##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 FORM
10-Q/A
 Amendment No. 2
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the quarterly period ended: March 31,
2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934For 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




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##### 



Explanatory Note
  
    
    To correct the filing to a 10-Q from a 10-QSB as originally filed. This change requires
that certain additional information be added to our original filing including December 31,
2004 comparative balance sheets and market risk disclosures.
    
    To revise the financial statements to properly reflect the impact of foreign currency to
the financial statements and to replace the previously filed cash flow statement.
    
    To revise the footnotes to the 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 March 31, 2005 and December 31, 2004
    
    
    2Consolidated Statements of Operations and Comprehensive Income (Loss) for the three
months ended March 31, 2005 and 2004
    
    
    3Consolidated Statement of Stockholders Equity for the three months ended
March 31, 2005
    
    
    4Condensed Consolidated Statements of Cash Flows for the three months ended
March 31, 2005 and 2004
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    28PART II  OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    29Item 6. Exhibits
    
    
    29
 ii




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##### 



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
   1




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##### 



March 31
    
    
    December 31,2005
    
    
    2004ASSETSCurrent assets:Cash and cash equivalents
    
    $
    611,780
    
    
    $
    5,666,910Short-term investments
    
    
    15,223,262
    
    
    
    18,795,143Receivables
    
    
    5,478,656
    
    
    
    2,759,756Due from Shareholder
    
    
    705,126
    
    
    
    705,126Inventories
    
    
    536,687
    
    
    
    79,010Prepaid expenses & other current assets
    
    
    1,373,236
    
    
    
    882,478Total current assets
    
    
    23,928,747
    
    
    
    28,888,423Property and equipment, net
    
    
    5,008,742
    
    
    
    2,280,746Goodwill
    
    
    1,715,641
    
    
    
    Investments in joint ventures
    
    
    761,736
    
    
    
    Other assets
    
    
    23,071
    
    
    
    43,810TOTAL ASSETS
    
    $
    31,437,937
    
    
    $
    31,212,979LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,558,835
    
    
    $
    1,025,030Accrued expenses
    
    
    508,130
    
    
    
    482,923Current portion due to related party
    
    
    738,152
    
    
    
    705,126Deferred revenues
    
    
    210,181
    
    
    
    228,968Provision for contract losses
    
    
    
    
    
    
    148,248Deferred tax liability
    
    
    124,899
    
    
    
    Current portion of long-term debt
    
    
    188,960
    
    
    
    Total current liabilities
    
    
    3,329,157
    
    
    
    2,590,295Long-term liabilities:Long-term debt, less current portion
    
    
    355,988
    
    
    
    Due to related party, less current portion
    
    
    17,388
    
    
    
    Non-current deferred tax liability
    
    
    36,233
    
    
    
    TOTAL LIABILITIES
    
    $
    3,738,766
    
    
    $
    2,590,295Commitments and contingencies (Note 11)Minority interest
    
    
    20,081
    
    
    
    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,
38,972,200 and 38,969,300 issued and outstanding at March 31, 2005 and December 31, 2004
    
    
    3,897
    
    
    
    3,897Additional paid-in capital
    
    
    70,650,841
    
    
    
    69,895,120Accumulated deficit
    
    
    (43,021,851
    )
    
    
    (41,277,155
    )Accumulated other comprehensive income
    
    
    46,203
    
    
    
    822Total stockholders equity
    
    
    27,679,090
    
    
    
    28,622,684TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    31,437,937
    
    
    $
    31,212,979
  2




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##### 



Three months endedMarch 31,2005
    
    
    2004Revenues
    
    $
    2,542,610
    
    
    $
    3,596,578Cost of revenues
    
    
    2,148,136
    
    
    
    3,274,381Gross profit
    
    
    394,474
    
    
    
    322,197Operating expenses
    
    
    2,293,195
    
    
    
    13,951,585Loss from operations
    
    
    (1,898,721
    )
    
    
    (13,629,388
    )Total non-operating income (expense), net
    
    
    174,106
    
    
    
    (12,951
    )Loss before provision for income taxes
    
    
    (1,724,615
    )
    
    
    (13,642,339
    )Income tax benefit
    
    
    0
    
    
    
    61,330Loss before minority interest
    
    
    (1,724,615
    )
    
    
    (13,581,009
    )Minority interest income(loss)
    
    
    (20,081
    )
    
    
    0Net Loss
    
    $
    (1,744,696
    )
    
    $
    (13,581,009
    )Weighted average common shares outstanding:Basic and diluted
    
    
    34,941,075
    
    
    
    19,316,934Loss per share:Basic and diluted
    
    $
    (0.05
    )
    
    $
    (0.70
    )Net Loss
    
    $
    (1,744,696
    )
    
    $
    (13,581,009
    )Foreign currency translation adjustments
    
    
    68,375
    
    
    
    0Unrealized gain on available for sale securities
    
    
    (22,994
    )
    
    
    0Total comprehensive income(loss)
    
    $
    (1,699,315
    )
    
    $
    (13,581,009
    )
  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
    
    
    
    
    
    
    
    
    
    
    751,662
    
    
    
    
    
    
    
    
    
    
    
    751,662Exercise of stock options
    
    
    2,900
    
    
    
    
    
    
    
    4,059
    
    
    
    
    
    
    
    
    
    
    
    4,059Unrealized loss on investments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (22,994
    )
    
    
    (22,994
    )Foreign currency translation
adjustments
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,375
    
    
    
    68,375Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,744,696
    )
    
    
    
    
    
    
    (1,744,696
    )Balance at March 31, 2005
    
    
    38,972,200
    
    
    $
    3,897
    
    
    $
    70,650,841
    
    
    $
    (43,021,851
    )
    
    $
    46,203
    
    
    $
    27,679,090
 2005Disclosure of reclassification amount:Reclassification adjustment for
losses included in net loss
    
    $
    822
  4




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##### 



Three Months ended March 31,2005
    
    
    2004Cash flows from operating activitiesNet loss
    
    $
    (1,744,696
    )
    
    $
    (13,581,009
    )Adjustments to reconcile net loss to net
Cash used in operating activitiesIssuance of stock options to related party for
consulting services
    
    
    0
    
    
    
    11,418,038Investor relations expenses paid by a related party
    
    
    0
    
    
    
    2,065,000Amortization of investment bond premium
    
    
    41,801
    
    
    
    445Depreciation
    
    
    68,837
    
    
    
    32,327Issuance of stock options to employees
    
    
    751,662
    
    
    
    0Deferred income taxes
    
    
    6,592
    
    
    
    (28,594
    )Minority interest
    
    
    20,081
    
    
    
    0Loss on disposal of equipment
    
    
    1,633
    
    
    
    0Realized loss on the sale of bonds
    
    
    (822
    )
    
    
    0Changes in assets and liabilitiesReceivables
    
    
    629,226
    
    
    
    (386,994
    )Accounts payable
    
    
    (467,397
    )
    
    
    (160,273
    )Provision for contract losses
    
    
    (148,248
    )
    
    
    0Other balance sheet changes
    
    
    129,606
    
    
    
    122,136Net cash used in
operating activities
    
    
    (711,725
    )
    
    
    (518,924
    )Cash flows from investing activitiesMaturities
(purchases) of available for sale investments, net
    
    
    3,547,657
    
    
    
    0Acquisitions, net of cash received
    
    
    (7,167,497
    )
    
    
    0Purchase of property and equipment
    
    
    (299,449
    )
    
    
    (7,817
    )Proceeds from the sale of equipment
    
    
    0
    
    
    
    0Investments in joint ventures
    
    
    5,634
    
    
    
    0Net cash used in investing activities
    
    
    (3,913,655
    )
    
    
    (7,817
    )Cash flows from financing activitiesIssuance (repayment) of debt, net
    
    
    (557,228
    )
    
    
    (851,897
    )Net (repayments) borrowings on lines of credit
    
    
    0
    
    
    
    0Advances from related party
    
    
    (2,797
    )
    
    
    598,916Proceeds from the exercise of stock options
    
    
    4,059
    
    
    
    1,485,000Net cash (used in) provided by financing activities
    
    
    (555,966
    )
    
    
    1,232,019Foreign exchange translation
    
    
    126,216
    
    
    
    0Net (decrease) increase in cash and cash equivalents
    
    
    (5,055,130
    )
    
    
    705,278Cash and cash equivalents at beginning of period
    
    
    5,666,910
    
    
    
    696,959Cash and cash equivalents at end of period
    
    $
    611,780
    
    
    $
    1,402,237
   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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##### 



Pro Forma Results
  Three months endedMarch 31,2005
    
    
    2004Revenue
    
    $
    3,503,632
    
    
    $
    5,973,984Net loss
    
    
    (1,666,351
    )
    
    
    (13,575,276
    )Loss per share  Basic & Diluted
    
    $
    (0.05
    )
    
    $
    (0.70
    )
  4. RECEIVABLES
  9




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##### 



March
    
    
    December31, 2005
    
    
    31, 2004ReceivablesBilled receivables
    
    $
    3,409,128
    
    
    $
    1,467,285Unbilled receivables
    
    
    1,901,072
    
    
    
    1,165,514Holdbacks
    
    
    134,252
    
    
    
    Other
    
    
    34,204
    
    
    
    126,957Total Receivables
    
    $
    5,478,656
    
    
    $
    2,759,756
 5. INVENTORIES
  March
    
    
    December31, 2005
    
    
    31, 2004InventoriesRaw materials, net of reserve
    
    $
    439,109
    
    
    $
    20,483Work in process
    
    
    58,175
    
    
    
    58,527Finished goods
    
    
    39,403
    
    
    
    Total Inventories
    
    $
    536,687
    
    
    $
    79,010
 6. PROPERTY AND EQUIPMENT
 March
    
    
    December31, 2005
    
    
    31, 2004Property & EquipmentLand
    
    
    458,462
    
    
    
    175,000Buildings and Improvements
    
    
    2,993,806
    
    
    
    1,698,572Furniture & fixtures
    
    
    40,381
    
    
    
    39,541Manufacturing Equipment
    
    
    1,460,508
    
    
    
    1,012,541Tools & Equipment
    
    
    326,215
    
    
    
    Office Equipment
    
    
    423,724
    
    
    
    245,119Vehicles
    
    
    282,268
    
    
    
    55,390Equipment under capital Lease
    
    
    319,780
    
    
    
    Investment Property
    
    
    220,900
    
    
    
    220,900Total
    
    
    6,526,044
    
    
    
    3,447,063Accumulated Depreciation
    
    
    (1,517,302
    )
    
    
    (1,166,317
    )Property & Equipment, net
    
    
    5,008,742
    
    
    
    2,280,746
 7. BORROWINGS AND LINES OF CREDIT
   10




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##### 



CIBC Facility
   Magna Credit 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
   11




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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
   12




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##### 



10. SEGMENT INFORMATION
   Three months endedMarch 31,2005
    
    
    2004Security SolutionsTotal revenue
    
    $
    1,650,752
    
    
    $
    3,596,578Operating (loss)income
    
    
    (165,548
    )
    
    
    322,197Industrial and OffshoreTotal revenue
    
    
    781,252
    
    
    
    Operating income
    
    
    (354,144
    )
    
    
    Repair and OverhaulTotal revenue
    
    
    110,606
    
    
    
    Operating income
    
    
    12,196
    
    
    
    HeadquartersTotal revenue
    
    
    
    
    
    
    Operating (loss)income
    
    
    (1,391,225
    )
    
    
    (13,951,585
    )TotalTotal revenue
    
    $
    2,542,610
    
    
    $
    3,596,578Operating (loss)income
    
    $
    (1,898,721
    )
    
    $
    (13,629,388
    )
 Identifiable Assets
    
    March 31, 2005
    
    
    December 31, 2004Security Solutions
    
    $
    5,572,190
    
    
    $
    3,071,143Industrial and Offshore
    
    
    5,213,735
    
    
    
    Repair and Overhaul
    
    
    296,001
    
    
    
    Corporate Assets
    
    
    20,356,011
    
    
    
    28,141,836Total Assets
    
    $
    31,437,937
    
    
    $
    31,212,979
  13




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##### 



11. COMMITMENTS AND CONTINGENCIES
 Legal Matters
 Harassment Suit
  Section 16 (b) Claim
  Claim by the former President of the Company, Mr. Donal R. Myrick
  
    
    SSSI has breached its obligation under an oral employment agreement for the period
November 2002 to December 2003 by failing and refusing to pay salary or benefits;
    
    SSSI 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
    
    SSSI, 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.
 14




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##### 



Munitions Assembly Conveyor (MAC) Lawsuit
  
    
    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
 15




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##### 




    
    Tortious Interference
    
    Conversion
    
    Civil Conspiracy
   12. INVESTMENTS IN JOINT VENTURES
 M&M Engineering Limited
        16




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##### 



13. SUBSEQUENT EVENTS
 Horne Engineering, Inc.
    Required Consents Received
  17




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##### 



Stock Option Activity
   Legal Update
    18




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANAYLYIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 DESCRIPTION OF THE COMPANY
      CRITICAL ACCOUNTING POLICIES
  19




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##### 



Revenue Recognition
  Inventory Valuation
  Foreign Currency Translation
  Net Operating Loss Carryforwards
  Impairment of Long Lived Assets
  20




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##### 



Off Balance Sheet Risk
   COMPARISON OF THREE MONTHS ENDED MARCH 31, 2005 AND MARCH 31, 2004
 Consolidated Overview
  For the three months ended March 31,2005
    
    
    2004Revenues
    
    $
    2,542,610
    
    
    
    100.0
    %
    
    $
    3,596,578
    
    
    
    100.0
    %Cost of revenue
    
    
    2,148,136
    
    
    
    84.5
    %
    
    
    3,274,381
    
    
    
    91.0
    %Gross profit
    
    $
    394,474
    
    
    
    15.5
    %
    
    $
    322,197
    
    
    
    9.0
    %
  Security Solutions
  21




---



##### 



For the three months ended March 31,2005
    
    
    2004Revenue
    
    $
    1,650,752
    
    
    
    100.0
    %
    
    
    3,596,578
    
    
    
    100.0
    %Cost of revenue
    
    
    1,337,758
    
    
    
    81.1
    %
    
    
    3,274,381
    
    
    
    91.0
    %Gross profit
    
    $
    312,994
    
    
    
    18.9
    %
    
    
    322,197
    
    
    
    9.0
    %
   Industrial and Offshore Segment
  For
the two months ended March 31,2005
    
    
    2004Revenue
    
    $
    781,252
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    744,682
    
    
    
    95.3
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    36,570
    
    
    
    4.7
    %
    
    
    N/A
    
    
    
    N/A
   Repair and Overhaul Segment
  22




---



##### 



For
the one month ended March 31,2005
    
    
    2004Revenue
    
    $
    110,606
    
    
    
    100.0
    %
    
    
    N/A
    
    
    
    N/ACost of revenue
    
    
    65,697
    
    
    
    59.4
    %
    
    
    N/A
    
    
    
    N/AGross profit
    
    $
    44,909
    
    
    
    40.6
    %
    
    
    N/A
    
    
    
    N/A
  Operating Expenses
 March 31, 2005
    
    
    March 31, 2004
    
    
    DecreaseSelling, General & Administrative
    
    $
    2,293,195
    
    
    $
    13,951,585
    
    
    
    83.5
    %
  Other Income and Expenses
  Liquidity and Capital Resources
    23




---



##### 



Commitments
  2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010
    
    
    2011+Operating Leases
    
    $
    164,211
    
    
    $
    122,348
    
    
    $
    56,534
    
    
    $
    42,016
    
    
    $
    3,710
    
    
    
    Capital Leases
    
    
    93,458
    
    
    
    75,421
    
    
    
    55,849
    
    
    
    47,367
    
    
    
    27,219
    
    
    
    13,646Mortgages Payable
    
    
    67,200
    
    
    
    64,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Lease Commitments
    
    $
    324,869
    
    
    $
    262,089
    
    
    $
    112,383
    
    
    $
    89,383
    
    
    $
    30,929
    
    
    $
    13,646
 Risk Factors
  We may not receive the full amount of our contract awards.
  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.
  24




---



##### 



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;
    
    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.
  25




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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.
   26




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Interest Rate Risk
   Foreign Exchange Risk
   27




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ITEM 4. CONTROLS AND PROCEDURES
     28




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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. 29




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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
 30