##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)


|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2003

OR

|     |  |                                                                                         
|---- |  | ----------------------------------------------------------------------------------------
|[  ] |  | 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             |  | (I.R.S. Employer
|Of incorporation or organization)        |  | Identification  
|                                         |  | No.)            
|                                         |  |                 
|1301 WATERS RIDGE DRIVE                  |  |                 
|LEWISVILLE, TEXAS                        |  | 75057           
|(Address of principal executive offices) |  | (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 [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer as
defined in Rule 12b-2 of the Securities Exchange Act of 1934. Yes [  ] No [X]

As of November 1, 2003, 14,016,517 shares of the Registrants Common Stock were
outstanding.





---

TABLE OF CONTENTS



|                                                  |                                                                                               |  |  |  |  |  |  | 
|------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|Forward Looking Statements                       
|PART I                                           
|                                                  | ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                  | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                                  | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|                                                  | ITEM 4. CONTROLS AND PROCEDURES                                                              
|PART II                                          
|                                                  | ITEM 1. LEGAL PROCEEDINGS                                                                    
|                                                  | ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                                                  | ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                                                  | ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                                                  | ITEM 5. OTHER INFORMATION                                                                    
|                                                  | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                       
|EX-31.1 Certification-Principal Executive Officer
|EX-31.2 Certification-Principal Financial Officer
|EX-32.1 Certification-Principal Executive Officer
|EX-32.2 Certification-Principal Financial Officer



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC.
FORM 10-Q
TABLE OF CONTENTS

|                                                                                             
|---------------------------------------------------------------------------------------------
|FORWARD LOOKING STATEMENTS                                                                   
|PART I - FINANCIAL INFORMATION                                                               
|ITEM 1: FINANCIAL STATEMENTS                                                                 
|ITEM 2: MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|ITEM 4: CONTROLS AND PROCEDURES                                                              
|PART II - OTHER INFORMATION                                                                  
|ITEM 1: LEGAL PROCEEDINGS                                                                    
|ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|ITEM 3: DEFAULTS UPON SENIOR SECURITIES                                                      
|ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|ITEM 5: OTHER INFORMATION                                                                    
|ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K                                                     
|SIGNATURES                                                                                   
|CERTIFICATIONS                                                                               

i



---



##### Table of Contents






Forward Looking Statements

Certain statements contained or incorporated in this quarterly report on
Form 10-Q, 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) 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-Q are subject to change due
to global market and economic conditions beyond the control of the Company.

ii



---



##### Table of Contents






PART I




ITEM 1. FINANCIAL STATEMENTS

AMERICAN BUILDING CONTROL, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

|                            |                                                                      |                      |       |               |        |              |        |        |        | 
|--------------------------- | -------------------------------------------------------------------- | -------------------- | ----- | ------------- | ------ | ------------ | ------ | ------ | ------ | 
|                            |                                                                      |                      |       | September 30, |        | December 31,
|                            |                                                                      |                      |       | 2003          |        | 2002        
|                            |                                                                      |                      |       |               |        |             
|ASSETS                      |                                                                      |                      |       |               |        |              |        |       
|Current Assets:             |                                                                      |                      |       |               |        |              |        |       
|                            | Cash and cash equivalents                                            |                      | $     | 2,914         |        |              | $      | 16,436 |       
|                            | Marketable securities                                                |                      |       | 3,578         |        |              |        |       |       
|                            | Trade accounts receivable, net                                       |                      |       | 4,956         |        |              |        | 4,955  |       
|                            | Inventories                                                          |                      |       | 3,883         |        |              |        | 4,357  |       
|                            | Receivable from Honeywell International, Inc. - current portion      |                      |       | 5,400         |        |              |        | 3,600  |       
|                            | Prepaid expenses and other current assets                            |                      |       | 1,240         |        |              |        | 1,165  |       
|                            | Net assets of discontinued operations                                |                      |       | 177           |        |              |        | 1,833  |       
|                            |                                                                      |                      |       |               |        |              |        |        |       
|                            |                                                                      | Total current assets |       |               | 22,148 |              |        |        | 32,346 | 
|Property and Equipment, net |                                                                      |                      | 9,401 |               |        |              | 10,518 |       
|Other Assets:               |                                                                      |                      |       |               |        |              |        |       
|                            | Goodwill, net                                                        |                      |       | 5,228         |        |              |        | 5,332  |       
|                            | Other intangible assets, net                                         |                      |       | 118           |        |              |        | 330    |       
|                            | Receivable from Honeywell International, Inc. - less current portion |                      |       |              |        |              |        | 1,800  |       
|                            | Other assets                                                         |                      |       | 853           |        |              |        | 290    |       
|                            |                                                                      |                      |       |               |        |              |        |        |       
|                            |                                                                      | Total assets         |       | $             | 37,748 |              |        | $      | 50,616 | 
|                            |                                                                      |                      |       |               |        |              |        |        |       

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

1



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. and SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |         |        | 
|------------------------------------ | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------ | -------------------------------------------- | ------------------------------------------ | ----- | ------------- | ------ | ------------ | ----- | ------- | ------ | 
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       | September 30, |        | December 31,
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       | 2003          |        | 2002        
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |             
|LIABILITIES AND STOCKHOLDERS EQUITY |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |             
|Current Liabilities:                 |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |             
|                                     |                                                                                                                                                                         | Trade accounts payable                                       |                                              | $                                          | 2,949 |               |        | $            | 3,201 |        
|                                     |                                                                                                                                                                         | Accrued expenses                                             |                                              |                                            | 2,710 |               |        |              | 4,068 |        
|                                     |                                                                                                                                                                         | Accrued compensation                                         |                                              |                                            | 1,562 |               |        |              | 1,556 |        
|                                     |                                                                                                                                                                         | Royalty claim on assignment agreement                        |                                              |                                            | 258   |               |        |              | 715   |        
|                                     |                                                                                                                                                                         | Severance - current portion                                  |                                              |                                            | 791   |               |        |              | 792   |        
|                                     |                                                                                                                                                                         | Other current liabilities                                    |                                              |                                            | 823   |               |        |              | 1,115 |        
|                                     |                                                                                                                                                                         | Deferred income - current portion                            |                                              |                                            | 1,012 |               |        |              | 1,038 |        
|                                     |                                                                                                                                                                         | Net liabilities of discontinued operations                   |                                              |                                            | 845   |               |        |              | 2,145 |        
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |        
|                                     |                                                                                                                                                                         |                                                              |                                              | Total current liabilities                  |       |               | 10,950 |              |       |         | 14,630 | 
|Long-Term Liabilities                |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |             
|                                     |                                                                                                                                                                         | Financing obligation                                         |                                              |                                            | 6,600 |               |        |              | 6,600 |        
|                                     |                                                                                                                                                                         | Deferred income - less current portion                       |                                              |                                            | 465   |               |        |              | 1,038 |        
|                                     |                                                                                                                                                                         | Royalty claim on assignment agreement - less current portion |                                              |                                            | 144   |               |        |              |      |        
|                                     |                                                                                                                                                                         | Severance - less current portion                             |                                              |                                            | 88    |               |        |              | 914   |        
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |        
|                                     |                                                                                                                                                                         |                                                              |                                              | Total long-term liabilities                |       |               | 7,297  |              |       |         | 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;
17,634,238 and 17,494,238 shares issued at September 30, 2003 and
December 31, 2002, respectively           |                                                              |                                              | 175                                        |       |               |        | 175          |      
|                                     | Additional paid-in-capital                                                                                                                                              |                                                              |                                              | 162,615                                    |       |               |        | 162,269      |      
|                                     | Deferred stock compensation                                                                                                                                             |                                                              |                                              | (104                                       | )     |               |        |             |      
|                                     | Accumulated deficit                                                                                                                                                     |                                                              |                                              | (105,534                                   | )     |               |        | (97,354      | )    
|                                     | Accumulated other comprehensive income                                                                                                                                  |                                                              |                                              | 73                                         |       |               |        | 50           |      
|                                     | Treasury stock, at cost (3,485,850 and 3,467,650 common shares                                                                                                          |                                                              |                                              |                                            |       |               |        |              |      
|                                     |                                                                                                                                                                         |                                                              | at September 30, 2003 and December 31, 2002) |                                            |       | (38,701       | )      |              |       | (38,683 | )     
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |        
|                                     |                                                                                                                                                                         |                                                              |                                              | Total stockholders equity                 |       |               | 19,501 |              |       |         | 27,434 | 
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |        
|                                     |                                                                                                                                                                         |                                                              |                                              | Total liabilities and stockholders equity |       | $             | 37,748 |              |       | $       | 50,616 | 
|                                     |                                                                                                                                                                         |                                                              |                                              |                                            |       |               |        |              |       |        

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

2



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except share and per share data)


|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |      |       |        |            | 
|---------------------------------------------------------------- | ------------------------------- | ----------------------------------- | ---------------------------------------------------- | ------- | ----- | -------------------------------- | ---------- | ---- | ----- | ------ | ---------- | 
|                                                                 |                                 |                                     |                                                      |         |       | Three months ended September 30,
|                                                                 |                                 |                                     |                                                      |         |       |                                 
|                                                                 |                                 |                                     |                                                      |         |       | 2003                             |            | 2002
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|Net sales                                                        |                                 | $                                   | 10,668                                               |         |       | $                                | 11,089     |     
|Cost of sales (exclusive of depreciation shown separately below) |                                 |                                     | 6,843                                                |         |       |                                  | 7,638      |     
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Gross profit                                         |         |       | 3,825                            |            |      |       | 3,451  |           
|Other operating costs:                                           |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 | Selling, general and administrative |                                                      |         | 4,288 |                                  |            |      | 4,781 |       
|                                                                 |                                 | Depreciation and amortization       |                                                      |         | 552   |                                  |            |      | 644   |       
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | 4,840                                                |         |       |                                  | 5,425      |     
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Operating loss                                       |         |       | (1,015                           | )          |      |       | (1,974 | )         
|Other income (expense):                                          |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 | Interest expense                |                                     |                                                      | (180    | )     |                                  |            | (531 | )    
|                                                                 | Interest income                 |                                     |                                                      | 85      |       |                                  |            | 10   |      
|                                                                 | Foreign exchange gains (losses) |                                     |                                                      | (83     | )     |                                  |            |     |      
|                                                                 | Other, net                      |                                     |                                                      | 72      |       |                                  |            | 137  |      
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | (106                                                 | )       |       |                                  | (384       | )   
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Loss before income taxes and discontinued operations |         |       | (1,121                           | )          |      |       | (2,358 | )         
|Income tax benefit                                               |                                 |                                     |                                                     |         |       |                                  | (169       | )   
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|Loss from continuing operations                                  |                                 |                                     | (1,121                                               | )       |       |                                  | (2,527     | )   
|Income from discontinued operations                              |                                 |                                     | 11                                                   |         |       |                                  | 1,591      |     
|Loss on disposal of discontinued operations                      |                                 |                                     |                                                     |         |       |                                  | (700       | )   
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Net loss                                             |         |       | (1,110                           | )          |      |       | (1,636 | )         
|Dividend requirements on preferred stock                         |                                 |                                     | (29                                                  | )       |       |                                  | (29        | )   
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Net loss allocable to common stockholders            |         | $     | (1,139                           | )          |      | $     | (1,665 | )         
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|Basic and diluted loss per share from:                           |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Continuing operations                                |         | $     | (0.08                            | )          |      | $     | (0.18  | )         
|                                                                 |                                 |                                     | Discontinued operations                              |         |       | 0.00                             |            |      |       | 0.06   |           
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Basic and diluted loss per share                     |         | $     | (0.08                            | )          |      | $     | (0.12  | )         
|                                                                 |                                 |                                     |                                                      |         |       |                                  |            |     
|                                                                 |                                 |                                     | Number of common shares used in computations:        |         |       |                                  |            |      |       |        |           
|                                                                 |                                 |                                     |                                                      | Basic   |       |                                  | 14,148,388 |      |       |        | 14,046,588 | 
|                                                                 |                                 |                                     |                                                      | Diluted |       |                                  | 14,148,388 |      |       |        | 14,046,588 | 

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

3



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. and SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS


(in thousands, except share and per share data)


|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |         |        |         |            | 
|---------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------- | ----------------------------------------------------------------- | ------- | ------ | ------------------------------- | ---------- | ------- | ------ | ------- | ---------- | 
|                                                                 |                                                                  |                                     |                                                                   |         |        | Nine months ended September 30,
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                
|                                                                 |                                                                  |                                     |                                                                   |         |        | 2003                            |            | 2002   
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|Net sales                                                        |                                                                  | $                                   | 31,910                                                            |         |        | $                               | 32,721     |        
|Cost of sales (exclusive of depreciation shown separately below) |                                                                  |                                     | 22,002                                                            |         |        |                                 | 23,065     |        
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Gross profit                                                      |         |        | 9,908                           |            |         |        | 9,656   |           
|Other operating costs:                                           |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  | Selling, general and administrative |                                                                   |         | 14,621 |                                 |            |         | 14,398 |        
|                                                                 |                                                                  | Depreciation and amortization       |                                                                   |         | 1,620  |                                 |            |         | 1,877  |        
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | 16,241                                                            |         |        |                                 | 16,275     |        
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Operating loss                                                    |         |        | (6,333                          | )          |         |        | (6,619  | )         
|Other income (expense):                                          |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 | Interest expense                                                 |                                     |                                                                   | (664    | )      |                                 |            | (2,169  | )     
|                                                                 | Interest income                                                  |                                     |                                                                   | 132     |        |                                 |            | 23      |       
|                                                                 | Foreign exchange gains (losses)                                  |                                     |                                                                   | (58     | )      |                                 |            |        |       
|                                                                 | Other, net                                                       |                                     |                                                                   | 266     |        |                                 |            | 533     |       
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | (324                                                              | )       |        |                                 | (1,613     | )      
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|Loss before income taxes and discontinued operations             |                                                                  |                                     | (6,657                                                            | )       |        |                                 | (8,232     | )      
|Income tax benefit                                               |                                                                  |                                     |                                                                  |         |        |                                 | 344        |        
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Loss from continuing operations                                   |         |        | (6,657                          | )          |         |        | (7,888  | )         
|                                                                 |                                                                  |                                     | Income
(loss) from discontinued operations                        |         |        | (1,436                          | )          |         |        | 2,734   |           
|                                                                 |                                                                  |                                     | Loss on disposal of discontinued operations                       |         |        |                                |            |         |        | (700    | )         
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Loss before cumulative effect of accounting change                |         |        | (8,093                          | )          |         |        | (5,854  | )         
|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                                                          |         |        | (8,093                          | )          |         |        | (31,969 | )         
|Dividend requirements on preferred stock                         |                                                                  |                                     | (87                                                               | )       |        |                                 | (87        | )      
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Net loss allocable to common stockholders                         |         | $      | (8,180                          | )          |         | $      | (32,056 | )         
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|Basic and diluted earnings (loss) per share from:                |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Continuing operations                                             |         | $      | (0.48                           | )          |         | $      | (0.57   | )         
|                                                                 |                                                                  |                                     | Discontinued operations                                           |         |        | (0.10                           | )          |         |        | 0.14    |           
|                                                                 |                                                                  |                                     | Cumulative effect of accounting change  - continuing operations   |         |        |                                |            |         |        | (1.05   | )         
|                                                                 |                                                                  |                                     | Cumulative effect of accounting change  - discontinued operations |         |        |                                |            |         |        | (0.80   | )         
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Basic and diluted loss per share                                  |         | $      | (0.58                           | )          |         | $      | (2.28   | )         
|                                                                 |                                                                  |                                     |                                                                   |         |        |                                 |            |        
|                                                                 |                                                                  |                                     | Number of common shares used in computations:                     |         |        |                                 |            |         |        |         |           
|                                                                 |                                                                  |                                     |                                                                   | Basic   |        |                                 | 14,107,932 |         |        |         | 14,046,588 | 
|                                                                 |                                                                  |                                     |                                                                   | Diluted |        |                                 | 14,107,932 |         |        |         | 14,046,588 | 

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

4



---



##### Table of Contents



AMERICAN BUILDING CONTROL, INC. and SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS


(in thousands)


|                                                                                          |                                                     |    |                                 |         |      |    |        |        |  
|----------------------------------------------------------------------------------------- | --------------------------------------------------- | -- | ------------------------------- | ------- | ---- | -- | ------ | ------ | -
|                                                                                          |                                                     |    | Nine months ended September 30,
|                                                                                          |                                                     |    |                                
|                                                                                          |                                                     |    | 2003                            |         | 2002
|                                                                                          |                                                     |    |                                 |         |     
|Operating Activities:                                                                     |                                                     |    |                                 |         |      |    |        |       
|Net loss                                                                                  |                                                     | ($ | 8,093                           | )       |      | ($ | 31,969 | )     
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |                                                     |    |                                 |         |      |    |        |       
|                                                                                          | Cumulative effect of accounting change              |    |                                 |        |      |    |        | 26,115 |  
|                                                                                          | Loss (gain) on disposal of fixed assets             |    |                                 | 156     |      |    |        | 104    |  
|                                                                                          | Realized foreign currency losses                    |    |                                 | 83      |      |    |        |       |  
|                                                                                          | Stock based compensation                            |    |                                 | 243     |      |    |        |       |  
|                                                                                          | Amortization of deferred income                     |    |                                 | (770    | )    |    |        |       |  
|                                                                                          | Net
present value of patent infringement settlement |    |                                 | (578    | )    |    |        |       |  
|                                                                                          | Depreciation and amortization                       |    |                                 | 1,620   |      |    |        | 2,511  |  
|                                                                                          | Provision
for losses on accounts receivable         |    |                                 | 43      |      |    |        | 97     |  
|                                                                                          | Severance
and exit cost accruals                    |    |                                 | (341    | )    |    |        |       |  
|                                                                                          | Mark-to-market interest rate swap                   |    |                                 | 134     |      |    |        |       |  
|Changes in operating assets and liabilities:                                              |                                                     |    |                                 |         |      |    |        |       
|                                                                                          | Trade accounts receivable                           |    |                                 | (53     | )    |    |        | 2,540  |  
|                                                                                          | Inventories                                         |    |                                 | 494     |      |    |        | 562    |  
|                                                                                          | Prepaid and other assets                            |    |                                 | 380     |      |    |        | 1,664  |  
|                                                                                          | Income taxes                                        |    |                                 |        |      |    |        | 6,785  |  
|                                                                                          | Trade accounts payable                              |    |                                 | (455    | )    |    |        | (3,591 | )
|                                                                                          | Accrued and other liabilities                       |    |                                 | (3,276  | )    |    |        | (606   | )
|                                                                                          |                                                     |    |                                 |         |      |    |        |       
|                                                                                          | Net cash provided by (used in) operating activities |    |                                 | (10,413 | )    |    |        | 4,212  |  
|                                                                                          |                                                     |    |                                 |         |      |    |        |       
|Investing Activities:                                                                     |                                                     |    |                                 |         |      |    |        |       
|Purchases of property and equipment                                                       |                                                     |    | (340                            | )       |      |    | (707   | )     
|Software development costs                                                                |                                                     |    | (400                            | )       |      |    | (510   | )     
|Proceeds received from sales of property and equipment                                    |                                                     |    | 1,462                           |         |      |    | 64     |       
|Proceeds from redemption of marketable securities                                         |                                                     |    | 645                             |         |      |    |       |       
|Purchases of marketable securities                                                        |                                                     |    | (4,243                          | )       |      |    |       |       
|Earnout payments on prior acquisitions                                                    |                                                     |    | (148                            | )       |      |    | (237   | )     
|                                                                                          |                                                     |    |                                 |         |      |    |        |       
|                                                                                          | Net cash used in investing activities               |    | ($                              | 3,024   | )    |    | ($     | 1,390  | )
|                                                                                          |                                                     |    |                                 |         |      |    |        |       

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

5



---



##### Table of Contents



AMERICAN
BUILDING CONTROL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

|                                               |                                       |              |         |                                 |     |      |        |        |       | 
|---------------------------------------------- | ------------------------------------- | ------------ | ------- | ------------------------------- | --- | ---- | ------ | ------ | ----- | 
|                                               |                                       |              |         | Nine months ended September 30,
|                                               |                                       |              |         |                                
|                                               |                                       |              |         | 2003                            |     | 2002
|                                               |                                       |              |         |                                 |     |     
|Financing Activities:                          |                                       |              |         |                                 |     |      |        |       
|Net repayments on revolving line of credit     |                                       |              |        |                                 |     |      | (2,745 | )     
|Repayments on other debt                       |                                       |              |        |                                 |     |      | (544   | )     
|Purchases of treasury stock                    |                                       |              | (18     | )                               |     |      |       |       
|Payment of preferred stock dividends           |                                       |              | (87     | )                               |     |      | (88    | )     
|                                               |                                       |              |         |                                 |     |      |        |       
|                                               | Net cash used in financing activities |              |         | (105                            | )   |      |        | (3,377 | )    
|                                               |                                       |              |         |                                 |     |      |        |       
|Net decrease in cash and cash equivalents      |                                       |              | (13,542 | )                               |     |      | (555   | )     
|Effect of exchange rate changes on cash        |                                       |              | 20      |                                 |     |      | 122    |       
|Cash and cash equivalents, beginning of period |                                       |              | 16,436  |                                 |     |      | 3,300  |       
|                                               |                                       |              |         |                                 |     |      |        |       
|Cash and cash equivalents, end of period       |                                       | $            | 2,914   |                                 |     | $    | 2,867  |       
|                                               |                                       |              |         |                                 |     |      |        |       
|Supplemental cash flow information:            |                                       |              |         |                                 |     |      |        |       
|                                               | Cash paid during the period for:      |              |         |                                 |     |      |        |        |      
|                                               |                                       | Interest     |         | $                               | 510 |      |        | $      | 1,489 | 
|                                               |                                       |              |         |                                 |     |      |        |       
|                                               |                                       | Income taxes |         | $                               | 338 |      |        | $      | 34    | 
|                                               |                                       |              |         |                                 |     |      |        |       

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

6



---



##### Table of Contents



American Building Control, Inc.

Notes to Consolidated Financial Statements

Note 1: Nature of Operations

Basis of Presentation



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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The interim financial statements are prepared on an unaudited basis in
accordance with accounting principles for interim reporting and do not
include all of the information and disclosures required by accounting
principles generally accepted in the United States of America for complete
financial statements. All adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless
otherwise disclosed herein. The results of operations for such interim
periods are not necessarily indicative of results of operations for a full
year. For further information, refer to the consolidated financial statements
and notes to the consolidated financial statements for the year ended
December 31, 2002 included in the Companys Annual Report on Form 10-K.



| |                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On December 20, 2002, the Company sold its closed-circuit television
(CCTV) business to Honeywell International, Inc. (Honeywell) for $36
million, subject to post-closing adjustments, plus the transfer of certain
liabilities (Honeywell Asset Sale). The financial statements have been
restated to reflect the CCTV business as discontinued operations for all
periods presented.



Nature of Operations



| |                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Following the Honeywell Asset Sale, the Company, which is headquartered
in Lewisville, Texas, is focused on designing, marketing, selling and
servicing specialty security products in industrial, governmental and
consumer surveillance markets worldwide. The Company also has a small
operation based in Switzerland.



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

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.



| |                                                                                                                                                                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The local currency is considered the functional currency for the
Companys Swiss operations. 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.

7



---



##### Table of Contents



Stock-Based Compensation

In December 2002, the FASB issued Statement of Financial Accounting
Standards (SFAS) No. 148, Accounting for
Stock-Based CompensationTransition
and Disclosurean amendment of FASB Statement No.
123.This statement amends SFAS No. 123, Accounting for Stock-Based
Compensation,to provide alternative methods of transition for a voluntary
change to the fair value based method of accounting for stock-based employee
compensation. In addition, this statement amends the disclosure requirements
of SFAS No. 123 to require prominent disclosures in both annual and interim
financial statements about the method of accounting for stock-based employee
compensation and the effect of the method used on reported results.

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 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 Compensation.

Based on the 2002 Stock Option Incentive Plan, the vesting period varies
based on individual grants and is determined by the Compensation Committee of
the Board of Directors. 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 as of December 20, 2002.

With the exception of the options issued as compensation expense to the
Companys former CEO, Mr. George Broady, (see note 7 to the Companys Consolidated Financial Statements2002 Executive and
Management Severance),
no compensation cost related to stock options is reflected in the statements
of operations as all options granted under the Companys option plans had an
exercise price equal to the market value of the underlying 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 recognition
provisions of SFAS No. 123 to employee stock-based compensation (in
thousands):

8



---



##### Table of Contents



|                                                                      |                                                                                                   |  |                                  |        |      |  |   |        |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  | -------------------------------- | ------ | ---- |  | - | ------ | -
|                                                                      |                                                                                                   |  | Three months ended September 30,
|                                                                      |                                                                                                   |  |                                 
|                                                                      |                                                                                                   |  | 2003                             |        | 2002
|                                                                      |                                                                                                   |  |                                  |        |     
|Net loss from continuing operations
allocable to common stockholders: |                                                                                                   |  |                                  |        |      |  |   |       
|                                                                      | As reported                                                                                       |  | $                                | (1,150 | )    |  | $ | (2,556 | )
|                                                                      | Deduct: Total stock-based compensation under fair value
based method for all awards, net of taxes |  |                                  | (68    | )    |  |   | (232   | )
|                                                                      |                                                                                                   |  |                                  |        |      |  |   |       
|                                                                      | Pro forma                                                                                         |  | $                                | (1,218 | )    |  | $ | (2,788 | )
|                                                                      |                                                                                                   |  |                                  |        |      |  |   |       
|Basic and diluted loss per share from continuing operations           |                                                                                                   |  |                                  |        |      |  |   |       
|                                                                      | As reported                                                                                       |  | $                                | (0.08  | )    |  | $ | (0.18  | )
|                                                                      | Pro forma                                                                                         |  | $                                | (0.09  | )    |  | $ | (0.20  | )

|                                                                      |                                                                                                   |  |                                 |        |      |  |   |        |  
|--------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------ | -
|                                                                      |                                                                                                   |  | Nine months ended September 30,
|                                                                      |                                                                                                   |  |                                
|                                                                      |                                                                                                   |  | 2003                            |        | 2002
|                                                                      |                                                                                                   |  |                                 |        |     
|Net loss from continuing operations
allocable to common stockholders: |                                                                                                   |  |                                 |        |      |  |   |       
|                                                                      | As reported                                                                                       |  | $                               | (6,744 | )    |  | $ | (7,975 | )
|                                                                      | Deduct: Total stock-based compensation under fair value
based method for all awards, net of taxes |  |                                 | (192   | )    |  |   | (464   | )
|                                                                      |                                                                                                   |  |                                 |        |      |  |   |       
|                                                                      | Pro forma                                                                                         |  | $                               | (6,936 | )    |  | $ | (8,439 | )
|                                                                      |                                                                                                   |  |                                 |        |      |  |   |       
|Basic and diluted loss per share from continuing operations           |                                                                                                   |  |                                 |        |      |  |   |       
|                                                                      | As reported                                                                                       |  | $                               | (0.48  | )    |  | $ | (0.57  | )
|                                                                      | Pro forma                                                                                         |  | $                               | (0.49  | )    |  | $ | (0.60  | )

The fair value of these options was estimated at the date of grant using
the Black-Scholes option pricing model with the following assumptions:
expected volatility of a range of 55 to 80 percent; risk-free interest rates
ranging from 4.0 to 6.5 percent; no dividend yield; and expected lives of one
to seven years.

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 accrual for the three
and nine months ended September 30, 2003 and 2002 (in thousands):

9



---



##### Table of Contents



|                   |  |                                  |     |      |  |   |    |  
|------------------ |  | -------------------------------- | --- | ---- |  | - | -- | -
|                   |  | Three months ended September 30,
|                   |  |                                 
|                   |  | 2003                             |     | 2002
|                   |  |                                  |     |     
|Beginning balance  |  | $                                | 159 |      |  | $ | 83 |  
|Charged to expense |  |                                  | 14  |      |  |   | 19 |  
|Usage              |  |                                  |    |      |  |   | (6 | )
|                   |  |                                  |     |      |  |   |    |  
|Closing balance    |  | $                                | 173 |      |  | $ | 96 |  
|                   |  |                                  |     |      |  |   |    |  

|                   |  |                                 |     |      |  |   |     |  
|------------------ |  | ------------------------------- | --- | ---- |  | - | --- | -
|                   |  | Nine months ended September 30,
|                   |  |                                
|                   |  | 2003                            |     | 2002
|                   |  |                                 |     |     
|Beginning balance  |  | $                               | 128 |      |  | $ | 63  |  
|Charged to expense |  |                                 | 46  |      |  |   | 57  |  
|Usage              |  |                                 | (1  | )    |  |   | (24 | )
|                   |  |                                 |     |      |  |   |     |  
|Closing balance    |  | $                               | 173 |      |  | $ | 96  |  
|                   |  |                                 |     |      |  |   |     |  

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.

Reclassifications

Certain amounts have been reclassified in the prior period financial
statements to conform to the current period presentation.

10



---



##### Table of Contents



Note 2: Receivable from Honeywell International, Inc.

On December 20, 2002, the Company consummated the sale of assets and
liabilities related to the closed-circuit television (CCTV) business (the
CCTV Business) to Honeywell International, Inc. (Honeywell) for $36.0
million (the Honeywell Asset Sale or Asset Purchase Agreement). At
December 31, 2002, the Company had a receivable of $5.4 million from
Honeywell resulting from the Honeywell Asset Sale.

According to the Asset Purchase Agreement, the $5.4 million receivable
was to be paid to the Company in three equal installments, every six months
beginning in May 2003, less any claims or purchase price adjustments
resulting from changes to the proposed closing balance sheet provided to
Honeywell in March 2003. Adjustments to the purchase price are based on the
difference between the final closing balance sheet and $28,389,000. On March
10, 2003, the Company submitted a proposed closing balance sheet that
increased the purchase price by approximately $3.8 million. On April 9, 2003,
Honeywell disputed the proposed closing balance sheet and, through several
subsequent amendments, ultimately proposed a reduction in the $36 million
purchase price of approximately $5.9 million.

As of November 6, 2003, the Company and Honeywell have not resolved
their differences. Pursuant to the terms of the Asset Purchase Agreement, the
Company and Honeywell have engaged an independent accounting firm to render a
binding decision on the dispute. A final resolution is not expected until the
fourth quarter of 2003. Accordingly, payments due under the holdback
provision have not been made according to the payment schedule.

Note 3: Trade Accounts Receivable

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

|                                      |  |               |       |              |  |   |       |  
|------------------------------------- |  | ------------- | ----- | ------------ |  | - | ----- | -
|                                      |  | September 30, |       | December 31,
|                                      |  | 2003          |       | 2002        
|                                      |  |               |       |             
|Gross trade accounts receivable       |  | $             | 5,485 |              |  | $ | 5,357 |  
|Less: allowance for doubtful accounts |  | $             | (484  | )            |  |   | (402  | )
|                                      |  |               |       |              |  |   |       |  
|                                      |  | $             | 5,001 |              |  | $ | 4,955 |  
|                                      |  |               |       |              |  |   |       |  

Note 4: Earnings Per Share

The Company computes basic earnings (loss) per share based on the
weighted-average number of common shares outstanding. Diluted earnings per
share is computed based on the weighted average number of shares outstanding,
plus the number of additional common shares that would have been outstanding
if dilutive potential common shares had been issued.

For the three and nine months ended September 30, 2003 and 2002,
1,247,935 and 1,435,581 stock options were outstanding, respectively, but
were not included in the computation of diluted earnings (loss) per share
because the effect would have been anti-dilutive. For the three and nine
months ended September 30, 2003 and 2002, 195,351 shares of preferred stock,
which convert to 406,981 shares of common stock, were excluded from the
computation of diluted loss per share because the effect was anti-dilutive.

11



---



##### Table of Contents



Note 5: Comprehensive Loss

Supplemental information on comprehensive loss is as follows (in
thousands):

|                                   |                                          |   |                                  |     |      |   |        |      |  
|---------------------------------- | ---------------------------------------- | - | -------------------------------- | --- | ---- | - | ------ | ---- | -
|                                   |                                          |   | Three months ended September 30,
|                                   |                                          |   |                                 
|                                   |                                          |   | 2003                             |     | 2002
|                                   |                                          |   |                                  |     |     
|Net loss                           |                                          | $ | (1,110                           | )   |      | $ | (1,636 | )   
|Other comprehensive income (loss): |                                          |   |                                  |     |      |   |        |     
|                                   | Unrealized loss on marketable securities |   |                                  | (14 | )    |   |        |     |  
|                                   | Currency translation adjustment          |   |                                  | (2  | )    |   |        | (198 | )
|                                   |                                          |   |                                  |     |      |   |        |     
|                                   |                                          | $ | (1,126                           | )   |      | $ | (1,834 | )   
|                                   |                                          |   |                                  |     |      |   |        |     

|                                         |  |                                 |        |      |  |   |         |  
|---------------------------------------- |  | ------------------------------- | ------ | ---- |  | - | ------- | -
|                                         |  | Nine months ended September 30,
|                                         |  |                                
|                                         |  | 2003                            |        | 2002
|                                         |  |                                 |        |     
|Net loss                                 |  | $                               | (8,093 | )    |  | $ | (31,969 | )
|Other comprehensive income (loss):       |  |                                 |        |      |  |   |         |  
|Unrealized loss on marketable securities |  |                                 | (20    | )    |  |   |        |  
|Currency translation adjustment          |  |                                 | 43     |      |  |   | 1,383   |  
|                                         |  |                                 |        |      |  |   |         |  
|                                         |  | $                               | (8,070 | )    |  | $ | (30,586 | )
|                                         |  |                                 |        |      |  |   |         |  

Note 6: Goodwill and Other Intangible Assets

Under SFAS No. 142, Goodwill and Intangible Assets,goodwill impairment
may 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 two reporting units: MDI Security Systems U.S. (MDI)
and MDI Security Systems International; the Diversified Sales Group (DSG)
segment has four reporting units: the consumer/do-it-yourself business
(SecurityandMore), ABM Data Systems (ABM), Industrial Vision Source
(IVS) and Mobile Video Products (MVP). In performing its impairment
analysis under SFAS 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 the carrying value to determine if an
impairment may exist. If the carrying value of the reporting unit exceeds the
fair value, the second step involves comparison of the implied fair value of
the goodwill to the carrying value of the goodwill. The implied fair value of
the goodwill is determined in the same manner as the amount of goodwill
recognized in a business combination. In calculating an impairment charge,
the fair value of the impaired reporting units underlying the segments are
estimated using discounted cash flow methodology or recent comparable
transactions.

12



---



##### Table of Contents



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 MDI Security Systems
U.S. reporting unit to reduce the carrying value of its goodwill. Such charge
is reflected as a cumulative effect of an accounting change in the
accompanying statement of operations.

Additionally, the Companys transitional impairment resulted in a
non-cash charge of approximately $11.3 million related to the CCTV business.
In calculating the impairment charge, the Company used the two-step process
in SFAS No. 142 and determined the fair value of the CCTV reporting unit
using recent comparable transactions. Such charge is reflected in the
statement of operations as a cumulative effect of an accounting change from
discontinued operations.

As of September 30, 2003, the net carrying value of the Companys
goodwill, by segment, is as follows (in thousands):

|                                                      |  |     |       |     |  |       |       |  |  |   |       |  
|----------------------------------------------------- |  | --- | ----- | --- |  | ----- | ----- |  |  | - | ----- | -
|                                                      |  | PSG |       | DSG |  | Total
|                                                      |  |     |       |     |  |      
|Net carrying value at December 31, 2002               |  | $   | 3,953 |     |  | $     | 1,379 |  |  | $ | 5,332 |  
|Settlement of earnout payment on previous acquisition |  |     | (104  | )   |  |       |      |  |  |   | (104  | )
|                                                      |  |     |       |     |  |       |       |  |  |   |       |  
|Net carrying value at September 30, 2003              |  | $   | 3,849 |     |  | $     | 1,379 |  |  | $ | 5,228 |  
|                                                      |  |     |       |     |  |       |       |  |  |   |       |  

On April 25, 2003, the Company negotiated a full and final release of
claims to fulfill its obligation to the former owners of MDI-Switzerland,
formerly known as Multi Concepts Systemes S.A., pursuant to the purchase
agreement executed in April 1999. This claim of $221,000 was paid in
three equal installments during the second, third and fourth quarters of
2003. As a result of this settlement, the Company
reduced its related liability of $325,000 and goodwill by $104,000.

13



---



##### Table of Contents



Intangible assets consist of the following (in thousands):

|                                                |  |              |      |          |  |                    |     |                   |  |          |      |              |  |          |     |  |  |     |     |  |  |   |      |   |  |   |     | 
|----------------------------------------------- |  | ------------ | ---- | -------- |  | ------------------ | --- | ----------------- |  | -------- | ---- | ------------ |  | -------- | --- |  |  | --- | --- |  |  | - | ---- | - |  | - | --- | 
|                                                |  |              |      |          |  | September 30, 2003 |     | December 31, 2002
|                                                |  | Weighted     |      |          |  |                   
|                                                |  | average      |      | Gross    |  |                    |     |                   |  | Net      |      | Gross        |  |          |     |  |  | Net
|                                                |  | amortization |      | Carrying |  | Accumulated        |     | Carrying          |  | Carrying |      | Accumulated  |  | Carrying
|                                                |  | (years)      |      | Value    |  | Amortization       |     | Value             |  | Value    |      | Amortization |  | Value   
|                                                |  |              |      |          |  |                    |     |                   |  |          |      |              |  |         
|Intangible assets subject to amortization       |  |              |      |          |  |                    |     |                   |  |          |      |              |  |          |     |  |  |     |     |  |  |   |      |   |  |   |     | 
|Patents and trademarks                          |  |              | 17.1 |          |  | $                  | 98  |                   |  | $        | (48  | )            |  | $        | 50  |  |  | $   | 98  |  |  | $ | (42  | ) |  | $ | 56  | 
|Licensing agreements                            |  |              | 3.7  |          |  |                    | 80  |                   |  |          | (80  | )            |  |          |    |  |  |     | 80  |  |  |   | (80  | ) |  |   |    | 
|Loan origination fees                           |  |              | 2.0  |          |  |                    | 549 |                   |  |          | (480 | )            |  |          | 69  |  |  |     | 549 |  |  |   | (275 | ) |  |   | 274 | 
|                                                |  |              |      |          |  |                    |     |                   |  |          |      |              |  |          |     |  |  |     |     |  |  |   |      |   |  |   |     | 
|Total intangible assets subject to amortization |  |              |      |          |  | $                  | 727 |                   |  | $        | (608 | )            |  | $        | 119 |  |  | $   | 727 |  |  | $ | (397 | ) |  | $ | 330 | 
|                                                |  |              |      |          |  |                    |     |                   |  |          |      |              |  |          |     |  |  |     |     |  |  |   |      |   |  |   |     | 

Amortization expense related to intangible assets subject to
amortization was $69,000 and $40,000 for the three months ended September 30,
2003 and 2002, respectively.

Amortization expense related to intangible assets subject to
amortization was $211,000 and $144,000 for the nine months ended September
30, 2003 and 2002, respectively.

The aggregate estimated future amortization expense for intangible
assets for each of the five succeeding years as of September 30, 2003 is as
follows (in thousands):

|                  |  |   |    | 
|----------------- |  | - | -- | 
|Remainder of 2003 |  | $ | 70 | 
|2004              |  |   | 7  | 
|2005              |  |   | 7  | 
|2006              |  |   | 7  | 
|2007              |  |   | 7  | 
|                  |  |   |    | 
|Total             |  | $ | 98 | 
|                  |  |   |    | 

Note 7: Severance and Other Accrued Expenses

As of September 30, 2003, the Company had accruals for severance and
other accrued expenses. A detail of these charges is as follows (in
thousands):

|                                                 |  |              |       |             |  |         |      |               |  |            |        |   |  |   |       | 
|------------------------------------------------ |  | ------------ | ----- | ----------- |  | ------- | ---- | ------------- |  | ---------- | ------ | - |  | - | ----- | 
|                                                 |  | Accrued at   |       |             |  |         |      | Amount        |  | Accrued at
|                                                 |  | December 31, |       | 2003 charge |  | paid in |      | September 30,
|                                                 |  | 2002         |       | (credit)    |  | cash    |      | 2003         
|                                                 |  |              |       |             |  |         |      |              
|Ohio severance                                   |  | $            | 109   |             |  | $       | (27  | )             |  | $          | (82    | ) |  | $ |      | 
|2002 Executive and management severance          |  |              | 1,706 |             |  |         | (76  | )             |  |            | (1,122 | ) |  |   | 508   | 
|Royalty claim                                    |  |              | 715   |             |  |         | (90  | )             |  |            | (223   | ) |  |   | 402   | 
|Zurich lease                                     |  |              | 230   |             |  |         | (148 | )             |  |            | (82    | ) |  |   |      | 
|2003 Corporate and executive headcount reduction |  |              |      |             |  |         | 456  |               |  |            | (85    | ) |  |   | 371   | 
|                                                 |  |              |       |             |  |         |      |               |  |            |        |   |  |   |       | 
|                                                 |  | $            | 2,760 |             |  | $       | 115  |               |  | $          | (1,594 | ) |  | $ | 1,281 | 
|                                                 |  |              |       |             |  |         |      |               |  |            |        |   |  |   |       | 

14



---



##### Table of Contents



Ohio Severance

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. As of
December 31, 2002, the Company had accrued $109,000 in severance costs in
connection with the closure of the Ohio Plant. The Company paid approximately
$82,000 in severance costs during the first quarter of 2003 to fulfill its
severance obligations to former employees of the Ohio facility. During the
second quarter of 2003, $27,000 was credited to selling, general and
administrative expense due to favorable settlements. Due to the favorable
settlements, there is no additional liability relating to the closure of the
Ohio facility.

2002 Executive and Management Severance

During the fourth quarter of 2002, the Company decided to sever a number
of its executives including the past two CEOs, the Chief Operating Officer,
the Senior Vice-President of the domestic sales group and the Vice-President
of Marketing. At December 31, 2002, unpaid obligations related to executive
and management severance was $1,706,000. The Company paid $287,000, $628,000
and $207,000 related to these obligations during the first quarter, second
quarter and third quarter of 2003, respectively. Payments during the second
quarter included $512,000 paid to former CEO George Broady for the
acceleration of the final 18 months, discounted at 6%, of his three-year
severance, after the Board approved the accelerated payment. As a result of
this accelerated payment, the Company adjusted its liability estimate and
recorded a credit of $76,000 in executive and management severance during the
second quarter of 2003.

Mr. Broady will continue to receive severance payments on a bi-weekly
basis through the end of June 2004. Also in April 2003, Mr. Broadys
employment was re-instated, as an assistant to the CEO for a 12-month period, at a salary of $2,500 a month plus a grant
of 300,000 stock options. These options vested immediately upon issuance and
resulted in a $202,000 compensation (settlement) expense in the second
quarter of 2003.

Royalty Claim

On April 21, 2003, the Company reached a settlement in the amount of
approximately $625,000, to be paid to the patent holder, for all past royalty
claims in connection with U.S. Patent RE37, 709 (the Patent) on electronic
monitoring and surveillance devices for the purpose of security and behavior
modification in public transportation vehicles. An initial payment of $156,000,
representing 25% of the settlement was paid during April 2003. The remaining
amount, plus interest, is being paid in monthly installments of $21,000 over
the ensuing 24 months. As a result of this settlement, the Company adjusted
its liability estimate and recorded a credit of $90,000 to other income in
the second quarter of 2003. This settlement allows the Company to enforce
this Patent in the marketplace and collect future royalty income.

15



---



##### Table of Contents



Zurich Lease

In May 2003, the Company settled its remaining lease obligation for its
Zurich, Switzerland office for approximately $80,000, which was paid in the
second quarter of 2003. As a result of this settlement, the Company adjusted
its liability estimate and recorded a credit of $148,000 in operating
expenses during the second quarter of 2003.

2003 Corporate and Executive Headcount Reduction

After the Honeywell Asset Sale, the Companys management determined that
the ongoing operations could not support the current corporate overhead
structure. On April 30, 2003, the Company terminated certain corporate
personnel, including the Companys Senior Vice-President and General Counsel.
The Company recognized approximately $456,000 in expense related to severance
obligations during the third quarter of 2003.

Note 8: 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 on a performance basis consistent with internal management
reporting. The Company evaluates performance based on operating profit (loss).
The Company has two operating segments: the Professional Security Group (PSG)
and the Diversified Sales Group (DSG).

PSG

The PSG segment consists primarily of the access control sales in the
United States to professional security dealers, installers and certain
large-end users of professional security products, including the U.S.
Government. The domestic access control business is supplemented by an
international integration and distribution business based in Switzerland. The
product range for the international unit is the same as the one for the U.S.

DSG

DSG includes four components; the consumer/do-it-yourself business, the
industrial video business, the alarm management business and the mobile video
product business.

The consumer do-it-yourself business, SecurityandMore, includes a call
center and an e-commerce site, SecurityandMore.com, which focuses on consumer
oriented security products.

The Industrial Vision Source (IVS) and Mobile Video Products (MVP)
businesses cater to the video and security needs of manufacturing facilities,
scientific labs, research organizations and mass transit vehicles.

The alarm management business, ABM Data Systems, Inc. (ABM), sells
software products to central monitoring stations that are owned by either
proprietary organizations such as large university campuses or commercial
operators such as surveillance companies.

Corporate

The corporate functions of legal, financial, information technologies,
internal audit, accounting and reporting are located in Lewisville, Texas.
Corporate revenue is derived primarily from service center repair activity.

16



---



##### Table of Contents



|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|-------------------------------------------- |  | --- | ------ | --- |  | --------- | ------ | ----- |  | - | ------ | - |  | - | ------ | -
|                                             |  | PSG |        | DSG |  | Corporate |        | Total
|                                             |  |     |        |     |  |           |        |      
|Three
months ended September 30, 2003        |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Total revenue                                |  | $   | 4,479  |     |  | $         | 6,125  |       |  | $ | 64     |   |  | $ | 10,668 |  
|Intersegment revenue                         |  |     |       |     |  |           |       |       |  |   |       |   |  |   |       |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Revenue from external customers              |  | $   | 4,479  |     |  | $         | 6,125  |       |  | $ | 64     |   |  | $ | 10,668 |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Gross profit                                 |  | $   | 1,870  |     |  | $         | 1,874  |       |  | $ | 81     |   |  | $ | 3,825  |  
|Selling, general and administrative expenses |  |     | 2,196  |     |  |           | 1,329  |       |  |   | 763    |   |  |   | 4,288  |  
|Depreciation and amortization expense        |  |     | 320    |     |  |           | 23     |       |  |   | 209    |   |  |   | 552    |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Operating (loss) income                      |  | $   | (646   | )   |  | $         | 522    |       |  | $ | (891   | ) |  | $ | (1,015 | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Three months ended September 30, 2002        |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Total revenue                                |  | $   | 3,364  |     |  | $         | 7,636  |       |  | $ | 158    |   |  | $ | 11,158 |  
|Intersegment revenue                         |  |     | (57    | )   |  |           | (1     | )     |  |   | (11    | ) |  |   | (69    | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Revenue from external customers              |  | $   | 3,307  |     |  | $         | 7,635  |       |  | $ | 147    |   |  | $ | 11,089 |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Gross profit                                 |  | $   | 1,362  |     |  | $         | 2,026  |       |  | $ | 63     |   |  | $ | 3,451  |  
|Selling, general and administrative expenses |  |     | 1,434  |     |  |           | 412    |       |  |   | 2,934  |   |  |   | 4,781  |  
|Depreciation and amortization expense        |  |     | 142    |     |  |           | 19     |       |  |   | 483    |   |  |   | 644    |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Operating (loss) income                      |  | $   | (214   | )   |  | $         | 1,595  |       |  | $ | (3,354 | ) |  | $ | (1,974 | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Nine months ended September 30, 2003         |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Total revenue                                |  | $   | 13,329 |     |  | $         | 18,498 |       |  | $ | 134    |   |  | $ | 31,961 |  
|Intersegment revenue                         |  | $   | (49    | )   |  | $         | (2     | )     |  | $ |       |   |  |   | (51    | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Revenue from external customers              |  | $   | 13,280 |     |  | $         | 18,496 |       |  | $ | 134    |   |  | $ | 31,910 |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Gross profit                                 |  | $   | 5,336  |     |  | $         | 4,458  |       |  | $ | 114    |   |  | $ | 9,908  |  
|Selling, general and administrative expenses |  |     | 6,985  |     |  |           | 3,796  |       |  |   | 3,840  |   |  |   | 14,621 |  
|Depreciation and amortization expense        |  |     | 794    |     |  |           | 74     |       |  |   | 752    |   |  |   | 1,620  |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Operating (loss) income                      |  | $   | (2,443 | )   |  | $         | 588    |       |  | $ | (4,478 | ) |  | $ | (6,333 | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Nine months ended September 30, 2002         |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Total revenue                                |  | $   | 15,202 |     |  | $         | 20,771 |       |  | $ | 266    |   |  | $ | 36,239 |  
|Intersegment revenue                         |  | $   | (3,346 | )   |  | $         | (71    | )     |  | $ | (101   | ) |  |   | (3,518 | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Revenue from external customers              |  | $   | 11,856 |     |  | $         | 20,700 |       |  | $ | 165    |   |  | $ | 32,721 |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Gross profit                                 |  | $   | 4,640  |     |  | $         | 4,984  |       |  | $ | 31     |   |  | $ | 9,655  |  
|Selling, general and administrative expenses |  |     | 4,703  |     |  |           | 1,808  |       |  |   | 7,886  |   |  |   | 14,397 |  
|Depreciation and amortization expense        |  |     | 165    |     |  |           | 82     |       |  |   | 1,630  |   |  |   | 1,877  |  
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  
|Operating (loss) income                      |  | $   | (228   | )   |  | $         | 3,094  |       |  | $ | (9,485 | ) |  | $ | (6,619 | )
|                                             |  |     |        |     |  |           |        |       |  |   |        |   |  |   |        |  

17



---



##### Table of Contents



Geographic Information (in thousands):

|       |               |   |                                  |        |      |   |        |        | 
|------ | ------------- | - | -------------------------------- | ------ | ---- | - | ------ | ------ | 
|       |               |   | Three months ended September 30,
|       |               |   |                                 
|       |               |   | 2003                             |        | 2002
|       |               |   |                                  |        |     
|Sales: |               |   |                                  |        |      |   |        |       
|       | United States |   | $                                | 10,613 |      |   | $      | 10,873 | 
|       | Switzerland   |   |                                  | 55     |      |   |        | 216    | 
|       |               |   |                                  |        |      |   |        |       
|       |               | $ | 10,668                           |        |      | $ | 11,089 |       
|       |               |   |                                  |        |      |   |        |       

|       |               |   |                                 |        |      |   |        |        | 
|------ | ------------- | - | ------------------------------- | ------ | ---- | - | ------ | ------ | 
|       |               |   | Nine months ended September 30,
|       |               |   |                                
|       |               |   | 2003                            |        | 2002
|       |               |   |                                 |        |     
|Sales: |               |   |                                 |        |      |   |        |       
|       | United States |   | $                               | 30,043 |      |   | $      | 31,935 | 
|       | Switzerland   |   |                                 | 1,867  |      |   |        | 786    | 
|       |               |   |                                 |        |      |   |        |       
|       |               | $ | 31,910                          |        |      | $ | 32,721 |       
|       |               |   |                                 |        |      |   |        |       

Note 9: Stock Repurchase

On March 12, 2003, the Board of Directors approved a plan to repurchase up
to 200,000 shares of the Companys Common Stock through April 12, 2003. The
Company purchased 18,200 shares for approximately $18,000 under this plan.
There is no immediate plan to purchase more shares.

Note 10: CEO Compensation Package

In April 2003, the Compensation Committee of the Board of Directors
approved a compensation package for the Companys then Chief Executive Officer
(CEO), Mr. Bryan C.W. Tate (see Note 16 to the
Company's Consolidated Financial Statements  Subsequent Events for additional details). The package included a base salary of $250,000
and 280,000 stock options - half of which vested immediately and the other half
vests one year from the grant date. The CEO was also granted 140,000 restricted
shares of common stock, pursuant to the Stock Incentive Plan approved by the
stockholders in 2002, which will vest in two equal installments of 70,000
shares on January 1, 2004 and January 1, 2005, respectively. 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 with a corresponding
increase to deferred stock compensation. The Company will recognize this
compensation expense ratably over the vesting period. During the third quarter
of 2003, the Company recognized approximately $20,000 of deferred stock
compensation as compensation expense. During the first nine months of 2003, the
Company has recognized $41,000 of deferred stock compensation as compensation
expense. The compensation package includes regular benefits, $750 per month
car allowance and some relocation assistance.

Note 11: Sale of Ohio Land and Building

On April 7, 2003, the Company completed the sale of its land and building
in Carroll, Ohio for net cash proceeds of approximately $1,419,000. This
transaction resulted in a net gain of
approximately $52,000.

18



---



##### Table of Contents



Note 12: Liquidation of International Entities

As a result of the sale of the CCTV business to Honeywell, most of the

Companys international entities no longer have any business activities.
Excluding the access control business in Switzerland, the Company has begun the
process to liquidate most of its international entities. During the liquidation
process, certain claims have been made against the Companys French, Belgian
and German entities. Based on an estimation of settlement, the Company recorded
an accrual for these claims and related legal fees of approximately
$0.6 million in discontinued
operations during 2003.

Note 13: Marketable Securities

During the first nine months of 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 (see note 1 to the Companys Consolidated Financial
Statements for additional detail). The following table summarizes these
securities (dollars in thousands):

|         |  |        |      |          |  |          |            |           |  |             |            |        |  |   |       |  |  |   |    |   |  |   |       | 
|-------- |  | ------ | ---- | -------- |  | -------- | ---------- | --------- |  | ----------- | ---------- | ------ |  | - | ----- |  |  | - | -- | - |  | - | ----- | 
|Security |  | Coupon |      | Callable |  | Maturity |            | Amortized |  | Unrealized  |            | Market
|Type     |  | Rate   |      | Date     |  | Date     |            | Cost      |  | Loss
(gain) |            | Value 
|         |  |        |      |          |  |          |            |           |  |             |            |       
|FHLB     |  |        | 6.50 | %        |  |          | 3/15/2004  |           |  |             | 3/15/2017  |        |  | $ | 571   |  |  | $ | 10 |   |  | $ | 561   | 
|FHLB     |  |        | 6.59 | %        |  |          | 8/6/2004   |           |  |             | 8/6/2014   |        |  |   | 128   |  |  |   | 2  |   |  |   | 126   | 
|FNMA     |  |        | 5.50 | %        |  |          | 4/16/2004  |           |  |             | 4/16/2018  |        |  |   | 510   |  |  |   | 4  |   |  |   | 506   | 
|FNMA     |  |        | 6.25 | %        |  |          | 2/17/2004  |           |  |             | 2/17/2017  |        |  |   | 118   |  |  |   | 2  |   |  |   | 116   | 
|FNMA     |  |        | 5.63 | %        |  |          | 2/23/2004  |           |  |             | 2/23/2014  |        |  |   | 77    |  |  |   | 1  |   |  |   | 76    | 
|FNMA     |  |        | 5.64 | %        |  |          | 12/10/2003 |           |  |             | 12/10/2008 |        |  |   | 51    |  |  |   | 1  |   |  |   | 50    | 
|FNMA     |  |        | 6.13 | %        |  |          | 11/12/2003 |           |  |             | 8/12/2018  |        |  |   | 500   |  |  |   | (3 | ) |  |   | 503   | 
|FRMC     |  |        | 6.15 | %        |  |          | 9/25/2003  |           |  |             | 9/25/2017  |        |  |   | 1,514 |  |  |   | 3  |   |  |   | 1,511 | 
|FRMC     |  |        | 6.35 | %        |  |          | 5/15/2004  |           |  |             | 5/15/2016  |        |  |   | 129   |  |  |   |   |   |  |   | 129   | 
|         |  |        |      |          |  |          |            |           |  |             |            |        |  |   |       |  |  |   |    |   |  |   |       | 
|         |  |        |      |          |  |          |            |           |  |             |            |        |  | $ | 3,598 |  |  | $ | 20 |   |  | $ | 3,578 | 
|         |  |        |      |          |  |          |            |           |  |             |            |        |  |   |       |  |  |   |    |   |  |   |       | 

Note 14: Other Assets:

On July 31, 2003, the Company reached a settlement with Silent Witness
Enterprises, Ltd., (Silent Witness) with respect to a patent infringement
dispute over the Patent"(see note 7 to the Companys Consolidated Financial
Statements - Royalty Claim - for more detail). Silent Witness agreed to pay the Company $800,000 in royalties for
its past use of the Patent. During August 2003 the Company received
$100,000 in cash, the first of eight annual installments, as royalty income.
The Company recognized $497,000, in royalty
income net of $181,000 in legal fees, representing the August 2003
payment and the net
present value of the discounted future seven annual payments to be received
from Silent Witness.

19



---



##### Table of Contents



Note 15: New Accounting Pronouncements

In June 2003, the Company adopted Emerging Issues Task Force (EITF)
Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.EITF Issue
No. 00-21 addresses how to determine whether an arrangement with multiple
deliverables contains more than one unit of accounting and, if so, how the
arrangement consideration should be measured and allocated to the separate
units of accounting. It applies to all deliverables within contractually
binding arrangements in all industries under which a vendor will perform
multiple revenue-generating activities, with limited exceptions. It is
effective for revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The Company does not believe that the implementation of
this statement will have a material effect on its financial position, results
of operations or cash flows.

Note 16: Subsequent Events

On October 3, 2003, Board Member Ronald Harnisch resigned
from the Board. Following Mr. Harnischs resignation, the Board of Directors
consisted of Mr. Carlo Loi, Mr. John Macaulay,
Mr. Lance Borvansky and Mr. Tate.

On October 10, 2003, Victoria & Eagle Strategic Fund (VESF), George Broady and
certain other American Building Control stockholders (the 13D Group) filed a
Schedule 13D/A, stating their intention to remove Mr. Tate
from his position as Chairman and Chief Executive Officer. The October 10
filing by the 13D Group also amended their earlier Schedule 13D filings of
October 10 and October 1 of 2003, with respect to several private transactions,
between the 13D Group and Solico International (Solico), in which the 13D
Group expressed their intention to sell all of their common shares and
preferred shares in American Building Control, over three tranches, between
October 2003 and June 2004 to Solico. According to a Schedule 13D/A filed by Solico on October 27, 2003, Solico has
entered into agreements to acquire up to 3,882,375 common shares and 195,351
Series A preferred shares of the Company for an aggregate
purchase price of $12,481,963.
Solico is estimated
to be paying between $2.33 and $2.75 per common share owned by the 13D Group.

20



---



##### Table of Contents



Effective November 6, 2003, the
Board of Directors has separated the roles of Chairman and CEO to clearly enhance the Boards focus on issues of corporate
governance and direct managements focus on executing the strategic direction
of the Company. At the same time, Mr. Tate was removed as
Chairman and CEO. Mr. Tate continues as a member of the Board
of Directors. The Company and Mr. Tate are in discussions
regarding a severance package to be awarded as a result of his removal from the
position of CEO. Replacing Mr. Tate in the position of
Chairman of the Board is Mr. Loi and the position of Vice-Chairman of
the Board is being filled by Mr. Macaulay. Replacing Mr. Tate as CEO is Danny W.
Mills.

Note 17: Contingencies

The Company has been notified by U.S. Customs and Border Control (Customs) of
possible tariff line classification issues with products imported into the U.S.
over the past five years. The Company is currently in discussions with Customs
to correct any issues. Management expects the issue to have no
material adverse effect on the Companys financial position or
results of operations.






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Results of Operations

Financial statements for the three and nine months ended September 30,
2003 and 2002 report the Companys CCTV Business as discontinued operations
(see note 1 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 9 to the Companys Consolidated Financial Statements for
additional detail).

The following table contains information regarding the percentage of net sales
of certain income and expense items for the three and nine months ended
September 30, 2003 and 2002 and the percentage changes in these income and
expense items from year to year:

21



---



##### Table of Contents



|                                                                                      |                                     |  |                         |      |         |  |                         |      |                   |  |                     |       |               |  |       |      |   |  |       |      |                     |  |        |       |  
|------------------------------------------------------------------------------------- | ----------------------------------- |  | ----------------------- | ---- | ------- |  | ----------------------- | ---- | ----------------- |  | ------------------- | ----- | ------------- |  | ----- | ---- | - |  | ----- | ---- | ------------------- |  | ------ | ----- | -
|                                                                                      |                                     |  |                         |      |         |  |                         |      |                   |  | Percentage Increase |       |               |  |       |      |   |  |       |      | Percentage Increase
|                                                                                      |                                     |  |                         |      |         |  |                         |      |                   |  | (Decrease) Between  |       |               |  |       |      |   |  |       |      | (Decrease) Between 
|                                                                                      |                                     |  | Percentage of Net Sales |      | Periods |  | Percentage of Net Sales |      | Periods          
|                                                                                      |                                     |  |                         |      |         |  |                         |      |                  
|                                                                                      |                                     |  | Three months ended      |      |         |  |                         |      | Nine months ended |  |                     |       |              
|                                                                                      |                                     |  | September 30,           |      |         |  |                         |      | September 30,     |  |                     |       |              
|                                                                                      |                                     |  | 2003                    |      | 2002    |  | 2003 vs. 2002           |      | 2003              |  | 2002                |       | 2003 vs. 2002
|                                                                                      |                                     |  |                         |      |         |  |                         |      |                   |  |                     |       |              
|Net Sales                                                                             |                                     |  | 100.0                   | %    |         |  | 100.0                   | %    |                   |  | -3.8                | %     |               |  | 100.0 | %    |   |  | 100.0 | %    |                     |  | -2.5   | %    
|Cost of sales                                                                         |                                     |  | 64.1                    | %    |         |  | 68.9                    | %    |                   |  | -10.4               | %     |               |  | 69.0  | %    |   |  | 70.5  | %    |                     |  | -4.6   | %    
|Gross profit                                                                          |                                     |  | 35.9                    | %    |         |  | 31.1                    | %    |                   |  | 10.8                | %     |               |  | 31.0  | %    |   |  | 29.5  | %    |                     |  | 2.6    | %    
|Operating expenses:                                                                   |                                     |  |                         |      |         |  |                         |      |                   |  |                     |       |               |  |       |      |   |  |       |      |                     |  |        |      
|                                                                                      | Selling, general and administrative |  |                         | 40.2 | %       |  |                         | 43.1 | %                 |  |                     | -10.3 | %             |  |       | 45.8 | % |  |       | 44.0 | %                   |  |        | 1.5   | %
|                                                                                      | Depreciation and amortization       |  |                         | 5.2  | %       |  |                         | 5.8  | %                 |  |                     | -14.3 | %             |  |       | 5.1  | % |  |       | 5.7  | %                   |  |        | -13.7 | %
|Operating loss                                                                        |                                     |  | -9.5                    | %    |         |  | -17.8                   | %    |                   |  | -48.6               | %     |               |  | -19.8 | %    |   |  | -20.2 | %    |                     |  | -4.3   | %    
|Other income (expense)                                                                |                                     |  | -1.0                    | %    |         |  | -3.5                    | %    |                   |  | -72.4               | %     |               |  | -1.0  | %    |   |  | -4.9  | %    |                     |  | -79.9  | %    
|Loss before taxes, discontinued
operations and cumulative
effect of accounting change |                                     |  | -10.5                   | %    |         |  | -21.3                   | %    |                   |  | -52.5               | %     |               |  | -20.9 | %    |   |  | -25.2 | %    |                     |  | -19.1  | %    
|Loss from continuing operations                                                       |                                     |  | -10.5                   | %    |         |  | -22.8                   | %    |                   |  | -55.6               | %     |               |  | -20.9 | %    |   |  | -24.1 | %    |                     |  | -15.6  | %    
|Income (loss) from discontinued operations                                            |                                     |  | 0.1                     | %    |         |  | 14.3                    | %    |                   |  | -129.2              | %     |               |  | -4.5  | %    |   |  | 8.4   | %    |                     |  | -169.9 | %    
|Loss on disposal of discontinued operations                                           |                                     |  | 0.0                     | %    |         |  | -6.3                    | %    |                   |  | -168.0              | %     |               |  | 0.0   | %    |   |  | -2.1  | %    |                     |  | -168.0 | %    
|Cumulative effect of accounting change                                                |                                     |  | 0.0                     | %    |         |  | 0.0                     | %    |                   |  | 0.0                 | %     |               |  | 0.0   | %    |   |  | -79.8 | %    |                     |  | -100.0 | %    
|Net loss                                                                              |                                     |  | -10.4                   | %    |         |  | -14.8                   | %    |                   |  | -32.2               | %     |               |  | -25.4 | %    |   |  | -97.7 | %    |                     |  | -74.7  | %    

22



---



##### Table of Contents



Three Months Ended
September 30, 2003 Compared to Three Months Ended September 30, 2002

For the three months ended September 30, 2003, net sales were $10.7
million, a decrease of $0.4 million (3%) over the same period in 2002. Sales
in the PSG segment increased $1.1 million (34%), to $4.4 million during the
third quarter of 2003 compared to $3.3 million during the same period in 2002.
The increase is primarily related to the growing Homeland
Security-funded
business. The increase was partly offset by a $0.8 million decrease in the CCTV
products sold as part of access control projects Sales in the DSG segment
decreased $1.5 million (19%), to $6.1 million during the third quarter of
2003, compared to $7.6 million during the same period in 2002. The decrease is
mainly due to a national retailer implementing a product changeover in the
third quarter of 2003. The product changeover reduces our new product
shipments to the national retailer, until the old product on the retailers
shelves is sold. The comparable 2002 product changeover occurred in the second
quarter of that year. Therefore, on a quarter to quarter comparison the DSG
segment sales have decreased for the third quarter 2003. This decrease is partially
offset by the Company recognizing $0.5 million, net of applicable legal fees, related to the Silent Witness Settlement (see
note 14 to the
Companys Consolidated Financial Statements for additional detail).

Gross profit margins increased from 31.1% during the three months ended
September 30, 2002 to 35.9%, or 32.7% excluding the $497,000 from net licensing settlement as referred to in note 14
to the Company Consolidated Financial Statements during the three months ended September 30, 2003.
The margin increase is mainly attributed to the PSG segment becoming a larger
percentage of the Companys total
sales. The PSG segment sales, for the third quarter of 2003, has
increased to 41.5% of the Companys total sales compared to 29.8% for the same
period last year. The PSG segment gross profit is approximately 40% on a historical basis.
Additionally, the DSG gross profit margins have
increased 4.7% to 31.2% during the three months ended September 30, 2003
as compared to 26.5% during the same period last year. Also within the PSG
segment, the new generation of the SAFEnet access control product line
continues to grow as a percentage of total access control sales and contribute
to the improved margins.

Selling, general and administrative expenses (SG&A) were $4.3 million
for the three months ended September 30, 2003, a decrease of $0.5 million (10%) over the same period in 2002, related primarily to expenses for executive
positions that were eliminated in 2002. The positions of President, Chief
Operating Officer and Senior Vice President of Sales were eliminated in 2002
and the Company does not intend to replace them. Depreciation and amortization expenses were $0.5 million for the three
months ended September 30, 2003, a decrease of $0.1 million
(14%) over the same period in 2002. This decrease resulted primarily from the $2.7 million
write-down of the Companys SAP system in 2002.

Other income and expenses during the three months ended September 30, 2003
were $0.1 million, compared to $0.4 million during the same period in 2002. The
decrease was primarily related to $0.5 million of interest and loan
amortization costs incurred in 2002 on the revolving credit facility that the
Company paid in full with the proceeds received from the Honeywell Asset Sale
in December 2002. Income from discontinued operations was $10,000 during
the three months ended September 30, 2003 as all losses were offset by
recognition of $0.5 million deferred income relating to the Honeywell
Supply Agreement. Deferred income was recognized due to a
change in the estimated purchases under the Honeywell Supply
Agreement. At the close of the Honeywell Asset Sale, the Company had deferred $1.9 million to be recognized as
CCTV units were purchased from Honeywell and subsequently sold. The Companys purchase of
CCTV products from Honeywell has been significantly less than
anticipated. An adjustment was made to the deferred income in
accordance with revised estimates of the Companys CCTV purchases
between October 2003 and December 2004.

23



---



##### Table of Contents



Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

For the nine months ended September 30, 2003, net sales were $31.9
million, a decrease of $0.8 million (2%) over the same period in 2002. Sales in
the PSG segment increased $1.3 million (12%) to $13.2 million during the first
nine months of 2003 compared to $11.9 million during the same period in 2002,
mainly resulting from a sale to a French casino of approximately $1.1 million
during the first quarter of 2003 that was largely fulfilled last year but not
recognized until the first quarter this year. In addition, Homeland
Security-funded projects are contributing to PSG sales. The
increase in PSG sales was partly offset by a $1.7 million decrease in the CCTV
products sold as part of access control projects. Sales in the DSG segment
declined $2.2 million (10%) to $18.5 million during the first nine months of
2003, compared to $20.7 million during the same period in 2002. Although sales
in the consumer/do-it-yourself business increased $0.7 million as a result of
additional sales to a national retailer, sales declined in the industrial video
business ($2.5 million), the central station alarm management business ($0.8
million) and the mobile video business ($0.1 million). This
decrease in DSG sales is
partially offset by the Company recognizing $0.5 million
net of applicable legal fees, related to the Silent Witness
Settlement, in
the third quarter of 2003. (See note 14 to the Companys Consolidated
Financial Statements for additional detail).

Gross
profit margins were 31.0%, or 30.0% excluding the $497,000 from net
licensing settlement as referred to in note 14 to the Companys Consolidated Financial Statements, during the nine months ended September 30,
2003, an increase of 1.5% points over the same period in 2002. The gross
profit margin of 31.0% includes an additional $0.4 million of charges in DSG
segment for slow moving and obsolete inventory as a result of changes in
product lines and sales forecasts. Excluding these charges, the gross profit
margin for the nine months ended September 30, 2003 would have been 32.3%. The
increase in gross profit margin is mainly attributed to the PSG segment
becoming a larger percentage of the Companys total sales. Also within the PSG
segment, the new generation of the SAFEnet access control product line
continues to grow as a percentage of total access control sales and contribute
to the improved margins.

The Companys SG&A expenses were $14.6 million for the nine months ended
September 30, 2003, an increase of $0.2 million (2%) over the same period in
2002. The nine months ended September 30, 2003 includes $0.4 million
in severance costs, $0.2 million in fees paid to former members of the
Companys Board of Directors and $0.1 million in legal fees related to patent
litigation. Depreciation and amortization expenses were $1.6 million for the
nine months ended September 30, 2003, a decrease of $0.3 million (14%) over the
same period in 2002. This decrease resulted primarily from the $2.7 million
write-down of the Companys SAP system during the fourth quarter of 2002.

Other expenses during the first nine months of 2003 were $0.3 million,
compared with $1.6 million during the same period in 2002. The decrease was
primarily related to $1.5 million of interest and loan amortization costs
incurred in 2002 on the revolving credit facility that the Company paid off in
December 2002. Other income during the nine months ended September 30, 2003 was
$0.3 million, compared to $0.5 million during the same period in 2002. During
2003, the Company recognized income related to the
non-compete agreement in the Honeywell Asset Sale, $0.3
million of other income in 2002 related to successful
patent enforcement.

Losses from discontinued operations were $1.4 million during the nine
months ended September 30, 2003. This net loss includes the recognition
$0.5 million of the deferred income relating to the Honeywell
Supply Agreement;
$0.3 million of write-offs related to equipment not
transferred to Honeywell; $0.3 million in additional arbitration fees incurred
in connection with the dispute with Honeywell regarding the final purchase
price of certain assets (see note 2 to the Companys Consolidated Financial
Statements for additional detail);
$0.3 million of estimated legal liabilities and $0.3 million of accrued legal
fees related to claims against the Company in France, Belgium and Germany as
part of the liquidation of its international entities (see note 12 to the
Companys Consolidated Financial Statements for additional
detail); $0.2

24



---



##### Table of Contents



million in additional professional fees; and $0.1 million in additional
personnel expenses in Belgium and Ohio.

Financial Condition, Liquidity and Capital Resources

In the first nine months of 2003, the Companys cash and cash equivalents
decreased from $16.4 million at December 31, 2002 to $2.9 million at September
30, 2003. The largest components of the net cash used in operations of $10.4
million were the $8.1 million net loss and the payment of accrued expenses. The
Company used $3.6 million of cash to purchase a
series of callable government securities net of $645,000 in redemptions. This was offset by cash provided
by the sale of the Ohio facility for $1.4 million. Additionally, the Company
used $0.7 million in cash for capital expenditures including $0.3 million for
a new enterprise planning system and $0.1 million for a new technology license
for the access control business.

The callable securities have coupon rates ranging from 5.5 to 6.5 percent
and mature from December 2008 to August 2018 (see note 13 to the Companys
Consolidated Financial Statements for additional detail). The Company believes
that based on current interest rate projections given to the Company by our
investment advisor, the government will choose to call these securities on the
pertinent call date.

If the Company receives a substantially unfavorable resolution in its
dispute with Honeywell in connection with the Asset Purchase Agreement, the
Companys financial position, results of operations and future cash flows will be materially and
adversely impacted, as net assets would be reduced and a charge to
net earnings (loss) would be incurred for any settlement amount less
than the $5.4 million receivable on the Companys Balance
Sheet as of September 30, 2003. The Company does not expect a substantially unfavorable resolution to affect its ability to meet obligations for the next 12 months.

During the next twelve months, 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 existing cash balances will be sufficient to satisfy the
Companys liquidity requirements for at least the next 12 months.

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 September 30, 2003 (in thousands):

|                                         |  |       |       |      |  |      |       |      |  |      |     |  |  |   |     |  |  |   |    | 
|---------------------------------------- |  | ----- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | --- |  |  | - | --- |  |  | - | -- | 
|                                         |  | Total |       | 2003 |  | 2004 |       | 2005 |  | 2006
|                                         |  |       |       |      |  |      |       |      |  |     
|Contractual obligations and commitments: |  |       |       |      |  |      |       |      |  |      |     |  |  |   |     |  |  |   |    | 
|Operating leases                         |  | $     | 1,456 |      |  | $    | 813   |      |  | $    | 392 |  |  | $ | 197 |  |  | $ | 54 | 
|Royalty obligation                       |  |       | 402   |      |  |      | 258   |      |  |      | 94  |  |  |   | 25  |  |  |   | 25 | 
|Severance obligations                    |  |       | 879   |      |  |      | 791   |      |  |      | 88  |  |  |   |    |  |  |   |   | 
|                                         |  |       |       |      |  |      |       |      |  |      |     |  |  |   |     |  |  |   |    | 
|                                         |  | $     | 2,737 |      |  | $    | 1,862 |      |  | $    | 574 |  |  | $ | 222 |  |  | $ | 79 | 
|                                         |  |       |       |      |  |      |       |      |  |      |     |  |  |   |     |  |  |   |    | 

25



---



##### Table of Contents



The royalty obligation includes $402,000 in future payments for all past
claims (see note 7 to the Companys Consolidated Financial
Statements - Royalty Claim - for additional detail) and a minimum annual payment of $25,000 per
year for future obligations.

The accrued severance at September 30, 2003, includes various severance
obligations related to certain executive management and corporate
positions terminated during the Company's restructuring and cost
cutting initiatives that took place in 2002 and 2003.

In January 2002, the Company sold its corporate headquarters facility for
$6.6 million. The Company leased back the facility for an 18 month term, set to expire June 30, 2004, with an option to purchase at $6.9 million.
During the close of the Honeywell Asset Sale, the landlord, Briarwood Capital
Corporation, demanded and obtained an increase to the purchase price from $6.9
million to $7.55 million. If the Company intends to exercise this option, it
must notify the owner of its intent to purchase no later than November 30, 2003
and must make payment no later than December 30, 2003. This amount is not
included in the table above since the Company is not contractually obligated to
exercise this option. The Company would reduce the Financing
obligation and property and equipment, on the Companys Balance
Sheet, by $6.6 million, if the purchase option is not exercised.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Exchange

Since the access control office in Switzerland is the Companys only
significant foreign-based operation, accounting for approximately 2% of the
total consolidated sales during the third quarter of 2003 and 6% of the total
consolidated sales during the nine months ended September 30, 2003, the Company
does not expect currency fluctuation to have a material adverse effect on its
future consolidated financial position or results of operation.

Interest Rates

An interest rate swap agreement with Bank One remains in effect through
February 15, 2004. This agreement provides a fixed rate of 6.485% on $5.0
million of notional debt. This agreement generated net interest expense of $1,000 and
$40,000 for the three and nine months ended September 30, 2003, which consisted
of interest due under the swap, offset by changes in the market value of the
swap.




ITEM 4. CONTROLS AND PROCEDURES

An evaluation was performed under the supervision and with the
participation of management, including the Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures within 90 days before the filing of this
quarterly report. Based on that evaluation, the management, including the Chief
Executive Officer and the Chief Financial Officer, concluded that the
disclosure controls and procedures were effective. There have been no
significant changes in the Companys internal controls or in other factors that
could significantly affect internal controls subsequent to their evaluation.

26



---



##### Table of Contents






PART II




ITEM 1. LEGAL PROCEEDINGS

The Company is subject to various legal proceedings and claims, either
asserted or unasserted, that arise in the ordinary course of business. Although
the outcomes of these legal proceedings cannot be predicted with certainty,
management does not believe that any of these existing legal matters will have
a material adverse effect on the Companys financial condition or results of
operations.




ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

None.




ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.




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

None




ITEM 5. OTHER INFORMATION

None.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K



| | a) |  | Exhibits. The following is a list of the Exhibits filed with this
Form 10-Q.
| | -- |  | ----------------------------------------------------------------------------



|
|
|
|
|
|
|
|
|



| | b) |  | Reports on Form 8-K. The following reports on Form 8-K were filed
during the three months ended September 30, 2003
| | -- |  | ------------------------------------------------------------------------------------------------------------------



| |  |  | 1.  On August 13, 2003, a report was filed which furnished a press release
reporting the Companys earnings for the second quarter of 2003
| |  |  | ------------------------------------------------------------------------------------------------------------------------------------------

27



---



##### 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.
|                         |  |     |                                 |                          
|Dated: November 14, 2003 |  | By: |                                 | /s/ Chris Sharng         
|                         |  |     |                                 |                          
|                         |  |     |                                 | Chris Sharng             
|                         |  |     |                                 | Senior Vice President and
|                         |  |     |                                 | Chief Financial Officer  

28