##### 



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C.
20549
 
 FORM 10-Q/A
 Amendment No. 1
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended: June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the transition period from  to
 Commission
File Number: 000-50373
 SPECTRUM SCIENCES & SOFTWARE HOLDINGS CORP.
  Delaware
    
    90-0182158(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3130 Fairview Park Drive, Suite 400,Falls Church, Virginia
    
    22042(Address of principal executive offices)
    
    (Zip Code)
 703-564-2967
 o þ
 o þ
  o þ




---



##### 



EXPLANATORY NOTE
  
    
    To correct the filing to a Form 10-Q from a 10-QSB as originally filed. This change
requires certain additional information be added to our original filing, including December
31, 2004 comparative balance sheets and market risk disclosures.
    
    To revise the foreign currency translation adjustment as a result of the amendment to
the consolidated financial statements in the Quarterly Report for the quarter ended March
31, 2005 filed on December 23, 2005.
    
    To revise the footnotes to the consolidated financial statements to summarize previously
issued financial data and to include comparative financial data from prior periods.
    
    To update Subsequent Events through the filing date.
    
    To amend the Managements Discussion and Analysis to conform to the segments presented
in our current filings and to include historical data for comparison purposes.
    
    To add Part I, Item 3 Quantitative and Qualitative Disclosures about Market Risk.
    
    To revise the Controls and Procedures section.
  i




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##### 



TABLE OF CONTENTS
 Special Note Regarding Forward-Looking Statements
    
    
    1PART I  FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and
six months ended June 30, 2005 and 2004
    
    
    3Consolidated Statement of Stockholders Equity for the six months ended
June 30, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the six months ended
June 30, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    21Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    33Item 4. Controls and Procedures
    
    
    34PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    35Item 6. Exhibits
    
    
    35
 ii




---



##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   1




---



##### 



June 30,
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    5,596,126
    
    
    $
    5,666,910Short-term investments
    
    
    1,910,262
    
    
    
    18,795,143Receivables
    
    
    15,605,907
    
    
    
    2,759,756Due from Shareholder
    
    
    
    
    
    
    705,126Inventories
    
    
    538,771
    
    
    
    79,010Prepaid expenses & other current assets
    
    
    817,493
    
    
    
    882,478Total current assets
    
    
    24,468,559
    
    
    
    28,888,423Property and equipment, net
    
    
    7,665,972
    
    
    
    2,280,746Goodwill
    
    
    15,088,708
    
    
    
    Investments in joint ventures
    
    
    1,167,032
    
    
    
    Other assets
    
    
    101,377
    
    
    
    43,810TOTAL ASSETS
    
    $
    48,491,648
    
    
    $
    31,212,979LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    6,098,174
    
    
    $
    1,025,030Line of credit
    
    
    1,017,764
    
    
    
    Accrued expenses
    
    
    2,102,666
    
    
    
    482,923Current portion due to related party
    
    
    118,061
    
    
    
    705,126Deferred revenues
    
    
    322,848
    
    
    
    228,968Provision for contract losses
    
    
    
    
    
    
    148,248Current portion of long-term debt
    
    
    379,509
    
    
    
    Total current liabilities
    
    
    10,039,022
    
    
    
    2,590,295Long-term liabilities:Long-term debt, less current portion
    
    
    2,387,259
    
    
    
    Due to related party, less current portion
    
    
    67,388
    
    
    
    TOTAL LIABILITIES
    
    $
    12,493,669
    
    
    $
    2,590,295Commitments and contingencies (Note 11)Minority interest
    
    
    161,881
    
    
    
    Stockholders equity:Preferred stock, $0.0001 par value; 20,000,000 shares
authorized, none issued
    
    
    
    
    
    
    Common stock, $0.0001 par value; 80,000,000 shares authorized,
44,072,200 and 38,969,300 issued and outstanding at June 30, 2005 and December 31, 2004
    
    
    4,407
    
    
    
    3,897Additional paid-in capital
    
    
    79,865,695
    
    
    
    69,895,120Accumulated deficit
    
    
    (44,079,590
    )
    
    
    (41,277,155
    )Accumulated other comprehensive income
    
    
    45,586
    
    
    
    822Total stockholders equity
    
    
    35,836,098
    
    
    
    28,622,684TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    48,491,648
    
    
    $
    31,212,979
  2




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##### 



Three months ended
    
    
    Six months endedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Revenues
    
    $
    11,796,428
    
    
    $
    3,418,747
    
    
    $
    14,339,038
    
    
    $
    7,015,325Cost of revenues
    
    
    10,121,076
    
    
    
    3,054,924
    
    
    
    12,269,211
    
    
    
    6,329,305Gross profit
    
    
    1,675,352
    
    
    
    363,823
    
    
    
    2,069,827
    
    
    
    686,020Operating expenses
    
    
    2,961,564
    
    
    
    27,053,790
    
    
    
    5,254,759
    
    
    
    41,005,374Loss from operations
    
    
    (1,286,212
    )
    
    
    (26,689,967
    )
    
    
    (3,184,932
    )
    
    
    (40,319,354
    )Total non-operating income (expense), net
    
    
    324,471
    
    
    
    8,452
    
    
    
    498,576
    
    
    
    (4,499
    )Loss before provision for income taxes
    
    
    (961,741
    )
    
    
    (26,681,515
    )
    
    
    (2,686,356
    )
    
    
    (40,323,853
    )Income tax benefit
    
    
    50,485
    
    
    
    0
    
    
    
    50,485
    
    
    
    61,330Loss before minority interest
    
    
    (911,256
    )
    
    
    (26,681,515
    )
    
    
    (2,635,871
    )
    
    
    (40,262,523
    )Minority interest income(loss)
    
    
    (146,483
    )
    
    
    0
    
    
    
    (166,564
    )
    
    
    0Net Loss
    
    $
    (1,057,739
    )
    
    $
    (26,681,515
    )
    
    $
    (2,802,435
    )
    
    $
    (40,262,523
    )Weighted average common shares outstanding:Basic and diluted
    
    
    41,774,398
    
    
    
    36,795,363
    
    
    
    40,388,341
    
    
    
    27,505,843Loss per share:Basic and diluted
    
    $
    (0.03
    )
    
    $
    (0.73
    )
    
    $
    (0.07
    )
    
    $
    (1.46
    )Net Loss
    
    $
    (1,057,739
    )
    
    $
    (26,681,515
    )
    
    $
    (2,802,435
    )
    
    $
    (40,262,523
    )Foreign currency translation adjustments
    
    
    (22,789
    )
    
    
    0
    
    
    
    45,586
    
    
    
    0Unrealized gain on available for sale securities
    
    
    0
    
    
    
    13,781
    
    
    
    0
    
    
    
    13,781Total comprehensive income(loss)
    
    $
    (1,080,528
    )
    
    $
    (26,667,734
    )
    
    $
    (2,756,849
    )
    
    $
    (40,248,742
    )
  3




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##### 



AccumulatedOtherCommon Stock
    
    
    
    
    
    Accumulated
    
    ComprehensiveShares
    
    Amount
    
    APIC
    
    Deficit
    
    Income(Loss)
    
    TotalBalance at January 1, 2005
    
    
    38,969,300
    
    
    $
    3,897
    
    
    $
    69,895,120
    
    
    $
    (41,277,155
    )
    
    $
    822
    
    
    $
    28,622,684Stock options issued
for consulting services
    
    
    
    
    
    
    
    
    
    
    1,399,026
    
    
    
    
    
    
    
    
    
    
    
    1,399,026Exercise of stock options
    
    
    2,900
    
    
    
    
    
    
    
    4,059
    
    
    
    
    
    
    
    
    
    
    
    4,059Issuance of common stock
for acquisition of Horne
Engineering
    
    
    5,100,000
    
    
    
    510
    
    
    
    8,567,490
    
    
    
    
    
    
    
    
    
    
    
    8,568,000Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (822
    )
    
    
    (822
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    45,586
    
    
    
    45,586Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,802,435
    )
    
    
    
    
    
    
    (2,802,435
    )Balance at June 30, 2005
    
    
    44,072,200
    
    
    $
    4,407
    
    
    $
    79,865,695
    
    
    $
    (44,079,590
    )
    
    $
    45,586
    
    
    $
    35,836,098
 2005Disclosure of reclassification amount:Reclassification
adjustment for
losses included in net
loss
    
    $
    822
  4




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##### 



Six
Months ended June 30,2005
    
    
    2004Cash flows from operating activitiesNet loss
    
    $
    (2,802,435
    )
    
    $
    (40,262,523
    )Adjustments to reconcile net loss to netCash used in operating activitiesIssuance of stock options to related party for
consulting services
    
    
    0
    
    
    
    37,258,300Investor relations expenses paid by a related party
    
    
    0
    
    
    
    2,057,500Amortization of investment bond premium
    
    
    0
    
    
    
    8,496Depreciation
    
    
    304,638
    
    
    
    72,083Issuance of stock options to employees
    
    
    1,399,026
    
    
    
    125,358Deferred income taxes
    
    
    0
    
    
    
    (28,594
    )Minority interest
    
    
    161,881
    
    
    
    0Loss on disposal of equipment
    
    
    2,015
    
    
    
    0Realized loss on the sale of bonds
    
    
    (822
    )
    
    
    0Changes in assets and liabilitiesReceivables
    
    
    (5,450,599
    )
    
    
    (1,170,385
    )Accounts payable
    
    
    3,061,566
    
    
    
    (525,982
    )Provision for contract losses
    
    
    (148,248
    )
    
    
    0Other balance sheet changes
    
    
    626,546
    
    
    
    (206,368
    )Net cash used in operating activities
    
    
    (2,846,432
    )
    
    
    (2,672,115
    )Cash flows from investing activitiesMaturities
(purchases) of available for sale investments, net
    
    
    16,884,881
    
    
    
    (22,538,101
    )Acquisitions, net of cash received
    
    
    (12,411,884
    )
    
    
    0Purchase of property and equipment
    
    
    (2,327,281
    )
    
    
    (109,993
    )Proceeds from the sale of equipment
    
    
    7,500
    
    
    
    0Investments in joint ventures
    
    
    (88,727
    )
    
    
    0Net cash provided by (used in) investing activities
    
    
    2,064,489
    
    
    
    (22,648,094
    )Cash flows from financing activitiesIssuance (repayment) of debt, net
    
    
    1,549,567
    
    
    
    (1,061,044
    )Net (repayments) borrowings on lines of credit
    
    
    (1,045,905
    )
    
    
    0Advances from related party
    
    
    157,852
    
    
    
    620,051Proceeds from the exercise of stock options
    
    
    4,059
    
    
    
    31,113,685Net cash provided by financing activities
    
    
    665,573
    
    
    
    30,672,692Foreign exchange translation
    
    
    45,586
    
    
    
    0Net (decrease) increase in cash and cash equivalents
    
    
    (70,784
    )
    
    
    5,352,483Cash and cash equivalents at beginning of period
    
    
    5,666,910
    
    
    
    696,959Cash and cash equivalents at end of period
    
    $
    5,596,126
    
    
    $
    6,049,442
   5




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##### 



1. BASIS OF PRESENTATION
   2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Organization and Nature of Business
   Income Taxes
  6




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##### 



Earnings (Loss) Per Share
   Financial Instruments
   Foreign Currency Translation
  7




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##### 



Recent Accounting Pronouncements
   
    
    SFAS No. 151, Inventory CostsAn Amendment of ARB No. 43, Chapter 4
 
    
    SFAS No. 153, Exchanges of Nonmonetary AssetsAn Amendment of APB Opinion No. 29.
 
    
    EITF Issue No. 05-06, Determining the Amortization Period for Leasehold Improvements
  3. ACQUISITIONS
 M&M Engineering Limited
  Coast Engine and Equipment
  8




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##### 



Horne Engineering, Inc.
     9




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##### 



Pro Forma Results
  Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Revenue
    
    $
    13,307,675
    
    
    $
    14,576,726
    
    
    $
    37,641,826
    
    
    $
    22,888,868Net loss
    
    
    (1,046,875
    )
    
    
    (26,302,478
    )
    
    
    (2,778,843
    )
    
    
    (39,691,478
    )Loss per share  Basic & Diluted
    
    $
    (0.03
    )
    
    $
    (0.71
    )
    
    $
    (0.07
    )
    
    $
    (1.44
    )
   4. RECEIVABLES
  10




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##### 



June
    
    
    DecemberReceivables
    
    30, 2005
    
    
    31, 2004Billed receivables
    
    $
    11,906,206
    
    
    $
    1,467,285Unbilled receivables
    
    
    3,201,400
    
    
    
    1,165,514Holdbacks
    
    
    516,108
    
    
    
    Other
    
    
    (17,807
    )
    
    
    126,957Total Receivables
    
    $
    15,605,907
    
    
    $
    2,759,756
 5. INVENTORIES
  June
    
    
    DecemberInventories
    
    30, 2005
    
    
    31, 2004Raw materials, net of reserve
    
    $
    467,242
    
    
    $
    20,483Work in process
    
    
    38,109
    
    
    
    58,527Finished goods
    
    
    33,420
    
    
    
    Total Inventories
    
    $
    538,771
    
    
    $
    79,010
 6. PROPERTY AND EQUIPMENT
 June
    
    
    DecemberProperty & Equipment
    
    30, 2005
    
    
    31, 2004Land
    
    
    858,462
    
    
    
    175,000Buildings and Improvements
    
    
    4,838,013
    
    
    
    1,698,572Furniture & fixtures
    
    
    49,130
    
    
    
    39,541Manufacturing Equipment
    
    
    1,331,900
    
    
    
    1,012,541Tools & Equipment
    
    
    313,517
    
    
    
    Office Equipment
    
    
    608,805
    
    
    
    245,119Vehicles
    
    
    439,626
    
    
    
    55,390Equipment under capital Lease
    
    
    476,575
    
    
    
    Investment Property
    
    
    220,900
    
    
    
    220,900Total
    
    
    9,136,928
    
    
    
    3,447,063Accumulated Depreciation
    
    
    (1,470,956
    )
    
    
    (1,166,317
    )Property & Equipment, net
    
    
    7,665,972
    
    
    
    2,280,746
 7. BORROWINGS AND LINES OF CREDIT
   11




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##### 



CIBC Facility
   Magna Credit Facility
  Bank of America Facility
  8. RELATED PARTY TRANSACTIONS
 Transactions related to BG Capital Group Limited, Endeavor Group, LLC and Related Stockholders
  Transactions related to Coast Engine and Equipment Company
  12




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##### 



2005
    
    $
    8,2262006
    
    
    10,5132007
    
    
    5,5002008
    
    
    1,375$
    25,614
  2005
    
    $
    71,0162006
    
    
    23,672$
    94,688
 9. STOCK OPTION PLAN
 Share-Based Payment
  13




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##### 



10. SEGMENT INFORMATION
   14




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##### 



Three months ended
    
    Six months endedJune 30,
    
    June 30,2005
    
    2004
    
    2005
    
    2004Security SolutionsTotal revenue
    
    $
    1,642,055
    
    
    $
    3,418,747
    
    
    $
    3,292,807
    
    
    $
    7,015,325Operating (loss)income
    
    
    (405,769
    )
    
    
    62,913
    
    
    
    (571,317
    )
    
    
    36,160Industrial and OffshoreTotal revenue
    
    
    4,896,574
    
    
    
    
    
    
    
    5,677,826
    
    
    
    Operating income
    
    
    252,734
    
    
    
    
    
    
    
    (101,407
    )
    
    
    Repair and OverhaulTotal revenue
    
    
    360,620
    
    
    
    
    
    
    
    471,226
    
    
    
    Operating income
    
    
    74,277
    
    
    
    
    
    
    
    86,473
    
    
    
    Engineering ConsultingTotal revenue
    
    
    2,613,446
    
    
    
    
    
    
    
    2,613,446
    
    
    
    Operating income
    
    
    197,043
    
    
    
    
    
    
    
    197,043
    
    
    
    Procurement ServicesTotal revenue
    
    
    2,283,733
    
    
    
    
    
    
    
    2,283,733
    
    
    
    Operating income
    
    
    60,689
    
    
    
    
    
    
    
    60,689
    
    
    
    HeadquartersTotal revenue
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating (loss)income
    
    
    (1,465,186
    )
    
    
    (26,752,880
    )
    
    
    (2,856,413
    )
    
    
    (40,355,514
    )TotalTotal revenue
    
    $
    11,796,428
    
    
    $
    3,418,747
    
    
    $
    14,339,038
    
    
    $
    7,015,325Operating (loss)income
    
    $
    (1,286,212
    )
    
    $
    (26,689,967
    )
    
    $
    (3,184,932
    )
    
    $
    (40,319,354
    )
 Identifiable Assets
    
    September 30, 2005
    
    December 31, 2004Security Solutions
    
    $
    4,470,442
    
    
    $
    3,071,143Industrial and Offshore
    
    
    8,636,551
    
    
    
    Repair and Overhaul
    
    
    366,984
    
    
    
    Engineering Consulting
    
    
    4,282,039
    
    
    
    Procurement Services
    
    
    2,194,298
    
    
    
    Corporate Assets
    
    
    28,541,334
    
    
    
    28,141,836Total Assets
    
    $
    48,491,648
    
    
    $
    31,212,979
  11. COMMITMENTS AND CONTINGENCIES
 Legal Matters
 Harassment Suit
  15




---



##### 



Section 16(b) claim
  Claim by the former President of the Company
  
    
    Spectrum has breached its obligation under an oral employment agreement for the period
from November 2002 to December 2003 by failing and refusing to pay salary or benefits;
    
    Spectrum has breached its obligation under a written employment agreement starting
December 2003 by failing to fully compensate Mr. Myrick under that agreement up to the time
of his resignation, and
    
    Spectrum, by its failure to issue an opinion letter to allow the sale of Mr. Myricks
stock in the open market, is liable for the damages that occurred due to the difference in
value as to the date of the registration of transfer should have occurred and the eventual
date that Mr. Myrick was able to liquidate the stock in the open market.
  Munitions Assembly Conveyor (MAC) Lawsuit
  16




---



##### 




    
    Breach of Express Contract
    
    Breach of Implied in Fact Contract
    
    Misappropriation of Trade Secrets
   Garrison Lawsuit
  
    
    Breach of Contract
    
    Violation of Uniform Trade Secrets Act
    
    Tortious Interference
    
    Conversion
    
    Civil Conspiracy
  17




---



##### 



Plum Island Claim
  SEC Investigation
  
    
    All documents concerning Robert Genovese (Genovese), Endeavor Capital Group Ltd., and
B.G. Capital Group Ltd., both of which are owned by a stockholder, Mr. Genovese;
    
    All documents concerning any purchase or sales of the Companys stock by Genovese,
Endeavor, B.G. Capital, or any Company officer, director or manager, or any related party;
    
    All documents concerning stock options in the Company held by Genovese, Endeavor, B.G.
Capital, or any other related persons or parties;
    
    All documents concerning press releases or public announcements issued by the Company;
    
    All documents concerning statements made by the Company to securities analysts or in the media;
    
    All documents concerning any promotional materials concerning the Companys stock;
    
    All documents concerning the resignation of Donal Myrick.
  
    
    All information relating to the Companys decision to list on any foreign exchange;
    
    All documents relating to the listing of the Companys stock on any foreign exchange;
    
    Any information relating to any transfers of stock that the Company may be aware that
were directed overseas.
   18




---



##### 



12. INVESTMENTS IN JOINT VENTURES
 M&M Engineering Limited
         13. SUBSEQUENT EVENTS
 Required Consents Received
  19




---



##### 



Legal Update
    20




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 DESCRIPTION OF THE COMPANY
        21




---



##### 



CRITICAL ACCOUNTING POLICIES
   Revenue Recognition
  Inventory Valuation
  Foreign Currency Translation
  Net Operating Loss Carryforwards
  22




---



##### 



Impairment of Long Lived Assets
  Off Balance Sheet Risk
   COMPARISON OF THREE MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
 Consolidated Overview
  For the three months ended June 30,2005
    
    
    2004Revenues
    
    $
    11,796,428
    
    
    
    100.0
    %
    
    $
    3,418,747
    
    
    
    100.0
    %Cost of revenue
    
    
    10,121,076
    
    
    
    85.8
    %
    
    
    3,054,924
    
    
    
    89.4
    %Gross profit
    
    $
    1,675,352
    
    
    
    14.2
    %
    
    $
    363,823
    
    
    
    10.6
    %
  23




---



##### 



Security Solutions
  For the three months ended June 30,2005
    
    
    2004Revenue
    
    $
    1,642,055
    
    
    
    100.0
    %
    
    
    3,418,747
    
    
    
    100.0
    %Cost of revenue
    
    
    1,749,730
    
    
    
    106.6
    %
    
    
    3,054,924
    
    
    
    89.4
    %Gross profit
    
    $
    (107,675
    )
    
    
    (6.6
    %)
    
    
    363,823
    
    
    
    10.6
    %
    Industrial and Offshore Segment
  For the three months ended June 30,2005
    
    
    2004Revenue
    
    $
    4,896,574
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    4,023,423
    
    
    
    82.2
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    873,151
    
    
    
    17.8
    %
    
    
    N/A
    
    
    
    N/A
  24




---



##### 



Repair and Overhaul Segment
  For the three months ended June 30,2005
    
    
    2004Revenue
    
    $
    360,620
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    226,008
    
    
    
    62.7
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    134,612
    
    
    
    37.3
    %
    
    
    N/A
    
    
    
    N/A
  Engineering Consulting
  For
the two months ended June 30,2005
    
    
    2004Revenue
    
    $
    2,613,446
    
    
    
    100.0
    %
    
    NA
    
    NACost of revenue
    
    
    1,934,263
    
    
    
    74.0
    %
    
    NA
    
    NAGross profit
    
    $
    679,183
    
    
    
    26.0
    %
    
    NA
    
    NA
    25




---



##### 



Procurement Services
 For
the two months ended June 30,2005
    
    
    2004Revenues
    
    $
    2,283,733
    
    
    
    100.0
    %
    
    NA
    
    NACost of revenue
    
    
    2,187,651
    
    
    
    95.8
    %
    
    NA
    
    NAGross profit
    
    $
    96,082
    
    
    
    4.2
    %
    
    NA
    
    NA
   Operating Expenses
 June 30, 2005
    
    
    June 30, 2004
    
    

DecreaseSelling, General & Administrative
    
    $
    2,961,564
    
    
    $
    27,053,789
    
    
    
    89.1
    %
  Other Income and Expenses
  COMPARISON OF SIX MONTHS ENDED JUNE 30, 2005 AND JUNE 30, 2004
 Consolidated Overview
  26




---



##### 



For the six months ended June 30,2005
    
    
    2004Revenues
    
    $
    14,339,038
    
    
    
    100.0
    %
    
    $
    7,015,325
    
    
    
    100.0
    %Cost of revenue
    
    
    12,269,211
    
    
    
    85.6
    %
    
    
    6,329,305
    
    
    
    90.2
    %Gross profit
    
    $
    2,069,827
    
    
    
    14.4
    %
    
    $
    686,020
    
    
    
    9.8
    %
  Security Solutions
  For the six months ended June 30,2005
    
    
    2004Revenue
    
    $
    3,292,807
    
    
    
    100.0
    %
    
    $
    7,015,325
    
    
    
    100.0
    %Cost of revenue
    
    
    3,087,487
    
    
    
    93.8
    %
    
    
    6,329,305
    
    
    
    90.3
    %Gross profit
    
    $
    205,320
    
    
    
    6.2
    %
    
    $
    686,020
    
    
    
    9.7
    %
  Industrial and Offshore Segment
  27




---



##### 



For the five months ended June 30,2005
    
    
    2004Revenue
    
    $
    5,677,826
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    4,768,105
    
    
    
    84.0
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    909,721
    
    
    
    16.0
    %
    
    
    N/A
    
    
    
    N/A
  Repair and Overhaul Segment
  For the four months ended June 30,2005
    
    
    2004Revenue
    
    $
    471,226
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    291,705
    
    
    
    61.9
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    179,521
    
    
    
    38.1
    %
    
    
    N/A
    
    
    
    N/A
  Engineering Consulting
  For the two months ended June 30,2005
    
    
    2004Revenue
    
    $
    2,613,446
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    1,934,373
    
    
    
    74.0
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    679,073
    
    
    
    26.0
    %
    
    
    N/A
    
    
    
    N/A
  28




---



##### 



Procurement Services
  For the two months ended June 30,2005
    
    
    2004Revenues
    
    $
    2,283,733
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    2,187,541
    
    
    
    95.8
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    96,192
    
    
    
    4.2
    %
    
    
    N/A
    
    
    
    N/A
   Operating Expenses
 June 30, 2005
    
    
    June 30, 2004
    
    
    DecreaseSelling, General & Administrative
    
    $
    5,254,759
    
    
    $
    41,005,374
    
    
    
    87.2
    %
   29




---



##### 



Other Income and Expenses
  Liquidity and Capital Resources
    Commitments
  2006
    
    2007
    
    2008
    
    2009
    
    2010
    
    2011+Operating Leases
    
    $
    835,188
    
    
    $
    380,816
    
    
    $
    67,772
    
    
    $
    42,016
    
    
    $
    3,710
    
    
    
    Capital Leases
    
    
    116,727
    
    
    
    99,740
    
    
    
    87,673
    
    
    
    77,367
    
    
    
    37,219
    
    
    
    13,646Mortgages Payable
    
    
    280,481
    
    
    
    280,481
    
    
    
    280,481
    
    
    
    223,591
    
    
    
    208,728
    
    
    
    724,238Total Lease
Commitments
    
    $
    1,232,396
    
    
    $
    761,037
    
    
    $
    435,926
    
    
    $
    342,974
    
    
    $
    249,657
    
    
    $
    737,884
 Risk Factors
  We may not receive the full amount of our contract awards.
  30




---



##### 



We may not be able to integrate our new management and the acquired companies successfully to
achieve the expected benefits of these acquisitions.
  Increased raw material prices may adversely affect contract profitability.
  Loss of bonding may adversely impact our Canadian operations.
  Quarterly operating results may fluctuate significantly as a result of factors outside of our
control, which could cause the market price of our common stock to decline.
  
    
    fluctuations in revenue earned on contracts;
 
    
    commencement, completion, or termination of contracts during any particular quarter;
 
    
    variable purchasing patterns under GSA schedule contracts and agency-specific indefinite delivery/indefinite
quantity contracts;
 
    
    providing services under a share-in-savings or performance-based contract;
 
    
    additions and departures of key personnel;
 
    
    strategic decisions by us or our competitors, such as acquisitions, divestitures, spin-offs, joint ventures,
strategic investments, or changes in business strategy;
 
    
    contract mix, the extent of use of subcontractors, and the level of third-party hardware and software purchases
for customers;
 31




---



##### 




    
    changes in presidential administrations and senior federal government officials that affect the timing of
technology procurement;
 
    
    changes in policy or budgetary measures that adversely affect government contracts in general; and
 
    
    the seasonality of our business.
  Our business commitments require our employees to travel to potentially dangerous places, which
may result in injury to our employees.
  Unfavorable government audit results could force the Company to adjust previously reported
operating results and could subject us to a variety of penalties and sanctions.
   32




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Exchange Risk
   33




---



##### 



ITEM 4. CONTROLS AND PROCEDURES
     34




---



##### 



PART
II  OTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS
  ITEM 6. EXHIBITS
 ExhibitNumber
    
    Description31.1
    
    Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*31.2
    
    Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002*32.1
    
    Certification of Chief Executive Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*32.2
    
    Certification of Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002*
 
 *
    
    Filed herewith. 35




---



##### 



SIGNATURES
 rd
 SPECTRUM SCIENCES & SOFTWARE HOLDINGS CORP.
 Date: December 23, 2005By:
    
    /s/ Darryl K. HorneDarryl K. HornePresident and Chief Executive OfficerDate: December 23, 2005By:
    
    /s/ Michael M. MeglessMichael M. MeglessChief Financial Officer
 36