<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C.  20549

                                  FORM 10-KSB

[X]  ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT 
     OF 1934.

     For the fiscal year ended December 31, 1996

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
     SECURITIES EXCHANGE ACT OF 1934

     For the transition period from______________ to ________________


                       Commission File Number:   0-21361
                                        
                           ENSEC INTERNATIONAL, INC.
                           -------------------------
                (Name of small business issuer in its charter)

              Florida                                   65-0654330
   ----------------------------                --------------------------
  (State or other Jurisdiction of          (I.R.S. Employer Identification No.)
   Incorporation or Organization)

           751 Park Of Commerce Drive, Suite 104, Boca Raton FL 33487
           ----------------------------------------------------------
           (Address of principal executive offices)        (zip code)

                                 (561) 997-2511
                                 --------------
               Registrant's telephone number, including area code

                                Not applicable
                   ----------------------------------------
   (Former name, former address and former fiscal year, if changed since 
                                 last report)

Securities registered under Section 12(b) of the Exchange Act:

None.

Securities registered under Section 12(g) of the Exchange Act:

                    Common Stock, $.01 par value per share
                    --------------------------------------
                               (Title of Class)

       Redeemable Warrants to Purchase Common Stock, $.01 par value per share
       ----------------------------------------------------------------------
                               (Title of Class)
<PAGE>
 
     Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. ___
                                  ---
     Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB.  [X]

     The issuer's revenues for the fiscal year ended December 31, 1996 were
$8,576,915.

     As of March 13, 1997, the aggregate market value of the registrant's Common
Stock held by non-affiliates computed by reference to the closing price of such
stock as of such date was $11,992,969.

     As of March 13, 1997, there were 5,656,250 shares of Common Stock issued
and outstanding.
<PAGE>
 
                                     PART I

Item 1.   DESCRIPTION OF BUSINESS
-------   -----------------------
 
General

     The Company designs, develops, sells, assembles, installs and services
security systems for large commercial and governmental facilities, ranging from
single function installations to high-end integrated security systems.  The
Company's high-end integrated systems are based on its proprietary software and
related hardware which permit multiple devices or systems to be combined into a
unified system covering multiple sites.  Since its inception, the Company has
installed approximately 400 systems, nearly all of which have been in Brazil,
including systems for large corporations (such as Bosch, Caterpillar, Eastman
Kodak, General Motors, IBM, Microsoft and Texaco) and government agencies (such
as the Brazilian Bureau of Mint & Engraving and the Central Bank of Brazil).

     The Company is a Florida corporation which was formed in April 1996 as a
holding company for Ensec Inc., a Florida corporation ("Ensec Inc."), and Ensec
Engenharia e Sistemas de Seguranca, S.A. ("Ensec, S.A."), a Brazilian
corporation.  Ensec, S.A. was founded in 1983 by Charles N. Finkel, the
Company's President and Chief Executive Officer.  In 1991, Ensec, S.A.
established its U.S. operations with the formation of Ensec Inc.

     In 1995, the Company completed the development of its second-generation
system, the EnWorks/(R)/ product family, consisting of state-of-the-art, real-
time, integrated security systems.  The Company spent four years and over $5
million in the development of the flagship product in the EnWorks/(R)/ family:
the En2000/TM/ system.  The Company's high-end integrated security systems are
based on distributive intelligence architecture and proprietary software that
permit the integration of various security devices or systems into a unified
system operating through the use of graphical user interfaces.  Distributive
intelligence architecture allows individual components of an integrated security
system to process information independently so that such components may continue
to operate even when the central processor or another component in the system
malfunctions or is rendered inoperative.  In addition, an integrated security
system that uses distributive intelligence architecture can operate more
efficiently because individual components are able to complete independent tasks
simultaneously.

     The Company began marketing its En2000/TM/ system in 1995 at which time the
Company was selected by the Port Authority of New York and New Jersey through a
competitive bid process to provide the new integrated access control system for
the parking facilities located in the World Trade Center.  In 1995, the Company
entered into contracts to install eight additional En2000/TM/ systems, including
a contract from EDS to install the En2000/TM/ in EDS's corporate headquarters in
Plano, Texas.  During 1996, the Company entered into contracts to install 16
En2000/TM/ systems.  In addition, the Company

                                       1
<PAGE>
 
currently has 43 service and maintenance contracts with customers who have
purchased Company products, covering 76 installations.

     The Company's systems have the ability to integrate and enable
communication between disparate subsystems including the following functions
based on a customer's specific needs:
<TABLE>
<CAPTION>
<S>                       <C>                        <C>   
 . Access Control          . Time and Attendance      . Facilities Management
 . Alarm Monitoring        . Guard Tours              . Parking Facility Control
 . Data Security           . Elevator Control         . Closed Circuit Television
 . Vehicle Tracking        . Asset Tracking           . Video Badging

</TABLE>

     The Company's business strategy is based on two objectives which the
Company believes will allow it to better serve each of its geographic markets:

(i)  Expand the Company's focus from operations and a customer base located
     primarily in Brazil to a company with an international scope and an
     emphasis on the marketing in the United States of high-end and mid-range
     integrated security systems, which the Company believes enjoy the greatest
     opportunities in the U.S. The Company recently relocated certain key
     executives as well as its research and development personnel to the U.S.

(ii) Enter into alliances with strategic partners for marketing the Company's
     products in the U.S. and internationally.  To facilitate this expansion
     into the U.S. market, the Company has entered into the following strategic
     alliances:

     .  Agreement with EDS whereby EDS will promote and sell the Company's
        products for a term of three years (subject to renewals).
 
     .  Agreement with ADT Security Systems, Inc. ("ADT") whereby ADT will
        promote and sell the Company's products through ADT's sales force to its
        established customer base.

     .  Agreement with Lockheed Martin whereby the Company and Lockheed Martin
        will seek (for a term of five years, subject to renewal) to identify
        specific projects for integrated security systems to be pursued through
        a teaming arrangement between the parties.

     In order to focus its Brazilian marketing efforts primarily on the sale and
service of less complex security systems and alarm monitoring, the Company has
implemented a downsizing plan during 1995 and 1996 and intends to continue to
implement such plan during 1997. The downsizing plan includes the following
steps:

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<PAGE>
 
(i)       Sale of the Company's Brazilian currency sorting division in 1995,
          which was not related to the Company's integrated security system
          business.

(ii)      Establishment of relationships with value-added resellers to market
          the Company's products to the mid-and low-end market segments in
          Brazil.

(iii)     Cumulative reduction of the Brazilian workforce by approximately 82%
          as compared to the 1995 workforce and a proposed sale of some or all
          of the Company's facilities in Brazil as a result of such workforce
          reductions and the sale of the currency sorting equipment division,
          all of which are consistent with the Company's utilization of value-
          added resellers in addition to in-house sales personnel.

     The Company believes that this downsizing plan was and continues to be
necessary to adjust the Company's operations to the developing economy of Brazil
which the Company believes will provide a greater number of potential customers
for its less complex products and services rather than for its high-end
integrated security systems.  The Brazilian marketplace can only provide a
finite number of commercial, governmental and similar other facilities suited
for high-end integrated security systems in addition to the amount of such
systems already installed by the Company in Brazil.  This redirection of the
Company's Brazilian operations will enable it to provide its customers in Brazil
with a more marketable range of products and services, such as centralized alarm
monitoring, data security, time and attendance, and the sale and installation of
residential and smaller commercial security systems.

     The Company anticipates that this downsizing plan will be completed by the
end of the first quarter of 1997, except for the sale of the Company's Brazilian
facilities, which is expected to occur by the end of the 1997 fiscal year.
During the Company's implementation of this downsizing plan, the Company has
incurred losses in fiscal year 1996 and anticipates to incur quarterly losses
through the end of the second quarter of 1997.  However, the Company anticipates
that it will continue to realize increasing financial benefits as a result of
this downsizing plan and expects to achieve profitability by the end of fiscal 
year of 1997.

Integrated Security Systems

     Integrated security systems perform functions such as access control,
facilities management and alarm monitoring through combined subsystems and
components such as card readers, closed circuit television ("CCTV"), paging
devices, intercoms and identification badges.  An integrated security system
generally includes a central command and control feature that uses a single user
interface and shares data among subsystems to form a system that performs in a
uniform and cohesive fashion.  Systems integration allows various subsystems to
communicate with each other so that one system, rather than many subsystems,
controls a company's or a location's security.  The Company believes that, by
integrating disparate subsystems into a single system, functions are enhanced by
establishing uniform responses to certain conditions.  The Company believes that

                                       3
<PAGE>
 
integrated systems involve fewer steps to process data, therefore requiring less
response time to perform functions.

     In an integrated security system, a central computer is necessary to
integrate components and subsystems.  The degrees of systems integration can
vary, ranging from subsystems interconnected through electrical wiring to
subsystems that communicate with each other via separate databases and that are
monitored through a central processor and finally to the most advanced
integrations which share the same database.  For example, an integrated system
can be as simple as connecting a CCTV system to an alarm system for a small bank
branch or casino room.  An integrated system can also be extremely advanced,
being built around a common database and combining identification cards and
graphical screen monitoring of access control with monitored alarms and HVAC
(heating, ventilation and air conditioning)/lighting management systems for
large corporate or government sites.

     While the initial purchase and installation of an integrated security
system often will cost more than a simple, stand alone alarm monitoring, access
control, CCTV or security guard system, the Company believes that integrated
systems justify their cost because they can result in reduced capital
expenditures and maintenance costs (due to the elimination of redundant
components or circuitry that would result from multiple stand-alone systems)
over time while improving performance.  Staffing costs are also generally
reduced by integrated systems because operators monitor multiple functions, the
complexity of several systems has been simplified into one graphical user
interface and, as a result of the simpler nature of the system, fewer personnel
are required to operate the system.

     The primary function of an integrated security system is typically access
control. Conventional access control systems involve mechanical devices allowing
access, such as magnetic stripe card readers on turnstiles or proximity card
readers on doors.   These mechanisms were often connected to a CCTV system, but
were not usually integrated with a larger premises control system.  Today, such
mechanical access control systems are still being installed, but the Company
believes that the future growth in access control will come from PC-based
systems which are integrated with other building systems.  Access control is
becoming increasingly important in the protection of electronic data.  Gaining
access to a data stream, whether it be a corporate computer network or a
financial institution's ATM network, involves various forms of identification
and certification.  These include traditional forms such as a simple personal
identification number ("PIN") or cards with magnetic stripes, but are
increasingly becoming more sophisticated, such as token cards (which allow
remote access to PIN-specific systems), remote detection cards such as ID badges
that emit radio frequencies and identification equipment based on fingerprint or
eye identification.

                                       4
<PAGE>
 
Products and Services

     The Company has established three distinct yet related sources of revenue:
Products, Service and Distribution.  As of February 25, 1997, the Company has a
current backlog of orders for systems sales, installations and service
aggregating in excess of $4.4 million which the Company anticipates will be
filled over the next 12 months.

     Products:  The Company markets a variety of stand-alone and integrated
products in its EnWorks/(R)/family of products, as follows:

     En2000/TM/ Integrated Security System

          Integrated security system providing on-line (i.e., real-time) access
          control/alarm monitoring and the integration and/or secondary
          monitoring (i.e., monitoring-only without operational capability) of
          multiple subsystems. This system and the En1000/TM/ system described
          below consist of a central processing unit running proprietary
          software that is connected to a number of devices through distributive
          intelligence architecture.

     En1000/TM/ Integrated Security System

          Integrated security system providing on-line access control/alarm
          monitoring with a more limited number of readers and limited
          integration or secondary monitoring of additional application
          subsystems.

     Scape Security System
          
          Offline access control system consisting of software and DC500
          terminals.

     DC500 Terminal

          Stand alone access control/data collector.

     The EnWorks/(R)/ family of products is designed to permit upgrades and
improvements allowing lesser-featured systems such as the Scape system to be
expanded to provide the features of the most sophisticated system offered, the
En2000/TM/ system.  The En2000/TM/ system was designed to be expandable from its
current function (i.e., an integrated security system) to meet the new and
changing applications needs of the customer.  The foundation for this approach
was established with the selection of the object-oriented design methodology, a
real time operating system, the standard PC computing platform, and the
graphical user interface. The Company offers a number of components to expand or
enhance the En2000/TM/ system including a networked access control/data
collector, a networked alarm monitoring unit, multi-site communications
capabilities and expanded databases.

     Service:  An important part of any systems sale is the ability of the
systems provider to train, service and maintain the system.  The Company has
developed a service organization to provide project management, systems design,
training, technical documentation, site surveys and audits, installation and
maintenance services.

                                       5
<PAGE>
 
     Since the Company's installed base of systems is concentrated primarily in
Brazil, service revenues and related personnel resources are also primarily
based in Brazil, where the Company provides nationwide installation, project
management and maintenance services through trained technicians located
throughout Brazil.  These services are provided pursuant to contracts which
typically have a duration of five years or more.  The Company currently has 42
maintenance and service contracts covering 75 installations in Brazil.  The
Company has also in the past provided maintenance services to customers and
multinational product suppliers for products and systems not sold or installed
by the Company.  The Company is not currently providing this type of maintenance
service, but may choose to do so again in the future.

     The Company's sales and marketing efforts for service and maintenance in
the U.S. have only recently begun.  Accordingly, the Company's U.S.-based
service capabilities have not been fully developed.  In early 1996, however, the
Company was awarded a three-year maintenance contract on the World Trade
Center's parking access control contract.

     Distribution:  The Company from time to time in the U.S. and, it is
anticipated, more significantly in Brazil, also distributes to customers
security products manufactured by others.  For example, to complement its
existing products and offer to its customers a data security function as part of
an integrated security system or on a stand-alone basis, the Company has entered
into a two-year Software Value Added Reseller Agreement (the "Reseller
Agreement") with Platinum Technology, Inc. ("Platinum"), the successor to a data
security software system formerly owned by ICL Enterprises, pursuant to which
the Company has the right to resell Platinum's data security software.  As of
December 31, 1996, the Company has not sold any of Platinum's products pursuant
to the Reseller Agreement.  The Reseller Agreement provides the Company with a
nonexclusive license to distribute, reproduce, resell and sublicense this data
security software to customers of the Company, except that the Company may not
sublicense the software to resellers.  The Company's distribution strategies
with Platinum and potentially other companies are an integral component of the
Company's efforts to refocus its Brazilian operations on the sale and service of
less complex products and systems, including data security solutions and stand-
alone time and attendance systems.

Intellectual Property

     The Company's ability to compete successfully depends, in part, on its
ability to protect the proprietary technology contained in its products.  The
Company relies on a combination of patent, trade secret, copyright and trademark
laws, together with non-disclosure agreements, to establish and protect
proprietary rights in its EnWorks/(R)/ products. The Company generally enters
into confidentiality and/or license agreements with its employees, distributors,
customers and suppliers, and limits access to and distribution of its
proprietary information.  These measures afford limited protection, and there
can be no assurance that the steps taken by the Company to protect these
proprietary rights will be adequate to prevent misappropriation of its
technology or the independent development

                                       6
<PAGE>
 
by others of similar technology.  In addition, the laws of Brazil, where the
Company maintains its patents and copyrights and has pending patent
applications, do not protect the Company's proprietary rights to the same extent
as do the laws of the United States. The Company intends to seek copyright
protection under United States law with respect to some of its technology.
While the Company believes that it would be impractical and not cost-effective
for anyone to attempt to copy complex software such as that used in the
EnWorks/(R)/ products, unauthorized parties, nevertheless, might attempt to copy
aspects of the Company's products or to obtain and use information that the
Company regards as proprietary.  The cost of enforcement by the Company of its
information rights could be significant, regardless of the outcome of such
enforcement proceedings.  In addition, although the Company believes that there
are no infringement claims against the Company and no grounds for the assertion
of such claims, the cost of responding to any such assertion, should it be made,
could be significant.

Research and Development

     The Company has the in-house capability to develop, maintain and enhance
its proprietary technology.  As a result, the Company can prioritize its
development efforts and control the scope and quality of its technology.  This
research and development staff permits the Company to provide customized
solutions for each customer.  Management believes that this ability to provide
customized solutions constitutes a competitive advantage.  During fiscal years
1996 and 1995, the Company incurred development costs of approximately $1.5
million and $1.8 million, respectively (including capitalized software costs).

     As a part of the Company's efforts to focus on sales and service of its
integrated security systems in the U.S. market, the Company's research and
development group is centered in Boca Raton, Florida.  The research and
development group is responsible for the design and implementation of new
products, as well as additions and enhancements to existing products.  The group
is currently working on a number of product enhancements and new features,
including an enhanced communication methodology, expanded database functionality
and enhanced alarm-management capability.  At such time as the anticipated
capabilities of the EnWorks/(R)/ product line are more fully developed,
particularly with the En2000/TM/ system, the research and development group's
resources will become focused to a greater extent on new systems application and
specific industries.  Depending upon the nature of the systems requirements,
some of these new applications may be for other than security purposes.

Sales and Marketing

     The Company's sales strategy is focused on the following:

     .    Development of strategic value-added integrator relationships with a
          limited number of large, well-known multinational systems integrators
          with large established client bases and existing networks (e.g., EDS,
          ADT, Lockheed

                                       7
<PAGE>
 
          Martin, etc.) to promote direct and indirect sales of all of the
          Company's products;

     .    Calling efforts concentrated on Fortune 1000 companies with sufficient
          integration requirements and size to qualify as sales prospects for
          En2000/TM/ and En1000/TM/ integrated security systems;

     .    Solicitation of consulting companies responsible for locating and
          specifying providers of security systems on large, high-end integrated
          security systems projects suitable for En2000/TM/ and En1000/TM/
          integrated security systems;

     .    Pursuit of selected federal, state and local government requests for
          proposals as a prime contractor (e.g., World Trade Center) or in
          cooperation with strategic partners; and

     .    Engagement of manufacturer's representatives and distributors in
          Brazil to assist the Company's direct sales efforts of less complex
          products and services, including residential and smaller commercial
          alarm systems, central alarm monitoring, time and attendance and data
          security systems.

     The Company markets its products primarily through its strategic partners
in the U.S., through its direct sales staff in Brazil, and by direct mail
materials, technical seminars, trade shows, technical publications, public
relations and collateral materials.

     Prior to 1995, virtually all of the Company's systems sales were made in
Brazil, where the Company believes it had and continues to have a reputation for
delivering reliable, high-quality systems.  Although systems sales throughout
Brazil are anticipated to remain important, the Company believes that the
business development opportunities in the U.S. for new systems sales are
significantly greater, particularly for the En2000/TM/ and En1000/TM/ security
systems. To this end, the Company has begun to actively pursue large, high-end
and mid-range integrated security systems projects in the U.S. In early 1995,
the New York & New Jersey Port Authority awarded the parking access control
system contract for the World Trade Center to the Company. The World Trade
Center contract procurement process took place over a two-year period and
involved investigations of the Company and its products. In Brazil, the Company
intends to focus its efforts on the sale of less complex systems, such as the
Scape security system, to take advantage of the developing Brazilian economy.
The Company intends to undertake limited international sales efforts beyond the
established Brazilian and U.S. markets, and to focus in these areas on large,
high-end integrated security systems projects.

     The Company believes that its value-added integrator relationships will be
a significant source of sales and revenue in the near future.  Currently, the
Company's three primary value-added integrator relationships are with ADT, EDS
and Lockheed Martin.  The Company is seeking and will continue to seek
additional strategic partnerships to support both the Company's direct and
indirect selling efforts.

                                       8
<PAGE>
 
     In October 1996, the Company and ADT entered into an ADT Original Equipment
Manufacturer Agreement (the "OEM Agreement"), whereby ADT has agreed to
purchase, and the Company has agreed to sell, the Company's hardware, software,
and other products, as well as the Company's installation, training, support and
maintenance services, at prices which are generally discounted from the
Company's regular list prices. Additionally, ADT has agreed to promote and sell
to its customers the entire EnWorks/(R)/ family of products, including primarily
the En2000/TM/, integrated security system. The OEM Agreement may be terminated
by either party for any reason upon six months prior written notice, or upon 30
days prior written notice in the event of a termination due to an uncured breach
of the OEM Agreement by the nonterminating party.

     The Company and EDS have entered into a Card Access Systems Agreement, as
amended (the "Systems Agreement"), whereby EDS shall purchase the Company's
hardware, software and other products, as well as the Company's installation,
education, support and maintenance services.  EDS is entitled to purchase
hardware and software from the Company at prices which are generally discounted
from the Company's list prices. The Company shall perform any requested system
installations, Licensed Software (as defined in the Systems Agreement) support
services and hardware maintenance services at prices and rates as set forth in
the Systems Agreement.  EDS has agreed to promote and sell the Company's
products and services in the marketplace for an initial term of three years.
The parties have agreed to formulate and approve a joint marketing plan in the
third quarter of 1995 for the promotion and sale of their products.  As a part
of the joint marketing strategy, the Company has allowed EDS to market, promote
and remarket Licensed Software and any documentation thereto as an authorized
remarketer in accordance with the terms and conditions of the Systems Agreement.

     The Company has entered into a five-year Strategic Alliance Agreement (the
"Alliance Agreement") with Lockheed Martin.  The Alliance Agreement permits
Lockheed Martin and the Company to cooperate and complement each other's efforts
in identifying, proposing and marketing integrated security systems to
governmental, corporate and industrial entities.  The Alliance Agreement
contemplates that Lockheed Martin and the Company will agree upon a particular
teaming arrangement with each party assuming defined roles and responsibilities
in order to more effectively compete for future business opportunities and
programs.  Pursuant to the terms and conditions of the Alliance Agreement,
Lockheed Martin and the Company have agreed, with respect to mutually agreed
projects, to jointly market and support each other's services without soliciting
services or products from other sources or offering services and products to
other contractors.  After the initial five-year term, the Alliance Agreement may
be extended upon the mutual agreement of the parties for additional one-year
terms.  The Alliance Agreement may be terminated by either party upon 12 months
prior written notice.

Competition

     The U.S. security systems industry is highly competitive and fragmented.
The Company believes that most of its competitors excel in a particular market
niche rather

                                       9
<PAGE>
 
than having broad-based market share.  In Brazil, the Company competes with
Sensormatic, Casi-Rusco and Northern Computers Corporation, among others.  In
North America, significant competitors include Software House/Sensormatic, Casi-
Rusco, Matrix, Cardkey, Diebold, Johnson Controls, Honeywell, Infographic, MDI
and The Pittston Brinks Group.  Some of these competitors have greater name
recognition, more extensive engineering, manufacturing, marketing and
distribution capabilities and greater financial, technological and personnel
resources than the Company.  The Company may also face competition from
potential new entrants into the Company's segment of the security systems
industry, many of which have substantially greater resources than the Company.
It is possible, for example, that existing or potential competitors of the
Company could introduce less expensive and/or improved products. However, the
Company believes that competition is based primarily on product performance and
features and, to a lesser extent, on the basis of price. Other critical
competitive factors include product reliability and flexibility of use with a
user's other systems. There can be no assurance that the Company will be able to
compete successfully in the future against existing or potential competitors or
successfully adapt to changes in the market for the Company's products. An
increase in competition could have a material adverse effect on the Company's
business and results of operations.

Employees

     As of December 31, 1996, the Company employed 64 individuals, of which
approximately 45 were employed in Brazil and 19 were employed in the U.S.  None
of the Company's employees in the U.S. are represented by unions or were covered
by any collective bargaining agreement.  All of the Company's employees in
Brazil, or approximately 70.3% of all employees, are covered by a collective
bargaining agreement. The collective bargaining agreement expires on November 1,
1997 and is subject to annual renewal.  In the event that representatives of
management and employees are unable to agree on the terms of a new collective
bargaining agreement, a court may ultimately determine such terms by rendering a
binding judicial decision which would serve as the renewal agreement.

     In addition to the collective bargaining agreement, Brazilian labor laws
are applicable to all of the Company's employees in Brazil.  The requirements of
the collective bargaining agreement and the Brazilian labor laws principally
address the length of the work day, minimum daily wages for professional
workers, contributions to a retirement fund, insurance for work-related
accidents, procedures for dismissing employees, determination of severance pay
and other conditions of employment.

     As part of the Company's relocation of its executive and research and
development activities to the U.S. and the downsizing of its operations in
Brazil to limit its activities to sales and service of less complex security
systems, the Company reduced its workforce in Brazil by approximately one-half
during fiscal 1996.  Under the terms of the collective bargaining agreement and
Brazilian law, such reduction caused the Company to incur approximately $.2
million of severance and related expenses during such period, most of

                                       10
<PAGE>
 
which was recognized in the third and fourth quarters of 1996.  The Company
anticipates further reductions of approximately 20% in Brazil during the first
quarter of 1997, as compared to the end of fiscal year 1996.

     The Company believes that its future success will depend in large part upon
its ability to continue to attract, retain, train and motivate highly skilled
and dedicated employees.  The Company has not experienced a work stoppage, and
the Company believes that its employee relations are good.

Forward-Looking Statements

     The foregoing Description of Business contains various "forward-looking 
statements" within the meaning of Section 27A of the Securities Act of 1933, as 
amended (the "Securities Act") and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). For a discussion of important factors 
that could cause the actual results to differ materially from those contained in
such forward-looking statements, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Forward-Looking Statements."
     
Item 2.   DESCRIPTION OF PROPERTY
-------   -----------------------

       The Company is headquartered in Boca Raton, Florida.  As of December 31,
1996, the Company leased approximately 9,300 square feet of office space at two
locations: a central operations office in Boca Raton, Florida, and a marketing
and sales office in New York City, New York.  In January 1997, the Company
reopened a Dallas, Texas sales office that was previously closed in 1995, and
entered into an executive suite lease. The New York and Dallas offices are
utilized by the Company's regional sales personnel. In the fourth quarter of
1996, the Company expanded its Boca Raton facilities in order to accommodate the
relocation of its research and development personnel and to provide for an
expanding workforce, all in the U.S. The expansion of the Boca Raton office and
the reopening of the Dallas office increased the Company's total leased space by
approximately 57%.

     The Company's Brazilian operations are headquartered in a Company-owned
building located in Cotia, a suburb of Sao Paulo. The building was constructed
in 1990 and is comprised of approximately 140,000 square feet of office and
warehouse space. In addition to the Cotia-based headquarters, the Company
maintains a number of service facilities located throughout Brazil. These
offices, many of which are provided by customers of the Company, are used
principally by the Company's service technicians.

     As of December 31, 1996, the Brazilian property is encumbered by a $2.9
million term mortgage held by a Brazilian bank.  This mortgage currently bears
interest at a rate of approximately 12% per annum, plus an inflation adjustment
which was approximately 10% in 1996.  Interest on the mortgage is payable
monthly.  Principal shall be amortized and shall be payable over a period of 50
months commencing on March 15, 1998.  The Company's management believes that it
currently maintains adequate insurance coverage on this property.

     As a component of the Company's downsizing plan, the Company is actively
seeking to sell its Brazilian facility.  However, the Company believes that the
current competitive conditions in the Brazilian real estate market may limit the
potential sale of its property in Brazil and that the Company may experience
some difficulty in selling the property at a price which it deems to be fair.
The Company anticipates that it will likely complete the sale of this property
by the end of the 1997 fiscal year.

                                       11
<PAGE>
 
     The Company believes that its facilities are adequate to meet the Company's
current business requirements, and that suitable additional space will be
available as needed to accommodate further physical expansion of its U.S.
operations and for additional sales and support offices in the U.S.

Item 3.   LEGAL PROCEEDINGS
-------   -----------------

     From time to time, the Company is involved in litigation relating to claims
arising out of its operations in the normal course of business. As of December
31, 1996, the Company is not a party to any legal proceedings the adverse
outcome of which, in management's opinion, individually or in the aggregate,
would have a material adverse effect on the Company's results of operations or
financial position.

Item 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
-------   ---------------------------------------------------

     No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year 1996.


                                    PART II

Item 5.   MARKET FOR THE ISSUER'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
-------   ---------------------------------------------------------------------

Description of Market for Securities

     As of September 25, 1996, the Company's Common Stock and redeemable common
stock purchase warrants have been publicly traded on the Nasdaq SmallCap Market
(the "Nasdaq-SCM") under the trading symbols ENSC and ENSCW, respectively. The
following table sets forth the high and low per share and per warrant closing
prices for the Company's securities traded on the Nasdaq-SCM for each quarter in
which such securities were traded during the year ended December 31, 1996, as
reported by the Dow Jones News/Retrieval Service.
<TABLE>
<CAPTION>
 
                                        Closing Price     
                                     ---------------------    
                                       High          Low      
         -------------------------------------------------    
         <S>                          <C>          <C>       
         Common Stock:                                        
            Third Quarter 1996             7             6     
            Fourth Quarter 1996        7 1/8             6     
                                                              
         Redeemable Warrants:                                 
            Third Quarter 1996         1 3/8           7/8
            Fourth Quarter 1996        2 3/8        1 3/16 
</TABLE>

                                       12
<PAGE>
 
     These quotations reflect inter-dealer prices without retail mark-up, mark-
down or commissions and may not represent actual transactions.

     The continued inclusion of the Company's securities on the Nasdaq-SCM is
subject to certain specified financial tests and market-related criteria.  The
Company's failure to satisfy such maintenance criteria in the future may prevent
the Company's securities from continuing to be quoted on the Nasdaq-SCM and may
have a material adverse effect on the trading market for the Company's
securities.  No assurance can be given that a trading market will be maintained
for the Company's securities.
 
     As of March 13, 1997, the Company's Common Stock was held of record by
approximately 155 persons.

Dividends

     The Company has not declared or paid any dividends on its Common Stock
since inception.  The Company currently anticipates that it will retain any
future earnings for use in its business and does not anticipate paying any such
dividends in the foreseeable future. The payment of any future dividend will be
at the discretion of the Company's Board of Directors and will depend, among
other things, upon the Company's future earnings, operations, capital
requirements and financial condition, general business conditions and
contractual restrictions on payment of dividends, if any.

Sales of Unregistered Securities

     On April 2, 1996, the Company issued in the aggregate 3,500,000 shares of
Common Stock to Tecpo Comercio e Representacoes Ltda., a Brazilian limited
liability company ("Tecpo"), and Fugrow Investments Inc., a British Virgin
Islands corporation ("Fugrow"), in a stock-for-stock exchange for all the shares
of Ensec Inc. and 99.99% of the shares of Ensec, S.A.  Both Tecpo and Fugrow are
indirectly wholly-owned by Charles N. Finkel, the Company's President and Chief
Executive Officer.  These shares were issued in transactions made in reliance
upon the exemption provided in Section 4(2) of the Securities Act.  On 
December 31, 1996, the 2,500,000 shares of Common Stock owned by Tecpo were
transferred to its parent, Mayfair Limited Partnership, a Delaware limited
partnership ("Mayfair"), in a transaction not involving any sale of such Common
Stock.

     On May 14, 1996, the Company concluded a private placement to certain
accredited investors ("Bridge Investors") of units, each unit consisting of (i)
a $25,000 10% senior subordinated note, and (ii) a warrant to purchase 2,500
shares of Common Stock at an exercise price of $.10 per warrant.  All of the
warrants issued in this private placement were immediately and mandatorily
exercisable on September 30, 1996, the consummation of the Company's initial
public offering.  The total purchase price of all units sold in this private
placement was $2,500,000.  The Company sold the units to the Bridge Investors in

                                       13
<PAGE>
 
reliance upon Section 4(2) of the Securities Act and/or Rule 506 of Regulation D
promulgated thereunder.

     On October 10, 1996, the Company issued an option to purchase in the 
aggregate 15,000 shares of Common Stock to Seiden Krieger & Associates, Inc., an
executive search and recruiting firm, as compensation for recruiting and
consulting services provided by such firm to the Company. The options vest in
one-third equal installments commencing on the date of the Company's 1997 annual
meeting of shareholders for the election of directors and continuing on each
such successive annual meeting. This option was issued by the Company in
reliance upon Section 4(2) of the Securities Act.

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

     Amounts presented herein have generally been rounded to the nearest hundred
thousand dollars and the related dollar and percentage fluctuations are
calculated based on such rounding.
 
     This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain statements which are forward-looking and
the accuracy of which are based upon certain uncertainties in the Company's
future operations and results. For a discussion of important factors that could
cause the actual results to differ materially from those contained in such
forward-looking statements, see "Forward-Looking Statements" below.

General

     The Company derives its revenue primarily from the sales, installation and
service of its integrated security systems.  In 1995, the Company derived a
material portion of its revenues from two sources which did not contribute to
the Company's revenues in 1996 and will not contribute to the Company's revenue
in future years: the leasing of postal tracking and tracing equipment to a
single customer pursuant to a contract which terminated in the second fiscal
quarter of 1995, and the sale, installation, service and maintenance of currency
sorting equipment through a division which was sold in December 1995.  The
revenue and related costs from the currency sorting equipment division was
classified as a discontinued operation with respect to fiscal year 1995.

     The Company began selling its integrated security systems in 1983.  In
1995, the Company completed over four years of the development of and began
marketing its second generation of integrated security systems: the EnWorks/(R)/
family of products, including the Company's flagship En2000/TM/ system.  At such
time, the Company began the amortization of approximately $3.6 million of
capitalized software costs incurred in connection with the development of the
EnWorks/(R)/ family of products.  These and other additional capitalized costs
will be amortized over the product's seven-year estimated useful life.

                                       14
<PAGE>
 
     In connection with the sale of the Company's currency sorting equipment
division and its business strategy in Brazil, the Company has been implementing
a downsizing plan which it expects to complete by the end of the first quarter
of 1997, except for the sale of the Company's Brazilian headquarters, which the
Company expects to occur by the end of fiscal year 1997.  Pursuant to these
efforts, the Company has, as of December 31, 1996, reduced its workforce in
Brazil by approximately 78% as compared to 1995.  These workforce reductions are
expected to continue through the end of the first quarter of 1997, which
reductions are expected to accumulate to an 82% total reduction from the 1995
Brazilian workforce.

     Additionally, the Company is attempting to reduce or eliminate expenses
associated with its Brazilian headquarters by leasing the unused portion of such
buildings, by selling the buildings outright, and/or by taking other actions.
The implementation of the Company's downsizing plan has had a material adverse
impact on the Company's operating results in the years during which such
downsizing steps were taken even though the Company began to realize the 
benefits of such steps in fiscal year 1996.  The Company expects to continue 
to realize increasing benefits of its downsizing efforts in fiscal year 1997.
The costs associated with these efforts for each of the years ended December 31,
1995 and 1996 include employee termination expenses of $1.4 million and $.2
million, respectively. Furthermore, the Company anticipates the termination of
certain fixed operating costs associated with the Company's Brazilian
headquarters upon the completion of the Company's downsizing efforts.

     As a result of the effects of the Company's downsizing efforts, the results
of operations of the Company for the years ended December 31, 1995 and 1996 are
in certain respects not comparable.

Foreign Currency Exchange Rates and Translation Gains and Losses

     The Company's functional currency is the U.S. dollar.  The Company has a
substantial portion of its operations located in Brazil.  Therefore, a
substantial portion of its sales are collected in Brazilian reais (plural of
real, the Brazilian currency) and a substantial portion of the Company's
expenses are incurred in Brazilian reais, in each case rather than U.S. dollars.
Although it is impossible to predict future exchange rate fluctuations between
the U.S. dollar and other currencies, it can be anticipated that, to the extent
the U.S. dollar strengthens or weakens against the Brazilian real or other
currencies, a substantial portion of the Company's reported net sales, cost of
goods sold and operating expenses will be commensurably lower or higher than
they would have been with a stable foreign currency relationship.  The Company
and its subsidiaries translate into their functional currency on a monthly basis
based on a combination of the then current and historical exchange rates for the
currency in which their assets and liabilities are valued.  Gains or losses
arising from these monthly translations are reflected as translation income or
expense.  As a result of these monthly translations, the Company recognized

                                       15
<PAGE>
 
a loss of $1.2 million for the year ended December 31, 1995 and a gain of $.5
million for the year ended December 31, 1996.

     Prior to 1995, Brazil experienced a highly inflationary economy.
Accordingly, under the required temporal method of currency translation, both
current and historical exchange rates are used depending upon the nature of the
asset or liability being translated. Translation gains and losses result from
fluctuations in the assets or liabilities being translated at current rates as
well as from fluctuations in the dollar/real exchange rate itself. The Company
experienced translation losses in 1995 as a result of the dollar strengthening
against the real.  For the year ended December 31, 1996, the dollar weakened
against the real, thus causing the translation gain in such period since the
Company was in a net liability position related to the items translated at
current rates.

     Although in 1994, the inflation rate in Brazil was approximately 900%, in
1995 and 1996  inflation rates decreased to 22% and 10%, respectively.  For
1997, the Company believes that inflation in Brazil will continue to remain at
or about the 1996 rate.

Results of Operations

Comparison of the Year Ended December 31, 1996 to the Year Ended December 31,
1995

     Sales.  Total sales for both fiscal year 1996 and 1995 were approximately
$8.6 million. The Company was able to maintain its sales levels from period to
period even though the Company focused much of its efforts in the second and
third quarter of 1996 on completing its initial public offering.  Although total
sales remained constant, the mix of sales revenue changed dramatically,
reflecting the Company's refocusing on its core business of sales and service of
integrated security systems. Sales from the leasing of postal tracking and
tracing equipment and related service revenue decreased $1.3 million, or 100%,
in 1996 from the comparable 1995 period as a result of the termination of a
contract with the Brazilian postal authority in the second quarter of 1996.
Integrated security system sales increased $1.3 million, or 17.8%, to $8.6
million in 1996 from $7.3 million in 1995, which reflected the refocusing of the
Company's efforts on its integrated security systems.

     In fiscal year 1997, the Company expects overall sales growth resulting
from its U.S. operations. To accomplish this growth, the Company intends to
increase its sales force in order to strengthen the Company's direct marketing
efforts.   The Company will also seek to further develop its distribution
channels and joint marketing and strategic alliances in order to both take
advantage of indirect-marketing potential and to supplement the Company's
direct-marketing efforts.

     Cost of Goods Sold. Cost of goods sold decreased $.3 million, or 5.2%, from
$5.8 million in fiscal year 1995 to $5.5 million in fiscal year 1996. While the
dollar amount of the cost of goods sold changed somewhat from year to year, the
mix of the cost of goods sold changed significantly.  During the second quarter
of 1995, revenues from postal tracking

                                       16
<PAGE>
 
and tracing equipment and related services ceased due to the Company's
refocusing on its core business of sales and service of integrated security
systems.

     The cost of goods sold, gross profit and gross profit percentage for the
postal tracking and tracing equipment and related services was $.9 million, $.4
million and 30.8%, respectively. The cost of goods sold related to sales and
service of the Company's integrated security systems was $4.9 million in 1995,
inclusive of employee termination costs of $.4 million, as compared to costs of
$5.5 million in 1996.  The fiscal year 1996 cost of goods sold included $.4
million in costs attributable to increased software amortization expenses,
increased employee wages in accordance with Brazilian collective bargaining
agreements, and costs incurred as a result of increases in system sales.  The
resulting gross profit and gross profit percentages in 1995 and 1996 were $2.3
million and 31.9%, and $3.1 million and 36.0%, respectively. The overall
increase in gross profit and gross profit percentage resulted from increases in
gross profit on sales of the Company's products in the U.S.  During the fourth
quarter of 1996, the Company's gross profit and gross profit percentage on sales
in the U.S. were $.5 million and 46.8%, respectively. However, this increase
from period to period was limited in part by a decrease in gross profit realized
from Brazilian sales resulting from a reduction in systems sales prices due to
increased competition.

     The Company expects this increase to be maintained during 1997 along with a
projected increase in sales.  It is anticipated that further increases in gross
profit and gross profit percentage will occur, together with a commensurate
increase in sales, because the Company's software amortization expense will
remain at its current level and because the Company expects to reduce certain
costs of materials through a standardization of its production methods.

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses in 1996 increased $ .7 million, or 13.2%, to $6.0
million from $5.3 million in 1995. As a part of its downsizing efforts, the
Company reduced the number of employees in its Brazilian operations during the
latter part of 1995 and in 1996. These workforce reductions resulted in a
decrease of $.4 million of payroll and related costs during 1996 but were offset
in part by termination costs and commission expenses of $.2 million during that
same period. During the fourth quarter of 1996, the Company incurred public
company expenses of $.1 million, professional fees of $.1 million in connection
with the Company's downsizing efforts and employee litigation and recognized bad
debt expenses totaling $.9 million. The bad debt expenses were associated with
the Company's Brazilian operations and resulted from the Company (i) writing off
$.5 million in disputed accounts receivable, (ii) writing off $.2 million in
accounts receivable from certain governmental agencies for inflation
adjustments; and (iii) increasing reserves by $.2 million primarily to cover a
doubtful account receivable from a Brazilian governmental agency.  The bad debt
reserve was associated with a project that had been halted because of the
agency's failure to sufficiently fund the project.  The Company believes that
the continued viability of this project is questionable.

                                       17
<PAGE>
 
     As a result of the Company's continued downsizing efforts, the Company's
selling, general and administrative costs, including those costs associated with
the Company's fixed assets in Brazil, are expected to decrease in fiscal year
1997.

     Research and Development Expenses.  Research and development expenses for
the year ended 1996 increased $.6 million, or 100%, from $.6 million in 1995 to
$1.2 million in 1996. This increase resulted due to the fact that in 1995 the
Company's development efforts were focused on completing the En2000/TM/ family
of products and were thus capitalized, whereas in 1996, the Company's
development efforts focused on new features whose costs have been expensed in
the period in which such costs were incurred. In addition, the Company incurred
employee termination costs of $.1 million in connection with relocating its
research and development personnel to the U.S.

     Other Income and Expense.  Interest income decreased $.6 million, or 85.7%,
from $.7 million in 1995 to $.1 million in 1996.  This decrease was attributable
to a decrease in the amount of interest-bearing assets.  Interest expense for
1996 increased $1.0 million, or 40%, to $3.5 million from $2.5 million in the
comparable 1995 period due to interest paid on $2.5 million of indebtedness
which was incurred in May 1996 in connection with the Company's bridge
financing, and the amortization of deferred financing costs incurred in
connection therewith.  Other, net expense decreased by $.3 million, or 75%, to
$.1 million in fiscal year 1996 from $.4 million in the year prior period.  In
1995, the remaining book value of approximately $.4 million of certain postal
tracking and tracing equipment was written down in connection with the
termination of leases for such equipment.  In 1996, an impairment loss of $.1
million was recognized in connection with certain furniture and fixtures which
were no longer being used in the Company's operations.

     Income Tax Benefit.  Income tax benefit in 1996 decreased by $1.1 million,
or 78.6%, to $.3 million from $1.4 million in the comparable 1995 period.  This
decrease was primarily attributable to a decrease in the Company's available net
deferred tax liability which could have been offset by foreign net operating
losses generated in fiscal year 1996.

     Discontinued Operations.  Because the currency sorting equipment division
was sold in December 1995, there was no discontinued operations during 1996.

Liquidity and Capital Resources

     Net cash used in operating activities for the year ended 1996 amounted to
$4.0 million which primarily resulted from the Company's net loss from
operations of $6.9 million (adjusted for non-cash charges (credits) totaling
$2.3 million) and a reduction in accounts payable of $.5 million.  Net cash used
in investing activities for the year ended 1996 amounted to $.5 million which
resulted from costs of $.4 million associated with capital investment in the
development of the Company's software and hardware products during the first
quarter and costs of $.1 million associated with the purchase of infrastructure
equipment for the Company's U.S. operations.  Net cash provided by financing
activities

                                       18
<PAGE>
 
for the same period was $6.3 million which primarily resulted from the receipt
of net proceeds in September 1996 from the Company's initial public offering of
1,900,000 shares of Common Stock and 2,185,000 redeemable common stock purchase
warrants (the "Public Offering").

     On November 19, 1996, pursuant to the exercise of the underwriter's over-
allotment option in connection with the Public Offering, the Company sold an
additional 25,000 shares of Common Stock.  The net proceeds from sales related
to the Public Offering totaled $9.6 million, which were used to retire (i) $2.5
million of senior subordinated notes issued in May 1996 in connection with a
completed private placement, (ii) approximately $2.7 million of notes payable
and borrowings under loan agreements, and (iii) $.3 million of dividends
payable.  Of the $2.7 million of notes payable and borrowings under loan
agreements, $2.6 million was due to several Brazilian banks and bore interest at
rates of approximately 4% to 5% per month, and $.1 million was payable to the
Company's Chief Executive Officer.

     While the Company has no commitments for capital expenditures as of
December 31, 1996, it anticipates that it will incur approximately $1.0 million
of research and development expenditures during the next 12 months in order to
enhance existing products and to develop new products.

     The Company believes that the financing provided by the Public Offering,
together with the net cash to be provided by operations, if any, available
borrowings under lines of credit and other possible sources of future
financings, should be sufficient to meet its presently anticipated cash needs
for at least the next 12 months.  However, there can be no assurance that the
Company will achieve profitability in the next 12 months, and the Company may
need to raise additional capital in the future.

Forward-Looking Statements

     The foregoing Management's Discussion and Analysis of Financial Condition
and Results of Operations contains various "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act, which represent the Company's expectations or beliefs concerning future
events, including without limitation the following: changes in the Company's
sales, costs, expenses and other financial information; changes or adjustments
in the Company's marketing and business strategies; the scope, nature and
effects of the Company's downsizing plan, including without limitation the
reduction of the Company's workforce and the potential sale of the Company's
Brazilian headquarters; the possibility of fluctuations in the Brazilian
economy, interest rates and currency and the effects thereof, if any, on the
Company; the Company's ability to secure additional credit facilities or other
future sources of financing in the U.S. and Brazil, as well as other sources, if
necessary for the Company to do so; and the sufficiency of the Company's cash
provided by operating, investing and financing activities for the Company's
future liquidity and capital resource needs.

                                       19
<PAGE>
 
     The Company cautions that these statements are further qualified by
important factors that could cause actual results to differ materially from
those contained in the forward-looking statements, including without limitation
the following: general economic conditions; specific economic conditions
relating to the production of integrated security systems (including software);
the economic, social and political conditions in Brazil; the demand for the
Company's products; the size and timing of future orders and new contracts;
specific feature requests by customers; production delays or manufacturing
inefficiencies; management decisions to commence or discontinue product lines;
the Company's ability to design and introduce new products on a cost-effective
and timely basis; the amount and timing of research and development
expenditures; the maintenance of present and the availability of future
strategic alliances and joint marketing or servicing agreements; the
introduction of new products and product enhancements by the Company or its
competitors; the budgeting cycle of customers; changes in the proportion of
revenues attributable to license fees and maintenance and support services;
changes in the level of operating expenses; and the present and future level of
competition in the industry.  As a result of these and other important factors,
the results actually achieved may differ materially from expected results
included in these statements.

Item 7.  FINANCIAL STATEMENTS
         --------------------

     The Company's Consolidated Financial Statements which are required to be
included in this Item 7 are set forth in a separate section of this Report and
commence on Page F-1 immediately following Page 33 of this Report.

Item 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
-------  ---------------------------------------------------------------
         FINANCIAL DISCLOSURE
         --------------------

     Not applicable.

                                       20
<PAGE>
 
                                    PART III

Item 9.  DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
-------  ----------------------------------------------------------------
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
         -------------------------------------------------

Directors and Executive Officers

     The directors and executive officers of the Company, and certain officers
of its subsidiaries, their ages, and positions with the Company, Ensec Inc. and
Ensec, S.A. are set forth below:

<TABLE>
<CAPTION>

            Name                               Age   Position                                                                      
            ----                               ---   --------                                                                      
            <S>                                <C>   <C>                                                                           
                                                                                                                                   
            Charles N. Finkel                  47    Chairman of the Board (Class III Director),                                   
                                                     Chief Executive Officer and President of the Company;                         
                                                     Chairman of the Board and Chief Executive                                     
                                                     Officer of Ensec, S.A. and Ensec Inc.                                         
                                                                                                                                   
            James K. Norman                    50    Vice President-U.S. and Class I Director of                                   
                                                     the Company; President, Chief Operating                                       
                                                     Officer and Director of Ensec Inc.; Director                                  
                                                     of Ensec, S.A.                                                                
                                                                                                                                   
            Flavio R. da Silva                 48    Vice President-Brazil and Class II Director of the Company;                   
                                                     President, Chief Operating Officer and                                        
                                                     Director of Ensec, S.A.;                                                      
                                                     Director of Ensec Inc.                                                        
                                                                                                                                   
            Steven T. Geffin                   38    Vice President-Technology and Engineering of the Company; Vice                
                                                     President and Director of Ensec, S.A. and Ensec Inc.                          
                                                                                                                                   
            David J. Rottner                   40    Vice President, Chief Financial Officer and Secretary of the                  
                                                     Company and Ensec Inc.                                                        
                                                                                                                                   
            Edward Morelli                     44    Vice President-Operations of Ensec Inc.                                       
                                                                                                                                   
            Nuno J. Moura                      49    Vice President, Secretary and Controller of Ensec, S.A.                       
                                                                                                                                   
            John De George                     49    Vice President-Sales of Ensec Inc.                                            
                                                                                                                                   
            Terence R. McAuliffe               40    Class I Director of the Company                                               
                                                                                                                                   
            Raymond E. List                    52    Class II Director of the Company                                              
</TABLE>

     Charles N. Finkel founded Ensec, S.A. in 1983 and has been Chairman of the
Board, Chief Executive Officer, President and a Class III director of the
Company since its inception in April 1996.  Mr. Finkel has 18 years of
experience in the security industry commencing with Engesa, S.A., an armaments
company based in Sao Paulo, Brazil, where Mr. Finkel was director of export
sales.  In 1983, Mr. Finkel left Engesa to found Ensec, S.A.  Mr. Finkel
received a degree in civil engineering from Armando Alvares Peteado, Brazil, and
a Masters degree in Marketing from Getulio Vargas, Brazil.

                                       21
<PAGE>
 
     James K. Norman joined the Company in June 1996 as a Class I director, the
Company's Vice President-U.S. and Chief Operating Officer.  Prior to joining the
Company, Mr. Norman was employed for 20 years by Racal-Milgo, Inc. and
affiliated companies, serving from 1989 to 1995 as President of Racal-Datacom,
Inc., a data communications company with revenues of approximately $300 million
in 1995.  Prior to that time, Mr. Norman served as Senior Vice President-Sales,
Service and Marketing of Racal-Milgo, Inc., with worldwide responsibility for
sales and service for all products designed and manufactured in the United
States.  Mr. Norman received a Bachelor of Science degree in Business
Administration from Auburn University in Auburn, Alabama.

     Flavio R. da Silva joined the Company in December 1995 and has served as a
Class II director of the Company since April 1996.  Prior to joining the Company
in 1995, Mr. da Silva held management positions, from 1971 to 1989, for Brasilit
S.A., a manufacturer of building products, and from 1990 to 1995, for Fortilit
S.A. and predecessor companies, a manufacturer of PVC products.  Mr. da Silva
received Bachelor of Science and Masters degrees in Business Administration from
Mackenzie University, Brazil, and a Ph.D. in Engineering from the University of
Sao Paulo, Brazil.

     Steven T. Geffin joined the Company in 1992 and has served as its Vice
President-Technology and Engineering since April 1996.  Prior to joining the
Company, Mr. Geffin was employed in the research and development department for
two years at Casi-Rusco, a competitor of the Company engaged in the sales and
installation of security systems. Mr. Geffin is responsible for engineering,
research and development and manufacturing for all Company products.  Mr. Geffin
received Bachelor of Science and Masters of Science degrees in Electrical
Engineering from the University of Miami in Miami, Florida.

     David J. Rottner joined the Company in May 1996 as its Chief Financial
Officer, Vice President and Secretary.  Mr. Rottner has over 17 years of public
accounting experience. From November 1993 to May 1996, Mr. Rottner was a
certified public accountant with Grant Thornton LLP, a national accounting firm,
in Fort Lauderdale, Florida.  From April 1990 to November 1993, Mr. Rottner was
a certified public accountant with Paul Scherer & Company, in New York, New
York.  Mr. Rottner received a Bachelor of Science degree in Accounting from the
State University of New York, Albany.

     Edward Morelli joined the Company in 1994.  From 1990 to 1994, Mr. Morelli
was Operations Manager for Datalarm Security Systems, a security and card access
company in Miami, Florida.  Prior to that, he was Division Administrator for
Sentrex Security Systems, also a security and card access company, in Miami.
Mr. Morelli's career in security systems began in 1974 installing fire and
burglar alarms.  Mr. Morelli studied electronics at PIO IX in Buenos Aires,
Argentina.

     Nuno J. Moura joined the Company in 1995.  From 1993 to 1995, Mr. Moura
worked for Cadi Ltda. in Brazil as a personnel recruiter and administrator.
From 1990 to 1993, he served as the controller for Brasinca, S.A., a producer,
assembler and supplier of

                                       22
<PAGE>
 
automotive parts.  Mr. Moura received a Masters degree in Finance from
Pontificia Universidade Catolica, Brazil.

     John De George joined the Company in 1995 as the Company's U.S. Sales
Manager. From 1992 to 1995, Mr. De George was sales manager for Vikonics, Inc.,
a manufacturer of large scale computer-based integrated security and life safety
systems in Teterboro, New Jersey.  Prior to that, he was General Manager for
Alphamation, Inc., a data/telecommunication and document/image processing
systems integrator located in Hauppauge, New York.  Mr. De George received a
Bachelor of Science degree from Hofstra University in Hempstead, New York.

     Terence R. McAuliffe, Esq. joined the Company's Board of Directors as a
Class I director in October 1996.  Mr. McAuliffe is the Chairman of American
Heritage Corporation, a premier builder of single-family homes in Central
Florida.  He also serves as Chairman and Chief Executive Officer of Jefferson
National Title Insurance Company and as Chairman of American Marketing Services,
Inc.  Mr. McAuliffe serves on the Board of Directors of Beacon Energies, Made in
the USA Shopping Network, Inc. and The Center for National Policy.  Mr.
McAuliffe formerly served as Vice Chairman of Federal Capital Bank, N.A. and as
Chairman of Federal City National Bank.  Mr. McAuliffe also served as Co-
Chairman of the Clinton-Gore Committee '96.  Mr. McAuliffe received a Bachelor
of Arts degree from Catholic University of America, Washington, D.C. and a Juris
Doctor degree from Georgetown University, Washington, D.C.

     Raymond E. List joined the Company's Board of Directors as a Class II
director in October 1996.  Mr. List is a Managing General Partner in Fairfax
Partners, a venture capital partnership with investments in health care,
software and environmental companies. From 1988 to 1994, Mr. List served as
President and Chairman of ICF Kaiser Engineers, Inc., a worldwide engineering
and construction company.  Mr. List received a Bachelor of Civil Engineering
degree from Union College in Schenectady, New York, a Masters degree in
Engineering from Manhattan College, Bronx, New York and a Masters degree in
Business Administration from Harvard University in Cambridge, Massachusetts.

     Officers of the Company are elected by the Board of Directors on an annual
basis and serve until the next annual meeting of shareholders and until their
successors have been duly elected and qualified.  There are no family
relationships among any of the officers of the Company.

Election of Directors

     The Board of Directors is currently comprised of five members.  Pursuant to
the Company's Articles, the Board of Directors is divided into three classes, as
nearly equal in number as possible, designated Class I, Class II and Class III.
The term of the initial Class I directors terminates on the date of the 1997
annual meeting of shareholders; the term of the initial Class II directors
terminates on the date of the 1998 annual meeting of shareholders and the term
of the initial Class III directors terminates on the date of the

                                       23
<PAGE>
 
1999 annual meeting of shareholders.  At each annual meeting of shareholders,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term.  Mr. Norman and Mr. McAuliffe are
currently Class I directors, Mr. da Silva and Mr. List are currently Class II
directors and Mr. Finkel is currently a Class III director.  There are no family
relationships among any of the directors of the Company.

Section 16(a) Beneficial Ownership Reporting Compliance

     Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors, executive officers and any persons who beneficially own
ten percent or more of the Company's Common Stock to file with the Securities
and Exchange Commission (the "Commission") initial reports of beneficial
ownership and reports of changes in beneficial ownership of Common Stock.  Such
persons are required by regulations of the Commission to furnish the Company
with copies of all Section 16(a) forms they file.

     Based solely upon (i) a review of Forms 3 and 4 and amendments thereto
furnished to the Company during fiscal year 1996 and Form 5 and amendments
thereto furnished to the Company with respect to fiscal year 1996, and (ii)
written representations from such reporting persons that no Form 5 filings were
required with respect to such fiscal year, the Company believes that each filing
required to be made pursuant to Section 16(a) was made by each such reporting
person on a timely basis.

Item 10.  EXECUTIVE COMPENSATION
--------  ----------------------

Compensation of Executive Officers

     The following table sets forth as of December 31, 1996, all compensation
paid during the Company's last three fiscal years to the Company's Chief
Executive Officer and to executive officers whose total annual compensation
exceeded $100,000 during the last fiscal year.

                                       24
<PAGE>
 
                          Summary Compensation Table

<TABLE>
<CAPTION> 
                                                                                                  Long Term
                                                                                                 Compensation 
                                                      Annual Compensation(1)                       Awards
                               ---------------------------------------------------------------   --------------                
                                                                                                  Number of                 
                                                                                                  Securities              
Name and Principal                                                           Other Annual         Underlying       All Other 
Position                        Year        Salary         Bonus             Compensation(2)      Options(3)     Compensation 
----------------------------   ------      --------       -------            -----------------    -------------  -------------
<S>                            <C>         <C>            <C>                <C>                  <C>             <C> 
Charles N. Finkel,              1996       $216,112        $   -0-              $10,246           25,000          $ 35,642(4) 
 Chief Executive Officer        1995       $116,500        $   -0-              $   -0-            -  0-          $107,200(5) 
 of the Company, Ensec,         1994       $ 73,000        $   -0-              $   -0-            -  0-          $117,900(6) 
 S.A. and Ensec Inc.                    

Flavio R. da Silva,             1996       $124,331        $   -0-              $17,542           50,000          $    -0-
 Vice President-Brazil          1995       $  9,112        $   -0-              $   -0-            -  0-          $    -0-
 of the Company and                   
 President and Chief                    
 Operating Officer of                   
 Ensec, S.A.(7)                         

Steven T. Geffin,               1996       $ 92,836        $25,000              $   -0-           50,000          $    -0-
 Vice President-                1995       $ 91,863        $   -0-              $   -0-            -  0-          $    -0-
 Technology and                 1994       $ 65,800        $   -0-              $   -0-            -  0-          $    -0-
 Engineering of the          
 Company and Vice            
 President of Ensec, S.A.    
</TABLE> 
--------------------- 
 (1)   In accordance with the rules of the Commission, the compensation
       described in this table does not include medical group life insurance or
       other benefits received by the named executive officers which are
       available generally to all salaried employees of the Company, and certain
       perquisites and other personal benefits, securities or property received
       by the executives which do not exceed the lesser of $50,000 or 10% of any
       such named executive officer's salary and bonus disclosed in this table.
 (2)   In accordance with their employment agreements, the Company paid to
       Messrs. Finkel and da Silva a monthly automobile allowance and paid to
       Mr. da Silva the amount of his medical premiums which exceed those
       provided under Ensec, S.A.'s employee benefit plan. Additionally, the
       amounts in this column include the value of additional employment-related
       benefits which accrued to Messrs. Finkel and da Silva during fiscal 1996
       under Brazilian law.
 (3)   The value of these options are detailed in the "Option Grants in Last
       Fiscal Year" table below. All options were granted under the Company's
       1996 Stock Option Plan (the "Plan").
 (4)   Represents the following compensation for expenses paid by the Company on
       behalf of the named executive officer in fiscal year 1996: (i) $1,786 in
       property maintenance expenses; (ii) $3,575 in car expenses; (iii) $5,381
       in meal expenses; (iv) $14,283 in travel expenses; (v) $5,700 in
       entertainment expenses; and (vi) $4,917 in miscellaneous expenses.
 (5)   Represents following compensation for expenses paid by the Company on
       behalf of the named executive officer in fiscal year 1995: (i) $9,648 in
       property maintenance expenses; (ii) $17,152 in car expenses; (iii)
       $18,224 in meal expenses; (iv) $26,800 in travel expenses; (v) $24,656 in
       entertainment expenses; and (vi) $10,720 in miscellaneous expenses.
 (6)   Represents the following compensation for expenses paid by the Company on
       behalf of the named executive in fiscal year 1994: (i) $9,432 in property
       maintenance expenses; (ii) $15,327 in car expenses; (iii) $21,222 in meal
       expenses; (iv) $30,654 in travel expenses; (v) $23,580 in entertainment
       expenses; and (vi) $17,685 in miscellaneous expenses.
       

                                       25
<PAGE>
(7)      The table reflects compensation earned only in 1995 and 1996 as 
         Mr. da Silva was not employed by the Company at any time during 1994.

         The following table sets forth information regarding options to
purchase the Company's Common Stock granted by the Company during the last
fiscal year to the executives named in the Summary Compensation Table.

<TABLE> 
<CAPTION> 

                                      Option Grants in Last Fiscal Year

                                 Number of
                                 Securities       % of Total
                                 Underlying    Options Granted     Per Share
                                  Options      to Employees in      Exercise    Expiration
         Name                    Granted(1)     Fiscal Year(2)       Price         Date
         ---------------------  ------------  ------------------  ------------ -------------
         <S>                    <C>           <C>                 <C>          <C> 
         Charles N. Finkel            25,000         7.0%            $3.00         2006
         Steven T. Geffin             50,000        14.1%            $3.00         2006
         Flavio R. da Silva           50,000        14.1%            $3.00         2006
</TABLE> 

------------------
(1)      According to each named executive officer's option agreement, the
         options shall vest in one-third equal installments over a two-year
         period. The first vesting occurred on September 30, 1996 and subsequent
         vestings shall occur on September 30, 1997 and September 30, 1998,
         provided that the named executive officer is still employed by the
         Company as of each such date. The option agreements provide for
         accelerated vesting in the event the executive is terminated by the
         Company other than for cause, or in connection with certain changes in
         control of the Company.
(2)      Options to purchase a total of 355,000 shares were granted to employees
         of the Company in fiscal year 1996 under the Plan. This aggregate
         amount does not include options to purchase in the aggregate 30,000
         shares of Common Stock granted under the Plan in October 1996 to
         certain non-employee directors of the Company and an option to purchase
         15,000 shares of Common Stock (not under the Plan) which was granted in
         October 1996 to an outside consultant.

         During 1996, no options were exercised by any of the three named
executive officers. The following table sets forth information with respect to
such executive officers concerning unexercised options held as of December 31,
1996.

                                      26
<PAGE>
 
   Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
<TABLE>
<CAPTION>
                             Number of Securities                        Value of Unexercised In-
                            Underlying Unexercised                       the-Money Options at FY-
                              Options at FY-End                                   End
                          ----------------------------                 ----------------------------
                                               Not                                          Not
Name                        Exercisable    Exercisable                  Exercisable    Exercisable
----------------------     ------------   ------------                 -------------  ------------- 
<S>                        <C>            <C>                          <C>            <C>
Charles N. Finkel.....      8,333 1/3      16,666 2/3                     $ 26,042       $  52,083
Flavio R. da Silva....     16,666 2/3      33,333 1/3                     $ 52,083       $ 104,167
Steven T. Geffin......     16,666 2/3      33,333 1/3                     $ 52,083       $ 104,167
---------------
</TABLE>
(1)    These options have an exercise price of $3.00 per share and are
       exercisable during the period from 1996 to 2006.
(2)    These values represent potential gains on both exercisable and
       unexercisable options based on the closing price of the underlying Common
       Stock as of December 31, 1996 less the exercise price of the options.

Compensation of Directors

     In fiscal year 1996, the Company did not pay a director's fee or other
similar compensation to any director of the Company for his service as such.
The Company does not intend to compensate non-employee directors for serving as
directors of the Company, except to reimburse them for their reasonable expenses
incurred in connection with such service and to issue grants of Director Awards
(as defined below) under the Plan.  See "--1996 Stock Option Plan."  Directors
who are also employees of the Company do not receive additional compensation for
serving as a director.

     In October 1996, the Company granted each of Messrs. List and McAuliffe a
Director Award to purchase 15,000 shares of Common Stock at an exercise price of
$6.34 per share, which represents the fair market value of the Common Stock on
the date of grant.  The options under the Director Awards vest automatically in
one-third increments over a three-year period, commencing upon the date of the
Company's 1997 annual meeting of shareholders, and continuing upon successive
annual meetings in 1998 and 1999.

Employment Agreements

     The Company or its subsidiaries are parties to substantially similar
employment agreements with Messrs. Finkel, Norman, da Silva, Geffin, Morelli,
Rottner and De George, pursuant to which each of these individuals serve as an
executive officer of the Company, Ensec, S.A. and/or Ensec Inc.  Each of the
employment agreements is for an initial three-year term, which commenced in May
or June 1996 and will automatically renew for successive three-year terms unless
either party provides written notice to the other party at least 90 days prior
to renewal.

                                       27
<PAGE>
 
     Pursuant to the employment agreements, Messrs. Finkel, Norman, da Silva,
Geffin, Morelli, Rottner and De George received an annual base salary for fiscal
year 1996 of $240,000, $127,000, $127,000, $100,000, $80,000, $75,000 and
$85,000, respectively, which may be increased from time to time by the Board of
Directors.  Mr. Rottner's employment agreement provides for minimum annual
increases in base salary of 5%.  Mr. De George's agreement provides for payment
of an additional 2% of sales revenues on sales of Company products by Mr. De
George until December 31, 1996.  After such time, such sales commissions shall
terminate and shall be replaced by a sales incentive program to be established
by the Company.  The employment agreements for Messrs. Norman, da Silva and
Geffin provide for annual cash bonuses equal to 25% of the annual base salary
then in effect for such individuals in the event that certain subsidiary budgets
are attained by the end of each fiscal year; however, Messrs. Norman and da
Silva voluntarily elected to waive their bonuses for fiscal year 1996.  The
other executive officers will be eligible for annual cash bonuses as determined
in the discretion of the Board of Directors of the Company based upon their
attainment of individual performance targets and the financial performance of
the Company or its subsidiaries.

     The agreements provide that upon the termination of employment by the
Company, other than for Cause (as defined in the agreements), the Company shall
pay (i) in the case of Mr. Finkel, an amount equal to the aggregate present
value of the product of (x) the average aggregate annual compensation subject to
U.S. income tax and paid to Mr. Finkel by the Company during the five calendar
years preceding the taxable year in which the date of termination occurs,
multiplied by (b) 2.99; (ii) in the case of Mr. Norman, one and one-half times
the amount of his total cash compensation in the 12 months preceding the date of
termination; and (iii) in the case of Messrs. da Silva, De George, Geffin,
Morelli and Rottner, the amount of such executive officer's total cash
compensation in the 12 months preceding the date of termination.  The agreements
provide for noncompetition, nonsolicitation and nondisclosure covenants.

     The agreements also provide for each executive officer to receive a grant
of options under the Plan which will vest in one-third equal installments over a
two-year period.  The first vesting occurred as of September 30, 1996, and
subsequent vestings will occur on September 30, 1997 and September 30, 1998.
Except for Mr. Finkel's options, which are non-qualified stock options, the
options granted to these executive officers are incentive stock options (as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code")) and provide for an exercise price of $3.00 per share, subject to
adjustment in accordance with the terms of the Plan.  In order for the options
to vest, the executive officer must be employed by the Company or any of its
subsidiaries as of the date of vesting.  According to the terms of the Plan and
each executive officer's option agreement, the vesting of options will be
accelerated and the all of the options will become immediately exercisable in
the event the executive officer is terminated by the Company other than for
Cause (as defined in such executive officer's employment agreement), or in the
event of certain changes in control of the Company.

                                       28
<PAGE>
 
1996 Stock Option Plan

     The Company has adopted the Plan, pursuant to which stock options (both
Nonqualified Stock Options and Incentive Stock Options, as defined in the Plan),
stock appreciation rights, restricted stock, performance share awards and
phantom stock unit awards may be granted to directors and certain key employees
(the "Participants").  The Plan provides for the automatic grant to directors
who are not employees of the Company (each, a "Director Award") or its
subsidiaries, at such time as an individual becomes a director of the Company,
of Nonqualified Stock Options to purchase 15,000 shares of Common Stock at an
exercise price per share equal to the greater of $3.00 or the fair market value
of the shares on the date of grant.  A Director Award vests in equal increments
of 5,000 shares per year, commencing upon the date of the Company's annual
meeting of shareholders for the election of directors next following the date
that such individual became a director and continuing with each such successive
annual meeting provided such person remains a director of the Company as of such
date.  The Plan also provides for the acceleration of the vesting schedule of
Director Awards in certain circumstances.

     With respect to the grant of awards under the Plan to persons other than
non-employee directors, the committee which is responsible for administering the
Plan (the "Committee") will determine persons eligible to be granted stock
options, stock appreciation rights, performance share awards and restricted
stock, the amount of stock or rights to be optioned or granted to each such
person, and the terms and conditions of any such option, grant or award.  An
Incentive Stock Option is intended to qualify as an incentive stock option
within the meaning of Section 422 of the Code.  Any Incentive Stock Option
granted under the Plan will have an exercise price of not less than 100% of the
fair market value of the shares on the date on which such option is granted.
With respect to an Incentive Stock Option granted to a Participant who owns more
than 10% of the total combined voting stock of the Company or any parent or
subsidiary of the Company, the exercise price for such option must be at least
110% of the fair market value of the shares subject to the option on the date
the option is granted.  A Nonqualified Stock Option granted under the Plan
(i.e., an option to purchase Common Stock that does not meet the Code's
requirements for Incentive Stock Options) must have an exercise price of at
least the par value of the stock.

     Stock appreciation rights may be granted in conjunction with the grant of
an Incentive or Nonqualified Stock Option under the Plan or independently of any
such option. A stock appreciation right granted in conjunction with a stock
option may be an alternative right, in which event, the exercise of the stock
option terminates the stock appreciation right to the extent of the shares
purchased upon exercise of the stock option and, correspondingly, the exercise
of the stock appreciation right terminates the stock option to the extent of the
shares with respect to which such right is exercised.  A stock appreciation
right, may not, however, be granted in conjunction with an Incentive Stock
Option under circumstances in which the exercise of the stock appreciation right
affects the

                                       29
<PAGE>
 
right to exercise the Incentive Stock Option or vice versa, unless certain terms
and conditions are met.

     Subject to the terms of the Plan, the Committee may award shares of
restricted stock to the Participants.  Generally, a restricted stock award will
not require the payment of any option price by the Participant but will call for
the transfer of shares to the Participant subject to forfeiture, without payment
of any consideration by the Company, if the Participant's employment terminates
during a "restricted" period (which must be at least six months) specified in
the award of the restricted stock.

     Performance shares may be awarded to participants based upon the degree to
which certain objective performance goals, as established by the Committee, are
attained. The amount earned with respect to an award of performance shares will
usually be payable in stock based upon the fair market value of such stock upon
the valuation date.  The Committee, may, however, vary the composition of a
performance share award at its discretion.

     The Company may also issue phantom stock unit awards to Participants upon
terms and conditions established by the Committee from time to time.  A phantom
stock unit entitles the holder of such unit to a hypothetical equivalent of one
share of stock granted in connection with a Plan award or deferred performance
share award.  Phantom stock unit awards are nontransferable and will be subject
to forfeiture if employment of the Participant is terminated before such awards
become vesting in accordance with their terms.

     There are 450,000 shares of Common Stock authorized for possible issuance
under the Plan.  As of December 31, 1996, options to purchase 385,000 of such
reserved shares have been granted to executive officers and non-employee
directors of the Company.

Item 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------  --------------------------------------------------------------

Beneficial Ownership of Common Stock

     The following table sets forth information with respect to the shares of
Common Stock beneficially owned as of December 31, 1996 by (i) those persons who
were beneficial owners of more than 5% of the Company's outstanding shares of
Common Stock (as obtained from reports regarding such ownership filed by such
persons with the Securities and Exchange Commission), (ii) each of the Company's
directors and certain of its executive officers, and (iii) all directors and
executive officers of the Company as a group.

                                       30
<PAGE>
 
<TABLE>
<CAPTION>
Name and Address                                             Amount and Nature
of Beneficial Owner(1)                                      of Beneficial Owner        Percent of Class
----------------------                                      -------------------        ----------------   

<S>                                                           <C>                          <C>
Charles N. Finkel......................................       3,433,333 1/3(2)             60.61%(2)
Flavio R. da Silva.....................................          16,666 2/3(3)               .29%(3)
Steven T. Geffin.......................................          16,666 2/3(3)               .29%(3)
James K. Norman........................................          50,000(4)                   .88%(4)
All directors and executive
 officers as a group (7 persons).......................       3,526,666 2/3(2-5)           61.25%(2-5)
</TABLE> 
-------------

(1)  The address of each shareholder is 751 Park of Commerce Drive, Suite 104,
     Boca Raton, Florida 33487. Unless otherwise indicated, the Company believes
     that all persons named in the table have sole voting and investment power
     with respect to all shares of Common Stock beneficially owned by them. A
     person is deemed to be the beneficial owner of securities that can be
     acquired by such person on or before March 1, 1997 upon the exercise of
     options, warrants or convertible securities and the table above reflects
     shares of Common Stock which may be acquired upon the exercise of options
     granted under the Plan that have already vested or will vest on or before
     March 1, 1997.
(2)  Includes (i) 8,333 1/3 shares of Common Stock which may be acquired upon
     the exercise of options granted under the Plan which have already vested
     (the "Option Shares") and (ii) 3,425,000 shares that are indirectly owned
     by Mr. Finkel through wholly-owned entities. See "Certain Relationships and
     Related Transactions."
(3)  Consists of 16,666 2/3 of the Option Shares.
(4)  Consists of 50,000 of the Option Shares.
(5)  Includes 10,000 of the Option Shares which may be acquired by an executive
     officer of the Company not named in the table set forth above.

Item 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
--------   ----------------------------------------------

     In July 1996, Charles N. Finkel, the Company's President and Chief
Executive Officer, deposited $400,000 in a Brazilian bank to secure the
guarantee of a $400,000 loan from such bank to the Company.  In addition, 
Mr. Finkel loaned $100,000 to the Company, which loan bore interest at a rate of
5% per annum. In August 1996, the Company borrowed $500,000 from an individual,
through Mr. Finkel, which debt was due September 30, 1996, and bore interest at
a rate of approximately 5% per month. Repayment of this indebtedness was
personally guaranteed by Mr. Finkel. Such loans were repaid in full in September
and October 1996, at which time the $400,000 deposited by Mr. Finkel was
released by the bank.

     All related party transactions were on terms no less favorable than those
with unaffiliated third parties.  All future transactions will be on terms no
less favorable than the

                                       31
<PAGE>
 
Company could obtain based upon negotiations with unaffiliated third parties in
arms-length transactions.

Item 13.   EXHIBITS AND REPORTS ON FORM 8-K
--------   --------------------------------
<TABLE> 
<CAPTION> 
Exhibit Index
<S>        <C> 
3.1*       Articles of Incorporation of the Company, as amended
3.2*       Bylaws of the Company
4.1*       Form of Common Stock Certificate
4.2*       Form of Redeemable Warrant Certificate
10.1*      1996 Stock Option Plan, as amended
10.2*      Strategic Alliance Agreement between Lockheed Martin IMS and Ensec
           Inc.
10.3*      Card Access Systems Agreement between Ensec Inc. and Electronic Data
           Systems Corporation, as amended to the date hereof
10.4*      Software Value Added Reseller Agreement between Ensec Inc. and ICL
           Enterprises
10.5*      Agreement between Ensec Inc. and The Port Authority of New York and
           New Jersey
10.6*      Agreement for Purchase and Sale of the Bank Automation Division of
           Ensec, S.A. between De La Rue Investimentos Ltda. and Ensec S.A.
10.7*      Form of Employment Agreement representing Employment Agreements
           between the Company and each of Charles N. Finkel, James K. Norman,
           Flavio R. da Silva, Steven T. Geffin, Edward Morelli, David J.
           Rottner and John De George
10.8**     ADT Original Equipment Manufacturer Agreement between Ensec Inc. and
           ADT
11.1***    Statement Regarding Computation of Per Share Earnings
21.1*      Subsidiaries of the Registrant
23.1***    Consent of Grant Thornton LLP
27.1***    Financial Data Schedule
</TABLE> 

-------------------------

*    Filed as an exhibit to Amendment No. 3 to the Company's Registration
     Statement on Form SB-2 (File No. 333-06223), as filed with and declared
     effective by the Commission on September 25, 1996.
**   To be filed by amendment to the Company's Quarterly Report on Form 10-QSB,
     dated as of September 30, 1996, as filed with the Commission on 
     November 13, 1996 (File No. 0-21361).
***  Filed as an exhibit hereto.

Reports on Form 8-K

     The Company did not file any reports on Form 8-K during the fourth quarter
of the fiscal year ended December 31, 1996.

                                       32
<PAGE>
 
                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.


                           ENSEC INTERNATIONAL, INC.
                         -----------------------------   
                                 (Registrant)



Date: March 19, 1997                 By: /s/ Charles N. Finkel
                                        -----------------------------------
                                        Charles N. Finkel
                                        President and Chief Executive Officer
 
     In accordance with the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


DATE: March 19, 1997                 By: /s/ Charles N. Finkel
                                        -----------------------------------
                                        Charles N. Finkel
                                        Director, President and Chief
                                        Executive Officer
                                        (Principal Executive Officer)


DATE: March 19, 1997                 By: /s/ David J. Rottner
                                        -----------------------------------
                                        David J. Rottner
                                        Vice President, Chief Financial Officer
                                        and Secretary
                                        (Principal Financial Officer)


DATE: March 19, 1997                 By: /s/ James K. Norman
                                        -----------------------------------
                                        James K. Norman
                                        Director


DATE: March 19, 1997                 By: /s/ Flavio R. da Silva
                                        -----------------------------------
                                        Flavio R. da Silva
                                        Director

                                       33
<PAGE>
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
 
                                                                        Pages
                                                                        -----

<S>                                                                  <C>
Report of Independent Certified Public Accountants..............         F-2
 
Consolidated Balance Sheets.....................................         F-3
 
Consolidated Statements of Operations...........................         F-4
 
Consolidated Statement of Stockholders' Equity..................         F-5
 
Consolidated Statements of Cash Flows...........................         F-6
 
Notes to Consolidated Financial Statements......................     F-7 to F-21
</TABLE>

                                      F-1
<PAGE>
 
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors
Ensec International, Inc.

        We have audited the accompanying consolidated balance sheets of Ensec 
International, Inc. and Subsidiaries (the "Company") as of December 31, 1996 and
1995, and the related consolidated statements of operations, stockholders' 
equity and cash flows for the years then ended. These financial statements are 
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our 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 Ensec 
International, Inc. as of December 31, 1996 and 1995 and the consolidated 
results of their operations and their consolidated cash flows for the years then
ended in conformity with generally accepted accounting principles.

Grant Thornton LLP

Fort Lauderdale, Florida
February 6, 1997


                                      F-2
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

                          CONSOLIDATED BALANCE SHEETS
                                 DECEMBER 31,

                                    ASSETS
<TABLE>
<CAPTION>
                                                             1996                    1995      
                                                         -----------              -----------  
<S>                                                      <C>                      <C> 

Current assets                                                                                 
  Cash and cash equivalents                              $ 2,257,103              $   239,031  
  Short-term investments                                          --                  922,775  
  Accounts receivable (less allowance for doubtful                                             
    accounts of $258,000 and $115,000                                                           
    in 1996 and 1995, respectively)                        1,395,137                1,747,550  
  Inventory                                                  736,425                  856,882  
  Net current assets of discontinued operations                   --                  225,000   
  Prepaid expenses and other current assets                  317,384                  342,652  
                                                         -----------              -----------  

          Total current assets                             4,706,049                4,333,890  
                                                                                               
Property and equipment, net                                2,333,742                2,649,913  
Other assets                                                                                   
  Capitalized software costs, net                          3,545,000                3,825,000  
  Refundable income taxes                                    196,000                   74,000  
  Net other assets of discontinued operations                     --                    5,000  
  Other assets                                                77,711                   66,400  
                                                         -----------              -----------  
                                                                                               
          Total assets                                   $10,858,502              $10,954,203  
                                                         ===========              ===========  
<CAPTION>                                                                                      
                               LIABILITIES AND STOCKHOLDERS' EQUITY                                     
                                                                                               
Current liabilities                                                                            
  Notes payable                                                   --                2,120,000   
  Lines of credit                                                 --                  268,774  
  Accounts payable                                           619,907                  978,070  
  Accrued and other liabilities                            1,401,563                  980,384  
  Dividends payable                                               --                  300,647  
  Current portion of long-term debt                          861,000                1,191,000  
                                                         -----------              -----------  
                                                                                               
          Total current liabilities                        2,882,470                5,838,875  
                                                         -----------              -----------  
                                                                                               
Long-term debt, less current portion                       2,962,000                3,209,000  
Deferred income taxes                                             --                  319,000  
                                                                                               
Commitments and contingencies                                     --                       --  

Stockholders' equity                                                                           
  Preferred stock, authorized 3,000,000 shares at $.01                                         
     par value; issued and outstanding, 0 shares at                                            
     December 31, 1996 and 1995                                   --                       --   
  Common stock, authorized 20,000,000 shares at $.01                                           
     par value; issued and outstanding, 5,656,250 and                                          
     3,500,000 shares at December 31, 1996 and 1995,                                           
     respectively                                             56,563                   35,000  
  Additional paid-in capital                              13,721,482                3,434,501  
  Accumulated deficit                                     (8,764,013)              (1,882,173) 
                                                         -----------              -----------  
                                                                                               
     Total stockholders' equity                            5,014,032                1,587,328  
                                                         -----------              ----------   
                                                                                               
          Total liabilities and stockholders' equity     $10,858,502              $10,954,203  
                                                         ===========              ===========   
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-3
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF OPERATIONS

                            YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
 
                                               1996                   1995
                                          -------------          -------------

<S>                                       <C>                    <C>
Sales                                     $  8,576,915           $  8,560,815
Cost of goods sold                           5,506,674              5,833,695
                                          ------------           ------------
                                                                             
Gross profit                                 3,070,241              2,727,120

Selling, general and administrative
  expenses                                   6,001,953              5,287,938
Research and development expenses            1,162,168                600,000
Translation loss (gain)                       (450,000)             1,229,960
                                          ------------           ------------
  (Loss) from operations                    (3,643,880)            (4,390,778)
                                                                             
Other (income) expenses
  Interest income                             (125,308)              (648,341)
  Interest expense                           3,542,107              2,519,517 
  Other, net                                   140,161                395,329 
                                          ------------           ------------
                                             3,556,960              2,266,505 
                                          ------------           ------------
  Loss from continuing operations 
    before income taxes                     (7,200,840)            (6,657,283)
                                                                             
Income tax (benefit)                          (319,000)            (1,395,857)
                                          ------------           ------------
                                                                             
  Loss from continuing operations           (6,881,840)            (5,261,426)
                                          ------------           ------------
                                                                             
Discontinued operations                                                      
  Earnings from operations of 
    discontinued division (less 
    applicable income taxes of $208,773)            --                435,587
  Gain on disposal of discontinued 
    division                                                    
    (Less applicable income taxes of 
      $483,084)                                     --              1,007,916
                                          ------------           ------------
                                                                             
  Net loss                                $ (6,881,840)          $ (3,817,923)
                                          ============           ============
  Net earnings (loss) per common share:
    Continuing operations                 $      (1.63)          $      (1.35)
    Discontinued operations                         --                    .37
                                          ------------           ------------

Net (loss) per common share               $      (1.63)          $       (.98)
                                          ============           ============ 
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-4
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

                       Two Years Ended December 31, 1996

<TABLE>
<CAPTION>
                                                                                       
                                                                                   Retained                  
                                      Common Stock                 Additional      Earnings                  
                                ------------------------            Paid-In      (Accumulated                
                                   Shares         Amount            Capital         Deficit)         Total   
                                -------------    ---------        ------------    ------------    ------------
<S>                              <C>             <C>              <C>             <C>             <C>        
Balance at                                                                                                   
 January 1, 1995                    3,500,000    $  35,000        $  3,434,501   $  1,935,750     $ 5,405,251
                                                                                                             
Net loss                                   --           --                  --     (3,817,923)     (3,817,923)
                                 ------------    ---------        ------------   ------------     -----------
                                                                                                             
Balance at                                                                                                   
 December 31, 1995                  3,500,000       35,000           3,434,501     (1,882,173)      1,587,328
                                                                                                             
Warrants issued in                                                                                           
 connection with senior                                                                                      
 subordinated notes, net                   --           --             642,704             --         642,704
                                                                                                             
Net proceeds from                                                                                            
 issuance of common                                                                                          
 stock and warrants                 1,925,000       19,250           9,623,465             --       9,642,715
                                                                                                             
Exercise of warrants                  231,250        2,313              20,812             --          23,125
                                                                                                             
Net loss                                   --           --                  --     (6,881,840)     (6,881,840)
                                 ------------    ---------        ------------   ------------     -----------
                                                                                                             
Balance at                                                                                                   
 December 31, 1996                  5,656,250    $  56,563        $ 13,721,482   $ (8,764,013)    $ 5,014,032
                                 ============    =========        ============   ============     =========== 
</TABLE>



The accompanying notes are an integral part of this statement.

                                      F-5
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                            YEAR ENDED DECEMBER 31,
<TABLE>
<CAPTION>
 
 
                                                        1996           1995    
                                                   -------------  -------------
<S>                                                <C>             <C>          
Cash flows from operating activities:
  Net (loss)                                       $ (6,881,840)  $ (3,817,923) 
  Adjustments to reconcile net loss to net cash
   used in operating activities:
     Depreciation and amortization expense              953,234        674,832
     (Gain) on sale of division                              --     (1,491,000)
     Provision for deferred taxes                      (319,000)            --
     Increase in allowance for doubtful accounts
       and write-off of accounts receivable             890,000             --
  Amortization of debt discount                         725,000             --
  Changes in assets and liabilities:
     Decrease (increase) in short-term investments      922,775       (922,775)
     (Increase) decrease in accounts receivable        (485,320)       337,450
     Decrease (increase) in inventory                   120,457       (418,094)
     (Increase) decrease in prepaid and other 
      current assets                                    (27,384)        70,122
     Decrease in net assets of discontinued
      operations                                        230,000         67,000
     (Increase) decrease in other assets and 
      refundable income taxes                            (9,311)        15,557
     (Decrease) increase in accounts payable           (534,307)       321,585
     Increase (decrease) in accrued and other
      liabilities                                       466,563     (1,144,795)
                                                   ------------   ------------
 
  Net cash used in operating activities              (3,949,133)    (6,308,041)
 
Cash flows from investing activities:
  Computer software costs                              (372,400)    (1,202,000)
  Proceeds from sale of fixed assets                         --        575,000
  Proceeds from sale of currency sorting 
   equipment                                                 --      1,812,000
  Purchase of fixed assets                             (147,662)      (181,487)
                                                   ------------   ------------
 
  Net cash (used in) provided by investing
   activities                                          (520,062)     1,003,513
 
Cash flows from financing activities:
  Net borrowings (repayments) under credit
   line agreements                                     (268,774)       268,774
  Dividends paid                                       (300,647)            --
  Proceeds of issuance of senior subordinated
   notes                                              2,500,000             --
  Principal payments on long term debt and
   senior subordinated notes                         (3,077,000)            --
  Net proceeds from issuance of common stock 
   and warrants                                       9,642,715             --
  Exercise of warrants                                   23,125             --
  Cost of warrants issued in connection with
   senior subordinated notes                            (82,296)            --
  Net borrowings from affiliates                             --          8,228
  Net borrowings (repayments) under loan
   agreements                                        (2,120,000)     3,753,000
                                                   ------------   ------------
 
  Net cash provided by financing activities           6,317,123      4,030,002
                                                   ------------   ------------
 
Net increase (decrease) in cash and cash
 equivalents                                          1,847,928     (1,274,526)
Translation gain (loss) on cash and cash
 equivalents                                            170,144       (392,455)
 
Cash and cash equivalents at beginning of year          239,031      1,906,012
                                                   ------------   ------------
Cash and cash equivalents at end of year           $  2,257,103   $    239,031
                                                   ============   ============
 
Supplemental disclosure of cash flow information:
  Cash paid during the period for: 
    Interest                                       $  3,395,107   $  1,175,517
                                                   ============   ============
    Income taxes                                   $         --   $     48,000
                                                   ============   ============
 
</TABLE>

The accompanying notes are an integral part of these statements.

                                      F-6
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE A - SUMMARY OF ACCOUNTING POLICIES

Ensec International, Inc. and Subsidiaries (the "Company") designs, develops,
assembles, sells and maintains integrated security systems. Ensec International,
Inc. has two wholly-owned subsidiaries, Ensec Engenharia e Sistemas de Seguranca
S.A. ("Ensec, S.A."), a Brazilian corporation, and Ensec Inc., a Florida
corporation. All intercompany transactions have been eliminated in
consolidation.
 
A summary of the significant accounting policies applied in the preparation of
the accompanying financial statements follows.

Cash and Cash Equivalents
-------------------------

The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.

Short-Term Investments
----------------------

The short-term investment at December 31, 1995, consists of a certificate of
deposit which was restricted because it was pledged as a performance guarantee
under a contract.  The certificate of deposit was released in September 1996.

Inventories
-----------

Inventories are stated at the lower of cost or market based on a first-in, 
first-out basis. Inventories are comprised of the following:
<TABLE> 
<CAPTION> 
 
                                                     1996             1995   
                                                   ---------        ---------
   <S>                                              <C>              <C>     
   Parts and supplies                              $ 360,012        $ 369,028
   Inventory applicable to contracts in                                      
    progress, net of billings of $2,592,490 and                              
    $1,002,341 in 1996 and 1995, respectively        376,413          487,854
                                                   ---------        ---------
                                                   $ 736,425        $ 856,882 
                                                   =========        =========
</TABLE>

Depreciation
------------

Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
straight-line method of depreciation is followed for financial reporting
purposes. The useful lives are as follows:
<TABLE> 

               <S>                            <C> 
               Equipment                      5 to 10 years
               Furniture and fixtures         5 to 10 years
               Building and improvements           40 years
</TABLE> 

                                      F-7
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED




Income Taxes
------------

Deferred taxes have been provided on temporary differences in reporting certain
transactions for financial accounting and tax purposes.  Under the liability
method, deferred tax assets and liabilities are determined based on the
difference between the financial statement and tax bases of assets and
liabilities as measured by the current enacted tax rates which will be in effect
when these differences reverse.  Deferred tax expense is the result of changes
in deferred tax assets and liabilities.

Use of Estimates
----------------

In preparing the Company's financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those estimates.

The Company's estimates of the percentage of completion on contracts are based
on management's best estimate of total costs to be incurred.  However, the
actual results may be different from management's estimates.

Fair Value of Financial Instruments
-----------------------------------

The financial statements include various estimated fair value information at
December 31, 1996 and 1995, as required by Statement of Financial Accounting
Standards 107, "Disclosures about Fair Value of Financial Instruments." Such
information, which pertains to the Company's financial instruments, is based on
the requirements set forth in that Statement and does not purport to represent
the aggregate net fair value to the Company.

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:

Cash, Cash Equivalents and Short-Term Investments: The carrying amount
approximates fair value because of the short-term maturity of those instruments.

Receivables and Payables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
 
Debt, Lines of Credit and Notes Payable: The carrying amounts of debt, lines of
credit and notes payable approximate fair value due to the length of the
maturities, the interest rates being tied to

                                      F-8
<PAGE>
 
                   Ensec International, Inc. and Subsidiaries


                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


market indices and/or due to the interest rates not being significantly
different from the current market rates available to the Company.
 
All of the Company's financial instruments are held for purposes other than
trading.

Revenue Recognition
-------------------

Revenue is recognized upon delivery and acceptance for normal product sales,
which are those systems which do not require significant software customization
and are completed within relatively short time-frames. Revenues from those
turnkey systems that require significant customization are recognized as
contract revenues under the percentage of completion method. Earned revenue is
based on the percentage that incurred costs to date bear to total estimated
costs after giving effect to the most recent estimates of total cost. The
cumulative impact of revisions in total cost estimates during the progress of
work is reflected in the year in which these changes become known. Earned
revenue reflects the original contract price adjusted for agreed upon claim and
change order revenue, if any. Progress billings in accounts receivable are
currently due in accordance with the contract terms. Revenue received under
maintenance contracts is recognized over the term of the related agreements.

Research and Development
------------------------

Research and development cost in connection with the development of the
Company's computerized security systems software are expensed as incurred until
technological feasibility has been established at which time these costs are
capitalized.

Capitalized Software Costs
--------------------------

The Company capitalized costs incurred for internally developed software to be
sold, leased, or otherwise marketed where economic and technological feasibility
has been established. Capitalized software costs are amortized over the
estimated economic useful life of the software product (7 years).  Capitalized
software costs amounted to $4,491,000 and $4,119,000 at December 31, 1996 and
1995, respectively.  Accumulated amortization at December 31, 1996 and 1995,
amounted to $946,000 and $294,000, respectively.  Costs of product enhancements
are capitalized and amortized over the remaining life of the product.

Impairment of Assets
--------------------

The Company periodically assesses the realizability of the capitalized software
costs.  This assessment includes calculations of the estimated future gross
profits to be realized from product sales as well as consideration of changes in
hardware and software technology.

                                      F-9
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).  SFAS 121
requires that long-lived assets and certain identifiable intangibles held and
used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.  There was no material impact from the adoption of the provisions
of SFAS 121 in 1996.

Foreign Currency Translation
----------------------------

Ensec, S.A. operates in a highly inflationary country (Brazil).  As a result,
the U.S. dollar is considered the functional currency and a combination of
current and historical rates is used in translating assets and liabilities.  The
related exchange adjustments are included in operations.

The adjustments to reflect the effects of inflation, which are required by
generally accepted accounting principles in Brazil, have been eliminated in
these translated financial statements to conform them with generally accepted
accounting principles in the United States.

Earnings Per Common Share
-------------------------

Net loss per share has been computed by dividing net loss by the weighted
average  number  of common and common equivalent shares outstanding during each
period.  The weighted average number of shares of common stock and common stock
equivalent shares used for computing net loss was 4,223,408 and 3,904,896 in
1996 and 1995, respectively.  Weighted average shares includes the effect of the
options and warrants issued with exercise prices below the initial public
offering price and excludes options issued after the initial public offering
because such options were issued at fair market value, as calculated under the
treasury stock method.

In May 1996, the Company completed the bridge financing as discussed in Note N.
A part of those proceeds, along with a part of the proceeds from the public
offering (see Note L) were used to retire certain indebtedness.  Supplementary
loss per share data, assuming the issuance of the shares and the retirement of
debt at the beginning of the period, would be $(.92) and $(.67) for the years
ended December 31, 1996 and 1995, respectively.

Concentration of Credit Risk
----------------------------

The Company's sales are concentrated in the United States and Brazil.
Approximately 72% of the Company's sales in 1996 and 1995, are in Brazil, of
which one customer represents 16% and 18% in 1996 and 1995, respectively.  In
the United States, 29% and 53% of  the 1996 sales were to each of two customers,
respectively, while 62% of the 1995 sales resulted from a single contract.



                                     F-10
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


At December 31, 1996, the Company had cash deposits with a bank in excess of the
$100,000 FDIC insurance coverage limit in the amount of approximately $220,298.
In addition, cash equivalents consisted of a $2,049,933 investment in money
market funds.

Stock Options
-------------

Options granted under the Company's 1996 Stock Option Plan (the "Plan") are
accounted for under APB 25, "Accounting for Stock Issued to Employees," and
related interpretations.  In November 1995, the Financial Accounting Standards
Board issued Statement 123, "Accounting for Stock-Based Compensation," which
requires additional proforma disclosures for companies that will continue to
account for employee stock options under the intrinsic value method specified in
APB 25.  The Company elected to continue to apply APB 25 in 1996 and has
disclosed the required information of SFAS No. 123 in Note Q.  Stock options
granted to non-employees are accounted for in accordance with SFAS No. 123.

NOTE B - RISKS AND UNCERTAINTIES

The Company will generate an increasing portion of its revenue from the sale and
service of En2000 integrated security system products. These products are
exposed to the risk that new technology could be introduced resulting in
significantly lowered demand for its products.  Also, the estimated useful life
of the Company's capitalized software costs is a significant estimate for which
it is reasonably possible that such a technology change will affect the
estimated useful life.

A significant amount of the Company's operations are based in Brazil.  The
Brazilian market in which the Company  operates is characterized by volatile and
frequently unfavorable economic, political and social conditions.  High
inflation and, with it, high interest rates are common.  Inflation has declined
but continues to be high in Brazil.  In 1996, the per annum inflation rate was
approximately 10% in Brazil (compared to over 22% and 900% in 1995 and 1994
respectively). Historically, Brazil has also experienced significant currency
fluctuations.  In view of the foregoing, the Company's business, earnings, asset
values and prospects may be materially and adversely affected by developments
with respect to inflation, interest rates, currency fluctuations, government
policies, price and wage controls, exchange control regulations, taxation,
expropriation, social instability, and other political, economic or diplomatic
developments in or affecting Brazil.  Although the Company has been able to
operate successfully in Brazil for over 13 years, it has no control over such
conditions and developments, and can provide no assurance that such conditions
and developments will not adversely affect the Company's operations.

NOTE C - ORGANIZATION OF HOLDING COMPANY

On April 2, 1996, Ensec International, Inc. was formed as a holding company and
acquired Ensec, S.A. and Ensec Inc. in a stock for stock transaction.  These
acquisitions have been accounted for as an exchange between entities under
common control in a manner similar to a pooling of


                                     F-11
<PAGE>
 
                   Ensec Internatinal, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


interest.  Accordingly, the consolidated statements include the operations of
both companies for 1996 and 1995.

NOTE D - PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consists of the following:

<TABLE>
<CAPTION>
 
                                                     1996             1995
                                                  -----------      -----------
<S>                                               <C>              <C> 
 
 Prepaid insurance                                $   106,194      $        --
 Advances to suppliers                                 68,000           85,000
 Social taxes receivable, net                              --          125,000
 Compulsory deposits                                   66,000           41,385
 Other receivables                                     23,312           70,000
 Other                                                 53,878           21,267
                                                  -----------      -----------
                                                  $   317,384      $   342,652
                                                  ===========      ===========
 
NOTE E - PROPERTY AND EQUIPMENT
 Property and equipment consists of the following:

<CAPTION> 
                                                     1996             1995
                                                  -----------      -----------
  <S>                                             <C>              <C> 
  Land                                            $   279,000      $   279,000
  Building                                          1,337,000        1,337,000
  Leasehold Improvements                               16,875                -  
  Machinery and equipment                           2,454,705        2,346,745
  Furniture and fixtures                              265,670          532,943
  Vehicles                                                 --           60,000
                                                  -----------      -----------
                                                    4,353,250        4,555,688
  Less accumulated depreciation                    (2,019,508)      (1,905,775)
                                                  -----------      -----------
 
                                                  $ 2,333,742      $ 2,649,913
                                                  ===========      ===========
</TABLE>



                                     F-12
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE F - ACCRUED EXPENSES
Accrued expenses consists of the following:

<TABLE>
<CAPTION>

                                                     1996          1995
                                                  ----------    ----------

  <S>                                             <C>           <C>
  Salaries and related taxes                      $  524,292    $  518,000
  Taxes other than income taxes                      160,000        83,000
  Advances from customers                            280,213        42,000
  Accrued interest                                    64,000            --
  Other accruals                                     373,058       337,384
                                                  ----------    ----------
 
                                                  $1,401,563    $  980,384
                                                  ==========    ==========
</TABLE>

NOTE G - NOTES PAYABLE

Notes payable to Brazilian banks in 1995 amounted to $2,120,000. These notes
bore interest at rates ranging from 4.06% to 5.30% per month and were guaranteed
by the Chief Executive Officer of the Company.  These notes were repaid in
October and November of 1996.

In July and August 1996, the Company borrowed $100,000 on an unsecured basis
from its Chief Executive Officer and borrowed $400,000 from a financial
institution collateralized by $400,000 pledged by the Chief Executive Officer.
These loans bore interest at 7% per annum and approximately 5% per month
respectively.  In August 1996, the Company borrowed an additional $500,000 from
a Brazilian individual, which bore interest at a rate of approximately 5% per
month. These loans were repaid from the proceeds of the Offering discussed in
Note L.

NOTE H - LINES OF CREDIT

The line of credit balance at December 31, 1996 and 1995, consisted of the
following:

<TABLE>
<CAPTION>
                                                           1996           1995
                                                        ----------   -----------

<S>                                                     <C>          <C>
Note payable to bank under a $200,000 line of credit;
  interest payable monthly at prime plus 2%
  (effective rate of 10.5%); collateralized by
  accounts receivable.  The note was repaid in 1996.    $       --   $   185,400
 
Note payable to bank under a $300,000
  line of credit; interest payable monthly
  at prime plus 2% (effective rate of 10.5%);
  collateralized by accounts receivable.
  The note was repaid in 1996.                                  --        83,374
                                                        ----------   -----------
                                                        $       --   $   268,774
                                                        ==========   ===========
 
</TABLE>


                                     F-13
<PAGE>
 
                   Ensec Internatinal, Inc. and Subsidiaries


            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE I - LONG-TERM DEBT
 
Long-term debt at December 31, 1996 and 1995, consisted of the following:
 
<TABLE> 
<CAPTION> 
                                                        1996           1995
                                                     ----------     -----------
<S>                                                  <C>            <C> 
Note payable to bank; principal and interest
  payable monthly; guaranteed by the
  Chief Executive Officer of the Company;
  maturing on March 15, 1998                        $ 1,057,000     $ 1,729,000
 
Note payable; interest is payable monthly;
  bank principal is payable as described
  below; collateralized by a mortgage on
  certain real and personal property; maturing
  on April 15, 2002                                   2,766,000       2,671,000
                                                    -----------     -----------
                                                      3,823,000       4,400,000
Less current portion of long-term debt                 (861,000)     (1,191,000)
                                                    -----------     -----------
 
                                                    $ 2,962,000     $ 3,209,000
                                                    ===========     ===========
</TABLE>

The Notes bear interest at 12% plus an inflation adjustment (approximately 10%
in 1996).

During January 1997, the Company completed the restructuring of the mortgage
loan.  The revised terms of the loan extend the commencement of the principal
amortization to March 15, 1998 and the amortization period from 35 to 50 months.
The interest rate charged on the outstanding loan balance remains unchanged.

NOTE J - COMMITMENTS AND CONTINGENCIES

Leases
------

The Company leases certain offices and equipment pursuant to non-cancelable
operating leases which expire in various years through 2001.  The following is a
schedule of future  minimum lease payments as of December 31, 1996:

<TABLE>
<CAPTION>
                  <S>                          <C>
                  1997                         $  75,279
                  1998                            55,173
                  1999                            61,454
                  2000                            64,081
                  2001                            66,817
                                               ---------
                                               $ 322,804
                                               =========
</TABLE>

Rent expense was approximately $79,460 and $211,900 in 1996 and 1995,
respectively.


                                     F-14
<PAGE>
 
                  Ensec International, Inc. and Subsidiarises

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


Litigation
----------

The Company is engaged in various lawsuits, as defendant, involving alleged
employment law claims.  The Company has established reserves, which, in its
opinion, will be sufficient to satisfy its obligations with respect to such
lawsuits.
 
Employment Agreements
---------------------

The Company has entered into employment agreements with certain of its officers
for a period of three years commencing May or June 1996.  The agreements provide
the employees with severance benefits from 1 or 1 1/2 times total cash
compensation earned in the 12 months preceding the date of termination in the
event the agreements are terminated under certain conditions except for the
agreement with the Company's President and Chief Executive Officer, which
provides for a severance payment of 2.99 times the average annual compensation
paid by the Company or its subsidiaries and includable in such executive's gross
income for federal tax purposes for the five years prior to the year of
termination.  The agreements also provide for each officer a grant of options
under the Company's 1996 Stock Option Plan (the "Plan") which will vest in one-
third equal installments over a two year period. The first third vested upon
consummation of the initial public offering described in Note L.

NOTE K - INCOME TAXES
 
Income tax expense (benefit) consists of the following:

<TABLE>
<CAPTION>
                                                 1996               1995
                                             ------------      -------------
            <S>                              <C>               <C> 
            Current
            Federal                          $         --      $          --
            Foreign                                    --                 --
                                             ------------      -------------
                                                       --                 --
            Deferred
            Federal                                    --                 --
            Foreign                              (319,000)          (704,000)
                                             ------------      -------------
 
                                             $   (319,000)     $    (704,000)
                                             ============      =============
 
</TABLE>


                                     F-15
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

 
Deferred income taxes and benefits are provided for significant income and
expense items recognized in different years for tax and financial reporting
purposes. Temporary differences which give rise to significant deferred tax
assets or liabilities follow:

<TABLE> 
<CAPTION>  
                                                                                   1996            1995
                                                                            -----------     -----------
          <S>                                                               <C>             <C>  
          Contributions                                                     $     1,088     $       884
          Amortization of organization cost                                          --           4,527
          Net operating loss - Federal                                        1,884,664       1,229,821
          Net operating loss - Foreign                                        2,580,000         919,000
          Other                                                                      --           9,705
                                                                            -----------     -----------
                                                                              4,465,752       2,163,937
 
          Less valuation allowance - Federal                                    724,725       1,229,821     
                                   - Foreign                                  2,580,000              --
                                                                            -----------     -----------
                                                                              1,161,027         934,116
 
          Computer software costs                                            (1,148,000)     (1,238,000)
          Amortization of organization costs                                     (2,312)             --
          Depreciation                                                          (10,715)        (15,116)
                                                                            -----------     -----------
          Net deferred tax liability                                        $    -0-        $  (319,000)
                                                                            ===========     ===========
</TABLE> 
 
The change in the valuation allowance amounted to $2,074,904 and $442,321 in
1996 and 1995, respectively.
 
At December 31, 1996, the Company has net operating loss ("NOL") carry forwards
for income tax purposes as follows:
 
<TABLE> 
<CAPTION>  
                                                                            1996
                                                                         -----------
          <S>                                                            <C> 
          Federal                                                        $ 5,543,128
          Foreign corporate taxes                                        $ 8,022,000
          Foreign social contribution taxes                              $ 7,755,000
</TABLE>

The Federal tax NOL begins to expire in 2006. The foreign NOL's have no
expiration date and therefore can be carried forward indefinitely. Due to
historical losses, valuation allowances have been established for the tax
benefits attributed to the Federal and Foreign tax NOL's which cannot be offset
against the deferred tax liabilities.

                                      F-16
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


NOTE L - PUBLIC OFFERING OF COMMON STOCK

Pursuant to its initial public offering the Company completed the sale of
1,900,000 shares of Common Stock and redeemable warrants to purchase 2,185,000
shares of Common Stock on September 30, 1996.  On November 19, 1996, the Company
sold an additional 25,000 shares of Common Stock pursuant to the exercise of an
over-allotment option by the underwriter.  The Common Stock was sold at $6.00
per share and the redeemable warrants at $.10 per warrant. Each redeemable
warrant entitles the holder thereof to purchase one share of Common Stock at an
exercise price of $7.00 per share, subject to adjustment in certain events, at
any time on or after September 25, 1997 and expiring four years from that date.
The redeemable warrants may be redeemed by the Company commencing on September
25, 1997 at a price of $.10 per warrant subject to certain prior notification
requirements and provided that the closing bid price of the Common Stock has
been at least 150% of the then current exercise price of the warrants for a
period of 20 consecutive trading days ending on the third day prior to the date
on which the Company gives notice of redemption.

The net proceeds received by the Company from the initial public offering were
$9,642,715, inclusive of $2,125,795 of offering costs (including commissions and
discounts).

In conjunction with the initial public offering, 231,250 warrants issued in
connection with the senior subordinated notes (the "Bridge Warrants") were
automatically exercised at a price of $.10 per Bridge Warrant.

NOTE M - DISCONTINUED OPERATIONS

In 1995, the Company sold its currency sorting machine division to a minority
shareholder for the shareholder's interest in the Company plus $1,812,000 in
cash, and a 10% interest in the purchaser, valued at zero. Based on the
division's net book value of $133,000, and employee termination costs of
$188,000, a gain of $1,491,000 resulted from this transaction. The gain on
disposition of the segment has been accounted for as discontinued operations and
the prior year's financial statements have been restated to reflect the
discontinuation of the currency sorting machine segment. Revenues of this
segment for 1995 amounted to $2,896,000.

The 10% interest in the purchaser acquired upon the sale of the segment was
valued at zero due to lack of significant sales and profitability of the
purchaser as shown in its unaudited financial statements.  The Company is
accounting for this investment under the cost method.

NOTE N - SENIOR SUBORDINATED NOTES

In May 1996, the Company completed a $2,500,000 bridge financing whereby it
issued 100 Units at $25,000 each.  Each Unit consisted of: (i) a senior
subordinated promissory note in the principal

                                      F-17
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


amount of $25,000 bearing interest, payable semi-annually, at the rate of 10%
per annum, which were due and payable on the earliest of (a) the closing of an
initial public offering of the Company's Common Stock, or (b) 12 months from the
date of the initial sale of the Unit; and (ii) Bridge Warrants to purchase 2,500
shares of the Company's Common Stock at an exercise price of $.10 per share.  In
September 1996, warrants to purchase 18,750 shares of Common Stock which were
issued in the bridge financing were relinquished by the holders thereof.

The Bridge Warrants were detachable warrants and were accounted for separately
from the senior subordinated notes as an addition to paid-in capital.  The value
assigned to the Bridge Warrants was based on their fair value at the time of
issuance and amounted to $725,000.  Costs associated with the issuance of the
bridge financing allocated to the Bridge Warrants amounted to $82,296 and has
been charged against paid-in capital.

The value assigned to the senior subordinated notes of $1,775,000 created a
discount of $725,000 since the amount owed was $2,500,000.  This discount was
being amortized on the interest method over a 12 month period.  The Company
incurred $201,482 of costs associated with the issuance of the bridge financing
allocated to the senior subordinated notes which were capitalized and were
amortized as interest expense over the life of such notes.

The senior subordinated notes were repaid, together with accrued interest
thereon, on September 30, 1996 with a portion of the proceeds from the initial
public offering.  The unamortized discount on the notes and the capitalized
issuance costs incurred in connection therewith were fully amortized upon
repayment thereof.

NOTE O - STOCK OPTION PLAN

In June 1996, the Company adopted the Plan, pursuant to which stock options
(both Nonqualified Stock Options and Incentive Stock Options, as defined in the
Plan), stock appreciation rights and restricted stock may be granted to
directors, key employees and consultants (the "Participants"). The Plan provides
for the automatic grant to directors ("Director Awards") who are not employees
of the Company or its subsidiaries, at such time as an individual becomes a
director of the Company, of Nonqualified Stock Options to purchase 15,000 shares
of Common Stock at an exercise per share equal to the greater of $3.00 or the
fair market value of the shares on the date of grant.  The options of a Director
Award vest in increments of 5,000 shares per year, commencing on the date of the
Company's annual meeting of shareholders for the election of directors next
following the date such individual became a director and continuing with each
such successive annual meeting provided such person remains a director of the
Company as of such date.  The Plan also provides for the acceleration of the
vesting schedule in certain circumstances.

Stock appreciation rights may be granted in conjunction with the grant of an
Incentive or Nonqualified Stock Option under the Plan or independently of any
such stock option.  A stock appreciation right granted in conjunction with a
stock option may be an alternative right.  In which

                                      F-18
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


event, the exercise of the stock option terminates the stock appreciation right
to the extent of the shares purchased upon exercise of the stock option, and
correspondingly, the exercise of the stock appreciation right terminates the
stock option to the extent of the shares with respect to which such right is
exercised.  Alternatively, a stock appreciation right granted in conjunction
with a stock option may be an additional right, in which case both the stock
appreciation right and the stock option may be exercised.  A stock appreciation
right may not, however, be granted in conjunction with an Incentive Stock Option
under circumstances in which the exercise of the stock appreciation right
affects the right to exercise the Incentive Stock Option or vice versa, unless
certain terms and conditions are met.  Subject to the terms of the Plan, the
Company may award shares of restricted stock to the Participants.  Generally, a
restricted stock award will not require the payment of any option price by the
Participant but will call for the transfer of shares to the Participant subject
to forfeiture, without payment of any consideration by the Company, if the
Participant's employment terminates during a "restricted" period (which must be
at least six months) specified in the award of the restricted stock.

There are 450,000 shares authorized for possible issuance under the Plan, of
which Incentive Stock Options to purchase 355,000 shares were granted in May and
June 1996 with an exercise price of $3.00 per share.

During October 1996, Nonqualified Stock Options to purchase 15,000 shares of
Common Stock at $6.34 per share were issued to two directors.  Options to
purchase 15,000 shares not associated with the Plan were also granted in October
1996 to a consultant.  The consultant's options vest and have the same exercise
price as the options granted to the two directors.

NOTE P - SEGMENT INFORMATION

During 1995, the Company's operations involved two industry segments: one that
designs, develops, assembles, and maintains integrated security systems and
leases security equipment; and another that sells and installs currency sorting
equipment. The currency sorting equipment segment was sold in 1995 and has been
classified as a discontinued operation in the accompanying financial statements.
The geographic areas in which the Company operates are the United States and
Brazil. The Company operated in the two business segments in Brazil and only in
the security business segment in the United States. It is impracticable for the
Company to desegregate its foreign business segments. Therefore, in accordance
with FAS No. 14, these segments are presented on a combined basis. During 1996,
the Company only operated in the security industry segment. Net sales, operating
income (before interest and income taxes) and identifiable assets by geographic
area were as follows:

                                      F-19
<PAGE>
 
<TABLE>
<CAPTION>
                                  
       1996                          United States        Brazil       Consolidated 
       ----                          --------------    ------------    ------------- 
       <S>                           <C>               <C>             <C>
       Net sales                       $ 2,362,915     $ 6,214,000      $ 8,576,915
                                       ===========     ===========      ===========
       Operating loss                  $(1,028,880)    $(2,615,000)     $(3,643,880)
                                       ===========     ===========      ===========
       Identifiable assets             $ 3,914,502     $ 6,944,000      $10,858,502
                                       ===========     ===========      ===========
                              
     1995                     
     ----                     
     Net sales                         $ 2,406,815     $ 6,154,000      $ 8,560,815
                                       ===========     ===========      ===========
     Operating loss                    $(1,069,026)    $(3,321,752)     $(4,390,778)
                                       ===========     ===========      ===========
     Identifiable assets               $ 2,000,598     $ 8,953,605      $10,954,203
                                       ===========     ===========      ===========
</TABLE>

NOTE Q - ACCOUNTING FOR STOCK-BASED COMPENSATION

As discussed in Notes A and O, the Company's Plan is accounted for under APB
Opinion 25 and related Interpretations.  Since all options granted under the
Plan were at fair market value, no compensation cost has been recognized for the
Plan.  Had compensation cost for the Plan been determined based on the fair
value of the options at the grant dates consistent with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," the Company's net loss and loss
per share would have been increased to the pro forma amounts indicated below.

<TABLE>
<CAPTION>
 
                                          1996
                                          ----
<S>                   <C>            <C>
Net loss              As reported    $   (6,881,840)
                      Pro forma      $   (7,068,109)
 
Loss per share        As reported    $        (1.63)
                      Pro forma      $        (1.67)
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options-pricing model with the following weighted-average
assumptions used for grants in 1996: expected volatility of 40 percent, risk-
free interest rate of 6.36 percent and expected life of 5 years.

A summary of the status of the Plan as of December 31, 1996 and changes during
the year ending on that date is presented below:

                                      F-20
<PAGE>
 
                  Ensec International, Inc. and Subsidiaries

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED


<TABLE>
<CAPTION>
 
                                                                                                         Weighted Average
                                                                                           Shares         Exercise Price
                                                                                      ----------------   ----------------
<S>                                                                                   <C>                 <C>
 
Outstanding at beginning of year                                                                    --                --
Granted                                                                                        385,000           $  3.26
Exercised                                                                                           --                --
Forfeited                                                                                           --                --
Outstanding at end of year                                                                     385,000           $  3.26
Options exercisable at year end                                                                118,333           $  3.26
Weighted-average fair value of
  options granted during the year                                                                                $  1.47
 
The following information applies to options outstanding at December 31, 1996:
 
Number outstanding                                                                             355,000            30,000
Range of exercise prices                                                                   $0 to $3.00     3.01 to $6.34
Weighted-average exercise price                                                                  $3.00             $6.34
Weighted-average remaining contractual life                                                      $9.00            $10.00
</TABLE>

NOTE R - SUBSEQUENT EVENT

On January 1, 1997, Ensec Inc. adopted a 401(k) profit sharing plan (the "401(k)
Plan").  The 401(k) Plan is a defined contribution plan covering all eligible
employees of Ensec Inc.  To become a participant, an employee must be at least
21 years of age and must complete one year of service without an intervening
break in service.  An employee may become a participant in the 401(k) Plan on
the first day of the month following the completion of his or her age and
service requirements.  Ensec Inc., at its discretion, has elected to make a
contribution to the 401(k) Plan equal to 25% of the participant's elected
deferral and has the option to make additional contributions to be allocated
based on the ratio of the participant's salary to the total salary of all the
participants in the 401(k) Plan.  The participants will vest in their allocation
of Ensec Inc.'s contribution on a pro rata basis over the first four years of
service (as defined) with Ensec Inc. after which they will be fully vested in
all of Ensec Inc.'s contributions.

                                      F-21