##### 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 March 31, 2005



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                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



1350 East Newport
Center Drive

Suite 201

Deerfield Beach, FL 33442

(Address of Principal Executive Offices)



(954) 429-1500

(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 an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act):    YES ̈NO  x



As of May 15th, 2005 the number of shares outstanding of the registrants Common Stock was 5,826,660.



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



INDEX



|        |  |                       |  |                                                                                              |  |      
|------- |  | --------------------- |  | -------------------------------------------------------------------------------------------- |  | -----
|        |  |                       |  | Page Number                                                                                 
|Part I  |  | Financial Information |  |                                                                                             
|        |  |                       | 
|        |  | Item 1                |  | Consolidated Balance Sheets March 31, 2005 and December 31, 2004 (unaudited)                 |  | 3-4  
|        |  |                       | 
|        |  |                       |  | Consolidated Statements of Operations Three Months Ended March 31, 2005 and 2004 (unaudited) |  | 5    
|        |  |                       | 
|        |  |                       |  | Consolidated Statements of Cash Flows Three Months Ended March 31, 2005 and 2004 (unaudited) |  | 6-7  
|        |  |                       | 
|        |  |                       |  | Notes to Unaudited Consolidated Financial Statements                                         |  | 8-16 
|        |  |                       | 
|        |  | Item 2                |  | Managements Discussion and Analysis of Financial Condition and Results of Operations        |  | 17-26
|        |  |                       | 
|        |  | Item 3                |  | Quantitative and Qualitative Disclosures About Market Risk                                   |  | 26   
|        |  |                       | 
|        |  | Item 4                |  | Controls and Procedures                                                                      |  | 26-28
|        |  |                       | 
|Part II |  | Item 1                |  | Legal Proceedings                                                                            |  | 28   
|        |  |                       | 
|        |  | Item 2                |  | Unregistered Sales of Equity Securities and Use of Proceeds                                  |  | 28   
|        |  |                       | 
|        |  | Item 3                |  | Default Upon Security Securities                                                             |  | 28   
|        |  |                       | 
|        |  | Item 4                |  | Submission of Matter to a Vote of Security Holders                                           |  | 28   
|        |  |                       | 
|        |  | Item 5                |  | Other Information                                                                            |  | 29   
|        |  |                       | 
|        |  | Item 6                |  | Exhibits                                                                                     |  | 29   



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##### Table of Contents

Part I Financial Information



Item 1. Financial Statements



DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



Consolidated Balance Sheets



March 31, 2005 and December 31, 2004

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

(Unaudited)



|                                                                                                          |  |                |         |   |                   |   |         |  
|--------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                          |  | March 31, 2005 |         |   | December 31, 2004 |  
|ASSETS                                                                                                    |  |                |         |   |                   |   |         |  
|Current assets:                                                                                           |  |                |         |   |                   |   |         |  
|Cash and cash equivalents                                                                                 |  | $              | 12,741  |   |                   | $ | 34,928  |  
|Accounts receivable, net of allowance for doubtful accounts of $2,783 and $1,989, respectively            |  |                | 9,852   |   |                   |   | 8,129   |  
|Accounts receivable, related party, net of allowance for doubtful accounts of $1,243 and $0, respectively |  |                | 1,243   |   |                   |   | 1,046   |  
|Notes receivable                                                                                          |  |                | 2,990   |   |                   |   | 2,612   |  
|Notes receivable, related party                                                                           |  |                | 1,630   |   |                   |   | 775     |  
|Costs and estimated earnings in excess of billings                                                        |  |                | 2,038   |   |                   |   | 1,130   |  
|Costs and estimated earnings in excess of billings, related party                                         |  |                | 250     |   |                   |   |        |  
|Inventories                                                                                               |  |                | 4,243   |   |                   |   | 3,324   |  
|Prepaid Expenses                                                                                          |  |                | 713     |   |                   |   | 747     |  
|Prepaid Taxes                                                                                             |  |                | 338     |   |                   |   | 4,402   |  
|Other current assets                                                                                      |  |                | 4,303   |   |                   |   | 4,427   |  
|                                                                                                          |  |                |         |   |                   |   |         |  
|Total current assets                                                                                      |  | $              | 40,341  |   |                   | $ | 61,520  |  
|                                                                                                          |  |               
|Property, Plant and Equipment, net                                                                        |  |                |         |   |                   |   |         |  
|Land                                                                                                      |  | $              | 2,488   |   |                   | $ | 1,485   |  
|Buildings                                                                                                 |  |                | 853     |   |                   |   | 847     |  
|Leasehold improvements                                                                                    |  |                | 2,623   |   |                   |   | 2,515   |  
|Equipment                                                                                                 |  |                | 50,710  |   |                   |   | 49,357  |  
|Furniture and fixtures                                                                                    |  |                | 976     |   |                   |   | 948     |  
|Construction in process                                                                                   |  |                | 2,919   |   |                   |   | 2,019   |  
|                                                                                                          |  |                |         |   |                   |   |         |  
|Total Property, Plant and Equipment                                                                       |  | $              | 60,569  |   |                   | $ | 57,171  |  
|Less accumulated depreciation                                                                             |  |                | (30,240 | ) |                   |   | (29,426 | )
|                                                                                                          |  |                |         |   |                   |   |         |  
|Total Property, Plant and Equipment, net                                                                  |  | $              | 30,329  |   |                   | $ | 27,745  |  
|                                                                                                          |  |               
|Investments in unconsolidated joint ventures and affiliates, net                                          |  | $              | 362     |   |                   | $ | 362     |  
|Notes receivable                                                                                          |  |                | 1,235   |   |                   |   | 1,318   |  
|Notes receivable, related party                                                                           |  |                | 1,198   |   |                   |   | 2,000   |  
|Intangible Assets, net of amortization $577 and $230, respectively                                        |  |                | 25,128  |   |                   |   | 4,321   |  
|Goodwill                                                                                                  |  |                | 21,905  |   |                   |   | 1,115   |  
|Other long-term assets                                                                                    |  |                | 4,816   |   |                   |   | 3,284   |  
|                                                                                                          |  |                |         |   |                   |   |         |  
|Total assets                                                                                              |  | $              | 125,314 |   |                   | $ | 101,665 |  
|                                                                                                          |  |                |         |   |                   |   |         |  



See accompanying notes
to the unaudited consolidated financial statements.



3



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



Consolidated Balance Sheets (continued)



March 31, 2005 and December 31, 2004

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

(Unaudited)



|                                                                                                                                                                        |  |                |         |   |                   |   |         |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | ------- | - | ----------------- | - | ------- | -
|                                                                                                                                                                        |  | March 31, 2005 |         |   | December 31, 2004 |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                    |  |                |         |   |                   |   |         |  
|Current liabilities:                                                                                                                                                    |  |                |         |   |                   |   |         |  
|Accounts payable, trade and other                                                                                                                                       |  | $              | 5,564   |   |                   | $ | 4,929   |  
|Accrued expenses and other liabilities                                                                                                                                  |  |                | 6,708   |   |                   |   | 5,068   |  
|Deferred revenue                                                                                                                                                        |  |                | 2,860   |   |                   |   | 761     |  
|Accrued expense, retirement and severance                                                                                                                               |  |                | 902     |   |                   |   | 948     |  
|Current installments of long-term debt                                                                                                                                  |  |                | 78      |   |                   |   | 80      |  
|Current installments of long term debt, related party                                                                                                                   |  |                | 1,725   |   |                   |   | 1,725   |  
|Billings in excess of costs and estimated earnings                                                                                                                      |  |                | 1,165   |   |                   |   | 206     |  
|Billings in excess of costs and estimated earnings, related party                                                                                                       |  |                |        |   |                   |   | 538     |  
|Deferred tax liability                                                                                                                                                  |  |                |        |   |                   |   | 4,080   |  
|Income tax payable                                                                                                                                                      |  |                | 837     |   |                   |   | 1,125   |  
|                                                                                                                                                                        |  |                |         |   |                   |   |         |  
|Total current liabilities                                                                                                                                               |  | $              | 19,839  |   |                   | $ | 19,460  |  
|                                                                                                                                                                        |  |               
|Long-term debt, excluding current installments                                                                                                                          |  | $              | 25,163  |   |                   | $ | 564     |  
|Retirement and severance, net of current portion                                                                                                                        |  |                | 4,233   |   |                   |   | 4,013   |  
|Other long-term liabilities                                                                                                                                             |  |                | 768     |   |                   |   | 645     |  
|                                                                                                                                                                        |  |                |         |   |                   |   |         |  
|Total liabilities                                                                                                                                                       |  | $              | 50,003  |   |                   | $ | 24,682  |  
|Commitments and Contingencies                                                                                                                                           |  |                |        |   |                   |   |        |  
|                                                                                                                                                                        |  |               
|Stockholders equity:                                                                                                                                                   |  |                |         |   |                   |   |         |  
|Common stock, $0.10 par value. Authorized 15,000,000 shares, issued 5,792,877 in 2005 and 5,753,057 in 2004, outstanding 5,784,333 in 2005 and
5,738,713 shares in 2004 |  | $              | 579     |   |                   | $ | 575     |  
|Additional paid-in capital                                                                                                                                              |  |                | 29,892  |   |                   |   | 29,790  |  
|Retained earnings                                                                                                                                                       |  |                | 46,532  |   |                   |   | 48,106  |  
|Accumulated other comprehensive loss  cumulative translation adjustment                                                                                                |  |                | (1,633  | ) |                   |   | (1,390  | )
|Treasury stock, at cost, 14,344 and 86,800 shares in 2003 and 2002, respectively                                                                                        |  |                | (59     | ) |                   |   | (98     | )
|                                                                                                                                                                        |  |                |         |   |                   |   |         |  
|Total stockholders equity                                                                                                                                              |  | $              | 75,311  |   |                   | $ | 76,983  |  
|                                                                                                                                                                        |  |                |         |   |                   |   |         |  
|                                                                                                                                                                        |  |               
|Total liabilities and stockholders equity                                                                                                                              |  | $              | 125,314 |   |                   | $ | 101,665 |  
|                                                                                                                                                                        |  |                |         |   |                   |   |         |  



See accompanying notes
to the unaudited consolidated financial statements.



4



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



Consolidated Statements of Operations



Three Months Ended March 31, 2005 and 2004

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

(Unaudited)



|                                               |  |                |           |   |                |   |           |  
|---------------------------------------------- |  | -------------- | --------- | - | -------------- | - | --------- | -
|                                               |  | March 31, 2005 |           |   | March 31, 2004 |  
|Revenue                                        |  |                |           |   |                |   |           |  
|Materials revenue                              |  | $              | 10,956    |   |                | $ | 9,762     |  
|Materials revenue, related party               |  |                | 180       |   |                |   | 893       |  
|Construction revenue                           |  |                | 5,577     |   |                |   | 3,614     |  
|Construction revenue, related party            |  |                | 3,674     |   |                |   | 493       |  
|Security revenue                               |  |                | 2,013     |   |                |   |          |  
|Other revenue                                  |  |                | 142       |   |                |   |          |  
|                                               |  |                |           |   |                |   |           |  
|Total revenue                                  |  | $              | 22,542    |   |                | $ | 14,762    |  
|Cost of Sales                                  |  |                |           |   |                |   |           |  
|Cost of Materials                              |  | $              | (9,682    | ) |                | $ | (8,804    | )
|Cost of Construction                           |  |                | (6,376    | ) |                |   | (2,784    | )
|Cost of Security                               |  |                | (808      | ) |                |   |          |  
|Cost of Other                                  |  |                | (99       | ) |                |   |          |  
|                                               |  |                |           |   |                |   |           |  
|Gross profit                                   |  | $              | 5,577     |   |                | $ | 3,174     |  
|Operating expenses:                            |  |                |           |   |                |   |           |  
|Selling, general and administrative            |  | $              | (5,285    | ) |                | $ | (2,717    | )
|Severance and retirement                       |  |                | (257      | ) |                |   | (309      | )
|                                               |  |                |           |   |                |   |           |  
|Operating income                               |  | $              | 35        |   |                | $ | 148       |  
|                                               |  |               
|Other income (expense):                        |  |                |           |   |                |   |           |  
|Interest expense                               |  | $              | (186      | ) |                | $ | (51       | )
|Interest income, receivables                   |  |                | 278       |   |                |   | 341       |  
|Interest income, banks                         |  |                |          |   |                |   |          |  
|Other income                                   |  |                | 39        |   |                |   |          |  
|                                               |  |                |           |   |                |   |           |  
|Income before taxes                            |  | $              | 166       |   |                | $ | 438       |  
|                                               |  |               
|Income tax expense                             |  |                | 1,731     |   |                |   | 304       |  
|                                               |  |                |           |   |                |   |           |  
|Net (loss) income                              |  | $              | (1,565    | ) |                | $ | 134       |  
|                                               |  |                |           |   |                |   |           |  
|                                               |  |               
|Income per common share  basic                |  | $              | (0.27     | ) |                | $ | 0.04      |  
|Income per common share  diluted              |  | $              | (0.27     | ) |                | $ | 0.04      |  
|                                               |  |               
|Weighted average number of shares outstanding: |  |                |           |   |                |   |           |  
|Basic                                          |  |                | 5,758,741 |   |                |   | 3,306,597 |  
|Diluted                                        |  |                | 5,758,741 |   |                |   | 3,633,471 |  



See accompanying notes
to the unaudited consolidated financial statements.



5



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



Consolidated Statements of Cash Flows



Three Months Ended March 31, 2005 and 2004

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

(Unaudited)



|                                                                                          |  |                |        |   |                |   |       |  
|----------------------------------------------------------------------------------------- |  | -------------- | ------ | - | -------------- | - | ----- | -
|                                                                                          |  | March 31, 2005 |        |   | March 31, 2004 |  
|Cash flows from operating activities:                                                     |  |                |        |   |                |   |       |  
|Net (Loss) Income                                                                         |  | $              | (1,565 | ) |                | $ | 134   |  
|                                                                                          |  |               
|Adjustments to reconcile net (loss) income to net cash (used in) by operating activities: |  |                |        |   |                |   |       |  
|Non-cash stock compensation                                                               |  |                | 18     |   |                |   | 39    |  
|Depreciation and amortization                                                             |  |                | 1,760  |   |                |   | 1,148 |  
|Deferred income tax benefit                                                               |  |                | (1,393 | ) |                |   |      |  
|Provision for doubtful accounts and notes                                                 |  |                | 33     |   |                |   | (11   | )
|Gain on sale of property and equipment                                                    |  |                | (2     | ) |                |   | (29   | )
|                                                                                          |  |               
|Changes in operating assets and liabilities:                                              |  |                |        |   |                |   |       |  
|Accounts receivable                                                                       |  |                | (669   | ) |                |   | 680   |  
|Accounts receivable - related party                                                       |  |                | (197   | ) |                |   | (296  | )
|Notes receivable                                                                          |  |                | (510   | ) |                |   | 191   |  
|Notes receivable - related party                                                          |  |                | (53    | ) |                |   |      |  
|Costs and estimated earnings in excess of billings                                        |  |                | (908   | ) |                |   | (17   | )
|Costs and estimated earnings in excess of billings, related party                         |  |                | (250   | ) |                |   | (15   | )
|Inventories                                                                               |  |                | (643   | ) |                |   | (47   | )
|Prepaid expenses                                                                          |  |                | (263   | ) |                |   | (119  | )
|Prepaid taxes                                                                             |  |                | 4,063  |   |                |   |      |  
|Other current assets                                                                      |  |                | (1,192 | ) |                |   |      |  
|Other long-term assets                                                                    |  |                | (1,370 | ) |                |   | (85   | )
|Accounts payable, accrued expenses and other liabilities                                  |  |                | 1,563  |   |                |   | 551   |  
|Billings in excess of costs and estimated earnings                                        |  |                | 959    |   |                |   | (265  | )
|Billings in excess of costs and estimated earnings, related party                         |  |                | (538   | ) |                |   | 214   |  
|Income tax payable                                                                        |  |                | (1,544 | ) |                |   | 242   |  
|Other long-term liabilities                                                               |  |                | 344    |   |                |   | 68    |  
|                                                                                          |  |                |        |   |                |   |       |  
|Net cash (used in) provided by operating activities                                       |  | $              | (2,357 | ) |                | $ | 2,383 |  



See accompanying notes
to the unaudited consolidated financial statements.



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##### Table of Contents

DEVCON INTERNATIONAL CORP.

AND SUBSIDIARIES



Consolidated Statement of Cash Flows



Three Months Ended March 31, 2005 and 2004

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

(Unaudited)



|                                                                |  |                |         |   |                |   |        |  
|--------------------------------------------------------------- |  | -------------- | ------- | - | -------------- | - | ------ | -
|                                                                |  | March 31, 2005 |         |   | March 31, 2004 |  
|Cash flows from investing activities:                           |  |                |         |   |                |   |        |  
|Purchases of property, plant and equipment                      |  | $              | (3,963  | ) |                | $ | (924   | )
|Cash used in business acquisition, net of cash acquired         |  |                | (40,726 | ) |                |   |       |  
|Proceeds from disposition of property, plant and equipment      |  |                | 9       |   |                |   | 8      |  
|Issuance of notes related to the sale of assets                 |  |                |        |   |                |   | (65    | )
|Payments received on notes related to the assets sale of assets |  |                | 200     |   |                |   | 68     |  
|                                                                |  |                |         |   |                |   |        |  
|Net cash used in investing activities                           |  | $              | (44,480 | ) |                | $ | (913   | )
|                                                                |  |               
|Cash flows from financing activities:                           |  |                |         |   |                |   |        |  
|Proceeds from issuance of stock                                 |  | $              | 119     |   |                | $ | 19     |  
|Proceeds from debt                                              |  |                | 24,600  |   |                |   |       |  
|Principal payments on debt                                      |  |                | (3      | ) |                |   | (7     | )
|                                                                |  |                |         |   |                |   |        |  
|Net cash provided by financing activities                       |  | $              | 24,716  |   |                | $ | 12     |  
|                                                                |  |               
|Effect of exchange rate changes on cash                         |  |                | (66     | ) |                |   | (42    | )
|                                                                |  |                |         |   |                |   |        |  
|Net (decrease) increase in cash and cash equivalents            |  | $              | (22,187 | ) |                | $ | 1,440  |  
|                                                                |  |               
|Cash and cash equivalents, beginning of year                    |  | $              | 34,928  |   |                | $ | 10,030 |  
|Cash and cash equivalents, end of year                          |  | $              | 12,741  |   |                | $ | 11,470 |  
|                                                                |  |               
|Supplemental disclosures of cash flow information:              |  |                |         |   |                |   |        |  
|Cash paid for interest                                          |  | $              | 36      |   |                | $ | 51     |  
|Cash paid for income taxes                                      |  | $              | 605     |   |                | $ | 20     |  
|                                                                |  |               
|Supplemental non-cash items:                                    |  |                |         |   |                |   |        |  
|Non cash reduction of note receivable                           |  | $              | 103     |   |                | $ | (21    | )



See accompanying notes
to the unaudited consolidated financial statements.



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##### Table of Contents

Notes to Unaudited Consolidated Financial Statements



Devcon International Corp. and its subsidiaries (the Company) produce and distribute ready-mix concrete, crushed stone, concrete block, and asphalt and distribute bagged cement in the Caribbean. 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 provides electronic
security services and related products to residential homes, financial institutions, industrial and commercial businesses and complexes, warehouses, facilities of government departments and health care and educational facilities.



The unaudited 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, 2004 (the 2004 Form 10-K). The unaudited financial statements for the three months ended March 31, 2005 and 2004 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 omitted pursuant to such rules and regulations relating to interim financial statements.



In the opinion of management, the accompanying unaudited consolidated financial statements contain only normal reoccurring
adjustments necessary to present fairly the Companys financial position as of March 31, 2005 and the results of its operations for the three months ended March 31, 2005 and 2004 and cash flows for the three months ended March 31, 2005 and
2004. The results of operations for the three months ended March 31, 2005 and 2004 are unaudited and are not necessarily indicative of the results to be expected for the full year. The unaudited consolidated financial statements included herein
should be read in conjunction with the financial statements and related footnotes included in the Companys 2004 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 consolidated financial statements in conforming with general accepted accounting principles. Actual results could differ from these estimates.



During 2004, the Company reclassified certain amounts in the 2003 and 2002
Consolidated Statements of Cash Flows from investing activities to operating activities, including certain items relating to its customer financing activities, as a result of recent guidance given by the Securities and Exchange Commission.



The following table shows the effects of this reclassification for the three
months ended March 31, 2004:



|                                                                 |  |                        |       |  
|---------------------------------------------------------------- |  | ---------------------- | ----- | -
|                                                                 |  | March 31, 2004         |      
|                                                                 |  | (dollars in thousands) |      
|Net cash provided by operating activities as previously reported |  | $                      | 1,778 |  
|Reclassification                                                 |  |                        | 605   |  
|                                                                 |  |                        |       |  
|Revised net cash provided by operating activities                |  | $                      | 2,383 |  
|Net cash used in investing activities as previously reported     |  | $                      | (308  | )
|Reclassification                                                 |  |                        | (605  | )
|                                                                 |  |                        |       |  
|Revised net cash used in investing activities                    |  | $                      | (913  | )



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##### Table of Contents

Acquisition



On February 28, 2005, the Company, through Devcon Security Services Corporation, (DSSC) a wholly owned subsidiary, completed the acquisition
of certain net assets of Starpoint Limiteds electronic security services operation (an entity controlled by Adelphia Communications Corporation, a Delaware corporation) for approximately $40.2 million in cash based substantially upon
contractually recurring monthly revenue of approximately $1.15 million. The transaction was completed pursuant to the terms of an Asset Purchase Agreement, dated as of January 21, 2005 as amended (the Asset Purchase Agreement). Other
than the Asset Purchase Agreement, there is no material relationship between the parties. The transaction received approval by the United States Bankruptcy Court for the Southern District of New York in an order issued on January 28, 2005.



The Company utilized $24.6 million of the $35.0 million
available under a Credit Facility provided by CIT (described below) to satisfy a portion of the cash purchase price for the acquisition. The balance of the purchase price, including payment of $0.5 million of transaction costs, was satisfied by
using cash on hand.



The Company recorded the acquisition using
the purchase method of accounting. The purchase price allocation, which is preliminary and subject to change, is based upon a report issued by an independent appraisal firm, as to fair value. Results included for the acquisition are for the period
February 28, 2005 to March 31, 2005.



The purchase price allocation is as
follows:



|                                                 |  |   |        |  
|------------------------------------------------ |  | - | ------ | -
|Purchase Price Allocation (dollars in thousands) |  |   |       
|Accounts Receivable                              |  | $ | 1,021  |  
|Inventory                                        |  |   | 276    |  
|Fixed Assets                                     |  |   | 313    |  
|Deferred Revenue                                 |  |   | (2,192 | )
|Other Liabilities                                |  |   | (625   | )
|Contractual Agreements                           |  |   | 7,240  |  
|Customer Relationships                           |  |   | 13,904 |  
|Goodwill                                         |  |   | 20,791 |  



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



Proforma Statement of Acquisition



|                                     |  |                |           |   |                |   |           |  
|------------------------------------ |  | -------------- | --------- | - | -------------- | - | --------- | -
|                                     |  | March 31, 2005 |           |   | March 31, 2004 |  
|                                     |  | Consolidated   |           |   | Consolidated   |  
|Revenue                              |  | $              | 25,588    |   |                | $ | 19,665    |  
|Net (loss)                           |  | $              | (2,005    | ) |                | $ | (201      | )
|                                     |  |               
|(Loss) per common share - basic      |  | $              | (0.35     | ) |                | $ | (0.06     | )
|(Loss) per common share - diluted    |  | $              | (0.35     | ) |                | $ | (0.06     | )
|                                     |  |               
|Weighted average shares outstanding: |  |                |           |   |                |   |           |  
|Basic                                |  |                | 5,758,741 |   |                |   | 3,306,597 |  
|Diluted                              |  |                | 5,758,741 |   |                |   | 3,633,471 |  



Credit Facility



DSSC and its direct parent, Devcon Security Holdings, (DSH) (together, the
Borrowers), both wholly owned subsidiaries, financed the net operating assets of Starpoint through available cash and a senior secured revolving credit facility (the Senior Loan). The Senior Loan is governed by the terms of a
Credit Agreement (the Credit Agreement), dated as of February 28, 2005.



9



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##### Table of Contents

The maximum amount available under the Senior Loan is $35 million dollars, but this amount may be increased up to $50 million dollars at the request of
Borrowers if no Event of Default has occurred, the lenders prior written consent is obtained and certain other customary conditions are satisfied. Borrowers may draw amounts under the Senior Loan until March 30, 2007 and all amounts
outstanding under the Senior Loan will be due on February 28, 2011. The Senior Loan is secured by, among other things, a security interest in substantially all of the assets of Borrowers, including a first mortgage on certain real property owned by
DSSC. The interest rate charged under the Senior Loan varies depending on the types of advances or loans Borrowers select under the Senior Loan. Borrowings under the Senior Loan may bear interest at the higher of (i) the prime rate as announced in
the Wall Street Journal or (ii) the Federal Funds Rate plus 50 basis points, plus a spread which ranges from 125 to 300 basis points. Alternatively, borrowings under the Senior Loan may bear interest at LIBOR-based rates plus a spread which ranges
from 250 to 425 basis points (LIBOR plus 425 basis points as of the date hereof). The spread depends upon DSHs ratio of total debt to recurring monthly revenues. Borrowers pay a variable commitment fee each quarter on the unused portion of the
commitment equal to 37.5 basis points. Borrowers are subject to certain covenants and restrictions specified in the Senior Loan, including covenants that restrict their ability to pay dividends, make certain distributions, pledge certain assets or
repay certain indebtedness. As of March 31, 2005, the Company was in compliance with the above referenced covenants.



Beginning March 30, 2007, the day on which Borrowers are prevented from drawing additional amounts under the Senior Loan, Borrowers are required to make
certain scheduled principal payments on the Senior Loan in amounts equal to the percentage of the total outstanding principal.



|                                          |  |                       |  |                      
|----------------------------------------- |  | --------------------- |  | ---------------------
|Payment Dates Occurring During            |  | Quarter Payment Due   |  | Total Annual Payments
|March 31, 2007 through December 31, 2007  |  | 2.5% of Term Amount   |  | 10.0% of Term Amount 
|                                          |  |                      
|January 1, 2008 through December 31, 2008 |  | 3.75% of Term Amount  |  | 15.0% of Term Amount 
|                                          |  |                      
|January 1, 2009 through December 31, 2009 |  | 4.375% of Term Amount |  | 17.5% of Term Amount 
|                                          |  |                      
|January 1, 2010 through December 31, 2010 |  | 5% of Term Amount     |  | 20.0% of Term Amount 



The foregoing summary
of the Asset Purchase Agreement and the Senior Loan is not complete and is qualified in its entirety by reference to the Asset Purchase Agreement, as amended by Amendment No. 1, and the Credit Agreement, which are incorporated by reference to the
Companys Annual Report on Form 10-K for the year ended December 31, 2004.



Inventories



|                                     |  |                        |       |                   |   |      
|------------------------------------ |  | ---------------------- | ----- | ----------------- | - | -----
|                                     |  | March 31, 2005         |       | December 31, 2004
|                                     |  | (dollars in thousands)
|Aggregates and Sand                  |  | $                      | 2,160 |                   | $ | 2,097
|Block, Cement, and Material Supplies |  | $                      | 1,437 |                   | $ | 940  
|Other Construction and Materials     |  | $                      | 331   |                   | $ | 264  
|Security Inventory                   |  | $                      | 315   |                   | $ | 23   
|                                     |  |                        |       |                   |   |      
|                                     |  | $                      | 4,243 |                   | $ | 3,324
|                                     |  |                        |       |                   |   |      



Fair Value of Financial Instruments



The carrying amount of financial instruments including
cash, cash equivalents,



10



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##### Table of Contents

receivablesnet, other current assets, accounts payable trade and other, accrued expenses and other liabilities, and notes payable to banks approximated
fair value at March 31, 2005 because of the short maturity of these instruments. The carrying amount of the credit facility approximated fair value at March 31, 2005.



Income Tax



In February 2005 one of the Companys Antiguan subsidiaries declared and paid a $16.0 million gross dividend, of which $4.0 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 $ 4.0 million which was offset by a net US Federal income tax benefit amounting
to $2.3 million, net of a $0.7 million change in the prior years provision estimate. This US Federal Tax benefit is due to an available foreign tax credit which arises as result of the aforementioned paid foreign withholding taxes as well as the
reversal of $4.1 million of deferred tax expense with respect to this dividend which was accrued by the Company in the fourth quarter of 2004.



In accordance with Section 965 of the U.S. Internal Revenue Code, enacted as part of the American Jobs Creation Act of 2004 (the AJCA), a
company can repatriate earnings from foreign subsidiaries at a reduced rate. In January 2005, the Company adopted, but have not yet implemented, a Domestic Reinvestment Plan (DRP) in order to qualify for 85% dividend exclusion on all
qualifying cash dividends received during the 2005 tax year. The plan outlines the Companys intention to utilize qualifying cash dividends received from its foreign subsidiaries to either invest in the Companys electronic security
services and utility services businesses or to repay outstanding third party indebtedness. During the first quarter of 2005 the adoption of this plan did not have an effect on the income tax attributes reported in the financial statements of the
Company.



Net (Loss) Income 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. Certain options were not included in the
computations of diluted earnings per share because the options exercise prices were greater than the average market prices of the common shares.



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



|                                                      |  |                        |           |   |                |   |          
|----------------------------------------------------- |  | ---------------------- | --------- | - | -------------- | - | ---------
|                                                      |  | Three Months Ended    
|                                                      |  | March 31, 2005         |           |   | March 31, 2004
|                                                      |  | (dollars in thousands)
|Net (loss) income                                     |  | $                      | (1,565    | ) |                | $ | 134      
|Weighted average shares outstanding                   |  |                        | 5,758,741 |   |                |   | 3,306,597
|Dilutive effect of:                                   |  |                        |           |   |                |   |          
|Options and employee stock options                    |  |                        |          |   |                |   | 326,874  
|Diluted weighted average number of shares outstanding |  |                        | 5,758,741 |   |                |   | 3,633,471
|                                                      |  |                       
|Net (loss) income per share                           |  |                        |           |   |                |   |          
|Basic                                                 |  | $                      | (0.27     | ) |                | $ | 0.04     
|Diluted                                               |  | $                      | (0.27     | ) |                | $ | 0.04     



For additional disclosures regarding
the employee stock options, see the Companys 2004 Form 10-K



11



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##### Table of Contents

Comprehensive (Loss) Income



The Companys total comprehensive loss, comprised of net (loss) income and foreign currency translation adjustments,
for the three months ended March 31, 2005 and 2004 was as follows:



|                                         |  |                        |        |   |                |   |      |  
|---------------------------------------- |  | ---------------------- | ------ | - | -------------- | - | ---- | -
|                                         |  | Three Months Ended     |       
|                                         |  | March 31, 2005         |        |   | March 31, 2004 |  
|                                         |  | (dollars in thousands) |       
|Net (loss) income                        |  | $                      | (1,565 | ) |                | $ | 134  |  
|Other comprehensive loss                 |  |                        |        |   |                |   |      |  
|Foreign currency translation adjustments |  | $                      | (243   | ) |                | $ | (220 | )
|                                         |  |                        |        |   |                |   |      |  
|Total comprehensive loss                 |  | $                      | (1,808 | ) |                | $ | (86  | )
|                                         |  |                        |        |   |                |   |      |  



Stock-Based Compensation



The Company accounts for its stock option plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees and Related Interpretations. No stock-based compensation cost is reflected in net (loss) income for these plans, as all options
granted under these plans for the three months ended March 31, 2005 and March 31, 2004 had an exercise price equal to or higher than the market value of the underlying common stock on the date of grant. The following table illustrates the effect on
net (loss) income and (loss) earnings per share as if the Company had applied the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock Based Compensation, to stock based compensation:



|                                                                            |  |                        |        |   |                |   |      |  
|--------------------------------------------------------------------------- |  | ---------------------- | ------ | - | -------------- | - | ---- | -
|                                                                            |  | Three Months Ended     |       
|                                                                            |  | March 31, 2005         |        |   | March 31, 2004 |  
|                                                                            |  | (dollars in thousands) |       
|Net (loss) income, as reported                                              |  | $                      | (1,565 | ) |                | $ | 134  |  
|Deduct                                                                      |  |                        |        |   |                |   |      |  
|Stock-based employee compensation expense determined under fair value based |  |                        | (25    | ) |                |   | (30  | )
|Method for all awards, net of taxes                                         |  |                        |        |   |                |   |      |  
|                                                                            |  |                        |        |   |                |   |      |  
|Net (loss) income, as adjusted                                              |  | $                      | (1,590 | ) |                | $ | 104  |  
|                                                                            |  |                       
|Earnings per share:                                                         |  |                        |        |   |                |   |      |  
|Basic, as reported                                                          |  | $                      | (0.27  | ) |                | $ | 0.04 |  
|Diluted, as reported                                                        |  | $                      | (0.27  | ) |                | $ | 0.04 |  
|                                                                            |  |                       
|Basic, as adjusted                                                          |  | $                      | (0.28  | ) |                | $ | 0.03 |  
|Diluted, as adjusted                                                        |  | $                      | (0.28  | ) |                | $ | 0.03 |  



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



12



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##### Table of Contents

Segment Reporting



The following sets forth the revenue and income before income taxes for each of the Companys business segments for the three months ended March 31,
2005 and 2004:



|                                     |  |                        |         |   |                   |   |         |  
|------------------------------------ |  | ---------------------- | ------- | - | ----------------- | - | ------- | -
|                                     |  | Three Months Ended     |        
|                                     |  | March 31, 2005         |         |   | March 31, 2004    |  
|                                     |  | (dollars in thousands) |        
|Revenue (including inter-segment)    |  |                        |         |   |                   |   |         |  
|Construction                         |  | $                      | 9,316   |   |                   | $ | 4,190   |  
|Materials                            |  |                        | 11,447  |   |                   |   | 10,838  |  
|Security                             |  |                        | 2,013   |   |                   |   |        |  
|Other                                |  |                        | 142     |   |                   |   |        |  
|Elimination of inter-segment revenue |  |                        | (376    | ) |                   |   | (266    | )
|                                     |  |                        |         |   |                   |   |         |  
|Total Revenue                        |  | $                      | 22,542  |   |                   | $ | 14,762  |  
|                                     |  |                        |         |   |                   |   |         |  
|Operating income (loss)              |  |                        |         |   |                   |   |         |  
|Construction                         |  | $                      | 1,953   |   |                   | $ | 724     |  
|Materials                            |  |                        | (1,308  | ) |                   |   | (45     | )
|Security                             |  |                        | 58      |   |                   |   |        |  
|Other                                |  |                        | (4      | ) |                   |   |        |  
|Unallocated corporate overhead       |  |                        | (664    | ) |                   |   | (531    | )
|                                     |  |                        |         |   |                   |   |         |  
|Total Operating income               |  | $                      | 35      |   |                   | $ | 148     |  
|                                     |  |                        |         |   |                   |   |         |  
|Other income, net                    |  |                        | 131     |   |                   |   | 290     |  
|                                     |  |                       
|Net Income before income taxes       |  | $                      | 166     |   |                   | $ | 438     |  
|                                     |  |                        |         |   |                   |   |         |  
|                                     |  |                       
|                                     |  | March 31, 2005         |         |   | December 31, 2004 |  
|Assets                               |  |                        |         |   |                   |   |         |  
|Construction                         |  | $                      | 20,316  |   |                   | $ | 19,683  |  
|Materials                            |  |                        | 42,048  |   |                   |   | 50,565  |  
|Security                             |  |                        | 58,626  |   |                   |   | 6,654   |  
|Other                                |  |                        | 4,324   |   |                   |   | 24,763  |  
|                                     |  |                        |         |   |                   |   |         |  
|                                     |  | $                      | 125,314 |   |                   | $ | 101,665 |  



Pension



The Company has a defined benefit pension plan covering Antigua employees
who meet certain minimum requirements. The Company also maintains an accrual for retirement agreements with Company executives and certain other employees. These accruals are based on the life expectancy of these persons and an assumed weighted
average discount rate of 4.7%. 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 in the first quarter of 2005 and 2004 was as follows:



|                               |  |                        |     |   |                 |   |     |                |  |   |                |   |  |   |     |  
|------------------------------ |  | ---------------------- | --- | - | --------------- | - | --- | -------------- |  | - | -------------- | - |  | - | --- | -
|                               |  | US Pension             |     |   | Foreign Pension |  
|                               |  | March 31, 2005         |     |   | March 31, 2004  |   |     | March 31, 2005 |  |   | March 31, 2004 |  
|                               |  | (dollars in thousands) |    
|Discount Rate                  |  |                        | 4.7 | % |                 |   | 5.2 | %              |  |   | 8.0            | % |  |   | 8.0 | %
|Expected Return on Plan Assets |  |                        | N/A |   |                 |   | N/A |                |  |   | N/A            |   |  |   | N/A |  
|Rate of Compensation Increase  |  |                        | 0.0 | % |                 |   | 0.0 | %              |  |   | 3.0            | % |  |   | 3.0 | %
|Service cost                   |  | $                      | 25  |   |                 | $ | 21  |                |  | $ | 44             |   |  | $ | 42  |  
|                               |  |                        |     |  
|Net pension costs              |  | $                      | 54  |   |                 | $ | 168 |                |  | $ | 44             |   |  | $ | 42  |  



13



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##### Table of Contents

Business and Credit Concentrations



The Companys customer base is 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. For the three months period ended
March 31, 2005 and March 31, 2004, the Company reported revenue for one Bahamian customer of 16.3% and 3.3% of total revenue, respectively. As of March 31, 2005 the ongoing projects for the abovementioned customer had a backlog of $2.2 million. A
subsidiary, the Companys Chairman of the Board and one of the Companys directors are minority partners, and the Companys Chairman of the Board is a member of the managing committee of the entity developing this project. No single
customer within the Materials or the Security division accounted for more than 10% of total sales.



For the period ended March 31, 2005, there were no receivables from a single customer that represented more than 10% of total receivables with the
exception of the customer mentioned above. As of March 31, 2005, the total receivable from this customer was $3.9 million consisting of $1.1 million of current accounts receivable and $2.8 million of notes receivable. As of December 31, 2004, the
total receivable from this customer was $3.7 million consisting of $0.9 million of current accounts receivable and $2.8 million of notes receivable.



New Accounting Standards



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 No. 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 amends the compliance date, and the Company is required 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 not determined which of the adoption methods it will use.



The Company currently utilizes Black-Scholes, a standard option pricing model, to measure the fair value of stock options granted to employees. While SFAS
No. 123R permits entities to continue to use such a model, the standard also permits the use of a lattice model. The Company has not yet determined which model it will use to measure the fair value of employee stock options upon the
adoption of SFAS No. 123R.



Contingent Liabilities



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.



14



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##### Table of Contents

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 have 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 million, with $1 million on December 31, 2006 and $1 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.



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. Compliance with environmental protection laws have not
had a material adverse impact 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 impact in the foreseeable future.



15



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##### Table of Contents

Details regarding the Companys other contingent liabilities are described fully in the
Companys 2004 Form 10-K. During 2005, there have been no material changes to the Companys contingent liabilities.



Other Events



Puerto Rico Lease Extension.The Company decided, in 2001, to cease its operation in Aguadilla, Puerto Rico and leased, effective October 1,
2001, all its equipment on the site to a company affiliated with one of the joint venture owners of the subsidiary in Puerto Rico. In March 2005, the lease was extended through February 2007, on substantially similar terms.



16



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##### Table of Contents

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 consolidated financial statements, as well as the financial
statements and related notes included in the Companys 2004 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 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 or on behalf of the Company. The Company and its representatives may, from time to time, make written or verbal
forward-looking statements, including statements contained in the Companys filings with the Securities and Exchange Commission and in its 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 Construction, Materials
and new Security divisions, 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 our 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 forth under
Factors Affecting Our Operating Results, Financial Condition, Business Prospects and Market Price of Stock set forth in our Annual Report on Form 10-K for the year ended December 31, 2004 and the following:



| |  |  | The strength of the construction economies on various islands in the Caribbean, primarily in the United States Virgin Islands, Sint Maarten, St. Martin, Antigua, Puerto Rico and the
Bahamas. The Companys 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 Materials and Security 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
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | 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, our share repurchase program 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 of 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 Security division.
| | - |  | ---------------------------------------------------------------------------



| |  |  | The Companys operations are highly dependent upon its ability to acquire adequate supplies of cement and sand. The Company has experienced, in the past, short term shortages
of both cement and sand which, temporarily, adversely affected the Companys operations.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



Our discussion of our financial condition and results of operations is an analysis of the consolidated financial statements,
which have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), consistently applied. Although our significant accounting policies are described in Note 1 of the notes to the
consolidated financial statements, the following discussion is intended to describe those accounting policies and estimates most critical to the preparation of our consolidated financial statements. The preparation of these consolidated financial
statements requires our 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, we evaluate our
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, income taxes, taxes on un-repatriated earnings,
warranty obligations, impairment charges, restructuring, business divestitures, pensions, deferral compensation and other employee benefit plans or arrangements, environmental matters, and contingencies and litigation. We base our estimates on
historical experience and on various other factors that we believe 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 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. The Company recognizes 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 the Companys 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.



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 the
Company 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. Impairment losses are included in the allowance for doubtful accounts through a charge to bad debt expense.



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.
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. We estimate costs to complete our construction contracts based on experience from
similar work 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.



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, a customers payment history and specific collateral given by the customer to secure the receivable. 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. If the customers pay a previously impaired receivable, income is then recognized.



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 reserved.



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We maintain 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 4.7%. 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.



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 was made.



We determine 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 goodwill and other
intangible assets acquired in a purchase business combination. Some of these assets 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. The Company will test goodwill and other intangible assets for impairment as of June 30, 2005 and annually thereafter. Other identifiable intangible assets with
estimatable 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.



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 months. The CEO, CFO and the Audit Committee
have reviewed all of the foregoing critical accounting policies and estimates.



Comparison Of Three Months Ended March 31, 2005 With Three Months Ended March 31, 2004



Summary



In the first
quarter of 2005, our consolidated revenue amounted to $22.5 million, an increase of $7.8 million or approximately a 53% increase when compared to the first quarter 2004s revenue of $14.8 million. This revenue increase was principally due to an
increase of $ 5.1 million in revenue recorded by our Construction division and $2.0 million in revenue recorded by our Security division. The increase in Security division revenue was a result of our acquisitions of Starpoint Limiteds
(Starpoint) electronic security services operations. Security Equipment Corporation, Inc. (SEC), our initial security acquisition, and Starpoint were acquired by us on July, 31, 2004 and February 28, 2005, 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 the respective acquisition dates. Operating income for the first quarter decreased
$113,000 to $35,000 when compared to the first quarter of 2004 of $148,000. This decrease was principally due to an operating loss incurred by our Materials division amounting to $1.3 million compared to a breakeven position during the comparable
period in 2004. Other income decreased $159,000 to $131,000 due to a decrease in interest income earned principally on notes receivable due from the Government of Antigua and Barbuda, which were settled during the fourth quarter of 2004, and
additional interest expense incurred as a result of the Starpoint acquisition. Net income for the first quarter of 2005 decreased $1.7 million to a net loss of $1.6 million when compared to net income for the first quarter of 2004 of $134,000. This
decrease is principally attributed to a $ 1.4 million tax expense on remitted foreign earnings as a result of the Companys repatriations of $16 million foreign earnings from our subsidiary in Antigua and Barbuda.



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Revenue



Our revenue during the first quarter of 2005 amounted to $22.5 million as compared to $14.8 million during the same period in 2004. This increase was
primarily due to an increase of $5.1 million recorded by our Construction division, $2.0 million in our Security division and $0.5 million in our Materials division.



Our Construction division revenue increased by approximately 125% to $9.2 million during the first quarter of 2005 when
compared to $4.1 million for the comparable period in 2004. This increase was principally due to increased revenue generated by construction contracts in the Bahamas and the US Virgin Islands, offset by lower revenue recorded in Antigua. Our backlog
of contracts at March 31, 2005 was $17.1 million, involving 22 contracts. The Company expects that most of the $17.1 million backlog will be completed during 2005. The Company is actively bidding and negotiating additional projects in areas
throughout the Caribbean and, since March 31, 2005, the division has added $2.4 million of additional construction contracts.



Our Materials division revenue increased 4.5% to $11.1 million during the first quarter of 2005 when compared to $10.6 million for the comparable period
in 2004. This increase is attributed to an increase in sales of aggregates and, to a lesser extent, an increase in sales of concrete. Our St. Thomas operations revenue was 25.3% higher than the same quarter last year due to increased demand
for its aggregates and ready-mix products. Revenue in Antigua decreased this quarter as compared to the same quarter last year by 9.4%. Puerto Ricos revenue remained relatively flat compared to the same quarter last year.



Revenue from our Security division amounted to $2.0 million. This revenue
increase arises in 2005 as a result of our acquisitions of SEC and Starpoints electronic security services operations. SEC and Starpoint were acquired by us on July 31, 2004 and February 28, 2005, 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



Other revenue in the first quarter consists of $141,000 associated with our Matrix joint venture.



Cost of Construction



Cost of Construction as a percentage of Construction revenue increased 1.1% to 68.9% during the first quarter of 2005 from
67.8% percent during the same period in 2004. The increase is attributed to the increase in cost and the acceptance of lower margin projects. Construction is beginning to see the effects of lower margin contracts entered into in 2004 and we expect
this trend to continue during the remainder of 2005.



Cost of Materials



Cost of Materials as a percentage of revenue increased to
86.9% during the first quarter of 2005 from 82.6% during the same period in 2004. This was the result of increased raw material cost, increased cost of production and lower pricing. Continued delays and shortages in cement supply experienced in 2004
have continued and added to operational inefficiencies and cost. Management is working to eliminate the shortfall of cement by developing alternative sources; however, we currently expect that certain of our operations will experience cement
shortage and outages from time to time during the second quarter of 2005 and possibly throughout the remainder of 2005.



Operating Expenses



Selling, general and administrative expense (SG&A expense) during the first quarter of 2005 increased $2.5 million to $5.3 million when
compared to $2.8 million for the comparable period in 2004. The increase of $2.5 million was due to overhead increases in the Construction and Material divisions of $0.6 million, unallocated corporate overhead of $1.1 million and the $0.9 million of
SG&A expense being incurred by our Security division.



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The increases in unallocated corporate overhead are principally the result of increased audit fees of
$0.3 million, legal fees of $0.2 million and wages of $0.3 million.



Operating Income (Loss)



Operating income for
the first quarter of 2005 amounted to $35,000 compared to an operating income $148,000 for the comparable period in 2004. Our Construction division reported an increase in operating income of $1.2 million to $1.9 million during the first quarter of
2005 when compared to $0.7 million for the comparable period in 2004. This improvement was primarily attributable to substantially increased revenue and corresponding gross margin on construction contracts in the Bahamas as well as increased
utilization of our marine dredging equipment during the quarter. We currently expect to experience continued revenue growth accompanied by a corresponding increase in aggregate gross margin; however, due to the mix of projects currently being worked
accompanied by pending bids outstanding, we anticipate that our gross margin as a percentage of revenue may continue to experience minor declines throughout 2005.



Our Materials division reported a $1.3 million operating loss during the first quarter of 2005 compared to operating loss of
$45,000 during the comparable period in 2004. This increase in the divisions operating loss is primarily attributable to increases in operating losses incurred in our Sint Maarten/St. Martin, Antigua, and Puerto Rico operations. Puerto
Ricos operating loss increased $323,000 due to increased quarry production costs. Antiguas operating loss increased $350,000 principally due to an increase in cost of materials used in production. Sint Maarten/St. Martins operating
loss increased $694,000, principally due to an increase in overhead expenses of $198,000 and an increase in production cost of $273,000, offset by a decrease in material costs of $184,000.



In our Materials division we have begun the process of implementing
additional review procedures and financial controls. In addition, we are in the process of reviewing each of our operations in detail and, based upon our findings, we will implement the necessary changes to improve profitability which we anticipate
will be achieved through a combination of price increases, where appropriate, and operating expense reductions, in addition to changes in our procurement policies and procedures. The Company expects the Material operations conducted in Sint
Maarten/St, Martin and Puerto Rico will continue to incur operating losses during 2005. Based upon the final outcome of our review, we may choose to pursue an orderly divestment of all of or certain segments of our Materials operations.



We recorded operating income of $58,000 in our Security division during
the first quarter of 2005. These results include one month of operating income, after the acquisition of Starpoint and are net of $337,000 of amortization of expense. We expect a continued and increasing contribution to our operating income from
this division during 2005.



Other Income (Deductions)



Other income amounted to $131,000 for the first quarter of 2005 compared to
$290,000 for the same period in 2004. This decrease is principally due to a decrease in the interest income recognized on the note receivable from the Government of Antigua and Barbuda (Government), which was settled during the fourth
quarter of 2004, and by the increased interest expense incurred on long term debt associated with the financing of the Starpoint acquisition. The interest expense charge relating to the Starpoint acquisition amounted to $150,000, during the first
quarter of 2005



Income Taxes



In February 2005, one of the Companys Antiguan subsidiaries declared
and paid a $16.0 million gross dividend, of which $4.0 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



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expense in the amount of $ 4.0 million which was offset by a net US Federal income tax benefit amounting to $2.3 million, net of a $0.7 million change in the
prior years provision estimate. This US Federal Tax benefit is due to an available foreign tax credit which arises as result of the aforementioned paid foreign withholding taxes as well as the reversal of $4.1 million of deferred tax expense with
respect to this dividend which was accrued by the Company in the fourth quarter of 2004.



In accordance with Section 965 of the U.S. Internal Revenue Code, enacted as part of the American Jobs Creation Act of 2004 (the AJCA), a company can repatriate earnings from foreign subsidiaries at a
reduced rate. In January 2005, the Company adopted, but have not yet implemented, a Domestic Reinvestment Plan (DRP) in order to qualify for an 85% dividend exclusion on all qualifying cash dividends received during the 2005 tax year.
The plan outlines the Companys intention to utilize qualifying cash dividends received from its foreign subsidiaries to either invest in the Companys electronic security services and utility services businesses or to repay outstanding
third party indebtedness. During the first quarter of 2005 the adoption of this plan did not have an effect on the income tax attributes reported in the financial statements of the Company.



Liquidity and Capital Resources



We generally fund our working capital needs from operations and bank
borrowings. 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 sometimes provide long-term financing to customers who utilize our
construction services. During the first three months of 2005, we financed $1.6 million. The outstanding balance of financed construction contracts as of March 31, 2005 was $5.0 million, all of which is due to be paid at different times within the
next three years. Accounts receivable for the Materials operation are typically established with terms between 30 and 45 days, but are typically outstanding for a minimum of 60 days. Accounts receivable for the Security division are typically less
than 30 days, and it is not unusual to have a negative working capital position due mainly to the practice of billing in advance for monitoring services.



The Construction and Materials divisions require continuing investment in plant and equipment, along with the related maintenance and upkeep costs.
Purchases of equipment and land totaled $4.0 million during the first three months this year. The high volume of purchases of equipment is due to increased work in the Construction division. The Company continues to fund most of these expenditures
out of its current working capital. Management believes the cash flow from operations, existing working capital, and funds available from lines of credit will be adequate to meet the Companys needs during the next 12 months. Historically, the
Company has used a number of lenders to finance a portion of its machinery and equipment purchases; however, there are no outstanding amounts owed to these lenders as of March 31, 2005. Management believes it has the collateral and financial
stability to be able to obtain significant financing, should it be required, although no assurance can be made. The Security division is expected to make investments in its subscriber base during 2005 relating to installation activity and such
investments are currently expected to be funded from cash flow generated by the division.



As of March 31, 2005, the Companys liquidity and capital resources included cash and cash equivalents of $12.7 million and working capital of $20.5 million. As of March 31, 2005, total outstanding liabilities
were $50.0 million. As of March 31, 2005, the Company had available lines of credit totaling $1.0 million.



Cash flows used in operating activities for the three months ended March 31, 2005 were $2.4 million compared to $2.4 million provided by operating
activities for the same period in 2004. The primary uses of cash for the first three months in 2005 were increased inventory, accounts receivable and notes receivable of $2.0 million. The primary source of cash was an increase in accounts payable
and accruals of $1.5 million



Net cash used in investing
activities was $44.5 million in the first three months of 2005. Purchases of property, plant and equipment were $4.0 million and cash used in business acquisitions was $40.7 million. Net cash provided by financing activities was $24.7 million for
the first three months of 2005, consisting primarily of the long-term debt.



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Our accounts receivable averaged 50 days of sales outstanding (DSO) as of March 31, 2005. This is a
decrease of 11 days compared to 61 days at the end of December 2004. Our Materials segment remained in excess of 60 days, mainly due to slower collections on Sint Maarten and St. Thomas. The improvement in DSO was primarily due to the addition of
the Security division, which has a much lower DSO of 48 days.



The Company has an unsecured credit line of $1.0 million with a bank in Florida. The credit line expires in June 2005 and the bank can also demand repayment of the loan and cancellation of the overdraft facility, if certain financial or
other covenants are in default. The Company is in compliance with the covenants as of March 31, 2005. There was no outstanding balance as of March 31, 2005. The interest rate on indebtedness outstanding under the credit line is at a rate variable
with LIBOR.



In February 2005 we acquired certain net assets of
the electronic security services operation of Adelphia Communications Corporation. The transaction was financed through available cash and a senior secured revolving credit facility provided by certain lenders. As of March 31, 2005, the Company had
$24.6 million outstanding on this facility with no availability for future borrowings. Future borrowing availability will be determined by the borrowing base and certain financial covenants.



On June 6, 1991, the Company issued a promissory note in favor of Donald L.
Smith, Jr., the Companys Chairman, in the aggregate principal amount of $2.1 million. The note provided that the balance due under the note was due on January 1, 2004, but this maturity date was extended by agreement between Mr. Smith and the
Company to October 1, 2005. The note is unsecured and bears interest at the prime rate. Presently $1.7 million is outstanding under the note. The balance under the note becomes immediately due and payable upon a change of control (as defined in the
note). However, under the terms of a guarantee dated March 10, 2004, by and between the Company and Mr. Smith where Mr. Smith guarantees a receivable from Emerald Bay Resort amounting to $2.4 million, Mr. Smith must maintain collateral in the amount
of $1.8 million. Consequently, only $300,000 of the balance under the note is due upon demand and could be paid back unless some other form of collateral is substituted and $1.4 million is due on October 1, 2005. The note defines a change of
control as the acquisition or other beneficial ownership, the commencement of an offer to acquire beneficial ownership, or the filing of a Schedule 13D or 13G with the SEC indicating an intention to acquire beneficial ownership, by any person
or group, other than Mr. Smith and members of his family, of 15% or more of the outstanding shares of the Companys common stock.



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 March 31, 2005 was $4.0 million, of which $2.0 million is for the Chairman. The Company has used an average discount rate of 4.7 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.



During the second quarter of 2002, the Company issued a construction contract
performance guaranty together with one of the Companys customers for $5.1 million. The Company issued a letter of credit for $500,000, which was cancelled in November 2004, as collateral for the transaction and has not had any expenses in
connection with this transaction. The construction project was substantially complete as of October 1, 2003, however the construction contract provides for a guarantee of materials and workmanship for a period of two years subsequent to the issuance
of a certificate of occupancy. If the owner of the project does not declare a default during a one-year



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period, the letter of credit will be voided. The Company received an up front fee of $154,000. At the same time, a long-term liability of the same amount was
recorded, which may be recognized to income, once it is determined that no obligation exists for the project, less any amounts paid by us in connection with the performance guarantee.



Related Party Transactions



The Company has certain transactions with some of the Directors or employees. Details regarding the Companys transactions with related parties are
described fully in the Companys 2004 Form 10-K and Form 10-K/A.



We lease from the wife of the Companys Chairman, Mr. Donald L. Smith, Jr., 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 annual
rent for the period 1996 through 2001 was $49,000. In January 2002, a new 5-year agreement was signed; the rent was increased to $95,400. This rent was based on comparable rental contracts for similar properties in Deerfield Beach, as evaluated by
management.



As of January 1, 2003, the Company entered into a
payment deferral agreement with a resort project in the Bahamas, in which the Chairman, one of our directors and a Company subsidiary are minority partners. Several notes, which are guaranteed partly by certain owners of the project, evidence the
loan totaling $2.4 million and the Chairman of the Company has issued a personal guarantee for $2.5 million of the total amount due under this loan agreement to the Company. The current balance, including accrued interest, is $2.8 million.



The Company has various construction contracts with an entity
in the Bahamas. The Chairman, a director and a subsidiary of the Company are minority shareholders in the entity, owning 11.3 percent, 1.55 percent and 1.2 percent, respectively. Mr. Smith, the Chairman, is also a member of the entitys
managing committee. The contract for $29.3 million was completed during the second quarter of 2004. The Company entered into various smaller contracts with the entity the first half of 2004, totaling $1.0 million, which have all been completed. The
Company entered into a $13.0 million contract to construct a marina and breakwater for the same entity. The entity secured third-party financing for this latter contract. In connection with contracts with the entity in the Bahamas, the Company
recorded revenue of $9.4 million for 2004 and $3.7 million for the three-month periods ended March 31, 2005.



The outstanding balance of trade receivables from the entity in the Bahamas was $1.1 million and $909,000 as of March 31, 2005 and December 31, 2004,
respectively. The outstanding balance of note receivables was $2.8 million as of March 31, 2005 and December 31, 2004, respectively. The Company has recorded interest income of $102,000 and $103,000 for the three-month period ended March 31, 2005
and March 31, 2004, respectively. The cost in excess of billings and estimated earnings, net, was $250,000 as of March 31, 2005. The billings in excess of costs and estimated earnings, net, was $538,000 as of December 31, 2004. Mr. Smith has
guaranteed the payment of the receivables from the entity, up to a maximum of $2.5 million, including the deferral agreement described above.



On June 6, 1991, the Company issued a promissory note in favor of Donald Smith, Jr., the Companys Chairman, in the aggregate principal amount of
$2.1 million. The note provided that the balance due under the note was due on January 1, 2004, but this maturity date has been extended by agreement between Mr. Smith and the Company to October 1, 2005. The note is unsecured and bears interest at
the prime rate. Presently $1.7 million is outstanding under the note. The balance under the note becomes immediately due and payable upon a change of control (as defined in the note). However, under the terms of a guarantee dated March 10, 2004, by
and between the Company and Mr. Smith where Mr. Smith guarantees a receivable from Emerald Bay Resort amounting to $2.4 million, Mr. Smith must maintain collateral in the amount of $1.8 million. Consequently, only $300,000 of the balance under the
note is due upon demand and could be paid back unless some other form of collateral is substituted and $1.4 million is due on October 1, 2005. The note defines a change of control as the acquisition or other beneficial ownership, the
commencement of an offer to acquire beneficial ownership, or the filing of a Schedule 13D or 13G with the SEC indicating an intention to acquire beneficial ownership, by any person or group, other than Mr. Smith and members of his family, of 15% or
more of the outstanding shares of the Companys common stock.



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Company policies and codes provide that related party transactions be approved in advance by either the
Audit Committee or a majority of disinterested directors. As indicated, the Company has a construction contract totaling $29.3 million with an entity in the Bahamas in which the Companys CEO and a director are minority shareholders. During the
last half of 2003 and the first half of 2004, a Company subsidiary commenced certain additional work for this entity for it; which it has billed or is billing approximately $1.0 million, all of which has been paid through November 5, 2004. The
Company did not obtain Audit Committee approval prior to doing the additional work. Subsequently, the Audit Committee has reviewed the work and determined that the terms and conditions under which the Company entered into such work were similar to
the terms and conditions of work the Company has agreed to perform for unrelated third parties. Mr. Smith guaranteed $270,000 of the amount due for this work, and due to failure of the entity to pay the invoice, Mr. Smith paid said amount to the
Company in November 2004.



On April 1, 2004, our Audit
Committee approved a transaction to enter into an excavation contract with the entity in the Bahamas to excavate certain parcels of the entitys real estate. The payment of the contract was guaranteed in full by Donald L. Smith, Jr., our
Chairman and Chief Executive Officer and two other owners of the entity. The outstanding amount for the contract was paid by the entity in the third quarter of 2004.



Effective April 1, 2004, a subsidiary of the Company acquired the assets of a ready-mix operation from the entity in the
Bahamas. The joint venture acquired 14 percent in the subsidiary and the Company offset monies due the Company against payment for the assets.



Item 3. Quantitative And Qualitative Disclosures About Market Risk



The Company is exposed to financial market risks due primarily to changes in interest rates, which it manages primarily by managing the maturities of its
financial instruments. The Company does not use derivatives to alter the interest characteristics of its financial instruments. A change in interest rate may materially affect the Companys financial position or results of operations.



The Companys exposure to market risk resulting from
changes in interest rates results from the variable rate of the Companys senior secured revolving credit facility, as an increase in interest rates would result in lower earnings and increased cash outflows. The interest rate on the
Companys senior secured revolving credit facility is payable at variable rates indexed to LIBOR. The effect of each 1% increase in the LIBOR rate on the Companys senior secured revolving credit facility would result in an annual increase
in interest expense of approximately $0.3 million. Based on the U.S. yield curve as of December 31, 2004 and other available information, we project interest expense on our variable rate debt to increase approximately $1.7 million for the year ended
December 31, 2005.



The Company has significant 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 the Company
deals 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 the Companys financial position or results of operations. The Companys French operations, which report in Euros, is less than 10% of the Companys total operations. During the three month period end March 31, 2005, the Euro
declined 5.0% which did not have a material impact on the operating results.



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 then Chief Executive Officer and our President, who at such time was also acting as the Companys Principal Financial and Accounting
Officer, of the effectiveness of the design and operation of its



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disclosure controls and procedures. The evaluation examined the Companys disclosure controls and procedures as of March 31, 2005, 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 March 31, 2005, the Companys disclosure controls and procedures were
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 SEC, 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 President, who has acted as the Companys Principal Financial and Accounting 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, 2004, the Companys independent registered public accounting firm, communicated to the Companys management and Audit
Committee that certain matters involving the Companys internal controls were considered to be significant deficiencies, as defined under the standards established by the Public Company Accounting Oversight Board, or PCAOB. These
matters pertained to the review and oversight of subsidiary financial results originating in the Companys Construction and Materials Divisions constituting material weaknesses in the Companys internal controls over financial reporting.



In addition, the Companys independent registered public
accounting firm informed the Companys management and the Companys Audit Committee that the combination and nature of the significant deficiencies indicated that the Company did not have adequate controls pertaining to the review and
oversight of subsidiary financial results originating in the Companys Construction and Materials Divisions, thus constituting material weaknesses in the Companys internal controls over financial reporting.



In light of the material weaknesses described above, the Company performed
additional analyses and other post-closing procedures in connection with the financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2004 and the financial statements included herein, to ensure the
Companys consolidated financial statements were prepared in accordance with generally accepted accounting principles, accepted in the United States of America. Accordingly, management believes the financial statements included in the
Companys Form 10-K 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 former Chief Executive Officer, the Companys current Chief Executive Officer and President, who had also
been acting as the Companys Principal Financial and Accounting Officer, and the Companys current Chief Financial Officer who 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 9A 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 July 2004, the Company has been working with consultants with experience in internal controls to assist management and the Audit Committee in reviewing the Companys current internal controls structure with a view
towards meeting the formalized requirements of Section 404 of the Sarbanes-Oxley Act.



In order to remediate the significant deficiencies and material weaknesses described above, the Companys management and its Audit Committee have taken the following steps:



| |  |  | Certain of the Companys procedures have been formalized and documented.
| | - |  | ------------------------------------------------------------------------



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| |  |  | 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.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | The Companys consultant has completed the initial phase of its Sarbanes-Oxley assessment of internal controls.
| | - |  | ---------------------------------------------------------------------------------------------------------------



The Company believes the above measures have appropriately addressed the
matters identified by the Companys independent registered public accounting firm 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.



Part II. Other Information



Item 1. Legal
Proceedings



The Company is from time to time
involved in routine litigation arising in the ordinary course of its business, primarily related to its construction activities.



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. Compliance with environmental protection laws has not had a material adverse impact 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 impact in the foreseeable future.



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



None



Item 3. Defaults Upon Senior Securities



None



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



None



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Item 5. Other Information



None



Item 6. Exhibits



Exhibits:



|             |  |                                                                                                                           
|------------ |  | --------------------------------------------------------------------------------------------------------------------------
|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 31.3 |  | 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    
|             | 
|Exhibit 32.3 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    



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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: May 16, 2005 |  | By: |  | /s/ Donald L. Smith                                                            
|                   |  |     |  | Donald L. Smith, Former Chief Executive Officer                                
|                   |  |     |  | (on behalf of the Registrant and as Principal Executive Officer)               
|                   |  |    
|                   |  | By: |  | /s/ Stephen J. Ruzika                                                          
|                   |  |     |  | Stephen J. Ruzika, Chief Executive Officer                                     
|                   |  |     |  | (on behalf of the Registrant and as Principal Executive Officer)               
|                   |  |    
|                   |  | By: |  | /s/ Robert C. Farenhem                                                         
|                   |  |     |  | Robert C. Farenhem, Interim 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                                                                                                        
|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 
|            | 
|31.3        |  | 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.    
|            | 
|32.3        |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.    



31