SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 10-KSB

(Mark One)

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

                     For the fiscal year ended June 30, 2003

        |_| TRANSITION REPORT UNDER SECITON 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

           For the transition period from ___________ to _____________

                         Commission file number: 0-30810

                        ELECTRONIC CONTROL SECURITY INC.
                 (Name of small business issuer in its charter)

          New Jersey                                             22-2138196
(State or other jurisdiction of                               (I.R.S. Employer
 incorporation or organization)                              Identification No.)

790 Bloomfield Avenue, Clifton, New Jersey                         07012
(Address of principal executive offices)                         (Zip code)

Issuer's telephone number, including area code: (973) 574-8555

Securities registered under Section 12(b) of the Exchange Act: None

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

          15,000,000 shares of Common Stock, par value $0.001 per share
                                (Title of class)

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. |X| Yes |_| No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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|

State the issuer's revenues for its most recent fiscal year: $4,346,816

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60


<PAGE>

days. (See definition of affiliate in Rule 12b-2 of the Exchange Act.):
$3,083,856 as of September 18, 2003.

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,419,753 as of September 23, 2003.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure Format (Check one): |_| Yes |X| No


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                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS

Our Business

            We provide technology based security solutions and consulting
services for medium to large government and commercial facilities worldwide. We:

      o     prepare threat and vulnerability studies to ascertain a clients'
            security requirements;

      o     devise solutions to satisfy these security requirements;

      o     engineer and design the equipment and systems required to achieve a
            security solution;

      o     manufacture and assemble each system within the context of an
            integrated security program;

      o     provide technology support and integrated systems platforms to
            security systems integrators;

      o     manage the construction and implementation of the security system;
            and

      o     train our clients' personnel to use and maintain the security
            systems we market.

            We believe that we are one of the few true comprehensive security
solution providers in the industry. In our view, the most critical aspects of
designing a comprehensive security program are to ascertain the security
challenges confronting a client and apply the proper technology and equipment to
address the security threat. We seamlessly coordinate our risk management and
analysis expertise with our extensive design and engineering skills to develop,
manufacture and supervise the installation of systems and components that create
a normal yet secure environment for employees, visitors and service personnel.
Our security programs incorporate various systems from our portfolio of
proprietary technologies and equipment. We select systems that we have designed
to meet conventional security requirements facing clients or, as necessary,
design, develop and manufacture systems customized for clients' specific needs.
We provide a range of programs and systems that include turn-key security
solutions or individual systems. When we are engaged to provide a comprehensive
turnkey security program, we retain subcontractors to install our systems and
products under the supervision of our project managers. When we provide products
and services as a subcontractor to a systems integrator, dealer/installer,
engineer or other entity that is implementing a security project, we may use
their employees or contractors to complete our portion of the job under the
direction of one of our project managers. Our project managers train ECSI's
clients with respect to the use of our systems.

            The preponderance of companies designated as integrated security
systems providers are essentially security systems architects. These entities
examine a client's security needs and then select products from an existing
array of security product offerings developed and manufactured by third parties
to create a security system. They then integrate the security systems they have
designed into the master blueprint of a site or structure. These entities are
constrained by and limited to the product offerings of others. They do not have
the capacity to engineer or design technologies, nor do they manufacture
equipment; rather, they recommend and apply


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technologies to meet a specific threat. In some cases, they rely on security
systems manufacturers to select the proper equipment for a given project.

            We differentiate ourselves from security systems integrators and
others in the industry on the basis of our ability to assist the integrator,
analyze a security risk and help develop security solutions specifically
tailored to mitigate that risk, including designing, engineering and
manufacturing the individual technologies comprising a fully integrated security
system. We are frequently engaged by security system integrators, security
system dealers/installers, and commercial architects and engineers because we
are able to deliver the integrated platform of design, engineering services and
fully integrated security systems that support them in the completion of a
project.

            The company is ISO 9001 registered and expects to re-register to
maintain its ISO 9001 status.

Security Industry Overview.

            The Security Institute of America estimates that the worldwide
market for security products and services exceeds $100 billion annually. The
industry encompasses a wide ranging, highly fragmented group of product and
service providers which includes entities that market comprehensive security
systems and offer security consulting services, dealers/installers, small single
product companies, equipment manufacturers, consultants and systems integrators.

            We believe that the security industry has experienced significant
growth over the last decade, both in terms of the total dollar amount generated
from sales and the number of entrants offering security related products, and
continues to grow rapidly because:

      o     Western nations have been the target of high profile terrorist
            attacks over the last several years that have squarely focused
            attention on security issues and threat mitigation.

      o     Newer, more effective and efficient security equipment incorporating
            advancements in security technology is replacing obsolete equipment.

      o     The proliferation of computers and advanced communications systems
            has created a new and growing need for information technology
            security to prevent the misuse of proprietary information and other
            intellectual property.

      o     Private industry is operating in high risk and remote environments
            and geographic locations.

Products and Services.

            The services and technologies required to create a secure
environment must address the gamut of security concerns that challenge public
and commercial institutions, including the protection of:


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      o     life;

      o     tangible assets, such as buildings, vessels and personal
            possessions;

      o     intangible assets, such as intellectual property, sensitive research
            and other confidential information; and

      o     electronic data and information technology.

            Systems and Technologies

            Integrated security systems are comprised of one or more subsystems
and components that perform a variety of security functions for a facility or
group of facilities under the direction of a single command center and
communications network. We offer both integrated, turn-key security programs
that incorporate any or all of our systems and stand-alone systems that comprise
an individual component of a security program.

            The integrated security systems and/or stand alone products we
market encompass:

o     Computer Based Command, Control and Communications Networks. The Command
      Network is the heart of any security system. Our comprehensive PC based
      command center and communications networks consist of a central processor,
      a common database and software that link various subsystems and
      components, allows them to communicate with each other and integrate the
      subsystems and components into a single system. Our communications
      networks operate in real time and employ on-line dual redundant back-ups.
      Our systems are expandable and modular, can be operated by the user's own
      computer personnel and can transmit voice, video and alarm data on a
      single fiber optic, copper or twisted pair wire. These systems can be
      configured to operate on an Ethernet network (a connection protocol for
      local area computer networks), dedicated telephone lines, by radio
      frequency communications and satellite communication links. The subsystems
      that comprise an integrated security system are described below.

o     Facial Recognition Systems. We offer facial recognition systems, a
      biometric technology that identifies humans by the unique characteristics
      of their faces. These systems can be used by both identification and
      verification systems for face comparisons made in real-time.
      Identification involves a one-to-many comparison of an individual's face
      against all faces in a database in order to determine identity; and
      verification is characterized as a one-to-one match of an individual's
      face to his or her stored image for the purpose of confirming identity.
      Our face-recognition technology is capable of both rapid and accurate
      real-time acquisition as well as its scalability to databases containing
      millions of faces. This technology can be utilized for virtually any
      application that requires identification or verification of an individual,
      including law enforcement, at airports and other large public gathering
      places, and site and building entry.

o     Infrared Intrusion Detection System. We offer fixed location and rapid
      deployable infrared perimeter intrusion detection systems that consist of
      pulsed infrared sensors that detect an intruder passing through the
      system's electronic pulsed infrared beams and automatically transmit an
      alarm signal to the control center as to the exact zone of intrusion.
      These systems are self diagnostic, in that they can differentiate
      environmental conditions (snow, fog, leaves


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      or small animals) from intruders. The rapid deployment system employs a
      self-contained power source and requires no interconnecting wiring and can
      be used for immediate protection of field sites.

o     Fiber Optic Intrusion Detection System. We market a fiber optic sensor
      cable which can be attached to any barrier, including a fence, wall or
      roof line, buried in the ground or used beneath carpeting, above drop
      ceilings, imbedded in walls, or on any fixed surface. The expanded alarm
      discrimination and sensitivity control features of this system allows a
      user to fine tune the system and set the desired probability of detection
      (i.e., sensitivity to certain conditions or intrusions) thereby fully
      optimizing a sensor to its environment. This feature minimizes nuisance
      alarms. The fiber optic sensors used in the system are immune to most
      external electronic impulses such as radio frequency emissions, static
      electricity (including lightning), and moisture and ambient temperature
      variations. Fiber optic detection systems can be equipped with audio
      "listen-in" capability from each fiber optic sensor to permit quick
      assessment of alarm conditions.

o     Video Motion Detection Systems and Video Assessment Systems. As an adjunct
      to our fiber optic detection and infrared perimeter intrusion detection
      systems, we offer video surveillance equipment to ascertain the nature of,
      and monitor, the announced threat. The sole purpose of a perimeter
      detection system is to reliably sense an intrusion into a prescribed
      physical area. The video aspect of the system allows the operator to make
      a visual corroboration of the breach, to determine whether the breach
      constitutes a threat requiring a response, or whether the alarm represents
      something less (e.g., a deer), and the extent of the threat (e.g., one man
      or ten men). Our video motion detection systems are designed and
      constructed for both indoor and outdoor intrusion detection by using
      closed circuit television ("CCTV") cameras, digital processing and fiber
      optic links.

o     Electronic Surveillance System. This system detects intruders before they
      reach the perimeter of a secured zone. The system creates a 15-to 20-meter
      detection and verification band outside and parallel to a secured
      perimeter. This system can be used for border control, military bases,
      power stations, oil and gas storage facilities, nuclear power plants,
      industrial sites, prisons and airports or other situations with high-level
      security demands.

o     Architectural Security Lighting Systems. A significant component of any
      security system includes proper and effective lighting of the area to be
      protected. As a complement to our security systems, we offer lighting
      systems which can enhance a facility's security by illuminating areas
      which otherwise may be subject to infiltration because of darkness or
      remote location at some distance away from a facility's main security
      center. Our lighting systems can be designed for interior and exterior use
      and can be integrated directly into the security system, for example, by
      mounting infrared perimeter detection system sensors into custom lighting
      bollards.

o     Computer Intrusion Detection Equipment. We offer an information technology
      security system designed to protect computer local area networks (a series
      of linked computers which we refer to as a "LAN") from illegal external
      access via the Internet or persons seeking to splice into the LAN's hard
      wiring. The system identifies an unauthorized access to a LAN


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      and annunciates the intrusion. Any unauthorized access to the LAN will
      alert the user to shut down the network, thereby denying the intruder
      access to sensitive or confidential information. A graphical map details
      the location of the alarm and other pertinent information relating to the
      intrusion.

o     Asset and Personal Protection Systems. We market (i) systems designed to
      protect vehicles and vessels by installing or affixing a small global
      positioning system device which tracks the position of the asset anywhere
      in the world in real time, (ii) a radio frequency unit which can be
      affixed to an asset such as a computer or other valuable piece of property
      and transmits a unique electronic signature to the owner's computer which
      identifies the property which is automatically activated if the property
      is moved or tampered with, and (iii) a line of personal alarm systems
      which permit individuals to signal for assistance instantly and which
      identifies and locates the person in seconds.

o     Access control systems: The access control systems we offer are designed
      to exclude unauthorized personnel from specified areas and provide access
      control that is typically card-activated. Entry and exit activity can be
      monitored or recorded and may be controlled on the basis of time and
      authority level. Many companies manufacture these systems and we purchase
      them from these entities based upon our client's requirements.

            In order to provide our clients with the highest quality and most
advanced systems, we incorporate into our security systems technologies and
products developed or owned by other entities. We frequently enter into
technology transfer agreements covering the technologies or products to be used
so that we can design and execute the best possible security program for a
client within the confines of their security budget. Our products incorporate
state of the art components that can be configured to develop flexible systems
tailored specifically to meet the needs of risk mitigation in high threat
environments.

            We believe that the products we offer are qualitatively comparable
to or more effective than those offered by our competitors because our products:

o     provide low nuisance and false alarm rates;

o     are reliable in virtually any environmental conditions;

o     in many cases, can be user specified and adapted to their environment; and

o     are subject to low installation and maintenance costs.

            We believe that we have built a reputation as a leading edge
provider of high technology security solutions and services. We believe our view
is shared and supported by the many international public sector and commercial
clients that engage our services and purchase our products on a continuing
basis.

            Consulting Services

            The consulting services we provide are an integral component of the
security solutions we devise and offer to our clients. Effective and efficient
use of technology can be achieved only if the technology is used intelligently.
In our many years in the security industry, the


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members of our management and sales teams have accumulated the experience
necessary to allow us to:

      o     conduct a risk assessment and vulnerability study to ascertain a
            client's security requirements to develop a comprehensive risk
            management and mitigation program;

      o     design comprehensive turn-key security solutions to customers;

      o     select the most capable products for a particular job;

      o     implement the security system blueprint; and

      o     train our clients as to how to most effectively use and maintain
            that system.

            Our consulting and advisory services generally represent the first
step in the development of a security program. Once we complete a risk
management analysis and have examined the threats that challenge a client, we
can design, develop and implement an integrated security program or add new
systems to enhance a client's existing program. We combine our various
consulting services with our proprietary products to provide comprehensive
turn-key security programs to customers.

            Our team of security advisors combines expertise in the design,
integration, installation, and testing of state-of-the-art intrusion detection
and assessment systems. We possess unmatched experience in security systems
requirements assessments, "adversary perspective" penetration analysis, use of
Department of Energy and military-developed threat modeling systems, and
interactive, integrated systems performance testing of total protection
strategies. The testing involves not only systems, but the human operators who
must assess intrusions and generate responses, and the security forces that must
successfully interrupt adversary actions and prevent theft or sabotage. Our
security advisors are technically accomplished and fully familiar with the
latest trends in planning, programming, and designing systems utilizing standard
peripheral components, mini/micro architecture, "user friendly"
software/firmware selection and application. Many of our security advisors have
the government's highest security clearances.

            The result for the customer is an integrated, interactive process by
which our vulnerability/threat/penetration analysts can examine existing and/or
candidate systems, and determine levels of risk then consult with our systems
design experts to determine systems configurations and human operation
requirements that will provide the most cost-effective options for mitigating
the risk.

            We work closely with the architect, engineer, system integrators,
construction manager, and owner of a site in the development and design of
security monitoring and control systems that will afford a normative but secure
environment for management, staff, and visitors. Our design experts have
unequalled knowledge of the various technologies (both mature and emerging)
being applied to security challenges, both in the U.S. and around the world,
because they have been, and continue to be, intimately involved in developing
"turnkey" security systems for the U.S. government facilities including the
Department of Defense, Department of Energy, Nuclear Regulatory Commission and
licensed utilities, and State Department-approved foreign government facilities.
Our staff also has provided airport security assessment assistance in the U.S.
and overseas, applying its signature "adversary perspective" to achieve
meaningful analysis/testing results.


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      Our consulting services comprise:

      o     risk assessment, including threat, vulnerability and criticality
            analysis;

      o     design and engineering support services.

            Risk Assessment, Threat, Vulnerability and Criticality Analysis
Consulting Services.

            We believe that timely preparedness against potential threats is an
essential component of any security program. We assist organizations in
preparing for potential threats by identifying, assessing, and quantifying the
risks they face. The risk management analysis we offer encompasses three
elements:

      o     Threat Assessment which identifies and evaluates threats based on
            various factors, including capability and intentions as well as the
            potential harm a threat poses.

      o     Vulnerability Assessment which identifies weaknesses that may be
            exploited by potential interlopers and suggests options to eliminate
            or mitigate those weaknesses.

      o     Criticality (importance) Assessment which identifies and evaluates
            an organization's assets based on the importance of its mission or
            function, the group of people at risk, or the significance of a
            structure. Criticality assessments are important because they
            provide a basis for prioritizing which assets and structures require
            higher or special protection from a threat.

            In October 2001, the General Accounting Office, the investigative
arm of Congress, suggested that the federal government, as well as state and
local governments and private entities adopt this risk management approach to
enhance preparedness against potential security threats.

            The depth of our experience and quality of our personnel allow us to
undertake detailed risk management analyses of our clients' operations to
determine realistic threats, develop effective responses and programs necessary
to address and mitigate the range of threats, and to implement the appropriate
solutions.

            Security System Design Services.

            Our design and engineering services comprise the evaluation, design
and specification of security systems and components that meet a client's
operating and budgetary requirements. Typically, we provide these services
within the context of a comprehensive security evaluation and implementation
program in conjunction with risk management analysis. However, we also may be
asked to evaluate and design a single element of a security system, such as a
facial recognition system, fiber optic detection system or closed circuit
television system.

            The design of a multi-function or single element security system
comprises numerous steps, including:


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      o     ascertaining a client's security risks to determine the risks and
            potential threats against life and assets that challenge the client
            by surveying the client's premises, including its real property and
            physical structures, its computer and electronics systems, and its
            personnel;

      o     considering future security requirements based upon the client's
            business plan; and

      o     selecting technologies and systems to mitigate the risks and threats
            which may be encountered.

            After we have completed this analysis our staff designs a
functional, efficient and effective security program that achieves the client's
security requirements within its mandated budget. We draft detailed plans
outlining the security program that can incorporate all of the components of the
proposed security system, including all of the products we offer. When
requested, we can select the most desirable components meeting the design
specifications and provide clients with cost estimates and implementation
schedules covering the entire undertaking. We supervise the installation of our
products by subcontractors and worldwide through our network of independent
dealer/sales representatives, many of which also install our products and
systems.

Product Design.

            We design and develop new products based upon market requirements.
We research and assess threat and vulnerability issues at selected facilities
within our target markets and we design and engineer our products in-house, with
outside consultants as necessary, and in conjunction with joint venture partners
to meet the needs of clients within the target markets based upon the results of
such research. We investigate new and emerging technologies that have
application in the security industry and seek to license these technologies
which we then incorporate into our products.

Markets for Our Products.

      We have identified a number of markets for our products and have developed
marketing programs to access those markets. Generally, private industry and
public and government facilities possessing sensitive information, valuable
assets or which otherwise may be subject to terrorist threats by virtue of the
nature of their business have recognized the need to implement security measures
to protect personnel and property. In many instances, laws have been enacted and
judicial mandates have been handed down decreeing compliance with some
minimum-security standards, airport security is a prime example. We target these
entities as well as entities to which we can demonstrate the need for security
measures.

      The following represent the primary markets which we target:

      o     the United States Government and its agencies and departments,
            including the Department of Defense and the Department of Energy;


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      o     large industrial facilities, including pharmaceutical companies, and
            major office complexes;

      o     energy facilities, including nuclear plants, power utilities and
            petrochemical pipelines;

      o     commercial airports and seaports;

      o     campus security; and

      o     foreign/export opportunities.

      The United States Government and many of its agencies and departments
represent a significant market for our products and have been a major customer
in the past. U.S. Government and agencies which have purchased our products in
the past and to which we currently actively market our products include:

      o     The United States Department of Defense and a number of its
            subdivisions have been using our products for force and asset
            protection at numerous military bases and air force installations
            around the world. Certain of our products have been certified and
            included as part of the government's tested and approved
            technologies.

      o     The United States Department of Energy, in connection with the
            clean-up and operation of military bases and government-owned
            nuclear processing facilities, offer an expansive and varied market
            for our products. We presently are involved with the supply and
            support services at 9 sites on an ongoing basis.

      o     The Department of Transportation, including airports, trucking and
            distribution centers and marine terminals, are current target
            marketing objectives and our products and systems directly apply to
            the security needs of this multibillion market opportunity.

      We have an open-ended contract with the General Services Administration
(GSA) through July 31, 2004 that allows the US government to purchase materials
and services from us without having to go through a full competition. In
September, 2003, we announced the finalization of a 5-year indefinite
delivery/indefinite quantity contract with the United States Department of the
Air Force to secure highly strategic military facilities throughout the world.

            We also target corresponding State governments and agencies
fulfilling the roles described above.

      Large Industrial Facilities and Major Office Complexes. These types of
facilities, such as pharmaceutical companies, frequently house sensitive data
and are the primary locations where research and product development occur.
Generally, the management of the multinational corporations which own these
facilities are acutely aware of security requirements to protect valuable
property and data. Facilities such as these are likely to acquire integrated
security packages to create a "smart building." The technologies required to
create a smart building in


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today's environment must address life safety, power, lighting, information
technology protection and other security systems to create a normal yet secure
environment for employees, visitors and service personnel. We possess the
expertise necessary to devise and implement integrated security platforms that
satisfy these requirements.

            Energy Facilities, including Nuclear Plants, Power Utilities and
Petrochemical Pipelines. Nuclear and utility power stations which house
sensitive information and dangerous materials represent a large and lucrative
market for our products. These entities are critical to the normal function of
society and must be protected at all costs. Petrochemical, natural gas and
pipeline companies, many of which operate in high risk and remote environments
and geographic locations, invest huge sums in the assets necessary to operate
those businesses and adopt appropriate measures to protect these investments
through the acquisition of security equipment and systems.

            Commercial Airports and Seaports. Transportation infrastructure
security has been at the forefront of security consciousness for many years.
These risks, particularly as they apply to commercial airports, have been
heightened in view of the events of the last several years and the Federal
government has appropriated significant funds for the acquisition and
installation of new, high technology security systems at these facilities. There
are approximately 1,200 facilities in the United States which the Federal
Aviation Agency has identified and mandated for security systems upgrades to be
completed over the next several years and we will bid for the provision of
products and services to these sites.

            Foreign/Export Opportunities. Government operations and private
industries in foreign countries are all subject to the same security issues that
challenge similar entities in the United States. We, along with our strategic
teaming partners and international dealer/sales representatives, continue to
seek to penetrate these markets. During 2003 and 2002, we generated
approximately 30% and 26%, respectively, of our revenues from projects performed
outside the United States. We believe that the foreign market for our products
is as strong as or stronger than in the United States and we intend to continue
to pursue vigorously opportunities abroad.

Marketing.

            We have developed a multi-tiered marketing plan which allows us to
effectively market our products to each of the separate government and industry
segments we have identified as target markets both in the United States and
internationally. Our marketing strategy highlights products strengths as they
apply to that particular industry.

            The primary goals of our marketing strategy are to:

            o     deepen the penetration of existing markets;

            o     broaden the base of potential clients to which we can market
                  our products, and

            o     demonstrate the efficacy of our products.


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            To that end, we have entered into strategic partnerships, teaming,
representative and joint venture relationships with major corporations in each
of the industries which comprise our target markets. These entities generally
enjoy a strong market presence in their respective industries and we believe
that our association with these entities affords the Company and our products
added credibility. These entities frequently subcontract our services and
purchase our products for use in connection with larger projects they are
performing for their clients. In September 2002, we entered into an agreement
with a security industry dealer-installer network that has over 200 members
located throughout the United States.

            Members of our management team have many years of experience in the
security industry. Each member of the management team is assigned an industry
area and makes direct contact with, and sales proposals to, government and
commercial organizations in that area. We attempt to cultivate and maintain
relationships and contacts with employees of each of the major government
agencies encompassing our target markets. In addition, we rely on our teaming
and strategic partners for introductions to appropriate personnel at these
agencies.

            We generate a significant portion of our international business
through our network of independent dealer/sales representatives. We have entered
into agreements with various entities that allow us to maintain a presence in
twenty five countries worldwide. Our agreements generally extend for a period of
two years and provide the dealer/installer with discounts from current product
prices as an incentive to market our products in their geographic area. We rely
on our dealer/installer base to represent us and our product line throughout the
world and to apprise us of potential projects which can incorporate our
products. In addition, we rely on our dealers/installers to introduce our
company and our products to key government and private enterprise personnel in
their respective geographic regions.

            We also market directly to providers of integrated security systems,
security systems dealers/installers, engineers and other entities that may be
engaged to implement a security system in behalf of a client.

            We also attend the major trade shows for each industry and advertise
in relevant industry publications.

Growth Strategy.

            In order to achieve a sustainable and continuous growth rate, we
believe that we must devote additional resources to marketing and product
development. Specifically, we have or intend to:

o     Increase our sales and marketing personnel. We have one more person on our
      sales team who has extensive sales and marketing experience in the middle
      Atlantic states. We believe this additional sales and marketing person
      will allow us to access wider markets and focus sales efforts required to
      develop business in our target markets.

o     Expand our base of dealers/installers worldwide. We believe that an
      effective and cost efficient means of increasing sales is to expand our
      base of independent dealers/sales representatives worldwide. These
      entities serve as our local agents to market products and


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      provide customer support. Furthermore, these entities are familiar with
      local laws and frequently have local contacts in government and business
      at decision-making levels. We will seek to expand our international base
      of dealers/sales representatives by advertising in trade publications
      through our Company web site and through international customer referrals.

o     Expand our global presence. The Company formed a subsidiary in the Middle
      East to represent and support our product sales. We have entered into
      sales agreements with Southwest Microwave, March Networks, Perceptics,
      Cieffe, Goodrich, Automatic Control Systems, Videolarm, Videotronic,
      Raymax, Technical Consultants, Int'l and Pyser-SGI to represent and
      support their products as well. Management believes the Mid-East operation
      will open doors in Africa, India and Eastern Europe.

o     Design and develop new systems. We will continue to develop new security
      systems to expand our portfolio of proprietary products. This will allow
      us to open up new markets, continue our position as a leading edge
      provider of technology based security equipment and increase interest in
      the Company.

o     License new and emerging technologies. We will continue to identify,
      analyze and acquire new and emerging technologies that may have
      application in the security industry. We will seek to acquire technologies
      that will allow us to enhance our existing systems and develop new
      products.

o     Upgrade existing products. We have and will continue to upgrade our
      existing products to take advantage of technological advancements so that
      they remain state-of-the-art.

o     Purchase laboratory and testing equipment. We will seek to purchase
      certain laboratory and testing equipment which will allow us to enhance
      and maintain product quality standards and support our extended warranty
      program.

o     Strengthen our management team. We have added a Vice President & General
      Manager of Operations to support the projected increase in manufacturing,
      production engineering and purchasing required to meet the Company's
      delivery requirements in fiscal 2004.

o     Improve our telecommunications infrastructure. We expect to install a DSL
      TI line for network connectivity between our various US facilities. This
      will permit an integrated method of communication between and among the
      company's management and key employees.

Clients.

            We provide our products and services to customers through direct
sales to end-users and through subcontracting agreements. During the past five
years we have provided products to approximately 50 clients on over 220
projects.


                                       14
<PAGE>

Competition.

            As the public and private sectors become increasingly concerned with
security issues, the security and anti-terrorism industry has experienced
substantial growth. Competition is intense among a fragmented and wide ranging
group of product and service providers, including security equipment
manufacturers, providers of integrated security systems, systems integrators,
consulting firms and engineering and design firms and others that provide
individual elements of a system. Many of our current and potential competitors
have significantly greater name recognition and financial, technical, marketing
and other resources than we do. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements, or
to devote greater resources to the development, promotion, sale and support of
their products than we can. Because of growth in the marketplace, we anticipate
increased competition from other sources, ranging from emerging to established
companies. We believe that the principal factors affecting competition in the
industry include applied technology, product performance, price and customer
service. We cannot assure that we will be able to compete successfully in the
future against existing or potential competitors.

      We believe that we are able to sustain our competitive position in the
industry because:

      o     our principal officers, security analysts, design personnel and
            sales persons have over 170 years of combined experience in the
            security industry;

      o     our products address a wide range of security requirements;

      o     our products are among the most technologically advanced, highest
            quality available;

      o     our products are flexible in that many of our products can be
            configured and customized to meet a client's specific needs and can
            be integrated with each other and with and into existing security
            systems;

      o     our products are reliable, and are relatively easy and inexpensive
            to install and maintain;

      o     we have been successful in teaming with large multinational
            companies which market and incorporate our products in their product
            offerings, thereby contributing to the credibility and efficacy of
            our products.


                                       15
<PAGE>

Backlog.

            Our backlog consists of written purchase orders and contract
commitments received for site survey, product deliveries, engineering services,
supervision and commissioning. ECSI was awarded by the U.S. Air Force (USAF),
one of four 5 year prime contracts, renewable at the option of the USAF for an
additional two years, to secure global military sites. The total estimated value
established by the US. Air Force for all four contracts is approximately
$500,000,000 with 50% being set aside for small business. Therefore, ECSI
estimates its contract has a potential value of about $125,000,000 over the five
year term. As of September 15, 2003, we are accounting for 20% of the estimated
contract value. Utilizing this assessment, our backlog has an approximate value
of $33,900,000 of which an estimated $25,000,000 is in signed contracts with
additional commitments of $8,900,000 We presently expect to fill these orders
within the next twelve to eighteen months, although there can be no assurance
that we will complete any or all of the orders comprising our backlog within the
anticipated time frame, or at all. Government contracts are often awarded prior
to legislative approval of the funding to support those contracts. Consequently,
the entire amount of orders and contracts may never be funded. Of the backlog
value, from our experience, we believe the Company will release and ship
approximately $8,500,000 million in the next twelve to eighteen months.

Manufacturing.

            We conduct our manufacturing operations at our facilities in New
Jersey and Alabama. These activities consist of procurement of materials,
product assembly and component integration, product assurance, quality control
and final testing. We believe that our manufacturing facilities will not be
adequate to satisfy the anticipated demand for our products under the USAF
contract award. We have started negotiations with our landlord at our
headquarters in New Jersey which will afford us the flexibility to add
manufacturing facilities, equipment and personnel as required to fill orders for
product without undue delay. Further, we are planning to open a logistical
engineering and sales support facility in Virginia to support the USAF contract
and expand our government base to cover the expected market for our products
which may result from The Homeland Security Act.

Sources and Availability of Raw Materials.

            We depend heavily on our suppliers to provide high quality materials
on a timely basis and at reasonable prices. We purchase the individual
components comprising our products from third party suppliers, or subcontract to
third parties the manufacture of specific subsystems necessary for a particular
product. We are not dependent on any major suppliers for the components of our
products and we believe, should it become necessary in the event of any
disruption in supply or discontinuation of production by any of our present
suppliers, that all of the components used in our products are available from
numerous sources at competitive prices. Various aspects of the software
programming required in connection with our computer products are designed and
written by in-house personnel or are subcontracted to third parties.


                                       16
<PAGE>

            We have not entered into any long-term contracts for the purchase of
components but rather rely on rolling forecasts to determine the number of units
we will sell and the components required therefore. To date, we have been able
to obtain supplies of these components and we believe that adequate quantities
are available to meet our needs.

Intellectual Property and Other Proprietary Rights.

            Proprietary protection for our technological know-how, products and
product candidates is important to our business. Currently we rely upon trade
secrets, know-how and continuing technological innovation to develop and
maintain our competitive position. We also rely on a combination of trade secret
protection and non-disclosure agreements to establish and protect our
proprietary rights.

            Our success is dependent to a great extent on our proprietary
knowledge, innovative skills, technical expertise and marketing ability. Our
present intention is not to rely primarily on patents or other intellectual
property rights to protect or establish our market position.

            We have obtained trademarks in the United States, South Korea,
United Kingdom and Saudi Arabia for the terms "FOIDs(R)" (Fiber Optic
Intelligent Detection System), "IPIDS(R)" (Infrared Perimeter Intrusion
Detection System), "RDIDS(R)" (Rapid Deployment Infrared Detection System),
"IDMS(R)" (Intrusion Detection & Monitoring System) and "APIDS(R)" (Acoustic
Perimeter Intrusion Detection System). We have also filed in other countries.

            We require all employees, consultants and contractors to execute
non-disclosure agreements as a condition of employment or engagement by us. We
cannot be certain, however, that we can limit unauthorized or wrongful
disclosures of unpatented trade secret information.

            Although we continue to implement protective measures and intend to
defend our proprietary rights, policing unauthorized use of our technology or
products is difficult and we cannot be certain that these measures will be
effective or successful.

Research and Development.

            We design and develop new products based upon market requirements.
The forces which drive the design and development of new products include
developing products to meet new security threats, incorporate new technologies
or to satisfy a client's security requirements. We research and assess threat
and vulnerability issues at selected facilities within our target markets and we
design and engineer our products in-house, with outside consultants as
necessary, and in conjunction with joint venture partners to meet the needs of
clients within the target markets based upon the results of such research. We
investigate new and emerging technologies that have application in the security
industry and seek to license these technologies which we then incorporate into
our products.


                                       17
<PAGE>

Product Warranty.

            We offer warranties on all our products, including parts and labor.
IPID(R) sensors and related equipment, such as mounting brackets, poles and
termination boxes are warranted for ten (10) years, under normal use, against
defects in workmanship and material from date of purchase. All other components
are warranted for one year from date of purchase. FOIDS(R) systems are warranted
for a ten year period. For the years ended June 30, 2003 and 2002, net expenses
attributable to warranties were not material.

Technology Licensing Arrangements.

            As we endeavor to design and manufacture the most effective and
efficient technology based security solutions, we review and investigate new and
emerging technologies that have application in the security industry. We
frequently seek to incorporate these technologies into our systems. We are party
to agreements to use certain technologies including licenses with Lucent
Technologies, Rafael Armament Development Authority, Visage, Inc., Penn State
University, Textron Corp. and Hyperdyne, Inc.


                                       18
<PAGE>

Employees.

            As of September 2003, we employed thirty (30) individuals on a
full-time basis including six (6) design and engineering staff, nine (9)
manufacturing and assembly employees, six (6) marketing employees and nine (9)
administrative employees. A number of the employees serve in multiple
capacities, for example, Arthur Barchenko serves as our President but also is an
integral member of the Company's marketing team and our manufacturing staff may
oversee site installation of the products which they are responsible for
manufacturing.

            We have relationships with twelve (12) independent sales
representative organizations covering specific regions in the U.S.A., Central
America, South America, United Kingdom, India, the Middle East, and Southeast
Asia.

            None of our employees are covered by a collective bargaining
agreement or are represented by a labor union. We consider our relationship with
our employees to be satisfactory.

Risk Factors

            The discussion in this Report contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the prospects discussed in the forward-looking statements.
Factors that could cause or contribute to such differences include, but are not
limited to, those listed below.

Risks of doing business in foreign countries.

            During the years ended June 30, 2003 and 2002, we generated
approximately 30% and 26% respectively, of our business from projects which were
performed outside the United States. Our international business operations are
subject, generally, to the financial and operating risks of conducting business
internationally, including, but not limited to:

      o     unexpected changes in, or impositions of, legislative or regulatory
            requirements;

      o     potential hostilities and changes in diplomatic and trade
            relationships; and

      o     political instability.

            One or more of such factors could materially impact our business and
results of operations could suffer.

We depend on our relationships with strategic partners as a source of business
and our business and results of operations could suffer if these relationships
are terminated.

            We have entered into strategic partnerships or teaming arrangements
with several large multinational corporations that promote our products and
services and incorporate our products


                                       19
<PAGE>

into their projects. In the event that we are unable to maintain these strategic
relationships for any reason, our business, operating results and financial
condition could be materially adversely affected.

We compete against entities that have significantly greater name recognition and
resources than we do, that may be able to respond to changes in customer
requirements more quickly than we can and that are able to allocate greater
resources to the marketing of their products.

            The security industry is highly competitive and has become more so
over the last several years as security issues and concerns have become a
primary consideration at both government and private facilities worldwide.
Competition is intense among a wide ranging and fragmented group of product and
service providers, including security equipment manufacturers, providers of
integrated security systems, systems integrators, consulting firms and
engineering and design firms and others that provide individual elements of a
system, some of which are larger than us and possess significantly greater name
recognition, assets, personnel, sales and financial resources. These entities
may be able to respond more quickly to changing market conditions by developing
new products that meet customer requirements or are otherwise superior to our
products and may be able to more effectively market their products than we can
because of the financial and personnel resources they possess. We can not assure
investors that we will be able to distinguish our self in a competitive market.
To the extent that we are unable to successfully compete against existing and
future competitors, our business, operating results and financial condition
would be materially and adversely affected.

We are dependent on third party suppliers for principal components used in our
products, and disruptions in supply or significant increases in component costs
could materially harm our business.

            We rely on third parties to supply several key components utilized
in the manufacture of our products. Our reliance on suppliers involves certain
risks, including a potential inability to obtain an adequate supply of required
components, price increases, timely delivery and component quality. Although to
date, we have not experienced any disruption in supplies of components, we can
not assure you that there will not be a disruption of our supplies in the
future. Disruption or termination of the supply of these components could delay
shipments of products and could have a material adverse affect on our business,
operating results and financial condition.

All of our orders and contracts may be cancelled so there is a risk that our
backlog may not be fulfilled.

All of our orders and contracts are subject to cancellation by our customers at
any time so we cannot be certain that our backlog will be fulfilled. Government
contracts are often awarded prior to legislative approval of the funding to
support those contracts. Consequently, the entire amount of orders and contracts
may never be funded.


                                       20
<PAGE>

Because our sales tend to be concentrated among a small number of customers, our
operating results may be subject to substantial fluctuations. Accordingly, our
revenues and operating results for any particular quarter may not be indicative
of our performance in future quarters, making it difficult for investors to
evaluate our future prospects based on the results of any one quarter.

            Given the nature of our customers and products, we receive
relatively large orders for products from a relatively small number of
customers. Consequently, a single order from one customer may represent a
substantial portion of our sales in any one period and significant orders by any
customer during one period may not be followed by further orders from the same
customer in subsequent periods. Our sales and operating results are subject to
very substantial periodic variations. Since quarterly performance is likely to
vary significantly, our results of operations for any quarter are not
necessarily indicative of the results that we might achieve for any subsequent
period. Accordingly, quarter-to-quarter comparisons of our operating results may
not be meaningful.

We rely on rolling forecasts when ordering components and materials from which
we manufactures products which could cause us to overestimate or underestimate
our actual requirements. This could cause an increase in our costs or prevent us
from meeting customer demand.

            We use rolling forecasts based on anticipated product orders to
determine our component requirements. Lead times for materials and components
that we order vary significantly and depend on factors such as specific supplier
requirements, contract terms and current market demand for such components. As a
result, our component requirement forecasts may not be accurate. If management
overestimates our component requirements, we may have excess inventory, which
would increase our costs. If management underestimates component requirements,
we may have inadequate inventory, which could interrupt manufacturing and delay
delivery of products to customers. Any of these occurrences would negatively
impact our business and results of operations.

Our product offerings involve a lengthy sales cycle and management may not
anticipate sales levels appropriately, which could impair profitability.

            Our products and services are designed for medium to large
commercial, industrial and government facilities, such as military
installations, office buildings, nuclear power stations, airports, correctional
institutions, energy facilities and high technology companies desiring to
protect valuable assets and/or prevent intrusion into high security facilities
in the United States and abroad. Given the nature of our products and the
customers that purchase them, sales cycles can be lengthy as customers conduct
intensive investigations of, and internally deliberate with respect to, specific
competing technologies and providers. For these and other reasons, the sales
cycle associated with our products is typically lengthy and subject to a number
of significant risks over which we have little or no control.

            If sales in any period fall significantly below anticipated levels,
our financial condition and results of operations could suffer. In addition, our
operating expenses are based on


                                       21
<PAGE>

anticipated sales levels, and a high percentage of our expenses are generally
fixed in the short term. As a result of these factors, a small fluctuation in
timing of sales can cause operating results to vary from period to period.
Moreover, operating results from quarter to quarter which are tied to the
marketing and sale of our products could fluctuate widely.

Our services and reputation may be adversely affected by product defects or
inadequate performance.

            Management believes that we offer state-of-the art products that are
reliable and competitively priced. In the event that our products do not perform
to specifications or are defective in any way, our reputation may be materially
adversely affected and we may suffer a loss of business and a corresponding loss
in revenues.

If we are unable to retain key executives or hire new qualified personnel, our
business will be adversely affected.

            Our success greatly depends on our ability to retain existing
management and attract key technical, sales, marketing, information systems, and
financial and executive personnel. We are especially dependent on the continued
services of our senior management team, particularly Arthur Barchenko, Mark
Barchenko and Joseph McAndrew, the President, and two Vice Presidents,
respectively, and our key marketing personnel. The loss of any of these people
could have a materially detrimental effect on our business. We have not entered
into employment agreements with any of these people. We do not maintain key
person life insurance on any of our personnel. In addition, we are seeking to
engage senior sales staff and if we fail to attract, hire or retain the
necessary personnel, or if we lose the services of any member of our senior
management team, our business could be adversely affected.

We engage a third party subcontractor to write software for our products and the
loss of such subcontractor's services without a suitable replacement could
adversely affect our business and results of operations.

            We engage a third party to write software incorporated into many of
the products we sell. If we were to lose the services of this third party for
any reason and were unable to retain the services of a suitable replacement, our
products could become obsolete and our business, operating results and financial
condition would be materially and adversely affected.

We may face risks associated with potential acquisitions, investments, strategic
partnerships or other ventures, including whether such transactions can be
located, completed and the other party integrated with our business on favorable
terms.

            As part of our long-term growth strategy, we may seek to acquire or
make investments in complementary businesses, technologies, services or products
or enter into strategic relationships with parties who can provide access to
those assets, if appropriate opportunities arise. From time to time, we may
enter into discussions and negotiations with companies regarding acquiring,
investing in, or partnering with their businesses, products, services or
technologies. We may not identify


                                       22
<PAGE>

suitable acquisition, investment or strategic partnership candidates, or if we
do identify suitable candidates, we may not complete those transactions on
commercially acceptable terms or at all. Acquisitions often involve a number of
special risks, including, but not limited to, the following:

      o     we may experience difficulty integrating acquired operations,
            products, services and personnel;

      o     the acquisition may disrupt our ongoing business;

      o     we may not be able to successfully incorporate acquired technology
            and rights into our product offerings and maintain uniform
            standards, controls, procedures, and policies;

      o     we may not be able to retain the key personnel of the acquired
            Company;

      o     the businesses we acquire may fail to achieve the revenues and
            earnings anticipated; and

      o     we may ultimately be liable for contingent and other liabilities,
            not previously disclosed to us, of the companies that we acquire.

            We may not successfully overcome problems encountered in connection
with potential future acquisitions. In addition, an acquisition could materially
adversely affect our operating results by:

      o     diluting current shareholders' ownership interest;

      o     causing us to incur additional debt; and

      o     forcing us to amortize expenses related to goodwill and other
            intangible assets.

            Any of these factors could have a material adverse effect on our
business. These difficulties could disrupt our ongoing business, distract
management and employees and increase expenses. Furthermore, we may incur
indebtedness or issue equity securities to pay for any future acquisitions.

Limitations on liability and indemnification matters.

            As permitted by the corporate laws of the State of New Jersey, we
have included in our Certificate of Incorporation a provision to eliminate the
personal liability of our directors for monetary damages for breach or alleged
breach of their fiduciary duties as directors, subject to certain exceptions. In
addition, our By-Laws provide that we are required to indemnify our officers and
directors under certain circumstances, including those circumstances in which
indemnification would otherwise be discretionary, and we are required to advance
expenses to our officers and directors as incurred in connection with
proceedings against them for which they may be indemnified.


                                       23
<PAGE>

We may issue additional shares of our common stock which would reduce investors'
percent of ownership and may dilute our share value.

            Our Certificate of Incorporation authorizes the issuance of
15,000,000 shares of common stock. The future issuance of all or part of our
remaining authorized common stock may result in substantial dilution in the
percentage of our common stock held by our then existing shareholders. The
issuance of common stock for future services or acquisitions or other corporate
actions may have the effect of diluting the value of the shares held by our
investors, and might have an adverse effect on any trading market for our common
stock.

We have outstanding a class of Series A Convertible Preferred Stock which has
preferences over the common stock as to dividends and liquidation distributions,
among other rights.

            As of the date of this Report, we have issued and outstanding
612,500 shares of Series A Convertible Preferred Stock ("Series A Preferred
Stock"). The Series A Preferred Stock affords holders a preference to assets
upon liquidation, a cumulative annual dividend and is convertible into shares of
Common Stock, all of which rights impact the outstanding shares of common stock.
The Series A Preferred Stock's right to annual dividends make less likely the
possibility that we will declare dividends on the common stock. In the event of
a liquidation of the Company's assets, holders of Series A Preferred Stock will
have a right to receive as a liquidation payment any remaining assets of the
Company prior to any distributions to holders of the common stock and the
holders of the Series A Preferred Stock may be able to block actions otherwise
approved by the holders of the common stock if such action is adverse to their
rights. In addition, holders of common stock will suffer dilution upon any
conversion of the Series A Preferred Stock which could reduce the market value
of the common stock.

We are authorized to issue 3,900,000 additional shares of non-designated
preferred stock which we may issue from time to time by action of the board of
directors.

            Our Certificate of Incorporation authorizes the issuance of
3,900,000 additional shares of preferred stock. The board of directors has the
authority, without further approval of our stockholders, to issue preferred
stock having such rights, preferences and privileges as it may determine. The
board of directors may designate any or all of these shares without shareholder
consent and may afford such voting and other preferences which designations may
give the holders of the preferred stock voting control and other preferred
rights such as to liquidation and dividends. The authority of the board of
directors to issue stock without shareholder consent may have a depressive
effect on the market price of our common stock even prior to any designation or
issuance of the preferred stock.

            The terms of any series of preferred stock, which may include
priority claims to assets and dividends and special voting rights, could
adversely affect the rights of holders of the common stock and thereby reduce
the value of the common stock. The designation and issuance of preferred stock
favorable to current management or shareholders could make the possible takeover
of us or the removal of our management more difficult and discourage hostile
bids for control of us which bids might have provided shareholders with premiums
for their shares.


                                       24
<PAGE>

The market price of our common stock is influenced by many factors and may
fluctuate widely as a result of factors beyond our control.

            Prices for our common stock could fluctuate widely and will be
influenced by many factors, including the depth and liquidity of the market for
the common stock, investor perception of the industry in which we operate and
our products, and general economic and market conditions. Factors which could
cause fluctuation in the price of our common stock include:

      o     conditions or trends in the industry;

      o     failure to keep pace with changing technology;

      o     costs associated with developing new products and services;

      o     cost associated with marketing products and services may increase
            significantly;

      o     the timing of sales and the recognition of revenues there from;

      o     government regulations may be enacted which effect how we do
            business and the products which may be used at government
            facilities;

      o     downward pressure on prices due to increased competition;

      o     changes in our operating expenses;

      o     sales of common stock;

      o     actual or anticipated variations in quarterly results; and

      o     changes in financial estimates by securities analysts.

      Extreme fluctuations caused by these and other factors could cause our
business to suffer.

Additional shares of common stock entering the market pursuant to Rule 144
without additional capital contribution could decrease the public trading price
of the common stock.

            An increase in the number of shares of common stock available for
public sale without any increase to our capitalization could decrease the market
price of our common stock. After a one-year holding period restricted shares of
common stock will become eligible for trading pursuant to Rule 144 of the
General Rules and Regulations of the Securities and Exchange Commission without
any additional payment to the Company or any increase to our capitalization.


                                       25
<PAGE>

ECSI's common stock is traded over the counter, which may deprive stockholders
of the full value of their shares.

            ECSI's common stock is quoted via the Over The Counter Bulletin
Board (OTCBB). As such, our common stock may have fewer market makers, lower
trading volumes and larger spreads between bid and asked prices than securities
listed on an exchange such as the New York Stock Exchange or the NASDAQ. These
factors may result in higher price volatility and less market liquidity for the
common stock.

A low market price may severely limit the potential market for ECSI's common
stock.

            ECSI's common stock is currently trading at a price substantially
below $5.00 per share, subjecting trading in the stock to certain SEC rules
requiring additional disclosures by broker-dealers. These rules generally apply
to any non-NASDAQ equity security that has a market price share of less than
$5.00 per share, subject to certain exceptions (a "penny stock"). Such rules
require the delivery, prior to any penny stock transaction, of a disclosure
schedule explaining the penny stock market and the risks associated therewith
and impose various sales practice requirements on broker-dealers who sell penny
stocks to persons other than established customers and institutional or wealthy
investors. For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to the sale. The
broker-dealer also must disclose the commissions payable to the broker-dealer,
current bid and offer quotations for the penny stock and, if the broker-dealer
is the sole market maker, the broker-dealer must disclose this fact and the
broker-dealer's presumed control over the market. Such information must be
provided to the customer orally or in writing before or with the written
confirmation of trade sent to the customer. Monthly statements must be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks. The additional burdens
imposed upon broker-dealers by such requirements could discourage broker-dealers
from effecting transactions in our common stock.

Because ECSI will not pay cash dividends, stockholders will only benefit from
owning common stock if it appreciates.

            ECSI has never paid cash dividends on its common stock and does not
intend to do so in the foreseeable future. ECSI intends to retain any future
earnings to finance its growth. Accordingly, any potential investor who
anticipates the need for current dividends from his investment should not
purchase our common stock.

ITEM 2. DESCRIPTION OF PROPERTIES

            ECSI's corporate headquarters are located at 790 Bloomfield Avenue,
Clifton, New Jersey where the Company leases approximately 10,000 square feet of
space divided among administrative (3,000 sq. feet) and manufacturing (7,000 sq.
feet) space. ECSI has leased this space through May 1, 2008 at a rent of $3,917
per month increasing to $4,250 per month at the end the lease term. The Company
also leases approximately 2,500 square feet of manufacturing


                                       26
<PAGE>

space at 102 Commerce Circle, Madison, Alabama. The Company has leased this
space through February, 2004 at a cost of $1,800 per month. Our newly formed
foreign subsidiary in the Middle East has leased approximately 2000 square feet
of office space through December, 2005 at a cost of $1,363 per month.

            We believe that our manufacturing facilities are inadequate to meet
demand for our products based on the USAF contract award. We have started
negotiations with our landlord for additional space within our existing
industrial complex thereby being in a position to add manufacturing facilities,
equipment and personnel as required to fulfill orders for product without undue
delay. We are planning to open a logistical engineering and sales support
facility in Virginia to support the USAF contract and expand our government base
for The Homeland Security market.

ITEM 3. LEGAL PROCEEDINGS.

            We are currently party to various legal proceedings and claims,
either asserted or unasserted, which arise in the ordinary course of business.
While the outcome of these claims cannot be predicted with certainty, we do not
believe that the outcome of any of these or any of the above mentioned legal
matters would have a material adverse effect on our consolidated financial
position, results of operations or cash flows.

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

            None.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

            The common stock of the Company trades on the OTC Bulletin Board
under the trading symbol EKCS. The prices set forth below reflect the quarterly
high, low and closing sales prices for shares of common stock since the
Company's stock commenced trading as reported by the National Quotation Bureau,
Inc. These quotations reflect inter-dealer prices, without retail markup,
markdown or commission, and may not represent actual transactions.

                                                     Closing Bid
                                                   High        Low
                                                   ----------------
2003

April 1 - June 30                                  1.00         .61
January 1 - March 31                               1.60        1.00

2002

Oct. 1 - December 31                               1.10         .42
July 1 - September 30                               .97         .70
April 1 - June 30                                  1.90         .90
January 1 - March 31                               2.90        1.80

2001

Oct. 1 - December 31                               2.65         .95
July 1 - September 30                               .75         .25


                                       27
<PAGE>

            As of September 26, ECSI had approximately 560 holders of common
stock.

            The Company has not paid any cash dividends on its common stock and
does not anticipate paying cash dividends in the foreseeable future. The Company
intends to retain any earnings to finance the growth of its business. There can
be no assurance that the Company will ever pay cash dividends. See Item 6,
Management's Discussion and Analysis of Financial Condition and Results of
Operations.

Recent Sales of Unregistered Securities

            The Company did not sell any equity securities during the fourth
quarter of fiscal 2003 that were not registered under the Securities Act of 1933
(the Securities Act).

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

            The following discussion should be read together with our Financial
Statements and the Notes related to those statements, as well as the other
financial information included in this Form 10-KSB. Some of our discussion is
forward-looking and involves risks and uncertainties. For information regarding
risk factors that could have a material adverse effect on our business, refer to
Item I of this Form 10-KSB, Description of Business - Risk Factors.

Overview

            ECSI provides technology based security solutions and consulting
services for medium to large government and commercial facilities worldwide. We
believe that we are one of the few truly integrated providers of security
solutions in the industry. We:

      o     prepare threat and vulnerability studies to ascertain a client's
            security requirements and devise solutions to satisfy these security
            requirements;

      o     engineer and design the equipment and systems required to achieve a
            security solution and manufacture and assemble most of the systems
            we offer;


                                       28
<PAGE>

      o     provide technology support and integrated systems platforms to
            security systems integrators;

      o     manage the construction and implementation of the security system;
            and

      o     train our clients' personnel to use and maintain the security
            systems we market.

            We coordinate our risk management and analysis expertise with our
design and engineering skills to develop and manufacture systems and components
that create a normal yet secure environment for employees, visitors and service
personnel. We have developed security systems that reflect the results of our
market analysis, our knowledge of the industry and client requirements. We
provide a range of programs and systems that include turn-key security solutions
or individual components. Our security programs incorporate various systems from
our portfolio of proprietary technologies and equipment. Our ability to analyze
security needs and design and manufacture systems to satisfy those needs
differentiate us from the preponderance of entities in the industry which do not
have such capabilities. We are often engaged by security system integrators,
security system dealers/installers, and commercial architects and engineers
because we are able to deliver the integrated platform of design and engineering
services along with the security systems that support the requirements for the
completion of a project.

            During fiscal 2003, we accomplished a number of goals that will help
support our sustained growth in the future. Specifically, we

            o     entered into an agreement with a dealer-installer organization
                  having 200 members throughout the United States to represent
                  and sell our portfolio of products and systems.

            o     expanded our subsidiary to pursue business in the Middle East,
                  Africa, India and Eastern Europe at an investment of
                  approximately $173,000;

            o     continued work on an exclusive agreement with Pennsylvania
                  State University which we signed in August 2002 to develop,
                  manufacture and market an advanced perimeter detection system
                  in which we invested approximately $135,000;

            o     completed the development of an unmanned aerial surveillance
                  system to protect large areas such as military base
                  perimeters, reservoirs, dams and pipelines, which we have the
                  exclusive right to market worldwide;

            o     were able to renew a $500,000 line of credit from a bank for
                  fiscal 2003; our line of credit is to be reviewed on October
                  15, 2003 for fiscal 2004;

            o     made a conscientious decision to invest approximately $250,000
                  in advertising, sales promotion, site surveys, design &
                  engineering for proposals that we expect will result in orders
                  during fiscal 2004 and 2005; and,


                                       29
<PAGE>

            o     entered into a teaming agreement with Parsons, Siemens, ARINC,
                  STS Engineering and Woodbridge to respond to the USAF
                  Integrated Base Defense Security System RFP which covers the
                  upgrade of security for thirty-two bases over five years and
                  which is renewable for two additional years.

Results of Operations

Year Ended June 30, 2003 ("2003 period") Compared to Year Ended June 30, 2002
("2002 period").

REVENUES. The Company reported net revenues of $4,346,816 for the 2003 period,
as compared to revenues of $2,304,013 for the 2002 period, an increase of about
88%. Of the revenues reported in the 2003 period, approximately 30% were for
Department of Energy (DOE) projects that were completed in March 2003; 35%
related to Department of Defense (DOD) projects and 30% related to international
projects. The increase in sales in the 2003 period, are primarily attributable
to the events following September 11, 2001. Initially, during fiscal 2002, many
government agency budgets were frozen for further review given the startling
nature of the September 11 events. However, during fiscal 2003, certain projects
in the Company's backlog as well as committed orders began to be released as
funding restrictions affecting certain government agencies were lifted. Further,
the Company continued to experience a sharp increase in the number of inquiries
for its products and services through the efforts of its recently appointed
sales management and sales representatives. Fiscal 2003 proposals increased in
number by 100% over the same period in fiscal 2001 and by about 300% in dollar
value.

GROSS MARGINS. Gross margins in the 2003 period were 45.4% of revenue as
compared to 52.8% of revenue in the 2002 period. The decrease in 2003 is
primarily due to the increase in the mix of lower gross margin products and less
of the higher gross margin services. The fulfillment of released orders mostly
entails the shipment and installation of product. The higher gross margin
engineering and design services related to the released orders were delivered in
the 2002 period.

RESEARCH AND DEVELOPMENT . Research and development expenses increased in the
2003 period to $172,741 from $90,420 in the 2002 period. Research and
development expenses in the 2003 period were for upgrades to existing products
and systems, such as, FOIDS, IPIDS and IDMS and for work on new product
development on the APIDS and UVA technologies.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative (SG&A)
expenses increased in the 2003 period to $1,933,540 from $1,149,228 in the 2002
period. The increase in 2003 is primarily the result of advertising, sales
promotion, business development for new proposals generated during the period
and sales commissions related to the increase in sales volume. As a percent of
revenue, SG&A decreased to about 45% in 2003 from about 50% in the 2002 period.

STOCK BASED COMPENSATION. In the 2003 period, the Company did not issue any
stock based compensation. In the 2002 period, the Company issued stock and stock
options to various consultants valued at approximately $650,000. This amount was
being amortized over the


                                       30
<PAGE>

related service periods resulting in a charge of $503,814 in the 2003 period. In
May, 2003, the company ended its relationship with one of these consultants that
resulted in a charge of approximately $199,000 for the unamortized portion of
the stock based compensation. The Company had $146,816 in stock based
compensation in fiscal 2002. Stock-based compensation is non-cash and,
therefore, has no impact on the Company's net worth, cash flow or liquidity.
Currently, the Company has no deferred stock based compensation.

INTEREST EXPENSE. Interest expense in the 2003 period was $68,179, as compared
to $55,822 for fiscal 2002. The increase was attributable to higher outstanding
debt balances partially offset by lower interest rates.

MINORITY INTEREST IN SUBSIDIARY LOSS. The minority interest in the loss from the
foreign subsidiaries was $50,938 for the 2003 period. The first foreign
subsidiary was formed in January 2002 and commenced operations in May 2002. In
January 2003, it ceased to exist as an operating subsidiary of the Company and
the assets were transferred to a newly created foreign subsidiary. The Company
established the new foreign operating subsidiary, of which it owns a 70%
interest, to conduct the Company's business in the Middle East.

INCOME TAX BENEFIT. In the 2003 period, the Company recognized $89,000 of tax
benefits from the current year net operating loss which will be used to offset
taxable income in a future year.

NET LOSS. As a result of the foregoing, net loss for the years ended June 30,
2003 and 2002 was $660,208 and $1,077,815, respectively, including stock based
compensation of $503,814 and $146,816, respectively. Deemed dividends
contributed $100,886 and $907,975 to the loss for the 2003 and 2002 periods,
respectively.

NET LOSS PER SHARE. For purposes of calculating net loss per share, deemed
dividends totaling $100,886 are reflected as an increase in net loss
attributable to common shareholders for the year ended June 30, 2003. The
Company has recorded a deemed dividend totaling $1,008,861 in fiscal 2003 and
2002 to reflect the beneficial conversion price of its Series A Convertible
Preferred Stock as compared to the prevailing market price of the common stock
on the date of commitment. The deemed dividend was amortized over 120 days,
commencing from the date of the closing of the sale of these shares, March 14,
2002, to the date the preferred stock first became convertible on August 12,
2003. This adjustment has no impact on the net equity of the Company since the
offset to the deemed dividend is an offsetting increase in additional paid-in
capital. The deemed dividend accounted for $(.02) out of the $(.16) loss per
share for the 2003 period and $(.24) out of the $(.28) loss per share for the
2002 period.

Although the year ended June 30, 2003 indicated a net loss of $660,208, the
Company's net equity decreased by only $44,432. This is because the stock based
compensation charge of $503,814 and the deemed dividend of $100,886 had no
effect on stockholders' equity.


                                       31
<PAGE>

Liquidity and Capital Resources

At June 30, 2003, the Company had working capital of $1.9 million compared to
$2.3 million at June 30, 2002. In addition, the Company had $375,081 of cash,
cash equivalents and marketable securities as compared to $314,771 at June 30,
2002. Net cash provided by operating activities for the 2003 period was $265,252
as compared to net cash used by operating activities of $1,407,308 for the 2002
period.

Inventory has declined by $246,377 since the beginning of the fiscal year but
remains at an improved but relatively high $1.37 million in anticipation of
shipments of backlog and contract commitments.

Accounts receivable relative to sales volume has improved significantly on a
year over year basis. Increased focus on collecting older invoices has resulted
in a material reduction in days sales outstanding (DSO). DSO was 59 days at June
30, 2003 as compared with 153 days at June 30, 2002.

Investing activities for the 2003 period included purchases of $320,103 for
equipment and software development. The Company does not have any material
commitments for capital expenditures

Financing activities in the 2003 period included renewing an annual revolving
bank line of credit. Currently, the Company is fully drawn on the revolving line
of credit of $500,000, which is due to expire in November 2003. The line bears
interest at the rate of 1% above prime and is secured by substantially all of
the assets of the Company and the personal guaranty of Arthur Barchenko.

In August 2002, the Company obtained an additional line of credit in the amount
of $285,000, secured by a certificate of deposit in the amount of $300,000 plus
accrued interest. This line expired in August 2003 and proceeds from the
certificate of deposit were returned to the Company and used to repay the
additional line of credit.

In addition, the Company has a five-year $500,000 term loan which is payable in
monthly installments of $8,333 plus interest at the rate of 7.5% per annum. All
payments have been made on time leaving a balance due as of June 30, 2003 in the
amount of $341,667. The term loan is due to be paid in full by November 2006.

In January 2003, in connection with an ongoing litigation related to an appeal
filed to overturn an award of attorney's fees and related court costs in
conjunction with a settlement regarding the use of its intellectual property,
the Company was required to pledge a letter of credit in the amount of $100,000.
Management believes that they have a meritorious position and that the
certificate of deposit will become available within one year.

To achieve all the elements of our growth strategy and the desired outcome of a
sustainable and continuous growth rate, we must devote additional capital
resources to marketing and product development. To obtain the additional needed
resources will require, as it has in the past, a continuing cash investment by
the Company.


                                       32
<PAGE>

The Company may seek to invest in or acquire other entities in the security
industry. The Company may pay for any such investments or acquisitions using
cash, equity or a combination thereof. To the extent we require cash in
connection with such activities, we may have to obtain third party financing.

The Company anticipates that, other than as may be required for investments or
acquisitions, cash on hand together with cash generated from operations, will be
minimally sufficient to provide for our working capital needs. However, the
Company is actively seeking additional sources of credit to broaden our
financing base to meet expected and unexpected needs in connection with our
business. We have no assurance that we will be successful in this effort and a
lack of success will make it difficult for the Company to take advantage of the
opportunities and business it has already been awarded.

Outlook and Industry Trends

The security market historically has been a product oriented opportunity for
manufacturers, both from the US and internationally. The difficulty the industry
traditionally has faced has been the ability to develop a standard security
platform that would permit systems integrators to design a seamless interface
between the multiple products and subsystems required to address threats in
high-security environments. There have evolved a number of companies that are
attempting to develop platforms that address seamless integration of multiple
technologies. This trend will continue for the foreseeable future, since the
demand for integrated platforms will continue into foreseeable future and beyond
due to market demand.

ECSI, recognizing the direction the market is taking, has developed and
installed integrated platforms which encompass multiple technologies. ECSI has
brought on board a highly-competent system oriented software programmer and two
computer-oriented electronic engineers to further develop and enhance the
integrated platform for current and future projects.

Further, the security industry, which has been characterized by a fragmented and
wide ranging group of single-product manufacturers and small service providers,
has begun to consolidate as multi-national corporations acquire smaller market
and single product entities to form multi-technology corporations. We believe
this trend will continue. Therefore, teaming relationships will be important for
independent entities in the security field to thrive and grow in the years
ahead. To address this consolidation, ECSI has implemented a corporate account
development department to work with and support the large corporate integrators
and establish teaming agreements going forward. ECSI's technologies and
capabilities will compliment those of the large conglomerates in the security
industry work together on major projects.

ECSI has developed a turnkey security solution program geared to recurring
revenue for the Company. The program is based on a design, build-lease-maintain
platform over 5-7 or 10 years per project. At the present time, the company has
two such proposals outstanding; one addresses the Campus Security Program and
the other, the Airports Security Program.

We announced in September, 2003 the finalization of a 5-year indefinite
delivery/indefinite quantity contract with the United States Department of the
Air Force to secure highly strategic


                                       33
<PAGE>

global military facilities. The contract award covers the upgrade of security
for thirty-two bases over five years and which is renewable for two additional
years. ECSI bid as a small business prime contractor at an investment of over
$100,000. There were a total of contracts four contracts awarded: two large
corporation and two small business prime contracts. ECSI has been awarded one of
the two small business contracts.

Critical Accounting Policies and Estimates

The Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires management to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses. On an ongoing basis, management evaluates its estimates, including
those related to inventory reserves, allowance for doubtful accounts and
deferred taxes. Actual results may differ from these estimates under different
assumptions or conditions. Management believes the following critical accounting
policies and the related judgments and estimates affect the preparation of our
financial statements.

Inventory Valuation - Inventories are valued at lower of cost or market. The
Company routinely evaluates the composition of its inventory to identify
obsolete or otherwise impaired inventories. Inventories identified as impaired
are evaluated to determine if reserves are required. The Company does not
currently have any reserves against inventory.

Allowance for Doubtful Accounts - The allowance for doubtful accounts is
comprised of two parts, a specific account analysis and a general reserve.
Accounts where specific information indicates a potential loss may exist are
reviewed and a specific reserve against amounts due is recorded. As additional
information becomes available such specific account reserves are updated.
Additionally, a general reserve is applied to the aging categories based on
historical collection and write-off experience.

Accounting for Income Taxes - The Company records a valuation allowance to its
deferred tax assets to the amount that is more likely than not to be realized.
While we consider historical levels of income, expectations and risks associated
with estimates of future taxable income and ongoing prudent and feasible tax
planning strategies in assessing the need for the valuation allowance, in the
event that we determine that we would be able to realize deferred tax assets in
the future in excess of the net amount recorded, an adjustment to the deferred
tax asset would increase income in the period such determination has been made.
Likewise, should we determine that we would not be able to realize all or part
of the net deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged against income in the period such determination was made.
A valuation allowance in the amount of $216,816 has been recorded against our
deferred tax asset at June 30, 2003. The valuation allowance consists
principally of stock compensation currently not deductible.


                                       34
<PAGE>

Recently Issued Accounting Pronouncements

In May 2003, the FASB issued SFAS No. 149, "Derivative Instruments." This
statement amends SFAS No. 133, by requiring that contracts with comparable
characteristics be accounted for in a similar fashion. In particular, the
Statement: (1) clarifies under what circumstances a contract with an initial net
investment meets the characteristic of a derivative discussed in paragraph 6(b)
of Statement 133; (2) clarifies when a derivative contains a financing
component; (3) amends the definition of an "underlying" to conform it to
language used in FIN No. 45, "Guarantor's Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others;" and
(4) amends certain other existing pronouncements. This Statement is effective
for contracts entered into or modified after June 30, 2003, and for hedging
relationships designated after June 30, 2003. The Company does not have any
derivative instruments as defined in SFAS No. 149. Accordingly, this
pronouncement is currently not applicable to us.

In May 2003, the FASB issued SFAS No. 150 "Accounting for Financial Instruments
with the Characteristics of Both Liabilities and Equities." SFAS No. 150
establishes standards regarding the manner in which an issuer classifies and
measures certain types of financial instruments having characteristics of both
liabilities and equity. Pursuant to SFAS No. 150, such freestanding financial
instruments (i.e., those entered into separately from an entity's other
financial instruments or equity transactions or that are legally detachable and
separately exercisable) must be classified as liabilities or, in some cases,
assets. In addition, SFAS No. 150 requires that financial instruments containing
obligations to repurchase the issuing entity's equity shares and, under certain
circumstances, obligations that are settled by delivery of the issuer's shares
be classified as liabilities. The Statement is effective for financial
instruments entered into or modified after May 31, 2003 and for other
instruments at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 had no impact the Company's financial
condition or results of operations.

Forward-Looking Statements

            The Private Securities Litigation Reform Act of 1995 (the Act)
provides a safe harbor for forward-looking statements made by or on behalf of
our Company. Our Company and its representatives may from time to time make
written or verbal forward-looking statements, including statements contained in
this report and other Company filings with the Securities and Exchange
Commission and in our reports to stockholders. Statements which relate to other
than strictly historical facts, such as statements about the Company's plans and
strategies, expectations for future financial performance, new and existing
products and technologies, and markets for the Company's products are
forward-looking statements within the meaning of the Act. Generally, the words
"believe," "expect," "intend," "estimate," "anticipate," "will" and other
similar expressions identify forward-looking statements. The forward-looking
statements are and will be based on management's then current views and
assumptions regarding future events and operating performance, and speak only as
of their dates. The Company undertakes no obligation to publicly update or
revise any forward-looking statements, whether as a result of new information,
future events or otherwise. See Risk Factors for a discussion of events and
circumstances that could affect our financial performance or cause actual
results to differ


                                       35
<PAGE>

materially from estimates contained in or underlying our forward-looking
statements.

ITEM 7. FINANCIAL STATEMENTS

            ECSI submits with this report the financial statements and related
information listed in the Index to Financial Statements on page F-1 following
this report's signature page.

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

            None.

                                    PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

Directors and Executive Officers.

      The following table sets forth certain information about our directors and
executive officers as of September 18, 2003:

                             First Year
                               Became
     Name              Age    Director                   Title
Arthur Barchenko       71       1976      President, Chief Executive Officer,
                                          Secretary and Director
Mark R. Barchenko      47       1996      Vice President, Secretary and Director
Richard Stern          54        n/a      Vice President
Eldon Moberg           51        n/a      Vice President
Thomas Isdanavich      55        n/a      Vice President
Joseph McAndrew        49        n/a      Vice President
Natalie Barchenko      70       2001      Treasurer and Director
James R. Janis         59       2001      Director
Gene Rabois            58       1989      Director
Robert F. Reiter       53       2001      Director
Edward Snow            64       2000      Director

Arthur and Natalie Barchenko are married and Mark Barchenko is their son.

            The Company's directors are elected to hold office until the next
annual meeting of shareholders and until their respective successors have been
elected and qualified. The Company's officers serve at the pleasure of the Board
of Directors.


                                       36
<PAGE>

            The following sets forth biographical information concerning ECSI's
directors and executive officers for at least the past five years. All of the
following persons who are executive officers are also full-time employees.

            Arthur Barchenko has been our President since December 1976. Mr.
Barchencko also participates in the management of our subsidiaries. From June
1952 to May 1972, he held various sales and marketing positions at Lightolier,
Inc., a company engaged in the manufacturing and marketing of lighting fixtures.
During his tenure at Lightolier, Inc., Mr. Barchenko served as the vice
president of sales and was responsible for directing a sales force of
approximately 150 persons and a support staff of approximately 50 persons. Mr.
Barchenko also served as a member of the board of directors and on the executive
committee Lightolier, Inc. Prior to organizing Electronic Control Security Inc.,
Mr. Barchenko co-founded and directed the operations of Bajer Industries, a
lighting manufacturing company that was subsequently sold to the Charter Group.
Mr. Barchenko is active with American Defense Preparedness Association, and
American Society of Industrial Society. He served on the Radio Technical
Commission for Aeronautics Committee 183 for upgrade of FAR 107.14(a) and (b) as
a member of the special access control security task force for the Federal
Aviation Administration. Federal Aviation Regulation 107.14 (FAR 107.14a and b)
is the document produced by RTCA committee 183 for the security upgrade of the
access control system and universal access control system requirements for
civilian commercial and shared civilian/military airports under U.S.
jurisdiction.

            Mark Barchenko joined us in 1993 and has served as our
Vice-President of Marketing since June 2000. He has focused his marketing and
business development efforts on Southeast Asian government projects and U.S.
airports and maritime facilities. Mr. Barchenko also participates in the
management of our subsidiaries. Mr. Barchenko is now Vice President of
operations and spearheaded the IS09001 quality program based on the
international standard of operation, from inception through registration during
2000, Mr. Barchenko is active with American Defense Preparedness Association,
and American Society of Industrial Society. He served on the Radio Technical
Commission for Aeronautics Committee 183 for upgrade of FAR 107.14(a) and (b) as
a member of the special access control security task force for the Federal
Aviation Administration. Federal Aviation Regulation 107.14 (FAR 107.14a and b)
is the document produced by RTCA committee 183 for the security upgrade of the
access control system and universal access control system requirements for
civilian commercial and shared civilian/military airports under U.S.
jurisdiction. Mr. Barchenko holds a U.S. patent entitled "Jet Propulsion Engine
Assembly for Aircraft." Mark Barchenko is the son of Arthur Barchenko, our
President and a Director, and Natalie Barchenko, our Treasurer and a Director.

            Richard Stern has served as our Vice-President-Manufacturing since
December 1, 1997. He is responsible for the overall management of our
manufacturing department, which includes supervising all manufacturing,
maintenance and test personnel; manufacturing engineering, including the review
and evaluation of new and existing product design in a manufacturing
environment; oversight of maintenance of plant equipment and facilities;
mechanical package design of new product development; quality control, including
the development of test equipment and procedures; production scheduling;
shipping and receiving and inventory of all materials and finished products,
purchasing and expediting of materials and supplies, and


                                       37
<PAGE>

oversight of manufacturing personnel, labor reports. Prior to joining us, Mr.
Stern spent 25 years in the data communication and temperature processing
fields. He has held managerial positions in manufacturing, engineering, quality
control, service, as well as being involved in the design and development of the
product lines within these fields.

            Eldon Moberg joined us in 1996 as the Vice President of the FOIDS
product division and has served as our Vice-President since July 1, 1999. Mr.
Moberg is responsible for establishing the FOIDS manufacturing and test facility
in Madison, Alabama. His duties include planning and coordinating manufacturing
schedules and resources and the provision of technical data for security system
design and project cost analysis. Prior to joining us, Mr. Moberg was the
Production Supervisor for Mason & Hanger National, Inc. a company engaged in the
manufacture and marketing of our FOIDS product line where he initially was a
production support technician and performed optical / electronic fabrication and
testing of a fiber optic based security system and components. Thereafter, as
Production Supervisor, he was responsible for planning and scheduling personnel,
materials and equipment to support product manufacture. Other duties included
procurement, product acceptance testing QA / QC, inventory control and MRP
system operation. Before entering private industry, Mr. Moberg served for twenty
years in the United States Army where he gained experience as senior radar
repair technician for several Army Air Defense systems, team leader for missile
system direct support maintenance and training developer for newly acquired Army
missile systems.

            Thomas Isdanavich has been Vice President of Product Management at
ECSI since July 1997. He determines installation and service support
requirements for in-house and field applications. His responsibilities include
field labor analysis and the planning and coordination of all administrative
phases of sales and customer support services. Mr. Isdanavich was employed by
Beall Technologies, Inc. a manufacturer of matrix switching equipment for IBM
compatible mainframe computers, from 1973 to 1997. Prior to entering private
industry, Mr. Isdanovich served in the U.S. Navy for four years.

            Joseph McAndrew joined us in June, 2003 as Vice President of
Operations. Prior to that Mr. McAndrew spent 20 years as an innovative, hands-on
manufacturing operations executive with experience in controlling all of the
elements inherent in producing superior products at the lowest possible costs.
He has headed global manufacturing operations for multi-layer radio frequency
signal processing components used in the military, satellite and commercial
markets with annual sales of $25 million. Mr. McAndrew has developed new and
unique process techniques, allowing entry into the commercial market and
resulting in the issuance of two U.S. Patents. His experience is multi-national
with important technology operation transfers in Canada and production build
outs in Central America. Mr. McAndrew has a master's degree in Engineering
Management from the New Jersey Institute of Technology.

            Gene Rabois has served as a member of our Board of Directors since
October 1, 1989. He previously had served as our Chief Financial Officer. He has
more that thirty years of progressive experience in accounting and finance,
Securities and Exchange Commission financial reporting, installation and
management of computer systems and control and


                                       38
<PAGE>

administration of corporate financial affairs. Mr. Rabois currently serves as
the Controller for SJT Imaging, Inc., a printing concern.

            Natalie Barchenko has been a director and the Treasurer of ECSI
since 2001. Over the last ten years, she has been actively involved with the day
to day operations of the Company in the areas of human resources, accounting,
advertising and sales functions. She works on a voluntary basis for the Library
of Congress preparing Braille translations for the blind. Ms. Barchenko is
married to Arthur Barchenko, our President and a Director, and is Mark
Barchenko's mother.

            Edward Snow has been a director of ECSI since June 2000. From
October 1996 to October 1999 he was the co-owner and operated Phoenix Fiber
Optics Inc., a manufacturer and marketer of fiber optic products. From October
1999 to October 2000, he has served as the Assistant to the President of Space
America Corp. Since 1996, he has acted as a private consultant to the government
and industry.

            Robert F. Reiter has been a Director of ECSI since November 2001.
Since November 1997, he has served as the President of R.F. Reiter & Associates,
an engineering consulting firm. Since January 2002, he has been the President of
HAZ-X Holdings, Ltd., which engages in non-intrusive inspection engineering and
operations From 1977 through 1997, he was the Vice President of Analytical
Systems Engineering Corp. an engineering consulting company.

            James R. Janis has been a Director since November 2001. Mr. Janis
has been the President of the Janis Group, a management consulting company,
since 1996. From December 1992 through May 1996, he serves as the Executive Vice
President of BNFL, Inc. which engages in nuclear waste management. From February
1980 through 1992, he was the Executive Vice President of ICF Kaiser
International, an environmental consulting firm. Prior thereto, he was Deputy
Assistant Secretary for Planning and Evaluation of the US Department of Energy.

Section 16(a) Beneficial Ownership Reporting Compliance.

            Section 16(a) of the Securities Act of 1934 requires the Company's
officers and directors, and greater than 10% stockholders, to file reports of
ownership and changes in ownership of its securities with the Securities and
Exchange Commission. Copies of the reports are required by SEC regulation to be
furnished to the Company. Based on management's review of these reports and
written representations from reporting persons, during the fiscal year ended
June 30, 2003, all reports required to be filed were filed late. All reports
required to be filed under Section 16(a) will be filed with the Securities and
Exchange Commission within two weeks of the filing of this Report.

Committees of Board of Directors.

            Our Audit Committee consists of Gene Rabois and Edward Snow, who are
both independent directors. The Audit Committee is responsible for recommending
to our board the engagement of independent auditors and reviewing with the
independent auditors the scope and


                                       39
<PAGE>

results of the audits, our internal accounting controls, audit practices and the
professional services furnished by the independent auditors.

            The board does not have a nominating or a compensation committee.
The selection of nominees for the Board of Directors is made by the entire Board
of Directors. Compensation of management is determined by the entire Board of
Directors.

ITEM 10. EXECUTIVE COMPENSATION

Directors Compensation.

            In addition to reimbursing directors for expenses they incur in
attending meetings of the Board or Committees of the Board, ECSI pays its
directors a fee of $500 for each meeting attended. It is expected that the
Company's outside directors will receive an annual award of stock options under
ECSI's equity incentive plan. The Company reimburses non-employee directors for
travel and related expenses for attending board meetings.

Executive Compensation.

            The following table sets forth certain information concerning the
annual and long-term compensation of the person serving as our chief executive
officer during the last three years. No other executive officers received annual
compensation in excess of $100,000 during the last three fiscal years.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                    Securities
     Name and Principal                             Other Annual    Underlying     All Other
         Position                Year     Salary    Compensation      Options     Compensation
<S>                              <C>     <C>            <C>           <C>              <C>
Arthur Barchenko, President      2003    101,700        -0-               -0-          -0-
                                 2002     98,800        -0-           100,000          -0-
                                 2001     78,100        -0-               -0-          -0-
</TABLE>

Option Grants in the Last Fiscal Year

            No stock options were granted to our officers or directors under our
stock option plans during the 2003 fiscal year.

Fiscal Year-End Option Numbers and Values

            The following table sets forth certain information concerning the
number and value of unexercised options held by the person identified in the
table below at the end of the last fiscal


                                       40
<PAGE>

year (June 30, 2003). There were no stock options exercised by any of our
officers or directors during the fiscal year ended June 30, 2003.

                     Number of Securities          Value of Unexercised
                     Underlying Unexercised        In-the-Money Options
                     Options at Fiscal Year-End:   at Fiscal Year-End:
Name                 Exercisable/Unexercisable     Exercisable/Unexercisable (1)
----                 -------------------------     -----------------------------

Arthur Barchenko           100,000/0                        $0/$0

(1)   Based upon the difference between the exercise price of such options and
      the closing price of the Common Stock ($.61) on June 30, 2003, as reported
      on the Over The Counter Bulletin Board (OTCBB).

Compensation Pursuant to Management Contracts

            None.

Other Compensation

            None; no stock appreciation rights or warrants exist.

Stock Option Plan.

            Incentive Stock Option Plan. In 1986, the Company adopted an
Incentive Stock Option Plan which it renewed in 1996 for a second ten-year term.
The Company has reserved 1,000,000 shares of common stock for issuance under the
Stock Option Plan. The Board of Directors administers the Stock Option Plan but
may delegate such administration to a committee of three persons, one of whom
must be a member of the Board. The Board or the Committee has the authority to
determine the number of options to be granted, when the options may be exercised
and the exercise price of the options, provided that the exercise price may
never be less than the fair market value of the shares of the Common Stock on
the date the option is granted (110% in the case of any employee who owns more
than 10% of the combined voting power or value of all classes of stock). Options
may be granted for terms not exceeding ten years from the date of the grant,
except for options granted to person holding in excess of 5% of the common
stock, in which case the options may not be granted for a term not to exceed
five years from the date of the grant.

            Non-statutory Stock Option Plan. The Company also has adopted a
non-statutory stock option plan and has reserved 250,000 shares of common stock
for issuance to Directors, employees and non-employees. Options granted pursuant
to this plan will be non-transferable and expire, if not exercised within five
years from the date of the grant. Options will be granted in such amounts and at
such exercise prices as the Board of Directors may determine.


                                       41
<PAGE>

      Equity Compensation Plan Information

            The following table sets forth additional information as of June 30,
2003, concerning shares of our common stock that may be issued upon the exercise
of options and other rights under our existing equity compensation plans and
arrangements, divided between plans approved by our stockholders and plans or
arrangements not submitted to our stockholders for approval. The information
includes the number of shares covered by and the weighted average exercise price
of, outstanding options and other rights and the number of shares remaining
available for future grants excluding the shares to be issued upon exercise of
outstanding options, warrants, and other rights.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
                        (a)                 (b)                   (c)
--------------------------------------------------------------------------------------
Plan Category           Number of           Weighted-average      Number of
                        securities to be    exercise price of     securities available
                        issued upon         outstanding           for future issuance
                        exercise of         options, warrants     under equity
                        outstanding         and rights            compensation
                        options, warrants                         plans (excluding
                        and rights                                securities reflected
                                                                  in column (a))
--------------------------------------------------------------------------------------
<S>                     <C>                 <C>                   <C>
Equity                  555,000             $1.29                 445,000
compensation
plans approved
by security holders
--------------------------------------------------------------------------------------
Equity                  395,000             $2.19
compensation
plans not approved
by security holders
--------------------------------------------------------------------------------------
Total                   950,000
--------------------------------------------------------------------------------------
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The following table sets forth information, as of September 18, 2003
with respect to the beneficial ownership of ECSI's common stock by each person
known by us to be the beneficial owner of more than 5% of the outstanding common
stock, by each of ECSI's officers and directors, and by the officers and
directors of ECSI as a group.

            For the purpose of this table, the beneficial ownership of a person
includes shares as to which that person has sole or shared voting or investment
power as well as shares that the person has the right to acquire within 60 days
(such as upon conversion of convertible securities or exercise of warrants or
options) as of September 18, 2003. For the purpose of calculating the ownership
percentages for each person listed, we have considered to be outstanding both
the


                                       42
<PAGE>

total number shares actually outstanding on September 18, 2003 and the total
number of shares that various people then had the right to acquire within 60
days.

                                    Number of Shares        Percentage of
                                    of Common Stock          Outstanding
Name (1)                           Owned Beneficially       Common Shares
--------                           ------------------       -------------
Arthur Barchenko (3)                   1,275,902                28.23%
Mark R. Barchenko (4)                    120,179                 2.72%
Richard Stern (5)                         30,000                    *
Thomas Isdanavich (5)                     20,000                    *
Joseph McAndrew                                0                    *
Eldon Moberg (5)                          60,000                 1.36%
Natalie Barchenko (6)                    830,975                18.80%
James R. Janis (5)                        25,000                     *
Gene Rabois (7)                           95,500                 2.16%
Robert Reiter (5)                         10,000                    *
Edward Snow (5)                           20,000                    *
Directors and officers
as a group (11 persons)                2,487,556(8)             56.28%

      *     Less than 1%.

(1)   The address for each person named in the table is c/o the Company.

(2)   Based on 4,419,753 shares outstanding.

(3)   Includes 153,496 shares of common stock not registered in Mr. Barchenko's
      name but over which he has dispository power and control and options to
      purchase 100,000 shares of common stock.

(4)   Includes 20,179 shares of common stock not registered in Mr. Barchenko's
      name but over which he has dispository power and control and options to
      purchase up to 100,000 shares of common stock.

(5)   Consists solely of options to purchase shares of common stock.

(6)   Includes options to purchase up to 100,000 shares of common stock.

(7)   Includes options to purchase up to 50,000 shares of common stock.

(8)   Includes options to purchase 465,000 shares of common stock which are held
      by all directors in the aggregate.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

            Until the Company achieved profitability, it relied on loans from
officers, directors, shareholders and their affiliates to assist in the funding
of our operations.

            At June 30, 2003 and 2002, related party debt consisted of $14,443
and $19,353, respectively. The loans were repayable with interest at rates
varying from no interest through 12% interest per annum. All interest for the
fiscal year 2003 and 2002 had been waived.


                                       43
<PAGE>

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

            Exhibits Required By Item 601 of Regulation SB

Exhibit Number                       Description of Exhibit

31.1              Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 302 of the
                  Sarbanes-Oxley Act of 2002.

32.1              Certification of Chief Executive Officer pursuant to 18 U.S.C.
                  Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002.

ITEM 14. CONTROLS AND PROCEDURES.

            As required by Rule 13a-15 under the Securities Exchange Act of 1934
(the "Exchange Act"), we carried out an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures as of June 30,
2003. This evaluation was carried out under the supervision and with the
participation of our Chief Executive. Based upon that evaluation, our Chief
Executive and Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting management to material information
relating to us required to be included in our periodic SEC filings. There have
been no significant changes in our internal controls or in other factors that
could significantly affect internal controls subsequent to the date we carried
out our evaluation.

            Disclosure controls and procedures are controls and other procedures
that are designed to ensure that information required to be disclosed our
reports filed or submitted under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the Securities and
Exchange Commission's rules and forms. Disclosure controls and procedures
include, without limitation, controls and procedures designed to ensure that
information required to be disclosed in our reports filed under the Exchange Act
is accumulated and communicated to management, including our Chief Executive, to
allow timely decisions regarding required disclosure.

ITEM 15. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

Audit Fees

            The aggregate fees billed by Demetrius & Company, L.L.C. for
professional services related to the audit of the Company's consolidated
financial statements for the fiscal year ended June 30, 2003 were $35,000. The
reviews of the consolidated condensed financial statements included in the
Company's Quarterly reports on Form 10-QSB for the fiscal year ended June 30,
2003 were performed by Demetrius & Company, L.L.C. The fees billed by Demetrius
& Company, L.L.C. for those services plus its consent were $4,500. The aggregate
fees billed by Demetrius & Company, L.L.C. in connection with the year end audit
and quarterly reviews for the fiscal year ended June 30, 2002 were $27,167.


                                       44
<PAGE>

Audit Related Fees

            There were no fees billed by Demetrius & Company, L.L.C. for audit
related services for the fiscal years ended June 30, 2002 or 2003.

Tax Services

The aggregate fees billed by Demetrius & Company, L.L.C. for tax services during
the fiscal years ended June 30, 2003 and 2002 were $10,000 and $12,500,
respectively.

All Other Services

            During 2003 Demetrius & Company, L.L.C. billed the Company $4,000
for services in connection with the preparation of a private placement. During
2002, Demetrius & Company, L.L.C billed the Company $4,000 for services rendered
in connection with a possible acquisition which was never consummated.


                                       45
<PAGE>

                                   SIGNATURES

            In accordance with the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.


By: /s/ Arthur Barchenko
    --------------------
Name:   Arthur Barchenko
Title:  President
Dated:  September 26, 2003

            In accordance with the Exchange Act, this report has been signed
below by the following person on behalf of the registrant and in the capacities
and on the dates indicated.

       Person                  Capacity                       Date
       ------                  --------                       ----

/s/ Arthur Barchenko           President and Director         September 26, 2003
-----------------------
Arthur Barchenko

/s/ Mark Barchenko             Vice President and Director    September 26, 2003
-----------------------
Mark Barchenko

/s/ Natalie Barchenko          Treasurer and Director         September 26, 2003
-----------------------
Natalie Barchenko

/s/ James R. Janis             Director                       September 26, 2003
-----------------------
James R. Janis

/s/ Gene Rabois                Director                       September 26, 2003
-----------------------
Gene Rabois

/s/ Robert F. Reiter           Director                       September 26, 2003
-----------------------
Robert F. Reiter

/s/ Edward Snow                Director                       September 26, 2003
-----------------------
Edward Snow


<PAGE>

ITEM 7. FINANCIAL STATEMENTS

                        ELECTRONIC CONTROL SECURITY INC.
                                AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS
                        With Independent Auditors' Report

Independent Auditors' Report                                              F-1

Consolidated Balance Sheets                                               F-2

Consolidated Statements of Operations                                     F-3

Consolidated Statement of Changes in Shareholders' Equity                 F-4

Consolidated Statements of Cash Flow                                      F-5

Notes to Consolidated Financial Statements                              F-6-F-17

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders of Electronic Control Security Inc.
and Subsidiaries

We have audited the accompanying consolidated balance sheets of Electronic
Control Security, Inc. and Subsidiaries as of June 30, 2003 and 2002, and the
related consolidated statements of operations, changes in shareholders 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Electronic Control Security, Inc. and its subsidiaries as of June 30, 2003 and
2002, and the consolidated results of their operations and cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.


DEMETRIUS & COMPANY, L.L.C.

Wayne, New Jersey
September 3, 2003

                                       F-1

<PAGE>

                        Electronic Control Security Inc.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                June 30,
                                                                                           2003           2002
                                                                                           ----           ----
<S>                                                                                    <C>            <C>
ASSETS
Current assets
      Cash and cash equivalents                                                        $    75,081    $   282,286
      Certificates of deposit, pledged                                                     300,000             --
      Marketable securities, available for sale                                                 --         32,485
      Accounts receivable, net of allowance of  $50,000 and $25,000                        702,016        964,124
      Inventories                                                                        1,371,119      1,617,496
      Deferred income taxes                                                                405,000        282,000
      Other current assets                                                                 325,199        113,336
                                                                                       -----------    -----------
          Total current assets                                                           3,178,415      3,291,727

Property, equipment and software development costs - net                                   583,877        367,927
Intangible assets - net                                                                     37,726         50,503
Goodwill                                                                                    50,000         50,000
Deferred income taxes                                                                        4,000         14,000
Other assets                                                                               126,914         26,229
                                                                                       -----------    -----------
                                                                                       $ 3,980,932    $ 3,800,386
                                                                                       ===========    ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
      Accounts payable and accrued expenses                                            $   585,343    $   445,454
      Bank line of credit                                                                  560,000        300,000
      Current maturities of long-term debt                                                  99,996        124,996
      Obligations under capital leases                                                      10,826         15,150
      Customer deposits                                                                         --         24,258
      Payroll taxes payable                                                                 12,859         13,837
      Income taxes payable                                                                   6,000          5,322
      Due to officers and shareholders                                                      14,443         19,353
                                                                                       -----------    -----------
          Total current liabilities                                                      1,289,467        948,370

Noncurrent liabilities
      Obligations under capital leases                                                       4,986         17,888
      Long-term debt                                                                       241,671        341,671
      Deferred income taxes                                                                 49,000         31,000
                                                                                       -----------    -----------
          Total liabilities                                                              1,585,124      1,338,929

Minority interest                                                                               --         21,217

COMMITMENTS AND CONTINGENCIES - see notes

Shareholders' equity
     Series A Convertible Preferred stock, cumulative, $.01 par value; $2.00
         liquidation preference; 5,000,000 shares authorized,
          637,500 and 1,000,000 shares issued and outstanding, respectively                  6,375         10,000
      Common Stock, $.001 par value; 15,000,000 shares authorized;
          4,494,753 and 4,034,128 shares issued; 4,394,753 and 3,934,128
         shares outstanding, respectively                                                    4,495          4,034
      Additional paid-in capital                                                         5,098,787      4,790,361
      Accumulated deficit                                                               (2,704,502)    (1,848,044)
      Accumulated other comprehensive income                                                   653         (2,297)
      Deferred compensation                                                                     --       (503,814)
      Treasury stock, at cost, 100,000 shares                                              (10,000)       (10,000)
                                                                                       -----------    -----------
          Total shareholders' equity                                                     2,395,808      2,440,240
                                                                                       -----------    -----------
                                                                                       $ 3,980,932    $ 3,800,386
                                                                                       ===========    ===========
</TABLE>

                 See Notes to Consolidated Financial Statements


                                      F-2
<PAGE>

                        Electronic Control Security Inc.
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                      Year
                                                                      Ended
                                                                     June 30,
                                                                2003           2002
                                                                ----           ----
<S>                                                         <C>            <C>
Revenues                                                    $ 4,346,816    $ 2,304,013
Cost of revenues                                              2,375,335      1,087,786
                                                            -----------    -----------

          Gross profit                                        1,971,481      1,216,227
                                                            -----------    -----------

 Research and development                                       172,741         90,420
 Selling, general  and administrative expenses                1,933,540      1,149,228
 Stock based compensation                                       503,814        146,816
                                                            -----------    -----------

          Loss from operations                                 (638,614)      (170,237)

Other (income) expense
     Interest expense                                            68,179         55,822
     Interest income                                            (11,449)        (7,660)
     Minority interest in subsidiary loss                       (50,938)       (15,809)
     Loss on sale of marketable securities                        3,916          6,050
                                                            -----------    -----------

Total other expense                                               9,708         38,403
                                                            -----------    -----------

Loss before tax benefit                                        (648,322)      (208,640)

Income tax benefit                                              (89,000)       (38,800)
                                                            -----------    -----------

Net loss before dividends                                      (559,322)      (169,840)

Deemed dividends on series A convertible preferred stock        100,886        907,975
                                                            -----------    -----------

Net loss attributable to common shareholders                $  (660,208)   $(1,077,815)
                                                            ===========    ===========

Net loss per share:
     Basic                                                  $     (0.16)   $     (0.28)
                                                            ===========    ===========
     Diluted                                                $     (0.16)   $     (0.28)
                                                            ===========    ===========

Weighted average number of common shares and equivalents:
     Basic                                                    4,076,366      3,854,891
                                                            ===========    ===========
     Diluted                                                  4,076,366      3,854,891
                                                            ===========    ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

                        Electronic Control Security Inc.
            Consolidated Statements of Changes in Shareholders Equity

<TABLE>
<CAPTION>

                                                       Series A Convertible                                     Additional
                                                          Preferred Stock               Common Stock             Paid-in
                                                      Shares         Amount         Shares         Amount        Capital
                                                   ------------   ------------   ------------   ------------   ------------
<S>                                                   <C>         <C>               <C>         <C>            <C>
Balances at July 1, 2001                                     --   $         --      3,850,628   $      3,851   $  1,455,921

Grant of stock options                                                                                              612,297

Issuances of common stock, par value $.001
    Services rendered                                                                  70,000             70         38,263
    Exercise of stock options                                                         113,500            113         28,647

Private placement of convertible preferred stock
    and common stock warrants, net of
    offering costs of $364,316                        1,000,000         10,000                                    1,625,684

Minority interest contribution                                                                                       35,574

Amortization of deemed dividend on convertible                                                                      907,975
     preferred stock

Amortization of deferred compensation

Tax benefit from stock based compensation                                                                            86,000

Unrealized loss on marketable securities

Net loss
                                                   ------------   ------------   ------------   ------------   ------------

Balances at June 30, 2002                             1,000,000   $     10,000      4,034,128   $      4,034   $  4,790,361

Conversion of preferred stock                          (362,500)        (3,625)       362,500            363          3,263

Preferred dividend paid with Common Stock                                              98,125             98        196,152

Minority interest contribution                                                                                        8,126

Amortization of deferred compensation

Amortization of deemed dividend on convertible                                                                      100,886

Realized loss on marketable securities

Foreign currency translation adjustments

Net loss
                                                   ------------   ------------   ------------   ------------   ------------

Balances at June 30, 2003                               637,500   $      6,375      4,494,753   $      4,495   $  5,098,787
                                                   ============   ============   ============   ============   ============

<CAPTION>

                                                                   Accumulated
                                                                      Other
                                                   Accumulated    Comprehensive     Deferred       Treasury
                                                     Deficit          Income      Compensation       Stock           Total
                                                   ------------   -------------   -------------   ------------    ------------
<S>              <C>                               <C>             <C>            <C>             <C>             <C>
Balances at July 1, 2001                           $   (770,229)   $         --   $          --   $    (10,000)   $    679,543

Grant of stock options                                                                 (612,297)                            --

Issuances of common stock, par value $.001
    Services rendered                                                                   (38,333)                            --
    Exercise of stock options                                                                                           28,760

Private placement of convertible preferred stock
    and common stock warrants, net of
    offering costs of $364,316                                                                                       1,635,684

Minority interest contribution                                                                                          35,574

Amortization of deemed dividend on convertible                                                                         907,975
     preferred stock

Amortization of deferred compensation                                                  146,816                         146,816

Tax benefit from stock based compensation                                                                               86,000

Unrealized loss on marketable securities                                 (2,297)                                        (2,297)

Net loss                                             (1,077,815)                                                    (1,077,815)
                                                   ------------    ------------   -------------   ------------    ------------

Balances at June 30, 2002                          $ (1,848,044)   $     (2,297)  $    (503,814)  $    (10,000)   $  2,440,240

Conversion of preferred stock                                                                                               --

Preferred dividend paid with Common Stock              (196,250)                                                            --

Minority interest contribution                                                                                           8,126

Amortization of deferred compensation                                                   503,814                        503,814

Amortization of deemed dividend on convertible                                                                         100,886

Realized loss on marketable securities                                    2,297                                          2,297

Foreign currency translation adjustments                                    653                                            653

Net loss                                               (660,208)                                                      (660,208)
                                                   ------------    ------------   -------------   ------------    ------------

Balances at June 30, 2003                          $ (2,704,502)   $        653   $          --   $    (10,000)   $  2,395,808
                                                   ============    ============   =============   ============    ============
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-4
<PAGE>

                        Electronic Control Security Inc.
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                             Year
                                                                             Ended
                                                                            June 30,
                                                                       2003           2002
                                                                       ----           ----
<S>                                                                <C>            <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
     Net loss before deemed dividends                              $  (559,322)   $  (169,840)
     Adjustments to reconcile loss
      to net cash used by operating activities:
          Depreciation and amortization                                128,520         70,759
          Increase in allowance for bad debts                           25,000             --
          Stock based compensation                                     503,814        146,816
          Minority interest in subsidiary loss                         (50,938)       (15,809)
          Tax benefit from exercise of stock options                        --         86,000
          Deferred income taxes                                        (95,000)      (125,000)
          Foreign currency translation adjustments                         653             --
          Increase (decrease) in cash attributable
           to changes in assets and liabilities
               Accounts receivable                                     237,108       (829,542)
               Inventory                                               246,377       (317,711)
               Other current assets                                   (185,606)       (51,633)
               Other assets                                           (100,685)        (1,312)
               Accounts payable and accrued expenses                   139,889       (106,015)
               Customer deposits                                       (24,258)        24,258
               Payroll taxes payable                                      (978)         4,246
               Income taxes payable                                        678        (18,000)
               Other liabilities                                            --       (104,525)
                                                                   -----------    -----------
        Net cash provided (used)  by operating activities              265,252     (1,407,308)

Cash flows from investing activities:
     Investment in marketable securities                                34,782        (34,782)
     Acquisition of property, equipment and software development      (320,103)      (102,678)
     Acquisition of net assets                                              --        (20,000)
                                                                   -----------    -----------
          Net cash used in investing activities                       (285,321)      (157,460)

Cash flows from financing activities:
     Proceeds from issuance of convertible preferred stock                  --      1,635,684
     Proceeds from exercise of stock options                                --         28,760
     Proceeds (payments) on bank loan and line of credit               285,000        493,998
     Certificate of deposit, pledged                                  (300,000)            --
     Payments on long-term debt                                       (150,000)       (75,331)
     Payments on lease obligations                                     (17,226)       (14,658)
     Loan officers and shareholders - net                               (4,910)      (222,326)
                                                                   -----------    -----------
          Net cash provided  (used) by  financing activities          (187,136)     1,846,127
                                                                   -----------    -----------

          Net increase (decrease) in cash and cash equivalents        (207,205)       281,359

Cash and cash equivalents at beginning of period                       282,286            927
                                                                   -----------    -----------

          Cash and cash equivalents at end of period               $    75,081    $   282,286
                                                                   ===========    ===========

Supplemental disclosures of cash flow information
   Cash paid during the period for:
          Interest                                                 $    68,179    $    55,822
                                                                   ===========    ===========
          Taxes                                                    $     1,000    $    18,000
                                                                   ===========    ===========

Non cash financing and investing activity
   Purchase of equipment for customers receivable balance                         $   153,833
                                                                                  ===========
   Contribution of assets to subsidiary                                           $    72,600
                                                                                  ===========
   Debt incurrred on acqusition of net assets                                     $    30,000
                                                                                  ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                       F-5
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Nature of Operations

      Electronic Control Security, Inc. (The "Company") is engaged in the
      design, manufacture and marketing of electronic security and lighting
      systems for high threat environments. The Company also performs consulting
      services, which consists principally of designing security systems for
      medium to large government and commercial facilities worldwide.

Note 2 - Summary of Significant Accounting Policies

      Principles of Consolidation

      The financial statements include the accounts of the Company, its wholly
      owned subsidiaries, and its majority owned subsidiaries. The Company's
      majority owned subsidiary was formed in the Middle East in January 2002
      and commenced business in May 2002. In January 2003, it ceased to exist as
      an operating entity at which time a new majority owned subsidiary was
      formed to conduct the Company's business in the Middle East. All
      significant intercompany accounts and transactions have been eliminated.

      Reclassifications

      Certain prior year balances have been reclassified to conform to the
      current year presentation.

      Accounts Receivable

      Trade accounts receivable is recorded net of an allowance for expected
      losses. The allowance is estimated from historical performance and
      projections of trends.

      Inventories

      Inventories are stated at the lower of cost (first-in, first-out) or
      market.

      Property and Equipment and Depreciation

      Depreciation is provided for by straight-line and accelerated methods over
      the estimated useful lives of the assets, which vary from three to ten
      years. Cost of repairs and maintenance are charged to operations in the
      period incurred.

      Software Development Costs

      Software development costs are expensed as incurred until technological
      feasibility is established. Software development costs incurred subsequent
      to establishing technological feasibility are capitalized and amortized.
      Amortization is provided based on the greater of the ratios that current
      gross revenues for a product bear to the total of current and anticipated
      future gross revenues for that product, or the straight-line method over
      the estimated useful life of the product. The estimated useful life for
      the straight-line method is determined to be 5 years. Approximately
      $248,000 and $90,000 of software development costs have been capitalized
      for the years ended June 30, 2003 and 2002, respectively.

      Earnings per Share

      In determining basic or diluted earnings per share (EPS), the effects of
      deemed dividends related to the Company's series A convertible preferred
      stock is added to the net loss.


                                      F-6
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      Earnings per Share (Cont)

      Basic EPS is computed by dividing net income or net loss by the weighted
      average number of common shares outstanding for the period. Diluted EPS
      reflects the potential dilution from the exercise or conversion of other
      securities into common stock, but only if dilutive. The following
      securities have been excluded from the dilutive per share computation as
      they are antidilutive

                                               2003        2002
                                               ----        ----
               Stock options                 950,000     960,000
               Warrants                      546,875     546,875
               Convertible Preferred Stock   637,500   1,000,000

      All references to weighted average shares outstanding and per share
      amounts have been restated to give retroactive effect to the stock
      dividend (see Note 10) for all periods presented.

      Foreign Currency Translation

      The functional currency of the Company's foreign subsidiaries is the local
      currency. Accordingly, the Company translates all assets and liabilities
      into U.S. dollars at current rates. Revenues, costs, and expenses are
      translated at average rates during each reporting period. Gains and losses
      resulting from the translation of the consolidated financial statements
      are excluded from results of operations and are reflected as a translation
      adjustment and a separate component of stockholders' deficit.

      Gains and losses resulting from foreign currency transactions are
      recognized in the consolidated statement of operations in the period they
      occur.

      Cash and Cash Equivalents

      The Company considers all short-term deposits with a maturity of three
      months or less to be cash equivalents.

      Use of Estimates

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

      Long-lived assets

      The Company records impairment losses on long-lived assets used in
      operations when events and circumstances indicate that the assets might be
      impaired and the undiscounted cash flows estimated to be generated by
      those assets are less than the carrying amounts of those assets

      Revenue Recognition

      The Company recognizes product revenue at the time of shipment. Revenues
      from consulting and design services are recognized at the time the
      services are rendered.


                                      F-7
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      Research and Development

      Research and development expenditures are expensed as incurred.

      Income Taxes

      The Company uses the liability method to determine its income tax expense
      as required under Statement of Financial Accounting Standards No. 109
      (SFAS 109). Under SFAS 109, deferred tax assets and liabilities are
      computed based on differences between financial reporting and tax basis of
      assets and liabilities, and are measured using the enacted tax rates and
      laws that will be in effect when the differences are expected to reverse.
      Valuation allowances are established when necessary to reduce deferred tax
      assets, if it is more likely than not that all or a portion of it will not
      be realized.

      Fair Value of Financial Instruments

      The carrying values of cash, accounts receivable, accounts payable,
      accrued expenses and other current liabilities are representative of their
      fair value due to the short-term maturity of these instruments. The
      carrying value of the Company's long-term debt is considered to
      approximate its fair value, based on current market rates and conditions.

      Intangible Assets

      The cost of licenses and trademarks are being amortized on the
      straight-line method over their useful lives, ranging from 5 to 15 years.
      Amortization expense charged to operations was $12,177 and $9,035 for the
      years ended June 30, 2003 and 2002, respectively.

      Advertising Costs

      Advertising costs are reported in selling, general and administrative
      expenses, and include advertising, marketing and promotional programs.
      These costs are charged to expense in the year in which they are incurred.
      Advertising costs for the years ended June 30, 2003 and 2002 were
      approximately $67,000 and $42,000, respectively.

      Stock Based Compensation

      The Company accounts for stock-based employee and outside directors
      compensation under Accounting Principles Board ("APB") Opinion No. 25,
      "Accounting for Stock Issued to Employees", and related interpretations.
      The Company has adopted the disclosure-only provisions of Statement of
      Financial Accounting Standards ("SFAS") No. 123, "Accounting for
      Stock-Based Compensation" and SFAS No. 148, "Accounting for Stock-Based
      Compensation - Transition and Disclosure", which was released in December
      2002 as an amendment of SFAS No. 123. Stock options and warrants granted
      to non-employees are recorded at their fair value, as determined in
      accordance with SFAS No. 123 and Emerging Issues Task Force Consensus No.
      96-18, and recognized over the related service period.


                                      F-8
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      Stock Based Compensation (cont)

      The following table illustrates the effect on net income and earnings per
      share if the fair value based method had been applied to all awards

<TABLE>
<CAPTION>
                                                                         Year Ended
                                                                           June 30,
                                                                       2003         2002
                                                                       ----         ----
<S>                                                                 <C>          <C>
      Net loss, as reported                                         $(660,208)   $(1,077,815)
      Add: Stock based compensation
                 expense, as reported, net of related tax effects          --             --
      Deduct: Total stock-based compensation
        expense determined under the fair value based
        method for all awards, net of related tax effects              (3,742)      (490,777)
                                                                    ---------    -----------
      Pro forma net loss                                            $(663,950)   $(1,568,592)
                                                                    =========    ===========

      Basic and diluted loss per share, as reported                 $   (0.16)   $     (0.28)
      Basic and diluted loss per share, pro forma                   $   (0.16)   $     (0.41)
</TABLE>

      The weighted average per share fair value of options granted during fiscal
      2002 was $1.31. No options were granted in fiscal 2003. The fair value of
      each option granted in 2002 was estimated using the Black-Scholes
      option-pricing model with a volatility of 96.72%, expected life of options
      of 3.75 years, risk free interest rate of approximately 3.72% and a
      dividend yield of 0%.

      Recent Pronouncements

      In May 2003, the FASB issued SFAS No. 149, "Derivative Instruments." This
      statement amends SFAS No. 133, by requiring that contracts with comparable
      characteristics be accounted for in a similar fashion. In particular, the
      Statement: (1) clarifies under what circumstances a contract with an
      initial net investment meets the characteristic of a derivative discussed
      in paragraph 6(b) of Statement 133; (2) clarifies when a derivative
      contains a financing component; (3) amends the definition of an
      "underlying" to conform it to language used in FIN No. 45, "Guarantor's
      Accounting and Disclosure Requirements for Guarantees, Including Indirect
      Guarantees of Indebtedness of Others;" and (4) amends certain other
      existing pronouncements. This Statement is effective for contracts entered
      into or modified after June 30, 2003, and for hedging relationships
      designated after June 30, 2003. The Company does not have any derivative
      instruments as defined in SFAS No. 149. Accordingly, this pronouncement is
      currently not applicable to us.

      In May 2003, the FASB issued SFAS No. 150 "Accounting for Financial
      Instruments with the Characteristics of Both Liabilities and Equities."
      SFAS No. 150 establishes standards regarding the manner in which an issuer
      classifies and measures certain types of financial instruments having
      characteristics of both liabilities and equity. Pursuant to SFAS No. 150,
      such freestanding financial instruments (i.e., those entered into
      separately from an entity's other financial instruments or equity
      transactions or that are legally detachable and separately exercisable)
      must be classified as liabilities or, in some cases, assets. In addition,
      SFAS No. 150 requires that financial instruments containing obligations to
      repurchase the issuing entity's equity shares and, under certain
      circumstances, obligations that are settled by delivery of the issuer's
      shares be classified as liabilities.


                                      F-9
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      Recent Pronouncements (cont)

      The Statement is effective for financial instruments entered into or
      modified after May 31, 2003 and for other instruments at the beginning of
      the first interim period beginning after June 15, 2003. The adoption of
      SFAS No. 150 had no impact the Company's financial condition or results of
      operations.

Note 3 - Inventories

      Inventories at June 30, 2003 and 2002 consist of the following:

                                                2003               2002
                                                ----               ----
      Raw materials                          $  246,923         $  318,527
      Work-in-process                           229,632            190,068
      Finished goods                            894,564          1,108,901
                                             ----------         ----------
                                             $1,371,119         $1,617,496
                                             ==========         ==========

Note 4 - Property, Equipment and Software Development Costs

      Property, equipment and software development costs consist of the
      following:

<TABLE>
<CAPTION>
                                                                       2003       2002
                                                                       ----       ----
<S>                                                                  <C>        <C>
      Furniture and fixtures                                         $ 35,600   $ 26,455
      Machinery and equipment                                         511,299    452,837
      Improvements                                                      9,296      9,296
      Software                                                         95,978    182,702
      Software development costs                                      339,332     90,378
                                                                     --------   --------
                                                                      991,505    761,668
          Less: accumulated depreciation and amortization             407,628    393,741
                                                                     --------   --------
                                                                     $583,877   $367,927
                                                                     ========   ========

        Equipment under capital leases included in
        property, equipment and purchased software are as follows:
         Machinery and equipment                                     $ 61,444   $ 69,944
         Less: accumulated depreciation                                33,644     26,915
                                                                     --------   --------
                                                                     $ 27,800   $ 43,029
                                                                     ========   ========
</TABLE>

      In November 2001, the Company accepted the return of equipment in payment
      of a customer account. The Company valued the equipment at its original
      cost of $153,000 and capitalized it to property and equipment. The
      equipment will be used by the Company for system factory testing,
      monitoring and offsite support services.

      Depreciation expense was $ 115,743 and $ 61,725 for the years ended June
      30, 2003 and 2002


                                      F-10
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5 - Bank Line Of Credit

      The Company's $500,000 revolving credit line was extended an additional
      year to November 2003. Substantially all of the Company's assets and the
      personal guarantee of an officer/shareholder collateralize the outstanding
      balances. The credit line requires the maintenance of a minimum tangible
      net worth, as defined. Interest is payable monthly at 1.0% plus the prime
      rate for a total of 5.00% at June 30, 2003. In August 2002, the Company
      obtained an additional $285,000 revolving credit line, secured by a
      Company certificate of deposit in the amount of $300,000 plus accrued
      interest. In September 2003, the additional line was repaid with the
      proceeds of the released certificate of deposit.

Note 6 - Long-Term Debt

                                                    2003            2002
                                                    ----            ----

      (a) Promissory note                         $     --        $ 25,000
      (b) Term loan                                341,667         441,667
                                                  --------        --------
                                                   341,667         466,667
      Less: current portion                         99,996         124,996
                                                  --------        --------
                                                  $241,671        $341,671
                                                  ========        ========

      (a)   In April 2002, the Company acquired certain assets of a
            Virginia-based security consulting firm for $50,000. The Company
            paid $20,000 at closing and issued a non-interest bearing promissory
            note for the balance which was paid in six monthly installments of
            $5,000.

      (b)   In November 2001, an existing $500,000 revolving line of credit was
            converted into a term loan to be repaid over five years in monthly
            installments of $8,333 plus interest at the rate of 7.5% per annum

      The annual maturities of long-term debt as of June 30, 2003 are as
      follows:

                                             2004                $ 99,996
                                             2005                  99,996
                                             2006                  99,996
                                             2007                  41,683
                                                                 --------
                                                                 $341,667
                                                                 ========

Note 7 - Obligation Under Capital Leases

      Future minimum lease payments for assets under capital leases at June 30,
      2003

      Years ending June 30,

                                             2004                  $17,698
                                             2005                    5,358
                                                                   -------
                                                                    23,056
                     Amount representing interest                    7,244
                                                                   -------
      Present value of net minimum lease payments                  $15,812
                                                                   =======


                                      F-11
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Due to Officers and Shareholders

      These amounts represent non-interest bearing advances and are due on
      demand.

Note 9 - Income Taxes

      The provision for taxes for the year ended June 30, 2003 and 2002 includes
      the following components:

                                                       2003         2002
                                                       ----         ----
            Current
               Federal                              $      --    $      --
               State                                    6,000        1,000
               Foreign                                     --           --
                                                    ---------    ---------
                                                        6,000        1,000
            Deferred
               Federal                                 (5,000)     (28,000)
               State                                  (38,000)     (11,800)
               Foreign                                (52,000)          --
                                                    ---------    ---------
                                                      (95,000)     (39,800)
                                                    ---------    ---------

                                                    $ (89,000)   $ (38,800)
                                                    =========    =========

            The components of the deferred tax accounts as of June 30, 2003 and
            2002 are as follows:

                                                       2003         2002
                                                       ----         ----
            Deferred tax assets
                  Net operating loss carryforward   $ 361,834    $ 267,800
                  Stock based compensation            232,163           --
                  Other                                28,962       28,200
                                                    ---------    ---------
                                                      622,959      296,000
            Deferred tax liabilities
                  Depreciation and amortization        46,142       31,000
                                                    ---------    ---------
            Subtotal                                  576,817      265,000
            Valuation allowance                      (216,817)          --
                                                    ---------    ---------

            Net deferred tax assets                 $ 360,000    $ 265,000
                                                    =========    =========

            The valuation at June 30, 2001 was -0-.


                                      F-12
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      Note 9 - Income Taxes (cont)

      The reconciliation of estimated income taxes attributed to operations at
      the statutory tax rates to the reported income tax benefit is as follows:

                                                       2003        2002
                                                       ----        ----

      Expected federal tax at statutory rate        $(311,204)   $(67,219)
      State taxes, net of federal tax effect          (37,144)    (11,862)
      Foreign rate differential                        (7,729)         --
      Non deductible expenses                          50,712       6,528
      Change in valuation allowance                   216,817          --
      Other                                              (452)     33,753
                                                    ---------    --------
                                                    $ (89,000)   $(38,800)
                                                    =========    ========

      At June 30, 2003 the Company had net operating loss carryforwards for
      federal and state income tax purposes of $658,000 and $961,000
      respectively, expiring through 2023. The Company has foreign net operating
      loss carryforwards of $129,000 with no expiration date.

Note 10- Shareholders' Equity

      Stock Dividend

      On October 11, 2001, the Company's Board of Directors voted to issue a 5%
      stock dividend to shareholders of record as of October 15, 2001. As a
      result of the stock dividend, 178,628 shares were issued. All references
      in the accompanying financial statements to the number of common shares
      and per-share amounts for fiscal 2002 have been restated to reflect the 5%
      stock dividend.

      Series A Convertible Preferred Stock

      In January to March 2002, the Company realized gross proceeds of
      $2,000,000 from the private placement of 40 Units, each Unit consisting of
      25,000 shares of Series A Convertible Preferred Stock ("Preferred Stock")
      and 12,500 common stock purchase Warrants. The Preferred Stock provides
      for an annual dividend of $.20 per share, payable quarterly, (payable in
      cash or shares of common stock valued at $2.00 per share), when, as and if
      declared by the Board of Directors. Dividends will be paid on a cumulative
      basis. Each preferred share is convertible at the option of the holder
      into one common share, commencing 120 days after closing. The conversion
      ratio is subject to certain adjustments, as defined. The preferred shares
      have a liquidation preference in the amount of $2.00 per share and the
      Company may redeem them commencing one year from date of issuance if the
      common shares have traded at or above $4.00 for a period of twenty
      consecutive trading days. The Warrants are exercisable for a period of
      three years from the date of issuance at an exercise price per share of
      $3.00 per share and the Company may redeem them for $.05 per Warrant, once
      the underlying shares are registered, if the common shares have traded at
      or above $5.00 of for a period of twenty consecutive trading days. The
      Company has valued the warrants issued at $792,482 using the Black-Scholes
      pricing model. In connection with the private placement, the Company
      issued unit warrants to a placement agent to purchase up 3.75 Units
      identical to the Units in the offering. The unit warrants are exercisable
      at a price of $50,000 per unit for up to three years.


                                      F-13
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Shareholders' Equity (cont)

      Series A Convertible Preferred Stock (Cont)

      The Company has recorded a deemed dividend and an offsetting increase in
      additional paid-in capital totaling $1,008,861 to reflect the beneficial
      conversion price of the preferred stock as compared to the prevailing
      market price of the common stock. The deemed dividend was amortized over
      120 days, commencing from the date of closing to the date the preferred
      stock first become convertible.

      As of June 30, 2003, 362,500 shares of Series A Convertible Preferred
      Stock were converted into a like amount of common stock.

      On March 5, 2003, the Company's board of Directors declared a dividend on
      the Series A Convertible Preferred Stock for the period from the date of
      issuance, March14, 2002, through March 13, 2003. The dividend was paid by
      the issuance of 98,125 additional shares of the Company's common stock.
      Cumulative but undeclared dividends at June 30, 2003 totaled approximately
      $32,000.

      Stock Option Plans

      Incentive Stock Option Plan

      During September 1986, the Company adopted an incentive stock option plan
      for which 750,000 shares of common stock have been reserved. The plan has
      since been extended until September 2006.

      Under the plan, incentive stock options were granted to certain employees
      of the Company. The exercise price may not be less than 100% of the fair
      market value of the stock at the date of the grant (110% in the case of
      any employee who owns more than 10% of the combined voting power or value
      of all classes of stock). Options may be granted for terms not exceeding
      ten years from the date of the grant, except for options granted to person
      holding in excess of 5% of the common stock, in which case the options may
      not be granted for a term not to exceed five years from the date of the
      grant.

      Non-statutory Stock Option Plan

      The Company also has adopted a non-statutory stock option plan and has
      reserved 250,000 shares of common stock for issuance to Directors,
      employees and non-employees. Options granted pursuant to this plan will be
      non-transferable and expire, if not exercised within five years from the
      date of the grant.

      Other Option Grants

      In addition to the options granted under the Stock Option Plans, the
      Company has issued options outside of the plans, pursuant to various
      consulting agreements.


                                      F-14
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Shareholders' Equity (cont)

      Stock Option Plans (cont)

      Option activity for 2002 and 2003 is summarized as follows:

<TABLE>
<CAPTION>
                                                                              Weighted
                                                                               Average
                                            Options                            Exercise
                                             Plan      Nonplan      Total       Price
                                             ----      -------      -----       -----
<S>                                         <C>         <C>        <C>         <C>
      Options outstanding, July 1, 2001     210,000      53,500     263,500    $   0.12
      Granted                               405,000     425,000     830,000        1.60
      Exercised                             (30,000)    (83,500)   (113,500)       0.23
      Forfeited                             (20,000)         --     (20,000)       0.25
                                           --------                --------    --------

      Options outstanding, June 30, 2002    565,000     395,000     960,000    $   1.39

      Granted                                    --          --          --          --
      Exercised                                  --          --          --          --
      Forfeited                             (10,000)         --     (10,000)       2.70
                                           --------                --------    --------

      Options outstanding, June 30, 2003    555,000     395,000     950,000    $   1.39
                                           ========    ========    ========    ========

      Shares of common stock available
        for future grant under the plans    445,000
                                           ========
</TABLE>

      The following table summarizes information about stock options outstanding
      at June 30, 2003.

<TABLE>
<CAPTION>
                                                                       Options Exercisable
                                                Weighted Average                      Weighted
                                           Remaining                                   Average
                            Number        Contractual      Exercise      Number       Exercise
      Ranges of price     Outstanding        Life            Price    Exercisable       Price
      ---------------     -----------        ----            -----    -----------       -----
<S>                            <C>                <C>        <C>           <C>          <C>
      $.05-.10                  70,000            4.19       $0.06          70,000      $0.06
      $.20-.30                 230,000            5.66       $0.25         205,000      $0.25
      $.50-.88                  30,000            2.81       $0.75          30,000      $0.75
      $1.00-1.50               350,000            1.68       $1.25         350,000      $1.25
      $2.70-2.97               270,000            3.38       $2.90         270,000      $2.90
                         -------------   -------------       -----   -------------      -----

      $.05-$2.97               950,000            3.35       $1.37         925,000      $1.40
                         =============   =============       =====   =============      =====
</TABLE>


                                      F-15
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11 - Concentrations and Economic Dependency

      The Company had three customers that accounted for 17%, 25% and 29%,
      respectively of net revenues for year ended June 30, 2003 and two
      customers that accounted for 21% and 22% of net revenues for year ended
      June 30, 2002. Two customers accounted for 56% of the accounts receivables
      as of June 30, 2003. At June 30, 2003 approximately 33.6% of accounts
      receivable were from foreign customers. The Company performs ongoing
      credit evaluations of its customers' financial condition and generally
      requires no collateral from its customers.

      During the year and at year end, the Company had cash deposits in a bank
      in excess of FDIC limits. The Company periodically reviews the financial
      condition of the bank to minimize its exposure

Note 12 - Commitments and Contingencies

      Lease Agreements

      Future minimum annual rental payments required under non-cancelable
      operating leases for years after June 30, 2003 are as follows:

                                      2004                      $120,000
                                      2005                        87,000
                                      2006                        59,000
                                      2007                        56,000
                                      2008                        51,000
                                                                --------
                                                                $373,000
                                                                ========

      Rent expense under all operating leases was $89,316 and $81,195 for the
      years ended June 30, 2003 and 2002.

      License Agreement

      The Company has acquired intellectual property, equipment and a tooling
      license from Mason & Hanger National, Inc. and a patent license from
      Lucent Technologies, Inc. for the Fiber Optic Intelligence Detection
      Systems (FOIDS(R)). In conjunction with these two license agreements
      whereby royalties totaling 5.4% are due on revenues from the Fiber Optic
      Intelligence Detection System (FOIDS(R)).

      Litigation

      The Company is party to an appeal filed to overturn an award of attorney's
      fees and related court costs in conjunction with a settlement regarding
      the use of its intellectual property. The Company intends to defend its
      position vigorously and management does not believe that the final outcome
      will have a material adverse effect on the Company's consolidated
      financial position, results of operations or cash flows. In connection
      with this appeal, the Company was required to pledge a $100,000 letter of
      credit to secure a $145,000 surety bond issued to stay the collection of
      the award pending the outcome of the appeal.


                                      F-16
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13 - Geographic Data

      The Company currently operates in the United States and the Middle East.
      The following is a summary of local operations by geographic area:

<TABLE>
<CAPTION>
                                     U.S.     % of total  Middle East    % of total
                                     ----     ----------  -----------
<S>                              <C>             <C>      <C>               <C>
      For the year ended
        June 30, 2003
           Revenue               $ 4,317,953     99.34%   $    28,863        0.66%
           Operating loss           (456,251)    71.44%      (182,363)      28.56%
           Identifiable assets     3,760,378     94.46%       220,554        5.54%

      For the year ended
        June 30, 2002
           Revenue               $ 2,292,370     99.49%   $    11,643        0.51%
           Operating loss           (137,974)    81.05%       (32,263)      18.95%
           Identifiable assets     3,730,786     98.17%        69,600        1.83%
</TABLE>


                                      F-17