28452--4/17/2006--DEVCON_INTERNATIONAL

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{cost, contract, operation}

{debt, indebtedness, cash}

{personnel, key, retain}

{system, service, information}

{operation, international, foreign}

{competitive, industry, competition}

{acquisition, growth, future}

{cost, operation, labor}

{stock, price, share}

{condition, economic, financial}

{customer, product, revenue}

{interest, director, officer}

{loan, real, estate}

{capital, credit, financial}

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Risk Factors Relating to our Business Generally Our Officers and directors have the ability to significantly influence the outcome of any matters submitted to a vote of our shareholders. We are subject to significant debt and debt service and will be subject to significant dividend service and redemption obligations which could have an adverse effect on our results of operations. We will be subject to a financial covenant under the Series A Convertible Preferred Stock which will restrict our ability to incur indebtedness and could have an adverse effect on our results of operations. If we do not successfully implement our business strategy, we may not be able to repay or refinance our senior debt or the notes or comply with the terms of the Series A Convertible Preferred Stock. Our stock is thinly traded. We do not currently pay any dividends on our common stock. Risk Factors Relating to our Electronic Security Services Division We intend to continue our strategy of developing a strong regional presence and, as a result, experience significant growth, some of which may adversely affect our operating results, financial condition and existing business. Our inability to continue to acquire businesses in the electronic security services business could have adverse consequences on our results of operations. Integrating our acquired businesses may be disruptive to or cause an interruption of our business which could have a material adverse effect on our operating results and financial condition. Inherent uncertainties associated with the acquisition of past or future acquisition candidates may cause us or the acquisition candidates to lose key employees. We may encounter difficulties implementing our business plan. Each of SEC, Starpoint, Coastal, and Guardian operated on different technology platforms that will have to be integrated. The development and recognition of our regional brand may not advance as quickly or as effectively as we anticipate. Our electronic security services operations are geographically concentrated making us vulnerable to economic and environmental risks inherent to those locations. Our electronic security services division operates in a highly competitive environment and we may not be able to compete effectively for customers, causing us to lose all or a portion of our market share. Our electronic security services division is subject to significant government regulation and the failure to substantially comply with one or more of these regulations could adversely affect our electronic security services division s business and results of operations. Cyclical industry and economic conditions have affected and may continue to adversely affect the financial condition and results of operations of our electronic security services division. Our electronic security services division s business is subject to attrition of subscriber accounts. Our future success is dependent, in part, on key personnel and failure to retain these key personnel would adversely affect our operation. Declines in new construction may affect our sales. Lower crime rates could have an adverse effect on our results of operations. Risk Factors Relating to our Materials Division and Construction Division We have identified material weaknesses in our internal control over financial reporting that may prevent us from being able to accurately report our financial results or prevent fraud, which could harm our business and operating results, the trading price of our stock and our access to capital. We have agreed to settlement terms with respect to a dispute with a vendor of ours in St. Martin; however, the terms of the settlement have not yet been fulfilled and it is possible that the vendor could still pursue a claim against us. We have entered into transactions with our affiliates which result in conflicts of interests. We are subject to some risks due to the nature of our foreign operations. Some of the contracts involved in contracting business have fixed price terms which do not take into account unanticipated changes in production costs, which we would not be able to pass on to the customer. We may incur specified penalties or losses under some of the clauses in the contracts governing our projects. Our failure to enter into new contracts to replace completed contracts could have an adverse impact on our operations. General economic conditions in the markets in which we conduct business could have a material impact upon our operations. Our materials and construction divisions operate in a highly competitive environment and we may not be able to compete effectively for customers, causing us to lose all or a portion of our market share. We are highly dependent on supplies of cement and Barbuda sand and a failure to maintain adequate supplies would adversely affect our operations. Some of our significant customers are governmental agencies of islands in the Caribbean which may constitute a credit risk. We are highly dependent on the availability of barging and towing services in the Caribbean. We are highly dependent upon having the ability to secure bid, payment, and performance bonds. We are highly dependent upon the ability to secure work permits for employees. We are highly dependent upon the ability to secure business licenses to operate in foreign jurisdictions, particularly in the Bahamas.

Full 10-K form ▸

28452--4/17/2006--DEVCON_INTERNATIONAL_CORP