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, 2001

|_|   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: (936) 788-8220

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: $2,304,013

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 days. (See definition of affiliate in Rule
12b-2 of the Exchange Act.): $1,190,048 as of September 27, 2002

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 4,034,128 as of September 25, 2002.

                       DOCUMENTS INCORPORATED BY REFERENCE

None.

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

<PAGE>

                                     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 is to ascertain the security challenges
confronting a client and applying 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 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.

      During 2000, we achieved ISO 9001 certification. ISO 9001 certification is
an internationally accepted standard of design and manufacturing quality
control. The certification signifies to clients that our products are of the
highest quality and allows clients to purchase our products with confidence that
they will perform as advertised. On April 30, 2002, we successfully completed a
second ISO 9001 surveillance audit.

<PAGE>

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:

      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 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.


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<PAGE>

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 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 and
      annunciates the intrusion. Any unauthorized access to the LAN will alert


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<PAGE>

      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. 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 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 to 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.


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<PAGE>

            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 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
(such as the new international airport in South Korea). 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.

      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, has 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.


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<PAGE>

            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:

      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.

            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 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 months 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


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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 they United States. We, along with our strategic
teaming partners and international dealer/sales representatives, continue to
seek to penetrate these markets. During 2001 and 2002, we generated
approximately 10% 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 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.

            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 18 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.


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            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 intend to:

o     Add one person to our marketing and sales team. We will seek to add one
      person to our marketing team who has extensive sales and marketing
      experience in the middle Atlantic states. We believe that additional sales
      and marketing personnel will allow us to access additional markets and
      develop the focused marketing 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 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, though
      our Company web site and through international customer referrals.

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, all of which could increase sales volume.

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 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.

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 40 clients on over 200
projects.

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 160 years of combined experience in the
            security industry;


                                       10
<PAGE>

      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.

Backlog.

            Our backlog consists of written purchase orders, contract
commitments we have received for product deliveries and engineering services.
All of these orders and contracts are subject to cancellation at any time. As of
June 30, 2002, our backlog was approximately $7 million, consisting of signed
contracts of $3.5 and contract commitments of $3.5 million. We presently expect
to fill these orders within the next 12 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.

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 are adequate to
meet demand for our products for the foreseeable future. Should demand warrant,
we can add manufacturing equipment and personnel as required to fill orders for
product without undue delay.

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.

            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.


                                       11
<PAGE>

            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 for the terms
"FOIDs(R)" (Fiber Optic Intrusion Detection System), "IPID(R)" (Infrared
Perimeter Intrusion Detection System), and "RDIDS(R)" (Rapid Deployment Infrared
Detection System).

            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
successful.

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 (1) year from date of purchase. FOIDS(R) systems are
warranted for a ten (10) year period. For the years ended June 30, 2002 and
2001, 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, Mason Hanger National, Inc.. Rafael Armament Development
Authority, LUA Technologies/Viisage and Hyperdyne, Inc.

Employees.

            As of September 26 2002, we employed twenty six (26) individuals on
a full-time basis including five (5) design and engineering staff, nine (9)
manufacturing and assembly employees, four (4) marketing employees and eight (8)
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 nine (9) independent sales representative
organizations covering specific regions in the U.S.A., Central America, 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.


                                       12
<PAGE>

            During the years ended June 30, 2002 and 2001, we generated
approximately 26% and 10%, 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:

      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 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.


                                       13
<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 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 and Mark
Barchenko, the


                                       14
<PAGE>

President, and Vice President, respectively, and our key marketing personnel.
The loss of either of these persons could have a materially detrimental effect
on our business. We have not entered into employment agreements with either of
these persons. 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 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 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 it acquires.

            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.


                                       15
<PAGE>

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.

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 Prospectus, we have issued 1,000,000 shares
of Series A Convertible Preferred Stock ("Series A Preferred Stock") and have
warrants outstanding entitling the holders to purchase an additional 93,797
shares of said class of 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.

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


                                       16
<PAGE>

            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 therefrom;

      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.

            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.

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


                                       17
<PAGE>

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 Neoprobe 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 by the end of the lease term. The
Company also leases approximately 2,500 square feet of manufacturing space at
102 Commerce Circle, Madison, Alabama. The Company has leased this space through
February, 2004 at a cost of $1,800 per month. The Company also leases
approximately 750 square feet of space in the Washington, D.C. metropolitan area
which it uses for sales and support services. ECSI believes that this space is
sufficient for its current requirements and that additional space is available
on commercially reasonable terms, if necessary.

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.


                                       18
<PAGE>

                                                                  Closing Bid
                                                              High          Low
                                                              ------------------
2002

July 1 - Sept. 26                                             0.92          0.70
April 1 - June 30                                             1.90          0.90
January 1 - March 31                                          2.90          1.80

2001

Oct. 1 - December 31                                          2.65          0.95
July 1 - September 30                                         0.75          0.25
June 5 - June 30                                              3.00          0.30

            As of September 25, 2002, ECSI had approximately 420 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 2002 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.


                                       19
<PAGE>

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;

      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 2002, we accomplished a number of goals that will help
support our sustained growth in the future. Specifically, we

      o     entered into an agreement in September 2002 with a dealer-installer
            organization having 200 members throughout the United States;

      o     engaged a team of four technically accomplished security advisors
            who combine expertise in the design, integration, installation, and
            testing of state-of-the-art intrusion detection and assessment
            systems and who have extensive experience with federal government
            bidding and contracts, all of whom have the government highest
            security clearances;

      o     established a subsidiary to pursue business in the Middle East;

      o     entered into an exclusive agreement with Pennsylvania State
            University in August 2002 to manufacture and market an advanced
            perimeter detection system;

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

      o     were able to complete a financing for $2 million and obtain a $1
            million line of credit from a bank, both of which have improved our
            financial condition.


                                       20
<PAGE>


Results of Operations

Year Ended June 30, 2002 ("2002 period") Compared to Year Ended June 30, 2001
("2001 period").

REVENUES. The Company reported net revenues of $2,304,013 for the 2002 period,
as compared to revenues of $5,226,901, for the 2001 period. Of the revenues
reported in the 2001 period, approximately 85.6% were for a Department of Energy
(DOE) project that was completed in April 2001. The decrease in sales in the
2002 period, are primarily attributable to the events of September 11, 2001.
Certain projects in the Company's backlog as well as committed orders were
placed on hold due to funding restrictions affecting certain government
agencies. Customers also delayed the approval of final release dates. Although
the events of September 11 had a negative impact on revenue for 2002, the
Company experienced a sharp increase in the number of inquiries for its products
and services. Fiscal 2002 proposals increased in number by 300% over the same
period in fiscal 2001 and by 1000% in dollar value. At June 30, 2002, the
Company's backlog of signed contracts stood at approximately $3.5 million, in
addition to, contract commitments for approximately $3.5 million. Of this
amount, the Company expects to release and ship approximately $750,000 in the
first quarter of fiscal 2003 and the remaining amount over the next nine to
twelve months.

GROSS MARGINS. There was no significant change in gross margins as a percentage
of revenues in 2002 as compared to 2001.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased in the 2002 period to $1,149,228, as compared to $1,297,073
in the 2001 period. The decreases in 2002 are primarily the result of lower
sales commissions related to the reduction in sales volume. In addition, the
Company settled approximately $100,000 of old accounts payable for $44,000 in
the 2002 period.

STOCK BASED COMPENSATION. In the 2002 period, the Company issued stock and stock
options to various consultants valued at approximately $650,000. This amount is
being amortized over the related service periods resulting in a charge of
$146,816 in the 2002 period. The Company had $9,800 in stock based compensation
in the prior year. Stock-based compensation is non-cash and, therefore, has no
impact on the Company's cash flow or liquidity.

INTEREST EXPENSE. Interest expense in the 2002 period was $55,822, as compared
to $51,638 for the comparable period in 2001. The increase was attributable to
higher outstanding debt balances partially offset by lower interest rates in the
2002 period.

MINORITY INTEREST IN SUBSIDIARY LOSS. The minority interest in the loss from the
Company's 51% owned foreign subsidiary was $15,809 for the 2002 period. The
subsidiary was formed in January 2002 and commenced operations in May 2002.

INCOME TAX PROVISION (TAX BENEFIT). In the 2002 period, the Company recognized
the tax benefits from the current year net operating loss which will be used to
offset taxable income in a future year. The provision for income taxes in the
2001 period did not result in any currently payable taxes, since taxable income
was fully offset net operating loss carryforwards.

NET INCOME (LOSS). As a result of the foregoing, net income (loss) for the years
ended June 30, 2002 and 2001 was $(169,840) and $773,366 respectively.

NET INCOME (LOSS) PER SHARE. For purposes of calculating net income (loss) per
share, deemed dividends totaling $907,975 are reflected as an increase in net
loss attributable to common shareholders for the year ended June 30, 2002. The
Company has recorded a deemed dividend totaling $1,008,861 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 is being amortized over 120 days, commencing
from date of the closing of the sale of these shares to the date the preferred
stock first became convertible. 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 $(.24) out of
the $(.28) loss per share for the year ended June 30, 2002.


                                       21
<PAGE>

Liquidity and Capital Resources

At June 30, 2002, the Company had working capital of $2.3 million compared to
$768,948, at June 30, 2001. In addition, the Company had $314,771 of cash, cash
equivalents and marketable securities as compared to $927 at June 30, 2001. This
improved working capital position resulted primarily from the private placement
of preferred stock in January to March 2002 that raised approximately $1.64
million in net cash proceeds.

Net cash used by operating activities for the 2002 period was $1,407,308 as
compared to net cash provided by operating activities of $493,557 for the 2001
period. Accounts receivable relative to sales volume is high because sales to
two customers, which represent five different projects that occurred largely in
the last four months of fiscal 2002, represents approximately 78% of outstanding
accounts receivable at June 20, 2002. The Company expects that payments will be
received during the second quarter of fiscal 2003. Inventory increased by
$317,711 over fiscal 2001 as the Company has been building its inventory levels
in anticipation of shipments of backlog and firm contract commitments.

Investing activities for the 2002 period included purchases of $102,678 for
software and equipment. The Company does not have any material commitments for
capital expenditures. In November 2001, the Company accepted the return of
equipment that it had previously sold, from a customer, as a payment against
unpaid accounts receivable. The equipment, valued at approximately $153,000,
will be used by the Company for system factory testing, monitoring and offsite
support services. In April 2002, the Company acquired certain assets of a
security consulting firm for a total purchase price of $50,000. The Company paid
$20,000 at closing and issued a $30,000 non-interest bearing note to be paid in
six monthly installments of $5,000.

Financing activities in the 2002 period included raising net proceeds from the
private placement of preferred stock totaling $1,635,684, proceeds from the
exercise of warrants and options totaling $28,760, proceeds from additional bank
loans of $493,998, and repayment of the various debt obligations, including
loans from officers totaling $312,315. Financing activities for the year ended
June 30, 2001 consisted primarily of repayments of the Company's revolving
credit line, bank overdraft, notes payable and loans from shareholders for a
total of $441,119. In addition, the Company re-purchased 100,000 shares of its
common stock for $10,000.

The Company has available a revolving line of credit for up to $500,000 which is
due to expire in November 2002. 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 bank granted an
additional line of credit in the amount of $285,000. This line is due to expire
in August 2003, bears interest at the rate of 1% above prime and is secured by a
certificate of deposit in the amount of $300,000.

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.

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 the Company requires cash
in connection with such activities, it may have to obtain third party financing
which may not available on terms acceptable or favorable to the Company, or at
all.

The Company anticipates that, other than as may be required for investments or
acquisitions, cash on hand together with cash generated from operations, as
final release dates on backlog are obtained along with cash available under its
line of credit, will be sufficient to provide for its working capital needs for
the next twelve months. However, the Company is actively seeking sources of
credit to broaden its financing base to meet unforeseen needs in connection with
its business, including investments and/or acquisitions and to take advantage of
growth prospects as they arise.

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.


                                       22
<PAGE>

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.

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.

Deferred Tax Asset - The Company has not recorded a valuation allowance on the
deferred tax assets. Management has determined that it is more likely than not
that the Company will generate sufficient taxable income in future periods to
realize the full benefit of the deferred tax assets. Predicting future taxable
income is difficult, and requires the use of significant judgment.

Recently Issued Accounting Pronouncements

In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121 "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," addressing financial accounting and reporting for the impairment or
disposal of long-lived assets. This statement is effective for the fiscal year
beginning July 1, 2002. Management does not expect that the adoption of the
Statement will have a significant impact on the Company's financial position and
results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44 and
64, Amendment of SFAS Statement No. 13, and Technical Corrections." This
statement rescinds the following statement of SFAS 4, "Reporting Gains and
Losses from Extinguishment of Debt," and its amendment SFAS No. 64,
"Extinguishments of


                                       23
<PAGE>

Debt Made to Satisfy Sinking Fund Requirements," as well as, SFAS No. 44,
"Accounting for Intangible Assets of Motor Carriers." The statement also amends
SFAS No. 13, "Accounting for Leases", by eliminating an inconsistency between
the required accounting for sale-leaseback transactions and the required
accounting for certain lease modifications that have economic effects that are
similar to sale-leaseback transactions. SFAS No. 145 is effective for fiscal
years beginning after May 15, 2002. Management does not believe that this
statement will have a material impact on the results of operations or financial
conditions of the Company at the time of adoption.

In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated with
Exit or Disposal Activities". SFAS 146 requires companies to recognize costs
associated with exit or disposal activities when they are incurred rather than
at the date of a commitment to an exit or disposal plan. This statement
supercedes the guidance provided by Emerging Issues Task Force 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (including Certain Costs Incurred in a Restructuring)". SFAS 146 is
required to be adopted for exit or disposal activities initiated after December
31, 2002. Management does not expect the adoption of SFAS 146 to have a material
impact on the Company's financial statements.


                                       24
<PAGE>

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


                                       25
<PAGE>

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 DISAGREEMENS 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 ECSI's directors
and executive officers as of September 26, 2002:

                             First Year
                               Became
      Name             Age     Director                Title

Arthur Barchenko       69       1976      President, Chief Executive Officer,
                                          Secretary and Director
Mark R. Barchenko      46       1996      Vice President, Secretary and Director
Richard Stern          53        n/a      Vice President
Eldon Moberg           50        n/a      Vice President
Thomas Isdanavich      54        n/a      Vice President
Natalie Barchenko      68       2001      Treasurer and Director
James R. Janis         58       2001      Director
Gene Rabois            57       1989      Director
Robert F. Reiter       52       2001      Director
Edward Snow            63       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.

            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


                                       26
<PAGE>

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 Barchekno 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 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 Huntsville, 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.

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


                                       27
<PAGE>

            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, the Company believe that no
person required to file reports under Section 16(a) file such a report made any
filing during the fiscal year ended June 30, 2001. During the fiscal year ended
June 30, 2002, 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 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 has agreed to
pay one of its directors, James J. Janis (with whom the Company also has entered
a consulting agreement), 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. In February


                                       28
<PAGE>

2002, the board of directors authorized the issuance of a total of 210,000 stock
options to members of the board of directors, 200,000 of which are exercisable
through February 2007 at a price of $2.97 per share and 10,000 of which are
exercisable at $2.70 per share through February 2011.

Executive Compensation.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     Securities
                                                                 Other Annual        Underlying        All Other
    Name and Principal Position       Year       Salary          Compensation         Options         Compensation

<S>                                   <C>        <C>                 <C>              <C>                 <C>
    Arthur Barchenko, President       2002       98,800              -0-              100,000             -0-
                                      2001       78,100              -0-                -0-               -0-
                                      2000       85,000              -0-                -0-               -0-
</TABLE>

            No other officer or director received in excess of $100,000 in
compensation during 2000, 2001 or 2002.

Option Grants in the Last Fiscal Year

            The following table presents certain information concerning stock
options granted to the Named Executives under our various stock option plans
during the 2002 fiscal year.

<TABLE>
<CAPTION>
                           Individual Grants         Percent Of
                           Number Of                 Total
                           Securities                Options Granted
                           Underlying Options        To Employees In            Exercise Price   Expiration
Name                       Granted (Shares)          Fiscal Year                Per Share        Date
----                       ----------------          -----------                ---------        ----
<S>                        <C>                       <C>                        <C>              <C>
Arthur Barchenko           100,000                   33.9%                      $2.97            2007
</TABLE>

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 Named Executives at the end
of the last fiscal year (June 30, 2002). There were no stock options exercised
by the Named Executives during the fiscal year ended June 30, 2002.

<TABLE>
<CAPTION>
                           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)
 ----                      -------------------------                   -----------------------------
<S>                        <C>                                         <C>
Arthur Barchenko           100,000/0                                   $0/$0
</TABLE>

(1) Based upon the difference between the exercise price of such options and the
closing price of the Common Stock ($..97) on June 28, 2002, as reported on the
Over The Counter Bulletin Board (OTCBB).

Compensation of Non-Employee Directors

            The Company does not compensate its directors for participation in
Board or Committee meetings. The Company reimbursed non-employee directors for
travel expenses for meetings attended during 2002.

Compensation Pursuant to Management Contracts

            None.


                                       29
<PAGE>

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 750,000 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.

            Nonstatutory Stock Option Plan. The Company also has adopted a
nonstatutory 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.

Equity Compensation Plan Information

            The following table sets forth certain information concerning the
Company's existing stock option plans for the fiscal year ended June 30, 2002.

                      Equity Compensation Plan Information

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
                             (a)                           (b)                          (c)
----------------------------------------------------------------------------------------------------------------------
                                                                                        Number of
                             Number of                                                  securities available
                             securities to be                                           for future issuance
                             issued upon                   Weighted-average             under equity
                             exercise of                   exercise price of            compensation
                             outstanding                   outstanding                  plans (excluding
                             options, warrants             options, warrants            securities reflected
Plan Category                and rights                    and rights                   in column (a))
----------------------------------------------------------------------------------------------------------------------
<S>                          <C>                           <C>                          <C>
Equity                       565,000                       $1.37                        405,000
compensation
plans approved
by security holders
----------------------------------------------------------------------------------------------------------------------
Equity                       395,000                       $1.42
compensation
plans not approved
by security holders
----------------------------------------------------------------------------------------------------------------------
Total                        960,000
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       30
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

            The following table sets forth information, as of September 25, 2002
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 24, 2002. For the purpose of calculating the ownership
percentages for each person listed, we have considered to be outstanding both
the total number shares actually outstanding on September 24, 2002 and the total
number of shares that various people then had the right to acquire within 60
days.

<TABLE>
<CAPTION>





                                   Number of Shares      Percentage of
                                   of Common Stock        Outstanding
Name (1)                          Owned Beneficially     Common Shares
-------                           ------------------     -------------
<S>                                   <C>                     <C>
Arthur Barchenko (3)                  1,122,406               27.14%
Mark R. Barchenko (4)                   120,179                2.91%
Richard Stern (5)                        30,000                   *
Thomas Isdanavich (5)                    20,000                   *
Eldon Moberg (5)                         60,000                1.46%
Natalie Barchenko (6)                   830,975               20.15%
James R. Janis (5)                       25,000                   *
Gene Rabois (7)                          95,500                2.43%
Robert Reiter (5)                        10,000                   *
Edward Snow (5)                          20,000                   *
Directors and officers
as a group (10 persons)               2,334,060(8)            51.88%
</TABLE>

      *     Less than 1%.

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

(2)   Based on 4,034,128 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.


                                       31
<PAGE>

            At June 30, 2002 and 2001, related party debt consisted of $19,353
and $241,679, respectively. The loans were repayable with interest at rates
varying from no interest through 12% interest per annum. All interest for the
fiscal year 2002 and 2001 had been waived.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) The following documents are filed as a part of this report:

      1.    The financial statements and related information referred to in
            response to Item 7.

      2.    The following financial statement schedules: None

      3.    There are filed herewith or incorporated by reference the Exhibits
            listed in the Exhibit Index that follows the financial statements.

(b) The Company filed no Current Reports on Form 8-K during the fourth quarter
of fiscal 2002 and first quarter of fiscal 2003.


                                       32
<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 27, 2002

      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 27, 2002
---------------------
Arthur Barchenko

/s/ Mark Barchenko            Vice President and Director     September 27, 2002
---------------------
Mark Barchenko

/s/ Natalie Barchenko         Treasurer and Director          September 27, 2002
---------------------
Natalie Barchenko

/s/ James R. Janis            Director                        September 27, 2002
---------------------
James R. Janis

/s/ Gene Rabois               Director                        September 27, 2002
---------------------
Gene Rabois

/s/ Robert F. Reiter          Director                        September 27, 2002
---------------------
Robert F. Reiter

/s/ Edward Snow               Director                        September 27, 2002
---------------------
Edward Snow


ITEM 7.  FINANCIAL STATEMENTS.


                                       33
<PAGE>

                        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-16
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders 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, 2002 and 2001, and the
related consolidated statements of operations, changes in shareholders equity
(deficit), 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 audit.

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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Electronic Control
Security, Inc. and its subsidiaries as of June 30, 2002 and 2001, and the
results of its operations and its 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 12, 2002


                                      F-1
<PAGE>

                        Electronic Control Security Inc.
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                      June 30,
                                                                                2002             2001
                                                                            -----------      -----------
<S>                                                                         <C>              <C>
ASSETS
Current assets
      Cash and cash equivalents                                             $   282,286      $       927
      Marketable securities, available for sale                                  32,485               --
      Accounts receivable, net of allowance of $25,000                          964,124          274,815
      Inventories                                                             1,617,496        1,255,785
      Deferred income taxes                                                     282,000          132,000
      Other current assets                                                      113,336           61,703
                                                                            -----------      -----------
          Total current assets                                                3,291,727        1,725,230

Property, equipment and purchased software at cost
      net of accumulated depreciation of $382,427 and $320,702                  288,864          159,025
Intangible assets at cost net of
      accumulated amortization of $34,811 and $25,776                           129,566           58,653
Goodwill                                                                         50,000               --
Deferred income taxes                                                            14,000            9,000
Other assets                                                                     26,229           24,917
                                                                            -----------      -----------
                                                                            $ 3,800,386      $ 1,976,825
                                                                            ===========      ===========
LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities
      Accounts payable and accrued expenses                                 $   445,454      $   551,469
      Bank line of credit                                                       300,000          300,000
      Current maturities of long-term debt                                      124,996           18,000
      Obligations under capital leases                                           15,150           14,900
      Customer deposits                                                          24,258               --
      Payroll taxes payable                                                      13,837            9,591
      Income taxes payable                                                        5,322           23,322
      Due to officers and shareholders                                           19,353           39,000
                                                                            -----------      -----------
          Total current liabilities                                             948,370          956,282

Noncurrent liabilities
      Obligations under capital leases                                           17,888           32,796
      Long-term debt                                                            341,671               --
      Due to officers and shareholders                                               --          202,679
      Deferred income taxes                                                      31,000            1,000
      Other liabilities                                                              --          104,525
                                                                            -----------      -----------
          Total liabilities                                                   1,338,929        1,297,282

Minority interest                                                                21,217               --

COMMITMENTS - see notes

Shareholders' equity
      Series A Convertible Preferred stock, $.01 par value;
         $2.00 liquidation preference; 5,000,000 shares authorized,
         1,000,000 shares issued and outstanding                                 10,000               --
      Common Stock, $.001 par value; 15,000,000 shares authorized;
         4,034,128 and 3,672,000 shares issued; 3,934,128 and 3,572,000
         shares outstanding, respectively                                         4,034            3,672
      Additional paid-in capital                                              4,790,361        1,456,100
      Accumulated deficit                                                    (1,848,044)        (770,229)
      Accumulated other comprehensive income                                     (2,297)              --
      Deferred compensation                                                    (503,814)              --
      Treasury stock, at cost, 100,000 shares                                   (10,000)         (10,000)
                                                                            -----------      -----------

          Total shareholders' equity                                          2,440,240          679,543
                                                                            -----------      -----------
                                                                            $ 3,800,386      $ 1,976,825
                                                                            ===========      ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-2
<PAGE>

                        Electronic Control Security Inc.
                      Consolidated Statements of Operations

<TABLE>
<CAPTION>
                                                                         Years
                                                                         Ended
                                                                        June 30,
                                                                  2002             2001
                                                              -----------      -----------
<S>                                                           <C>              <C>
Revenues                                                      $ 2,304,013      $ 5,226,901
Cost of revenues                                                1,178,206        2,711,809
                                                              -----------      -----------

          Gross profit                                          1,125,807        2,515,092
                                                              -----------      -----------

 Selling, general  and administrative expenses                  1,149,228        1,297,073
 Stock based compensation                                         146,816            9,800
                                                              -----------      -----------

          Income (loss) from operations                          (170,237)       1,208,219

Other (income) expense
     Interest expense                                              55,822           51,638
     Interest income                                               (7,660)          (5,285)
     Minority interest in subsidiary loss                         (15,809)              --
     Loss on sale of marketable securities                          6,050               --
                                                              -----------      -----------

Total other (income) expense                                       38,403           46,353

Income (loss) before income tax provision (tax benefit)          (208,640)       1,161,866

Income tax provision (tax benefit)                                (38,800)         388,500
                                                              -----------      -----------

Net income (loss) before dividends                               (169,840)         773,366

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

Net income (loss) attributable to common shareholders         $(1,077,815)     $   773,366
                                                              ===========      ===========

Net income (loss) per share:
     Basic                                                    $     (0.28)     $      0.22
                                                              ===========      ===========
     Diluted                                                  $     (0.28)     $      0.21
                                                              ===========      ===========

Weighted average number of common shares and equivalents:
     Basic                                                      3,854,891        3,526,866
                                                              ===========      ===========
     Diluted                                                    3,854,891        3,736,866
                                                              ===========      ===========
</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, 2000                                    --     $    --     3,574,000     $3,574     $1,446,398

Purchase of shares for treasury

Issuances of common stock, par value $.001
     Services rendered                                                            98,000         98          9,702

Net income
                                                     ---------     -------     ---------     ------     ----------

Balances at June 30, 2001                                   --          --     3,672,000      3,672      1,456,100

Grant of stock options                                                                                     612,297

Stock dividend                                                                   178,628        179           (179)

Issuances of common stock, par value $.001
    Services rendered                                                             70,000         70         38,263
    Exercise of stock options                                                    113,500        114         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
                                                     =========     =======     =========     ======     ==========

<CAPTION>
                                                                   Accumulated
                                                                      Other
                                                    Accumulated   Comprehensive     Deferred       Treasury
                                                      Deficit         Income      Compensation       Stock          Total
                                                    -----------   -------------   ------------     --------      -----------
<S>                                                 <C>              <C>            <C>            <C>           <C>
Balances at July 1, 2000                            $(1,543,595)     $    --        $      --      $     --      $   (93,623)

Purchase of shares for treasury                                                                     (10,000)         (10,000)

Issuances of common stock, par value $.001
     Services rendered                                                                                                 9,800

Net income                                              773,366                                                      773,366
                                                    -----------      -------        ---------      --------      -----------

Balances at June 30, 2001                              (770,229)          --               --       (10,000)         679,543

Grant of stock options                                                               (612,297)                            --

Stock dividend                                                                                                            --

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
                                                    ===========      =======        =========      ========      ===========
</TABLE>

                 See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>

                        Electronic Control Security Inc.
                      Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
                                                                                     Years
                                                                                     Ended
                                                                                   June 30,
                                                                              2002            2001
                                                                          -----------      ---------
<S>                                                                       <C>              <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
     Net income (loss)                                                    $  (169,840)     $ 773,366
     Adjustments to reconcile net income (loss)
      to net cash provided (used) by operating activities:
          Depreciation and amortization                                        70,759         75,685
          Stock based compensation                                            146,816          9,800
          Minority interest in subsidiary loss                                (15,809)            --
          Tax benefit from exercise of stock options                           86,000             --
          Deferred income taxes                                              (125,000)       370,000
          Increase (decrease) in cash attributable
           to changes in assets and liabilities
               Accounts receivable                                           (829,542)      (131,205)
               Inventory                                                     (317,711)      (555,437)
               Other current assets                                           (51,633)         7,875
               Other assets                                                    (1,312)        (1,582)
               Accounts payable and accrued expenses                         (106,015)         8,211
               Customer deposits                                               24,258
               Payroll taxes payable                                            4,246        (72,880)
               Income taxes payable                                           (18,000)         9,744
               Other liabilities                                             (104,525)            --
                                                                          -----------      ---------
        Net cash provided (used)  by operating activities                  (1,407,308)       493,577

Cash flows from investing activities:
     Investment in marketable securities                                      (34,782)            --
     Acquisition of property, equipment and software development             (102,678)       (18,959)
     Acqusition of net assets                                                 (20,000)            --
     Payment for licensing fee                                                     --        (24,000)
                                                                          -----------      ---------
          Net cash used in investing activities                              (157,460)       (42,959)

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                      493,998       (140,349)
     Decrease in bank overdraft                                                    --       (105,284)
     Payments on long-term debt                                               (75,331)       (26,000)
     Payments on lease obligations                                            (14,658)       (20,394)
     Loan officers and shareholders - net                                    (222,326)      (149,092)
     Purchase of treasury stock                                                    --        (10,000)
                                                                          -----------      ---------
          Net cash provided (used) by  financing activities                 1,846,127       (451,119)
                                                                          -----------      ---------

          Net increase (decrease) in cash and cash equivalents                281,359           (501)

Cash at beginning of period                                                       927          1,428
                                                                          -----------      ---------

          Cash and cash equivalents at end of period                      $   282,286      $     927
                                                                          ===========      =========

Supplemental disclosures of cash flow information
Cash paid during the period for:
          Interest                                                        $    55,822      $  46,638
                                                                          ===========      =========
          Taxes                                                           $    18,000      $   8,356
                                                                          ===========      =========
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, SEM Consultants III, Inc., ECSI International, Inc.,
      ECSI-FOIDS, Inc., ECSI-DSA, Inc., and its 51% owned subsidiary ECSI
      Security Communications LTD ("ECSI-LTD"). ECSI-LTD was formed in the
      Middle East in January 2002 and commenced business in May 2002. All
      significant intercompany accounts and transactions have been eliminated.

      Reclassifications

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

      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.

      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.

      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

                                                             2002         2001
                                                           -------        ----
                  Stock options                            960,000         --
                  Warrants                                 546,875         --

      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 Sales

      All foreign sales are in dollars and accordingly the Company recognizes no
      gain or loss on such transactions.

      Cash and Cash Equivalents

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


                                      F-6
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      Use of Estimates

      The preparation of financial statements in conformity with generally
      accepted accounting principles requires management to make estimates and
      assumptions that affect the reported amounts of assets and liabilities and
      disclosure of contingent assets and liabilities 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.

      Warranty Reserves

      The Company's products carry a 7 - 10 year warranty that includes factory
      repair services as needed for replacement parts. Estimated expenses for
      warranty obligations are accrued at the same time as related product
      revenue is recognized.

      Software Purchased

      Software purchased by the Company and utilized in providing contract
      services is capitalized at cost and amortized on a straight-line basis
      over three to five years.

      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, trademarks and software development acquired are
      being amortized on the straight-line method over their useful lives,
      ranging from 5 to 15 years. Amortization expense charged to operations was
      $9,035 and $13,398 for the years ended June 30, 2002 and 2001,
      respectively.


                                      F-7
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2 - Summary of Significant Accounting Policies (Cont)

      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, 2002 and 2001 were
      approximately $42,000 and $9,000, respectively.

      Stock Based Compensation

      The Company accounts for stock-based compensation in accordance with APB
      Opinion No. 25, "Accounting for Stock Issued to Employees" and FASB
      Interpretation 44, "Accounting for Certain Transactions Involving Stock
      Compensation". Pursuant to these accounting standards, the Company records
      deferred compensation for share options granted to employees at the date
      of grant based on the difference between the exercise price of the options
      and the market value of the underlying shares at that date. Deferred
      compensation is amortized to compensation expense over the vesting period
      of the underlying options. No compensation expense is recorded for fixed
      stock options that are granted to employees and directors at an exercise
      price equal to the fair market value of the common stock at the time of
      the grant See Note 10 for pro forma disclosures required in accordance
      with SFAS No. 123, "Accounting for Stock-Based Compensation".

      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.

      Recent Pronouncements

      In August 2001, the FASB issued SFAS No. 144 "Accounting for Impairment or
      Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121
      "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
      Assets to be Disposed Of," addressing financial accounting and reporting
      for the impairment or disposal of long-lived assets. This statement is
      effective for the fiscal year beginning July 1, 2002. Management does not
      expect that the adoption of the Statement will have a significant impact
      on the Company's financial position and results of operations.

      In April 2002, the FASB issued SFAS No. 145, "Rescission of SFAS No. 4, 44
      and 64, Amendment of SFAS Statement No. 13, and Technical Corrections."
      This statement rescinds the following statement of SFAS 4, "Reporting
      Gains and Losses from Extinguishment of Debt," and its amendment SFAS No.
      64, "Extinguishments of Debt Made to Satisfy Sinking Fund Requirements,"
      as well as, SFAS No. 44, "Accounting for Intangible Assets of Motor
      Carriers." The statement also amends SFAS No. 13, "Accounting for Leases",
      by eliminating an inconsistency between the required accounting for
      sale-leaseback transactions and the required accounting for certain lease
      modifications that have economic effects that are similar to
      sale-leaseback transactions. SFAS No. 145 is effective for fiscal years
      beginning after May 15, 2002. Management does not believe that this
      statement will have a material impact on the results of operations or
      financial conditions of the Company at the time of adoption.

      In June 2002, the FASB issued SFAS 146, "Accounting for Costs Associated
      with Exit or Disposal Activities". SFAS 146 requires companies to
      recognize costs associated with exit or disposal activities when they are
      incurred rather than at the date of a commitment to an exit or disposal
      plan. This statement supercedes the guidance provided by Emerging Issues
      Task Force 94-3, "Liability Recognition for Certain Employee Termination
      Benefits and Other Costs to Exit an Activity (including Certain Costs
      Incurred in a Restructuring)". SFAS 146 is required to be adopted for exit
      or disposal activities initiated after December 31, 2002. Management does
      not expect the adoption of SFAS 146 to have a material impact on the
      Company's financial statements.


                                      F-8
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3 - Marketable Securities, Available for Sale

      The Company accounts for its investments under Statement of Financial
      Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments
      in Debt and Equity Securities". The Company's investments are classified
      as "available for sale". Accordingly, the investments are adjusted to fair
      value, and the resulting realized gains and losses are excluded from
      earnings and reported as a separate component of shareholders' equity as
      other comprehensive income.

      Marketable securities consist of the following:

      Common stocks and options, at cost                         $ 34,782
          Unrealized loss                                          (2,297)
                                                                 --------
             Marketable securities at fair value                 $ 32,485
                                                                 ========

Note 4 - Inventories

      Inventories at June 30, 2002 and 2001 consist of the following:

                                              2002              2001
                                           ----------        ----------
         Raw materials                     $  318,527        $  270,447
         Work-in-process                      190,068           230,080
         Finished goods                     1,108,901           755,258
                                           ----------        ----------
                                           $1,617,496        $1,255,785
                                           ==========        ==========

Note 5 - Property Equipment and Purchased Software

      Property, equipment and purchased software consist of the following:

<TABLE>
<CAPTION>
                                                                          2002         2001
                                                                        --------     --------
<S>                                                                     <C>          <C>
         Furniture and fixtures                                         $ 26,455     $ 21,930
         Machinery and equipment                                         452,838      296,001
         Improvements                                                      9,296        9,296
         Software                                                        182,702      152,500
                                                                        --------     --------
                                                                         671,291      479,727
             Less: accumulated depreciation and amortization             382,427      320,702
                                                                        --------     --------
                                                                        $288,864     $159,025
                                                                        ========     ========

         Equipment under capital leases included in
         property, equipment and purchased software are as follows:
         Machinery and equipment                                        $ 69,944     $ 69,944
         Less: accumulated depreciation                                   26,915       20,684
                                                                        --------     --------
                                                                        $ 43,029     $ 49,260
                                                                        ========     ========
</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 $61,725 and $62,287 for the years ended June 30,
      2002 and 2001


                                      F-9
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6 - Bank Line Of Credit

      The Company has a $500,000 revolving credit line that expires in November
      2002. The outstanding balances are collateralized by substantially all of
      the Company's assets and the personal guarantee of an officer/shareholder.
      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 (5.75%
      at June 30, 2002). In August 2002, the bank granted an additional $285,000
      revolving credit line due to expire in August 2003. The Company pledged a
      certificate of deposit in the amount of $300,000 as collateral for this
      loan.

      The Company's 51% owned foreign subsidiary, ECSI-LTD has established a
      working capital line of credit of $100,000 with a foreign bank. The line
      is guaranteed by an irrevocable standby letter of credit which is secured
      by the Company's $500,000 revolving credit line. The letter of credit will
      expire on November 15, 2002.

Note 7 - Long-Term Debt

                                                    2002            2001
                                                  --------         -------

      (a) Promissory note                         $     --         $18,000
      (b) Promissory note                           25,000              --
      (c) Term loan                                441,667              --
                                                  --------         -------
                                                   466,667          18,000
      Less: current portion                        124,996          18,000
                                                  --------         -------
                                                  $341,671         $    --
                                                  ========         =======

      (a)   In June 1999, the Company issued a promissory note in the amount of
            $72,000 to purchase certain assets. The note was payable in
            thirty-six monthly payments of $2,000 beginning March 26, 1999. This
            note was fully repaid in 2002.

      (b)   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 will be paid in six monthly installments
            of $5,000.

      (c)   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, 2002 are as
      follows:

                                             2003                 $124,996
                                             2004                   99,996
                                             2005                   99,996
                                             2006                   99,996
                                             2007                   41,683
                                                                  --------
                                                                  $466,667
                                                                  ========


                                      F-10
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7 - Obligation Under Capital Leases

      Future minimum lease payments for assets under capital leases at June 30,
      2002

      Years ending June 30,

                                                    2003                 $20,365
                                                    2004                  17,698
                                                    2005                   5,358
                                                                         -------
                                                                          43,421
            Amount representing interest                                  10,383
                                                                         -------
            Present value of net minimum lease payments                  $33,038
                                                                         =======

Note 8 - Due to Officers and Shareholders

      In 2002, the Company repaid a total of $222,326 of loans to
      Officers/Shareholders and entities controlled by them. Certain of the
      loans were non-interest bearing and others ranged from 8% to 12%, however
      all interest was waived for 2002 and 2001. The balance at June 30, 2002 of
      $19,353 is non-interest bearing and due on demand.

Note 9 - Income Taxes

      The provision for taxes for the year ended June 30, 2002 and 2001 includes
      the following components:

                                                    2002           2001
                                                 ---------      ---------
      Federal
        Current                                  $ (47,000)     $  16,900
        Deferred                                    19,000        382,000
      State
        Current                                    (16,800)         1,600
        Deferred                                     6,000        (12,000)
                                                 ---------      ---------
                                                 $ (38,800)     $ 388,500
                                                 =========      =========

      The components of the deferred tax accounts as of June 30, 2002 and 2001
      are as follows:

                                                    2002           2001
                                                 ---------      ---------
      Deferred tax assets
        Net operating loss carryforwards         $ 267,800      $ 107,000
        Other                                       28,200         34,000
                                                 ---------      ---------
                                                   296,000        141,000
      Deferred tax liabilities
        Amortization on intangible assets           31,000          1,000
                                                 ---------      ---------
      Net deferred tax assets                    $ 265,000      $ 140,000
                                                 =========      =========

      For the year ended June 30, 2001 the valuation allowance decreased by
      $157,000.


                                      F-11
<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 United States statutory tax rate to reported income tax provision (tax
      benefit) is as follows:

                                                     2002           2001
                                                  ---------      ---------
      Expected federal tax at statutory rate      $ (67,219)     $ 395,034
      State taxes, net of federal tax effect        (11,862)        69,712
      Non-deductible stock based compensation        58,726             --
      Allowance for doubtful  accounts                   --         10,000
      Compensated absences                           (7,022)         7,022
      Recognition of deferred tax asset                  --       (106,889)
      Other                                         (11,424)        13,621
                                                  ---------      ---------
                                                  $ (38,800)     $ 388,500
                                                  =========      =========

      At June 30, 2002 the Company had net operating loss carryforwards for
      federal and state income tax purposes of $658,000 and $546,000
      respectively, expiring through 2013.

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.

      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.

      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 is being amortized
      over 120 days, commencing from the date of closing to the date the
      preferred stock first become convertible.


                                      F-12
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Shareholders' Equity (Cont)

      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.

      Option activity for 2001 and 2002 is summarized as follows:

<TABLE>
<CAPTION>
                                                                                                Weighted
                                                                                                Average
                                                                  Options                       Exercise
                                                    Plan          Nonplan          Total         Price
                                                    ----          -------          -----         -----
<S>                                               <C>             <C>             <C>            <C>
      Options outstanding, July 1, 2000           270,000              --         270,000         0.16
      Granted                                       5,000              --           5,000         0.25
      Exercised                                        --              --              --           --
      Forfeited                                   (65,000)             --         (65,000)        0.25
                                                  -------        --------        --------

      Options outstanding, June 30, 2001          210,000              --         210,000         0.13
      Granted                                     405,000         425,000         830,000         1.60
      Exercised                                   (30,000)        (30,000)        (60,000)        0.43
      Forfeited                                   (20,000)             --         (20,000)        0.25
                                                  -------        --------        --------

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

      Shares of common stock available for
       future grant under the plans               405,000
                                                  =======
</TABLE>


                                      F-13
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Shareholders' Equity (Cont)

      Stock Option Plans (Cont)

      The following table summarizes information about stock options outstanding
      at June 30, 2002.

                                                           Options Exercisable
                                   Weighted Average                     Weighted
                                 Remaining                               Average
                      Number    Contractual   Exercise      Number      Exercise
Ranges of price    Outstanding     Life         Price     Exercisable    Price
---------------    -----------     ----         -----     -----------    -----

$.05                  50,000       4.66         $0.05        50,000      $0.05
$.10-.20             120,000       7.30         $0.18       120,000      $0.18
$.25-.30             130,000       6.43         $0.28       125,000      $0.29
$.50-.88              30,000       3.81         $0.75        30,000      $0.75
$1.00-1.50           350,000       2.68         $1.25       350,000      $1.25
$2.70-2.97           280,000       4.39         $2.89       280,000      $2.89
                     -------       ----         -----       -------      -----

$.05-$2.97           960,000       4.40         $1.39       955,000      $1.39
                     =======       ====         =====       =======      =====

      Weighted-average grant date fair value of options granted in 2002 and
      2001, under the Black-Scholes option pricing model, was $1.31 and $.19 per
      option, respectively.

      The Company has adopted the pro forma disclosure provisions of SFAS No.
      123. Had compensation cost for all of the Company's stock-based
      compensation grants been determined in a manner consistent with the fair
      value approach described in SFAS No. 123, the Company's net loss
      attributable to common stockholders and net loss per share as reported
      would have been increased to the pro forma amounts indicated below:

                                                             Year ended
                                                              June 30,
                                                      2002                2001
                                                  -----------          --------

      Net income (loss) attributable to
                  common stockholders
                As reported                       ($1,077,815)         $773,366
                Proforma                          ($1,568,592)         $772,430

       Basic income (loss) per share
                As reported                            ($0.28)            $0.22
                Proforma                               ($0.41)            $0.22

       Fully diluted income (loss) per share
                As reported                            ($0.28)            $0.22
                Proforma                               ($0.41)            $0.21


                                      F-14
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10- Shareholders' Equity (Cont)

      Stock Option Plans (Cont)

      The fair value of each option granted in 2002 and 2001is estimated on the
      date of grant using the Black-Scholes option-pricing model with the
      following weighted average assumptions:

                                                       2002        2001
                                                      -----       -----

                        Risk free interest rates       3.72%       6.00%
                        Expected option lives          3.75        8.00
                        Expected volatilities         96.72%      70.00%
                        Expected dividend yields       None        None

Note 11 - Concentrations and Economic Dependency

      The Company had two customers that accounted for 21% and 22%, respectively
      of net revenues for year ended June 30, 2002 and one customer that
      accounted for 85.6% of net revenues for year ended June 30, 2001. Two
      customers accounted for 78% of the accounts receivables as of June 30,
      2002.

Note 12 - Commitments and Contingencies

      Lease Agreements

      Future minimum annual rental payments required under non-cancelable
      operating leases for years after June 30, 2002 are as follows:

                                           2003                         $ 68,500
                                           2004                           62,300
                                           2005                           48,800
                                           2006                           49,800
                                           2007                           50,800
                                     Thereafter                           43,000
                                                                        --------
                                                                        $323,200
                                                                        ========

      Rent expense under all operating leases was $81,195 and $74,551 for the
      years ended June 30, 2002 and 2001.

      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)).


                                      F-15
<PAGE>

                        ELECTRONIC CONTROL SECURITY, INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12 - Commitments (Cont)

      Consulting Agreement

      In November 2001, the Company entered into a twenty-four month consulting
      agreement with an entity to provide financial consulting services. Under
      the terms of the agreement the Company is required to pay a $5,000 monthly
      fee.


                                      F-16
<PAGE>

                                  EXHIBIT INDEX

99.   Additional Exhibits

Exhibit 99.1 Certificate under Section 906 of the Sarbanes-Oxley Act of 2002