $   573,000
     Liabilities assumed...........................    (7,303,383)    (3,640,455)            --
     Common stock issued or issuable...............   (10,072,718)    (3,804,000)            --
                                                     ------------    -----------    -----------
                                                       22,316,701      1,046,344        573,000
     Less cash acquired............................     1,813,376         29,711             --
                                                     ------------    -----------    -----------
          Net cash paid for acquisitions...........  $ 20,503,325    $ 1,016,633    $   573,000
                                                     ============    ===========    ===========
</TABLE>
 
        The accompanying notes are an integral part of these statements.
 
                                       F-6
<PAGE>   40
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE A -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
  Nature of Operations
 
     Ultrak, Inc. (the "Company") is a U.S.-based multinational corporation that
designs, manufactures, markets and services closed circuit television ("CCTV"),
access control and related products for use in security and surveillance,
industrial, mobile video, traffic management, dental and medical and other
applications. These products include a broad line of cameras, lenses, high-speed
dome systems, monitors, time-lapse recorders, multiplexers, quad processors,
switchers, wireless video transmission systems, computerized observation and
security systems, control matrix switching systems, access control hardware and
software and accessories.
 
  Principles of Consolidation
 
     The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
 
  Cash and Cash Equivalents
 
     The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
 
  Inventories
 
     Inventories are comprised principally of goods held for resale, which are
valued at the lower of cost (first-in, first-out) or market.
 
  Advances for Inventory
 
     Advances for inventory represents payments in advance for goods purchased
primarily from the Far East. Upon receipt of the goods, advances are classified
as inventories.
 
  Property, Plant and Equipment and Depreciation
 
     Property, plant and equipment are carried at cost. The provision for
depreciation is computed using the straight-line method over the estimated
useful lives of the assets.
 
  Goodwill and Amortization
 
     Goodwill resulting from acquisitions is being amortized using the
straight-line method over periods ranging from twenty to forty years.
 
  Accounting for Impairment of Long-Lived Assets
 
     The Company evaluates long-lived assets and intangibles held and used for
impairment whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Impairment is recognized when the
carrying amounts of such assets cannot be recovered by the net cash flows they
will generate.
 
  Income Per Common Share
 
     Primary income per common share is based upon the weighted average number
of common shares and common equivalent shares outstanding during each period
presented. Common equivalent shares result from the assumed issuance of shares
under the Company's stock option plan and for stock purchase warrants when
 
                                       F-7
<PAGE>   41
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
dilutive. Fully diluted income per common share further assumes the conversion
of the Company's preferred stock.
 
  Fair Value of Financial Instruments
 
     The Company's financial instruments consist of cash and cash equivalents,
notes receivable and variable rate debt. The fair value of all instruments
approximates the carrying value.
 
  Stock-Based Compensation
 
     The Company accounts for stock-based compensation to employees using the
intrinsic value method. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the date of the grant over the amount an employee must pay to acquire
that stock.
 
  Use of Estimates
 
     In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
  Reclassifications
 
     Certain reclassifications have been made to prior years to conform with the
1996 presentation.
 
NOTE B -- BUSINESS COMBINATIONS
 
  Maxpro Systems Pty, Ltd.:
 
     Effective July 1, 1996, the Company acquired 75% of the outstanding capital
stock of MAXPRO Systems Pty, Ltd. ("MAXPRO"), a Perth, Australia based company,
for approximately $8.2 million in cash and $900,000 in common stock payable over
a two-year period.
 
     Effective February 17, 1997, the Company acquired the remaining 25% of the
outstanding capital stock of MAXPRO for 175,000 shares of restricted common
stock valued at $3,061,000.
 
     MAXPRO is a manufacturer of a computer controlled matrix video switching
system that is coupled to a computer controlled alarm input and output network
used primarily in casinos, airports, mines, nuclear power plants, prisons and
other large closed circuit television applications. The transaction has been
accounted for as a purchase, and the operations of MAXPRO have been included in
the Company's consolidated statement of income since the date of acquisition.
Goodwill is being amortized over 25 years using the straight-line method.
 
  Lenel Systems International, Inc.:
 
     On September 6, 1996, the Company purchased approximately 24% of the
outstanding common stock of Lenel Systems International, Inc. ("Lenel"), a New
York corporation, for $2.6 million in cash. Lenel is a software company
specializing in security access control products based in Fairport, New York. In
conjunction with the acquisition, the Company received a warrant to acquire up
to 51% of Lenel for a price based upon earnings and has the right of first
refusal with respect to the common stock owned by the majority stockholders. The
Company also signed a worldwide reseller agreement with Lenel and has the right
to designate one director. Goodwill is being amortized over 25 years using the
straight-line method. The Company's share of Lenel's operations are reflected in
operations since the date of acquisition.
 
                                       F-8
<PAGE>   42
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  Groupe Bisset, S.A.:
 
     On September 26, 1996, the Company acquired 100% of the outstanding share
capital of Groupe Bisset, S.A. ("Bisset"), a Paris, France based company, for
$5.0 million in cash and 289,855 shares of restricted common stock, $2.5 million
in deferred consideration payable equally in cash and restricted common stock
and additional contingent consideration of $2.5 million. The contingent
consideration is payable equally in cash and restricted common stock and is
payable based on earnings of Bisset for the year ending June 30, 1997.
 
     Bisset is one of France's largest distributors of CCTV and professional
audio products. The transaction has been accounted for as a purchase, and the
operations of Bisset have been included in the Company's consolidated statement
of income since the date of acquisition. Goodwill is being amortized over 30
years using the straight-line method.
 
  VideV GmbH:
 
     On December 16, 1996, the Company acquired 100% of the outstanding share
capital of VideV GmbH ("VideV"), a Dusseldorf, German based company. VideV was
purchased for $2.7 million paid in cash, $1.3 million in deferred consideration
and additional contingent consideration of $1.3 million. The deferred and
contingent consideration is payable equally in cash and restricted shares of
common stock. The contingent consideration is based upon the earnings of VideV
for the year ending December 31, 1997.
 
     VideV is a manufacturer and distributor of CCTV products. The transaction
has been accounted for as a purchase and the operations of VideV have been
included in the Company's consolidated statement of income since the date of
acquisition. Goodwill is being amortized over 30 years using the straight-line
method.
 
  Koyo's U.S. CCTV Division:
 
     On March 15, 1995, the Company signed an agreement with Koyo International,
Inc. of America ("Koyo") to purchase certain assets of Koyo's U.S. CCTV
division. Under the agreement, the Company acquired all of Koyo's inventory,
patent rights, customer lists and certain tooling for cash of approximately
$416,000 plus a $100,000 minimum payment due under a royalty agreement. The
agreement provides for royalties of up to 2% of the net selling price of
products produced under license from Koyo. Goodwill is being amortized over 20
years by the straight-line method.
 
  Diamond Electronics, Inc.:
 
     On July 13, 1995, the Company acquired all of the outstanding shares of
common stock of Diamond Electronics, Inc. ("Diamond"), in exchange for 600,000
registered shares of the Company's common stock valued at $3,804,000. Costs
capitalized in conjunction with the acquisition were approximately $130,000.
Diamond is a manufacturer of commercial video CCTV security and surveillance
systems used by large retailers, and of hazardous viewing systems used by
industry and municipalities. The transaction has been accounted for as a
purchase, and the operations of Diamond have been included in the Company's
statement of income since the date of acquisition. Goodwill is being amortized
over 25 years by the straight-line method.
 
  G.P.S. Standard U.S.A.:
 
     Effective November 29, 1995, the Company acquired 100 percent of the
outstanding capital stock of BLC & Associates, Inc., doing business as G.P.S.
Standard U.S.A. ("GPS"), for 176,470 shares of registered common stock of the
Company. GPS is a manufacturer of surveillance camera housings, pan and tilt
devices, matrix switchers and other advanced software driven camera control
systems. The transaction was accounted for as a pooling of interests effective
December 1, 1996. Results of operations for periods prior to the date of
acquisition have not been restated to reflect the combined operations due to
immateriality.
 
                                       F-9
<PAGE>   43
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
  JAK Pacific Video Warranty and Repair Services, Inc.:
 
     Effective April 1, 1994, the company acquired 56% of the outstanding common
stock of JAK Pacific Video Warranty and Repair Services, Inc. ("JAK"), a
California corporation, for total cash consideration of $573,000. The
transaction was accounted for as a purchase. The operations of JAK have been
included in the Company's statements of income beginning April 1, 1994. JAK is
engaged in sales, services and warranty repairs of closed circuit television
products.
 
     During 1995, the Company exercised its option to acquire the remaining 44%
of the common stock of JAK for cash consideration of $500,000. Goodwill is being
amortized over 20 years by the straight-line method.
 
  Unaudited Pro Forma Information
 
     The following unaudited pro forma information for 1996 and 1995 presents a
summary of consolidated results of operations of the Company as if the
acquisitions of Diamond, MAXPRO, Bisset and VideV had occurred at the beginning
of the respective periods presented, giving effect to the amortization of
goodwill and other acquisition adjustments (in thousands):
 
<TABLE>
<CAPTION>
                                                                   YEAR ENDED
                                                                  DECEMBER 31,
                                                              --------------------
                                                                1996        1995
                                                              --------    --------
<S>                                                           <C>         <C>
Net sales...................................................  $162,738    $145,657
                                                              ========    ========
Net income..................................................  $  7,564    $  4,548
                                                              ========    ========
Income per share............................................  $    .65    $    .50
                                                              ========    ========
</TABLE>
 
     The pro forma effect of the operations of JAK and Koyo and the investment
in Lenel was not significant for the periods presented.
 
NOTE C -- NOTES PAYABLE AND LONG-TERM DEBT
 
     Notes payable as of December 31, 1995 consisted of the following:
 
<TABLE>
<S>                                                           <C>
$20.0 million revolving line of credit from a bank, due upon
  demand; interest at prime (8.75% at December 31, 1995)
  plus .25% or LIBOR (5.82% at December 31, 1995) plus 2.50%
  payable monthly; collateralized by substantially all
  assets....................................................  $17,478,730
$7.0 million revolving line of credit from an investment
  company, due upon demand; interest at the greater of 8.5%
  or prime plus 2.0% payable monthly; collateralized by
  inventory.................................................    6,822,417
                                                              -----------
                                                              $24,301,147
                                                              ===========
</TABLE>
 
     Long-term debt as of December 31, 1995 consists of a bank loan due in 1997,
bearing interest at prime plus .25% or LIBOR plus 2.50% and is collateralized by
real estate and equipment.
 
     All amounts outstanding at December 31, 1995 were repaid in full in May
1996.
 
     On July 26, 1996, the Company entered into a new three-year credit facility
with a bank. The credit facility initially provides up to $20 million in
revolving credit with interest at prime minus .25% or LIBOR plus .75%, payable
quarterly. The credit facility is collateralized by substantially all assets.
The credit agreement contains certain restrictive covenants and conditions,
including debt service coverage and tangible net worth ratios. No amounts are
outstanding under the credit facility as of December 31, 1996. The Company is
 
                                      F-10
<PAGE>   44
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
required to pay a quarterly commitment fee of .125% of the unused portion of the
facility beginning in July 1997.
 
     The weighted average interest rate for notes payable for the years ended
December 31, 1996, 1995 and 1994 was 8.6%, 9.5% and 8.2%, respectively.
 
NOTE D -- STOCKHOLDERS' EQUITY
 
     The Series A preferred stock earns dividends at the rate of 12% per annum,
payable quarterly. All dividends accrue whether or not such dividends have been
declared and whether or not there are profits, surplus, or other funds of the
Company legally available for payment.
 
     The Company may at any time redeem all or any portion of the Series A
Preferred Stock then outstanding at the liquidation value of $5.00 per share
plus unpaid dividends. The holder of the Series A Preferred Stock may convert
all or any of the shares into shares of the Company's common stock at any time
at a conversion rate equal to the original purchase price of $5.00 plus any
unpaid dividends the sum of which is divided by $2.40. Upon conversion, 406,981
shares of commons stock could be obtained.
 
     Holders of Series A preferred stock are entitled to vote on all matters
submitted to a vote of stockholders. Each Series A preferred share is entitled
to voting rights equal to 16.667 shares of common stock.
 
NOTE E -- STOCK-BASED COMPENSATION
 
     The Company's 1988 Nonqualified Stock Option Plan provided for grants of
options for up to 833,334 restricted shares. Shares under grant generally become
exercisable in five equal annual installments beginning one year after the date
of grant, and expire after ten years. At December 31, 1996, 174,558 shares were
available for grant under the 1988 Plan.
 
     Option exercise prices are set by the Compensation Committee of the Board
of Directors on the date of grant at the market price of the Company's common
stock and all have fixed exercise prices.
 
     Compensation cost for stock options granted to employees is measured as the
excess, if any, of the quoted market price of the Company's stock at the date of
grant over the amount an employee must pay to acquire the stock. If the Company
recognized compensation expense based upon the fair value at the grant date for
options under the 1988 Plan, the Company's 1996 and 1995 net income and income
per share would be reduced to the pro forma amounts indicated as follows:
 
<TABLE>
<CAPTION>
                                                                 1996          1995
                                                              ----------    ----------
<S>                                                           <C>           <C>
Net income allocable to common shareholders
  As reported...............................................  $7,598,724    $2,695,057
  Pro forma.................................................  $7,391,347    $2,571,126
Income per common share
  As reported...............................................  $      .75    $      .36
  Pro forma.................................................  $      .74    $      .36
</TABLE>
 
     The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions: expected volatility of 70 percent; risk-free interest rates of 5.5
percent for 1996 and 6 percent for 1995; no dividend yield; and expected lives
of 7 years.
 
     The pro forma amounts presented are not representative of the amounts that
will be disclosed in the future because they do not take into effect pro forma
expenses related to grants before 1995.
 
                                      F-11
<PAGE>   45
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Additional information with respect to options outstanding at December 31,
1996, and changes for the three years then ended was as follows:
 
<TABLE>
<CAPTION>
                                                                        1996
                                                             ---------------------------
                                                                        WEIGHTED AVERAGE
                                                             SHARES      EXERCISE PRICE
                                                             -------    ----------------
<S>                                                          <C>        <C>
Outstanding at beginning of year...........................  666,875         $ 3.84
Granted....................................................   47,000          16.27
Exercised..................................................  (21,850)          4.66
Forfeited..................................................  (33,250)          5.84
                                                             -------
Outstanding at end of year.................................  658,775         $ 4.42
                                                             =======        =======
Options exercisable at December 31, 1996...................  458,177         $ 2.94
                                                             =======        =======
Weighted average fair value per share of options granted
  during 1996..............................................                  $11.92
                                                                            =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        1995
                                                             ---------------------------
                                                                        WEIGHTED AVERAGE
                                                             SHARES      EXERCISE PRICE
                                                             -------    ----------------
<S>                                                          <C>        <C>
Outstanding at beginning of year...........................  532,959         $3.29
Granted....................................................  146,750          5.87
Exercised..................................................   (8,500)         3.68
Forfeited..................................................   (4,334)         5.31
                                                             -------
Outstanding at end of year.................................  666,875         $3.84
                                                             =======        ======
Options exercisable at December 31, 1995...................  406,468         $2.78
                                                             =======        ======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                        1994
                                                            ----------------------------
                                                                        WEIGHTED AVERAGE
                                                             SHARES      EXERCISE PRICE
                                                            --------    ----------------
<S>                                                         <C>         <C>
Outstanding at beginning of year..........................   500,226         $3.06
Granted...................................................    47,500          6.04
Exercised.................................................      (600)         2.40
Forfeited.................................................   (14,167)         4.33
                                                            --------        ------
Outstanding at end of year................................   532,959         $3.29
                                                            ========        ======
Options exercisable at December 31, 1994..................   334,109         $2.53
                                                            ========        ======
</TABLE>
 
                                      F-12
<PAGE>   46
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Information about stock options outstanding at December 31, 1996 is
summarized as follows:
 
<TABLE>
<CAPTION>
                                                  OPTIONS OUTSTANDING
                                            -------------------------------
                                                           WEIGHTED AVERAGE
                                              NUMBER          REMAINING        WEIGHTED AVERAGE
         RANGE OF EXERCISE PRICES           OUTSTANDING    CONTRACTUAL LIFE     EXERCISE PRICE
         ------------------------           -----------    ----------------    ----------------
<S>                                         <C>            <C>                 <C>
$1.2 to 4.5...............................    367,775         3.7 years             $ 2.21
$4.51 to 7.5..............................    257,000         8.1 years             $ 5.94
$7.51 to $28.75...........................     34,000         9.6 years             $21.58
                                              -------
                                              658,775
                                              =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                                  OPTIONS EXERCISABLE
                                                            -------------------------------
                                                              NUMBER       WEIGHTED AVERAGE
                 RANGE OF EXERCISE PRICES                   EXERCISABLE     EXERCISE PRICE
                 ------------------------                   -----------    ----------------
<S>                                                         <C>            <C>
$1.2 to 4.5...............................................      367,775         $2.21
$4.51 to 7.5..............................................       90,400          5.88
$7.51 to $28.75...........................................           --            --
                                                               --------
                                                                458,177         $2.94
                                                               ========
</TABLE>
 
NOTE F -- MAJOR CUSTOMERS AND SUPPLIERS
 
     One customer accounted for more than 10% of revenue in each of the three
years ended December 31, 1996. Sales to that customer were:
 
<TABLE>
<S>                                               <C>
1996............................................  $16,014,000
1995............................................   19,140,000
1994............................................   16,279,000
</TABLE>
 
     Loss of this customer would have a material adverse effect on the
operations of the Company.
 
     The Company purchased approximately 45% of its products from one supplier
in 1996 and 1995. Although there are a limited number of manufacturers of the
Company's products, management believes there are suppliers who could provide
similar products on comparable terms. A change in suppliers could cause a delay
in and a possible loss of sales.
 
NOTE G -- COMMITMENTS AND CONTINGENCIES
 
     The Company leases office and warehouse space and data processing equipment
under long-term, noncancelable leases.
 
     Minimum future rental payments for all long-term, noncancelable operating
leases are presented below:
 
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
------------
<S>          <C>                                    <C>
   1997...........................................  $1,211,746
   1998...........................................     882,527
   1999...........................................     613,662
   2000...........................................     347,641
   2001...........................................     273,657
                                                    ----------
                                                    $3,329,233
                                                    ==========
</TABLE>
 
                                      F-13
<PAGE>   47
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     Total rent expense was as follows:
 
<TABLE>
<CAPTION>
                                         YEARS ENDED DECEMBER 31,
                                  --------------------------------------
                                     1996           1995          1994
                                  ----------      --------      --------
                                  <C>             <C>           <C>
                                  $1,087,264      $468,770      $473,502
                                  ==========      ========      ========
</TABLE>
 
     As of December 31, 1996, the Company is a defendant in lawsuits arising in
the ordinary course of business. In the opinion of management, the lawsuits will
not have a material adverse effect upon the Company's business, financial
position, results of operations or cash flows.
 
NOTE H -- INCOME TAXES
 
     The provision for taxes on income from continuing operations consists of
the following:
 
<TABLE>
<CAPTION>
                                                        YEARS ENDED DECEMBER 31,
                                                 --------------------------------------
                                                    1996          1995          1994
                                                 ----------    ----------    ----------
<S>                                              <C>           <C>           <C>
Federal
  Current......................................  $3,518,707    $1,629,374    $1,081,435
  Deferred.....................................    (218,742)     (152,782)      227,012
State..........................................     206,529        62,937       204,573
Foreign........................................     386,498            --            --
                                                 ----------    ----------    ----------
                                                 $3,892,992    $1,539,529    $1,513,020
                                                 ==========    ==========    ==========
</TABLE>
 
     The Company's effective income tax rate differed from the Federal statutory
rate as follows:
 
<TABLE>
<CAPTION>
                                                             YEARS ENDED DECEMBER 31,
                                                             ------------------------
                                                             1996      1995      1994
                                                             ----      ----      ----
<S>                                                          <C>       <C>       <C>
U.S. Federal statutory rate................................  34.0%     34.0%     34.0%
State taxes, net of Federal benefit........................   1.1       1.0       3.1
Net operating loss carryforward recognized.................  (1.3)     (1.5)     (3.7)
Other, net.................................................    .1       2.9       1.8
                                                             ----      ----      ----
                                                             33.9%     36.4%     35.2%
                                                             ====      ====      ====
</TABLE>
 
                                      F-14
<PAGE>   48
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
     The components of deferred tax assets and liabilities are as follows:
 
<TABLE>
<CAPTION>
                                                                    DECEMBER 31,
                                                              ------------------------
                                                                 1996          1995
                                                              ----------    ----------
<S>                                                           <C>           <C>
Deferred tax assets:
  Inventories...............................................  $  676,401    $  560,717
  Accounts receivable.......................................     202,420       155,439
  Accrued expenses..........................................     170,408       259,114
  Net operating loss carryforward...........................     405,506       174,935
                                                              ----------    ----------
                                                               1,454,735     1,150,205
  Valuation allowance.......................................     (24,008)      (68,970)
                                                              ----------    ----------
                                                               1,430,727     1,081,235
Deferred tax liabilities:
  Property, plant and equipment.............................    (104,418)      (83,702)
  Other.....................................................     (42,521)      (54,487)
                                                              ----------    ----------
                                                                (146,939)     (138,189)
                                                              ----------    ----------
                                                              $1,283,788    $  943,046
                                                              ==========    ==========
</TABLE>
 
     At December 31, 1996, the Company had federal and state net operating loss
carryforwards of approximately $930,000 and $1,400,000, respectively. The
federal net operating loss carryforwards are limited in use each year to
approximately $100,000 through expiration in 2010. The state net operating loss
carryforwards expire in 2005.
 
NOTE I -- FOREIGN OPERATIONS
 
     The following table summarizes the domestic and foreign operations for the
year ended December 31, 1996 and identifiable assets as of December 31, 1996.
The Company had no significant foreign operations prior to 1996.
 
<TABLE>
<CAPTION>
                                      DOMESTIC       FOREIGN     ELIMINATIONS   CONSOLIDATED
                                    ------------   -----------   ------------   ------------
<S>                                 <C>            <C>           <C>            <C>
Net sales.........................  $128,344,438   $ 9,687,911   $(1,396,225)   $136,636,124
                                    ============   ===========   ===========    ============
Income from continuing
  operations......................  $ 11,060,350   $   761,875   $  (330,509)   $ 11,491,716
                                    ============   ===========   ===========    ============
Identifiable assets...............  $157,418,659   $15,159,456   $        --    $172,578,115
                                    ============   ===========   ===========    ============
</TABLE>
 
                                      F-15
<PAGE>   49
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
 
NOTE J -- UNAUDITED QUARTERLY OPERATING RESULTS
 
     Unaudited quarterly operating results for the years ended December 31, 1996
and 1995 are as follows:
 
<TABLE>
<CAPTION>
                                         FIRST        SECOND         THIRD        FOURTH
                                        QUARTER       QUARTER       QUARTER       QUARTER
                                      -----------   -----------   -----------   -----------
<S>                                   <C>           <C>           <C>           <C>
1996:
  Sales.............................  $29,674,027   $31,766,442   $35,151,344   $40,044,311
  Gross profit......................    8,429,140     9,123,728    11,076,035    12,221,226
  Net income........................    1,270,044     1,534,987     2,329,884     2,463,809
                                      ===========   ===========   ===========   ===========
  Net income per share..............         $.16          $.17          $.21          $.19
                                             ====          ====          ====          ====
1995:
  Sales.............................  $21,829,162   $22,305,871   $28,429,494   $28,667,778
  Gross profit......................    5,322,078     5,322,858     6,809,054     7,459,037
  Net income........................      781,933       485,744       683,162       744,218
                                      ===========   ===========   ===========   ===========
  Net income per share..............         $.11          $.07          $.09          $.10
                                             ====          ====          ====          ====
</TABLE>
 
NOTE K -- SUBSEQUENT EVENTS
 
     The Company has agreed to acquire all the issued and outstanding capital
stock of Veravision, Inc. ("Veravision"), a California corporation. The
consideration will consist of $150,000 in promissory notes, $1.0 million in
notes and $500,000 in accounts receivable due from Veravision, and 1,111 shares,
or 10%, of the Common Stock of Dental Vision Direct, Inc., a Texas corporation
and a wholly-owned subsidiary of the Company. The effective date of this
acquisition will be February 1, 1997. Veravision manufactures intra-oral camera
products for use primarily in the dental market.
 
     On February 17, 1997, the Company acquired all the issued and outstanding
capital stock of Monitor Dynamics, Inc. ("MDI"), a California corporation, for
$25 million in cash plus contingent additional consideration based upon the
difference in audited stockholder's equity as of March 31, 1997 and $6 million.
MDI designs, manufactures, markets and sells high-end security and access
control systems.
 
     On February 24, 1997, the Company acquired all the issued and outstanding
capital stock of Intervision Express, Limited ("Intervision"), a United Kingdom
private limited liability company, for $814,000 in promissory notes and
unregistered shares of common stock valued at approximately $700,000 on the
acquisition date. Intervision markets and sells a wide range of CCTV products.
 
     On March 11, 1997, the Company announced a definitive agreement to merge
with Checkpoint Systems, Inc. ("Checkpoint"). Checkpoint is a multinational
provider of integrated security solutions for retailers and is the leading
provider of radio frequency source tagging. Under the terms of the agreement,
each Company common share will be exchanged for 1.15 Checkpoint common shares.
The consummation of the transaction is subject to certain conditions, including
stockholder and regulatory approvals and is expected to close by June 30, 1997.
 
     On March 13, 1997, the Company executed a definitive agreement to acquire
Casarotto Security SpA, an Italian Company, and Videosys Limited, a United
Kingdom limited liability company (collectively, the "Videosys Group") for total
consideration of $9.55 million consisting of cash of $5.55 million and $4
million in restricted common stock. The transaction is expected to close by
April 4, 1997. The Videosys Group designs, imports and distributes a wide range
of CCTV and related security products primarily in Italy.
 
                                      F-16
<PAGE>   50
 
         REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
 
Board of Directors
Ultrak, Inc.
 
     In connection with our audit of the consolidated financial statements of
Ultrak, Inc. and Subsidiaries referred to in our report dated February 14, 1997,
which is included in Part II of this form, we have also audited Schedule II for
each of the three years in the period ended December 31, 1996. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
 
GRANT THORNTON LLP
 
Dallas, Texas
February 14, 1997
 
                                       S-1
<PAGE>   51
 
                                                                     SCHEDULE II
 
                         ULTRAK, INC. AND SUBSIDIARIES
 
                       VALUATION AND QUALIFYING ACCOUNTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
 
<TABLE>
<CAPTION>
                                      BALANCE AT                CHARGE TO                    BALANCE AT
                                      BEGINNING    CHARGE TO      OTHER                        END OF
            DESCRIPTION               OF PERIOD    OPERATIONS   ACCOUNTS      DEDUCTIONS       PERIOD
            -----------               ----------   ----------   ---------     ----------     ----------
<S>                                   <C>          <C>          <C>           <C>            <C>
YEAR ENDED DECEMBER 31, 1996:
  Allowance for doubtful accounts...   $439,104     $168,293    $395,116(1)   $(238,395)(2)   $764,118
                                       ========     ========    ========      =========       ========
YEAR ENDED DECEMBER 31, 1995:
  Allowance for doubtful accounts...   $323,772     $ 49,114    $282,701(1)   $(216,483)(2)   $439,104
                                       ========     ========    ========      =========       ========
YEAR ENDED DECEMBER 31, 1994:
  Allowance for doubtful accounts...   $213,607     $532,344    $     --      $(422,179)      $323,772
                                       ========     ========    ========      =========       ========
</TABLE>
 
---------------
 
Notes
 
(1) Balances recorded from business combinations during 1995.
(2) Balances written off.
 
                                       S-2
<PAGE>   52
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
          3.1            -- Certificate of Incorporation of the Company (filed as
                            Exhibit 3.1 to the Company's Annual Report on Form 10-K
                            for the year ended December 31, 1995)
          3.2            -- By-Laws of the Company (filed as Exhibit 3.2 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995)
          4.1            -- Form of certificate representing shares of the Common
                            Stock (filed as Exhibit 4.1 the Company's Registration
                            Statement on Form S-2, Registration No. 333-02891)
         10.1            -- Ultrak, Inc. 1988 Non-Qualified Stock Option Plan (filed
                            as Exhibit 10.6 to the Company's Registration Statement
                            on Form S-1, Registration No. 55-3-31110)
         10.2            -- Amendment No. 2 to Ultrak, Inc. 1988 Non-Qualified Stock
                            Option Plan (filed as Exhibit 10 to the Company's Current
                            Report on Form 8-K dated December 28, 1993)
         10.3            -- Amendment No. 3 to Ultrak, Inc. 1988 Non-Qualified Stock
                            Option Plan
         10.4            -- Agreement and Plan of Reorganization, dated as of April
                            28, 1995, among Diamond Electronics, Inc., the
                            shareholders of Diamond signing the Agreement, the
                            Company and Diamond Purchasing Corp. (filed as Annex A to
                            the Company's Registration Statement on Form S-4
                            Registration No. 33-919)
         10.5            -- Employment Agreement, dated May 25, 1995, between the
                            Company and James D. Pritchett (filed as Exhibit 10.21 to
                            the Company's Annual Report on Form 10-K for the year
                            ended December 31, 1995)
         10.6            -- Employment Agreement, dated May 25, 1995, between the
                            Company and Tim D. Torno (filed as Exhibit 10.22 to the
                            Company's Annual Report on Form 10-K for the year ended
                            December 31, 1995)
         10.7            -- Loan and Security Agreement, dated July 26, 1996 among
                            NationsBank of Texas, N.A. and the Company, Ultrak
                            Operating, L.P., Dental Vision Direct, Inc., Diamond
                            Electronics, Inc. and JAK Pacific Video Warranty and
                            Repair Services, Inc. (filed as Exhibit 10.1 to the
                            Company's Quarterly Report on Form 10-Q for the quarter
                            ended June 30, 1996)
         10.8            -- Stock Purchase Agreement dated August 7, 1996 among Chris
                            Davies, Kim Rhodes, Scott Rhodes, Rhodes Davies &
                            Associates Pty Ltd. and the Company (filed as Exhibit
                            10.1 to the Company's Current Report on Form 8-K dated
                            August 23, 1996)
         10.09           -- Stock Purchase Agreement dated September 26, 1996 among
                            Maurice Scetbon, Monda, S.A., Frida, S.A., the Company
                            and Ultrak Holdings Limited (filed as Exhibit 10.1 to the
                            Company's Current Report on Form 8-K dated October 11,
                            1996)
         10.10           -- Purchase Agreement of German GmbH Share Capital, dated
                            December 16, 1996, among all of the shareholders of VideV
                            GmbH, Ultrak and Ultrak Holdings Limited (filed as
                            Exhibit 1 to the Company's Current Report on Form 8-K
                            dated December 31, 1996)
</TABLE>
<PAGE>   53
<TABLE>
<CAPTION>
        EXHIBIT
         NUMBER                                  DESCRIPTION
        -------                                  -----------
<C>                      <S>
         10.11           -- Agreement and Plan of Merger dated February 10, 1997
                            among Monitor Dynamics, Inc., all of the shareholders of
                            Monitor Dynamics, Inc., Ultrak, Inc. and MDI Acquisition
                            Corp. (filed as Exhibit 1 to the Company's Current Report
                            on Form 8-K dated February 19, 1997)
         11.1            -- Computation of Per Share Data
         21.1            -- Subsidiaries of the Company
         27.1            -- Financial Data Schedule
</TABLE>