##### Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2006

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

For the transition period from to
 .

Commission File No. 0-7152



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DEVCON INTERNATIONAL CORP.

(Exact name of registrant as specified in its charter)



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|                                                               |  |                                      |  |                                                         
|-------------------------------------------------------------- |  | ------------------------------------ |  | --------------------------------------------------------
|FLORIDA                                                        |  | 59-0671992                           |  | 3270;7381                                               
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.) |  | (Primary Standard Industrial Classification Code Number)

595 SOUTH FEDERAL HIGHWAY, SUITE 500

BOCA RATON, FLORIDA 33432

(Address of principal executive offices)

(561) 208-7200

(Registrants telephone number, including area code)



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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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of accelerated filer and large accelerated filer in Rule 12b-2
of the Exchange Act. (Check one):

Large Accelerated Filer ̈Accelerated Filer ̈Non-Accelerated Filer   x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):    YES ̈NO  x

As of
August 11, 2006 the number of shares outstanding of the registrants Common Stock was 6,033,879.



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

INDEX



|        |  |                       |  |                                                                                                                              |  |   
|------- |  | --------------------- |  | ---------------------------------------------------------------------------------------------------------------------------- |  | --
|        |  | PageNumber           
|Part I  |  | Financial Information |  |                                                                                                                             
|        |  |                       | 
|        |  | Item 1                |  | Condensed Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005 (unaudited)                                  |  | 3 
|        |  |                       | 
|        |  |                       |  | Condensed Consolidated Statements of Operations for the Three and Six Month Periods Ended June 30, 2006 and 2005 (unaudited) |  | 5 
|        |  |                       | 
|        |  |                       |  | Condensed Consolidated Statements of Cash Flows for the Six Month Periods Ended June 30, 2006 and 2005 (unaudited)           |  | 6 
|        |  |                       | 
|        |  |                       |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                               |  | 8 
|        |  |                       | 
|        |  | Item 2                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                        |  | 23
|        |  |                       | 
|        |  | Item 3                |  | Quantitative and Qualitative Disclosures About Market Risk                                                                   |  | 35
|        |  |                       | 
|        |  | Item 4                |  | Controls and Procedures                                                                                                      |  | 36
|        |  |                      
|Part II |  | Other Information     |  |                                                                                                                             
|        |  |                       | 
|        |  | Item 1                |  | Legal Proceedings                                                                                                            |  | 38
|        |  |                       | 
|        |  | Item 1A               |  | Risk Factors                                                                                                                 |  | 40
|        |  |                       | 
|        |  | Item 2                |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                  |  | 40
|        |  |                       | 
|        |  | Item 3                |  | Default Upon Senior Securities                                                                                               |  | 40
|        |  |                       | 
|        |  | Item 4                |  | Submission of Matter to a Vote of Security Holders                                                                           |  | 41
|        |  |                       | 
|        |  | Item 5                |  | Other Information                                                                                                            |  | 41
|        |  |                       | 
|        |  | Item 6                |  | Exhibits                                                                                                                     |  | 42



2



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##### Table of Contents

Part I Financial Information

Item 1. Financial Statements

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Condensed
Consolidated Balance Sheets

June 30, 2006 and December 31, 2005

(Amounts shown in thousands except share and per share data)

(Unaudited)



|                                                                                                   |  |               |         |   |                   |   |         |  
|-------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                   |  | June 30, 2006 |         |   | December 31, 2005 |  
|ASSETS                                                                                             |  |               |         |   |                   |   |         |  
|Current assets:                                                                                    |  |               |         |   |                   |   |         |  
|Cash and cash equivalents                                                                          |  | $             | 9,906   |   |                   | $ | 4,634   |  
|Accounts receivable, net of allowance for doubtful accounts of $(1,863) and $(1,785), respectively |  |               | 18,658  |   |                   |   | 17,575  |  
|Accounts receivable, related party                                                                 |  |               | 526     |   |                   |   | 469     |  
|Notes receivable                                                                                   |  |               | 2,046   |   |                   |   | 1,622   |  
|Notes receivable, related party                                                                    |  |               |        |   |                   |   | 2,160   |  
|Costs and estimated earnings in excess of billings                                                 |  |               | 694     |   |                   |   | 2,046   |  
|Costs and estimated earnings in excess of billings, related party                                  |  |               |        |   |                   |   | 20      |  
|Inventories                                                                                        |  |               | 4,059   |   |                   |   | 2,892   |  
|Prepaid expenses                                                                                   |  |               | 1,596   |   |                   |   | 1,464   |  
|Other current assets                                                                               |  |               | 4,775   |   |                   |   | 4,757   |  
|                                                                                                   |  |               |         |   |                   |   |         |  
|Total current assets                                                                               |  |               | 42,260  |   |                   |   | 37,639  |  
|                                                                                                   |  |              
|Property, plant and equipment, net:                                                                |  |               |         |   |                   |   |         |  
|Land                                                                                               |  |               | 326     |   |                   |   | 304     |  
|Buildings                                                                                          |  |               | 279     |   |                   |   | 400     |  
|Leasehold improvements                                                                             |  |               | 1,606   |   |                   |   | 1,081   |  
|Equipment                                                                                          |  |               | 15,440  |   |                   |   | 23,136  |  
|Furniture and fixtures                                                                             |  |               | 1,372   |   |                   |   | 1,039   |  
|Construction in process                                                                            |  |               | 785     |   |                   |   | 1,629   |  
|                                                                                                   |  |               |         |   |                   |   |         |  
|Total property, plant and equipment                                                                |  |               | 19,808  |   |                   |   | 27,589  |  
|Less accumulated depreciation                                                                      |  |               | (2,248  | ) |                   |   | (5,853  | )
|                                                                                                   |  |               |         |   |                   |   |         |  
|Total property, plant and equipment, net                                                           |  |               | 17,560  |   |                   |   | 21,736  |  
|                                                                                                   |  |              
|Other assets:                                                                                      |  |               |         |   |                   |   |         |  
|Investments in unconsolidated joint ventures and affiliates                                        |  |               | 339     |   |                   |   | 339     |  
|Notes receivable, net of current portion                                                           |  |               | 2,942   |   |                   |   | 3,504   |  
|Customer lists, net of amortization $(12,040 ) and $(4,407) respectively                           |  |               | 79,870  |   |                   |   | 46,050  |  
|Goodwill                                                                                           |  |               | 76,786  |   |                   |   | 48,019  |  
|Other intangible assets, net of amortization $(259) and $(94), respectively                        |  |               | 2,956   |   |                   |   | 1,724   |  
|Other long-term assets                                                                             |  |               | 8,960   |   |                   |   | 6,456   |  
|                                                                                                   |  |               |         |   |                   |   |         |  
|Total other assets                                                                                 |  |               | 171,853 |   |                   |   | 106,092 |  
|                                                                                                   |  |               |         |   |                   |   |         |  
|                                                                                                   |  |              
|Total assets                                                                                       |  | $             | 231,673 |   |                   | $ | 165,467 |  
|                                                                                                   |  |               |         |   |                   |   |         |  

See accompanying notes to the unaudited condensed consolidated financial statements



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets (continued)

June 30, 2006 and December 31, 2005

(Amounts shown in thousands except share and per share data)

(Unaudited)



|                                                                                                                              |  |               |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                              |  | June 30, 2006 |         |   | December 31, 2005 |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                          |  |               |         |   |                   |   |         |  
|Current liabilities:                                                                                                          |  |               |         |   |                   |   |         |  
|Accounts payable, trade and other                                                                                             |  | $             | 4,879   |   |                   | $ | 8,094   |  
|Accrued operational fees and taxes                                                                                            |  |               | 2,733   |   |                   |   | 2,215   |  
|Accrued expenses and other liabilities                                                                                        |  |               | 7,369   |   |                   |   | 7,169   |  
|Accrued loss  related party construction contract                                                                            |  |               | 246     |   |                   |   |        |  
|Deferred revenue                                                                                                              |  |               | 9,581   |   |                   |   | 4,808   |  
|Accrued expense, retirement and severance                                                                                     |  |               | 769     |   |                   |   | 897     |  
|Current installments of long-term debt                                                                                        |  |               | 199     |   |                   |   | 69      |  
|Current installments of long term debt, related party                                                                         |  |               |        |   |                   |   | 1,725   |  
|Billings in excess of costs and estimated earnings                                                                            |  |               | 1,645   |   |                   |   | 1,205   |  
|Billings in excess of costs and estimated earnings, related party                                                             |  |               | 561     |   |                   |   | 51      |  
|Derivative instruments                                                                                                        |  |               | 1,772   |   |                   |   |        |  
|Notes payable (Note 16)                                                                                                       |  |               | 41,832  |   |                   |   | 8,000   |  
|Income tax payable                                                                                                            |  |               | 840     |   |                   |   | 846     |  
|                                                                                                                              |  |               |         |   |                   |   |         |  
|Total current liabilities                                                                                                     |  |               | 72,426  |   |                   |   | 35,079  |  
|                                                                                                                              |  |              
|Long-term debt, excluding current installments                                                                                |  |               | 86,808  |   |                   |   | 55,521  |  
|Retirement and severance, excluding current portion                                                                           |  |               | 2,810   |   |                   |   | 4,098   |  
|Long-term deferred tax liability                                                                                              |  |               | 10,063  |   |                   |   | 5,213   |  
|Other long-term liabilities                                                                                                   |  |               | 4,257   |   |                   |   | 1,899   |  
|                                                                                                                              |  |               |         |   |                   |   |         |  
|Total liabilities                                                                                                             |  |               | 176,364 |   |                   |   | 101,810 |  
|                                                                                                                              |  |              
|Commitments and contingencies (Note 17)                                                                                       |  |               |         |   |                   |   |         |  
|                                                                                                                              |  |              
|Stockholders equity:                                                                                                         |  |               |         |   |                   |   |         |  
|Common stock, $0.10 par value. Shares authorized                                                                              |  |               |         |   |                   |   |         |  
|50,000,000 shares, issued 6,033,882 in 2006 and 6,001,922 in 2005, outstanding 6,033,848 in 2006 and 6,001,888 shares in 2005 |  |               | 603     |   |                   |   | 600     |  
|Additional paid-in capital                                                                                                    |  |               | 31,607  |   |                   |   | 31,325  |  
|Retained earnings                                                                                                             |  |               | 24,436  |   |                   |   | 33,624  |  
|Accumulated other comprehensive loss  cumulative translation adjustment                                                      |  |               | (1,337  | ) |                   |   | (1,892  | )
|Treasury stock, at cost, 34 shares in 2006 and 2005                                                                           |  |               |        |   |                   |   |        |  
|                                                                                                                              |  |               |         |   |                   |   |         |  
|Total stockholders equity                                                                                                    |  |               | 55,309  |   |                   |   | 63,657  |  
|                                                                                                                              |  |               |         |   |                   |   |         |  
|                                                                                                                              |  |              
|Total liabilities and stockholders equity                                                                                    |  | $             | 231,673 |   |                   | $ | 165,467 |  
|                                                                                                                              |  |               |         |   |                   |   |         |  

See accompanying notes to the unaudited condensed consolidated financial statements.



4



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

Three and Six Months Ended
June 30, 2006 and 2005

(Amounts shown in thousands except share and per share data)

(Unaudited)



|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------ | --------- | - | ---------------- | - | --------- | ------------ |  | - | ------------ | - |  | - | --------- | -
|                                                                                                                                                                                                                      |  | Three Months Ended |           |   | Six Months Ended |  
|                                                                                                                                                                                                                      |  | June 30,2006       |           |   | June 30,2005     |   |           | June 30,2006 |  |   | June 30,2005 |  
|Revenue                                                                                                                                                                                                               |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Materials revenue                                                                                                                                                                                                     |  | $                  | 4,056     |   |                  | $ | 3,829     |              |  | $ | 8,340        |   |  | $ | 7,482     |  
|Construction revenue                                                                                                                                                                                                  |  |                    | 9,021     |   |                  |   | 8,489     |              |  |   | 17,345       |   |  |   | 14,066    |  
|Construction revenue, related party                                                                                                                                                                                   |  |                    | 305       |   |                  |   | 2,026     |              |  |   | 761          |   |  |   | 5,699     |  
|Security revenue                                                                                                                                                                                                      |  |                    | 15,003    |   |                  |   | 4,541     |              |  |   | 25,606       |   |  |   | 6,555     |  
|Other revenue                                                                                                                                                                                                         |  |                    | 166       |   |                  |   | 335       |              |  |   | 348          |   |  |   | 477       |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Total revenue                                                                                                                                                                                                         |  |                    | 28,551    |   |                  |   | 19,220    |              |  |   | 52,400       |   |  | $ | 34,279    |  
|Cost of Sales                                                                                                                                                                                                         |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Cost of Materials                                                                                                                                                                                                     |  |                    | (3,486    | ) |                  |   | (3,686    | )            |  |   | (7,173       | ) |  |   | (7,177    | )
|Cost of Construction                                                                                                                                                                                                  |  |                    | (8,256    | ) |                  |   | (9,216    | )            |  |   | (18,791      | ) |  |   | (15,725   | )
|Cost of Security                                                                                                                                                                                                      |  |                    | (6,901    | ) |                  |   | (1,934    | )            |  |   | (11,700      | ) |  |   | (2,742    | )
|Cost of Other                                                                                                                                                                                                         |  |                    | (38       | ) |                  |   | (195      | )            |  |   | (64          | ) |  |   | (293      | )
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Total cost of sales                                                                                                                                                                                                   |  |                    | (18,681   | ) |                  |   | (15,031   | )            |  |   | (37,728      | ) |  |   | (25,937   | )
|                                                                                                                                                                                                                      |  |                    |           |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Gross profit                                                                                                                                                                                                          |  |                    | 9,870     |   |                  |   | 4,189     |              |  |   | 14,672       |   |  |   | 8,342     |  
|Operating expenses                                                                                                                                                                                                    |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Selling, general and administrative                                                                                                                                                                                   |  |                    | (12,828   | ) |                  |   | (6,147    | )            |  |   | (23,435      | ) |  |   | (10,258   | )
|Severance and retirement                                                                                                                                                                                              |  |                    | (19       | ) |                  |   | (170      | )            |  |   | (398         | ) |  |   | (486      | )
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Total operating expenses                                                                                                                                                                                              |  |                    | (12,847   | ) |                  |   | (6,317    | )            |  |   | (23,833      | ) |  |   | (10,744   | )
|                                                                                                                                                                                                                      |  |                    |           |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Operating loss                                                                                                                                                                                                        |  |                    | (2,977    | ) |                  |   | (2,128    | )            |  |   | (9,161       | ) |  |   | (2,402    | )
|                                                                                                                                                                                                                      |  |                    |           |  
|Other income (expense)                                                                                                                                                                                                |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Joint venture equity earnings                                                                                                                                                                                         |  |                    |          |   |                  |   |          |              |  |   | (35          | ) |  |   |          |  
|Interest expense                                                                                                                                                                                                      |  |                    | (7,587    | ) |                  |   | (502      | )            |  |   | (11,528      | ) |  |   | (679      | )
|Interest income                                                                                                                                                                                                       |  |                    | 320       |   |                  |   | 124       |              |  |   | 475          |   |  |   | 320       |  
|Gain on Antigua note                                                                                                                                                                                                  |  |                    |          |   |                  |   |          |              |  |   | 1,230        |   |  |   |          |  
|Derivative financial instrument benefit                                                                                                                                                                               |  |                    | 8,323     |   |                  |   |          |              |  |   | 6,789        |   |  |   |          |  
|Other income                                                                                                                                                                                                          |  |                    | 112       |   |                  |   | 30        |              |  |   | 1,179        |   |  |   | 69        |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Total other income (expense)                                                                                                                                                                                          |  |                    | 1,168     |   |                  |   | (348      | )            |  |   | (1,890       | ) |  |   | (290      | )
|                                                                                                                                                                                                                      |  |                    |           |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Loss from continuing operations before taxes                                                                                                                                                                          |  |                    | (1,809    | ) |                  |   | (2,476    | )            |  |   | (11,051      | ) |  |   | (2,692    | )
|Income tax benefit (expense)                                                                                                                                                                                          |  |                    | 1,448     |   |                  |   | 878       |              |  |   | 1,497        |   |  |   | (1,066    | )
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Net (loss) from continuing operations                                                                                                                                                                                 |  | $                  | (361      | ) |                  | $ | (1,598    | )            |  | $ | (9,554       | ) |  | $ | (3,758    | )
|                                                                                                                                                                                                                      |  |                    |           |  
|(Loss) income from discontinued operations, net of income taxes (benefit) of $0 for the three and six months ended June 30, 2006 and
$(128) and $(342) for the three and six months ended June 30, 2005, respectively |  |                    | (56       | ) |                  |   | 1,178     |              |  |   | 366          |   |  |   | 1,772     |  
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Net (loss)                                                                                                                                                                                                            |  | $                  | (417      | ) |                  | $ | (420      | )            |  | $ | (9,188       | ) |  | $ | (1,986    | )
|                                                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Basic (loss) per share:                                                                                                                                                                                               |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Continuing operations                                                                                                                                                                                                 |  | $                  | (0.06     | ) |                  | $ | (0.27     | )            |  | $ | (1.59        | ) |  | $ | (0.64     | )
|Discontinued operations                                                                                                                                                                                               |  | $                  | (0.01     | ) |                  | $ | 0.20      |              |  | $ | 0.06         |   |  | $ | 0.30      |  
|Net (loss)                                                                                                                                                                                                            |  | $                  | (0.07     | ) |                  | $ | (0.07     | )            |  | $ | (1.53        | ) |  | $ | (0.34     | )
|                                                                                                                                                                                                                      |  |                    |           |  
|Diluted (loss) income per share:                                                                                                                                                                                      |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Continuing operations                                                                                                                                                                                                 |  | $                  | (0.06     | ) |                  | $ | (0.27     | )            |  | $ | (1.59        | ) |  | $ | (0.64     | )
|Discontinued operations                                                                                                                                                                                               |  | $                  | (0.01     | ) |                  | $ | 0.20      |              |  | $ | 0.06         |   |  | $ | 0.30      |  
|Net (loss)                                                                                                                                                                                                            |  | $                  | (0.07     | ) |                  | $ | (0.07     | )            |  | $ | (1.53        | ) |  | $ | (0.34     | )
|                                                                                                                                                                                                                      |  |                    |           |  
|Weighted average number of shares outstanding:                                                                                                                                                                        |  |                    |           |   |                  |   |           |              |  |   |              |   |  |   |           |  
|Basic                                                                                                                                                                                                                 |  |                    | 6,029,188 |   |                  |   | 5,860,174 |              |  |   | 6,017,672    |   |  |   | 5,829,425 |  
|Diluted                                                                                                                                                                                                               |  |                    | 6,029,188 |   |                  |   | 5,860,174 |              |  |   | 6,017,672    |   |  |   | 5,829,425 |  

See accompanying notes to the unaudited condensed consolidated financial statements.



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

Six Months Ended
June 30, 2006 and 2005

(Amounts shown in thousands except share and per share data)

(Unaudited)



|                                                                              |  |                  |        |   |               |   |        |  
|----------------------------------------------------------------------------- |  | ---------------- | ------ | - | ------------- | - | ------ | -
|                                                                              |  | Six months ended |       
|                                                                              |  | June 30, 2006    |        |   | June 30, 2005 |  
|Cash flows from operating activities:                                         |  |                  |        |   |               |   |        |  
|Net loss                                                                      |  | $                | (9,188 | ) |               | $ | (1,986 | )
|                                                                              |  |                 
|Adjustments to reconcile net loss to net cash (used) in operating activities: |  |                  |        |   |               |   |        |  
|Non-cash stock compensation                                                   |  |                  | 146    |   |               |   |       |  
|Depreciation and amortization                                                 |  |                  | 10,933 |   |               |   | 4,254  |  
|Loan origination cost amortization                                            |  |                  | 590    |   |               |   |       |  
|Deferred income taxes                                                         |  |                  | (2,805 | ) |               |   | (1,284 | )
|Provision for doubtful accounts receivables                                   |  |                  | 186    |   |               |   | 20     |  
|Minority interest                                                             |  |                  | 35     |   |               |   | (1     | )
|Financial instrument derivatives benefit                                      |  |                  | (6,788 | ) |               |   |       |  
|Amortization of debt discount                                                 |  |                  | 5,392  |   |               |   |       |  
|Gain on sale of property and equipment                                        |  |                  | (2,332 | ) |               |   | (152   | )
|                                                                              |  |                 
|Changes in operating assets and liabilities:                                  |  |                  |        |   |               |   |        |  
|Accounts receivable                                                           |  |                  | 504    |   |               |   | (3,758 | )
|Accounts receivable - related party                                           |  |                  | (57    | ) |               |   | (247   | )
|Notes receivable                                                              |  |                  | (207   | ) |               |   | (650   | )
|Notes receivable - related party                                              |  |                  | 2,160  |   |               |   | (108   | )
|Costs and estimated earnings in excess of billings                            |  |                  | 1,353  |   |               |   | (979   | )
|Costs and estimated earnings in excess of billings, related party             |  |                  | 20     |   |               |   | (32    | )
|Inventories                                                                   |  |                  | (279   | ) |               |   | 173    |  
|Prepaid expenses and other current assets                                     |  |                  | 380    |   |               |   | 1,644  |  
|Other long-term assets                                                        |  |                  | (2,897 | ) |               |   | (416   | )
|Accounts payable, accrued expenses and other liabilities                      |  |                  | (4,163 | ) |               |   | 2,940  |  
|Accrued loss  related party construction contract                            |  |                  | 246    |   |               |   |        |  
|Deferred revenue                                                              |  |                  | 1,329  |   |               |   |       |  
|Billings in excess of costs and estimated earnings                            |  |                  | 440    |   |               |   | 3      |  
|Billings in excess of costs and estimated earnings, related party             |  |                  | 511    |   |               |   | (358   | )
|Income tax payable                                                            |  |                  | (6     | ) |               |   | (2,575 | )
|Other long-term liabilities                                                   |  |                  | 1,907  |   |               |   | 619    |  
|                                                                              |  |                  |        |   |               |   |        |  
|Net cash (used ) in operating activities                                      |  | $                | (2,590 | ) |               | $ | (2,893 | )

See accompanying notes to the unaudited condensed consolidated financial statements.



6



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Condensed Consolidated Statement of Cash Flows

Six Months Ended June 30, 2006 and 2005

(Amounts shown in thousands except share and per share data)

(Unaudited)



|                                                                                       |  |                  |         |   |               |   |         |  
|-------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                       |  | Six months ended |        
|                                                                                       |  | June 30, 2006    |         |   | June 30, 2005 |  
|Cash flows from investing activities:                                                  |  |                  |         |   |               |   |         |  
|Purchases of property, plant and equipment                                             |  | $                | (2,159  | ) |               | $ | (6,281  | )
|Cash used in business acquisition and purchase of customer lists, net of cash acquired |  |                  | (67,057 | ) |               |   | (41,080 | )
|Proceeds from disposition of property, plant and equipment                             |  |                  | 494     |   |               |   | 173     |  
|Proceeds from disposition of business                                                  |  |                  | 9,733   |   |               |   | 1,342   |  
|Payments received on notes related to the sale of assets                               |  |                  | 8       |   |               |   | 307     |  
|                                                                                       |  |                  |         |   |               |   |         |  
|Net cash (used) in investing activities                                                |  |                  | (58,981 | ) |               |   | (45,539 | )
|                                                                                       |  |                 
|Cash flows from financing activities:                                                  |  |                  |         |   |               |   |         |  
|Proceeds from issuance of common stock                                                 |  |                  | 139     |   |               |   | 1,096   |  
|Proceeds from issuance of notes                                                        |  |                  | 45,000  |   |               |   |        |  
|Net borrowing (repayment) from revolving credit facility                               |  |                  | 23,819  |   |               |   | 23,634  |  
|Cash payments on debt issue costs                                                      |  |                  | (300    | ) |               |   |        |  
|Principal payments on debt                                                             |  |                  | (1,725  | ) |               |   | (1,294  | )
|                                                                                       |  |                  |         |   |               |   |         |  
|Net cash provided by financing activities                                              |  |                  | 66,933  |   |               |   | 23,436  |  
|                                                                                       |  |                 
|Effect of exchange rate changes on cash                                                |  |                  | (90     | ) |               |   | (50     | )
|                                                                                       |  |                  |         |   |               |   |         |  
|Net increase (decrease) in cash and cash equivalents                                   |  |                  | 5,272   |   |               |   | (25,046 | )
|                                                                                       |  |                 
|Cash and cash equivalents, beginning of year                                           |  | $                | 4,634   |   |               | $ | 34,928  |  
|Cash and cash equivalents, end of period                                               |  | $                | 9,906   |   |               | $ | 9,882   |  
|                                                                                       |  |                 
|Supplemental disclosures of cash flow information:                                     |  |                  |         |   |               |   |         |  
|                                                                                       |  |                 
|Cash paid for interest                                                                 |  | $                | 4,123   |   |               | $ | 692     |  
|Cash paid for income taxes                                                             |  | $                | 86      |   |               | $ | 605     |  
|                                                                                       |  |                 
|Supplemental non-cash items:                                                           |  |                  |         |   |               |   |         |  
|Non-cash reduction of note receivable                                                  |  | $                | 90      |   |               | $ | 145     |  
|Non-cash issuance of Warrants                                                          |  | $                | 1,771   |   |               |   |        |  
|Non-cash issuance of derivative financial instrument                                   |  | $                | 1       |   |               |   |        |  

See accompanying notes to the unaudited condensed consolidated financial statements.



7



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES

Six Months Ended June 30, 2006 and 2005

Notes to Unaudited Condensed Consolidated Financial Statements

1. Financial Statement Presentation

Devcon International Corp. and its subsidiaries (the Company) provides electronic security services and products to financial institutions,
industrial and commercial businesses and complexes, warehouses, facilities of government departments and health care and educational facilities. The Company also performs earthmoving, excavating and filling operations, builds golf courses, roads,
and utility infrastructures, dredges waterways and constructs deep-water piers and marinas in the Caribbean. The Company also produces and distributes ready-mix concrete, crushed stone, sand, concrete block and asphalt and distributes bagged cement
on the island of St. Martin/Sint Maarten in the southern Caribbean.

The unaudited condensed consolidated financial statements include the
accounts of Devcon International Corp. and its majority-owned subsidiaries (the Company). The accounting policies followed by the Company are set forth in Note (l) to the Companys financial statements included in its Annual
Report on Form 10-K for the fiscal year ended December 31, 2005 (the 2005 Form 10-K). The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2006 and 2005 included herein have been
prepared in accordance with the instructions for Form 10-Q under the Securities Exchange Act of 1934, as amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as amended. Certain information and footnote disclosures normally
included in financial statements prepared in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations relating to interim financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain only normal reoccurring
adjustments necessary to present fairly the Companys financial position as of June 30, 2006 and the results of its operations for the three and six months ended June 30, 2006 and 2005 and cash flows for the six months ended
June 30, 2006 and 2005. The results of operations for the three and six months ended June 30, 2006 and 2005 are unaudited and are not necessarily indicative of the results to be expected for the full year. The unaudited condensed
consolidated financial statements included herein should be read in conjunction with the financial statements and related footnotes included in the Companys 2005 Form 10-K. Management of the Company had made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these unaudited condensed consolidated financial statements in conformity with generally accepted accounting
principles. Actual results could differ from these estimates.

2. New Accounting Policies

Freestanding and embedded financial instrument derivatives, which have been identified in connection with financial instruments previously issued, are
valued at the time of issuance using an appropriate option pricing model and recorded as an asset or liability based upon the terms and conditions of the derivative instrument identified. When a host instrument contains more than one embedded
derivative, and these derivatives require bifurcation, the bifurcated derivative instruments are valued as a single compound derivative instrument. The valuation model utilized requires assumptions related to the remaining term of the derivative
instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of the Companys common stock price over the life of the respective derivative instrument. The financial
instrument derivatives which are identified are re-valued at the end of each reporting period utilizing the same model used to value the derivatives at the time of their initial valuation and the changes in the fair value of the derivatives are
recorded as charges or credits to income in the period in which the changes occur. When a financial instrument derivative is classified as a liability, and is connected with a host instrument obligation, the related host instrument obligation is
recorded after applying an appropriate discount equal to the value of the financial instrument derivative (the Discount). In addition, the Discount is accreted to the face value of the respective host instrument obligation, utilizing the
effective rate method, and, accordingly, an additional non-cash charge is recorded as interest expense or a reduction of net income to arrive at income attributable to common shareholders depending on the respective balance sheet classification of
the host instrument obligation.



8



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##### Table of Contents

3. New Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Pricing which amends the guidance in ARB No. 43, Chapter 4, Inventory Pricing, to clarify the accounting for abnormal amounts
of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that . . . under some circumstances, items such as idle facility expense, excessive spoilage, double
freight, and rehandling costs may be so abnormal as to require treatment as current period charges. . . . This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of
so abnormal. In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The effective date for this standard is for fiscal
years beginning after June 15, 2005. The adoption of SFAS No. 151 in 2006 did not have an impact on our unaudited condensed consolidated financial statements.

In December 2004, the Financial Accounting Standards Board issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123 and supersedes APB 25. SFAS No. 123R
eliminates the use of the intrinsic value method of accounting, and requires companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. On
April 14, 2005, the Securities and Exchange Commission adopted a new rule that amended the compliance date to adopt SFAS 123R, effective January 1, 2006. SFAS No. 123R permits companies to adopt its requirements using either a
modified prospective method or a modified retrospective method. Under the modified prospective method, compensation cost is recognized in the financial statements beginning with the effective date, based on the
requirements of SFAS No. 123R for all share-based payments granted after that date, and, based on the requirements of SFAS No. 123R, for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the
modified retrospective method, the requirements are the same as under the modified prospective method, except that entities also are allowed to restate financial statements of previous periods based on pro forma disclosures
made in accordance with SFAS No. 123. The Company has chosen to use the modified prospective method as explained in Note 12 to these unaudited condensed consolidated financial statements.

In June 2006, the Financial Accounting Standards Board issued Interpretation No. 48 Accounting for Uncertainty in Income Taxesan
interpretation of FASB Statement No. 109. The Interpretation clarifies the accounting for uncertainty in income taxes and prescribes recognition thresholds and derecognition guidance for the measurement of tax positions and interest penalties,
accounting in interim periods, disclosure and transition. Additionally this Interpretation establishes a consistent threshold for recognizing current and deferred taxes. This Interpreation requires evaluation of a Companys tax positions as to
whether they are more-likely-than-not i) to be sustained under tax audit and ultimate settlement in related appeals or litigation and ii) to be measured at a 50% likelihood for quantification when realized. This Interpretation is effective for
fiscal years beginning after December 15, 2006. The Company is evaluating the effect, if any, adoption will have on our unaudited condensed consolidated financial statements.

In May 2005, Financial Accounting Standards Board issued Statement No. 154 Accounting Changes and Error Correctionsa replacement of APB
Opinion No. 20 and FASB Statement No. 3. This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB Statement No. 3, Reporting Accounting Changes in Interim Financial Statements, and changes the requirements for the accounting
for and reporting of a change in accounting principle. This Statement applies to all voluntary changes in accounting principle. It also applies to changes required by an accounting pronouncement in the unusual instance that the pronouncement does
not include specific transition provisions. When a pronouncement includes specific transition provisions, those provisions should be followed. This Statement requires retrospective application to prior periods financial statements of changes
in accounting principle, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. This Statement defines retrospective application of a different accounting principle to prior accounting
periods as if that principle had always been used or of the adjustment of previously issued financial statements to reflect a change in the reporting entity. This Statement also redefines restatement as the revising of previously issued financial
statements to reflect the correction of an error. This Interpretation is effective for years beginning after December 31, 2005. Adoption of FAS No 154 has not had a material effect on our unaudited consolidated financial statements.

4. Acquisitions

On March 6, 2006, the Company
completed the acquisition of Guardian International, Inc. (Guardian) under the terms of an Agreement and Plan of Merger, dated as of November 9, 2005, between the Company, an indirect wholly-owned subsidiary of the Company, and
Guardian in which the Company acquired all of the outstanding capital stock of Guardian for an estimated aggregate cash purchase price of approximately $65.5 million, excluding transaction costs of $1.7 million. This purchase price consisted of
(i) approximately $23.6 million paid to the holders of the common stock of Guardian, (ii) approximately $23.3 million paid to redeem two series of Guardians preferred stock, (iii) approximately $13.3 million used to assume and
pay specified Guardian debt obligations and expenses and (iv) approximately $1.0 million used to satisfy specified expenses incurred by Guardian in connection with the merger. The balance of the purchase consideration, approximately $3.3
million, has been placed in escrow. Subject to reconciliation based upon recurring monthly revenue, or RMR, and net working capital levels as of closing and subject to other possible adjustments, Guardian common shareholders are expected to receive
a pro rata distribution from the escrowed amount approximately six months after the closing.



In order to finance the acquisition of Guardian, and as further discussed in this Note 4, the Company increased the amount of cash available under its CapitalSource revolving credit facility from $70 million to $100
million and used $35.6 million under this facility together with the net proceeds from the issuance of the notes and warrants, as discussed in Note 4, to purchase Guardian and repay the Companys $8 million CapitalSource Bridge Loan. In
addition, the Company issued to certain investors, under the terms of a Securities Purchase Agreement, dated as of February 10, 2006, an aggregate principal amount of $45 million of notes along with warrants to acquire an aggregate of 1,650,943
shares of the Companys common stock at an exercise price of $11.925 per share.

We have recorded the acquisition using the purchase
method of accounting. The preliminary purchase price allocation is based upon a report issued by an independent appraisal firm, as to fair value. Results of operations included for the acquisition are for the period March 6, 2006 to June 30,
2006.



9



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##### Table of Contents

The preliminary purchase price allocation is as follows:



|                                                             |  |   |         |  
|------------------------------------------------------------ |  | - | ------- | -
|Preliminary Purchase Price
Allocation (dollars in thousands) | 
|Cash                                                         |  | $ | 930     |  
|Accounts receivable                                          |  |   | 2,377   |  
|Other assets                                                 |  |   | 281     |  
|Inventory                                                    |  |   | 1,470   |  
|Fixed assets                                                 |  |   | 1,097   |  
|Deferred revenue                                             |  |   | (2,782  | )
|Accounts payable and other liabilities                       |  |   | (3,590  | )
|Deferred tax liability                                       |  |   | (10,588 | )
|Trade name                                                   |  |   | 1,400   |  
|Customer contracts                                           |  |   | 14,000  |  
|Customer relationships                                       |  |   | 30,000  |  
|Goodwill                                                     |  |   | 32,667  |  
|                                                             |  |   |         |  
|Total purchase price                                         |  | $ | 67,262  |  

The following table shows the consolidated results of the Company and Guardian, as though the
Company had completed this acquisition at the beginning of each period reported on:



|                                    |  |                        |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|----------------------------------- |  | ---------------------- | --------- | - | ---------------- | - | --------- | ------------- |  | - | ------------- | - |  | - | --------- | -
|                                    |  | (dollars in thousands) |          
|                                    |  | Three Months Ended     |           |   | Six Months Ended |  
|                                    |  | June 30, 2006          |           |   | June 30, 2005    |   |           | June 30, 2006 |  |   | June 30, 2005 |  
|Revenue                             |  | $                      | 28,551    |   |                  | $ | 30,604    |               |  | $ | 57,442        |   |  | $ | 60,432    |  
|Net (loss)                          |  | $                      | (417      | ) |                  | $ | (589      | )             |  | $ | (8,848        | ) |  | $ | (1,820    | )
|                                    |  |                        |           |  
|Loss per common share  basic       |  |                        | (0.07     | ) |                  |   | (0.10     | )             |  |   | (1.47         | ) |  |   | (0.31     | )
|Loss per common share  diluted     |  |                        | (0.07     | ) |                  |   | (0.10     | )             |  |   | (1.47         | ) |  |   | (0.31     | )
|                                    |  |                        |           |  
|Weighted average shares outstanding |  |                        |           |   |                  |   |           |               |  |   |               |   |  |   |           |  
|Basic                               |  |                        | 6,029,188 |   |                  |   | 5,860,174 |               |  |   | 6,017,672     |   |  |   | 5,829,425 |  
|Diluted                             |  |                        | 6,029,188 |   |                  |   | 5,860,174 |               |  |   | 6,017,672     |   |  |   | 5,829,425 |  

5. Divestitures

On March 2, 2006, the Company sold its wholly-owned subsidiary Antigua Masonry Products, Ltd. and its subsidiary, Antigua Cement Ltd (together AMP), pursuant to a Stock Purchase Agreement with A.
Hadeed, a private investor, or his nominee, and Gary ORourke, under which the Company completed the sale of all of the issued and outstanding common shares of AMP. In connection with this sale, the purchasers acknowledged that preferred shares
of AMP with a face value equal to EC 1,436,485 (US $532,032) as of the date of the sale (collectively, the Preferred Shares) are outstanding and owned beneficially and of record by certain third parties and that such Preferred Shares are
reflected as debt on AMPs books and records. The purchasers further acknowledged that their acquisition of AMP was subject to the Preferred Shares and that the purchasers have sole responsibility of satisfying and discharging all obligations
represented by such Preferred Shares, which represents an aggregate amount slightly in excess of $500,000. Under the terms of this Stock Purchase Agreement, the purchasers acquired 493,051 common shares of AMP for a purchase price equal to $5.1
million, subject to certain adjustments. Proceeds of $4.6 million were realized due to retention of cash on hand with AMP at the date of sale. This purchase price was paid entirely in cash. In addition, the transaction included transfers of certain
assets from the Antigua operations to the Company, as well as pre-closing transfers to AMP of certain preferred shares in AMP that were owned by the Company. The purchasers agreed to pay all taxes incurred as a result of the sale. The operating
results of AMP have been reclassified in the 2006 unaudited condensed consolidated and 2005 Consolidated Statements of Operations as discontinued operations.

On May 2, 2006, the Company completed the sale of the fixed assets and substantially all of the inventory of its Joint Venture assets of Puerto Rico Crushing Company (PRCC), to Mr. Jose Criado,
through a company controlled by Mr. Criado, for a purchase price of $700,000 cash and a two-year 5% note in an amount equal to the value of the inventory as of the closing date. Additionally, as part of the sale agreement, Mr. Criado
assumed substantially all employee-related severance costs and liabilities arising from the lease agreement (including reclamation and leveling) for the quarry land. The net proceeds of the sale approximated the net book value of the related assets
after giving effect to an impairment charge of approximately $0.9 million recorded by the Company on the long-lived assets of PRCC at December 31, 2005. The operating results of PRCC have been reclassified in the 2006 unaudited condensed and
2005 Consolidated Statements of Operations as discontinued operations.



10



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##### Table of Contents

On June 13, 2006, the Company executed a letter of intent to sell certain subsidiaries and net assets
that collectively comprise the Companys Construction Division, in a transaction valued at approximately $12.2 million, to a private investment group led by The Symonette Group. The transaction is subject to the negotiation and execution of a
definitive agreement. The Company is in the process of negotiating definitive terms and conditions with respect to this divestiture but cannot provide assurances that it will be able to produce definitive agreements to which The Symonette Group will
agree or, even if such agreement is reached, that it will be able to consummate the sale of the Companys Construction Division. If the purchase price in the letter of intent remains unchanged, specific terms and conditions for the divestiture
can be agreed to, and the transaction were completed, the Company anticipates it would record a pre-tax loss of approximately $2.6 million during the third quarter of 2006 related to the assets being disposed. Additionally, if the transaction is
completed, only one significant operation of the Companys construction and materials segments of business - the St. Martin/Sint Maarten quarry and redi-mix concrete materials operation would remain.

On June 26, 2006 the Company completed the sale of its Boca Raton-based third party monitoring operation which operated under the name of Central
One and the associated monitoring center it acquired from Coastal Security systems to Lydia Security Monitoring, Inc., a New York corporation operating under the name C.O.P.S. Monitoring for $5.0 million in cash. The divested operation included
approximately $325,000 of recurring monthly revenue and the net gain before taxes realized on the sold operations including the monitoring center was $1.1 million. After completion of the Boca Raton-based third party monitoring operation
divestiture, the Company continues to monitor approximately $83,000 of recurring monthly revenue for customers which do not contract directly with the Company. This remaining third party monitoring revenue may also be acquired by Lydia providing
certain conditions related to sale of monitoring rights can be achieved.

6. Fair Value of Financial Instruments

The carrying amount of financial instruments including cash, cash equivalents, the majority of the accounts receivable, other current assets, accounts
payable trade and other, accrued expenses and other liabilities, and notes payable to banks approximated fair value at June 30, 2006, because of the short maturity of these instruments. The carrying value of debt and most notes receivable
approximated fair value at June 30, 2006 and December 31, 2005 based upon the present value of estimated future cash flows. As more fully described in Note 16, Debt and Financial Derivatives, the value of the Warrants issued along with the
$45 million of Notes to finance the Guardian acquisition, and the rights of the investors who bought the notes to exchange the notes for Series A Convertible Preferred Stock, as provided for in the Securities Purchase Agreement, were valued using an
appropriate option pricing model and recorded as a discount to the Notes face value at issuance.

7. Accounts Receivable

Accounts receivable consist of the following:



|                                                                         |  |                        |        |   |                   |   |        |  
|------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ----------------- | - | ------ | -
|                                                                         |  | June 30, 2006          |        |   | December 31, 2005 |  
|                                                                         |  | (dollars in thousands) |       
|Materials division trade accounts                                        |  | $                      | 1,909  |   |                   | $ | 3,302  |  
|Construction division trade accounts receivable, including retainage     |  |                        | 9,309  |   |                   |   | 7,874  |  
|Construction division trade accounts, including retainage, related party |  |                        | 526    |   |                   |   | 469    |  
|Security division trade accounts                                         |  |                        | 8,009  |   |                   |   | 4,186  |  
|Due from sellers and other receivables                                   |  |                        | 1,295  |   |                   |   | 3,750  |  
|Due (to) from employees                                                  |  |                        | (1     | ) |                   |   | 248    |  
|                                                                         |  |                       
|Allowance for doubtful accounts                                          |  |                        | (1,863 | ) |                   |   | (1,785 | )
|                                                                         |  |                        |        |   |                   |   |        |  
|Total accounts receivable including related party, net                   |  | $                      | 19,184 |   |                   | $ | 18,044 |  
|                                                                         |  |                       
|                                                                         |  | June 30, 2006          |        |   | December 31, 2005 |  
|                                                                         |  | (dollars in thousands) |       
|Allowance for doubtful accounts:                                         |  |                        |        |   |                   |   |        |  
|Beginning balance                                                        |  | $                      | 1,785  |   |                   | $ | 2,785  |  
|Allowance charged to operations, net                                     |  |                        | 514    |   |                   |   | 320    |  
|Allowance change due to acquisitions or divestiture                      |  |                        | (328   | ) |                   |   | 293    |  
|Direct write-downs charged to the allowance                              |  |                        | (108   | ) |                   |   | (1,613 | )
|Allowance disposed through divestiture                                   |  |                        |       |   |                   |   |       |  
|                                                                         |  |                        |        |   |                   |   |        |  
|Ending balance                                                           |  | $                      | 1,863  |   |                   | $ | 1,785  |  
|                                                                         |  |                       
|Recovery of previously written off receivables:                          |  | $                      |       |   |                   | $ | 10     |  



11



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##### Table of Contents

The Construction divisions trade accounts receivable includes retention billings of $3.8 million and $1.7 million
as of June 30, 2006 and December 31, 2005, respectively.

8. Inventories



|                                              |  |                        |       |                   |   |      
|--------------------------------------------- |  | ---------------------- | ----- | ----------------- | - | -----
|                                              |  | June 30, 2006          |       | December 31, 2005
|                                              |  | (dollars in thousands)
|Security services inventory  component parts |  | $                      | 1,867 |                   | $ | 910  
|Security services work in process             |  |                        | 1,005 |                   |   | 390  
|Aggregates and sand                           |  |                        | 635   |                   |   | 847  
|Block, cement, and material supplies          |  |                        | 468   |                   |   | 530  
|Other construction and materials              |  |                        | 84    |                   |   | 215  
|                                              |  |                        |       |                   |   |      
|                                              |  | $                      | 4,059 |                   | $ | 2,892
|                                              |  |                        |       |                   |   |      

9. Income Tax

In February 2006, one of the Companys Antiguan subsidiaries declared and paid a $3.6 million gross dividend, of which $1.2 million was withheld for Antiguan withholding taxes. The withholding taxes were
deemed paid by utilization of a portion of a $7.5 million tax credit received as part of a Satisfaction Agreement which was entered into between the Company, its Antiguan subsidiaries and the Government of Antigua and Barbuda in December of
2004. Accordingly, in the first quarter of 2006, the Company recognized a non-cash foreign tax expense in the amount of $ 1.2 million. This $1.2 million tax expense was offset by deferred tax benefit of $2.8 million realized during the
first six months.

10. Net Loss Per Share

Basic earnings-per-share is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding during the period, increased to include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued,
by application of the treasury stock method. No options were included in the computations of diluted earnings per share because the exercise price of all outstanding options were greater than the average market price of the common shares.

The following table sets forth the computation of basic and diluted loss per share:



|                                           |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|------------------------------------------ |  | ---------------------- | --------- | - | ---------------- | - | --------- | ------------- |  | - | ------------ | - |  | - | --------- | -
|                                           |  | (dollars in thousands) |          
|                                           |  | Three Months Ended     |           |   | Six Months Ended |  
|                                           |  | June 30, 2006          |           |   | June 30, 2005    |   |           | June 30, 2006 |  |   | June 30,2005 |  
|(Loss) from continuing operations          |  | $                      | (361      | ) |                  | $ | (1,598    | )             |  | $ | (9,554       | ) |  | $ | (3,758    | )
|(Loss) income from discontinued operations |  |                        | (56       | ) |                  |   | 1,178     |               |  |   | 366          |   |  |   | 1,772     |  
|                                           |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|Net (loss)                                 |  |                        | (417      | ) |                  |   | (420      | )             |  |   | (9,188       | ) |  |   | (1,986    | )
|                                           |  |                        |           |  
|Weighted average shares outstanding        |  |                        | 6,029,188 |   |                  |   | 5,860,174 |               |  |   | 6,017,672    |   |  |   | 5,829,425 |  
|Dilutive effect of:                        |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|Options and employee stock options         |  |                        |          |   |                  |   |          |               |  |   |             |   |  |   |          |  
|Diluted weighted average number of shares  |  |                        | 6,029,188 |   |                  |   | 5,860,174 |               |  |   | 6,017,672    |   |  |   | 5,829,425 |  
|                                           |  |                        |           |  
|(Loss) from continuing operations          |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|Basic                                      |  |                        | (0.06     | ) |                  |   | (0.27     | )             |  |   | (1.59        | ) |  |   | (0.64     | )
|Diluted                                    |  |                        | (0.06     | ) |                  |   | (0.27     | )             |  |   | (1.59        | ) |  |   | (0.64     | )
|(Loss) income from discontinued operation  |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|Basic                                      |  |                        | (0.01     | ) |                  |   | 0.20      |               |  |   | 0.06         |   |  |   | 0.30      |  
|Diluted                                    |  |                        | (0.01     | ) |                  |   | 0.20      |               |  |   | 0.06         |   |  |   | 0.30      |  
|Net (loss) per share                       |  |                        |           |   |                  |   |           |               |  |   |              |   |  |   |           |  
|Basic                                      |  |                        | (0.07     | ) |                  |   | (0.07     | )             |  |   | (1.53        | ) |  |   | (0.34     | )
|Diluted                                    |  |                        | (0.07     | ) |                  |   | (0.07     | )             |  |   | (1.53        | ) |  |   | (0.34     | )



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##### Table of Contents

For additional disclosures regarding the employee stock options, see Note 12 and the
Companys 2005 Form 10-K

11. Comprehensive Loss

The Companys total comprehensive loss, comprised of net loss and foreign currency translation adjustments, for the three and six months ended June 30, 2006 and 2005 was as follows:



|                                         |  |                        |      |   |                  |   |      |               |  |   |               |   |  |   |        |  
|---------------------------------------- |  | ---------------------- | ---- | - | ---------------- | - | ---- | ------------- |  | - | ------------- | - |  | - | ------ | -
|                                         |  | (dollars in thousands) |     
|                                         |  | Three Months Ended     |      |   | Six Months Ended |  
|                                         |  | June 30, 2006          |      |   | June 30, 2005    |   |      | June 30, 2006 |  |   | June 30, 2005 |  
|Net (loss)                               |  | $                      | (417 | ) |                  | $ | (420 | )             |  | $ | (9,188        | ) |  | $ | (1,986 | )
|Other comprehensive income (loss)        |  |                        |      |   |                  |   |      |               |  |   |               |   |  |   |        |  
|Foreign currency translation adjustments |  |                        | 562  |   |                  |   | (264 | )             |  |   | 556           |   |  |   | (507   | )
|                                         |  |                        |      |   |                  |   |      |               |  |   |               |   |  |   |        |  
|Total comprehensive income (loss)        |  | $                      | 145  |   |                  | $ | (684 | )             |  | $ | (8,632        | ) |  | $ | (2,493 | )
|                                         |  |                        |      |   |                  |   |      |               |  |   |               |   |  |   |        |  

12. Stock-Based Compensation

The Company adopted stock option plans for officers and employees in 1986, 1992 and 1999, and amended the 1999 plan in 2003. While each plan terminates 10 years after the adoption date, issued options have their own
schedule of termination. Until 2009, options to acquire up to 600,000 shares, respectively, of common stock may be granted at no less than fair market value on the date of grant. Upon exercise, shares of new common stock are issued by the Company.

The amendment of the 1999 stock option plan was approved at the shareholders meeting in June 2003. The amendment increased the
number of available shares available for option grants from 350,000 to 600,000. The amended plans full text was filed with the Companys proxy statement relating to the 2003 annual shareholders meeting.

All stock options granted pursuant to the 1986 Plan which are not already exercisable vest and remain fully exercisable (1) on the date the optionee
reaches 65 years of age and for the six-month period thereafter or as otherwise modified by the Companys Board of Directors, (2) on the date of permanent disability of the optionee and for the six-month period thereafter, (3) on the
date of a change of control and for the six-month period thereafter, and (4) on the date of termination of the optionee from employment by the Company without cause and for the six-month period after termination. Stock options granted under the
1992 and 1999 Plan vest and become exercisable in varying terms and periods set by the Compensation Committee of the Board of Directors. Options issued under the 1992 and 1999 Plan expire after 10 years.

The Company adopted a stock-option plan for directors in 1992 that terminated in 2002. Options to acquire up to 50,000 shares of common stock were
granted at no less than the fair-market value on the date of grant. The 1992 Directors Plan provides each director an initial grant of 8,000 shares and additional grants of 1,000 shares annually immediately subsequent to their reelection as a
director. Stock options granted under the Directors Plan have 10-year terms, vest and become fully exercisable six months after the issue date. As the directors plan was fully granted in 2000, the directors have received their annual
options since then from the employee plans.



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##### Table of Contents

In December 2004, the FASB issued SFAS 123R , Shared-Based Payment a revision of SFAS 123. In
March 2005, the SEC issued Staff Bulletin No. 107 regarding an interpretation of SFAS 123R. The standard requires companies to expense the grant-date fair value of stock options and other equity-based compensation issued to employees and is
effective for annual periods beginning after June 15, 2005.

As of January 1, 2006, the Company adopted SFAS 123R using the
modified prospective transition method. Accordingly, the Companys audited financial statements for prior periods have not been restated to reflect the adoption of SFAS 123R.

For the three and six months ended June 30, 2005, the Company did not issue any new option grants. During the three month period ended June 30,
2005, 179,624 options were exercised with an intrinsic value of $1.2 million and 3,280 options vested with a fair value of $20,138. During the six month period ended June 30, 2005, 225,244 options were exercised with an intrinsic value of $1.7
million and 17,280 options vested with a fair value of $135,678.

For the three and six months ended June 30, 2006, the Company
recognized $29,136 and $146,306, respectively, of non-cash compensation expense (included in Selling, General and Administrative expense in the accompanying Unaudited Condensed Consolidated Statement of Operations) attributable to stock options
vested subsequent to December 31, 2005. There were no option grants in the three and six months ended June 30, 2006. As of June 30, 2006, the Company had $289,671 of unrecognized pre-tax non-cash compensation expense which will be
recognized within the next 3.5 years. Prior to January 1, 2006, the Company applied Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees in accounting for stock-based employee compensation
arrangements whereby compensation cost related to stock options was generally not recognized in determining net income and pro forma impact of compensation cost related to stock options was disclosed. The Company used the Black-Scholes
option-pricing model and straight-line amortization of compensation expense over the requisite service period of the grant. The following is a summary of the assumptions used:



|                        |  |               
|----------------------- |  | --------------
|Risk-free interest rate |  | 2.00% -3.60%  
|Expected dividend yield |  |              
|Expected term           |  | 4 -6 years    
|Expected volatility     |  | 25.00% -33.82%

The Companys pro forma net loss and pro forma net loss per share were as follows for the
three and six months ended June 30, 2005:



|                                                                                                                |  |                        |       |   |                  |   |        |  
|--------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---------------- | - | ------ | -
|                                                                                                                |  | June 30, 2005          |      
|                                                                                                                |  | Three Months Ended     |       |   | Six Months Ended |  
|                                                                                                                |  | (dollars in thousands) |      
|Net (loss) income, as reported                                                                                  |  | $                      | (420  | ) |                  | $ | (1,986 | )
|Deduct                                                                                                          |  |                        |       |   |                  |   |        |  
|Stock-based employee compensation expense determined under fair value based method for all awards, net of taxes |  |                        | (22   | ) |                  |   | (45    | )
|                                                                                                                |  |                        |       |   |                  |   |        |  
|Net (loss), as adjusted                                                                                         |  | $                      | (442  | ) |                  | $ | (2,031 | )
|                                                                                                                |  |                       
|Earnings per share:                                                                                             |  |                        |       |   |                  |   |        |  
|Basic, as reported                                                                                              |  | $                      | (0.07 | ) |                  | $ | (0.34  | )
|Diluted, as reported                                                                                            |  |                        | (0.07 | ) |                  |   | (0.34  | )
|                                                                                                                |  |                       
|Basic, as adjusted                                                                                              |  |                        | (0.08 | ) |                  |   | (0.35  | )
|Diluted, as adjusted                                                                                            |  |                        | (0.08 | ) |                  |   | (0.35  | )

The fair value of each stock option is estimated on the date of grant using the
Black-Scholes option-pricing model.



14



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##### Table of Contents

A summary of stock option activity is as follows for the six month period ended June 30, 2006:



|                                      |  |                |   |  |                              |      |                                                  |      |                                          |   |      
|------------------------------------- |  | -------------- | - |  | ---------------------------- | ---- | ------------------------------------------------ | ---- | ---------------------------------------- | - | -----
|                                      |  | Employee Plans
|                                      |  | Shares         |   |  | Weighted Avg. Exercise Price |      | Weighted Avg. Remaining Contractual
Term (Years) |      | Aggregate Intrinsic Value (in
thousands)
|Balance at December 31, 2005          |  | 436,810        |   |  | $                            | 5.68 |                                                  |      |                                          |   |      
|Granted                               |  |               |   |  | $                            |     |                                                  |      |                                          |   |      
|Exercised                             |  | (12,485        | ) |  | $                            | 4.81 |                                                  |      |                                          |   |      
|Forfeiture                            |  |               |   |  | $                            |     |                                                  |      |                                          |   |      
|Expired                               |  |               |   |  | $                            |     |                                                  |      |                                          |   |      
|                                      |  |                |   |  |                              |      |                                                  |      |                                          |   |      
|Options outstanding at March 31, 2006 |  | 424,325        |   |  | $                            | 5.75 |                                                  | 4.99 |                                          | $ | 1,680
|Granted                               |  |               |   |  | $                            |     |                                                  |      |                                          |   |      
|Exercised                             |  | (19,475        | ) |  | $                            | 4.04 |                                                  |      |                                          |   |      
|Forfeiture                            |  |               |   |  | $                            |     |                                                  |      |                                          |   |      
|Expired                               |  | (10,000        | ) |  | $                            | 1.50 |                                                  |      |                                          |   |      
|                                      |  |                |   |  |                              |      |                                                  |      |                                          |   |      
|Options outstanding at June 30, 2006  |  | 394,850        |   |  | $                            | 5.98 |                                                  | 5.22 |                                          | $ | 853  
|Options exercisable at June 30, 2006  |  | 308,737        |   |  | $                            | 5.06 |                                                  | 4.13 |                                          | $ | 951  
|                                      |  |                |   | 
|Available for future grant            |  | 5,000          |   |  |                              |      |                                                  |      |                                          |   |      



|                                      |  |               |  |                              |      |                                                  |      |                                          |   |  
|------------------------------------- |  | ------------- |  | ---------------------------- | ---- | ------------------------------------------------ | ---- | ---------------------------------------- | - | -
|                                      |  | Director Plan
|                                      |  | Shares        |  | Weighted Avg. Exercise Price |      | Weighted Avg. Remaining Contractual
Term (Years) |      | Aggregate Intrinsic Value (in
thousands)
|Balance at December 31, 2005          |  | 8,000         |  | $                            | 9.38 |                                                  |      |                                          |   |  
|Granted                               |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Exercised                             |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Forfeiture                            |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Expired                               |  |              |  | $                            |     |                                                  |      |                                          |   |  
|                                      |  |               |  |                              |      |                                                  |      |                                          |   |  
|Options outstanding at March 31, 2006 |  | 8,000         |  | $                            | 9.38 |                                                  | 0.16 |                                          | $ | 3
|Granted                               |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Exercised                             |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Forfeiture                            |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Expired                               |  | 8,000         |  | $                            | 9.38 |                                                  |      |                                          |   |  
|                                      |  |               |  |                              |      |                                                  |      |                                          |   |  
|Options outstanding at June 30, 2006  |  |              |  | $                            |     |                                                  |      |                                          |   |  
|Options exercisable at June 30, 2006  |  |              |  | $                            |     |                                                  |      |                                          |   |  
|                                      |  |               |  |                             
|Available for future grant            |  |              |  |                              |      |                                                  |      |                                          |   |  



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##### Table of Contents

13. Segment Reporting

The following sets forth the revenue and income before income taxes for each of the Companys business segments for the three and six months ended June 30, 2006 and 2005:



|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|------------------------------------------------------ |  | ---------------------- | ------ | - | ---------------- | - | ------ | ------------- |  | - | ---------------- | - |  | - | ------- | -
|                                                       |  | Three Months Ended     |        |   | Six Months Ended |  
|                                                       |  | June 30, 2006          |        |   | June 30, 2005    |   |        | June 30, 2006 |  |   | June 30, 2005    |  
|                                                       |  | (dollars in thousands) |       
|Revenue (including inter-segment)                      |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Construction                                           |  | $                      | 9,367  |   |                  | $ | 10,562 |               |  | $ | 18,308           |   |  | $ | 19,878  |  
|Materials                                              |  |                        | 4,056  |   |                  |   | 3,902  |               |  |   | 8,340            |   |  |   | 7,854   |  
|Security                                               |  |                        | 15,003 |   |                  |   | 4,541  |               |  |   | 25,606           |   |  |   | 6,555   |  
|Other                                                  |  |                        | 276    |   |                  |   | 335    |               |  |   | 576              |   |  |   | 478     |  
|Elimination of inter-company revenue                   |  |                        | (151   | ) |                  |   | (120   | )             |  |   | (430             | ) |  |   | (486    | )
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Total revenue                                          |  | $                      | 28,551 |   |                  | $ | 19,220 |               |  | $ | 52,400           |   |  | $ | 34,279  |  
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Operating (loss) income                                |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Construction                                           |  | $                      | 73     |   |                  | $ | 268    |               |  | $ | (2,696           | ) |  | $ | 2,289   |  
|Materials                                              |  |                        | (158   | ) |                  |   | (934   | )             |  |   | (11              | ) |  |   | (2,061  | )
|Security                                               |  |                        | (1,551 | ) |                  |   | (16    | )             |  |   | (2,868           | ) |  |   | 41      |  
|Other                                                  |  |                        | 134    |   |                  |   | 42     |               |  |   | 263              |   |  |   | 39      |  
|Unallocated corporate overhead                         |  |                        | (1,475 | ) |                  |   | (1,488 | )             |  |   | (3,849           | ) |  |   | (2,710  | )
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Total operating loss                                   |  | $                      | (2,977 | ) |                  | $ | (2,128 | )             |  | $ | (9,161           | ) |  | $ | (2,402  | )
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Other income, net                                      |  |                        | 1,168  |   |                  |   | (348   | )             |  |   | (1,890           | ) |  |   | (290    | )
|                                                       |  |                        |        |  
|(Loss) from continuing operations, before income taxes |  | $                      | (1,809 | ) |                  | $ | (2,476 | )             |  | $ | (11,051          | ) |  | $ | (2,692  | )
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|                                                       |  |                        |        |  
|                                                       |  |                        |        |   |                  |   |        | June 30, 2006 |  |   | December31, 2005 |  
|Assets                                                 |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|Construction                                           |  |                        |        |   |                  |   |        |               |  | $ | 31,136           |   |  | $ | 30,861  |  
|Materials                                              |  |                        |        |   |                  |   |        |               |  |   | 4,550            |   |  |   | 14,544  |  
|Security                                               |  |                        |        |   |                  |   |        |               |  |   | 185,384          |   |  |   | 114,483 |  
|Other                                                  |  |                        |        |   |                  |   |        |               |  |   | 10,603           |   |  |   | 5,579   |  
|                                                       |  |                        |        |   |                  |   |        |               |  |   |                  |   |  |   |         |  
|                                                       |  |                        |        |   |                  |   |        |               |  | $ | 231,673          |   |  | $ | 165,467 |  



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##### Table of Contents

14. Pension

The Company maintains an accrual for retirement agreements with Company executives and certain other employees. This accrual is based on the life expectancy of these persons and an assumed weighted average discount rate of 5.04%. Should the
actual longevity vary significantly from the United States insurance norms, or should the discount rate used to establish the present value of the obligation vary, the accrual may have to be significantly increased or diminished at that time. The
net pension cost of the Companys pension plans for the three and six months ending June 30, 2006 and 2005 was as follows:



|                               |  |                        |      |   |               |   |      |  
|------------------------------ |  | ---------------------- | ---- | - | ------------- | - | ---- | -
|                               |  | US Pension             |     
|                               |  | Three Months Ended     |     
|                               |  | June 30, 2006          |      |   | June 30, 2005 |  
|                               |  | (dollars in thousands) |     
|Discount Rate                  |  |                        | 5.13 | % |               |   | 4.25 | %
|Expected Return on Plan Assets |  |                        | N/A  |   |               |   | N/A  |  
|Rate of Compensation Increase  |  |                        | 0.0  | % |               |   | 0.0  | %
|Service cost                   |  | $                      | 18   |   |               | $ | 24   |  
|                               |  |                       
|Net pension costs              |  | $                      | (4   | ) |               | $ | 34   |  



|                               |  |                        |      |   |               |   |      |  
|------------------------------ |  | ---------------------- | ---- | - | ------------- | - | ---- | -
|                               |  | US Pension             |     
|                               |  | Six Months Ended       |     
|                               |  | June 30, 2006          |      |   | June 30, 2005 |  
|                               |  | (dollars in thousands) |     
|Discount Rate                  |  |                        | 5.13 | % |               |   | 4.25 | %
|Expected Return on Plan Assets |  |                        | N/A  |   |               |   | N/A  |  
|Rate of Compensation Increase  |  |                        | 0.0  | % |               |   | 0.0  | %
|Service cost                   |  | $                      | 40   |   |               | $ | 49   |  
|                               |  |                       
|Net pension costs              |  | $                      | (140 | ) |               | $ | 88   |  

As a result of the divestiture of the Antiqua materials operations, the Company has no remaining
foreign retirement plan.

15. Business and Credit Concentrations

The Companys customer base for the security services division is primarily located in the states of Florida and New York. No single customer within the security services division accounted for more than 10% of
total sales or accounts receivable.

The Companys customer base for the construction and materials divisions are primarily located in
the Caribbean with the most substantial credit concentration within the Construction division. Typically, customers within this division engage the company to develop large marinas, resorts and other site improvements and consequently, make up a
larger percentage of total sales. No single customer within the construction and materials division accounted for more than 10% of total revenue.

For the three months ended June 30, 2006 and 2005, the Company reported revenue for one Bahamian customer of 0.4% and 7.2% of total revenue, respectively. For the six months ended June 30, 2006 and 2005, the Company reported
revenue for the same Bahamian customer of 0.5% and 11.3% of total revenue, respectively. As of June 30, 2006, the ongoing project for the above mentioned customer had backlog of $22,337. A subsidiary of the Company and one of the Companys
directors are minority partners, and the same director is a member of the managing committee of the entity developing this project.

For
the period ended June 30, 2006, there were receivables from the customer mentioned above that represented 1.3% of consolidated receivables. The total receivable balance from this customer is made up of accounts receivable of $0.3 million. As of
December 31, 2005, the total receivable from this customer was $2.5 million consisting of $0.3 million of current accounts receivable and $2.2 million of notes receivable. An additional customer related to a construction project in the Bahamas
represented 15.7% or $3.4 million of the consolidated trade receivables. Of this balance, $1.0 million is retention and $0.2 million relates to our utility division. For the period ended June 30, 2006, there were no receivables from any other
single customer that represented more than 10% of total receivables. Receivables are generally not collateralized. The Company estimates an allowance for doubtful accounts based on the creditworthiness of customers as determined by specific events
or circumstances and by applying a percentage to the receivables within a specific aging category.



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16. Debt and Financial Derivatives

In order to finance the acquisition of Guardian, on March 6, 2006, the Company issued to certain investors under the terms of a Securities Purchase Agreement (the SPA), dated as of February 10,
2006, an aggregate principal amount of $45 million of notes (the Notes) along with warrants to acquire an aggregate of 1,650,943 shares of the Companys common stock at an exercise price of $11.925 per share (the
Warrants). The Company also increased the amount of availability under the CapitalSource revolving credit facility from $70 million to $100 million and used $35.6 million under this facility together with the net proceeds from the
issuance of the Notes and Warrants to purchase Guardian and repay the $8 million CapitalSource Bridge Loan. As of June 30, 2006, the Company had $13.3 million of unused availability on the $100 million CapitalSource credit facility.
Additionally, based on the credit facilities formula for availability to borrow, we had $2.7 million of additional borrowing capacity against the $13.3 million of availability as of June 30, 2006.

The Notes accrue interest, which is payable at maturity, at 8% per annum and mature on the earlier of September 15, 2006 or the date the
Company issues the Preferred Stock described below, but, under no circumstances, later than January 1, 2007. The allowable circumstances for the maturity date to extend beyond September 15, 2006 to January 1, 2007 must arise in
connection with the time which may be required for the Securities and Exchange Commission to complete its review of an Information Statement to be filed with the Commission on Schedule 14C and, for the Company to complete delivery of an Information
Statement to the Companys shareholders in connection with the issuance of the Series A Convertible Preferred Stock (the Preferred Stock). The Company currently anticipates, that in accordance with the terms of the SPA, the private
placement investors will purchase an aggregate of 45,000 shares of the Preferred Stock, par value $.10 per share, to be issued by the Company with a liquidation preference equal to $1,000 per share (the original purchase price per share) plus
accrued and unpaid dividends per share, and convertible into common stock at a conversion price equal to $9.54 per share. The conversion price and the exercise price of the Warrants are subject to certain anti-dilution adjustments.

The creation of a new class of Preferred Stock is subject to shareholder approval under Florida law, while, the issuance of the Preferred Stock and
common stock Warrants and the subsequent issuance of shares of common stock issuable upon conversion of the Preferred Stock, the exercise of the common stock Warrants or distribution of any dividends paid in the form of common stock on the Series A
convertible preferred stock, which could, upon issuance, equal an amount that is 20% or more of the Companys common stock outstanding prior to the date of issuance, requires shareholder approval under the rules of Nasdaq. On February 10,
2006, holders of more than 50% of the Companys common stock approved the amendment to the Companys Articles of Incorporation creating a new class of preferred stock, the issuance of the Preferred Stock, the issuance of the common stock
Warrants, and the subsequent issuance of shares of common stock issuable upon conversion of the Preferred Stock, the exercise of the common stock Warrants or distribution of any dividends paid in the form of common stock on the Preferred Stock;
however, this approval will not be effective until the Securities Exchange Commission rules and regulations relating to the delivery of an information statement on Schedule 14C to the Companys shareholders have been fully satisfied. The
Company has filed a revised form 14C information statement for review by the Securities Exchange Commission and is awaiting the results of that review. We anticipate that the sale of the shares of Preferred Stock will take place in October, 2006 but
not later than January 1, 2007.

The Preferred Stock to be issued and the Warrants are subject to a registration rights agreement,
which imposes significant penalties for failure to register the underlying common stock by a defined date as well as non-standard anti-dilution provisions. The conversion price of the Warrants and the Preferred Stock may be adjusted in certain
circumstances, such as, if the Company pays a stock dividend, subdivide or combines outstanding shares of common stock into a greater or lesser number of shares, or take such other actions as would otherwise result in dilution. Also, if the Company
issues shares of common stock at a price below the fixed conversion price, the fixed conversion price of the convertible preferred stock will be reduced accordingly.

Derivative financial instruments, such as warrants and embedded derivative instruments of a host instrument, which risk and rewards of such derivatives are not clearly and closely related to the risk and rewards of
the host instrument, are generally required to be bifurcated and separately valued from the host instrument with which they relate.

The
following freestanding and embedded derivative financial instruments were identified with the issuance of the Notes: i) the Warrants, which is a freestanding derivative, and ii) the right to purchase the Preferred Stock upon issuance (the
Right to Purchase), which is a freestanding derivative instrument within the SPA.

The following embedded derivatives have been
identified within the Preferred Stock if and when it is issued: i) the ability to convert the Preferred Stock for common stock; ii) the option of the Company to satisfy dividends payable on the Preferred Stock in common stock in lieu of cash; iii)
the potential increase in the dividend rate of the Preferred Stock in the event a certain level of net cash proceeds from the sale of the our construction and material division assets are not realized with in a specified time frame: and (iv) a
change in control redemption right. The embedded derivatives within the Preferred Stock will be bifurcated and valued as a single compound derivative if and when the Preferred Stock is issued.



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The Company valued the Warrants and the Right to Purchase at March 6, 2006, their date of issuance,
using an appropriate option pricing model (the Model). The Model determined an $8.6 million aggregate value for these derivatives and this value has been recorded as derivative instrument liability and classified as current or long term
in accordance with respective maturity dates. Since these derivatives are associated with the Note, the face value of the Notes have been recorded net of the $8.6 million attributed to these derivative liabilities. At issuance, we expected the Notes
to be converted to the Preferred Stock by July 31, 2006, so we initially began accreting the $8.6 million carrying value of the Notes, using the effective rate method, over the expected life of the Note estimated to be five (5) months. As
of June 30, 2006 we estimated that it may take an additional month to complete review by the Securities and Exchange Commission, to allow us to mail the information statement and issue the Preferred Stock, we changed our estimate for the life
of the Notes to six (6) months. Accordingly, a non- cash charge amounting to $5.4 million has been recorded to interest expensed from the date of issuance through June 30, 2006. Additionally, the derivative liability amounts will be
re-valued at each balance sheet date with the resulting change in value being recorded as a charge or credit to arrive at net income. From the date of issuance though June 30, 2006, an aggregate benefit of $6.8 million has been recorded with
respect to the re-valuation of these derivatives liabilities.

The Warrants, which were issued in connection with the issuance of the
Notes, are detachable and have a three-year life expiring on March 6, 2009. The Rights to Purchase are deemed to be issued in connection with the issuance of the Notes, and have a life which expires on the date of the Preferred Stock is issued.
The initial value determined on March 6, 2006 for the Warrants and Rights to Purchase, as determined by the Model amounted to $4.8 million and $3.7 million, respectively The Model assumptions for initial valuation of the Warrants and Rights to
Purchase the Preferred Stock issuance date were a risk free rate of 4.77% and 4.77%, respectively, and volatility for the Companys common stock of 50% and 30% respectively.

The Model assumptions for revaluation of the Warrants and Rights to Purchase at June 30, 2006 and March 31, 2006, were a risk free rate of
5.13% and 4.83% , respectively, and volatility for the Companys common stock of 50% and 30%, respectively.

In connection with
entering into the Notes, Warrants and Preferred Stock arrangements, the Company paid fees totaling $ 3.7 million. Of the total $3.7 million, $3.4 million relates to the Preferred Stock and $0.3 million relates to the Notes and Warrants. The Company
will record the amount associated with the Preferred Stock as a deferred offering cost until the issuance of the Preferred Stock. The Company will record the fee associated with the Notes and Warrants as additional interest expense using the
effective interest rate method over the estimated life of the note, which is six months.

17. Commitments and Contingent Liabilities

In the fall of 2000, Virgin Islands Cement and Building Products, Inc. (VICBP), a subsidiary of the Company, was under contract with the
Virgin Islands Port Authority (VIPA) for the construction of the expansion of the St. Croix Airport. During the project, homeowners and residents of the Yellow Cedar Housing Community, located next to the end of the expansion project,
claimed to have experienced several days of excessive dust in their area as a result of the ongoing construction work and have claimed damage to their property and personal injury. The homeowners of Yellow Cedar have filed two separate lawsuits for
unspecified damages against VIPA and VICBP, as co-defendants. One suit, filed in the U.S. District Court for the District of the Virgin Islands by Mariepaul Antoine, Benjamin Ashe, et. al, vs. VIPA et. al, case #2001,63 R/F, seeks equitable relief
from nuisance, specific performance and damages. The second suit, Louisa Williams et. al vs. VIPA et. al filed in the Territorial Court of the U.S.V.I. case #548/2000 seeks equitable relief from nuisance, specific performance and damages. In both
cases, VICBP, as defendant, has agreed to indemnify VIPA for any civil action as a result of the construction work.

The Company has
brought a declaratory judgment action in the District Court of the Virgin Islands to determine whether or not there is coverage under the primary policy.

Reliance Insurance Company (Reliance), the insurer for the primary general liability policy for VICBP during that period, has taken the legal position that dust is a pollutant and, therefore,
the pollution exclusion clause applies and as a result denies liability insurance coverage to VICPA. The Pennsylvania Insurance Commissioner placed Reliance in rehabilitation in October 2001, and subsequently into liquidation. The Company has also
presented claims under the policy to the Florida Insurance Guaranty Association, the V.I. Insurance Guaranty Association, the Pennsylvania Insurance Commissioner, and to the Companys excess liability insurance carrier, Zurich Insurance
Company. It is too early to predict the final outcome of this matter or to estimate the Companys potential, if any, risk of loss.



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On July 25, 1995, a Company subsidiary, Société des Carriéres de Grande Case
(SCGC), entered into an agreement with Mr. Fernand Hubert Petit, Mr. Francois Laurent Petit and Mr. Michel Andre Lucien Petit, (collectively, Petit) to lease a quarry located in the French side of St. Martin.
Another lease was entered into by SCGC on October 27, 1999 for the same and additional property. Another Company subsidiary, Bouwbedrijf Boven Winden, N.A. (BBW), entered into a material supply agreement with Petit on July 31,
1995. This agreement was amended on October 27, 1999. Pursuant to the amendment, the Company became a party to the materials supply agreement.

In May 2004, the Company advised Petit that it would possibly be removing its equipment within the timeframes provided in its agreements and made a partial quarterly payment under the materials supply agreement. On June 3, 2004, Petit
advised the Company in writing that Petit was terminating the materials supply agreement immediately because Petit had not received the full quarterly payment and also advised that it would not renew the 1999 lease when it expired on
October 27, 2004. Petit has refused to accept the remainder of the quarterly payment from the Company in the amount of $45,000.

Without prior notice to BBW, Petit obtained orders to impound BBW assets on St. Martin (the French side) and Sint Maarten (the Dutch side). The assets sought to be impounded include bank accounts and receivables. BBW has no assets on St.
Martin, but approximately $341,000 of its assets has been impounded on Sint Maarten. In obtaining the orders, Petit alleged that $7.6 million is due on the supply agreement (the full payment that would be due by the Company if the contract continued
for the entire potential term and the Company continued to mine the quarry), $2.7 million is due for quarry restoration and $3.7 million is due for pain and suffering. The materials supply agreement provided that it could be terminated by the
Company on July 31, 2004.

In February 2005, SCGC, BBW and the Company entered into agreements with Petit, which provided for the following:



| |  |  | The purchase by SCGC of three hectares of partially mined land located within the quarry property previously leased from Petit (the Three Hectare Parcel) for
approximately $1.1 million, the purchase of which was settled in February 2005;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A two-year lease of approximately 15 hectares of land (the 15 Hectare Lease) on which SCGC operates a crusher, ready-mix concrete plant and aggregates storage at a cost
of $100,000, which arrangement was entered into February 2005;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to purchase two hectares of unmined property prior to December 31, 2006 for $2.0 million, with $1.0 million on December 31, 2006 and $1.0
million payable on December 31, 2008, subject to the below terms:
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that SCGC exercises this option, Petit agrees to withdraw all legal actions against the Company and its subsidiaries.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that SCGC does not exercise the option to purchase and Petit is subsequently awarded a judgment, SCGC has the option to offset approximately $1.2 million against the
judgment amount and transfer ownership of the Three Hectare Parcel purchased by SCGC back to Petit.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to purchase five hectares of unmined land prior to June 30, 2010 for $3.6 million, payable $1.8 million on June 30, 2010 and $1.8 million
on June 30, 2012; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to extend the 15 Hectare Lease through December 31, 2008 (with annual rent of $55,000) if the two hectares are purchased and subsequent
extensions of the lease (with annual rent of $65,000) equal to the terms of mining authorizations obtained from the French Government agencies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

After conferring with its French counsel and upon review by management, the Company believes that it has valid defenses and offsets to Petits claims, including, among others, those relating to its termination
rights and the benefit to Petit from the Company not mining the property. Based on the foregoing agreements and its review, management does not believe that the ultimate outcome of this matter will have a material adverse effect on the consolidated
financial position or results of operations of the Company.

The Company will obtain independent appraisals to determine the fair value of
any non-cash consideration, including the exercise of the options listed above, used in settlement of a judgment received by Petit, if any.



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The Company is subject to certain Federal, state and local environmental laws and regulations. Management
believes that the Company is in compliance with all such laws and regulations except for certain violations of regulations governing the exploitation of our quarry in Saint Martin. In the fourth quarter of 2005, the Company received a Statement of
Observations resulting from a site examination on September 23, 2005. The site examination was conducted by Drire, the Saint Martin agency charged with the responsibility of enforcing regulations governing the exploitation of quarries. The
Company is in the process of addressing the items identified in the Statement of Observations, none of which are anticipated to have a material adverse effect upon the Company. Compliance with environmental protection laws has not had a material
adverse effect on the Companys consolidated financial condition, results of operations or cash flows in the past and is not expected to have a material adverse effect in the foreseeable future.

In connection with financing the acquisition of Coastal Security Services in November 2005, the Company entered into a $70 million revolving credit
agreement with CapitalSource Finance LLC (Capital Source) replacing in full the revolving credit facility the Company formerly maintained with CIT Financial USA, Inc. The specific terms of the CapitalSource revolving credit facility are
more specifically described in Note 16 of these unaudited condensed consolidated financial statements. The Company has signed a non-recourse performance guarantee with CapitalSource and pledged, as collateral, the Companys stock in DSH.
Subsequently, in connection with the March 2006 acquisition of Guardian, the Company increased the facility with CapitalSource to $100 million.

Additionally, under the terms of a Securities Purchase Agreement, dated as of February 10, 2006, an aggregate principal amount of $45 million of notes along with warrants to acquire an aggregate of 1,650,943 shares of the
Companys common stock at an exercise price of $11.925 per share and an expiration date of March 6, 2009 were issued. Under the terms of the Securities Purchase Agreement, the private placement investors are anticipated to subsequently
receive 45,000 shares of the Preferred Stock, which shares will have a par value $.10 per share, a liquidation preference equal to $1,000 per share (the original purchase price per share) plus accrued dividends per share at a rate of 8% per annum,
and will be convertible into common stock at a conversion price equal to $9.54 per share of common stock. The specific terms of the Securities Purchase Agreement, notes, warrants and Series A Convertible Preferred Stock are more specifically
described in Note 16 to these unaudited condensed consolidated financial statements. In the event of certain triggering events, the interest rate of the Convertible Preferred Stock and the conversion rate can be changed. Those triggering events
include i) leverage ratio targets that start at 6.5X reducing to 5X on specified dates; ii) failure by the Company to cause a registration statement regarding the resale of the common stock issuable upon conversion of the Series A Convertible
Preferred Stock or exercise of the warrants to be declared effective by the Securities Exchange Commission (SEC) approximately 110 days after the issuance of the Preferred Stock (approximately 155 days if there is a full review by the
SEC); iii) lapse of such registration statement or suspension of trading in the Companys common stock by the Securities and Exchange Commission for 5 consecutive days or 10 days in any year period; and iv) a change in control.

18. Discontinued Operations

On September 30,
2005, the Company and its wholly owned subsidiary, V.I. Cement & Building Products, Inc. completed the sale of its U.S. Virgin Islands material operations to Heavy Materials, LLC, a U.S. Virgin Islands limited liability company and private
investor group (Purchaser), pursuant to an Asset Purchase Agreement dated as of August 15, 2005, for $10.7 million in cash plus the issuance of a promissory note (the Note) to the Company in the aggregate principal
amount of $2.6 million. The Note has a term of three years bearing interest at 5% per annum with only interest being paid quarterly in arrears during the first 12 months and principal and accrued interest being paid quarterly (principal being
paid in 8 equal quarterly installments) for the remainder of the term of the Note until the maturity date. The materials division operating results of VI Cement & Building Products, Inc. have been reclassified in the 2006 unaudited
condensed consolidated and 2005 Consolidated Statements of Operations as discontinued operations.

On March 2, 2006, the Company sold
its wholly-owned subsidiary, Antigua Masonry Products, Ltd. and its subsidiary, Antigua Cement Ltd (together AMP), pursuant to a Stock Purchase Agreement with A. Hadeed, a private investor, or his nominee, and Gary ORourke, under
which it completed the sale of all of the issued and outstanding common shares of AMP. In connection with this sale, the purchasers acknowledged that preferred shares of AMP with a face value equal to EC 1,436,485 (US $532,032) as of the date of the
sale (collectively, the Preferred Shares) are outstanding and owned beneficially and of record by certain third parties and that such Preferred Shares are reflected as debt on AMPs books and records. The purchasers further
acknowledged that their acquisition of AMP was subject to the Preferred Shares and that the purchasers have sole responsibility of satisfying and discharging all obligations represented by such Preferred Shares, which represents an aggregate amount
slightly in excess of $500,000. Under the terms of this Stock Purchase Agreement, the purchasers acquired 493,051 common shares of AMP for a purchase price equal to $5.1 million, subject to certain adjustments. Proceeds of $4.6 million were realized
due to retention of cash on hand with



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AMP at the date of sale. This purchase price was paid entirely in cash. In addition, the transaction
included transfers of certain assets from the Antigua operations to the Company, as well as pre-closing transfers to AMP of certain preferred shares in AMP that were owned by the Company. The purchasers agreed to pay all taxes incurred as a result
of the sale. The operating results of AMP have been reclassified in the 2006 unaudited condensed consolidated and 2005 Consolidated Statements of Operations as discontinued operations.

On May 2, 2006, the Company completed the sale of the fixed assets and substantially all of the inventory of its Joint Venture assets of Puerto Rico
Crushing Company (PRCC), to Mr. Jose Criado, through a company controlled by Mr. Criado for a purchase price of $700,000 cash and a two-year 5% note in an amount equal to the value of the inventory as of the closing date.
Additionally, as part of the sale agreement, Mr. Criado assumed substantially all employee-related severance costs and liabilities arising from the lease agreement (including reclamation and leveling) for the quarry land. The net proceeds of
the sale approximated the net book value of the related assets after giving effect to an impairment charge of approximately $0.9 million recorded by the Company on the long-lived assets of PRCC at December 31, 2005.

The accompanying Unaudited Condensed Consolidated Financial Statements for all the periods presented have been adjusted to classify the U.S Virgin
Islands, Antigua material and Puerto Rico operations as discontinued operations. Selected statement of operations data for the Companys discontinued operations is as follows :



|                                                                |  |                        |     |                  |               |   |               |  |               |       |  |   |       
|--------------------------------------------------------------- |  | ---------------------- | --- | ---------------- | ------------- | - | ------------- |  | ------------- | ----- |  | - | ------
|                                                                |  | Three Months Ended     |     | Six Months Ended
|                                                                |  | June 30, 2006          |     |                  | June 30, 2005 |   | June 30, 2006 |  | June 30, 2005
|                                                                |  | (dollars in thousands)
|Total revenue                                                   |  | $                      | 208 |                  |               | $ | 7,676         |  | $             | 3,545 |  | $ | 15,159
|Pre-tax (loss) income from discontinued operations              |  | $                      | (56 | )                |               | $ | 1,050         |  |               | 366   |  | $ | 1,430 
|Income tax benefit                                              |  |                        |    |                  |               |   | 128           |  |               |      |  |   | 342   
|                                                                |  |                        |     |                  |               |   |               |  |               |       |  |   |       
|(Loss) income from discontinued operations, net of income taxes |  | $                      | (56 | )                |               | $ | 1,178         |  | $             | 366   |  | $ | 1,772 
|                                                                |  |                        |     |                  |               |   |               |  |               |       |  |   |       

A summary of the total assets of discontinued operations recorded on the accompanying condensed
consolidated balance sheet is as follows:



|                                      |  |                        |     |                   |   |      
|------------------------------------- |  | ---------------------- | --- | ----------------- | - | -----
|                                      |  | June 30, 2006          |     | December 31, 2005
|                                      |  | (dollars in thousands)
|Accounts receivable, net of allowance |  | $                      | 112 |                   | $ | 808  
|Inventory                             |  |                        |     |                   |   | 460  
|Property and equipment, net           |  |                        |     |                   |   | 4,441
|                                      |  |                        |     |                   |   |      
|Total Assets                          |  | $                      | 112 |                   | $ | 9,705
|                                      |  |                        |     |                   |   |      

19. Off Balance Sheet Transactions

We have not guaranteed any other persons or companys debt, except as set forth above in Contingent Liabilities. We have not
entered into any currency or interest options, swaps or future contracts, nor do we have any off balance sheet debts or transactions, except as disclosed above under Commitments and Contingent Liabilities.

We have no other off-balance sheet transactions where we are the obligors. Details regarding the Companys other contingent liabilities are
described fully in Note 17, Commitments and Contingent Liabilities, to the Companys consolidated financial statements.



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In addition, we may have exposure to liability in connection with pending disputes in which the Company
is involved; see Part II Item 1. Legal Proceedings

20. Liquidity

As of June 30, 2006, the Companys liquidity and capital resources included cash and cash equivalents of $9.9 million, negative working capital
of $30.2 million and available lines of credit of $13.3 million. Total outstanding liabilities were $176.4 million as of June 30, 2006, compared to $101.8 million as of December 31, 2005. The negative working capital results from our
current liabilities, including $41.8 million of notes payable and $1.8 million of derivative instruments. The original value of the derivative instruments, which is more fully described in Note 16 of the unaudited condensed consolidated financial
statements, is recorded as debt discount and is being accreted over the expected term of the notes, or 6 months. The Company expects that the notes payable will be exchanged for Series A Convertible Preferred Stock which are more fully described
below. If the notes are not exchanged as expected, they become due and payable on January 1, 2007. In such an event, the Company would have to identify and obtain financing to fund the maturity of the notes. The Company believes that the
exchange of the notes for the Series A Convertible Preferred Stock will occur as a result of the actions described in managements discussion and analysis of liquidity and capital resources for the six month period ended June 30, 2006.
Excluding the notes payable and financial derivatives, the Company has $13.4 million of working capital as of June 30, 2006.

21. Subsequent Events

None

Item 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations

The
following discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements, as well as the financial statements and related notes included in the Companys 2005 Form 10-K. Dollar amounts of
$1.0 million or more are rounded to the nearest one tenth of a million; all other dollar amounts are rounded to the nearest one thousand dollars and all percentages are stated to the nearest one tenth of one percent.

Forward-Looking Statements

The Private Securities
Litigation Reform Act of 1995 (the Reform Act) provides a safe harbor for forward-looking statements made by us or on our behalf. We and our representatives may, from time to time, make written or verbal forward-looking statements,
including statements contained in our filings with the Securities and Exchange Commission and in our reports to stockholders. Generally, the inclusion of the words believe, expect, intend, estimate,
anticipate, will, and similar expressions identify statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934 and that are intended to come within the safe harbor protection provided by those sections. All statements addressing operating performance, events, or developments that we expect or anticipate will occur in the future,
including statements relating to sales growth, earnings or earnings per share growth, and market share, as well as statements expressing optimism or pessimism about future operating results, are forward-looking statements within the meaning of the
Reform Act.

The forward-looking statements are and will be based upon our managements then-current views and assumptions regarding
future events and operating performance, and are applicable only as of the dates of such statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

By their nature, all forward-looking statements involve risks and uncertainties. Actual results, including our revenues from our
electronic security services and construction and materials operations, expenses, gross margins, cash flows, financial condition, and net income, as well as factors such as our competitive position, inventory levels, backlog, the demand for our
products and services, customer base and the liquidity and needs of customers, may differ materially from those contemplated by the forward-looking statements or those currently being experienced by the Company for a number of reasons, including but
not limited to those set



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forth under Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2005
and the following:



| |  |  | The strength of the construction economies on various islands in the Caribbean, primarily in the Sint Maarten, St. Martin, and the Bahamas. Our business is subject to economic
conditions in our markets, including recession, inflation, deflation, general weakness in construction and housing markets and changes in infrastructure requirements.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to maintain mutually beneficial relationships with key customers. We have a number of significant customers. The loss of significant customers, the financial condition
of our customers or an adverse change to the financial condition of our significant customers could have a material adverse effect on our business or the collectibility of our receivables.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Unforeseen inventory adjustments or significant changes in purchasing patterns by our customers and the resultant impact on manufacturing volumes and inventory levels.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adverse changes in currency exchange rates or raw material commodity prices, both in absolute terms and relative to competitors risk profiles. We have businesses in various
foreign countries in the Caribbean. As a result, we are exposed to movements in the exchange rates of various currencies against the United States dollar. We believe our most significant foreign currency exposure is the Euro.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The electronic security services and materials divisions operate in markets which are highly competitive on the basis of price and quality. We compete with local suppliers of
ready-mix, and foreign suppliers of aggregates and concrete block. Competition from certain of these manufacturers has intensified in recent years and is expected to continue. The construction division has local and foreign competitors in its
markets. Customer and competitive pressures sometimes have an adverse effect on our pricing.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our foreign operations may be affected by factors such as tariffs, nationalization, exchange controls, interest rate fluctuations, civil unrest, governmental changes, limitations on
foreign investment in local business and other political, economic and regulatory conditions, risks or difficulties.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The effects of litigation, environmental remediation matters, and product liability exposures, as well as other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to generate sufficient cash flows to support capital expansion, business acquisition plans and general operating activities, and our ability to obtain necessary
financing at favorable interest rates.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in laws and regulations, including changes in accounting standards, taxation requirements, including tax rate changes, new tax laws and revised tax law interpretations, and
environmental laws, in both domestic and foreign jurisdictions, and restrictions on repatriation of foreign investments.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The outcome of the compliance review for our past EDC benefits and the application for the extension of those benefits in the U.S. Virgin Islands.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The impact of unforeseen events, including war or terrorist activities, on economic conditions and consumer confidence.
| | - |  | -----------------------------------------------------------------------------------------------------------------------



| |  |  | Interest rate fluctuations and other capital market conditions.
| | - |  | ---------------------------------------------------------------



| |  |  | Construction contracts with a fixed price sometimes suffer penalties that cannot be recovered by additional billing, which penalties may be due to circumstances in completing
construction work, errors in bidding contracts, or changed conditions.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adverse weather conditions, specifically heavy rains or hurricanes, which could reduce demand for our products.
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to execute and profitably perform any contracts in the water desalination or sewage treatment business.
| | - |  | -------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to find suitable targets to purchase for the electronic security services division and to implement our business plan in this industry, effectively integrate acquired
Businesses and operate and grow acquisitions in the electronic security services businesses that would maximize profitability.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The foregoing list is not exhaustive. There can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available and other information with respect to these
matters is complete and correct. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may adversely impact us. Should any risks and uncertainties develop into actual events, these
developments could have material adverse effects on our business, financial condition and results of operations. For these reasons, you are cautioned not to place undue reliance on our forward-looking statements.



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Critical Accounting Policies and Estimates

The Companys discussion of its financial condition and results of operations is an analysis of the condensed consolidated financial statements,
which have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), consistently applied. Although the Companys significant accounting policies are described in Note 1 of the
notes to the Companys consolidated financial statements included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2005, the following discussion is intended to describe those accounting policies and estimates most
critical to the preparation of the Companys unaudited condensed consolidated financial statements. The preparation of these condensed consolidated financial statements requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, the Company evaluates its estimates, including those related to allowance for credit losses, inventories
and loss reserve for inventories, cost to complete construction contracts, assets held-for-sale, intangible assets, changes in derivative instrument value, income taxes, taxes on un-repatriated earnings, warranty obligations, impairment charges,
business divestitures, pensions, deferral compensation and other employee benefit plans or arrangements, environmental matters, and contingencies and litigation. The Company bases its estimates on historical experience and on various other factors
that the Company believes to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates.

We believe the following critical accounting policies affect the more significant judgments and estimates used in the
preparation of our consolidated financial statements.

Revenue in the security division for repair and installation services, for which no
monitoring contract is connected, is recognized when the services are performed.

Revenue in the security division for monitoring services
is recognized monthly as services are provided pursuant to the terms of subscriber contracts, which have prices that are fixed and determinable. We assess the subscribers ability to meet the contract terms, including meeting payment
obligations, before entering into the contract. Nonrefundable installation charges and a portion of related direct costs to acquire the monitoring contract, such as sales commissions, are deferred and recognized over the estimated life of a new
subscriber relationship, which we have estimated at 10 years. If the site being monitored is disconnected prior the original expected life is completed, the unamortized portion of the deferred installation and direct costs to acquire are expensed.

Revenue for the materials division is recognized when the products are delivered (FOB Destination), invoiced at a fixed price and the
collectibility is reasonably assured.

Revenue and earnings on construction contracts, including construction joint ventures, are
recognized on the percentage-of-completion-method based upon the ratio of costs incurred to estimated final costs, for which collectibility is reasonably assured. We recognize revenue relating to claims only when there exists a legal basis supported
by objective and verifiable evidence and additional identifiable costs are incurred due to unforeseen circumstances beyond our control. Change-orders for additional contract revenue are recognized if it is probable that they will result in
additional revenue and the amount can be reliably estimated.

Provisions are recognized in the statement of income for the full amount of
estimated losses on uncompleted contracts whenever evidence indicates that the estimated total cost of a contract exceeds its estimated total revenue. Contract cost is recorded as incurred and revisions in contract revenue and cost estimates are
reflected in the accounting period when known. We estimate costs to complete our construction contracts based on experience from similar work completed in the past. If the conditions of the work to be performed change or if the estimated costs are
not accurately projected, the gross profit from construction contracts may vary significantly in the future. The foregoing, as well as weather, stage of completion and mix of contracts at different margins may cause fluctuations in gross profit
between periods and these fluctuations may be significant.

Notes receivable are recorded at cost, less a related allowance for impaired
notes receivable. Management, considering current information and events regarding the borrowers ability to repay their obligations, considers a note to be impaired when it is probable that we will be unable to collect all amounts due
according to the contractual terms of the note agreement. When a loan is considered to be impaired, the amount of the impairment is measured based on the present value of expected future cash flows discounted at the notes effective interest
rate.



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We maintain allowances for doubtful accounts for estimated losses resulting from managements review
and assessment of our customers ability to make required payments. We consider the age of specific accounts and a customers payment history. For our construction and materials divisions, specific collateral given by the customer to
secure the receivable is obtained when we determine necessary. If the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances might be required.

We write down inventory for estimated obsolescence or lack of marketability arising from the difference between the cost of inventory and the estimated
market value based upon assessments about current and future demand and market conditions. If actual market conditions were to be less favorable than those projected by management, additional inventory reserves could be required. If the actual
market demand surpasses the projected levels, inventory write downs are not reversed.

If the installation of security systems will have
future recurring revenue, the costs to install are deferred and included in work in process inventory. When the installation is complete, the deferred installation costs are capitalized and included in other current and long term assets accordingly.
The capitalized installation costs are then amortized over the life of an average customer contract life or 10 years. If the site being monitored is disconnected prior to completion of the original expected life, the unamortized portion of the
deferred installation and direct costs to acquire are expensed.

We determine for our construction and materials division our fixed assets
recoverability on a subsidiary level or group of asset level. If we, as a result of our valuation in the future, assess the assets not to be recoverable, a negative adjustment to the book value of those assets may occur. On the other hand, if we
impair an asset, and the asset continues to produce income, we may record earnings higher than they should have been if no impairment had been recorded.

We determine the lives of goodwill and other intangible assets acquired in a purchase business combination. Some of these assets, such as goodwill, which we determine to have an indefinite useful life are not
amortized, but instead tested for impairment at least annually in accordance with the provisions of FASB 142. This testing is based on subjective analysis and may change from time to time. We tested goodwill and other intangible assets for
impairment on June 30, 2006 and will test for impairment annually each June 30. Other identifiable intangible assets with estimated useful lives are amortized over their respective estimated useful lives. The review of impairment and
estimation of useful life is subjective and may change from time to time.

Customer accounts are stated at fair value based on the
discounted cash flows over the estimated life of the customer contracts and relationships. The Company uses independent appraisal firms to perform a valuation study at the time of acquisition to determine the value and estimated life of customer
accounts purchased in order to assist management in determining an appropriate method in which to amortize the asset. The amortization life is based on historic analysis of customer relationships combined with estimates of expected future revenues
from customer accounts. The Company amortizes customer accounts on a straight-line basis over the expected life of the customer accounts, which varies from 4 to 17, years and records an additional charge equal to the remaining unamortized value of
the customer account for accounts which discontinued service before the expected life. The additional charge for discontinued accounts is equal to the remaining net book value of the customer contract and relationship for the specific customer
account canceled.

We maintain an accrual for retirement agreements with our executives and certain other employees. This accrual is based
on the life expectancy of these persons and an assumed weighted average discount rate of 4.3%. Should the actual longevity vary significantly from the United States insurance norms, or should the discount rate used to establish the present value of
the obligation vary, the accrual may have to be significantly increased or diminished at that time.

The EDC completed a compliance review
on one of our subsidiaries in the US Virgin Islands on February 6, 2004. The compliance review covered the period from April 1, 1998 through March 31, 2003 and resulted from our application to request an extension of tax exemptions
from the EDC. We are working with the EDC to resolve the issues. One of those issues is whether certain items of income qualified for exemption benefits under our then-existing tax exemption, including notice of failure to make gross receipts tax
payments of $505,000 and income taxes of $2.2 million, not including interest and penalties. This is the first time that a position contrary to our or any position on this specific issue has been raised by the EDC. In light of these recent events,
and based on discussions with legal counsel, we established a tax accrual at December 31, 2003



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for such exposure which approximates the amounts set forth in the EDC notice. In September 2005 and 2004, the statute of
limitations with respect to the income tax return filed by us for the year ended December 31, 2001 and 2000, respectively, expired. Accordingly, in the third quarter of 2005 and 2004, we reversed $37,440 and $2.3 million, respectively, of the
tax accrual established at December 31, 2003. We will work with the EDC regarding this matter and if challenged by the U.S. Virgin Islands taxing authority, would vigorously contest its position.

We record a valuation allowance to reduce our deferred tax assets to the amount that is more likely than not to be realized. While we have considered
future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for the valuation allowance, in the event that we were to determine that we would be able to realize our deferred tax assets in the future in excess
of the net recorded amount, an adjustment to the deferred tax asset would increase income in the period such a determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in
the future, an adjustment to the deferred tax asset would be charged to income in the period such a determination.

Freestanding and
embedded financial instrument derivatives, which have been identified in connection with financial instruments issued, are valued at the time of issuance using an appropriate option pricing model and recorded as an asset or liability based upon the
terms and conditions of the derivative instrument identified. When a host instrument contains more than one embedded derivative, and these derivatives require bifurcation, the bifurcated derivative instruments are valued as a single compound
derivative instrument. The valuation model utilized requires assumptions related to the remaining term of the derivative instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected
volatility of our common stock price over the life of the respective derivative instrument. The derivatives which are identified are re-valued at the end of each reporting period utilizing the same model used to value the derivatives at the time of
issuance, and the changes in the fair value of the derivatives are recorded as charges or credits to income in the period in which the changes occur. When a financial instrument derivative is classified as a liability, and is connected with a host
instrument obligation, the related host instrument obligation is recorded after applying an appropriate discount equal to the value of the derivative (the Discount). In addition, the Discount is accreted to the face value of the
respective host instrument obligation, utilizing the effective rate method, and, accordingly, an additional non-cash charge is recorded as interest expense or a reduction of net income to arrive at income attributable to common shareholders
depending on the respective balance sheet classification of the host instrument obligation.

In December 2004, the Financial Accounting
Standards Board issued SFAS No. 123R, Share-Based Payment. SFAS No. 123R is a revision of SFAS No. 123 and supersedes APB 25. SFAS No. 123R eliminates the use of the intrinsic value method of accounting, and requires
companies to recognize the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards. On April 14, 2005, the Securities and Exchange Commission adopted a new rule that
amended the compliance date to adopt SFAS 123R, effective January 1, 2006. SFAS No. 123R permits companies to adopt its requirements using either a modified prospective method or a modified retrospective method.
Under the modified prospective method, compensation cost is recognized in the financial statements beginning with the effective date, based on the requirements of SFAS No. 123R for all share-based payments granted after that date,
and, based on the requirements of SFAS No. 123, for all unvested awards granted prior to the effective date of SFAS No. 123R. Under the modified retrospective method, the requirements are the same as under the modified
prospective method, except that entities also are allowed to restate financial statements of previous periods based on pro forma disclosures made in accordance with SFAS No. 123. The Company has chosen to use the modified
prospective method as explained in Note 12 to these unaudited condensed consolidated financial statements.

We are not presently
considering changes to any of our critical accounting policies and we do not presently believe that any of our critical accounting policies are reasonably likely to change in the near future. There have not been any material changes to the
methodology used in calculating our estimates during the last three years. Our CEO and CFO have reviewed all of the foregoing critical accounting policies and estimates.

Comparison Of Three Months Ended June 30, 2006 With Three Months Ended June 30, 2005

Summary

In the second quarter of 2006, our consolidated revenue from continuing operations amounted to $28.6 million, an increase of $9.4
million, or approximately a 48.6% increase when compared to revenue in the second quarter 2005 of $19.2 million. This revenue increase was principally due to an increase of $10.5 million recorded by our Security Services division. The increase in
Security division revenue was a result of our



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acquisitions of Coastal Security Company (Coastal) and Guardian International, Inc. (Guardian),
which occurred on November 10, 2005 and March 6, 2006, respectively. These acquisitions were accounted for utilizing the purchase method of accounting. The results of these operations are included in our financial statements only from
their respective acquisition dates. Operating loss for the second quarter 2006 increased $0.8 million to a $2.9 million loss when compared to a $2.1 million loss in the second quarter of 2005. This increase in operating loss of $0.8 million was
principally due to an increase in gross profit of $5.5 million for our Security Services division offset by an increase in total operating expenses of $6.5 million, which amounts includes $5.0 million of amortization and impairment of acquired
customer contracts and relationships, and operating income incurred by our Construction division amounting to $0.1 million in the second quarter of 2006, compared to operating income of $0.3 million during the comparable period in 2005. Other income
(expense) increased $1.5 million to a net income of $1.2 million for the quarter ended June 30, 2006 from an expense of $0.3 million for the same period in 2005. Net loss from continuing operations for the second quarter of 2006 decreased $1.2
million to a net loss of $0.4 million when compared to a net loss for the second quarter of 2005 of $1.6 million.

Revenue

Our revenue from continuing operations during the second quarter of 2006 amounted to $28.5 million as compared to $19.2 million during the same period in
2005. This increase was primarily due to an increase of $10.5 million recorded by our Security Services division.

Revenue from our
Security Services division amounted to $15.0 million for the second quarter of 2006 compared to $4.5 million for second quarter of 2005. This revenue increase arises as a result of our acquisitions of the electronic security services operations of
Coastal and Guardian on November 10, 2005 and March 6, 2006, respectively. These acquisitions were accounted for utilizing the purchase method of accounting and the results of these operations are included in our financial statements
only from their respective acquisition dates. In addition, during the second quarter of 2006, the Security Services division recorded a net gain of $0.8 million associated with the sale of the third party monitoring business and previously disposed
monitoring contracts and incurred in excess of $0.4 million of non- recurring costs in order to transfer monitoring operations to the Security Services divisions Holly facility, which transfer took place on July 11, 2006.

Our Construction division revenue decreased approximately 11.3% to $9.3 million during the second quarter of 2006, when compared to $10.5 million for the
comparable period in 2005. This revenue was principally generated by construction contracts in the Bahamas and the Virgin Islands. Our backlog of contracts at June 30, 2006 was $14.2 million, involving 18 contracts. The Company expects that
most of the $14.2 million backlog will be completed during 2006. The Company is actively bidding and negotiating additional projects in areas throughout the Caribbean and, since June 30, 2006, the division has added $8.6 million of additional
construction contracts or change orders.

Our Materials division revenue for the quarter ended June 30, 2006 increased $0.2 million,
or 5.9%, to $4.0 million for the second quarter of 2006 from $3.8 million for the second quarter of 2005. Following the completed sale of the US Virgin Islands, Antigua and Puerto Rico materials operations, which were completed on September 30,
2005, March 2, 2006 and May 2, 2006 respectively, our Materials division consists solely of our quarry and concrete and aggregates operation on the island of St. Martin. Revenue for our St Martin operations for the second quarter of
2006 increased $0.2 million to $4.0 million from $3.8 million for the three months ended June 30, 2005, and was attributable to an increase in sales of aggregates and increases in both the price and volume of concrete.

Other revenue in the quarter ended June 30, 2006 and 2005 consisted of $166,000 and 335,000 respectively associated with our DevMat utilities services
joint venture.

Cost of Revenues

Cost
of Security, as a percentage of Security Services revenue, was 46.0% for the second quarter of 2006 compared to 42.6% for the second quarter of 2005, or a difference of 3.4%. Cost of revenues for the second quarter of 2006 and cost of revenues for
the second quarter of 2005 are not directly comparable as a percentage of revenue due to the increase in revenues and related costs of acquired businesses in the second quarter of 2006. Included in the cost of security are the direct costs incurred
to monitor and service security systems installed at subscriber premises, as well as the net direct costs incurred with the installation of new security systems, after taking into consideration the effects of Staff Accounting Bulletin No. 104.

Cost of Construction as a percentage of Construction revenue increased 0.9% to 88.5% during the second quarter of 2006 from 87.6% percent
during the same period in 2005.

Cost of Materials as a percentage of Materials revenue decreased 10.3% to 85.9% during the second quarter
of 2006 from 96.3% during the same period in 2005. This was the result of increased revenue per yard on our cement sales and the increased volume for our quarry operations.



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Operating Expenses

Selling, general and administrative expense (SG&A expense) combined with severance and retirement increased $6.5 million during the second quarter of 2006 to $12.8 million when compared to $6.3 million
for the comparable period in 2005. The increase of $6.5 million was due to increases in the SG&A expenses in the Security Services division of $7.0 million resulting from the acquired businesses of Coastal and Guardian. Included in the $7.0
million increase of operating expenses is an increase of $4.1 million for non-cash charges for amortization and impairment of acquired customer contracts and relationships in accordance with FASB No. 142.

Operating Income (Loss)

Operating loss for the
second quarter of 2006 amounted to $2.9 million compared to an operating loss of $2.1 million for the comparable period in 2005, or an increased loss of $0.8 million. The increased loss was mainly attributable to an increase in non-cash charges for
amortization and impairment of acquired customer contracts and relationships in accordance with FASB No. 142.

Other Income (expense)

Other income (expense) amounted to a $1.2 million income for the second quarter of 2006 compared to an expense of $0.3 million for the
same period in 2005. This $1.2 million income is due to an $8.3 million benefit in fair market value associated with the derivative liability which was issued in connection with financing the acquisition of Guardian. This other income was offset by
an increase in net interest expense of $6.8 million resulting from increased debt issued to finance the acquisitions of, Coastal and Guardian.

Income
Taxes

Income tax benefit (expense) was a deferred tax benefit of $1.4 million for the second quarter ended June 30, 2006 compared
to a benefit of $0.9 million for the same quarter in 2005. The deferred tax benefit for the three months ended June 30, 2006 was mainly related to realization of a deferred tax liability associated with the Security Services divisions customer
list valuation.

Comparison Of Six Months Ended June 30, 2006 With Six Months Ended June 30, 2005

Summary

During the six months ended June 30,
2006, our consolidated revenue from continuing operations amounted to $52.4 million, an increase of $18.1 million, or approximately a 52.9% increase when compared to revenue of $34.3 million during the first six months of 2005. This revenue increase
was principally due to an increase of $19.1 million recorded by our Security Services division. The increase in Security division revenue was a result of our acquisitions of Starpoint Limited (Starpoint), Coastal and Guardian, which
occurred on February 28, 2005, November 10, 2005 and March 6, 2006, respectively. These acquisitions were accounted for utilizing the purchase method of accounting. The results of these operations are included in our financial
statements only from their respective acquisition dates. Operating loss for the first six months of 2006 increased $6.7 million to a $9.1 million loss when compared to a $2.4 million loss in the first six months of 2005. This increase in operating
loss of $6.7 million was principally due to an increase in gross profit of $10.1 million for our Security Services division resulting from the our acquisitions in Security Services offset by an increase in total operating expenses of $13.0 million,
which amounts includes $7.2 million increase of amortization and impairment of acquired customer contracts and relationships. Additionally an operating loss incurred by our Construction division amounting to $2.7 million in the six months of 2006,
compared to operating income of $2.3 million during the comparable period in 2005, was mainly the result of losses incured by the Construction Division on two construction contracts in the 1stQuarter of 2006. The Construction Division reported 73,000 of operating profit in the Secord quarter of 2006. Other income (expense) increased $1.6 million to
a net expense of $1.9 million for the six months ended June 30, 2006 from an expense of $0.3 million for the same period in 2005. Net loss from continuing operations for the six months ended June 30, 2006 increased $5.8 million to a net
loss of $9.6 million when compared to a net loss of $3.8 million for the second quarter of 2005.

Revenue

Our revenue from continuing operations during the second quarter of 2006 amounted to $52.4 million as compared to $34.3 million during the same period in
2005. This increase was primarily due to an increase of $19.1 million recorded by our Security Services division.

Revenue from our
Security Services division amounted to $25.6 million for the first six months of 2006 compared to $6.5 million for the same period of 2005. This revenue increase arises as a result of our acquisitions of the electronic security services operations
of Starpoint, Coastal and Guardian on February 28, 2005 November 10, 2005 and March 6, 2006, respectively. These acquisitions were accounted for utilizing the purchase method of accounting and the results of these operations are
included in our financial statements only from their respective acquisition dates.



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Our Construction division revenue decreased approximately 8.4% to $18.1 million during the first six
months of 2006, when compared to $19.8 million for the comparable period in 2005. This revenue was principally generated by construction contracts in the Bahamas and the Virgin Islands. Our backlog of contracts at June 30, 2006 was $14.5
million, involving 18 contracts. The Company expects that most of the $14.5 million backlog will be completed during 2006. The Company is actively bidding and negotiating additional projects in areas throughout the Caribbean and the division has
added $8.6 million of additional construction contracts or change orders, since June 30, 2006.

Our Materials division revenue for the
first six months of 2005 increased $0.8 million, or 11.5%, to $8.3 million compared to $7.5 million for the first six months of 2005. Following the completed sale of the US Virgin Islands, Antigua and Puerto Rico materials operations, which were
completed on September 30, 2005, March 2, 2006 and May 2, 2006 respectively, our Materials division consists solely of our quarry and concrete and aggregates operation on the island of St. Martin. Revenue for our St Martin
operations for the second quarter of 2006 increased $0.9 million to $8.3 million from $7.5 million for the six months ended June 30, 2005 , and was attributable to an increase in sales of aggregates and concrete.

Other revenue in the first six months consisted of $348,000 associated with our DevMat utilities services joint venture.

Cost of Revenues

Cost of Security, as a percentage
of Security Services revenue, was 45.7% for the first six months of 2006 compared to 41.8% for first six months of 2005, or a difference of 3.9%. The difference in cost of revenues for the first six months of 2006 and the same period of 2005 are not
directly comparable as a percentage of revenue due to the increase in revenues and related costs of acquired businesses in the second quarter of 2006. Included in the cost of security are the direct costs incurred to monitor and service security
systems installed at subscriber premises, as well as the net direct costs incurred with the installation of new security systems, after taking into consideration the effects of Staff Accounting Bulletin No. 104.

Cost of Construction as a percentage of Construction revenue increased 24.2% to 103.8% during the first six months of 2006 from 79.6% percent during the
same period in 2005. The increase is mainly attributed to a $1.3 million increase in the projected loss on a marina project in the Virgin Islands, which is scheduled to be completed in the third quarter of 2006, and a $0.3 million loss on a dredging
job due to delays and expenses not reimbursed under the contract with the customer. In addition, current construction jobs are operating at lower margins that the first six months of 2005.

Cost of Materials as a percentage of Materials revenue decreased 9.9% to 86.0% during the first six months of 2006 from 95.9% during the same period in
2005. This was the result of increased revenue per yard on our concrete sales and the increased volume for our quarry operations.

Operating Expenses

Selling, general and administrative expense (SG&A expense) combined with severance and retirement increased $13.1
million during the first six months of 2006 to $23.8 million when compared to $10.7 million for the comparable period in 2005. The increase of $13.1 million was due to increases in the Security Services division of $16.8 million resulting from the
acquired businesses of Starpoint, Coastal and Guardian combined with an increase of other unallocated corporate overhead of $1.1 million. Included in the $13.1 million increase of Security Services operating expenses is an increase of $7.2 million
for non-cash charges for amortization and impairment of acquired customer contracts and relationships in accordance with FASB No. 142. The unallocated corporate overhead was mainly due to an increase in rent expense of $0.3 million and stock
option expense of $0.2 million in accordance with FAS 123R.

Operating (Loss)

Operating loss for the first six months of 2006 amounted to $9.1 million compared to an operating loss of $2.4 million for the comparable period in 2005,
or an increased loss of $6.8 million. The increased loss was mainly attributable to the reduced profitability of the Construction division of $5.0 million, the increase in unallocated administration cost, and the increase in operating loss in the
Security Services division due to the increase for non-cash charges for amortization and impairment of acquired customer contracts and relationships in accordance with FASB No. 142.



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Other Income (Expense)

Other income (expense) amounted to a $1.9 million expense for the first six months of 2006 compared to an expense of $0.3 million for the same period in 2005. This $1.9 million expense is due to a $6.7 million benefit
in fair market value associated with the derivative liability which was issued in connection with financing the acquisition of Guardian offset by an increase in interest expense of $11.2 million resulting from increased debt issued to finance the
acquisitions of Starpoint, Coastal and Guardian, respectively. This was further offset by the recognition of an additional $1.2 million benefit from the December 2004 settlement of a note receivable from the Antigua and Barbuda government.

Income Taxe Benefit (Expense)

Income
tax benefit (expense) was a benefit of $1.5 million for the six months ended June 30, 2006 compared to an expense of ($1.0) million for the same six month period in 2005. In February 2006, one of the Companys Antiguan subsidiaries
declared and paid a $3.6 million gross dividend, of which $1.2 million was withheld for Antiguan withholding taxes. The withholding taxes were deemed paid by utilization of a portion of a $7.5 million tax credit received as part of a Satisfaction
Agreement which was entered into between the Company, its Antiguan subsidiaries and the Government of Antigua and Barbuda in December of 2004. Accordingly, in the first quarter of 2005, the Company recognized a non cash foreign tax expense in the
amount of $ 1.2 million which was offset by deferred tax benefit of $2.8 million realized during the first six months of 2006.

Liquidity and
Capital Resources

We generally fund our working capital needs from operations and bank borrowings. In the electronic security services
business, monitoring services are typically billed in advance on either a monthly, quarterly or annual basis. Installations of new security systems for residential customers typically result in a net investment in the customer, whereas installations
of new security systems for commercial projects typically have neutral to positive cash flow. In the construction business, we expend considerable funds for equipment, labor and supplies. In the construction division, our capital needs are greatest
at the start of a new contract, since we generally must complete 45 to 60 days of work before receiving the first progress payment. As a project continues, a portion of the progress billing is usually withheld as retainage until the work is
complete. We have historically provided long term financing to certain customers who have previously utilized our construction services. During the first quarter of 2006, we did not finance any construction contracts while in the first quarter of
2005, we financed $1.6 million of construction contracts. Repayments by customers are due at different times within the next three years. Accounts receivable for the materials operation are typically established with terms between 30 and 45 days.
Our business requires a continuing investment in plant and equipment, along with the related maintenance and upkeep costs.

We believe our
cash flow from operations, existing working capital and funds available from lines of credit are adequate to meet our operating needs in 2006. Historically, we have used a number of lenders to finance a portion of our machinery and equipment
purchases. At June 30, 2006, there were no amounts outstanding to these lenders.

For certain new contracts, our construction
customers require we issue a bid or performance bond for the value of a contract. Bonding companys use, among other measures, tangible net worth to determine eligibility for underwriting the bonds. Because of the value of intangible assets
acquired in our security services acquisitions, the cost of obtaining construction related bonds has increased significantly. Although we believe this may prevent us from obtaining certain contracts in the future, we believe our experience and
existing presence in the Caribbean geographic area will provide an adequate level of comfort to allow our backlog of construction contracts to remain stable. On occasion, Devcon International Corp., ultimate parent to our subsidiaries that comprise
our construction division has been required to provide a guarantee of performance to obtain a contract.

As of June 30, 2006, our
liquidity and capital resources included cash and cash equivalents of $9.9 million, negative working capital of $30.2 million and available lines of credit of $13.3 million. Total outstanding liabilities were $176.4 million as of June 30, 2006,
compared to $101.8 million as of December 31, 2005. The negative working capital results from our current liabilities, including $41.8 million of notes payable and $1.8 million of derivative instruments. The $1.8 million of derivative
instruments, which is more fully described in Note 16 of the unaudited condensed consolidated financial statements, are recorded as debt discount and will be accreted over the expected term of the notes, or 6 months. We expect that the notes payable
will be exchanged for Series A Convertible Preferred Stock which are more fully described below. If the notes are not exchanged as expected, they become due and payable on January 1, 2007. In such an event, the Company would have to identify
and obtain financing to fund the maturity of the notes. The Company believes



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that the exchange of the notes for the Series A Convertible Preferred Stock will occur as a result of the actions
described below. Excluding the notes payable and financial derivatives, the Company has $13.4 million of working capital as of March 31, 2006.

Cash flow used by operating activities for the six months ended June 30, 2006 was $2.6 million compared with cash used of $2.9 million for the same period in 2005. The primary sources of cash for operating activities during the first
six months was notes receivable of $2.2 million and cost in excess of billing of $1.4 million. The primary use of cash from operating activities was a decrease in accounts payable, accrued expenses and other liabilities of $4.2 million and other
long term assets of $2.9 million.

Our accounts receivable averaged 59 days of sales outstanding (DSO) as of June 30, 2006. This is an
increase of 16 days compared to 43 days at the end of December 2005. Our security services segment averaged 45 days, while our construction segment and St Martin materials operations averaged 96 and 46 days respectively.

On June 6, 1991, the Company issued an unsecured, prime rate interest bearing, promissory note, in favor of Donald L. Smith, Jr., a director and former
Chairman and Chief Executive Officer (Mr. Smith), in the aggregate principal amount at the time of issuance of $2.1 million, with a maturity date of January 1, 2004 (the Smith Note). Subsequently the maturity date of the
Smith Note was extended by the parties until October 1, 2005. As of March 31, 2006, $1.7 million was outstanding under the Smith Note. Under the terms of a guarantee agreement dated March 10, 2004, between the Company and Mr. Smith where Mr. Smith,
amongst others, agreed to guaranty certain loan notes receivable due from EBR Holding Limited ( EBRH), amounting to $2.2 million at that time, Mr. Smith agreed to maintain collateral for these guarantees in the amount of $1.8 million.
The balance due to Mr. Smith under the Smith Note served as collateral for the aforementioned required amount.

The Company in May 2006
restructured and satisfied the Smith Note and all notes due from EBRH (the EBR Notes). In May 2006, the Company entered into two agreements, one of which (the Smith Note Agreement) was amongst the Company, and Mr. Smith and
the other agreement (the EBR Note Agreement) was amongst the Company, EBRH, EBR Properties Limited and Emerald Bay Resort & Co. (collectively, EBR). Under the terms of the Smith Note Agreement, Mr. Smith agreed to cancel
the Smith Note in exchange for the Companys assignment to Mr. Smith of certain notes EBR had previously issued to the Company with an aggregate amount due from EBR at time of assignment equal to $1.0 million plus accrued interest. As part of
this restructuring the Company also made a cash payment of $458,525 to Mr. Smith in satisfaction of all remaining amounts now due under the Smith Note. This restructuring satisfied all amounts due under the all notes due from EBRH. In addition, as
part of this restructuring, the Company received $56,000 in cash from EBRH, and EBR agreed to use its good faith efforts to transfer to the Company an approximately 14% interest which EBR had in a redi-mix batch plant which the Company controls in
Great Exuma, Bahamas. The Company has also agreed to surrender the minority equity interest the Company held in EBR.

The Company has
entered into retirement agreements with certain existing and retired executives of the Company. The net present value of future liabilities for these arrangements as of June 30, 2006 was $3.1 million, of which $1.6 million is for the former
Chairman. The Company has used an average discount rate of 5.0 percent and standard mortality tables to estimate these liabilities.

As
part of the 1995, subsequently renegotiated in 1999, acquisition of Société des Carriéres de Grand Case (SCGC), a French company operating a ready-mix concrete plant and quarry in St. Martin, the Company agreed to
pay the quarry owners, who were also the owners of SCGC, a royalty payment of $550,000 per year through July 2004 and rent of $50,000 per year through October 2004. The agreements cover a 15-year period, but may be cancelled at either partys
option in 2004 and 2005, respectively. In May 2004, the Company entered into discussions about terminating the lease and to stop the quarry operations on St. Martin. In June 2004, the quarry owner terminated the lease contract as of October 27,
2004, and terminated a material supply contract. The landlord has commenced certain proceedings with respect to the foregoing. The Company has continued its discussions with the landlord, as further described in Contingent Liabilities. The Company
accrued for quarry restoration costs and recognized an impairment charge on the assets in the first quarter of 2003 and does not expect any further impairment, restoration costs or closing costs, except for possible severance cost depending of the
future actions of the parties.

On March 6, 2006, pursuant to the terms of that certain Agreement and Plan of Merger (the Merger
Agreement), dated as of November 9, 2005, we and Devcon Acquisition, Inc., an indirect wholly-owned subsidiary of the Company, completed a merger (the Merger) in which we acquired all of the outstanding capital stock of
Guardian, for an estimated aggregate purchase price of $65.5 million in cash.

In order to finance the Merger, on March 6, 2006, we
also (i) closed a private placement of the Notes described below and Warrants under the terms of a Securities Purchase Agreement, and (ii) through DSH, increased our credit line (the Credit Agreement) from $70 million to $100
million under our revolving credit facility with CapitalSource. Most of the proceeds from the Notes, the Warrants and the draw down under the increased Credit Agreement were used to acquire Guardian. The remaining proceeds were used to repay the $8
million CapitalSource Bridge Loan, which was issued in November 2005, and for general corporate purposes, including working capital. As of June 30, 2006, we had $13.3 million unused availability on our $100 million CapitalSource credit
facility. Additionally, based on the borrowing base formula used to determine the amount that is availabile to borrow, we had $2.7 million of additional borrowing capacity against the $13.3 million of availability as of June 30, 2006.



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As noted above, on March 6, 2006, we issued to certain investors under the terms of a Securities
Purchase Agreement, dated as of February 10, 2006, an aggregate principal amount of $45 million of notes along with warrants to acquire an aggregate of 1,650,943 shares of our common stock at an exercise price of $11.925 per share. The notes
bear interest at a rate equal to 8% per annum (which rate increases to 18% per annum in the event we fail to make payments required under the notes when due).

We anticipate that, pursuant to the terms of the Securities Purchase Agreement, the private placement investors will subsequently receive an aggregate of 45,000 shares of Series A convertible preferred stock
(Series A Convertible Preferred Stock), par value $0.10 per share, of Devcon with a liquidation preference equal to $1,000, a dividend rate equal to 8% per annum, convertible into common stock at a conversion price equal to $9.54
per share for each share of Series A Convertible Preferred Stock. The conversion price of the Series A Convertible Preferred Stock and the exercise price of the Warrants will be subject to certain anti-dilution adjustments.

The creation of a new class of preferred stock is subject to shareholder approval under Florida law, while, the issuance of the Preferred Stock and
common stock Warrants and the subsequent issuance of shares of common stock issuable upon conversion of the Preferred Stock, the exercise of the common stock Warrants or distribution of any dividends paid in the form of common stock on the Series A
convertible preferred stock, which could, upon issuance, equal an amount that is 20% or more of our common stock outstanding prior to the date of issuance, requires shareholder approval under the rules of Nasdaq. On February 10, 2006, holders
of more than 50% of our common stock approved the amendment to our articles of incorporation creating a new class of preferred stock, the issuance of the Preferred Stock and the subsequent issuance of shares of common stock issuable upon conversion
of the Preferred Stock, the exercise of the common stock Warrants or distribution of any dividends paid in the form of common stock on the Preferred Stock; however, this approval will not be effective until the Securities Exchange Commission rules
and regulations relating to the delivery of an information statement on Schedule 14C to our shareholders have been fully satisfied. We anticipate that the sale of the shares of Preferred Stock will take place in October, 2006 but not later than
January 1, 2007.

Related Party Transactions

The Companys policies and codes provide that related party transactions be approved in advance by either the Audit Committee or a majority of disinterested directors.

The Company leases from the wife of Mr. Donald L. Smith, Jr., a Director and former Chairman and Chief Executive Officer of the Company, a
1.8-acre parcel of real property in Deerfield Beach, Florida. This property is being used for our equipment logistics and maintenance activities. The property is subject to a 5-year lease entered into on January 2002 providing for rent of $95,000
per year. This rent was based on comparable rental contracts for similar properties in Deerfield Beach, as evaluated by management.

The
Company has entered into various construction and payment deferral agreements with an entity which owns and manages a resort project in the Bahamas in which Mr. Donald L. Smith Jr., a director and former Chairman and Chief Executive
Officer of the Company, and a subsidiary of the Company are minority partners owning 11.3 percent and 1.2 percent, respectively. Mr. Smith is also a member of the entitys managing committee.



| |  |  | As of January 1, 2003, the Company entered into a payment deferral agreement with the resort project whereby several notes, which are guaranteed partly by certain owners of the
project, evidenced a loan totaling $2.0 million owed to the Company. Mr. Donald Smith, Jr. issued a personal guarantee for the total amount due under this loan agreement to the Company. The balance of the loan payable to the Company as of
March 31, 2006, including accrued interest, is $1.7 million. This loan was satisfied under the terms of an agreement described below as the Smith Note agreement.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company has entered into construction contracts with the resort project. In late 2004, the Company entered into a $15.2 million contract, which contract has been increased to
$15.9 million, to construct a marina and breakwater for the same entity. The resort project secured third party financing for this latter contract. The Company entered into a vertical construction contract with another entity for $3.0 million during
the second quarter of 2005. Mr. Smith is a partner of this entity. In connection with currently active contracts on the project, the Company recorded revenues of $0.1 million and $2.0 million for the three months ended June 30, 2006 and
2005, respectively. The Company recorded revenues of $0.3 and $5.6 for the six months ended June 30, 2006 and 2005, respectively. As of December 31, 2005, the marina and breakwater contract was substantially complete.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The outstanding balance of trade receivables from the resort project was $0.3 million as of June 30, 2006 and December 31, 2005. The outstanding balance of note
receivables was $0.0 and $2.2 million as of June 30, 2006, and December 31, 2005, respectively. The Company has recorded interest income of $50,000 and $100,000 for the three and six month period ended June 30 2005, respectively.
During the three month period ended June 30, 2006 no interest income was recorded due to the settlement of the notes. The interest income recorded for the six months ended June 30, 2006 was $31,000. The billings in excess of cost were
$22,337 and $50,922 as of June 30, 2006 and December 31, 2005, respectively. Mr. Smith has guaranteed the payment of the receivables from the entity, up to a maximum of $3.0 million, including the deferral agreement described above.
The guarantee of collectibility by Mr. Smith was terminated as part of the agreements identified below as the Smith Note and the EBR Receivable Agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the second quarter of 2005, after receiving approval by our Audit Committee, a subsidiary of the Company entered into a $3.0 million agreement to construct a residence on a parcel of property located within the
resort complex know has Emerald Bay Resorts on the island of Exuma, Bahamas. Donald L. Smith, Jr., a director and former Chairman and Chief Executive Officer (Mr. Smith), is a party to this agreement and has a 50% interest in the
ownership of the land on which the residence is being constructed together with one other party who has the remaining 50% interest in the ownership of this land , as well as a controlling interest in the resort project in the Bahamas. Mr. Smith has
a minority interest in the resort and also sits on committees which govern the affairs of the resort. Mr. Smith and his partner have agreed to share in all profits if any, generated by this parcel in accordance with their respective interests. As a
result of change orders to the scope of the work to be performed, the total amounts which can be invoiced by the Company with respect to this project has increased to $3.2 million as of June 30, 2006. Due to various delays in construction, as well
as additional time required to complete the project, we have estimated that the cost to complete the residence is currently $3.6 million. In accordance with the Companys accounting policies the Company has recorded a loss of $0.4 million in
its June 2006 operating results. Since June 2005, the month in which the project started, through June 30, 2006, the Company has recorded revenue of $0.9 million with respect to this project and as at June 30, 2006 and December 31, 2005, the
accounts receivable outstanding attributable to this project amounted to $0.2 million and $0.2 million, respectively. The billing in excess of cost amounted to $0.5 million at June 30, 2006 and the cost in excess billings amounted to $20,000 at
December 31, 2005.

On June 6, 1991, the Company issued an unsecured, prime rate interest bearing, promissory note, in favor of Donald L.
Smith, Jr., a director and former Chairman and Chief Executive Officer (Mr. Smith), in the aggregate principal amount at the time of issuance of $2.1 million, with a maturity date of January 1, 2004 (the Smith Note).
Subsequently the maturity date of the Smith Note was extended by the parties until October 1, 2005. As of March 31, 2006, $1.7 million was outstanding under the Smith Note. Under the terms of a guarantee agreement dated March 10, 2004, between the
Company and Mr. Smith where Mr. Smith, amongst others, agreed to guaranty certain loan notes receivable due from EBR Holding Limited ( EBRH), amounting to $2.2 million at that time, Mr. Smith agreed to maintain collateral for these
guarantees in the amount of $1.8 million. The balance due to Mr. Smith under the Smith Note served as collateral for the aforementioned required amount.

The Company in May 2006 restructured and satisfied the Smith Note and all notes due from EBRH (the EBR Notes). In May 2006, the Company entered into two agreements, one of which (the Smith Note
Agreement) was amongst the Company, and Mr. Smith and the other agreement (the EBR Note Agreement) was amongst the Company, EBRH, EBR Properties Limited and Emerald Bay Resort & Co. (collectively, EBR). Under the
terms of the Smith Note Agreement, Mr. Smith agreed to cancel the Smith Note in exchange for the Companys assignment to Mr. Smith of certain notes EBR had previously issued to the Company with an aggregate amount due from EBR at time of
assignment equal to $1.0 million plus accrued interest. As part of this restructuring the Company also made a cash payment of $458,525 to Mr. Smith in satisfaction of all remaining amounts now due under the Smith Note. This restructuring satisfied
all amounts due under the all notes due from EBRH. In addition, as part of this restructuring, the Company received $56,000 in cash from EBRH, and EBR agreed to use its good faith efforts to transfer to the Company an approximately 14% interest
which EBR had in a redi-mix batch plant which the Company controls in Great Exuma, Bahamas. The Company has also agreed to surrender the minority equity interest the Company held in EBR.

The Company owns a 50% interest in ZSC South, a joint venture, which is in the process of being liquidated. Mr. W. Douglas Pitts, a director, owns a
5% interest in the joint venture. Courtelis Company manages the joint ventures operations and Mr. Pitts is the President of Courtelis Company. In the third quarter of 2005, the joint venture sold its last remaining parcel of land and the
Company recorded a gain of $0.4 million.

On July 30, 2004, the Company purchased an electronic security services company managed and
controlled by Mr. Ruzika, our CEO, for approximately $4.7 million, subject to certain purchase price adjustments after the closing. The initial allocation of the assets of the company purchased was based on fair value and included $70,000 of
working capital, $306,000 of property, plant and equipment, $2.6 million of customer contracts, $356,000 of deferred tax assets and $1.7 million of goodwill and other intangibles. The Company assumed $277,000 of deferred revenue liability. The
Company paid the purchase price with a combination of $2.5 million in cash and 214,356 shares of the Companys common stock. Additionally, on October 5, 2005, 13,718 shares were issued upon finalization of the purchase price adjustments.

Mr. James R. Cast, a former director, through his tax and consulting practice, has provided services to us for more than ten
years. The Company paid Mr. Cast $59,400 and $59,400 for consulting services provided to the Company in 2005, 2004 and 2003, respectively. Additionally, Mr. Cast resigned from the Board of Directors in January 2006. Before resigning, the
Company entered into a consulting agreement for tax and consulting services to be performed during 2006 for a specified number of consulting hours and for the total amount of $75,000.

The Company has entered into a retirement agreement with Mr. Richard Hornsby, our former Senior Vice President and a director. He retired from the
company at the end of 2004. During 2005 he received his full salary. From 2006 he will receive annual payments of $32,000 for life. During 2003, the Company recorded an expense of $232,000 for services rendered; this amount was paid out in 2005. The
Company expensed the net present value of the obligation to pay Mr. Hornsby $32,000 annually for life, over his estimated remaining service period at the Company, i.e. during 2004. The net present value of the future obligation is presently
estimated at $291,064 as of June 30, 2006.



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On August 12, 2005, the Company entered into a Management Services Agreement, dated as of
August 12, 2005 (the Management Agreement), with Royal Palm Capital Management, LLLP (Royal Palm), to provide management services. Royal Palm Capital Management, LLP is an affiliate of Coconut Palm Capital Investors I
Ltd. (Coconut Palm) with whom the Company completed a transaction on June 30, 2004, whereby Coconut Palm invested $18 million into the Company for purposes of the Company entering into the electronic security services industry.
Richard Rochon and Mario Ferrari, two of the Companys directors, are principals of Coconut Palm and Royal Palm. Robert Farenhem is a principal of Royal Palm and was the Companys interim CFO from April 2005 until December 2005.

The management services to be provided include, among other things, assisting the Company with, among other matters, establishing certain
office, accounting and administrative procedures, obtaining financing relating to business operations and acquisitions, developing and implementing advertising, promotional and marketing programs, facilitating certain securities matters (both
proposed offerings and ongoing compliance issues) and future acquisitions and dispositions, developing tax planning strategies, and formulating risk management policies. Under the terms of the Management Agreement, the Company is obligated to pay
Royal Palm a management fee in the amount of $30,000 per month. In connection with this Agreement, we incurred $274,702 during the year ended December 31, 2005 and $180,000 for the six months ended June 30, 2006.

On January 23, 2006, the Company entered into a stock purchase agreement with Donald L. Smith, Jr., a director and former Chairman and Chief
Executive Officer, under the terms of which the Company agreed to sell to Mr. Smith all of the issued and outstanding shares of two of our subsidiaries, Antigua Masonry Products, Ltd., an Antigua corporation, or AMP, and M21 Industries, Inc.,
which subsidiaries collectively comprise the operations of the Companys materials division in Antigua, for an aggregate purchase price equal to approximately $5 million, subject to adjustments provided in the stock purchase agreement. The
stock purchase agreement permitted $1,725,000 of the purchase price to be paid by cancellation of a note payable by the Company to Mr. Smith. The Company retained the right to review other offers to purchase these Antigua operations. The
parties to the stock purchase agreement elected to exercise their right to negotiate the sale of the Companys materials division in Antigua with a third party. As a result, on March 2, 2006, the Company entered into a stock purchase
agreement with A. Hadeed or his nominee and Gary ORourke and terminated the stock purchase agreement entered into with Mr. Smith on January 23, 2006. The terms of the new stock purchase agreement provided for a purchase price equal
to approximately $5.1 million, subject to adjustments provided in the stock purchase agreement. The entire purchase price was contemplated to be paid entirely in cash as opposed to the partial payment through surrender of the $1,725,000 note the
Company had previously issued to Mr. Smith. In addition, the terms of the new stock purchase agreement excluded M21 Industries, Inc. from the sale but contemplated transfers of certain assets from the Antigua operations to Devcon as well as the
pre-closing transfer to AMP of certain preferred shares in AMP that were owned by Devcon. The purchaser has agreed to pay all taxes incurred as a result of the transaction. The Company completed the sale of its materials division in Antigua on
March 2, 2006.

Item 3. Quantitative And Qualitative Disclosures About Market Risk

We are exposed to financial market
risks due primarily to changes in interest rates, which we manage primarily by managing the maturities of our financial instruments. We do not use derivatives to alter the interest characteristics of our financial instruments. A change in interest
rate may materially affect our financial position or results of operations.

Our exposure to market risk resulting from changes in interest
rates results from the variable rate of our senior secured revolving credit facility with CapitalSource, as an increase in interest rates would result in lower earnings and increased cash outflows. The interest rate on our senior secured revolving
credit facility is payable at variable rates indexed to either LIBOR or the Base Rate. The effect of each 1% increase in the LIBOR rate and the Base Rate on our senior secured revolving credit facility would result in an annual increase in interest
expense of approximately $0.9 million. Based on the U.S. yield curve as of March 31, 2006 and other available information, we project interest expense on our variable rate debt to increase approximately $0.06, $0.03, $0.0 and $0.0 million for
the years ended December 31, 2006, 2007, 2008 and 2009, respectively

We have operations overseas. Generally, all significant
activities of the overseas affiliates are recorded in their functional currency, which is generally the currency of the country of domicile of the affiliate. The foreign functional currencies that we deal with are Netherlands Antilles Guilders,
Eastern Caribbean Units and Euros. The first two are pegged to the U.S. dollar and have remained fixed for many years. Management does not believe a change in the Euro exchange rate will materially affect our financial position or results of
operations.



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Item 4. Controls And Procedures

Evaluation of Disclosure Controls and Procedures

The Company has carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and
our Chief Financial Officer, who is also acting as our Principal Financial and Accounting Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. The evaluation examined the Companys disclosure
controls and procedures as of June 30, 2006, the end of the period covered by this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended. Based on that evaluation, such officers have concluded that, as of
June 30, 2006, the Companys disclosure controls and procedures were not effective to ensure that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time period specified in the rules and forms of the Securities and Exchange Commission, and include controls and procedures designed to ensure that information required to be
disclosed by the Company in such reports is accumulated and communicated to our management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer , as appropriate, to allow timely decisions regarding
required disclosures.

In connection with the completion of its audit of, and the issuance of an unqualified report on the Companys
consolidated financial statements for the fiscal year ended December 31, 2005, the Companys former independent registered public accounting firm, KPMG, LLP (KPMG), communicated to the Companys management and Audit
Committee that certain matters involving the Companys internal controls were considered to be material weaknesses, as defined under the standards established by the Public Company Accounting Oversight Board, or PCAOB. These matters
pertained to (i) inadequate polices and procedures with respect to review and oversight of financial results to ensure that accurate consolidated financial statements were prepared and reviewed on a timely basis, (ii) inadequate number of
individuals with US GAAP experience and (iii) inadequate review of account reconciliations, analyses and journal entries. The Company concurred with this communication.

In light of the material weaknesses described above, the Company performed additional analyses and other post-closing procedures to ensure the
Companys consolidated financial statements are prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly represent in all material
respects our financial condition, results of operations and cash flows for the periods presented.

The certifications of the Companys
Chief Executive Officer and its Chief Financial Officer, who is currently acting as the Companys Principal Financial and Accounting Officer, required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002, are attached as
exhibits to this Quarterly Report on Form 10-Q. The disclosures set forth in this Item 4 contain information concerning the evaluation of the Companys disclosure controls and procedures and changes in internal control over financial
reporting, referred to in paragraph 4 of the certifications. Those certifications should be read in conjunction with this Item 4 for a more complete understanding of the matters covered by the certifications.

Changes in Internal Controls

The Company is
committed to continuously improving its internal controls and financial reporting. Since December 31, 2005, management has met with its Audit Committee and its former independent registered public accounting firm, KPMG, to review the specific
details of the material weaknesses in internal control and determine short term and longer term plans to remediate those weaknesses with the ultimate goal of meeting the formalized requirements of Section 404 of the Sarbanes-Oxley Act.

In order to remediate the material weaknesses described above, the Companys management and its Audit Committee have taken or is in
the process of taking the following steps:



| |  |  | Certain of the Companys procedures have been formalized and documented with a current effort to more effectively integrate the financial reporting procedures of the three
segments of operations.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The Company is addressing access issues with respect to its information technology systems and has formalized and enhanced some of the Companys mitigating controls, including
the hiring of a Company Director of Information Technology to develop a design and implementation plan to improve access control, and provide operational stability to information technology systems.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The implementation of additional review procedures and improved financial controls.
| | - |  | -----------------------------------------------------------------------------------



| |  |  | The Company is reviewing its staffing levels as it relates to experienced GAAP reporting with the intent to identify positions at the parent and subsidiary levels which may need
additional training or the addition of personnel.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | The Company is reviewing the impact of its changing operational focus toward security services and developing a plan for implementing Company wide improvements and documentation of
the Companys system of internal reporting and disclosure controls.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company believes the implementation of the
above measures will appropriately address the matters identified by the Companys former independent registered public accounting firm and concurred with by management as material weaknesses. This process is ongoing, however, and the
Companys management and its Audit Committee will continue to monitor the effectiveness of the Companys internal controls and procedures on a continual basis and will take further action as appropriate.

The Companys management does not expect that its disclosure or internal controls will prevent all errors or fraud. A control system, no matter how
well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefit
of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.



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Part II. Other Information

Item 1. Legal Proceedings

We are involved in routine litigation arising in the ordinary course of our
business, primarily in connection with our Construction division.

In the fall of 2000, Virgin Islands Cement and Building Products, Inc.
(VICBP), a subsidiary of ours, was under contract with the Virgin Islands Port Authority (VIPA) for the construction of the expansion of the St. Croix Airport. During the project, homeowners and residents of the Yellow Cedar
Housing Community, located next to the end of the expansion project, claimed to have experienced several days of excessive dust in their area as a result of the ongoing construction work and have claimed damage to their property and personal
injury. The homeowners of Yellow Cedar have filed two separate lawsuits for unspecified damages against VIPA and VICBP as co-defendants. One suit, filed in the U.S. District Court for the District of the Virgin Islands by Mariepaul Antoine,
Benjamin Ashe, et. al, vs. VIPA et. al, case #2001,63 R/F, seeks equitable relief from nuisance, specific performance and damages. The second suit, Louisa Williams et. al vs. VIPA et. al filed in the Territorial Court of the U.S.V.I. case #548/2000
seeks equitable relief from nuisance, specific performance and damages. In both cases, VICBP, as defendant, has agreed to indemnify VIPA for any civil action as a result of the construction work.

The Company has brought a declaratory judgment action in the District Court of the Virgin Islands to determine whether or not there is coverage under the
primary policy.

Reliance Insurance Company (Reliance), the insurer for the primary general liability policy for VICBP
during that period, has taken the legal position that dust is a pollutant and, therefore, the pollution exclusion clause applies and as a result denies liability insurance coverage to VICPA. The Pennsylvania Insurance Commissioner
placed Reliance in rehabilitation in October 2001, and subsequently into liquidation. We have also presented claims under the policy to the Florida Insurance Guaranty Association, the V.I. Insurance Guaranty Association, the Pennsylvania Insurance
Commissioner, and to our excess liability insurance carrier, Zurich Insurance Company. It is too early to predict the final outcome of this matter or to estimate our potential, if any, risk of loss.

In the late 1980s, Bouwbedrijf Boven Winden, N.V., (BBW), currently a Devcon subsidiary in the Netherlands Antilles, supplied concrete to a
large apartment complex on the French side of Sint Maarten. In the early 1990s, the buildings began to develop exterior cracking and pop outs. In November 1993, BBW was named one of several defendants, including the buildings
insurer, in a suit filed by Syndicat des Copropriétaires la Résidence Le Flamboyant (condominium owners association of Le Flamboyant) in the French court Tribunal de Grande Instance de Paris, case No. 510082/93. A
French court assigned an expert to examine the cause of the cracking and pop outs and to determine if the cracking/pop outs are caused by a phenomenon known as alkali reaction (ARS). The expert found, in his report dated December 3,
1998, that BBW was responsible for the ARS. The plaintiff is seeking unspecified damages, including demolition and replacement of the 272 apartments. Based on the advice of legal counsel, a judgment assessed in a French court would not be
enforceable against a Netherlands Antilles company. Thus, in order to obtain an enforceable judgment, the plaintiff would have to file a successful claim in an Antillean court. It is too early to predict the final outcome of this matter or to
estimate the potential risk of loss, if any, to the Company. Due to the lack of enforceability, the Company decided not to continue the defense in the French court. Therefore, the Company may not be aware of recent developments in the proceedings.
Management believes our defenses to be meritorious and does not believe that the outcome will have a material adverse effect on the consolidated financial position, results of operations or cash flows of the Company.

On July 25, 1995, a Company subsidiary, Société des Carriéres de Grande Case (SCGC), entered into an agreement with
Mr. Fernand Hubert Petit, Mr. Francois Laurent Petit and Mr. Michel Andre Lucien Petit, (collectively, Petit) to lease a quarry located in the French side of St. Martin. Another lease was entered into by SCGC on
October 27, 1999 for the same and additional property. Another Company subsidiary, Bouwbedrijf Boven Winden, N.A. (BBW), entered into a material supply agreement with Petit on July 31, 1995. This agreement was amended on
October 27, 1999. Pursuant to the amendment, the Company became a party to the materials supply agreement. In May 2004, the Company advised Petit that it would possibly be removing its equipment within the timeframes provided in its agreements
and made a partial quarterly payment under the materials supply agreement. On June 3, 2004, Petit advised the Company in writing that Petit was terminating the materials supply agreement immediately because Petit had not received the full
quarterly



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payment and also advised that it would not renew the 1999 lease when it expired on October 27, 2004. Petit refused
to accept the remainder of the quarterly payment from the Company in the amount of $45,000. Without prior notice to BBW, Petit obtained orders to impound BBW assets on St. Martin (the French side) and Sint Maarten (the Dutch side). The assets sought
to be impounded include bank accounts and receivables. BBW has no assets on St. Martin, but approximately $341,000 of its assets were impounded on Sint Maarten. In obtaining the orders, Petit claimed that $7.6 million is due on the supply agreement
(the full payment that would be due by the Company if the contract continued for the entire potential term and the Company continued to mine the quarry), $2.7 million is due for quarry restoration and $3.7 million is due for pain and suffering. The
materials supply agreement provided that it could be terminated by the Company on July 31, 2004.

In February 2005, SCGC, BBW and the
Company entered into agreements with Petit, which provided for the following:



| |  |  | The purchase by SCGC of three hectares of partially mined land located within the quarry property previously leased from Petit for approximately $1.1 million;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A two-year lease of approximately 15 hectares of land (the 15 Hectare Lease) on which SCGC operates a crusher, ready-mix concrete plant and aggregates storage at a cost
of $100,000;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to purchase two hectares of unmined property prior to December 31, 2006 for $2 million, payable $1 million on December 31, 2006 and $1
million on December 31, 2008, subject to the below terms:
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that SCGC exercises this option, Petit agrees to withdraw all legal actions against the Company and its subsidiaries.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | In the event that SCGC does not exercise the option to purchase and Petit is subsequently awarded a judgment, SCGC has the option to offset approximately $1.2 million against the
judgment amount and transfer ownership of the three hectare parcel purchased by SCGC as stated in 1. above back to Petit.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to purchase five hectares of unmined land prior to June 30, 2010 for $3.6 million, payable $1.8 million on June 30, 2010 and $1.8 million
on June 30, 2012; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The granting of an option to SCGC to extend the 15 Hectare Lease through December 31, 2008 (with annual rent of $55,000) if the two hectares are purchased and subsequent
extensions of the lease (with annual rent of $65,000) equal to the terms of mining authorizations obtained from the French Government agencies.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The Company will obtain independent appraisals to determine the fair value of any non-cash consideration, including the exercise of the options listed above, used in settlement of a judgment received by Petit, if any.

After conferring with its French counsel and upon review by management, the Company believes that it has valid defenses and offsets to
Petits claims, including, among others, those relating to its termination rights and the benefit to Petit from the Company not mining the property. Based on the foregoing agreements and its review, management does not believe that the ultimate
outcome of this matter will have a material adverse effect on the consolidated financial position or results of operations of the Company.

In the ordinary course of conducting our business, we become involved in various legal actions and other claims, some of which are currently pending. Litigation is subject to many uncertainties and we may be unable to accurately predict the
outcome of individual litigated matters. Some of these matters possibly may be decided unfavorably to us. It is the opinion of management that the ultimate liability, if any, with respect to these matters will not be material.

We are involved, on a continuing basis, in monitoring our compliance with environmental laws and in making capital and operating improvements necessary
to comply with existing and anticipated environmental requirements. While it is impossible to predict with certainty, management currently does not foresee such expenses in the future as having a material effect on our business, results of
operations, or financial condition.

We are subject to federal, state and local environmental laws and regulations. We believe that the
Company is in compliance with all such laws and regulations. Compliance with environmental protection laws has not had a material adverse impact on our consolidated financial condition, results of operations or cash flows in the past and is not
expected to have a material adverse impact in the foreseeable future.



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Item 1A. Risk Factors

Information about risk factors for the three months ended June 30, 2006, does not
differ materially from those in set forth in Part I, Item 1A, of our annual report on Form 10-K for the fiscal year ended December 31, 2005, except for the following additional Risk Factor:

In connection with the debt and equity financing the Company conducted to fund the acquisition of Guardian International, Inc., the Company identified
with the issuance of the $45,000,000 of notes, the following freestanding and embedded derivative financial instruments:



| | i) | the Warrants, which are a freestanding derivative; and
| | -- | ------------------------------------------------------



| | ii) | the right to purchase the Preferred Stock upon issuance (the Right to Purchase), which is an embedded derivative within the governing Securities Purchase Agreement.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

In addition, the following embedded derivatives have been identified within the Series A Convertible Preferred Stock if and
when it is issued upon exchange for the notes:



| | i) | the ability to convert the Series A Convertible Preferred Stock into common stock;
| | -- | ----------------------------------------------------------------------------------



| | ii) | the option of the Company to satisfy dividends payable on the Series A Convertible Preferred Stock in common stock in lieu of cash;
| | --- | -----------------------------------------------------------------------------------------------------------------------------------



| | iii) | the potential increase in the dividend rate of the Series A Convertible Preferred Stock in the event a certain level of net cash proceeds from the sale of the assets of the
Companys Construction and Materials divisions are not realized within a specified time frame; and
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | iv) | a change in control redemption right.
| | --- | -------------------------------------

We anticipate the
embedded derivatives within the Series A Convertible Preferred Stock will be required to be bifurcated under generally accepted accounting principles and valued as a single compound derivative if and when the Series A Convertible Preferred Stock is
issued.

Under generally accepted accounting principles, the Warrants, the Right to Purchase and any other embedded derivatives must be
revalued from time to time as of each applicable balance sheet date and marked to market with resulting changes in value being recorded as a charge or credit to arrive at net income. During this periodic valuation process, the Company may recognize
charges due to the recognition of changes in the market value of these derivative financial instruments. We valued the Warrants and the Right to Purchase at March 6, 2006, their date of issuance, using an appropriate option pricing model
(the Model). This Model is described in footnote 16 to the Companys unaudited condensed consolidated financial statements. As more fully explained in footnote 16 to the Companys unaudited condensed consolidated financial
statements, from the date of issuance though June 30, 2006, an aggregate benefit to arrive at net income with respect to the re-valuation of these derivatives liabilities amounted to $6,788,545.

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None



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Item 4. Submission of Matter to a Vote of Security Holders

None

Item 5. Other Information

None



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Item 6. Exhibits



|             |  |                                                                                                                                                                           
|------------ |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibits:    |  |                                                                                                                                                                           
|Exhibit 10.1 |  | Agreement, dated June 5, 2006, by and among EBR Holding Limited, EBR Properties Limited, Emerald Bay Resort & Co., the Company and Bahamas Construction & Development
Ltd.
|             | 
|Exhibit 10.2 |  | Agreement, dated June 5, 2006, by and among Donald L. Smith, Jr., the Company and Bahamas Construction & Development Ltd.                                                 
|             | 
|Exhibit 31.1 |  | Certification Pursuant to Rule 13a-14(a) & 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                
|             | 
|Exhibit 31.2 |  | Certification Pursuant to Rule 13a-14(a) & 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                
|             | 
|Exhibit 32.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                    
|             | 
|Exhibit 32.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                    

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Date: August 14, 2006



By:

/s/ Stephen J. RuzikaStephen J. Ruzika, Chief Executive Officer(on behalf of the Registrant and as Principal Executive Officer)By:

/s/ George HareGeorge Hare, Chief Financial Officer,(on behalf of the Registrant and as Principal Financial and Accounting Officer)




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EXHIBIT INDEX



|            |  |                                                                                                                                                                           
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Exhibit Description                                                                                                                                                       
|10.1        |  | Agreement, dated June 5, 2006, by and among EBR Holding Limited, EBR Properties Limited, Emerald Bay Resort & Co., the Company and Bahamas Construction & Development
Ltd.
|            | 
|10.2        |  | Agreement, dated June 5, 2006, by and among Donald L. Smith, Jr., the Company and Bahamas Construction & Development Ltd.                                                 
|            | 
|31.1        |  | Certification Pursuant to Rule 13a-14(a) & 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                               
|            | 
|31.2        |  | Certification Pursuant to Rule 13a-14(a) & 15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                
|            | 
|32.1        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                   
|            | 
|32.2        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.