Electronic Control Security (EKCS)

[flemsnopes]

Discussion of Results, Business Outlook and Identifiable Industry Trends

Spending in the security industry has decreased over the last year as the U.S. Congress has continued to reduce funding homeland security initiatives, including Department of Energy and Department of Defense programs. We expect this trend will continue for the foreseeable future. The Company has pursued more Small Business and international opportunities to offset this reduction. As a result, the level of new proposals continues and our committed backlog, including awards for the U.S. Navy, U.S. Air Force, nuclear power stations, and international projects is one of the largest in our history. We cannot, however, assure you that we will complete any or all of the orders comprising our backlog within the anticipated time frame. Our experience has taught us that all of these anticipated releases and new contracts are subject to cancellation or delay, thus we cannot be certain of the total realized revenue amount of our backlog and do not reference the total dollar amount of our present backlog or submitted proposals.

Our sales dependency has continued to shift from our President and Chief Executive Officer, Arthur Barchenko, to marketing and sales representatives, program and project managers to meet our revenue objectives. During the last year, we continued to mitigate the concentration of sales efforts by (i) engaging independent sales representatives to market our products and generate sales opportunities and (ii) expanding sales efforts through dealer-installers and system integrators in geographic regions on which we have not focused our resources in years past such as Latin America, Egypt and the Middle East, China and Africa, where we are developing projects that management believes will result in ongoing revenue.

During the Fiscal 2012 period, we submitted bids on 38 new projects for work to be performed at our Clifton, New Jersey facilities. We cannot be certain that we will be successful in winning any of the bids tendered. Even if we do receive orders, contracts are subject to cancellation by customers upon short notice with little or no penalty, as is typical in our industry.

We are committed to offering our customers comprehensive, integrated security system solutions that employ the latest technologies and address the most critical security requirements. The security industry continues to evolve rapidly as new technologies are developed specifically to meet security challenges and existing technologies are being adapted for new uses. In addition, the public and private sectors continue to analyze and distinguish new security risks and industry participants seek to develop technologies and products to fill these newly discerned requirements. We remain committed to pursuing teaming and OEM agreements that may add to our revenues and enhance both our product line and, ultimately, our ability to compete in our industry.