##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-K

|           |  |                                                                                             
|---------- |  | --------------------------------------------------------------------------------------------
|(Mark One) |  |                                                                                             
|þ          |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|          
|           |  | For the fiscal year ended December 31,
    2003                                             
|          
|or        
|          
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13
    or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 0-9463

American Building Control, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                                          |  |                                         
|----------------------------------------------------------------------------------------- |  | ----------------------------------------
|Delaware                                                                                  |  | 75-2626358                              
|(State or other jurisdiction of
    incorporation or organization)                        |  | (I.R.S. Employer
    Identification No.)
|                                                                                         
|1301 Waters Ridge Drive
    Lewisville, Texas(Address of principal executive
    offices) |  | 75057(Zip Code)                         

Registrants telephone number, including
area code:

(972) 353-6458


Securities registered pursuant to
Section 12(b) of the Act:

None


Securities registered pursuant to
Section 12(g) of the Act:

Common stock, $.01 par value


Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the
past
90 days.     Yes þ          No o

Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be
contained, to the best of registrants knowledge, in a
definitive proxy to be filed or information statements
incorporated by reference in Part III of this
Form 10-K or any amendment to this
Form 10-K.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Rule 12b-2 of the
Act).     Yes o          No þ

The aggregate market value of the voting stock
held by non-affiliates of the registrant, as of June 30,
2003 was $14,572,840. As of that date 14,148,388 shares of
the Registrants Common Stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this
Form (Items 10, 11, 12, 13 and 14) is incorporated by
reference from the registrants Proxy Statement to be filed
on or before April 29, 2004.



---






---










AMERICAN BUILDING CONTROL, INC.

FORM 10-K


TABLE OF CONTENTS

|                                                   |  |                                                                                                                      |    |  |    | 
|-------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I                                            
|Item 1:                                            |  | BUSINESS                                                                                                             |    |  | 2  | 
|Item 2:                                            |  | PROPERTIES                                                                                                           |    |  | 5  | 
|Item 3:                                            |  | LEGAL PROCEEDINGS                                                                                                    |    |  | 6  | 
|Item 4:                                            |  | SUBMISSION OF MATTERS TO A
    VOTE OF SECURITY HOLDERS                                                              |    |  | 6  | 
|PART II                                           
|Item 5:                                            |  | MARKET FOR REGISTRANTS
    COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
    OF EQUITY SECURITIES |    |  | 6  | 
|Item 6:                                            |  | SELECTED FINANCIAL DATA                                                                                              |    |  | 7  | 
|Item 7:                                            |  | MANAGEMENTS DISCUSSION
    AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                            |    |  | 9  | 
|Item 7A:                                           |  | QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK                                                       |    |  | 15 | 
|Item 8:                                            |  | FINANCIAL STATEMENTS AND
    SUPPLEMENTARY DATA                                                                      |    |  | 16 | 
|Item 9:                                            |  | CHANGES IN AND DISAGREEMENTS
    WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                             |    |  | 44 | 
|Item 9A:                                           |  | CONTROLS AND PROCEDURES                                                                                              |    |  | 44 | 
|PART III                                          
|Item 10:                                           |  | DIRECTORS AND EXECUTIVE
    OFFICERS OF REGISTRANT                                                                   |    |  | 44 | 
|Item 11:                                           |  | EXECUTIVE COMPENSATION                                                                                               |    |  | 44 | 
|Item 12:                                           |  | SECURITY OWNERSHIP OF
    CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
    MATTERS               |    |  | 44 | 
|Item 13:                                           |  | CERTAIN RELATIONSHIPS AND
    RELATED TRANSACTIONS                                                                   |    |  | 44 | 
|Item 14:                                           |  | PRINCIPAL ACCOUNTING FEES
    AND SERVICES                                                                           |    |  | 44 | 
|PART IV                                           
|Item 15:                                           |  | EXHIBITS, FINANCIAL
    STATEMENTS AND REPORTS ON FORM 8-K                                                           |    |  | 45 | 
|SIGNATURES                                         |  |                                                                                                                      | 46 | 
|Agreement dated January 19, 2004 - Karen S. Austin
|Agreement dated January 19, 2004 - Wendy Diddell  
|Full and Final Release of Claims                  
|Agreement dated February 2, 2004 - John Cannon    
|Employment Agreement dated December 18, 2003      
|Code of Ethics                                    
|Certification of Chief Executive Officer          
|Certification of Chief Financial Officer          
|Joint Certification of CEO & CFO                  
|Audit Committee Charter                           
|Nominating Committee Charter                      



Forward Looking Statements

Certain statements contained or incorporated in
this annual report on Form 10-K, which are not statements
of historical fact, constitute forward looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995 (the Reform Act).
Forward looking statements are made in good faith by American
Building Control, Inc. (the Company or
ABC) pursuant to the safe harbor
provisions of the Reform Act. These statements may involve known
and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements to differ
materially from any future results, performance or achievements,
whether expressed or implied. These risks, uncertainties and
factors include the timely development and acceptance of new
products and services, the impact of competitive pricing,
fluctuations in operating results, the ability to introduce new
products and services, technological changes, reliance on
intellectual property and other risks. The objectives set forth
in this Form 10-K are subject to change due to global
market and economic conditions beyond the control of the Company.

1



---



##### Table of Contents






PART I






|        |         
|------- | --------
|Item 1. | Business

General

American Building Control, Inc. is a leading
electronic security technology company. The Company was
reincorporated in Delaware in 1995 as Ultrak, Inc. On
December 20, 2002, following stockholder approval, the
Company sold its closed-circuit television (CCTV)
business to Honeywell International, Inc.
(Honeywell) and changed its name to American
Building Control, Inc. in connection with the Honeywell
Asset Sale. Additional information regarding the Honeywell Asset
Sale is set forth at the end of this Item 1 under the
heading Honeywell Asset Sale.

Businesses

In 2003, following the Honeywell Asset Sale, the
Company reorganized its business activities of designing,
marketing, selling and servicing niche security products for use
in industrial, governmental and consumer surveillance markets
into two separate operating segments: Professional Security
Group (PSG) and Diversified Sales Group
(DSG). The total 2003 revenues of the PSG business
were approximately $17 million and represented about 43% of
the Companys total revenues. The DSGs total 2003
revenues were approximately $23 million and represented
about 57% of the Companys total revenues.

During the first quarter of 2004, the Company
developed a new strategy that focuses on providing centralized
security risk management solutions that gather, analyze,
correlate and report real-time event data to enable rapid
investigation and response to physical, cyber and information
security incidents within an organizations global
infrastructure. The Company aims to be the most trusted security
solutions provider to its government and corporate clients. In
this new strategy, PSG is identified as the core business that
will be the Companys foundation for the future.

PSG is comprised of MDITM Security
Systems, Inc. (MDI) and ABMTM Data
Systems, Inc. (ABM).

MDI is a leader in the access control business
and already an important participant of many Homeland Security
projects. MDIs new Security SuiteTM of products
has been launched successfully, and management believes it is
the first fully integrated system to incorporate access control,
video, audio alarm monitoring, and audit functions. The new
Security SuiteTM of products is at the forefront of
the digital revolution now unfolding in the security industry.

The Company distributes its
PointGuardTM access control product primarily to the
small to mid market commercial customer through a dealer
network. With over 2,000 worldwide installations,
PointGuardTM represents a significant opportunity for
the Company to expand further into the commercial markets.

ABM provides alarm management software to central
monitoring stations that are owned by either organizations for
their own use, such as large universities, or commercial
operators such as surveillance companies. ABM has a substantial
customer list that includes large blue-chip organizations
purchasing or licensing ABMs software products.

DSG is comprised of the SecurityandMore, the
Industrial Vision Source (IVSTM) and
Mobile Video Products (MVPTM) operating
units.

SecurityandMore sells easy-to-install
surveillance monitoring kits and accessories through its call
center, the www.SecurityandMore.com web-site and national
retail customers. IVSTM distributes video products to
manufacturing and research facilities. MVPTM sells
monitoring and recording devices to public transit vehicles.
Both IVSTM and MVPTM sell third-party
products as well as the Companys own branded products.

2



---



##### Table of Contents



Markets and Strategy

ABC believes that many global organizations,
governments and commercial businesses are beginning to recognize
significant surveillance needs in its physical, network and
information assets. Until recently, these different disciplines
were managed and operated separately. In many large
organizations, the Chief Security Officer (CSO) was
typically in charge of the physical security, whereas the Chief
Information Officer (CIO) or Chief Technology
Officer (CTO) managed the network and information
security. This separation of responsibility often causes gaps in
an organizations ability to protect its assets from
physical or cyber intrusion.

In todays marketplace, it is increasingly
clear that the security concerns for physical, network and
information assets are converging. Organizations are combining
their security needs into one functional unit that can manage
security risks throughout their entire enterprise. ABC will
support this new CSO/CIO decision-making unit by centralizing
the control of disparate security environments in an
organization. The Company plans to provide solutions that can
bridge the gap between the true level of threat and the level of
detection as well as merging multiple solutions available in the
current infrastructure. The solutions provided by the Company
entail products and services that will essentially create a
centralized nerve center for all security management
across an organization.

The Company already has strong presence in the
areas of access control and alarm monitoring, which is part of
the physical security domain. The Company plans to acquire,
through acquisitions or internal development, capabilities to
deliver state of the art products and services covering
information security. These markets include intellectual
property protection, trademark search, forensic search, network
intrusion and business threat analysis. Our products and
services will result in seamless solutions to comprehensive
organizational security environments, encompassing physical,
network and information assets.

The Company plans to leverage MDIs
quarter-century experience in physical security to develop a
multiple discipline solution for the converging security market.

Products and Services

Currently, in the PSG segment, MDIs
Security SuiteTM of products is the
flagship product line for MDIs access control
business. The end users for these products tend to be government
agencies or large corporations that have sophisticated and
centralized security needs. The Companys
PointGuardTM product is distributed to the small to
mid market commercial customers who need basic access control
applications. The Security SuiteTM of products and
PointGuardTM are sold to integrators, dealers and
distributors who work with the end users for installation. In
addition, MDI provides architectural and consultative advice to
end users, dealers and consultants. ABM also develops and sells
alarm management software under the brand name Phoenix to
central monitoring stations and proprietary commercial accounts.
The Companys MDI office in Lausanne, Switzerland markets
and installs access control products throughout Europe.

In the DSG segment, SecurityandMore sells closed
circuit television (CCTV) monitoring kits and accessories under
the brand names FocusTM, ExxisTM and Smart
Choice. MVPTM and IVSTM sell products
under the brand name MVPTM or IVSTM as
well as third party video products such as Sony and Mitsubishi.

Products and services that cater to centralized
security control, as mentioned above in Markets and
Strategy, will be the focus of the Companys long
term investment plan. The Company is in the process of
completing plans to divest the non-core businesses and assets of
the DSG segment. The timing and pricing of such divestments can
not be accurately determined at this time. The Company will
focus on re-engineering its core MDI product suite and leverage
new product technologies, and offer an upgrade path for the
existing installed customer base. Additionally, the Company will
target small, strategic acquisitions in the physical, network or
information security space to enhance the development of the new
strategy. The Company also intends to establish a solution-based
recurring revenue model from maintenance contracts, system
upgrades, services and training.

3



---



##### Table of Contents



Product Design and Development

MDI currently develops its access control product
lines at its Rancho Cucamonga, California facility. MDI has a
professional engineering staff dedicated to software and
hardware development. ABM has a technical staff in Austin, Texas
that develops software for alarm management applications.
SecurityandMores product development activities are
conducted at the Lewisville, Texas facility. The Company is
considering the consolidation of its product development and
service capabilities.

Supplier Relationships

The Company believes that its supplier
relationships are good and stable. Ameritron Inc. and
Dell, Inc. are the largest vendors for access control
equipment. Hitron and Sony are the most significant suppliers
for electronic video products. Sudden loss of any one of these
vendors could result in material short-term supply problems. The
Company continuously evaluates potential vendors to bridge any
supply chain disruptions that may occur in its business
operations.

Competition

Substantial competition exists in all of the
markets where the Company competes. Significant competitive
factors include quality, product performance, customer service,
price and ease of integration.

PSGs major competitors are Lenel Systems
International, Inc., Softwarehouse (a division of Tyco),
GE Interlogix and the Northern Computers division of
Ademco, a subsidiary of Honeywell. Samsung, Strategic Vista
International, Inc. and Philips are the major competition
for the DSG segment.

Certain current and potential competitors have
substantially greater resources than the Company. In order to
compete successfully, the Company must continue to invest in
engineering, marketing and customer service. There is no
assurance that these competitors will not develop products that
offer superior price or performance features.

Engineering and Software Development

The Company has two facilities with engineering
and software development capabilities  the access
control business in Rancho Cucamonga, California and the alarm
management software business in Austin, Texas. During the fiscal
years ended December 31, 2003, 2002, and 2001, the Company
expensed approximately $1.3 million, $1.6 million and
$1.1 million, respectively, on engineering and software
development costs. The Company is currently evaluating the
possible consolidation of its development activities into one
location.

Employees

As of December 31, 2003, the Company had
approximately 150 full-time employees worldwide, roughly
the same as the end of 2002 and compared with 545 full-time
employees worldwide as of December 31, 2001. Approximately
280 of the Companys former employees joined Honeywell in
December 2002 as a result of the Honeywell Asset Sale. Other
personnel reductions during 2002 can be attributed to the
closure of the Ohio manufacturing plant, involuntary workforce
reductions and attrition.

The Companys future success will depend in
large part on its ability to attract and retain highly skilled
technical, managerial, financial and sales personnel. None of
the Companys employees are represented by a union or
covered by a collective bargaining agreement. The Company has
not experienced a work stoppage or strike. Relations with the
Companys employees are considered good.

Honeywell Asset Sale

The CCTV Business sold by the Company in the
Honeywell Asset Sale consisted of assets in the United States,
Germany, Italy, Poland, South Africa, Australia, Singapore and
the United Kingdom. The sale price of $36 million, included
a $2.2 million holdback for anticipated royalties due to a
license agreement that

4



---



##### Table of Contents



Honeywell required the Company to enter into (see
item 8, Note 2: Discontinued Operations) as well as a
$5.4 million purchase price hold back. The latter was
subject to change in the net value of CCTV assets between
March 31, 2002 and December 20, 2002 as well as
general representations and warranties made by the Company to
Honeywell. The $5.4 million purchase price holdback was to
be paid to the Company, with accrued interest, over three
installments every six months after the close of the sale.


In April 2003, Honeywell disputed the change in
net asset value and, after failing to resolve the differences by
August 2003, Honeywell and the Company entered into arbitration.
In December 2003, the final resolution rendered by the
arbitrator increased the purchase price by approximately
$888 thousand. Honeywell made payments for the increase of
the purchase price, the first two of the three holdback
installments and the accrued interest in December 2003. The
increase to the purchase price is included as a component of
discontinued operations in 2003. The final $1.8 million
installment is due in June 2004.






|        |           
|------- | ----------
|Item 2. | Properties

ABCs corporate headquarters (the
Headquarters Facility) is located in Lewisville,
Texas. The Headquarters Facility consists of approximately
170,000 square feet of office and warehouse space located
on 14 acres. In December 2001, the Headquarters Facility
was sold to Briarwood Capital Corporation
(Briarwood) for $6.6 million in a
sale-and-leaseback transaction. The Company leased back the
Headquarters Facility for $60,000 per month with a term of
30 months. The lease included a $6.9 million purchase
option exercisable in November 2003. Briarwood, as part of the
negotiation for it to grant a written consent to the Honeywell
Asset Sale, increased the purchase option exercise price to
$7.55 million. In November 2003, the Company elected not to
exercise the purchase option. The current lease expires at the
end of June 2004, and all rents have been prepaid as a condition
of the written consent related to the Honeywell Asset Sale.

The Company does not plan to remain in its
current Headquarters Facility over the long term. The timing of
the Companys moving from its current Headquarters Facility
depends on the timing of the possible divestment of the DSG
business units. The timing of the divestiture cannot be
ascertained at this time. The Company wishes to consolidate its
development resources into one location, as mentioned above, and
relocate its corporate staff into the new facility as well.

As part of the Honeywell Asset Sale, the Company
subleased a part of the Headquarters Facility (the
Sublease) to Pittway Corporation
(Pittway), a wholly owned subsidiary of Honeywell.
The Sublease allowed Pittway to occupy approximately half of the
office space and two thirds of the warehouse space in the
Headquarters Facility through December 30, 2003. Pittway
paid ABC approximately $23,000 per month during 2003. In
December 2003, Pittway entered into a new lease with the Company
to continue the Sublease through June 2004 at an increased
monthly rent of $35,000.

In addition to the Headquarters Facility, the
Companys principal offices as of December 31, 2003
consisted of the following:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Rancho Cucamonga, California 
    approximately 40,000 square-foot leased facility; used for
    engineering, sales and support for the U.S. access control
    business. The Company is likely to move out of this location
    into a smaller facility in the second half of 2004, as the
    Company evaluates a possible consolidation of its development
    staff into one location. The monthly lease on this facility
    costs $24,000 and expires at the end of June 2004.
|
| |  | Austin, Texas  approximately
    7,000 square-foot leased facility used for engineering,
    sales and support for the alarm management business. This
    location could be relocated as the Company evaluates a possible
    consolidation of its development staff. The monthly lease on
    this facility costs $6,500 and expires at the end of August 2006.                                                                                                                   
|
| |  | Fairfax, Virginia  approximately
    1,450 square-foot leased facility; used for sales and
    support for the U.S. access control business. The Company
    is considering terminating the lease for this office and have
    the employees work out of their home offices. The monthly lease
    on this facility costs $4,600 and expires at the end of July
    2004.                                                                                                           

5



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                        
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Lausanne, Switzerland  approximately
    1,400 square-foot leased facility; used for sales and
    support for the international access control business. The
    monthly lease on this facility costs $1,900 and expires at the
    end of July 2004.

In July 2003, the Company sold its Ohio
manufacturing facility for $1.4 million.

In the Honeywell Asset Sale, Honeywell did not
assume the lease for the Companys Warrington (Manchester)
facility in the United Kingdom. During the first quarter of
2004, the Company reached a final settlement with the landlord.
The final settlement is for $330,000 and is due to be paid by
the end of June 2004.

During the third quarter of 2002,
Mr. Niklaus Zenger, the Companys CEO at the time,
authorized the execution of a five-year lease (terminable after
three years) for executive office space in Zurich, Switzerland.
In the second quarter of 2003, the Company terminated the lease
and settled with the landlord for the remaining lease obligation
of $80,000.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

ABC is subject to various legal proceedings and
claims, that arise in the ordinary course of business.

A French court awarded the Company a
2.5 million Euro (approximately $3.0 million) judgment
against a French company, Aasset Security, for unfair trade
practices. The case was handled through the Companys
outside counsel in France on a partial contingency basis. The
contingency fee to be paid to outside counsel will be between
35% to 40% of the payments received, depending upon the timing
of the receipts. Aasset Security has filed appeals against the
verdict. The Company is pursuing the collection of the judgment,
though the timing of collection and Aassets ability to pay
cannot be ascertained. Due to the degree of uncertainty of
collection, no judgment amounts have been included in the 2003
financial statements.

The Company learned that Mr. David
Blackshear has made a claim against Honeywell on the basis that
the dome products sold to Honeywell as part of the Honeywell
Asset Sale infringed Mr. Blackshears patent and that
the Company underpaid royalties under a licensing agreement the
Company entered into with Mr. Blackshear in 1990. Honeywell
has advised the Company that Honeywell may seek indemnification
from the Company based on the Companys past sales of dome
products. The Company disputes any and all allegations made by
Mr. Blackshear. The Company does not believe that it has
material, if any, liability.

Management believes that there are no other
existing legal matters that will have a material adverse effect
on the Companys financial condition or results of
operations.






|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

None




PART II






|        |                                                                                                                     
|------- | --------------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

The Companys Common Stock, $0.01 par
value, has been listed on the NASDAQ under the symbol
ABCX since January 2, 2003. It previously
traded under the symbol ULTK since its original
listing on NASDAQ on January 18, 1994.

6



---



##### Table of Contents



The following table sets forth the high and low
closing prices of the Companys Common Stock (Common
Stock) for each quarter during the years ended
December 31, 2003 and 2002:

|               |  |      |      |      |  |      |      |     |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ---- | ---- |  | ---- | ---- | --- |  | - | ---- |  |  | - | ---- | 
|               |  |      |      |     
|               |  | 2003 |      | 2002
|               |  |      |      |     
|               |  | High |      | Low  |  | High |      | Low
|               |  |      |      |      |  |      |      |    
|Fourth Quarter |  | $    | 1.80 |      |  | $    | 1.23 |     |  | $ | 1.39 |  |  | $ | 0.65 | 
|Third Quarter  |  |      | 1.67 |      |  |      | 1.15 |     |  |   | 1.71 |  |  |   | 0.71 | 
|Second Quarter |  |      | 1.21 |      |  |      | 0.75 |     |  |   | 1.86 |  |  |   | 1.10 | 
|First Quarter  |  |      | 1.39 |      |  |      | 0.76 |     |  |   | 2.05 |  |  |   | 0.76 | 

As of March 20, 2004, there were
approximately 1,200 holders of record of the Common Stock.

The Company has not declared or paid any cash
dividends on the Common Stock since inception. The declaration
of any future cash dividends on the Common Stock will depend
upon the earnings, capital requirements and financial position
of the Company, general economic conditions and other pertinent
factors.

Dividends in the amount of $117,210 were paid
annually since the issuance of the Companys Series A
preferred stock. In December 2003, the Company reached an
agreement (the Standstill Agreement) with the sole
holder of its Series A preferred stock, Victoria &
Eagle Strategic Fund (VESF), not to redeem the
preferred shares for a period of 18 months and permanently
lower the dividend to 200 basis points over one-year LIBOR.
Based on an extrapolation of current rates, the estimated annual
preferred dividend for 2004 is approximately $34,000.






|        |                        
|------- | -----------------------
|Item 6. | Selected Financial Data

The following selected consolidated financial
data for the five fiscal years ended December 31, 2003,
have been derived from the Companys audited consolidated
financial statements. The operations effected by the Honeywell
Asset Sale are presented as discontinued operations. This data
should be read in conjunction with

7



---



##### Table of Contents



Managements Discussion and Analysis
of Financial Condition and Results of Operation and the
consolidated financial statements and related notes set forth in
Item 8 of this Form 10-K.


|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |         |      | 
|---------------------- | -------------------------------------------------------------------------------------- | ------------------------------------- | - | ------- | ----- | ------- | - | ------- | ------- | ---- | - | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ---- | 
|                       |                                                                                        |                                      
|                       |                                                                                        | YEARS ENDED DECEMBER 31              
|                       |                                                                                        |                                      
|                       |                                                                                        | 2003(2)                               |   | 2002(2) |       | 2001(2) |   | 2000(2) |         | 1999
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |     
|                       |                                                                                        |                                      
|                       |                                                                                        | (In thousands, except per share data)
|Income statement data: |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Net sales                                                                              |                                       | $ | 39,769  |       |         | $ | 44,242  |         |      | $ | 60,997  |       |   | $ | 77,841  |       |   | $ | 63,329  |     
|                       | Cost of sales                                                                          |                                       |   | 27,711  |       |         |   | 31,795  |         |      |   | 44,234  |       |   |   | 56,666  |       |   |   | 40,843  |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Gross profit                                                                           |                                       |   | 12,058  |       |         |   | 12,447  |         |      |   | 16,763  |       |   |   | 21,175  |       |   |   | 22,486  |     
|                       | Selling, general and administrative expenses                                           |                                       |   | 19,795  |       |         |   | 23,693  |         |      |   | 16,461  |       |   |   | 22,159  |       |   |   | 15,371  |     
|                       | Asset and goodwill impairment                                                          |                                       |   | 1,711   |       |         |   | 3,338   |         |      |   | 4,466   |       |   |   | 4,228   |       |   |   |        |     
|                       | Depreciation and amortization(1)                                                       |                                       |   | 1,988   |       |         |   | 2,341   |         |      |   | 4,494   |       |   |   | 5,182   |       |   |   | 4,605   |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Total operating expenses                                                               |                                       |   | 23,494  |       |         |   | 29,372  |         |      |   | 25,421  |       |   |   | 31,569  |       |   |   | 19,976  |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Operating profit (loss)                                                                |                                       |   | (11,436 | )     |         |   | (16,925 | )       |      |   | (8,658  | )     |   |   | (10,394 | )     |   |   | 2,510   |     
|                       | Other income (expense)                                                                 |                                       |   | (139    | )     |         |   | (2,240  | )       |      |   | 5,464   |       |   |   | (4,129  | )     |   |   | 1,061   |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Income (loss) from continuing operations before
    income taxes and accounting change |                                       |   | (11,575 | )     |         |   | (19,165 | )       |      |   | (3,194  | )     |   |   | (14,523 | )     |   |   | 3,571   |     
|                       | Income tax benefit (expense)                                                           |                                       |   |        |       |         |   |        |         |      |   | (104    | )     |   |   | 3,185   |       |   |   | (1,570  | )   
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Income (loss) from continuing operations                                               |                                       |   | (11,575 | )     |         |   | (19,165 | )       |      |   | (3,298  | )     |   |   | (11,338 | )     |   |   | 2,001   |     
|                       | Income (loss) from discontinuing operations                                            |                                       |   | 186     |       |         |   | 1,953   |         |      |   | 1,837   |       |   |   | (46,349 | )     |   |   | (1,436  | )   
|                       | Loss on disposal of discontinued operations                                            |                                       |   |        |       |         |   | (12,106 | )       |      |   |        |       |   |   |        |       |   |   |        |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Net income (loss) before accounting change                                             |                                       |   | (11,389 | )     |         |   | (29,318 | )       |      |   | (1,461  | )     |   |   | (57,687 | )     |   |   | 565     |     
|                       | Cumulative effect of accounting change:                                                |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |         |     
|                       |                                                                                        | Continuing operations(1)              |   |         |      |         |   |         | (14,762 | )    |   |         |      |   |   |         |      |   |   |         |     | 
|                       |                                                                                        | Discontinued operations(1)            |   |         |      |         |   |         | (11,353 | )    |   |         |      |   |   |         |      |   |   |         |     | 
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Net income (loss)                                                                      |                                       |   | (11,389 | )     |         |   | (55,433 | )       |      |   | (1,461  | )     |   |   | (57,687 | )     |   |   | 565     |     
|                       | Dividend requirements on preferred stock                                               |                                       |   | (115    | )     |         |   | (117    | )       |      |   | (117    | )     |   |   | (117    | )     |   |   | (117    | )   
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Net income (loss) allocable to common stockholders                                     |                                       | $ | (11,504 | )     |         | $ | (55,550 | )       |      | $ | (1,578  | )     |   | $ | (57,804 | )     |   | $ | 448     |     
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Basic income (loss) per share:                                                         |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |         |     
|                       |                                                                                        | Continuing operations                 |   | $       | (0.83 | )       |   | $       | (1.37   | )    |   | $       | (0.28 | ) |   | $       | (0.98 | ) |   | $       | 0.17 | 
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       |                                                                                        | Reported net loss per share           |   | $       | (0.81 | )       |   | $       | (3.95   | )    |   | $       | (0.13 | ) |   | $       | (4.95 | ) |   | $       | 0.04 | 
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Number of common shares used in computations:                                          |                                       |   | 14,121  |       |         |   | 14,047  |         |      |   | 12,183  |       |   |   | 11,686  |       |   |   | 11,645  |     
|                       | Diluted income (loss) per share:                                                       |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |         |     
|                       |                                                                                        | Continuing operations                 |   | $       | (0.83 | )       |   | $       | (1.37   | )    |   | $       | (0.28 | ) |   | $       | (0.98 | ) |   | $       | 0.16 | 
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       |                                                                                        | Reported net loss per share           |   | $       | (0.81 | )       |   | $       | (3.95   | )    |   | $       | (0.13 | ) |   | $       | (4.95 | ) |   | $       | 0.04 | 
|                       |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Number of common shares used in computations:                                          |                                       |   | 14,121  |       |         |   | 14,047  |         |      |   | 12,183  |       |   |   | 11,686  |       |   |   | 12,300  |     
|Balance sheet data:    |                                                                                        |                                       |   |         |       |         |   |         |         |      |   |         |       |   |   |         |       |   |   |        
|                       | Working capital                                                                        |                                       | $ | 9,286   |       |         | $ | 17,716  |         |      | $ | 27,813  |       |   | $ | 23,649  |       |   | $ | 79,714  |     
|                       | Total assets                                                                           |                                       |   | 25,836  |       |         |   | 50,616  |         |      |   | 122,317 |       |   |   | 143,497 |       |   |   | 200,351 |     
|                       | Debt                                                                                   |                                       |   |        |       |         |   | 6,600   |         |      |   | 21,612  |       |   |   | 35,419  |       |   |   | 37,000  |     
|                       | Stockholders equity                                                                   |                                       |   | 16,300  |       |         |   | 27,434  |         |      |   | 78,773  |       |   |   | 77,248  |       |   |   | 132,663 |     



---



|    |                                                                                                                                                                                                    
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On January 1, 2002, the Company adopted
    Statement of Financial Accounting Standards No. 142,
    Goodwill and Intangible Assets. No amortization for goodwill was
    recorded in 2002 or 2003.

8



---



##### Table of Contents





|    |                                                                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | There were significant restructuring activities
    in each year presented. The following table reflects amounts
    relating to these activities included in losses from continuing
    operations in each year (in thousands):

|                            |  |      |    |      |  |      |       |      |  |   |     |   |  |   |       | 
|--------------------------- |  | ---- | -- | ---- |  | ---- | ----- | ---- |  | - | --- | - |  | - | ----- | 
|                            |  | 2003 |    | 2002 |  | 2001 |       | 2000
|                            |  |      |    |      |  |      |       |     
|Cost of sales               |  | $    |   |      |  | $    |      |      |  | $ |    |   |  | $ | 1,314 | 
|General and administrative  |  |      | 96 |      |  |      | 4,283 |      |  |   | (47 | ) |  |   | 2,994 | 
|Asset impairment charges    |  |      |   |      |  |      | 2,973 |      |  |   |    |   |  |   | 4,228 | 
|Loss on sale of investments |  |      |   |      |  |      |      |      |  |   |    |   |  |   | 637   | 
|Other expenses              |  |      |   |      |  |      |      |      |  |   |    |   |  |   | 600   | 
|                            |  |      |    |      |  |      |       |      |  |   |     |   |  |   |       | 
|                            |  | $    | 96 |      |  | $    | 7,256 |      |  | $ | (47 | ) |  | $ | 9,773 | 
|                            |  |      |    |      |  |      |       |      |  |   |     |   |  |   |       | 






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Overview

The consolidated financial statements include the
Companys accounts and its consolidated subsidiaries. The
Company is organized into separate selling segments, which are
supported by common administrative functions such as credit,
accounting, human resources, internal audit, legal and computer
support services (the Corporate Staff). All
significant inter-company balances and transactions among
subsidiaries and divisions have been eliminated in consolidation.

Product sales are recorded when goods are shipped
to the customer. Most sales made to domestic customers are on
net 30-day or net 60-day credit terms after a credit review is
performed to establish creditworthiness and to determine an
appropriate credit limit. International sales are made under
varying terms depending upon the creditworthiness of the
customer and include the use of letters of credit, payment in
advance of shipment and open trade terms and revenue is deferred
when collection is determined not to be probable.

Cost of sales for most of the Companys
products includes the cost of the product shipped plus freight,
customs and other costs associated with delivery from foreign
contract manufacturers or from domestic suppliers.

Operating expenses include selling, general and
administrative expenses, as well as depreciation. Selling,
general and administrative costs include salaries, commissions
and related benefits, telephone, advertising, warranty,
printing, product literature, sales promotion, legal, audit and
other professional fees, supplies, engineering and travel.

Application of Critical Accounting Policies
and Estimates

Managements discussion and analysis of the
Companys financial condition and results of operations are
based upon the consolidated financial statements, which have
been prepared in accordance with accounting principles generally
acceptable in the United States of America (GAAP).
The preparation of financial statements 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 the
reported amounts of revenues and expenses during the reporting
period. Because of the use of estimates in the preparation of
financial statements, actual results could differ from those
estimates.

The following critical accounting policies are
affected by significant judgments and estimates used in the
preparation of the Companys consolidated financial
statements:



| |                    
| | -------------------
| | Inventory Valuation

The Companys inventories are comprised
principally of goods held for resale, which are valued at the
lower of cost (first in-first out) or market. Inventories are
written down to their estimated net realizable value for
obsolescence, returned inventory deemed not economical to repair
or discontinued product lines. This

9



---



##### Table of Contents



estimate is based upon historical results,
current inventories on hand, market conditions and current and
expected sales trends. If market conditions become less
favorable than those expected by management, then additional
inventory write-downs may be required.




| |         
| | --------
| | Goodwill

Goodwill is tested for impairment annually or at
other times if events have occurred or circumstances exist that
indicate the carrying value of goodwill may no longer be
recoverable. The impairment test for goodwill involves a
two-step process: step one consists of a comparison of the fair
value of a reporting unit with its carrying amount, including
the goodwill allocated to each reporting unit. If the carrying
amount exceeds the fair value, step two requires the comparison
of the implied fair value of the reporting unit goodwill with
the carrying amount of the reporting unit goodwill. Any excess
of the carrying value of the reporting unit goodwill over the
implied fair value of the reporting unit goodwill will be
recorded as an impairment loss. Fair value of the business units
is determined using the income approach. Under the income
approach, value is dependent on the present value of future cash
flows and discount rates. The determination of fair value
involves estimates of future sales growth, product costs,
selling and administrative costs and costs of capital.



| |                  
| | -----------------
| | Long-lived Assets

Whenever certain events or changes in
circumstances indicate that the carrying value of the long-lived
assets may not be recoverable, an evaluation is performed. Such
events or circumstances include, but are not limited to, a
prolonged industry downturn, a significant decline in the
Companys market value or significant reductions in
projected future cash flows. In assessing the recoverability of
long-lived assets, the carrying value is compared to the
undiscounted future cash flows the assets are expected to
generate. If the total of the undiscounted future cash flows is
less than the carrying amount of the assets, then the net book
values of such assets are written down based on the excess of
the carrying amount over the fair value of the assets. Fair
value is generally determined by calculating the discounted
future cash flows, which includes estimating long-term forecasts
of the amounts and timing of overall market growth, utilization
of assets, discount rate and terminal growth rates. Differences
between the Companys estimates and actual results would
change the calculation of discounting future cash flows, which
could require an impairment charge.



| |                      
| | ---------------------
| | Deferred Income Taxes

Deferred tax assets are regularly assessed for
their likelihood and the amounts believed to be realizable. A
valuation allowance is provided against deferred tax assets not
expected to be realized. Projected future taxable income
estimates are incorporated in the considerations. Significant
management judgment is required in projecting future taxable
income to support the realization of net deferred tax assets and
any required valuation allowance. Due to uncertainties related
to the Companys ability to generate taxable income and
utilize the net deferred tax asset, a valuation allowance has
been recorded against the net deferred tax asset balance. If the
Company generates taxable income in future periods, the
valuation allowance would be reduced, resulting in a tax benefit
in the financial statements.

Results of Operations

Financial statements for the years ended
December 31, 2002 and 2001 have been restated to report the
Companys CCTV business as discontinued operations (see
note 2 to the Companys Consolidated Financial
Statements for additional detail).

The results of operations are discussed as a
whole, and where appropriate, by segment (see note 13 to
the Companys Consolidated Financial Statements for
additional detail).

10



---



##### Table of Contents



The following table contains information
regarding the percentage of net sales for the years ended
December 31, 2003, 2002 and 2001 and the percentage changes
in these income and expense items from year to year:

|                                                                                          |  |                          |       |                     |  |          |        |            |  |      |       |    |  |  |        |    |  |  |        |   
|----------------------------------------------------------------------------------------- |  | ------------------------ | ----- | ------------------- |  | -------- | ------ | ---------- |  | ---- | ----- | -- |  |  | ------ | -- |  |  | ------ | --
|                                                                                          |  |                          |       |                     |  |          |        |           
|                                                                                          |  |                          |       |                     |  |          |        | Percentage
|                                                                                          |  |                          |       | Increase (Decrease)
|                                                                                          |  | Percentage of Net Sales  |       | Between Periods    
|                                                                                          |  | Years ended December 31, |       |                    
|                                                                                          |  |                          |       | 2003 vs.            |  | 2002 vs.
|                                                                                          |  | 2003                     |       | 2002                |  | 2001     |        | 2002       |  | 2001
|                                                                                          |  |                          |       |                     |  |          |        |            |  |     
|Net Sales                                                                                 |  |                          | 100.0 | %                   |  |          | 100.0  | %          |  |      | 100.0 | %  |  |  | (10.1  | )% |  |  | (27.5  | )%
|Cost of sales                                                                             |  |                          | 69.7  | %                   |  |          | 71.9   | %          |  |      | 72.5  | %  |  |  | (12.8  | )% |  |  | (28.1  | )%
|Gross profit                                                                              |  |                          | 30.3  | %                   |  |          | 28.1   | %          |  |      | 27.5  | %  |  |  | (3.1   | )% |  |  | (25.7  | )%
|Operating expenses:                                                                       |  |                          |       |                     |  |          |        |            |  |      |       |    |  |  |        |    |  |  |        |   
|Selling, general and administrative                                                       |  |                          | 49.8  | %                   |  |          | 53.6   | %          |  |      | 27.0  | %  |  |  | (16.4  | )% |  |  | 43.9   | % 
|Asset and goodwill impairment                                                             |  |                          | 4.3   | %                   |  |          | 7.5    | %          |  |      | 7.3   | %  |  |  | (48.7  | )% |  |  | (25.3  | )%
|Depreciation and amortization                                                             |  |                          | 5.0   | %                   |  |          | 5.3    | %          |  |      | 7.4   | %  |  |  | (15.1  | )% |  |  | (47.9  | )%
|Operating loss                                                                            |  |                          | (28.8 | )%                  |  |          | (38.3  | )%         |  |      | (14.2 | )% |  |  | (32.4  | )% |  |  | 95.5   | % 
|Other income (expense)                                                                    |  |                          | (0.4  | )%                  |  |          | (5.1   | )%         |  |      | 9.0   | %  |  |  | (93.8  | )% |  |  | (141.0 | )%
|Loss before taxes, discontinued operations and
    cumulative effect of accounting change |  |                          | (29.1 | )%                  |  |          | (43.3  | )%         |  |      | (5.2  | )% |  |  | (39.6  | )% |  |  | 500.0  | % 
|Income taxes                                                                              |  |                          | 0.0   | %                   |  |          | 0.0    | %          |  |      | (0.2  | )% |  |  |       |    |  |  | (100.0 | )%
|Loss from continuing operations                                                           |  |                          | (29.1 | )%                  |  |          | (43.3  | )%         |  |      | (5.4  | )% |  |  | (39.6  | )% |  |  | 481.1  | % 
|Income (Loss) from discontinued operations                                                |  |                          | 0.5   | %                   |  |          | 4.4    | %          |  |      | 3.0   | %  |  |  | (90.5  | )% |  |  | 6.3    | % 
|Cumulative effect of accounting change                                                    |  |                          | 0.0   | %                   |  |          | (59.0  | )%         |  |      | 0.0   | %  |  |  | (100.0 | )% |  |  |       |   
|Net loss                                                                                  |  |                          | (28.6 | )%                  |  |          | (125.3 | )%         |  |      | (2.4  | )% |  |  | (79.5  | )% |  |  | 3694.2 | % 



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2003 Compared
    to Year Ended December 31, 2002

For the year ended December 31, 2003, net
sales were $39.8 million, a decrease of $4.4 million
or 10% from 2002.

The PSG segment revenue was $16.9 million
compared to $18.4 million in 2002, a decrease of 8.0%. The
decrease was primarily due to lower sales of video products as
part of access control projects. Though the Company retained the
video part of the access control business after the Honeywell
Asset Sale, Honeywell has increasingly supplied video components
directly to the integrators who purchase access control products
from the Company. Additionally, revenues from the Companys
central station alarm management unit were $0.4 million
less year on year, a decrease of 32% for that unit.

The DSG revenue was $22.6 million compared
to $25.4 million in 2002, a decrease of 11.0%. The decline
can largely be attributed to the IVSTM business unit,
which sells video products into industrial customers. The
IVSTM business has been adversely impacted by the
investment slump in the technology sector, as its main customers
are semiconductor plants. The MVPTM business unit
also saw sales decrease due to product transition, as the public
transit business shifts toward digital solutions.
MVPTMs digital products are not expected to be
available until the second quarter of 2004. The SecurityandMore
business units revenue stayed consistent year on year.

Gross profit margin improved to 30.3% in 2003,
versus 28.1% in 2002. The improvement was due to more a
favorable product mix towards the PSG segment, as well as
increased high-margin royalty revenues.

Selling, general and administrative expenses were
$19.8 million in 2003, compared to $23.7 million in
2002, a decrease of $3.9 million, or 17%, over 2002. The
decrease was primarily due to less employee turnover and
severance expenses. The 2002 expenses included $3.4 million
in salary and severance for former executives and employees:
former chief executive officers (CEO) Niklaus Zenger
($1.4 million for salaries and severance) and George Broady
($1.2 million for severance), former President Peter Beare
($0.3 million

11



---



##### Table of Contents



for severance), former Senior Vice President of
PSG Sales Wendy Diddell ($0.3 million for severance) and
others ($0.2 million for severance).


Goodwill impairment charges were
$1.7 million in 2003, compared to $3.3 million in
2002. The 2003 charges included goodwill impairments of
$1.0 million related to the international access control
unit and $0.7 million related to the central station alarm
management unit. The 2002 charges included a $2.7 million
write-down of the Companys SAP enterprise software system
and a $0.6 million impairment of goodwill related to the
central station alarm management unit.

Depreciation and amortization expenses were
$2.0 million in 2003, a decrease of $0.3 million from
2002. The decrease was due to a smaller asset base, particularly
in the SAP software cost.

Other expense in 2003 was $(0.1) million,
compared with $2.2 million in 2002. The 2002 expense
included $2.8 million in interest expense. The Company paid
off its bank debts at the end of 2002 with proceeds from the
Honeywell Asset Sale.

Discontinued operations had a gain of
$0.2 million in 2003, reflecting the increase of the
purchase price, the costs of the dissolution process of
international entities, the business content of which, with the
exception of Switzerland, was sold to Honeywell in the Honeywell
Asset Sale. The gain was compared to a $10.2 million loss
in 2002, as the discontinued operations have tapered off in
2003. The 2002 discontinued operations loss was mainly due to
professional fees on the Honeywell Asset Sale of
$2.7 million, $2.2 million in realized accumulated
currency losses and other expenses of $1.6 million caused
by the transaction.



| |                                                                          
| | -------------------------------------------------------------------------
| | Year Ended December 31, 2002 Compared
    to Year Ended December 31, 2001

For the year ended December 31, 2002, net
sales were $44.2 million, a decrease of $16.8 million
(28%) from 2001.

Sales in the DSG segment declined
$17.8 million (40%), to $26.7 million in 2002 compared
to $44.5 million in 2001, due to the discontinuation of
sales to Sams Club during the fourth quarter of 2001 and a
17% decrease in revenues of the industrial and mobile video
applications due to an overall decline in the semiconductor,
telecommunications and public transportation industries. The
Sams Club business was partially replaced by sales to
another national retailer in the second half of 2002.

The PSG segment revenues increased by
$1.0 million (6%) to $17.1 million in 2002 compared to
$16.1 million in 2001, as a result of additional sales
related to U.S. government programs.

Gross profit margins improved from 27.5% in 2001
to 28.1% in 2002. The margin increased as a result of a more
favorable product mix towards the access control business and
away from the lower-margin consumer/do-it-yourself business and
the industrial video business.

Selling, general and administrative expenses were
$23.7 million in 2002, an increase of $7.2 million
(44%) over 2001. There were $2.6 million (76%) of
additional expenses in 2002 in the PSG segment for additional
investment in engineering, marketing and customer support
infrastructure in California and an increase in the sales and
sales support personnel in Switzerland. The DSG segment expenses
were $1.1 million lower in 2002 due to personnel reductions
in the Consumer do-it-yourself business resulting from the loss
of the Sams Club business in the fourth quarter of 2001.
The 2002 expenses included $3.4 million in salary and
severance for former executives and employees. The remaining
increase relates primarily to Board of Directors expenses,
increased Securities and Exchange Commission (SEC)
compliance costs and legal expenses. The Corporate segment also
included an additional $0.2 million accrual related to the
abandonment of the Zurich lease.

Asset, goodwill and other asset impairment
charges were $3.3 million in 2002, compared to
$4.5 million in 2001. The 2002 charges included a
$2.7 million write-down of the Companys SAP
enterprise software system in the Corporate segment and a
$0.6 million impairment of goodwill related to the alarm
management unit. The Company recorded an impairment charge in
the Corporate segment of $4.5 million in 2001 as part of
the sale and refinance of the Headquarters Facility.

12



---



##### Table of Contents



Depreciation and amortization expenses were
$2.3 million in 2002, a decrease of $2.2 million (49%)
over 2001. Goodwill amortization of $1.6 million was
recorded in 2001. As a result of the Companys adoption of
SFAS 142, Goodwill and Intangible Assets, on
January 1, 2002, there was no goodwill amortization expense
in 2002. The remainder of the change relates to reduced
depreciation expense in 2002.

Other expense in 2002 was $2.2 million,
compared with other income of $6.2 million in 2001. The
2002 expense included $2.8 million in interest expense. The
other income in 2001 included the $7.7 million gain on the
sale of the Companys shares of common stock of Detection
Systems, Inc., a $1.3 million gain on the sale of the
Industrial Furnace Camera business and $3.3 million of
interest expense.

Financial condition, liquidity and capital
resources

At the end of 2003, the Company had
$7.8 million in cash and marketable securities, down from
$16.4 million at the end of 2002. The decrease was mainly
due to the settlement of accrued liabilities, such as severance
payments accrued at the end of 2002, costs of discontinued
operations as well as the on-going operating losses.

During 2002 the Company repaid its domestic line
of credit facility. The Company maintains a small credit
facility in Switzerland with a balance less than $250,000 to
fund the working capital needs of its Swiss business.

For 2004, the Companys primary source of
liquidity will be its cash and cash equivalents. Although cash
requirements will fluctuate depending on the timing and extent
of many factors, the Company believes that the Company should
have enough liquidity to satisfy its liquidity requirements for
at least the next 12 months. The Company plans to generate
cash by divesting its non-core DSG business units and collecting
the final purchase price holdback payment from Honeywell. The
Company also plans to continue consolidation and the
rationalization of operating expenses in conjunction with
operational and financial performance.

Contractual obligations and
commitments

The following table summarizes the Companys
contractual obligations and commitments with definitive payment
terms that will require cash outlays in the future. These
amounts are as of December 31, 2003 in thousands;

|                                         |                                             |       |       |      |  |      |       |      |  |      |     |       |  |   |    |    |  |   |   |   |  |   |   |   | 
|---------------------------------------- | ------------------------------------------- | ----- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | --- | ----- |  | - | -- | -- |  | - | - | - |  | - | - | - | 
|                                         |                                             |       |       |      |  |      |       |      |  |      |     | Later
|                                         |                                             | Total |       | 2004 |  | 2005 |       | 2006 |  | 2007 |     | Years
|                                         |                                             |       |       |      |  |      |       |      |  |      |     |      
|Contractual obligations and commitments: |                                             |       |       |      |  |      |       |      |  |      |     |       |  |   |    |    |  |   |   |   |  |   |   |  
|                                         | Operating leases, excluding prepaid amounts |       | $     | 662  |  |      | $     | 423  |  |      | $   | 154   |  |   | $  | 85 |  |   | $ |  |  |   | $ |  | 
|                                         | Severance obligations                       |       |       | 670  |  |      |       | 641  |  |      |     | 29    |  |   |    |   |  |   |   |  |  |   |   |  | 
|                                         |                                             |       |       |      |  |      |       |      |  |      |     |       |  |   |    |    |  |   |   |   |  |   |   |  
|                                         |                                             | $     | 1,332 |      |  | $    | 1,064 |      |  | $    | 183 |       |  | $ | 85 |    |  | $ |  |   |  | $ |  |  
|                                         |                                             |       |       |      |  |      |       |      |  |      |     |       |  |   |    |    |  |   |   |   |  |   |   |  

The Companys significant operating leases
include facilities and office equipment. Monthly payments for
facilities range from $1,900 to $24,000, excluding the
Headquarters Facility. The Companys leasing obligation
with respect to the Headquarters Facility ends in June 2004. The
rents for December 2003 through June 2004 were prepaid in 2002.

Factors Affecting the Companys Future
Results or the Price of the Companys Stock.

Set forth below and elsewhere in this report and
other documents the Company files with the SEC are risks and
uncertainties that could cause the Companys results to
differ materially from the results contemplated by the
forward-looking statements contained in this report and other
public statements that the Company makes.

13



---



##### Table of Contents





| |                                                     
| | ----------------------------------------------------
| | The Company may not be profitable in the
    future.

The Company has suffered losses in each of the
last four years. The Company has significant built-in costs that
it needs to reduce in order to reflect the smaller size of the
Company after the Honeywell Asset Sale in 2002, as well as the
possible DSG segment divestiture in 2004. Additional costs
related to reorganizing the Company to better pursue its new
strategy may adversely affect earnings in 2004. The Company may
incur significant operating expenses to re-focus its business
and can give no assurance that it will achieve profitability or
be capable of sustaining profitable operations.



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Should the Company need additional capital,
    the Company may have difficulty in raising the
    capital.

The Company does not have a significant line of
credit or other loan facility in place. The Companys
working capital consists of the cash remaining from the
Honeywell Asset Sale and any cash generated by a planned DSG
divestment. The Company currently has no other plan nor need for
additional capital from either equity or debt in the next 12 to
18 months. Even if the Company were to seek additional
equity capital, the Company may not be able to locate purchasers
of its equity securities to raise additional capital.



| |                                                                               
| | ------------------------------------------------------------------------------
| | The Companys technologies may not be
    commercially accepted in the future.

The Company may not keep pace with technological
advances or the Company may pursue technologies that do not
become commercially accepted and, in either case, customers may
not buy the Companys products and the Companys
revenues may decline.

The demand for the Companys products can
change quickly and in ways the Company may not anticipate
because the Companys industry is generally characterized
by:



| |   |                                                                   
| | - | ------------------------------------------------------------------
| |  | rapid and sometimes disruptive technological
    developments;    
|
| |  | evolving industry standards,                                      
|
| |  | changes in customer requirements;                                 
|
| |  | limited ability to accurately forecast future
    customer orders;
|
| |  | frequent new product introductions and
    enhancements.          



| |                                                                                 
| | --------------------------------------------------------------------------------
| | The Company may not be able to attract,
    hire and retain qualified personnel.

The loss of the services of any key personnel or
the Companys inability to hire new personnel with the
requisite skills could restrict the Companys ability to
develop new products, enhance existing products in a timely
manner, sell products to its customers or effectively manage the
Companys operations.



| |                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------
| | The Common Stock may be de-listed from
    NASDAQ if the stock price does not meet NASDAQs continued
    listing standards.

The Common Stock trades on the NASDAQ exchange.
NASDAQ has a number of continued listing requirements, including
a minimum share price requirement of $1.00 per share. If
the Companys share price falls below $1.00 per share
for 30 consecutive business days, then NASDAQ could notify
the Company and give the Company 90 days to cure the
deficiency or NASDAQ could begin delisting proceedings. Those
proceedings would lead to the Common Stock no longer trading on
NASDAQ. Delisting from NASDAQ could result in a reduction in the
liquidity of any investment in the Common Stock and an adverse
effect on the trading price of the Common Stock. Delisting could
also reduce the ability of holders of the Common Stock to
purchase or sell shares as quickly and inexpensively as they
have done historically. This lack of liquidity could make it
more difficult for the Company to raise equity capital in the
future. During 2003, the Companys stock price closed below
$1.00 per share at the end of a number of trading sessions.

14



---



##### Table of Contents





| |                                                                    
| | -------------------------------------------------------------------
| | Some of the Companys products are not
    as profitable as others.

Some of the Companys products might require
a higher level of investment in engineering and distribution. If
revenues generated from these products become a greater
percentage of the Companys total revenues and if the
expenses associated with these products on a percentage of
revenues basis do not decrease, then the Companys
operating margins will be reduced.



| |                                                                                           
| | ------------------------------------------------------------------------------------------
| | Third parties may claim that the Company
    infringes their intellectual property rights.

The Company has sometimes received notices from
others claiming that the Company infringes their patent and
intellectual property rights, and the Company has been involved
in litigations on patent and intellectual property rights (see
Note 7 of the Notes to Consolidated Financial Statements).
Companies are more frequently seeking patent protection because
of developments in the law that may extend the ability to obtain
such patents. As a result, the Company expects to receive more
patent infringement claims. Responding to any infringement
claim, regardless of its validity, could:



| |   |                                                                                                                                
| | - | -------------------------------------------------------------------------------------------------------------------------------
| |  | be time consuming to defend;                                                                                                   
|
| |  | result in costly litigation;                                                                                                   
|
| |  | divert managements time and attention;                                                                                        
|
| |  | require the Company to enter into royalty and
    licensing agreements that the Company would not normally find
    acceptable;
|
| |  | require the Company to stop selling or to
    redesign products; and                                                           
|
| |  | require the Company to pay damages.                                                                                            






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

The Company is exposed to minimal market risks
issues. Exposure to these risks is managed through regular
operating and financing activities.

Foreign Exchange

Changes in the foreign currency rates are not
expected to have a material adverse effect on the Companys
future consolidated financial position or results of operations.
The access control office in Lausanne, Switzerland is the
Companys only active foreign-based operation. This office
accounted for approximately 5% of worldwide sales in 2003;
consequentially changes in the exchange rates between the
U.S. Dollar and Swiss Franc are not expected to have a
material adverse effect on the Companys future
consolidated financial position or results of operations.

The Company issued long-term, inter-company loans
to its foreign subsidiaries. Since these loans were denominated
in U.S. Dollars, the foreign subsidiaries were exposed to
the effect of changes in spot exchange rates of their local
currencies relative to the U.S. Dollar. Most of these loans
have generated foreign currency losses during the past few
years. In the past, these losses were shown as a component of
accumulated other comprehensive losses and not included as a
component of operating income. As a result of the Honeywell
Asset Sale, management determined that these loans could not be
repaid and recognized approximately $0.1 million of
accumulated foreign currency losses in the consolidated results
of operations during 2003.

Interest Rates

The Company had no debt as of December 31,
2003. After the Honeywell Asset Sale, the Companys credit
facility with Frost National Bank was fully repaid in December
2002.

An interest rate swap agreement with Bank One
remained in effect through February 15, 2004. The Company
paid $52,000 on February 17, 2004 for the final settlement
of the interest rate swap contract. The final settlement was
fully accrued for at December 31, 2003.

15



---



##### Table of Contents








|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS

Board of Directors and Stockholders

American Building Control, Inc.


We have audited the accompanying consolidated
balance sheets of American Building Control, Inc. and
Subsidiaries as of December 31, 2003 and 2002, and the
related consolidated statements of operations,
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2003. These
financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.

In our opinion, the financial statements referred
to above present fairly, in all material respects, the
consolidated financial position of American Building
Control, Inc. and Subsidiaries as of December 31, 2003
and 2002, and the consolidated results of their operations and
their consolidated cash flows for each of the three years in the
period ended December 31, 2003, in conformity with
accounting principles generally accepted in the United States of
America.

As discussed in Note 7 to the financial
statements, effective January 1, 2002, the Company adopted
Statement of Financial Accounting Standards No. 142,
Goodwill and Intangible Assets.



| |                   
| | ------------------
| | GRANT THORNTON LLP

Dallas, Texas

March 31, 2004


16



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |        |        | 
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------------------------- | ------------------------------------------ | -------- | ----- | ------ |  | ------- | ------ | ------ | 
|                                                                                                                                                                                    |                                               |                                           
|                                                                                                                                                                                    |                                               | December 31,                              
|                                                                                                                                                                                    |                                               |                                           
|                                                                                                                                                                                    |                                               | 2003                                       |          | 2002 
|                                                                                                                                                                                    |                                               |                                            |          |      
|                                                                                                                                                                                    |                                               |                                           
|                                                                                                                                                                                    |                                               | (In thousands, except                     
|                                                                                                                                                                                    |                                               | share and per share data)                 
|ASSETS                                                                                                                                                                             
|Current Assets:                                                                                                                                                                     |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    | Cash and cash equivalents                     |                                            | $        | 6,307 |        |  | $       | 16,436 |       
|                                                                                                                                                                                    | Marketable securities                         |                                            |          | 1,499 |        |  |         |       |       
|                                                                                                                                                                                    | Trade accounts receivable, net                |                                            |          | 3,484 |        |  |         | 4,955  |       
|                                                                                                                                                                                    | Inventories                                   |                                            |          | 4,832 |        |  |         | 4,357  |       
|                                                                                                                                                                                    | Receivable from Honeywell International, Inc. |                                            |          | 1,800 |        |  |         | 3,600  |       
|                                                                                                                                                                                    | Prepaid expenses and other current assets     |                                            |          | 697   |        |  |         | 1,165  |       
|                                                                                                                                                                                    | Assets of discontinued operations             |                                            |          | 81    |        |  |         | 1,833  |       
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total current assets                       |          |       | 18,700 |  |         |        | 32,346 | 
|Property and Equipment, net                                                                                                                                                         |                                               |                                            | 2,810    |       |        |  | 10,518  |       
|Other Assets:                                                                                                                                                                       |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    | Goodwill                                      |                                            |          | 3,521 |        |  |         | 5,332  |       
|                                                                                                                                                                                    | Other intangible assets, net                  |                                            |          | 49    |        |  |         | 330    |       
|                                                                                                                                                                                    | Receivable from Honeywell International, Inc. |                                            |          |      |        |  |         | 1,800  |       
|                                                                                                                                                                                    | Other assets                                  |                                            |          | 756   |        |  |         | 290    |       
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total assets                               |          | $     | 25,836 |  |         | $      | 50,616 | 
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                   
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                                                           
|Current Liabilities:                                                                                                                                                                |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    | Trade accounts payable                        |                                            | $        | 2,898 |        |  | $       | 3,201  |       
|                                                                                                                                                                                    | Accrued expenses                              |                                            |          | 1,779 |        |  |         | 3,970  |       
|                                                                                                                                                                                    | Accrued compensation                          |                                            |          | 2,171 |        |  |         | 2,348  |       
|                                                                                                                                                                                    | Accrued royalties                             |                                            |          | 255   |        |  |         | 813    |       
|                                                                                                                                                                                    | Other current liabilities                     |                                            |          | 53    |        |  |         | 1,115  |       
|                                                                                                                                                                                    | Deferred income                               |                                            |          | 494   |        |  |         | 1,038  |       
|                                                                                                                                                                                    | Liabilities of discontinued operations        |                                            |          | 1,764 |        |  |         | 2,145  |       
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total current liabilities                  |          |       | 9,414  |  |         |        | 14,630 | 
|Long-Term Liabilities                                                                                                                                                               |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    | Sale leaseback obligation                     |                                            |          |      |        |  |         | 6,600  |       
|                                                                                                                                                                                    | Deferred income                               |                                            |          |      |        |  |         | 1,038  |       
|                                                                                                                                                                                    | Accrued royalties                             |                                            |          | 93    |        |  |         |       |       
|                                                                                                                                                                                    | Severance obligations                         |                                            |          | 29    |        |  |         | 914    |       
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total long-term liabilities                |          |       | 122    |  |         |        | 8,552  | 
|Commitments and Contingencies                                                                                                                                                       |                                               |                                            |         |       |        |  |        |       
|Stockholders Equity:                                                                                                                                                               |                                               |                                            |          |       |        |  |         |       
|Preferred stock, $5 par value, issuable in
    series; 2,000,000 shares authorized; Series A, 12%
    cumulative convertible; 195,351 shares authorized, issued
    and outstanding |                                               |                                            | 977      |       |        |  | 977     |       
|Common stock, $.01 par value;
    50,000,000 shares authorized; 17,656,738 and
    17,494,238 shares issued at December 31, 2003 and
    December 31, 2002, respectively            |                                               |                                            | 176      |       |        |  | 175     |       
|Additional paid-in-capital                                                                                                                                                          |                                               |                                            | 162,618  |       |        |  | 162,269 |       
|Accumulated deficit                                                                                                                                                                 |                                               |                                            | (108,858 | )     |        |  | (97,354 | )     
|Accumulated other comprehensive income                                                                                                                                              |                                               |                                            | 88       |       |        |  | 50      |       
|Treasury stock, at cost (3,488,350 and 3,467,650
    common shares at December 31, 2003 and December 31,
    2002, respectively)                                                    |                                               |                                            | (38,701  | )     |        |  | (38,683 | )     
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total stockholders equity                 |          |       | 16,300 |  |         |        | 27,434 | 
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       
|                                                                                                                                                                                    |                                               | Total liabilities and stockholders equity |          | $     | 25,836 |  |         | $      | 50,616 | 
|                                                                                                                                                                                    |                                               |                                            |          |       |        |  |         |       

The accompanying notes are an integral part of
the consolidated financial statements.

17



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF
OPERATIONS

|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |        |        |  
|------------------------------------------------------------------------------------------------ | ----------------------------------- | -------------------------------------------------------------------- | ---------- | ------ | ------- | ---- | ---------- | ------ | ------- | - | ---------- | ------ | ------ | -
|                                                                                                 |                                     |                                                                     
|                                                                                                 |                                     | Twelve Months Ended December 31,                                    
|                                                                                                 |                                     |                                                                     
|                                                                                                 |                                     | 2003                                                                 |            | 2002   |         | 2001
|                                                                                                 |                                     |                                                                      |            |        |         |     
|                                                                                                 |                                     |                                                                     
|                                                                                                 |                                     | (In thousands, except share and per share data)                     
|Net sales                                                                                        |                                     | $                                                                    | 39,769     |        |         | $    | 44,242     |        |         | $ | 60,997     |       
|Cost of sales (exclusive of depreciation shown
    separately below)                             |                                     |                                                                      | 27,711     |        |         |      | 31,795     |        |         |   | 44,234     |       
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Gross profit                                                         |            |        | 12,058  |      |            |        | 12,447  |   |            |        | 16,763 |  
|                                                                                                 | Selling, general and administrative |                                                                      |            | 19,795 |         |      |            | 23,693 |         |   |            | 16,461 |       
|                                                                                                 | Asset and goodwill impairment       |                                                                      |            | 1,711  |         |      |            | 3,338  |         |   |            | 4,466  |       
|                                                                                                 | Depreciation and amortization       |                                                                      |            | 1,988  |         |      |            | 2,341  |         |   |            | 4,494  |       
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     |                                                                      | 23,494     |        |         |      | 29,372     |        |         |   | 25,421     |       
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Operating loss                                                       |            |        | (11,436 | )    |            |        | (16,925 | ) |            |        | (8,658 | )
|Other income (expense):                                                                          |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 | Interest expense                    |                                                                      |            | (546   | )       |      |            | (2,854 | )       |   |            | (3,349 | )     
|                                                                                                 | Interest income                     |                                                                      |            | 286    |         |      |            | 80     |         |   |            | 56     |       
|                                                                                                 | Gain (loss) on sale of investments  |                                                                      |            | (79    | )       |      |            |       |         |   |            | 7,727  |       
|                                                                                                 | Gain on sale of businesses          |                                                                      |            |       |         |      |            |       |         |   |            | 1,194  |       
|                                                                                                 | Foreign exchange gains (losses)     |                                                                      |            | (15    | )       |      |            |       |         |   |            |       |       
|                                                                                                 | Other, net                          |                                                                      |            | 215    |         |      |            | 534    |         |   |            | (164   | )     
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     |                                                                      | (139       | )      |         |      | (2,240     | )      |         |   | 5,464      |       
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|Loss before income taxes, discontinued operations
    and cumulative effect of accounting change |                                     |                                                                      | (11,575    | )      |         |      | (19,165    | )      |         |   | (3,194     | )     
|Income taxes                                                                                     |                                     |                                                                      |           |        |         |      |           |        |         |   | (104       | )     
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Loss from continuing operations                                      |            |        | (11,575 | )    |            |        | (19,165 | ) |            |        | (3,298 | )
|                                                                                                 |                                     | Income from discontinued operations                                  |            |        | 186     |      |            |        | 1,953   |   |            |        | 1,837  |  
|                                                                                                 |                                     | Loss on disposal of discontinued operations                          |            |        |        |      |            |        | (12,106 | ) |            |        |       |  
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Loss before cumulative effect of accounting change                   |            |        | (11,389 | )    |            |        | (29,318 | ) |            |        | (1,461 | )
|Cumulative effect of accounting change:                                                          |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Cumulative effect of accounting
    change  continuing operations   |            |        |        |      |            |        | (14,762 | ) |            |        |       |  
|                                                                                                 |                                     | Cumulative effect of accounting
    change  discontinued operations |            |        |        |      |            |        | (11,353 | ) |            |        |       |  
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Net loss                                                             |            |        | (11,389 | )    |            |        | (55,433 | ) |            |        | (1,461 | )
|Dividend requirements on preferred stock                                                         |                                     |                                                                      | (115       | )      |         |      | (117       | )      |         |   | (117       | )     
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Net loss allocable to common stockholders                            |            | $      | (11,504 | )    |            | $      | (55,550 | ) |            | $      | (1,578 | )
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|Basic and diluted earnings (loss) per share from:                                                |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Continuing operations                                                |            | $      | (0.83   | )    |            | $      | (1.37   | ) |            | $      | (0.28  | )
|                                                                                                 |                                     | Discontinued operations                                              |            |        | 0.02    |      |            |        | (0.72   | ) |            |        | 0.15   |  
|                                                                                                 |                                     | Cumulative effect of accounting
    change  continuing operations   |            |        |        |      |            |        | (1.05   | ) |            |        |       |  
|                                                                                                 |                                     | Cumulative effect of accounting
    change  discontinued operations |            |        |        |      |            |        | (0.81   | ) |            |        |       |  
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Reported net loss per share                                          |            | $      | (0.81   | )    |            | $      | (3.95   | ) |            | $      | (0.13  | )
|                                                                                                 |                                     | Goodwill amortization                                                |            |        |        |      |            |        |        |   |            |        | 0.07   |  
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|                                                                                                 |                                     | Pro forma basic and diluted loss per share                           |            | $      | (0.81   | )    |            | $      | (3.95   | ) |            | $      | (0.06  | )
|                                                                                                 |                                     |                                                                      |            |        |         |      |            |        |         |   |            |       
|Number of common shares used in computations:                                                    |                                     |                                                                      | 14,121,463 |        |         |      | 14,046,588 |        |         |   | 12,183,401 |       

The accompanying notes are an integral part of
the consolidated financial statements.

18



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |         |  
|--------------------------------------------------------------- | -------------------------------------------- | --------------------------------- | ------- | ------------ |  | ---------- | --- | ----------- |  | ------------- | ---------- | -------------- |  | ------------- | --- | ------ |  | ------ | ------- | ----- |  | - | -------- | - |  | - | ------ | ------ | - |  | --------- |  |  | - | ------- | - |  | - | ------- | ------- | -
|                                                                |                                              |                                   |         |              |  |            |     |             |  | Accumulated   |            |                |  |              
|                                                                |                                              | Preferred Stock                   |         | Common Stock |  | Additional |     |             |  | Other         |            | Treasury Stock |  |              
|                                                                |                                              |                                   |         |              |  | Paid-In    |     | Accumulated |  | Comprehensive |            |                |  |              
|                                                                |                                              | Shares                            |         | Amount       |  | Shares     |     | Amount      |  | Capital       |            | Deficit        |  | Income (Loss) |     | Shares |  | Amount |         | Total
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |      
|                                                                |                                              |                                  
|                                                                |                                              | (In thousands, except share data)
|Balance, December 31, 2000                                      |                                              |                                   | 195,351 |              |  | $          | 977 |             |  |               | 15,156,538 |                |  | $             | 152 |        |  | $      | 157,914 |       |  | $ | (40,226  | ) |  | $ | (2,886 | )      |   |  | 3,467,650 |  |  | $ | (38,683 | ) |  | $ | 77,248  |        
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Net loss                                                        |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (1,461   | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (1,461  | )      
|Other comprehensive loss:                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Foreign currency translation adjustment      |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        | (1,275 | ) |  |           |  |  |   |         |   |  |   |         | (1,275  | )
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Total comprehensive loss                     |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         | (2,736  | )
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Issuance of common stock, net of issuance costs
    of $294,000 |                                              |                                   |         |              |  |            |     |             |  |               | 2,337,700  |                |  |               | 23  |        |  |        | 4,125   |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   | 4,148   |        
|Warrants issued in connection with building
    financing       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        | 230     |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   | 230     |        
|Preferred stock dividends                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (117     | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (117    | )      
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Balance, December 31, 2001                                      |                                              |                                   | 195,351 |              |  | $          | 977 |             |  |               | 17,496,738 |                |  | $             | 175 |        |  | $      | 162,269 |       |  | $ | (41,804  | ) |  | $ | (4,161 | )      |   |  | 3,470,150 |  |  | $ | (38,683 | ) |  | $ | 78,773  |        
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Net loss                                                        |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (55,433  | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (55,433 | )      
|Other comprehensive loss:                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Foreign currency translation adjustment      |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        | 2,032  |   |  |           |  |  |   |         |   |  |   |         | 2,032   |  
|                                                                | Reclassification                             |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        | 2,179  |   |  |           |  |  |   |         |   |  |   |         | 2,179   |  
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Total comprehensive loss                     |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         | (51,222 | )
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Preferred stock dividends                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (117     | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (117    | )      
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Balance, December 31, 2002                                      |                                              |                                   | 195,351 |              |  | $          | 977 |             |  |               | 17,496,738 |                |  | $             | 175 |        |  | $      | 162,269 |       |  | $ | (97,354  | ) |  | $ | 50     |        |   |  | 3,470,150 |  |  | $ | (38,683 | ) |  | $ | 27,434  |        
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Net loss                                                        |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (11,389  | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (11,389 | )      
|Other comprehensive loss:                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Foreign currency translation adjustment      |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        | 74     |   |  |           |  |  |   |         |   |  |   |         | 74      |  
|                                                                | Unrealized loss on investments held for sale |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        | (36    | ) |  |           |  |  |   |         |   |  |   |         | (36     | )
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|                                                                | Total comprehensive loss                     |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         | (11,351 | )
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Repurchase of treasury stock                                    |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  | 18,200    |  |  |   | (18     | ) |  |   | (18     | )      
|Issuance of restricted stock                                    |                                              |                                   |         |              |  |            |     |             |  |               | 140,000    |                |  |               |     |        |  |        | 145     |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   | 145     |        
|Exercise of stock options and warrants                          |                                              |                                   |         |              |  |            |     |             |  |               | 8,215      |                |  |               | 1   |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   | 1       |        
|Stock compensation expense                                      |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        | 204     |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   | 204     |        
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Preferred stock dividends                                       |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   | (115     | ) |  |   |        |        |   |  |           |  |  |   |         |   |  |   | (115    | )      
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        
|Balance, December 31, 2003                                      |                                              |                                   | 195,351 |              |  | $          | 977 |             |  |               | 17,644,953 |                |  | $             | 176 |        |  | $      | 162,618 |       |  | $ | (108,858 | ) |  | $ | 88     |        |   |  | 3,488,350 |  |  | $ | (38,701 | ) |  | $ | 16,300  |        
|                                                                |                                              |                                   |         |              |  |            |     |             |  |               |            |                |  |               |     |        |  |        |         |       |  |   |          |   |  |   |        |        |   |  |           |  |  |   |         |   |  |   |         |        

The accompanying notes are an integral part of
the consolidated financial statements.

19



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |         |        |  
|--------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------- | - | ------- | ------ | ---- | - | ------- | ----- |  | - | ------- | ------ | -
|                      |                                                                                               |                                                        
|                      |                                                                                               | Years Ended December 31,                               
|                      |                                                                                               |                                                        
|                      |                                                                                               | 2003                                                    |   | 2002    |        | 2001
|                      |                                                                                               |                                                         |   |         |        |     
|                      |                                                                                               |                                                        
|                      |                                                                                               | (In thousands)                                         
|Operating Activities: |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Net loss                                                                                      |                                                         | $ | (11,389 | )      |      | $ | (55,433 | )     |  | $ | (1,461  | )     
|                      | Adjustments to reconcile net loss to net cash
    provided by (used in) operating activities: |                                                         |   |         |        |      |   |         |       |  |   |         |       
|                      | Cumulative effect of accounting change                                                        |                                                         |   |        |        |      |   | 26,115  |       |  |   |        |       
|                      | Loss on disposal of fixed assets                                                              |                                                         |   | 103     |        |      |   |        |       |  |   | 305     |       
|                      | Loss (gain) on sale of investments                                                            |                                                         |   | 79      |        |      |   |        |       |  |   | (7,727  | )     
|                      | Loss (gain) on sale of business                                                               |                                                         |   |        |        |      |   | 5,636   |       |  |   | (1,090  | )     
|                      | Stock based compensation                                                                      |                                                         |   | 349     |        |      |   |        |       |  |   |        |       
|                      | Write-down of deferred income                                                                 |                                                         |   | (1,119  | )      |      |   |        |       |  |   |        |       
|                      | Realized foreign currency translation losses                                                  |                                                         |   | 66      |        |      |   | 2,179   |       |  |   |        |       
|                      | Depreciation and amortization                                                                 |                                                         |   | 2,331   |        |      |   | 3,850   |       |  |   | 5,311   |       
|                      | Provision for losses on accounts receivable                                                   |                                                         |   | 330     |        |      |   | 74      |       |  |   | 129     |       
|                      | Inventory write downs                                                                         |                                                         |   |        |        |      |   |        |       |  |   | 800     |       
|                      | Deferred income taxes                                                                         |                                                         |   |        |        |      |   | 6,309   |       |  |   | (1,464  | )     
|                      | Asset impairment                                                                              |                                                         |   | 1,711   |        |      |   | 4,095   |       |  |   | 4,466   |       
|                      | Other non-cash expenses                                                                       |                                                         |   |        |        |      |   | 551     |       |  |   |        |       
|                      | Mark-to-market interest rate swap                                                             |                                                         |   | 188     |        |      |   | (46     | )     |  |   | 194     |       
|                      | Changes in operating assets and liabilities, net
    of dispositions:                         |                                                         |   |         |        |      |   |         |       |  |   |         |       
|                      |                                                                                               | Trade accounts receivable                               |   |         | 1,213  |      |   |         | 841   |  |   |         | 6,395  |  
|                      |                                                                                               | Inventories                                             |   |         | (442   | )    |   |         | 920   |  |   |         | (1,623 | )
|                      |                                                                                               | Prepaid and other assets                                |   |         | 3,883  |      |   |         | 1,438 |  |   |         | (127   | )
|                      |                                                                                               | Trade accounts payable                                  |   |         | (601   | )    |   |         | 1,412 |  |   |         | (399   | )
|                      |                                                                                               | Accrued liabilities                                     |   |         | (5,174 | )    |   |         | 4,530 |  |   |         | (6,828 | )
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      |                                                                                               | Net cash provided by (used in) operating
    activities |   |         | (8,472 | )    |   |         | 2,471 |  |   |         | (3,119 | )
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|Investing Activities: |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Proceeds from the sale of Detection
    Systems, Inc. common stock                            |                                                         |   |        |        |      |   |        |       |  |   | 23,176  |       
|                      | Purchases of property and equipment                                                           |                                                         |   | (1,083  | )      |      |   | (490    | )     |  |   | (1,203  | )     
|                      | Software development costs                                                                    |                                                         |   | (182    | )      |      |   | (495    | )     |  |   | (775    | )     
|                      | Proceeds from the sale of property and equipment                                              |                                                         |   | 1,608   |        |      |   | 40      |       |  |   | 1,515   |       
|                      | Proceeds from sale of businesses                                                              |                                                         |   |        |        |      |   | 28,389  |       |  |   | 2,593   |       
|                      | Proceeds from redemption of marketable securities                                             |                                                         |   | 5,187   |        |      |   |        |       |  |   |        |       
|                      | Purchases of marketable securities                                                            |                                                         |   | (6,801  | )      |      |   |        |       |  |   |        |       
|                      | Earn out payments on prior acquisitions                                                       |                                                         |   | (223    | )      |      |   | (1,123  | )     |  |   | (70     | )     
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Net cash provided by (used in) investing
    activities                                       |                                                         |   | (1,494  | )      |      |   | 26,321  |       |  |   | 25,236  |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|Financing Activities: |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Net repayments on revolving line of credit                                                    |                                                         | $ |        |        |      | $ | (15,012 | )     |  | $ | (20,407 | )     
|                      | Repayments on other debt                                                                      |                                                         |   |        |        |      |   | (809    | )     |  |   | (1,152  | )     
|                      | Repayments on mortgage loan                                                                   |                                                         |   |        |        |      |   |        |       |  |   | (11,500 | )     
|                      | Proceeds from sale leaseback obligation                                                       |                                                         |   |        |        |      |   |        |       |  |   | 6,600   |       
|                      | Issuance of common stock                                                                      |                                                         |   |        |        |      |   |        |       |  |   | 4,148   |       
|                      | Purchase of treasury stock                                                                    |                                                         |   | (18     | )      |      |   |        |       |  |   |        |       
|                      | Payment of preferred stock dividends                                                          |                                                         |   | (115    | )      |      |   | (117    | )     |  |   | (117    | )     
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Net cash used in financing activities                                                         |                                                         |   | (133    | )      |      |   | (15,938 | )     |  |   | (22,428 | )     
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Net increase (decrease) in cash and cash
    equivalents                                      |                                                         |   | (10,099 | )      |      |   | 12,854  |       |  |   | (311    | )     
|                      | Effect of exchange rate changes on cash                                                       |                                                         |   | (30     | )      |      |   | 282     |       |  |   | (140    | )     
|                      | Cash and cash equivalents, beginning of year                                                  |                                                         | $ | 16,436  |        |      | $ | 3,300   |       |  | $ | 3,751   |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Cash and cash equivalents, end of year                                                        |                                                         | $ | 6,307   |        |      | $ | 16,436  |       |  | $ | 3,300   |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Supplemental cash flow information:                                                           |                                                         |   |         |        |      |   |         |       |  |   |         |       
|                      | Cash paid during the year for:                                                                |                                                         |   |         |        |      |   |         |       |  |   |         |       
|                      | Interest                                                                                      |                                                         | $ | 1       |        |      | $ | 1,869   |       |  | $ | 3,465   |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Income taxes                                                                                  |                                                         | $ |        |        |      | $ | 46      |       |  | $ | 462     |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Supplemental schedule of non-cash investing and
    financing:                                |                                                         |   |         |        |      |   |         |       |  |   |         |       
|                      | Purchase of property financed by mortgage                                                     |                                                         | $ |        |        |      | $ |        |       |  | $ | 11,500  |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        
|                      | Issuance of warrants in connection with building
    financing                                |                                                         | $ |        |        |      | $ |        |       |  | $ | 230     |       
|                      |                                                                                               |                                                         |   |         |        |      |   |         |       |  |   |        

The accompanying notes are an integral part of
the consolidated financial statements.

20



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Note 1:     Nature
of Operations and Summary of Significant Accounting
Policies



| |                      
| | ---------------------
| | Basis of Presentation

The accompanying financial statements have been
derived from the accounts of American Building
Control, Inc. and its subsidiaries (the
Company).

On December 20, 2002, the Company sold its
CCTV Business to Honeywell for $36 million, subject to
post-closing adjustments plus the transfer of certain
liabilities. The financial statements for all periods present
the CCTV Business as discontinued operations.



| |                     
| | --------------------
| | Nature of Operations

Following the Honeywell Asset Sale in December of
2002, the Company, which is headquartered in Lewisville, Texas,
is focused on designing, marketing, selling and servicing niche
security products for use in industrial, governmental and
consumer surveillance markets worldwide. The Company has a small
operation based in Switzerland.

The Company has two operating segments: the
Professional Security Group (PSG) whose primary
focus is access control and alarm management products and the
Diversified Sales Group (DSG) which markets products
to the consumer/do-it-yourself business as well as its
industrial video businesses. A third segment, Corporate,
provides human resources, internal audit, legal, financial,
information technologies, accounting and reporting functions for
the entire business. (see Note 13 of the Notes to
Consolidated Financial Statements)



| |                            
| | ---------------------------
| | Principles of Consolidation

The consolidated financial statements include the
accounts of American Building Control, Inc. (formerly known
as Ultrak, Inc.), a Delaware corporation, and its
wholly-owned subsidiaries. These companies are collectively
referred to as the Company. All significant
inter-company balances and transactions have been eliminated in
consolidation.

Local currencies are considered the functional
currencies for the Companys operations outside the United
States. Assets and liabilities are translated into
U.S. Dollars at the rate of exchange in effect at the
balance sheet date. Revenues and expenses are translated into
U.S. Dollars at the average monthly exchange rates
prevailing during the year.



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

The Company considers all highly-liquid
investments with original maturities of three months or less to
be cash equivalents. At December 31, 2003 and 2002, the
Company had approximately $0.2 million and
$1.8 million respectively, in foreign bank accounts.



| |                          
| | -------------------------
| | Trade Accounts Receivable

The Company estimates the collectibility of its
trade accounts receivable. In order to assess the collectibility
of these receivables, the Company monitors the current
creditworthiness of each customer and analyzes the aging of
related past due balances. These evaluations may indicate a
situation in which a certain customer cannot meet its financial
obligations due to deterioration of its financial viability,
credit ratings or bankruptcy. The allowance requirements are
based on current facts and are reevaluated and adjusted as
additional information is received. Trade accounts receivable
are reserved when it is determined the receivable will not be
collected.

21



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



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

In preparing financial statements in conformity
with accounting principles generally accepted in the United
States of America, the Companys management is required to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities on the date of the financial statements and
revenues and expenses during the reporting period. Significant
estimates are used in the calculation of inventory valuation
allowance, provision for bad debts, warranty provisions,
assessing the fair value of goodwill and long-lived assets, and
the valuation allowance for deferred tax assets. Actual results
could differ from those estimates.



| |            
| | -----------
| | Inventories

Inventories are comprised primarily of goods held
for resale and are stated at the lower of cost (first-in, first
out) or market. In order to assess the ultimate realization of
inventories, the Company is required to make judgments as to
future demand requirements compared to current or committed
inventory levels. Allowance requirements generally increase as
the projected demand requirement decreases due to market
conditions, technological and product life cycle changes.

The table below shows the roll forward of the
valuation allowance for inventory (in thousands):

|                   |  |      |        |      |  |      |        |   |  |   |       |  
|------------------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ----- | -
|                   |  | 2003 |        | 2002 |  | 2001
|                   |  |      |        |      |  |     
|Beginning balance  |  | $    | 896    |      |  | $    | 1,603  |   |  | $ | 1,335 |  
|Charged to expense |  |      | 1,695  |      |  |      | 1,239  |   |  |   | 921   |  
|Usage              |  |      | (1,233 | )    |  |      | (1,946 | ) |  |   | (653  | )
|Closing balance    |  | $    | 1,358  |      |  | $    | 896    |   |  | $ | 1,603 |  



| |                       
| | ----------------------
| | Property and Equipment

Property and equipment are recorded at cost and
depreciated using the straight-line method over estimated useful
lives of three to 30 years or, in the case of leasehold
improvements, over the term of the lease, if shorter.



| |                                                  
| | -------------------------------------------------
| | Engineering and Software Development
    Expenses

The Company capitalizes software development
costs. These represent the costs incurred from the time
technological feasibility is established until the software is
ready for use in the Companys products. Engineering and
development costs related to software development are expensed
as incurred. The capitalized costs relate to software which will
become an integral part of the Companys revenue producing
products and are amortized over an estimated useful life of
three to five years in relation to the expected revenues of each
product. Software development costs are regularly reviewed for
impairment, and a loss is recognized when the net realizable
value falls below the unamortized cost. Engineering and
development expenses were $1.3 million, $1.6 million
and $1.1 million for the years ended December 31,
2003, 2002 and 2001, respectively.



| |                      
| | ---------------------
| | Internal Use Software

The Company capitalizes certain external direct
costs of materials and services, internal payroll and related
payroll costs and other qualifying costs incurred with
developing or obtaining internal software. These costs are
amortized over three to eight years.



| |                                                   
| | --------------------------------------------------
| | Accounting for Impairment of Long-Lived
    Assets

Assets that are held and used are analyzed for
impairment whenever events or changes in circumstances indicate
that the carrying amounts may not be recoverable. Impairment is
recognized when the estimated

22



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

undiscounted cash flow generated by those assets
is less than the carrying amounts of such assets. The amount of
impairment is the excess of the carrying amount over the fair
value of such assets. Assets held for sale are carried at the
lower of carrying amount or fair value less selling costs.



| |         
| | --------
| | Goodwill

In performing goodwill impairment analysis, the
Company completes a two step process to determine the amount of
any impairment as of December 31st of each year. The
first step involves comparison of the fair value of the
reporting unit to its carrying value to determine if an
impairment may exist. The second step involves comparison of the
fair value of the goodwill to the carrying value of the
goodwill. Any excess of the carrying value over the fair value
is recorded as an impairment charge. In calculating an
impairment charge, the fair value of a reporting unit is
estimated using discounted cash flow methodology or recent
comparable transactions.



| |             
| | ------------
| | Income Taxes

The Company utilizes the asset and liability
approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed for
differences between the financial statement basis and tax basis
of these assets and liabilities that will result in taxable or
deductible amounts in the future. These amounts are based on
enacted tax laws and rates applicable to the periods in which
the differences are expected to affect taxable income. Deferred
tax assets are recognized when it becomes more likely than not
that the asset will be realized. A valuation allowance is
provided for net assets not expected to be realized.



| |                    
| | -------------------
| | Revenue Recognition

Revenues from product sales are recognized upon
shipment less an estimate for returns. Revenues from product
sales that include installation are recognized when the customer
accepts installation. Revenues from royalties are recognized
over the royalty period. Revenue from software maintenance
contracts is recognized over the one-year term of the agreement.

Return provisions are based upon the
Companys experience with customers and contractual terms
that allow limited returns and price protections.



| |                  
| | -----------------
| | Warranty Reserves

Reserves are provided for the estimated warranty
costs when revenue is recognized. The costs of warranty
obligations are estimated based on warranty policy or applicable
contractual warranty, historical experience of known product
failure rates and use of materials and service delivery charges
incurred in correcting product failures. Specific warranty
accruals may be made if unforeseen technical problems arise. If
actual experience, relative to these factors, adversely differs
from these estimates, additional warranty expense may be
required.

The table below shows the roll forward of
warranty expense for the years ended December 31, 2003,
2002 and 2001 (in thousands):

|                   |  |      |     |      |  |      |     |   |  |   |      |  
|------------------ |  | ---- | --- | ---- |  | ---- | --- | - |  | - | ---- | -
|                   |  | 2003 |     | 2002 |  | 2001
|                   |  |      |     |      |  |     
|Beginning balance  |  | $    | 128 |      |  | $    | 63  |   |  | $ | 95   |  
|Charged to expense |  |      | 116 |      |  |      | 110 |   |  |   | 152  |  
|Usage              |  |      | (60 | )    |  |      | (45 | ) |  |   | (184 | )
|                   |  |      |     |      |  |      |     |   |  |   |      |  
|Closing balance    |  | $    | 184 |      |  | $    | 128 |   |  | $ | 63   |  
|                   |  |      |     |      |  |      |     |   |  |   |      |  

23



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                                                                                  
| | ---------------------------------------------------------------------------------
| | Comprehensive Income (Loss) and Accumulated
    Other Comprehensive Income (Loss)

Comprehensive income (loss) presented in the
statement of stockholders equity consists of net income
(loss), foreign currency translation adjustments and unrealized
gains and losses on investments held for sale.



| |                        
| | -----------------------
| | Income (Loss) Per Share

The Company computes basic income (loss) per
share based on the weighted average number of shares of Common
Stock outstanding. Diluted income (loss) per share includes the
number of additional shares of Common Stock that would have been
outstanding if the potential dilutive effect of the conversion
of stock options, convertible preferred stock and the exercise
of outstanding warrants had been included. For the years ended
December 31, 2003, 2002 and 2001, respectively, all stock
options, preferred shares or warrants were excluded from the
computation of diluted loss per share because the effect would
have been anti-dilutive.



| |                                     
| | ------------------------------------
| | Derivative Financial
    Instruments

The Company reports derivative instruments under
the guidelines of SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This standard
requires derivative financial instruments to be recorded at fair
value. If the derivative is designated as a fair value hedge,
the change in fair value of the derivative and the hedged items
attributable to the hedged risk are recognized in the results of
operations for the current period. If the derivative is
designated as a cash flow hedge, the effective portions of
changes in the fair value of the derivative are recorded in
other comprehensive income and recognized in the results of
operations when the hedged item affects the results of
operations. Ineffective portions of changes in the fair value of
cash flow hedges are recognized in earnings. The Company had an
interest rate swap not accounted for as a cash flow hedge
because the Company had not established its policy for measuring
ineffectiveness. As a result, the changes in fair value at each
reporting date are included in earnings. See Note 8.



| |                      
| | ---------------------
| | Marketable Securities

The Company accounts for its marketable
securities, all of which are designated as available for sale,
using SFAS No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Securities
available for sale are reported at fair value, with unrealized
gains and losses, net of tax, excluded from earnings and
reported as a separate component of stockholders equity.
Realized gains and losses on securities available for sale are
reported as income in the period of sale. The securities held at
December 31, 2003 consisted of callable government
securities from the Federal Home Loan Bank
(FHLB), the Federal National Mortgage Association
(FNMA) and the Federal Home Loan Mortgage
Corporation (FRMC).



| |                         
| | ------------------------
| | Stock-Based Compensation

The Company accounts for stock-based compensation
to employees using the intrinsic value method. Compensation
costs for stock options is measured as the excess, if any, of
the quoted market price of the Companys Common Stock at
the date of grant over the amount an employee must pay to
acquire the stock. The Company has adopted the disclosure-only
provisions of SFAS No. 123, Accounting for
Stock-Based Compensationand its amendment
SFAS No. 148, Accounting for Stock Based
Compensation  Transition and Disclosure.

Option exercise prices generally are equal to the
market price at the date of grant. Shares under grant generally
become exercisable in three equal annual installments beginning
one year after the date of grant and expire after ten years. The
Honeywell Asset Sale triggered the change of control provisions
in the Companys stock option plans that provided for the
immediate vesting of all outstanding stock options.

24



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

No compensation cost is reflected in operations
when options granted under the Companys option plans have
an exercise price equal to the quoted market price of the
Companys common stock on the date of grant. The following
table illustrates the effect on operations and per share data as
if the Company had applied the fair value method.

|                                                                                                                        |  |                          |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                                                        |  |                         
|                                                                                                                        |  | Years Ended December 31,
|                                                                                                                        |  |                         
|                                                                                                                        |  | 2003                     |         | 2002 |  | 2001
|                                                                                                                        |  |                          |         |      |  |     
|Loss from continuing operations before
    cumulative effect of accounting change allocable to common
    stockholders: |  |                          |         |      |  |      |         |   |  |   |        |  
|As reported                                                                                                             |  | $                        | (11,690 | )    |  | $    | (19,282 | ) |  | $ | (3,415 | )
|Deduct: Total stock-based compensation under fair
    value based method for all awards                                 |  |                          | (297    | )    |  |      | (2,541  | ) |  |   | (1,145 | )
|                                                                                                                        |  |                          |         |      |  |      |         |   |  |   |        |  
|Pro forma                                                                                                               |  | $                        | (11,987 | )    |  | $    | (21,823 | ) |  | $ | (4,560 | )
|                                                                                                                        |  |                          |         |      |  |      |         |   |  |   |        |  
|Basic and diluted loss per share from
    continuing operations before cumulative effect of accounting
    change       |  |                          |         |      |  |      |         |   |  |   |        |  
|As reported                                                                                                             |  | $                        | (0.83   | )    |  | $    | (1.37   | ) |  | $ | (0.28  | )
|Pro forma                                                                                                               |  | $                        | (0.85   | )    |  | $    | (1.55   | ) |  | $ | (0.37  | )

The fair value of these options for all periods
presented was estimated at the date of grant using the
Black-Scholes option pricing model with the following
assumptions: expected volatility ranging from 88 to 90 percent;
risk-free interest rates ranging from 3.3 to 3.9 percent;
no dividend yield; and expected lives of one to seven years.

The weighted average fair value per share of
options granted for 2003, 2002 and 2001 was $0.88, $1.04, and
$1.13.

Note 2:     Discontinued
Operations



| |                                                           
| | ----------------------------------------------------------
| | Sale of Net Assets to Honeywell and Related
    Agreements

On December 20, 2002, the Company
consummated the sale of assets and liabilities related to the
CCTV Business (the CCTV business) to Honeywell.
Honeywell purchased substantially all CCTV business-related
assets, business and accounting records and other intellectual
property. Of the Companys employees working in the CCTV
business, approximately 280 became Honeywell employees,
comprised of 150 international and approximately 130
U.S. employees.

Honeywell assumed all liabilities arising after
the closing (other than liabilities retained by the Company as
set forth in the Asset Purchase Agreement) related to the
ownership, use, possession, or condition of the purchased
assets. The liabilities retained by the Company are those that
arise from or relate to the conduct of the business or ownership
of the purchased assets prior to the closing and include, but
are not limited to, liabilities for design defects; product
liability or product warranty; employee benefit plans and
contracts; taxes; environmental laws; laws relating to the
ownership, use, or possession of the purchased assets;
litigation; inter-company payables; infringement of intellectual
property rights; and indebtedness for borrowed money.

The purchase price was $36.0 million in
cash, less a $2.2 million adjustment for a license
agreement with Lectrolarm Custom Systems, Inc.
(Lectrolarm) subject to an additional adjustment and
holdback as described below, and the assumption of liabilities.
On December 20, 2002, Honeywell paid the Company
$28.4 million cash, net of a $5.4 million holdback
payable in three installments over 18 months. The loss on
disposal of the CCTV business was $12.1 million, which
included legal and professional fees of $2.7 million,
$2.2 million in realized accumulated currency losses and
other expenses related to the transaction of $1.6 million.

25



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The sale agreement provided for changes to the
purchase price depending on the final closing book value of the
CCTV Business at the time the sale was complete. Following a
protracted arbitration process, the final purchase price was
increased by $888 thousand. At the closing, Honeywell held
back $5.4 million of the purchase price for purposes of any
post-closing net asset adjustments and for the purposes of
settling indemnity claims against the Company, if any, under the
Asset Purchase Agreement. The $5.4 million holdback, will
be released to the Company in three equal installments, less any
claims, every six months beginning June 2003. All holdback
payments will include interest at the prime rate as set forth in
the Wall Street Journal on the closing date. As of the end of
2003, Honeywell has made the first two of the three installment
payments ($3.6 million), plus the increased purchase price
of $888 thousand in accordance with the arbitrators
report including accrued interest.

The Company entered into a license agreement with
Lectrolarm in order to satisfy a closing condition of the sale.
The license fee was $650,000, of which $250,000 was paid by the
Company in 2002. The $400,000 balance is due in the first
quarter of 2004. The Company assigned the license to Honeywell
and agreed to increase the portion of the purchase price to be
retained by Honeywell by $2.2 million. The
$2.2 million represents the $400,000 balance due on the
license purchase and $1.8 million of royalty expenses that
Honeywell may incur. Any portion of the retained amount not
disbursed to Lectrolarm by Honeywell, plus accrued interest,
will be paid by Honeywell to the Company following the
expiration of the patent in 2005 or termination of the
Lectrolarm license. Because the amount of the refund, if any,
that will be received by the Company cannot be determined, the
Company has not recorded an asset for any amounts related to
Lectrolarm.

The Company agreed not to compete in the CCTV
business for a period of two years. A portion (approximately
$0.3 million) of the purchase price was deferred. The
amount allocated to the non-compete covenant was determined by
an independent valuation. The amount assigned to the non-compete
covenant are being amortized over the 24-month non-compete
period.

The Company entered into a Supply Agreement with
Honeywell (the CCTV Products Supply Agreement) and
is committed to buying certain CCTV products, equipment and
systems from Honeywell for a period of two years. The agreement
will expire in December 2004. Without approval from Honeywell,
the Company may not, during the term of the CCTV Products Supply
Agreement, purchase, acquire or manufacture CCTV products from
any source other than Honeywell. Absent the CCTV Products Supply
Agreement, the Company could acquire CCTV products from other
suppliers at a better price. However, because the non-compete
and supply agreements are in place, the Company does not intend
to pursue alternate suppliers. Based upon the estimated premium
to be paid to Honeywell for CCTV products during the term of the
CCTV Product Supply Agreement, a portion (approximately
$1.8 million) of the purchase price is treated as deferred
income as determined by an independent valuation. The value
assigned to the CCTV Products Supply Agreement is amortized
against cost of sales as sales of products purchased from
Honeywell are made during the 24-month supply agreement. If the
purchase amount falls short of the projection, as occurred in
2003, the deferred income is proportionally adjusted as a credit
to discontinued operations. As of the end of 2003, approximately
$0.5 million of the deferred income was recognized as
credit to cost of goods sold and $1.1 million of the
deferred income was adjusted as credit to discontinued
operations.

Honeywell entered into a sublease under which
Honeywell will sublease approximately half of the office space
and two-thirds of warehouse space at the Companys
Headquarters Facility at 1301 Waters Ridge Drive, Lewisville,
Texas. The initial term of the Sublease Agreement was one year.
Honeywell and the Company entered into a new Sublease in
December 2003, in which Honeywell has extended its tenant status
for six more months, paying approximately $35,000 a month
through June 2004.

Honeywell received an exclusive, royalty-free
license to use certain trademarks, including the Ultrak
trademark, and copyrights related to such trademarks for
perpetuity. Such trademarks and copyrights licensed to Honeywell
were used in connection with the CCTV business.

26



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The discontinued operations were previously
included in the Professional Securities Group segment.
Summarized financial information for the discontinued operations
is as follows (in thousands):

|                                                                                                   |  |                          |        |      |  |      |        |  |  |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | ---- |  | ---- | ------ |  |  | - | ------- | -
|                                                                                                   |  |                         
|                                                                                                   |  | Years Ended December 31,
|                                                                                                   |  |                         
|                                                                                                   |  | 2003                     |        | 2002 |  | 2001
|                                                                                                   |  |                          |        |      |  |     
|Sales                                                                                              |  | $                        | 173    |      |  | $    | 96,752 |  |  | $ | 100,711 |  
|Gross profit                                                                                       |  |                          | (245   | )    |  |      | 33,680 |  |  |   | 33,135  |  
|Operating profit (loss)                                                                            |  |                          | (2,038 | )    |  |      | 2,495  |  |  |   | (968    | )
|Income from discontinued operations net of tax
    expense (benefit) of $(123), $327, and $(1,007) |  |                          | 186    |      |  |      | 1,953  |  |  |   | 1,837   |  



| |                                            
| | -------------------------------------------
| | Fourth Quarter 2000 Restructuring
    Costs

During the fourth quarter of 2000, the Company,
in conjunction with changes in key management personnel, made
several changes in its strategic plan that resulted in
significant expenses. Additionally, based on this new strategic
direction, certain assets were assessed for impairment. The
impacts to the CCTV Business are classified as discontinued
operations and presented below.

The charges to income related to these items are
summarized as follows (in thousands):

|                                        |  |          |        | 
|--------------------------------------- |  | -------- | ------ | 
|                                        |  | December
|                                        |  | 2000    
|                                        |  |         
|Closure of European distribution center |  | $        | 7,246  | 
|Goodwill impairment  France            |  |          | 10,103 | 
|Goodwill impairment  Germany           |  |          | 2,985  | 
|Closure of business  France            |  |          | 2,686  | 
|Inventory write downs                   |  |          | 8,207  | 
|Software development costs              |  |          | 655    | 
|Foreign currency losses                 |  |          | 4,197  | 
|Other                                   |  |          | 237    | 
|                                        |  |          |        | 
|                                        |  | $        | 36,316 | 
|                                        |  |          |        | 

Details of the 2000 accrued restructuring charges
that remained in 2001 and 2002 are as follows (in thousands):

|                                               |  |              |       |          |  |         |        |              |  |   |        |   |  |   |     | 
|---------------------------------------------- |  | ------------ | ----- | -------- |  | ------- | ------ | ------------ |  | - | ------ | - |  | - | --- | 
|                                               |  | Accrued      |       | 2001     |  | Amount  |        | Accrued     
|                                               |  | December 31, |       | Charge   |  | Paid in |        | December 31,
|                                               |  | 2000         |       | (Credit) |  | Cash    |        | 2001        
|                                               |  |              |       |          |  |         |        |             
|Employee severance and termination benefits    |  | $            | 1,899 |          |  | $       | (1,253 | )            |  | $ | (469   | ) |  | $ | 177 | 
|Leased facilities and other terminations costs |  |              | 3,191 |          |  |         | (347   | )            |  |   | (2,371 | ) |  |   | 473 | 
|                                               |  |              |       |          |  |         |        |              |  |   |        |   |  |   |     | 
|                                               |  | $            | 5,090 |          |  | $       | (1,600 | )            |  | $ | (2,840 | ) |  | $ | 650 | 
|                                               |  |              |       |          |  |         |        |              |  |   |        |   |  |   |     | 

|                                               |  |              |     |          |  |         |      |              |  |   |      |   |  |   |   | 
|---------------------------------------------- |  | ------------ | --- | -------- |  | ------- | ---- | ------------ |  | - | ---- | - |  | - | - | 
|                                               |  | Accrued      |     | 2002     |  | Amount  |      | Accrued     
|                                               |  | December 31, |     | Charge   |  | Paid in |      | December 31,
|                                               |  | 2001         |     | (Credit) |  | Cash    |      | 2002        
|                                               |  |              |     |          |  |         |      |             
|Employee severance and termination benefits    |  | $            | 177 |          |  | $       | (116 | )            |  | $ | (61  | ) |  | $ |  | 
|Leased facilities and other terminations costs |  |              | 473 |          |  |         | (167 | )            |  |   | (306 | ) |  |   |  | 
|                                               |  |              |     |          |  |         |      |              |  |   |      |   |  |   |   | 
|                                               |  | $            | 650 |          |  | $       | (283 | )            |  | $ | (367 | ) |  | $ |  | 
|                                               |  |              |     |          |  |         |      |              |  |   |      |   |  |   |   | 

27



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The losses (credits) were classified in
statements of operations as follows (in thousands):

|                           |  |      |      |      |  |   |        |  
|-------------------------- |  | ---- | ---- | ---- |  | - | ------ | -
|                           |  | 2002 |      | 2001
|                           |  |      |      |     
|Cost of sales              |  | $    |     |      |  | $ |       |  
|General and administrative |  |      | (283 | )    |  |   | (1,600 | )
|Asset impairment charges   |  |      |     |      |  |   |       |  
|Foreign exchange losses    |  |      |     |      |  |   |       |  
|                           |  |      |      |      |  |   |        |  
|                           |  | $    | (283 | )    |  | $ | (1,600 | )
|                           |  |      |      |      |  |   |        |  



|        |                       
|------- | ----------------------
|Note 3: | Restructuring Activity

The following tables illustrate the effects of
restructuring activities (in thousands):

|                             |  |               |       |          |  |         |      |               |  |   |        |   |  |   |       | 
|---------------------------- |  | ------------- | ----- | -------- |  | ------- | ---- | ------------- |  | - | ------ | - |  | - | ----- | 
|                             |  | Accrued as of |       | 2003     |  | Amount  |      | Accrued as of
|                             |  | December 31,  |       | Charge   |  | Paid in |      | December 31, 
|                             |  | 2002          |       | (Credit) |  | Cash    |      | 2003         
|                             |  |               |       |          |  |         |      |              
|Ohio plant closure severance |  | $             | 175   |          |  | $       | (66  | )             |  | $ | (109   | ) |  | $ |      | 
|United Kingdom lease         |  |               | 600   |          |  |         | (90  | )             |  |   | (180   | ) |  |   | 330   | 
|Zurich lease                 |  |               | 228   |          |  |         | (148 | )             |  |   | (80    | ) |  |   |      | 
|Severance                    |  |               | 1,249 |          |  |         | 400  |               |  |   | (949   | ) |  |   | 700   | 
|                             |  |               |       |          |  |         |      |               |  |   |        |   |  |   |       | 
|                             |  | $             | 2,252 |          |  | $       | 96   |               |  | $ | (1,318 | ) |  | $ | 1,030 | 
|                             |  |               |       |          |  |         |      |               |  |   |        |   |  |   |       | 

|                                       |  |               |   |          |  |         |       |               |  |   |        |   |  |   |       | 
|-------------------------------------- |  | ------------- | - | -------- |  | ------- | ----- | ------------- |  | - | ------ | - |  | - | ----- | 
|                                       |  | Accrued as of |   | 2002     |  | Amount  |       | Accrued as of
|                                       |  | December 31,  |   | Charge   |  | Paid in |       | December 31, 
|                                       |  | 2001          |   | (Credit) |  | Cash    |       | 2002         
|                                       |  |               |   |          |  |         |       |              
|SAP impairment                         |  | $             |  |          |  | $       | 2,718 |               |  | $ |       |   |  | $ |      | 
|Technology license non-cash impairment |  |               |  |          |  |         | 255   |               |  |   |       |   |  |   |      | 
|Ohio plant closure non-cash impairment |  |               |  |          |  |         | 95    |               |  |   |       |   |  |   |      | 
|Ohio plant closure severance           |  |               |  |          |  |         | 570   |               |  |   | (395   | ) |  |   | 175   | 
|United Kingdom lease                   |  |               |  |          |  |         | 600   |               |  |   |       |   |  |   | 600   | 
|Zurich lease                           |  |               |  |          |  |         | 228   |               |  |   |       |   |  |   | 228   | 
|Severance                              |  |               |  |          |  |         | 2,800 |               |  |   | (1,551 | ) |  |   | 1,249 | 
|                                       |  |               |   |          |  |         |       |               |  |   |        |   |  |   |       | 
|                                       |  | $             |  |          |  | $       | 7,256 |               |  | $ | (2,097 | ) |  | $ | 2,186 | 
|                                       |  |               |   |          |  |         |       |               |  |   |        |   |  |   |       | 

|                       |  |               |     |          |  |         |     |               |  |   |      |   |  |   |   | 
|---------------------- |  | ------------- | --- | -------- |  | ------- | --- | ------------- |  | - | ---- | - |  | - | - | 
|                       |  | Accrued as of |     | 2001     |  | Amount  |     | Accrued as of
|                       |  | January 1,    |     | Charge   |  | Paid in |     | December 31, 
|                       |  | 2001          |     | (Credit) |  | Cash    |     | 2001         
|                       |  |               |     |          |  |         |     |              
|Severance              |  | $             | 364 |          |  | $       | (47 | )             |  | $ | (317 | ) |  | $ |  | 
|California outsourcing |  |               | 6   |          |  |         |    |               |  |   | (6   | ) |  |   |  | 
|                       |  |               |     |          |  |         |     |               |  |   |      |   |  |   |   | 
|                       |  | $             | 370 |          |  | $       | (47 | )             |  | $ | (323 | ) |  | $ |  | 
|                       |  |               |     |          |  |         |     |               |  |   |      |   |  |   |   | 

28



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The losses (credits) were classified in
statements of operations as follows (in thousands):

|                           |  |      |    |      |  |      |       |  |  |   |     |  
|-------------------------- |  | ---- | -- | ---- |  | ---- | ----- |  |  | - | --- | -
|                           |  | 2003 |    | 2002 |  | 2001
|                           |  |      |    |      |  |     
|Cost of sales              |  | $    |   |      |  | $    |      |  |  | $ |    |  
|General and administrative |  |      | 96 |      |  |      | 4,283 |  |  |   | (47 | )
|Assets Impairment Charges  |  |      |   |      |  |      | 2,973 |  |  |   |    |  
|                           |  |      |    |      |  |      |       |  |  |   |     |  
|                           |  | $    | 96 |      |  | $    | 7,256 |  |  | $ | (47 | )
|                           |  |      |    |      |  |      |       |  |  |   |     |  



| |               
| | --------------
| | SAP Impairment

In connection with the Honeywell Asset Sale in
2002, the Companys Board of Directors approved
Managements recommendation to replace SAP, the enterprise
software for its domestic locations, with a new, more cost
effective management reporting system. As the Company determined
that it no longer had the infrastructure to support its
continued investment in SAP. The annual costs to maintain SAP
were approximately $760,000. During the fourth quarter of 2002,
the Company recorded an impairment charge for its corporate
segment of $2.7 million to write-down the value of the SAP
system to its estimated fair value of $450,000.



| |                              
| | -----------------------------
| | Technology License Impairment

In the fourth quarter of 2002, the MDI business
abandoned the development of products related to its technology
license with a third party and took a $255,000 impairment charge
to write-off the remaining value of its license. The impairment
was initiated by the restructuring of the licensors
corporate structure that eliminated access to critical technical
support services and positioned the licensor as a possible
direct competitor with MDI.



| |                          
| | -------------------------
| | Closure of the Ohio Plant

On June 5, 2002, the Company announced the
closure of its manufacturing facility in Carroll, Ohio (the
Ohio Plant) after evaluating all aspects of the
closure, including operational and economic considerations.
Closure costs recorded during the second quarter of 2002 were
$665,000, including accrued severance compensation of $570,000
for 50 Ohio Plant employees. During 2002, the Company paid
approximately $395,000 in severance costs in connection with the
closure of the Ohio Plant. There were additional payments of
approximately $109,000 paid during the first two quarters of
2003.



| |                     
| | --------------------
| | United Kingdom Lease

In the Honeywell Asset Sale, Honeywell did not
assume the lease for the Companys Warrington (Manchester)
facility in the United Kingdom. During 2003, the Company was in
discussion with the landlord for a possible settlement on the
remaining lease commitment, which extends through 2011 but is
terminable in 2006. In addition, the Company has listed the
property for a sublease arrangement with a local Warrington Real
Estate firm. At the end of 2002, the Company accrued $600,000 to
cover the contractual liabilities for the balance of the term of
the lease. At the end of 2003, approximately $330,000 was left
on the balance sheet for the remaining lease obligation, after
reducing the estimated cost of settlement by $90,000 due to the
favorable progress in the settlement negotiations. During the
first quarter of 2004, the Company reached a final settlement
with the landlord. The final settlement was for $330,000 and is
due to be completely paid in June 2004.

29



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |             
| | ------------
| | Zurich Lease

During the third quarter of 2002, the
Companys former CEO, Mr. Zenger, authorized the
execution of a five-year lease (terminable after three years)
for executive office space in Zurich, Switzerland. After
Mr. Zengers departure from the Company, at the end of
2002, there were no further plans to utilize the space. In
December 2002, the Company recorded a charge to operations of
$228,000 representing the remaining obligation under the
abandoned lease. In May 2003, the Company entered into a
settlement agreement to terminate the lease and paid the
landlord $80,000.



| |                                       
| | --------------------------------------
| | Executive and Management
    Severance

At the end of 2002, the Company decided to sever
a number of executives including the past two CEOs
(Mr. George Broady and Mr. Niklaus Zenger), the Chief
Operating Officer, the Senior Vice-President of the domestic
sales group and the Vice-President of Marketing and recorded
severance charges of approximately $2.8 million.
Mr. Broadys severance, $1,210,000, will be paid out
over a period of three years beginning in January 2003.
Mr. Zengers severance of approximately $850,000 was
paid in 2002. Severance of $321,000 for the former Senior
Vice-President of the domestic sales group and severance for
other management of $380,000 were paid in 2002. In June 2003,
the Company recognized a $400,000 severance liability for seven
employees of its Corporate Staff.

In November 2003, the Company terminated the
employment of its prior CEO, Mr. Bryan Tate. The Company
has not accrued any amounts for Mr. Tates separation.
The Company is currently in discussions with Mr. Tate
regarding a possible severance arrangement.

In January 2004, the Company reached final
settlement agreements with all former executives, excluding
Mr. Tate, and paid off their remaining severance and
severed all employment ties with Mr. Broady, who remains a
stockholder of ABC.



| |                         
| | ------------------------
| | Activities Prior to 2001

During the third quarter of 2000, the Company
incurred charges of $1,286,000 related to the separation of
three former executives and severance obligations related to the
outsourcing of manufacturing operations in California.

30



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



|        |                          
|------- | -------------------------
|Note 4: | Trade Accounts Receivable

Supplemental information on net trade accounts
receivable (in thousands):

|                                      |  |              |       |      |  |   |       |  
|------------------------------------- |  | ------------ | ----- | ---- |  | - | ----- | -
|                                      |  |             
|                                      |  | December 31,
|                                      |  |             
|                                      |  | 2003         |       | 2002
|                                      |  |              |       |     
|Gross trade accounts receivable       |  | $            | 4,205 |      |  | $ | 5,357 |  
|Less: allowance for doubtful accounts |  |              | (721  | )    |  |   | (402  | )
|                                      |  |              |       |      |  |   |       |  
|                                      |  | $            | 3,484 |      |  | $ | 4,955 |  
|                                      |  |              |       |      |  |   |       |  

Allowance for doubtful trade accounts (in
thousands):

|                             |  |            |       |            |  |            |     |            |  |   |        |   |  |   |     | 
|---------------------------- |  | ---------- | ----- | ---------- |  | ---------- | --- | ---------- |  | - | ------ | - |  | - | --- | 
|                             |  | Balance at |       |            |  |            |     | Balance at
|                             |  | Beginning  |       | Charged to |  | Deductions |     | End of    
|                             |  | of Period  |       | Operations |  | from A/R   |     | Period    
|                             |  |            |       |            |  |            |     |           
|Year ended December 31, 2003 |  | $          | 402   |            |  | $          | 319 |            |  | $ |       |   |  | $ | 721 | 
|Year ended December 31, 2002 |  |            | 282   |            |  |            | 120 |            |  |   |       |   |  |   | 402 | 
|Year ended December 31, 2001 |  |            | 1,864 |            |  |            | 4   |            |  |   | (1,586 | ) |  |   | 282 | 



|        |                       
|------- | ----------------------
|Note 5: | Property and Equipment

The components of property and equipment are as
follows (in thousands):

|                           |  |              |  |              |        |      |  |   |        |  
|-------------------------- |  | ------------ |  | ------------ | ------ | ---- |  | - | ------ | -
|                           |  |              |  |             
|                           |  |              |  | December 31,
|                           |  |              |  |             
|                           |  | Useful Lives |  | 2003         |        | 2002
|                           |  |              |  |              |        |     
|Machinery and equipment    |  | 3-7 years    |  | $            | 3,891  |      |  | $ | 5,688  |  
|Furniture and fixtures     |  | 3-7 years    |  |              | 1,443  |      |  |   | 1,836  |  
|Internal use software      |  | 3-8 years    |  |              | 599    |      |  |   | 450    |  
|Software development costs |  | 3-5 years    |  |              | 3,097  |      |  |   | 3,020  |  
|Buildings and land         |  | 20-30 years  |  |              | 1,000  |      |  |   | 8,030  |  
|                           |  |              |  |              |        |      |  |   |        |  
|                           |  |              |  |              | 10,030 |      |  |   | 19,024 |  
|Accumulated depreciation   |  |              |  |              | (7,220 | )    |  |   | (8,506 | )
|                           |  |              |  |              |        |      |  |   |        |  
|                           |  |              |  | $            | 2,810  |      |  | $ | 10,518 |  
|                           |  |              |  |              |        |      |  |   |        |  



|        |             
|------- | ------------
|Note 6: | Income Taxes

The provision (benefit) for taxes consists of the
following (in thousands):

|         |  |                         |   |      |  |      |   |  |  |   |     | 
|-------- |  | ----------------------- | - | ---- |  | ---- | - |  |  | - | --- | 
|         |  |                        
|         |  | Year Ended December 31,
|         |  |                        
|         |  | 2003                    |   | 2002 |  | 2001
|         |  |                         |   |      |  |     
|Federal  |  |                         |   |      |  |      |   |  |  |   |     | 
|Current  |  | $                       |  |      |  | $    |  |  |  | $ |    | 
|Deferred |  |                         |  |      |  |      |  |  |  |   |    | 
|State    |  |                         |  |      |  |      |  |  |  |   | 41  | 
|Foreign  |  |                         |  |      |  |      |  |  |  |   | 63  | 
|         |  |                         |   |      |  |      |   |  |  |   |     | 
|         |  | $                       |  |      |  | $    |  |  |  | $ | 104 | 
|         |  |                         |   |      |  |      |   |  |  |   |     | 

31



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Income (loss) before provision (benefit) from
taxes consists of the following (in thousands):

|              |  |                         |         |      |  |      |         |   |  |   |        |  
|------------- |  | ----------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|              |  |                        
|              |  | Year Ended December 31,
|              |  |                        
|              |  | 2003                    |         | 2002 |  | 2001
|              |  |                         |         |      |  |     
|United States |  | $                       | (8,261  | )    |  | $    | (18,562 | ) |  | $ | (3,567 | )
|Foreign       |  |                         | (3,314  | )    |  |      | (603    | ) |  |   | 373    |  
|              |  |                         |         |      |  |      |         |   |  |   |        |  
|              |  | $                       | (11,575 | )    |  | $    | (19,165 | ) |  | $ | (3,194 | )
|              |  |                         |         |      |  |      |         |   |  |   |        |  

The Companys effective income tax rate
differed from the U.S. Federal statutory rate as follows:

|                                     |  |                         |       |      |  |      |       |    |  |  |       |   
|------------------------------------ |  | ----------------------- | ----- | ---- |  | ---- | ----- | -- |  |  | ----- | --
|                                     |  |                        
|                                     |  | Year Ended December 31,
|                                     |  |                        
|                                     |  | 2003                    |       | 2002 |  | 2001
|                                     |  |                         |       |      |  |     
|U.S. Federal statutory rate          |  |                         | (34.0 | )%   |  |      | (34.0 | )% |  |  | (34.0 | )%
|State tax effect                     |  |                         | (3.3  | )    |  |      | (4.8  | )  |  |  | 0.4   |   
|Goodwill amortization and impairment |  |                         |      |      |  |      |      |    |  |  | 7.7   |   
|Other non-deductible expenses        |  |                         | 0.3   |      |  |      | 0.3   |    |  |  | 2.1   |   
|Adjust prior year receivable         |  |                         |      |      |  |      | (2.3  | )  |  |  |      |   
|Change in valuation allowance        |  |                         | 46.4  |      |  |      | 44.6  |    |  |  | 25.0  |   
|Other, net                           |  |                         | (9.1  | )    |  |      | (3.8  | )  |  |  | 2.1   |   
|                                     |  |                         |       |      |  |      |       |    |  |  |       |   
|                                     |  |                         | 0.0   | %    |  |      | 0.0   | %  |  |  | 3.3   | % 
|                                     |  |                         |       |      |  |      |       |    |  |  |       |   

The components of deferred tax assets and
liabilities are as follows (in thousands):

|                          |                                      |              |   |         |   |  |   |         |  
|------------------------- | ------------------------------------ | ------------ | - | ------- | - |  | - | ------- | -
|                          |                                      |             
|                          |                                      | December 31,
|                          |                                      |             
|                          |                                      | 2003         |   | 2002   
|                          |                                      |              |   |        
|Deferred tax assets:      |                                      |              |   |         |   |  |   |        
|                          | Inventories                          |              | $ | 480     |   |  | $ | 373     |  
|                          | Accounts receivable                  |              |   | 215     |   |  |   | 229     |  
|                          | Accrued expenses                     |              |   | 539     |   |  |   | 1,050   |  
|                          | Net operating loss carry forwards    |              |   | 21,661  |   |  |   | 18,265  |  
|                          | Goodwill amortization and impairment |              |   | 4,401   |   |  |   | 3,950   |  
|                          | Foreign deferred tax assets          |              |   | 11,543  |   |  |   | 10,377  |  
|                          | Other, net                           |              |   | 1,074   |   |  |   | 1,162   |  
|                          |                                      |              |   |         |   |  |   |        
|                          | Gross deferred tax assets            |              |   | 39,913  |   |  |   | 35,406  |  
|Deferred tax liabilities: |                                      |              |   |         |   |  |   |        
|                          | Property and equipment               |              |   | (160    | ) |  |   | (951    | )
|                          |                                      |              |   |         |   |  |   |        
|                          | Gross deferred tax liabilities       |              |   | (160    | ) |  |   | (951    | )
|                          | Valuation allowance                  |              |   | (39,753 | ) |  |   | (34,455 | )
|                          |                                      |              |   |         |   |  |   |        
|                          | Net deferred tax asset               |              |   |        |   |  |   |        |  
|                          |                                      |              |   |         |   |  |   |        

At December 31, 2003, the Company had
federal, state and foreign net operating loss carry forwards of
approximately $58.5 million, $51.3 million and
$30.7 million, respectively. Federal net operating loss
carry forwards expire in 2021 and 2023. The state net operating
loss carry forwards expire in 2005 to 2023.

The Company maintains a valuation allowance to
adjust the total deferred tax assets to net realizable value in
accordance with SFAS No. 109. As a result of the sale of
the CCTV Business to Honeywell and an

32



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

evaluation in 2002 of the realizability of income
tax benefits from future operations, the Company increased its
valuation allowance to equal the net deferred tax asset.
Ultimate realization of the deferred tax asset is dependent
upon, among other factors, the Companys ability to
generate sufficient taxable income within the carry forward
periods (2005-2023) and is subject to change depending on tax
laws in effect in years in which carry forwards are used.

Note 7:     Goodwill

A summary of the changes in goodwill, by segment,
is as follows (in thousands)

|                                        |                                                         |     |        |         |   |       |     |   |  |   |        |         |  
|--------------------------------------- | ------------------------------------------------------- | --- | ------ | ------- | - | ----- | --- | - |  | - | ------ | ------- | -
|                                        |                                                         | PSG |        | DSG     |   | Total
|                                        |                                                         |     |        |         |   |      
|Net carrying value at December 31, 2001 |                                                         | $   | 19,098 |         |   | $     | 729 |   |  | $ | 19,827 |        
|                                        | Earn out payments on prior acquisitions                 |     |        | 887     |   |       |     |  |  |   |        | 887     |  
|                                        | Cumulative effect of accounting change                  |     |        | (14,762 | ) |       |     |  |  |   |        | (14,762 | )
|                                        | Impairment losses                                       |     |        | (620    | ) |       |     |  |  |   |        | (620    | )
|                                        |                                                         |     |        |         |   |       |     |   |  |   |        |        
|Net carrying value at December 31, 2002 |                                                         |     | 4,603  |         |   |       | 729 |   |  |   | 5,332  |        
|                                        | Settlement of earn out payment on prior
    acquisition |     |        | (100    | ) |       |     |  |  |   |        | (100    | )
|                                        | Impairment losses                                       |     |        | (1,711  | ) |       |     |  |  |   |        | (1,711  | )
|                                        |                                                         |     |        |         |   |       |     |   |  |   |        |        
|Net carrying value at December 31, 2003 |                                                         | $   | 2,792  |         |   | $     | 729 |   |  | $ | 3,521  |        
|                                        |                                                         |     |        |         |   |       |     |   |  |   |        |        

Under SFAS No. 142, goodwill impairment
is deemed to exist if the net book value of a reporting unit
exceeds its estimated fair value. A reporting unit is an
operating segment or one level below an operating segment
referred to as a component. The Professional Security Group
(PSG) segment has three reporting units: MDI
Security Systems (MDI), MDI International (MDI
Switzerland) and ABM Data Systems (ABM). The
Diversified Sales Group (DSG) segment has three
reporting units: the consumer/do-it-yourself business
(SecurityandMore), Industrial Vision Source
(IVSTM) and Mobile Video Products
(MVPTM). There is also a reporting unit
for the corporate segment.

In performing its impairment analysis under
SFAS No. 142, the Company completes a two step process
to determine the amount of the impairment. The first step
involves comparison of the fair value of the reporting unit to
its carrying value to determine if an impairment may exist. The
second step involves comparison of the fair value of the
goodwill to the carrying value of the goodwill. Any excess of
the carrying value over the fair value is recorded as an
impairment charge. In calculating an impairment charge, the fair
value of a reporting unit is estimated using discounted cash
flow methodology or recent comparable transactions.

The Company completed its transitional impairment
analysis as required by SFAS No. 142 as of
January 1, 2002. As a result, the Company recorded a
non-cash charge of approximately $14.8 million in the
U.S. MDI reporting unit to reduce the carrying value of its
goodwill. This charge is reflected as a cumulative effect of an
accounting change attributable to continuing operations.
Additionally, the Company recorded a non-cash charge of
approximately $11.3 million related to the CCTV business,
which is reflected as a cumulative effect of an accounting
change attributable to discontinued operations.

In connection with the Companys annual
impairment analysis as of December 31, 2002, the fair value
of the Companys ABM reporting unit was concluded to be
less than the carrying value. Accordingly, an impairment charge
was recorded in the fourth quarter of 2002 of $620,000.

As part of the impairment test as of
December 31, 2003, the Company determined that an
impairment charge was necessary for the MDI Switzerland
reporting unit and the ABM reporting unit. The 2003 charges
included goodwill impairments of $1,061,000 related to MDI
Switzerland and $650,000 related to ABM.

33



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The table below illustrates the impact of
SFAS No. 142 had it been effective and adopted for all
periods presented. Net loss from continuing operations adjusted
to exclude the amortization expense related to goodwill, is as
follows (in thousands):

|                                                                                  |  |                          |         |      |  |      |         |   |  |   |        |  
|--------------------------------------------------------------------------------- |  | ------------------------ | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                                  |  |                         
|                                                                                  |  | Years Ended December 31,
|                                                                                  |  |                         
|                                                                                  |  | 2003                     |         | 2002 |  | 2001
|                                                                                  |  |                          |         |      |  |     
|Reported net loss from continuing operations
    allocable to common stockholders |  | $                        | (11,690 | )    |  | $    | (19,282 | ) |  | $ | (3,415 | )
|Goodwill amortization                                                             |  |                          |        |      |  |      |        |   |  |   | 833    |  
|                                                                                  |  |                          |         |      |  |      |         |   |  |   |        |  
|Adjusted net loss from continuing operations
    allocable to common stockholders |  | $                        | (11,690 | )    |  | $    | (19,282 | ) |  | $ | (2,582 | )
|                                                                                  |  |                          |         |      |  |      |         |   |  |   |        |  

Note 8:     Other
Intangible Assets

Intangible assets consist of the following (in
thousands):

|                                          |                                          |              |  |                   |  |              |     |          |  |   |      |      |   |   |    |    | 
|----------------------------------------- | ---------------------------------------- | ------------ |  | ----------------- |  | ------------ | --- | -------- |  | - | ---- | ---- | - | - | -- | -- | 
|                                          |                                          |              |  |                  
|                                          |                                          |              |  | December 31, 2003
|                                          |                                          | Weighted     |  |                  
|                                          |                                          | Average      |  | Gross             |  |              |     | Net     
|                                          |                                          | Amortization |  | Carrying          |  | Accumulated  |     | Carrying
|                                          |                                          | (Years)      |  | Value             |  | Amortization |     | Value   
|                                          |                                          |              |  |                   |  |              |     |         
|Intangible assets subject to amortization |                                          |              |  |                   |  |              |     |          |  |   |      |      |   |   |    |   
|                                          | Patents and trademarks                   |              |  | 17.1              |  |              | $   | 98       |  |   | $    | (49  | ) |   | $  | 49 | 
|                                          | Loan origination and sale leaseback fees |              |  | 3.0               |  |              |     | 549      |  |   |      | (549 | ) |   |    |   | 
|                                          |                                          |              |  |                   |  |              |     |          |  |   |      |      |   |   |    |   
|                                          |                                          |              |  |                   |  | $            | 647 |          |  | $ | (598 | )    |   | $ | 49 |   
|                                          |                                          |              |  |                   |  |              |     |          |  |   |      |      |   |   |    |   

|                                          |                                             |              |  |                   |  |              |     |          |  |   |      |      |   |   |     |     | 
|----------------------------------------- | ------------------------------------------- | ------------ |  | ----------------- |  | ------------ | --- | -------- |  | - | ---- | ---- | - | - | --- | --- | 
|                                          |                                             |              |  |                  
|                                          |                                             |              |  | December 31, 2002
|                                          |                                             | Weighted     |  |                  
|                                          |                                             | Average      |  | Gross             |  |              |     | Net     
|                                          |                                             | Amortization |  | Carrying          |  | Accumulated  |     | Carrying
|                                          |                                             | (Years)      |  | Value             |  | Amortization |     | Value   
|                                          |                                             |              |  |                   |  |              |     |         
|Intangible assets subject to amortization |                                             |              |  |                   |  |              |     |          |  |   |      |      |   |   |     |    
|                                          | Patents and trademarks                      |              |  | 17.1              |  |              | $   | 98       |  |   | $    | (42  | ) |   | $   | 56  | 
|                                          | Licensing agreements                        |              |  | 3.7               |  |              |     | 80       |  |   |      | (80  | ) |   |     |    | 
|                                          | Loan origination and sale leaseback fees(1) |              |  | 3.0               |  |              |     | 549      |  |   |      | (275 | ) |   |     | 274 | 
|                                          |                                             |              |  |                   |  |              |     |          |  |   |      |      |   |   |     |    
|                                          |                                             |              |  |                   |  | $            | 727 |          |  | $ | (397 | )    |   | $ | 330 |    
|                                          |                                             |              |  |                   |  |              |     |          |  |   |      |      |   |   |     |    

Amortization expense related to intangible assets
subject to amortization was $281,000, $596,000, and $399,000 for
the years ended December 31, 2003, 2002 and 2001,
respectively. In December 2002, the Company wrote off its
remaining unamortized loan origination fees of approximately
$240,000 in connection with the payoff of its debt with Frost
National Bank.

34



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

The aggregate estimated future amortization
expense for intangible assets as of December 31, 2003 is as
follows (in thousands):

|           |  |   |    | 
|---------- |  | - | -- | 
|2004       |  | $ | 7  | 
|2005       |  |   | 7  | 
|2006       |  |   | 7  | 
|2007       |  |   | 7  | 
|2008       |  |   | 7  | 
|Thereafter |  |   | 14 | 
|           |  |   |    | 
|Total      |  | $ | 49 | 
|           |  |   |    | 

Note 9:     Other
Charges



| |              
| | -------------
| | Royalty Claim

On April 21, 2003, the Company reached a
settlement in the amount of approximately $625,000 related to a
patent infringement claim. An initial payment of $156,000,
representing 25% of the settlement was paid by the Company
during April 2003. The remaining amount, plus interest, is being
paid in monthly installments of $21,000 over the ensuing
24 months and is reflected as accrued royalties on the
balance sheet.

Note 10:     Financing
Arrangements



| |               
| | --------------
| | Line of Credit

As of the end of 2003, the Company does not have
a domestic line of credit or loan facility. The Company
maintains a small credit facility in Switzerland with a balance
less than $250,000 to fund the working capital needs of its
Swiss business.

On April 22, 2002, the Company received
funding from Frost National Bank on a three-year,
$15.0 million credit facility (the Frost Credit
Facility) at prime plus 0.75% and settled its indebtedness
with all previous lenders. The Company used approximately
$11.6 million in net proceeds from the Honeywell Asset Sale
to eliminate the balance of the Frost Credit Facility.



| |                   
| | ------------------
| | Building Financing

During 1998, the Companys Headquarters
Facility was built. Through December 31, 2000, the Company
leased its facility under a synthetic lease classified for book
purposes as an operating lease. In January 2001, the Company
terminated its lease and purchased its Headquarters Facility
from the lessor with an $11.5 million mortgage.

The building and surrounding 14 acres of
land were sold to Briarwood Capital Corporation
(Briarwood) for $6.6 million in December 2001
in a sale-leaseback transaction. The Company began leasing its
Headquarters Facility in January 2002 at a cost of
$60,000 per month for a term of 30 months. Under the
terms of the lease agreement, the Company had an option to
purchase the property for $6.9 million by giving notice on
or before November 30, 2003. As a closing condition of the
Honeywell Asset Sale, the Companys lessor, Briarwood
demanded and obtained an increase in the purchase option from
$6.9 million to $7.55 million and required the Company
to pay the last six months of rent in advance. The Company
elected not to exercise the purchase option in November 2003.
Both the building assets and the liability of $6.6 million
were removed from the balance sheet at the end of 2003.

The Company has accounted for the transaction as
a financing transaction and recorded the proceeds from the sale
as a financing obligation, classified the lease payments as
interest expense and continued to carry

35



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

the value of the land and building on its books
and record depreciation. The $4,466,000 difference between the
net book value and the sales proceeds was recorded in the
statement of operations as an asset impairment charge in
December 2001.

In connection with the sale leaseback
transaction, the Company granted warrants to purchase
200,000 shares of the Common Stock to the Companys
former Chairman and Chief Executive Officer, Mr. George
Broady in exchange for his guarantee of the rent payments, as
required by Briarwood. Additionally the Company granted warrants
to purchase 100,000 shares of the Common Stock to
Briarwood. (see Note 12)



| |                   
| | ------------------
| | Interest Rate Swap

The Company maintained an interest rate swap
which was used to limit the effect of increases in interest
rates on its prior debt instruments. The swap had a notional
amount of $5.0 million and expired in February 2004. At
December 31, 2003, the swap had a negative fair value of
$52,000 and is included as a component of other current
liabilities. In the first two months of 2004, the Company paid
$52,000 for the final settlement of this interest rate swap
contract.

Note 11:     Commitments
and Contingencies



| |                 
| | ----------------
| | Operating Leases

The Company leases office and warehouse space, as
well as data processing and office equipment, under long-term,
non-cancelable leases.

Minimum future rental payments, excluding
subleasing income, including $480 thousand prepaid rent for the
Lewisville facility for 2004, for all long-term non-cancelable
operating leases are presented below (in thousands):

|           |  |              |       | 
|---------- |  | ------------ | ----- | 
|           |  | Years Ending
|           |  | December 31,
|           |  |             
|2004       |  | $            | 903   | 
|2005       |  |              | 154   | 
|2006       |  |              | 85    | 
|Thereafter |  |              |      | 
|           |  |              |       | 
|           |  | $            | 1,142 | 
|           |  |              |       | 

Total rent expense was as follows (in thousands):

|     |  |              |     | 
|---- |  | ------------ | --- | 
|     |  | Years Ending
|     |  | December 31,
|     |  |             
|2003 |  | $            | 544 | 
|2002 |  |              | 710 | 
|2001 |  |              | 604 | 



| |                           
| | --------------------------
| | Aasset Security Litigation

In December 2003, the Company was awarded a
2.5 million Euro judgment (approximately $3.0 million)
in a lawsuit filed in France against Aasset Security. The
Company filed the lawsuit in 2000 against Aasset Security and
its principals for unfair trade practices after the Company
acquired an Aassets predecessors firm in 1997. The
Company is represented by French counsel on a contingency basis.
The contingency fee to be paid to outside counsel will be
between 35% to 40% of the payments received, depending upon the
timing of the receipts. In February 2004, a French appeal court
upheld the initial ruling and ruled that Aasset pay one

36



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

million Euro of the judgment immediately, while
another appeal process by Aasset proceeds. The Company is
working through the French judicial system to pursue the
recovery of the judgment but cannot ascertain the timing of
collection, which might not be imminent. Aasset Security through
its attorneys has filed for a further appeal, a process that
likely takes up to two years. No benefit has been recorded for
this gain contingency.

Note 12:     Stockholders
Equity



| |                                      
| | -------------------------------------
| | Private Placement of Common
    Stock

In October 2001, the Company completed a private
placement to the Companys former CEO, Mr. Zenger, of
2,337,700 shares of its Common Stock for net proceeds of
approximately $4.1 million. At a special meeting held on
November 30, 2001, the stockholders approved the granting
of an option to sell an additional 293,879 shares of Common
Stock to Mr. Zenger for $558,370. This option has not been
exercised.



| |                
| | ---------------
| | Preferred Stock

The Companys Series A Preferred Stock
(the Preferred Stock) formerly earned dividends at
the rate of 12% per annum, payable quarterly. All dividends
accrue whether or not such dividends have been declared and
whether or not there are any profits, surplus or other funds of
the Company legally available for payment.

The Company may, at any time, redeem all or any
portion of the outstanding Shares of Preferred Stock at
$5.00 per share plus the pro-rata portion of any unpaid
dividends. The holder of the Preferred Stock may convert any or
all of the 195,351 shares of Preferred Stock into shares of
the Common Stock at any time at a conversion rate equal to
2.08 shares of Common Stock per share of Preferred Stock or
a total of 406,981 shares of Common Stock.

On December 19, 2003, the Company entered
into a standstill agreement with Victoria and Eagle Strategic
Fund (VESF), agreeing not to redeem the preferred shares for
eighteen months and permanently lowering the dividend rate to
200 basis points over one-year LIBOR. In addition to owning
all preferred shares, VESF held approximately 2 million
shares of common stock of the Company as of December 31,
2003.



| |         
| | --------
| | Warrants

In connection with a personal guarantee given for
the Headquarters Facility financing (see Note 10), the
Companys Board of Directors granted warrants to
Mr. Broady authorizing him to purchase 200,000 shares
of the Companys Common Stock at $1.64 per share. The
market price on the date of grant was $1.43. These warrants were
valued at $130,000, expire in December 2004 and were amortized
over the term of the related financing obligation. The fair
value of these warrants was estimated using the Black-Scholes
option-pricing model with the following assumptions: expected
volatility of 84%, a risk-free interest rate of 3.0%, no
dividend yield and an expected life of two years.

On December 13, 2001, the Board of Directors
granted Briarwood, the Companys landlord, warrants to
purchase 100,000 shares of the Common Stock at an exercise
price of $1.55 per share in connection with the building
and land financing (see Note 10). These warrants expire ten
years from the grant date, were valued at $100,000 and are
amortized over the term of the related financing obligation. The
fair value of the warrants was estimated at the date of grant
using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 81%, a risk free interest
rate of 4.4%, no dividend yield and an expected life of five
years.

On October 19, 2001, in connection with the
private placement to Mr. Zenger, the Board of Directors
granted the placement agent a warrant to purchase
200,000 shares of the Common Stock at $1.25 per share.
This warrant was not exercised and expired on October 18,
2002.

37



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |            
| | -----------
| | Stock Grant

In April 2003, the Compensation Committee of the
Board of Directors approved a grant of 140,000 restricted
shares of common stock to the Companys then Chief
Executive Officer, Mr. Bryan Tate. 70,000 shares were
to vest as of January 1, 2004, and 70,000 shares were
to vest as of January 1, 2005. The value of the stock on
the date of grant was approximately $145,000 and was recorded as
an increase to common stock and additional paid-in capital. The
Company recognized $145,000 as compensation expense during 2003
related to this grant.



| |                   
| | ------------------
| | Stock Option Grant

In April 2003, Mr. George Broady was
re-instated as an assistant to the then Chief Executive Officer,
and received a grant of 300,000 stock options exercisable
at $0.95 and expiring on January 15, 2005. These options
vested immediately upon issuance and resulted in a $204,000
increase in additional paid-in capital and compensation expense
in the second quarter of 2003.

Note 13:     Stock-Based
Compensation



| |             
| | ------------
| | Tender Offer

On June 11, 2001, the Company filed a Tender
Offer Statement to offer to exchange all options held by option
holders who had not received options after December 9, 2000
(the Eligible Options) for new options (the
New Options) to purchase shares of Common Stock to
be granted under the 1988 Non-Qualified Stock Option Plan (the
1988 Plan). The Eligible Options were accepted for
exchange and cancelled at the following exchange ratios:

|                               |  |                                               
|------------------------------ |  | ----------------------------------------------
|Eligible Option Exercise Price |  | New Options Issued                            
|                               |  |                                               
|Up to $6.62                    |  | 1 New Option per 1 Eligible Option (1:1)      
|$6.63 to $8.25                 |  | 0.75 New Option per 1 Eligible Option (0.75:1)
|$8.26 and above                |  | 0.50 New Option per 1 Eligible Option (0.50:1)

There were 159,980 stock options tendered in
connection with the exchange offer. On January 14, 2002,
the Company granted 106,215 New Options at an exercise price of
$1.49 per share.



| |                          
| | -------------------------
| | 2002 Stock Incentive Plan

On June 7, 2002, the Companys
stockholders voted to amend and replace the 1988 Plan with the
2002 Stock Incentive Plan (the 2002 Plan). The
purpose of the 2002 Plan is to allow the Company to provide more
attractive equity incentives to retain existing employees, to
attract prospective employees and to obtain the services of
directors and consultants. The 2002 Plan covers
5,000,000 shares of Common Stock, an increase of
2,800,000 shares over the amount available under the 1988
Plan. To the extent that these options are exercised in the
future, they will decrease the existing stockholders
percentage equity ownership in the Company and will be dilutive
to existing stockholders. The issuance and exercise of
additional options could have the effect of diluting the
earnings per share and book value per share of the outstanding
Common Stock. At December 31, 2003, there were
3,441,105 shares available for grant under the 2002 Plan.



| |                                     
| | ------------------------------------
| | 1997 Incentive Stock Option
    Plan

The Companys 1997 Incentive Stock Option
Plan (the 1997 Plan) covers options for up to
400,000 shares of Common Stock. Options under the 1997 Plan
are awarded based on the Companys ability to meet one or
more definitive performance measurements for a fiscal year. The
1997 Plan is a formula-based plan administered by the
Compensation Committee of the Board of Directors. Options
granted under the 1997 Plan are limited to 1% of the outstanding
Common Stock. On December 31, 2003, there were
396,880 shares of Common Stock available for grant under
the 1997 Plan.

38



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)



| |                     
| | --------------------
| | Compensation Expense

Option prices are equal to the market price at
the date of grant. Shares under grant generally become
exercisable in three equal annual installments beginning one
year after the date of grant and expire after ten years. The
Honeywell Asset Sale triggered the change of control provisions
in the Companys stock option plans that provided for the
immediate vesting of all outstanding stock options.

Information with respect to options outstanding
and changes for each of the three years in the period ended
December 31, is as follows:

|                                   |           |        |           |            |   |        |      |          |  |        |           |          |   |   |      |      |  |  |           |          |   |   |      |      | 
|---------------------------------- | --------- | ------ | --------- | ---------- | - | ------ | ---- | -------- |  | ------ | --------- | -------- | - | - | ---- | ---- |  |  | --------- | -------- | - | - | ---- | ---- | 
|                                   |           |        |           |            |   |       
|                                   |           | 2003   |           | 2002       |   | 2001  
|                                   |           |        |           |            |   |       
|                                   |           |        |           | Weighted   |   |        |      | Weighted |  |        |           | Weighted
|                                   |           |        |           | Average    |   |        |      | Average  |  |        |           | Average 
|                                   |           |        |           | Exercise   |   |        |      | Exercise |  |        |           | Exercise
|                                   |           | Shares |           | Price      |   | Shares |      | Price    |  | Shares |           | Price   
|                                   |           |        |           |            |   |        |      |          |  |        |           |         
|Outstanding at beginning of year   |           |        | 1,642,541 |            |   | $      | 3.35 |          |  |        | 1,136,486 |          |   | $ | 4.69 |      |  |  | 1,118,569 |          |   | $ | 7.34 |     
|                                   | Granted   |        |           | 1,154,000  |   |        |      | 1.12     |  |        |           | 867,915  |   |   |      | 1.34 |  |  |           | 620,851  |   |   |      | 1.89 | 
|                                   | Exercised |        |           | (8,215     | ) |        |      | 1.10     |  |        |           |         |   |   |      |     |  |  |           |         |   |   |      |     | 
|                                   | Forfeited |        |           | (1,226,311 | ) |        |      | 3.59     |  |        |           | (361,860 | ) |   |      | 2.73 |  |  |           | (602,934 | ) |   |      | 6.66 | 
|                                   |           |        |           |            |   |        |      |          |  |        |           |          |   |   |      |      |  |  |           |          |   |   |      |     
|Outstanding at end of year         |           |        | 1,562,015 |            |   | $      | 1.52 |          |  |        | 1,642,541 |          |   | $ | 3.35 |      |  |  | 1,136,486 |          |   | $ | 4.69 |     
|                                   |           |        |           |            |   |        |      |          |  |        |           |          |   |   |      |      |  |  |           |          |   |   |      |     
|Options exercisable at end of year |           |        | 588,015   |            |   | $      | 2.18 |          |  |        | 1,642,541 |          |   | $ | 3.35 |      |  |  | 200,936   |          |   | $ | 8.47 |     
|                                   |           |        |           |            |   |        |      |          |  |        |           |          |   |   |      |      |  |  |           |          |   |   |      |     

Additional information about stock options at
December 31, 2003 is summarized as follows:

|                         |  |                     |           |                     |  |          |           |             |  |          |      |  |  |  |         |  |  |  |      | 
|------------------------ |  | ------------------- | --------- | ------------------- |  | -------- | --------- | ----------- |  | -------- | ---- |  |  |  | ------- |  |  |  | ---- | 
|                         |  |                     |           |                    
|                         |  | Options Outstanding |           | Options Exercisable
|                         |  |                     |           |                    
|                         |  |                     |           | Weighted            |  | Weighted |           |             |  | Weighted
|                         |  |                     |           | Average             |  | Average  |           |             |  | Average 
|                         |  | Number              |           | Remaining           |  | Exercise |           | Number      |  | Exercise
|Range of Exercise Prices |  | Outstanding         |           | Contractual Life    |  | Price    |           | Exercisable |  | Price   
|                         |  |                     |           |                     |  |          |           |             |  |         
|$0.01 to $1.05           |  |                     | 620,000   |                     |  |          | 9.3 years |             |  |          | 0.97 |  |  |  | 150,000 |  |  |  | 1.04 | 
|$1.06 to $1.20           |  |                     | 201,000   |                     |  |          | 8.5 years |             |  |          | 1.10 |  |  |  | 201,000 |  |  |  | 1.10 | 
|$1.21 to $1.30           |  |                     | 229,000   |                     |  |          | 9.5 years |             |  |          | 1.22 |  |  |  | 10,000  |  |  |  | 1.27 | 
|$1.31 to $1.50           |  |                     | 352,775   |                     |  |          | 9.4 years |             |  |          | 1.36 |  |  |  | 97,775  |  |  |  | 1.49 | 
|$1.50 to $20.00          |  |                     | 159,240   |                     |  |          | 0.5 years |             |  |          | 5.00 |  |  |  | 129,240 |  |  |  | 5.80 | 
|                         |  |                     |           |                     |  |          |           |             |  |          |      |  |  |  |         |  |  |  |      | 
|                         |  |                     | 1,562,015 |                     |  |          | 8.4 years |             |  |          | 1.52 |  |  |  | 588,015 |  |  |  | 2.18 | 
|                         |  |                     |           |                     |  |          |           |             |  |          |      |  |  |  |         |  |  |  |      | 

Note 14:     Related
Party Transactions

The Company engaged the firm Neonova for $15,000,
plus travel related expenses, to assess its network and
telecommunication infrastructure. Neonova completed an
assessment report in December 2003. Neonova is wholly owned
subsidiary of Digitel. Bryan Tate, ABCs previous CEO, was
a majority owner and Chairman of Digitel.

Note 15:     Segment
Disclosures and Foreign Operations

The Companys underlying accounting records
are maintained on a legal entity basis for government and public
reporting requirements. Segment disclosures are consistent with
internal management reporting, and the segment disclosures for
prior years have been reclassified to be consistent with the
current year

39



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

presentation. The Company evaluates performance
based operating profit (loss). The accounting policies of these
segments are the same as those described in the summary of
significant accounting policies (Note 1).

The Company has two operating segments: the
Professional Security Group (PSG) and the
Diversified Sales Group (DSG).

PSG is comprised of MDI, MDI Switzerland and ABM.
MDI is the anchor of the access control business. ABM sells
alarm management software to central monitoring stations that
are owned by either organizations for their own use, such as
large universities, or commercial operators such as surveillance
companies.

DSG is comprised of the SecurityandMore,
IVSTM and MVPTM. SecurityandMore sells
easy-to-install surveillance monitoring kits through its call
center, the www.SecurityandMore.com web-site and national
retail customers. IVSTM distributes video products to
manufacturing and research facilities. MVPTM sells
monitoring and recording devices to public transit vehicles.
Both IVSTM and MVPTM sell third-party
products as well as the Companys own branded products.

In addition to PSG and DSG, the corporate
functions of human resources, legal, financial, information
technologies, accounting, reporting and executive are located in
Lewisville, Texas. Also included is a service center that
repairs DSG and PSG products, as well as other manufactured
products.

|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|-------------------------------------------- |  | --- | ------ | --- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------- | -
|                                             |  | PSG |        | DSG |  | Corporate |        | Total
|                                             |  |     |        |     |  |           |        |      
|2003                                         |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Total revenue                                |  | $   | 16,995 |     |  | $         | 22,579 |       |  | $ | 265     |   |  | $ | 39,840  |  
|Inter-segment revenue                        |  |     | (60    | )   |  |           |       |       |  |   | (11     | ) |  |   | (71     | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Revenue from external customers              |  | $   | 16,935 |     |  | $         | 22,579 |       |  | $ | 254     |   |  | $ | 39,769  |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Gross profit                                 |  | $   | 6,562  |     |  | $         | 5,194  |       |  | $ | 302     |   |  | $ | 12,058  |  
|Selling, general and administrative expenses |  |     | 9,360  |     |  |           | 3,320  |       |  |   | 7,115   |   |  |   | 19,795  |  
|Asset and goodwill impairment                |  |     | 1,711  |     |  |           |       |       |  |   |        |   |  |   | 1,711   |  
|Depreciation and amortization expense        |  |     | 1,009  |     |  |           | 107    |       |  |   | 872     |   |  |   | 1,988   |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Operating loss                               |  | $   | (5,518 | )   |  | $         | 1,767  |       |  | $ | (7,685  | ) |  | $ | (11,436 | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|2002                                         |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Total revenue                                |  | $   | 21,825 |     |  | $         | 25,389 |       |  | $ | 615     |   |  | $ | 47,829  |  
|Inter-segment revenue                        |  |     | (3,404 | )   |  |           | (12    | )     |  |   | (171    | ) |  |   | (3,587  | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Revenue from external customers              |  | $   | 18,421 |     |  | $         | 25,377 |       |  | $ | 444     |   |  | $ | 44,242  |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Gross profit                                 |  | $   | 7,163  |     |  | $         | 5,266  |       |  | $ | 18      |   |  | $ | 12,447  |  
|Selling, general and administrative expenses |  |     | 6,559  |     |  |           | 2,100  |       |  |   | 15,034  |   |  |   | 23,693  |  
|Asset and goodwill impairment                |  |     | 620    |     |  |           |       |       |  |   | 2,718   |   |  |   | 3,338   |  
|Depreciation and amortization expense        |  |     | 360    |     |  |           | 66     |       |  |   | 1,915   |   |  |   | 2,341   |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  
|Operating loss                               |  | $   | (376   | )   |  | $         | 3,100  |       |  | $ | (19,649 | ) |  | $ | (16,925 | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |         |  

40



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  
|-------------------------------------------- |  | --- | ------ | --- |  | --------- | ------ | ----- |  | - | ------- | - |  | - | ------ | -
|                                             |  | PSG |        | DSG |  | Corporate |        | Total
|                                             |  |     |        |     |  |           |        |      
|2001                                         |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  
|Total revenue                                |  | $   | 24,042 |     |  | $         | 42,979 |       |  | $ | 1,128   |   |  | $ | 68,149 |  
|Inter-segment revenue                        |  |     | (6,400 | )   |  |           |       |       |  |   | (752    | ) |  |   | (7,152 | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  
|Revenue from external customers              |  | $   | 17,642 |     |  | $         | 42,979 |       |  | $ | 376     |   |  | $ | 60,997 |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  
|Gross profit                                 |  | $   | 6,314  |     |  | $         | 10,883 |       |  | $ | (434    | ) |  | $ | 16,763 |  
|Selling, general and administrative expenses |  |     | 3,653  |     |  |           | 3,534  |       |  |   | 9,274   |   |  |   | 16,461 |  
|Asset and goodwill impairment                |  |     |       |     |  |           |       |       |  |   | 4,466   |   |  |   | 4,466  |  
|Depreciation and amortization expense        |  |     | 261    |     |  |           | 150    |       |  |   | 4,083   |   |  |   | 4,494  |  
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  
|Operating loss                               |  | $   | 2,400  |     |  | $         | 7,199  |       |  | $ | (18,257 | ) |  | $ | (8,658 | )
|                                             |  |     |        |     |  |           |        |       |  |   |         |   |  |   |        |  

A reconciliation of total assets per segment to
the consolidated balance sheet is as follows:

|                        |  |              |        |      |  |   |        | 
|----------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                        |  |             
|                        |  | December 31,
|                        |  |             
|                        |  | 2003         |        | 2002
|                        |  |              |        |     
|PSG                     |  | $            | 5,145  |      |  | $ | 10,928 | 
|DSG                     |  |              | 5,328  |      |  |   | 5,767  | 
|Corporate               |  |              | 15,282 |      |  |   | 32,088 | 
|Discontinued Operations |  |              | 81     |      |  |   | 1,833  | 
|                        |  |              |        |      |  |   |        | 
|                        |  | $            | 25,836 |      |  | $ | 50,616 | 
|                        |  |              |        |      |  |   |        | 

Geographic information (in thousands):

|       |               |                          |        |        |  |      |        |        |  |   |        |        | 
|------ | ------------- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|       |               |                         
|       |               | Years Ended December 31,
|       |               |                         
|       |               | 2003                     |        | 2002   |  | 2001
|       |               |                          |        |        |  |     
|Sales: |               |                          |        |        |  |      |        |        |  |   |        |       
|       | United States |                          | $      | 37,721 |  |      | $      | 43,093 |  |   | $      | 59,047 | 
|       | Switzerland   |                          |        | 2,048  |  |      |        | 1,149  |  |   |        | 1,950  | 
|       |               |                          |        |        |  |      |        |        |  |   |        |       
|       |               | $                        | 39,769 |        |  | $    | 44,242 |        |  | $ | 60,997 |       
|       |               |                          |        |        |  |      |        |        |  |   |        |       

Note 16:     Asset
Sales

On July 27, 2001, the Company sold its
industrial furnace camera business to Diamond Power
International, Inc. for cash consideration of
$2.6 million. The assets sold consist primarily of accounts
receivable, inventories, fixed assets, patents, trademarks and
other intangibles. The transaction resulted in a gain of
$1.3 million. The industrial furnace camera business was
located in Carroll, Ohio and supplied specialized camera
monitoring equipment used in furnace and related industrial
applications.

In January 2001, Company tendered its 21%
interest in Detection Systems, Inc. for $24.0 million,
which represented a price of $18 per share. The total gain
on sale of this investment was $7.7 million, net of
$0.8 million in commissions to Mr. Broady, the
Companys former Chairman and CEO and the write off of
goodwill of $1.5 million.

Note 17:     Major
Customers and Suppliers

One of the Companys customers, a prime
contractor of U.S. federal government projects, accounted
for approximately 8% of total PSG segment sales in 2003, 10% in
2002 and 14% in 2001. Another prime

41



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

contractor of U.S. federal government
projects accounted for approximately 8% of the total PSG segment
sales in 2003.

In 2001, Sams Club accounted for
approximately 41% of the total DSG segment sales. In October
2001, Sams Club discontinued carrying a substantial
portion of this segments products. Costco, another major
national retailer, accounted for approximately 25% of total DSG
segment sales in 2003. Loss of this customer would have a
material adverse effect on DSGs operations.

Hitron, Inc. and Sony were the
Companys major suppliers for electronic video products
during 2003, 2002 and 2001. Ameritron Inc. was the
Companys largest supplier of access control equipment in
2002 and 2001. Honeywell is contractually the only supplier for
the video components of access control projects. Loss of any one
of these suppliers, other than Honeywell, could result in
short-term supply problems and a possible loss in sales.

Note 18:     Fair
Value of Financial Instruments

The estimated fair value of financial instruments
has been determined using available market information and
appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop
estimates of fair value. Accordingly, the estimates presented
herein are not necessarily indicative of the amounts that the
Company would realize in a current market sale.

The following methods and assumptions were used
to estimate the fair value of each class of financial
instruments for which it is practical to estimate that value.
The fair value of cash, cash equivalents, accounts receivable
and accounts payable approximate their fair value based on the
short maturities of these instruments.



| |                      
| | ---------------------
| | Marketable Securities

During 2003, the Company purchased
$3.6 million in callable government securities from the
Federal Home Loan Bank (FHLB), the Federal
National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FRMC). The Company
has classified these investments as available for sale. Market
value is based on the quoted market price at the end of the
period. The following table summarizes these securities (dollars
in thousands):

|         |      |        |  |          |       |          |  |           |           |            |  |        |           |  |  |   |       |  |  |   |    |  |  |   |       | 
|-------- | ---- | ------ |  | -------- | ----- | -------- |  | --------- | --------- | ---------- |  | ------ | --------- |  |  | - | ----- |  |  | - | -- |  |  | - | ----- | 
|Security |      | Coupon |  | Callable |       | Maturity |  | Amortized |           | Unrealized |  | Market
|Type     |      | Rate   |  | Date     |       | Date     |  | Cost      |           | Loss       |  | Value 
|         |      |        |  |          |       |          |  |           |           |            |  |       
|         | FHLB |        |  |          | 6.50% |          |  |           | 3/15/2004 |            |  |        | 3/15/2017 |  |  | $ | 574   |  |  | $ | 17 |  |  | $ | 557   | 
|         | FHLB |        |  |          | 6.59% |          |  |           | 8/6/2004  |            |  |        | 8/6/2014  |  |  |   | 127   |  |  |   | 3  |  |  |   | 124   | 
|         | FNMA |        |  |          | 5.50% |          |  |           | 4/16/2004 |            |  |        | 4/16/2018 |  |  |   | 510   |  |  |   | 10 |  |  |   | 500   | 
|         | FNMA |        |  |          | 6.25% |          |  |           | 2/17/2004 |            |  |        | 2/17/2017 |  |  |   | 118   |  |  |   | 2  |  |  |   | 116   | 
|         | FNMA |        |  |          | 5.63% |          |  |           | 2/23/2004 |            |  |        | 2/23/2014 |  |  |   | 77    |  |  |   | 2  |  |  |   | 75    | 
|         | FRMC |        |  |          | 6.35% |          |  |           | 5/15/2004 |            |  |        | 5/15/2016 |  |  |   | 129   |  |  |   | 2  |  |  |   | 127   | 
|         |      |        |  |          |       |          |  |           |           |            |  |        |           |  |  |   |       |  |  |   |    |  |  |   |       | 
|         |      |        |  |          |       |          |  |           |           |            |  |        |           |  |  | $ | 1,535 |  |  | $ | 36 |  |  | $ | 1,499 | 
|         |      |        |  |          |       |          |  |           |           |            |  |        |           |  |  |   |       |  |  |   |    |  |  |   |       | 

42



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.


NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS  (Continued)

Note 19:     Quarterly
Operating Results (unaudited)

|                             |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|---------------------------- |  | ------- | ------ | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------ | -
|                             |  | First   |        | Second  |  | Third   |        | Fourth 
|                             |  | Quarter |        | Quarter |  | Quarter |        | Quarter
|                             |  |         |        |         |  |         |        |        
|2003:                        |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net sales                    |  | $       | 11,395 |         |  | $       | 9,847  |         |  | $ | 10,668 |   |  | $ | 7,859  |  
|Gross profit                 |  |         | 3,623  |         |  |         | 2,460  |         |  |   | 3,825  |   |  |   | 2,150  |  
|Net loss                     |  |         | (2,661 | )       |  |         | (4,322 | )       |  |   | (1,110 | ) |  |   | (3,411 | )
|Net loss per share, basic:   |  | $       | (0.19  | )       |  | $       | (0.31  | )       |  | $ | (0.08  | ) |  | $ | (0.23  | )
|                             |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  
|Net loss per share, diluted: |  | $       | (0.19  | )       |  | $       | (0.31  | )       |  | $ | (0.08  | ) |  | $ | (0.23  | )
|                             |  |         |        |         |  |         |        |         |  |   |        |   |  |   |        |  

|                             |  |         |         |         |  |         |        |         |  |   |        |   |  |   |         |  
|---------------------------- |  | ------- | ------- | ------- |  | ------- | ------ | ------- |  | - | ------ | - |  | - | ------- | -
|                             |  | First   |         | Second  |  | Third   |        | Fourth 
|                             |  | Quarter |         | Quarter |  | Quarter |        | Quarter
|                             |  |         |         |         |  |         |        |        
|2002:                        |  |         |         |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net sales                    |  | $       | 9,771   |         |  | $       | 11,861 |         |  | $ | 11,089 |   |  | $ | 11,521  |  
|Gross profit                 |  |         | 2,902   |         |  |         | 3,303  |         |  |   | 3,451  |   |  |   | 2,791   |  
|Net loss                     |  |         | (27,341 | )       |  |         | (2,993 | )       |  |   | (1,636 | ) |  |   | (23,463 | )
|Net loss per share, basic:   |  | $       | (1.95   | )       |  | $       | (0.21  | )       |  | $ | (0.12  | ) |  | $ | (1.67   | )
|                             |  |         |         |         |  |         |        |         |  |   |        |   |  |   |         |  
|Net loss per share, diluted: |  | $       | (1.95   | )       |  | $       | (0.21  | )       |  | $ | (0.12  | ) |  | $ | (1.67   | )
|                             |  |         |         |         |  |         |        |         |  |   |        |   |  |   |         |  

43



---



##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

The Companys management, with the
participation of the Companys principal executive officer
and principal financial officer, evaluated the effectiveness of
the Companys disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) promulgated under
the Securities Exchange Act of 1934, as amended) as of the end
of the fiscal year ended December 31, 2003. Based on this
evaluation, the Companys principal executive officer and
principal financial officer have concluded that the
Companys disclosure controls and procedures were effective
as of the end of the fiscal year ended December 31, 2003 to
ensure that information that is required to be disclosed by the
Company in the reports if files or submits under the Securities
Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the
SECs rules and forms. There were various changes in the
Companys internal controls associated with the
implementation and conversion to a new accounting software
system in the fourth quarter of 2003. The Company expects that
the new accounting software system will improve internal
controls and financial reporting.




PART III






|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of
    Registrant

The information required by this item is
incorporated by reference from the Companys Proxy
Statement for its 2004 Annual Meeting of Stockholders to be
filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2003.






|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

The information required by this item is
incorporated by reference from the Companys Proxy
Statement for its 2004 Annual Meeting of Stockholders to be
filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2003.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

The information required by this item is
incorporated by reference from the Companys Proxy
Statement for its 2004 Annual Meeting of Stockholders to be
filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2003.






|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

The information required by this item is
incorporated by reference from the Companys Proxy
Statement for its 2004 Annual Meeting of Stockholders to be
filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2003.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

The information required by this item is
incorporated by reference from the Companys Proxy
Statement for its 2004 Annual Meeting of Stockholders to be
filed with the SEC within 120 days after the end of the
fiscal year ended December 31, 2003.

44



---



##### Table of Contents






PART IV






|         |                                                           
|-------- | ----------------------------------------------------------
|Item 15. | Exhibits, Financial Statements and Reports
    on Form 8-K

Financial Statements

The following financial statements of American
Building Control are filed with this report and can be found at
Item 8 of this Form 10-K:



| |                                                                                                            
| | -----------------------------------------------------------------------------------------------------------
| | Report of the Independent Certified Public
    Accountants                                                 
|
| | Consolidated Balance Sheets as of
    December 31, 2003 and 2002                                           
|
| | Consolidated Statements of Operations for the
    years ended December 31, 2003, 2002 and 2001             
|
| | Consolidated Statement of Stockholders
    Equity for the years ended December 31, 2003, 2002
    and 2001
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002 and 2001             
|
| | Notes to Consolidated Financial Statements                                                                 

Financial Statement Schedules

All schedules for which provision is made in the
applicable accounting regulations of the SEC have been omitted
as not required or not applicable, or the information required
has been included elsewhere by reference in the financial
statements and related notes.

Reports on Form 8-K

|            |  |                                                                                                                                                  
|----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------
|Filing Date |  | Description                                                                                                                                      
|            |  |                                                                                                                                                  
|12/24/2003  |  | On December 24, 2003, a report was filed
    detailing the Standstill Agreement between Victoria and Eagle
    Strategic Fund and the Registrant.
|11/14/2003  |  | On November 14, 2003, a report was filed
    furnishing the Registrants third quarter 2003 earnings.                                            
|11/10/2003  |  | On November 10, 2003, a report was filed
    announcing changes to the Registrants Management and Board
    of Directors.                       

45



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on behalf by the
undersigned, thereunto duly authorized.



| |                                
| | -------------------------------
| | AMERICAN BUILDING CONTROL, INC.



| |     |                   
| | --- | ------------------
| | By: | /s/ DANNY W. MILLS

| |                                          
| | -----------------------------------------
| |                                          
| | Danny W. Mills                           
| | President and Chief Executive
    Officer

Dated: April 9, 2004

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                     |  |                                                                                                                                      |  |                      |  | 
|------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------------ |  | -------------------- |  | 
|                                    
|/s/ CARLO R. LOICarlo R. Loi         |  | Chairman of the Board                                                                                                                |  | Dated: April 9, 2004
|                                    
|/s/ DANNY W. MILLSDanny W. Mills     |  | President, Chief Executive Officer (Principal
    Executive Officer)                                                                 |  | Dated: April 9, 2004
|                                    
|/s/ JON D. GREENWOODJon D. Greenwood |  | Senior Vice-President, Secretary, Treasurer and
    Interim-Chief Financial Officer (Principal Financial and
    Accounting Officer) |  | Dated: April 9, 2004
|                                    
|/s/ LANCE BORVANSKYLance Borvansky   |  | Director                                                                                                                             |  | Dated: April 9, 2004
|                                    
|/s/ JOHN C. MACAULAYJohn C. Macaulay |  | Director                                                                                                                             |  | Dated: April 9, 2004

46



---



##### Table of Contents



INDEX TO EXHIBITS

|            |    |             |  |                                                                                                                                                                                                                                                                                          
|----------- | -- | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 3  | .1          |  | Certificate of Incorporation of the Company, as
    amended to December 20, 2002 (filed as Exhibit 3.4 to
    the Companys Form 10-K for the year ended
    December 31, 2002)                                                                                                          
|            | 3  | .2          |  | By-Laws of the Company, as amended to
    June 7, 2002 (filed as Exhibit 3.7 to the
    Companys Form 10-K for the year ended
    December 31, 2002)                                                                                                                                    
|            | 4  | .1          |  | Form of certificate representing shares of the
    Common Stock (filed as Exhibit 4.1 to the Companys
    Registration Statement on Form S-2, (Registration
    No. 333-02891))                                                                                                         
|            | 10 | .1          |  | Amended and Restated Ultrak, Inc. 1988
    Non-Qualified Stock Option Plan, as of June 1, 2001 (filed
    as Exhibit 10.43 to the Companys Form 10-K for
    the year ended December 31, 2001)(+)                                                                                       
|            | 10 | .2          |  | Amendment No. 1 to the Amended and Restated
    Ultrak, Inc. 1988 Non-Qualified Stock Option Plan effective
    as of December 4, 2001 (filed as Exhibit 10.47 to the
    Companys Form 10-K for the year ended
    December 31, 2001)(+)                                               
|            | 10 | .3          |  | Ultrak, Inc. 1997 Incentive Stock Option
    Plan (filed as Exhibit 10.1 to the Companys
    Form 10-Q for the quarter ended March 31, 1997)(+)                                                                                                                                         
|            | 10 | .4          |  | Ultrak, Inc. 2002 Stock Incentive Plan
    (filed as Exhibit B to the Companys definitive proxy
    statement for the 2002 annual meeting of stockholders)(+)                                                                                                                           
|            | 10 | .5          |  | Employment Agreement, effective January 1,
    2002, between the Company and Chris Sharng (filed as
    Exhibit 10.45 to the Companys Form 10-K for the
    year ended December 31, 2001)(+)                                                                                            
|            | 10 | .6          |  | Amendment to Employment Agreement, effective
    August 25, 2002, between the Company and Chris Sharng
    (filed as Exhibit 10.6 to the Companys Form 10-K
    for the year ended December 31, 2002)(+)                                                                                
|            | 10 | .7          |  | Release Agreement, dated December 31, 2002,
    between the Company and Chris Sharng (filed as Exhibit 10.7
    to the Companys Form 10-K for the year ended
    December 31, 2002)(+)                                                                                                  
|            | 10 | .8          |  | Employment Agreement, effective July 1,
    2002, between the Company and Karen Austin (filed as
    Exhibit 10.8 to the Companys Form 10-K for the
    year ended December 31, 2002)(+)                                                                                                
|            | 10 | .9          |  | Release Agreement, dated December 31, 2002,
    between the Company and Karen Austin (filed as Exhibit 10.9
    to the Companys Form 10-K for the year ended
    December 31, 2002)(+)                                                                                                  
|            | 10 | .10         |  | Agreement, dated January 19, 2004, between
    the Company and Karen S. Austin.(*)(+)                                                                                                                                                                                                    
|            | 10 | .11         |  | Employment Agreement, effective January 1,
    2002, between the Company and Wendy Diddell (filed as
    Exhibit 10.44 to the Companys Form 10-K for the
    year ended December 31, 2001)(+)                                                                                           
|            | 10 | .12         |  | Agreement, dated January 19, 2004, between
    the Company and Wendy Diddell.(*)(+)                                                                                                                                                                                                      
|            | 10 | .13         |  | Severance Agreement, dated December 4, 2001,
    between Ultrak Operating, L.P., the Company, and George K.
    Broady (filed as Exhibit 10.46 to the Companys
    Form 10-K for the year ended December 31, 2001)(+)                                                                   
|            | 10 | .14         |  | Full and Final Release of Claims, dated as of
    January 1, 2004, between the Company and George
    Broady.(*)(+)                                                                                                                                                                      
|            | 10 | .15         |  | Agreement, dated February 2, 2004, between
    the Company and John Cannon.(*)(+)                                                                                                                                                                                                        
|            | 10 | .16         |  | Lease Agreement, dated December 17, 2001,
    between Ultrak Operating, L.P. and Briarwood Waters Ridge, LP
    (filed as Exhibit 10.15 to the Companys
    Form 10-K for the year ended December 31, 2002)                                                                             
|            | 10 | .17         |  | Consent to Sublease Agreement and First Amendment
    to Lease Agreement, dated December 20, 2002, among Ultrak
    Operating, L.P., Briarwood Waters Ridge LP, and Pittway
    Corporation. (filed as Exhibit 10.16 to the Companys
    Form 10-K for the year ended December 31, 2002)
|            | 10 | .18         |  | Warrant Agreement, dated January 14, 2002,
    between the Company and George K. Broady (filed as
    Exhibit 10.50 to the Companys Form 10-K for the
    year ended December 31, 2001)                                                                                                 
|            | 10 | .19         |  | Asset Purchase Agreement among the Company, the
    Companys subsidiaries and Honeywell
    International, Inc. (filed as Annex A to the
    Companys definitive proxy statement for the
    December 20, 2002 special meeting of the stockholders)                                    



---



##### Table of Contents



|            |    |             |  |                                                                                                                                                                                                                                                                                                                   
|----------- | -- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |    | Description
|            |    |            
|            | 10 | .20         |  | Letter Agreement, dated November 26, 2002,
    amending the Asset Purchase Agreement among the Company, the
    Companys subsidiaries, and Honeywell
    International, Inc. (filed as Annex E to the
    Companys definitive proxy statement for the
    December 20, 2002 special meeting of the stockholders)
|            | 10 | .21         |  | Amendment to Asset Purchase Agreement, dated
    December 5, 2002, among the Company, the Companys
    subsidiaries, and Honeywell International, Inc. (filed as
    Annex B to the Companys definitive proxy statement
    for the December 20, 2002 special meeting of the
    stockholders)                  
|            | 10 | .22         |  | Amended License Agreement, dated December 1,
    2002, between the Company and Lectrolarm Custom
    Systems, Inc. (filed as Annex A to the Supplement,
    dated December 6, 2002, to the Companys definitive
    proxy statement for the December 20, 2002 special meeting
    of the stockholders)            
|            | 10 | .23         |  | Transition Services Agreement, dated
    December 20, 2002, among the Company, certain of the
    Companys subsidiaries and Pittway Corporation
    (Pittway) (filed as Exhibit 10.35 to the
    Companys Form 10-K for the year ended
    December 31, 2002)                                                 
|            | 10 | .24         |  | CCTV Products Supply Agreement, dated
    December 20, 2002, between the Company and Pittway (filed
    as Exhibit 10.36 to the Companys Form 10-K for
    the year ended December 31, 2002)                                                                                                                     
|            | 10 | .25         |  | Sublease Agreement, dated December 20, 2002,
    between Ultrak Operating, L.P. and Pittway (filed as
    Exhibit 10.37 to the Companys Form 10-K for the
    year ended December 31, 2002)                                                                                                                      
|            | 10 | .26         |  | Trademark and Copyright License Agreement, dated
    December 20, 2002, between the Company and Pittway (filed
    as Exhibit 10.38 to the Companys Form 10-K for
    the year ended December 31, 2002)                                                                                                          
|            | 10 | .27         |  | Shared Intellectual Property License Agreement,
    dated December 20, 2002, between the Company and Pittway
    (filed as Exhibit 10.39 to the Companys
    Form 10-K for the year ended December 31, 2002)                                                                                                     
|            | 10 | .28         |  | Access Control Supply Agreement, dated
    December 20, 2002, between Ultrak Operating, L.P. and
    Pittway (filed as Exhibit 10.40 to the Companys
    Form 10-K for the year ended December 31, 2002)                                                                                                         
|            | 10 | .29         |  | Employment Agreement dated December 18,
    2003, between Danny Mills and the Company.(*)(+)                                                                                                                                                                                                                      
|            | 14 | .1          |  | Code of Ethics(*)                                                                                                                                                                                                                                                                                                 
|            | 21 | .1          |  | Subsidiaries of the Company (filed as
    Exhibit 21.1 to the Companys Form 10-K for the
    year ended December 31, 2002)                                                                                                                                                                                       
|            | 31 | .1          |  | Certification of Chief Executive Officer required
    by Rule 13a-14(a) or Rule 15d-14(a) of the Securities
    Exchange Act of 1934, as amended (the Exchange
    Act).(*)                                                                                                                                     
|            | 31 | .2          |  | Certification of Chief Financial Officer required
    by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange
    Act.(*)                                                                                                                                                                                             
|            | 32 | .1          |  | Joint Certification of Chief Executive Officer
    and Chief Financial Officer required by Rule 13a-14(b) or
    Rule 15d-14(b) of the Exchange Act and Section 1350 of
    Chapter 63 of Title 18 of the United States Code.(*)                                                                                  
|            | 99 | .1          |  | Audit Committee Charter revised by the Audit
    Committee as of January 27, 2004.(*)                                                                                                                                                                                                                             
|            | 99 | .2          |  | Nominating Committee Charter adopted by the Board
    on March 8, 2004.(*)                                                                                                                                                                                                                                        



---



|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(*) | Exhibits marked with an (*) are filed with this
    Form 10-K. All others are incorporated by reference from
    the indicated SEC filing.



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(+) | Indicates management contract or compensatory
    plan or arrangement.