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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2004

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


DEVCON INTERNATIONAL CORP.
(Exact Name of Registrant as Specified in its Charter)

FLORIDA 59-0671992
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)


1350 E. Newport Center Drive, Suite 201, Deerfield Beach, FL 33442
(Address of Principal Executive Offices) (Zip Code)

(954) 429-1500
(Registrant's Telephone Number, Including Area Code)


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 1, 2004 the number of shares outstanding of the Registrant's Common
Stock, par value $.10 was 3,460,048.




Intentionally left blank

2



DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES


INDEX

Page Number

Part I. Financial Information:


Item 1. Condensed Consolidated Balance Sheets
March 31, 2004 and December 31, 2003 (unaudited).............. 4-5


Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2004 and 2003
(unaudited)................................................... 7


Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003
(unaudited)................................................... 8-9


Notes to Condensed Consolidated Financial Statements
(unaudited)...................................................10-15


Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations....................................................16-28

Item 3. Quantitative and Qualitative Disclosures About Market Risk.... 29

Item 4. Controls and Procedures....................................... 29

Part II. Other Information............................................. 30


Certifications ........................................................32-36


3


PART I Financial Information
- --------------------------------------------------------

Item 1. Financial Statements

DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
March 31, 2004 and December 31, 2003
(Unaudited)



March 31, December 31,
2004 2003
--------------- --------------
Assets

Current assets:
Cash and cash equivalents $ 11,470,130 $ 10,030,006
Accounts receivables, net 10,051,234 10,424,234
Notes receivables, current portion, net 2,335,179 2,214,437
Costs and estimated earnings
in excess of billings 1,201,954 1,170,572
Inventories 3,567,630 3,520,687
Prepaid expenses and other current assets 795,636 670,435
-------------- --------------

Total current assets 29,421,763 28,030,371

Property, plant and equipment, net:
Land 1,450,368 1,432,068
Buildings 597,366 597,366
Leasehold improvements 3,176,147 3,200,796
Equipment 46,981,432 47,018,090
Furniture and fixtures 717,907 700,988
Construction in process 600,595 861,723
-------------- -----------
53,523,815 53,811,031
Less accumulated depreciation (29,994,663) (29,861,762)
------------ ------------

Total property, plant & equipment, net 23,529,152 23,949,269

Investments in unconsolidated
joint ventures and affiliates 349,185 349,413
Notes receivables, related party 2,625,927 2,582,782
Notes receivables, other, net 7,999,834 8,336,318
Other assets 1,253,285 1,170,589
------------- -------------

Total assets $65,179,146 $64,418,742
=========== ===========

See accompanying notes to unaudited condensed consolidated financial statments.
4



DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
March 31, 2004 and December 31, 2003
(Unaudited)

(Continued)


March 31, December 31,
2004 2003
--------------- --------------
Liabilities and Stockholders' Equity

Current liabilities:
Accounts payable, trade and other $ 3,845,913 $ 3,606,120
Accrued expenses and other liabilities 4,217,079 3,927,906
Current installments of long-term debt 349,939 351,355
Billings in excess of costs and estimated earnings 625,375 676,207
Income taxes payable 3,871,090 3,629,215
-------------- ---------------

Total current liabilities 12,909,396 12,190,803

Long-term debt, excluding current
installments, related party 1,770,000 1,770,000
Long-term debt, excluding current installments 643,754 654,143
Other long-term liabilities 4,333,964 4,254,728
------------- -------------

Total liabilities 19,657,114 18,869,674

Stockholders' equity:
Common stock, $0.10 par value. Authorized
15,000,000 shares, issued 3,383,173 in 2004
and 3,383,173 in 2003, outstanding 3,307,073
in 2004 and 3,296,373 shares in 2003 338,317 338,317
Additional paid-in capital 9,237,597 9,208,980
Retained earnings 37,832,191 37,740,039
Accumulated other comprehensive loss -
cumulative translation adjustment (1,367,917) (1,148,402)
Treasury stock, at cost, 76,100 and 86,800
Shares in 2004 and 2003, respectively (518,156) (589,866)
------------ -----------
Total stockholders' equity 45,522,032 45,549,068
----------- ------------

Commitments and contingencies

Total liabilities and stockholders' equity $65,179,146 $64,418,742
=========== ===========

See accompanying notes to unaudited condensed consolidated financial statments.
5

Intentionally left blank

6


DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES

Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2004 and 2003
(Unaudited)



March 31, March 31,
2004 2003
--------------- --------------

Materials revenue $ 10,655,042 $ 8,607,767
Construction revenue 4,106,904 3,454,867
------------- -------------
Total revenue 14,761,946 12,062,634

Cost of materials (8,803,878) (7,701,398)
Cost of construction (2,784,214) (3,964,954)
------------- -------------
Gross profit 3,173,854 396,282

Operating expenses:
Selling, general and administrative expenses (2,745,698) (3,413,109)
Severance and retirement (308,591) (932,067)
Gain on sale of equipment 28,839 -
Impairment of long-lived assets - (2,859,235)
----------------- -------------
Operating income (loss) 148,404 (6,808,129)

Other income (expense):
Joint venture equity (loss) earnings (228) 403
Interest expense (50,776) (36,705)
Interest income 340,456 963,441
-------------- ----------
289,452 927,139
-------------- ----------

Income (loss) before income taxes 437,856 (5,880,990)

Income tax (expense) benefit (303,785) 256,963
-------------- ------------
Net income (loss) $ 134,071 $ (5,624,027)
============= ==============

Earnings (loss) per share
Basic $ 0.04 $ (1.63)
================= ==================
Diluted $ 0.04 $ (1.63)
================= ==================

Weighted average number of shares outstanding
Basic 3,306,597 3,455,962
=============== ===============
Diluted 3,633,471 3,455,962
=============== ===============


See accompanying notes to unaudited condensed consolidated financial statments.
7




DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003
(Unaudited)


March 31, March 31,
2004 2003
--------------- --------------
Cash flows from operating activities:
Net income (loss) $ 134,071 $(5,624,027)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Non-cash stock compensation 39,418 -
Depreciation and amortization 1,148,469 1,513,753
Deferred income tax benefit (382) (276,521)
Provision for doubtful accounts and notes (10,577) 249,686
Impairment of long-lived assets - 2,859,235
Gain on sale of equipment (28,839) (6,413)
Joint venture equity loss (earnings) 228 (403)

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivables, net 9,800 (894,468)
(Increase) decrease in costs and estimated
earnings in excess of billings (31,382) 359,262
(Increase) decrease in inventories (46,943) 133,929
(Increase) decrease in prepaid expenses and
other current assets (119,426) 51,568
Increase in other long-term assets (84,635) (101,950)
Increase in accounts payable,
Accrued expenses and other liabilities 510,849 693,459
(Decrease) increase in billings in excess
of costs and estimated earnings (50,832) 105,554
Increase in income taxes payable 241,875 14,818
Increase in other long-term liabilities 66,618 1,025,501
------------- ---------
Net cash provided by operating activities $ 1,778,312 $ 102,983
------------ ----------

Cash flows from investing activities:
Purchases of property, plant and equipment $ (923,528) $ (731,112)
Proceeds from sale of equipment 7,911 15,881
Payments received on notes, other 617,367 2,098,684
Investment in unconsolidated joint ventures - (3,955)
Issuance of notes, other (9,595) (124,421)
-------------- -------------

Net cash (used in) provided by investing activities $ (307,845) $ 1,255,077
----------- ------------

See accompanying notes to unaudited condensed consolidated financial statments.
8


DEVCON INTERNATIONAL CORP.
AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2004 and 2003
(Unaudited)
(Continued)


March 31, March 31,
2004 2003
--------------- --------------
Cash flows from financing activities:
Proceeds from issuance of stock $ 18,990 $ 77,880
Purchase of treasury stock - (1,011,598)
Principal payments on debt (7,030) (12,879)
Net repayments, lines of credit - (11,000)
------------------- --------------

Net cash provided by (used in) financing activities $ 11,960 $ (957,597)
---------- --------------

Effect of exchange rate changes on cash (42,303) 8,061

Net increase in cash and cash equivalents $ 1,440,124 $ 408,524

Cash and cash equivalents, beginning of period 10,030,006 8,977,293
------------ ------------

Cash and cash equivalents, end of period $ 11,470,130 $ 9,385,817
================ ============

Supplemental disclosures of cash flow information


Cash paid for:

Interest $ 50,661 $ 35,775
=============== =============

Income taxes $ 20,033 $ 3,750
=============== ==============


Supplemental disclosures of non-cash investing activities:

Receipt of notes in settlement
of receivables, related party $ - $ 1,372,297
=============== ============

Receipt of notes in settlement
of receivables, other $ 327,881 $ 258,412
=============== ============


Retirement of treasury stock $ 71,710 $ 492,326
=============== ============

See accompanying notes to unaudited condensed consolidated financial statments.
9



DEVCON INTERNATIONAL CORP. AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

The unaudited condensed consolidated financial statements include the accounts
of Devcon International Corp. and its majority-owned subsidiaries (the
"Company"). The accounting policies followed by the Company are set forth in
Note (l) to the Company's financial statements included in its Annual Report on
Form 10-K for the fiscal year ended December 31, 2003 (the "2003 Form 10-K").
The unaudited condensed financial statements for the three months ended March
31, 2004 and 2003 included herein have been prepared in accordance with the
instructions for Form 10-Q under the Securities Exchange Act of 1934, as
amended, and Article 10 of Regulation S-X under the Securities Act of 1933, as
amended. Certain information and footnote disclosures normally included in
financial statements prepared in conformity with accounting principles generally
accepted in the United States of America have been condensed or omitted pursuant
to such rules and regulations relating to interim financial statements.

In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
Company's financial position as of March 31, 2004 and 2003 and the results of
its operations for the three months ended March 31, 2004 and 2003 and cash flows
for the three months ended March 31, 2004 and 2003. The results of operations
for the three months ended March 31, 2004 and 2003 are unaudited and are not
necessarily indicative of the results to be expected for the full year. The
unaudited condensed consolidated financial statements included herein should be
read in conjunction with the financial statements and related footnotes included
in the Company's 2003 Form 10-K.

EARNINGS 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. In 2003,
the dilutive potential common shares were not included in the computation of
diluted earnings per share for the three-month period, because the inclusion of
the options would be antidilutive. 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.


March 31, 2004 March 31, 2003
Option price Options Option price Options
From To outstanding From To outstanding
---- ---- ----------- ---- ---- -----------
Anti-dilutive options - - - 1.50 6.81 723,500
Dilutive options 1.50 8.13 800,095 - - -
Not included options 8.35 9.38 58,000 7.00 9.38 40,295


10



Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)



Weighted average number Three Months Ended March 31,
of shares outstanding 2004 2003
------------ -----------
Basic 3,306,597 3,455,962
Effect of dilutive securities: Options 326,874 -
----------- -------------
Diluted 3,633,471 3,455,962


For additional disclosures regarding the employee stock options, see the 2003
Form 10-K.

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 income (loss) for these plans, as all options granted under
these plans 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 income (loss) and income (loss) 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,
2004 2003
------------ ----------

Net income (loss), as reported $ 134,071 $(5,624,027)
Deduct: total stock-based employee compensation
expense determined under fair value based method
for all awards, net of taxes (29,652) (24,750)
------------ -------------
Net income (loss), as adjusted $ 104,419 $(5,648,777)

Earning (loss) per share:
Basic, as reported $ 0.04 $(1.63)
Diluted, as reported 0.04 (1.63)

Basic, as adjusted 0.03 (1.63)
Diluted, as adjusted 0.03 (1.63)

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

COMPREHENSIVE LOSS

The Company's total comprehensive loss comprised of net income (loss) and
foreign currency translation adjustments, for the three months ended March
31, 2004 and 2003 was as follows:

11

Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)


Three Months Ended March 31,
2004 2003
------------ ----------
Net income (loss) $ 134,071 $(5,624,027)
Other comprehensive (loss) income
- foreign currency transaction adjustments (219,515) 154,900
------------ -----------
Total comprehensive loss $ (85,444) $ (5,469,127)
========== ============


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, 2004 and
2003:


Three Months Ended March 31,
2004 2003
--------------- --------------
Revenue (including inter-segment)
Materials $ 10,837,742 $ 8,734,764
Construction 4,189,989 3,517,055

Elimination of inter-segment (265,785) (189,185)
-------------- --------------

Total revenue $14,761,946 $12,062,634
=========== ===========

Operating income (loss)
Materials $ (45,000) $(4,574,000)
Construction 724,000 (1,091,000)
Unallocated corporate overhead (530,596) (1,136,716)
------------- --------------

Total operating income (loss) 148,404 (6,801,716)

Other income, net 289,452 920,726
------------ -------------

Income (loss) before income taxes $ 437,856 $(5,880,990)
=========== ============

IMPAIRMENT OF LONG-LIVED ASSETS AND ACCELERATED DEPRECIATION

In the first quarter 2003, the Company recorded an impairment expense of $2.9
million. This consisted of the following items:

St. Martin crusher & concrete operations $2,119,000
Sint Maarten block plant 232,000
Aguadilla crusher plant 438,000
Other assets 70,000
-----------
Total $2,859,000
==========

The St. Martin/Sint Maarten operations were determined to be impaired
due to continuing losses. The Company could not project sufficient future
earnings to cover the long-lived assets. An

12

Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)


impairment charge of $2,119,000 was recorded to write down the St. Martin
crusher and concrete plant to their estimated fair value, using an estimated
probable sales price as determinant of the value. Management is reviewing its
alternatives and has not yet made a decision about future operational changes.
The Sint Maarten concrete and aggregate sales operations have an estimated fair
value in excess of recorded long-lived assets, and therefore no impairment was
recorded for this part of the business. The Sint Maarten block plant was
impaired and an operational decision has been made to close the plant and
dismantle it. The Company is currently importing part of its need for blocks
from Devcon plants on other islands.

The plant in Aguadilla, Puerto Rico, is leased to a third party, whose
extraction permit was cancelled in February this year. On April 10, the lessee
asked for a moratorium on payments, at the same time as he gave notice of the
extraction permit being cancelled. As a result of these actions, management's
expectation of future cash flows and the fact that the only source of revenue
for the plant has come from the lessee, the Company recorded an impairment
charge of $438,000 to write down the plant to its estimated fair value. On
September 1, 2003 the third party received its extraction permit and has started
aggregates processing operations.

RECLASSIFICATIONS

Certain reclassifications have been made to the 2003 financial statements in
order to conform to the 2004 presentation.

NEW ACCOUNTING STANDARDS

In December 2003, the FASB issued Interpretation No. 46 ("FIN 46R") (revised
December 2003), "Consolidation of Variable Interest Entities, an Interpretation
of Accounting Research Bulletin No. 51" ("ARB 51"), which addresses how a
business enterprise should evaluate whether it has a controlling interest in an
entity through means other than voting rights and accordingly should consolidate
the entity. FIN 46R replaces FIN 46, which was issued in January 2003. Before
concluding that it is appropriate to apply the ARB 51 voting interest
consolidation model to an entity, an enterprise must first determine that the
entity is not a variable interest entity (VIE). As of the effective date of FIN
46R, an enterprise must evaluate its involvement with all entities or legal
structures created before February 1, 2003, to determine whether consolidation
requirements of FIN 46R apply to those entities. There is no grandfathering of
existing entities. Public companies must apply either FIN 46 or FIN 46R
immediately to entities created after January 31, 2003 and no later than the end
of the first reporting period that ends after March 15, 2004. The adoption of
FIN 46 did not have a material impact on the Company's consolidated financial
position and results of operations.

ENVIRONMENTAL MATTERS

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


13

Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)
TAX CONTINGENCIES

During the fourth quarter of 2001, the Company's three subsidiaries in Antigua
were assessed $6.1 million in income and withholding taxes for the years 1995
through 1999. The Company is appealing the assessments in the appropriate
venues. The Company believes that if any tax is accrued in the future, it will
not have an immediate cash flow effect on the Company, but will result in an
offset between tax owed and the approximately $29.0 million receivable from the
Government of Antigua. It is too early to predict the final outcome of the
appeals process or to estimate the ultimate amount of loss, if any, to the
Company. Based on the advice from local Antiguan tax counsel, management
believes the Company's defenses to be meritorious and does not believe that the
ultimate outcome will have a material adverse effect on the consolidated
financial position or results of operations of the Company.

The Economic Development Commission ("EDC") completed a compliance review on the
Company's subsidiary in the US Virgin Islands on February 6, 2004. The
compliance review covered the period from April 1, 1998 through March 31, 2003
and resulted from the Company's application to request an extension of tax
exemptions from the EDC. The Company is working with the EDC to resolve this
matter. One of those issues is whether certain items of income qualified
for exemption benefits under the Company's then existing tax exemption, and the
Company received a notice of failure to make gross receipts tax payments of
$504,919 and income taxes of $2,240,070, not including interest and penalties.
This is the first time that a position contrary to the Company's or any position
on this specific issue has been raised by the EDC. The Company intends to
vigorously contest the EDC's interpretation. In light of these recent events,
and based on discussions with legal counsel, the Company established tax accrual
at December 31, 2003 for such exposure which approximates the amounts set forth
in the EDC notice.

CONTINGENT LIABILITIES

Details regarding the Company's other contingent liabilities are described fully
in the Company's 2003 Form 10-K. During 2004, there have been no material
changes to the Company's contingent liabilities.


SUBSEQUENT EVENTS

On April 2, 2004, the Company entered into a purchase agreement (the "Purchase
Agreement") with Coconut Palm Capital Investors I, Ltd. ("Coconut Palm"),
pursuant to which, Coconut Palm agreed to purchase from the Company up to
2,000,000 units for a purchase price of $9.00 per unit, subject to certain
closing conditions, including shareholder approval. Each unit (a "Unit") would
consist of (i) 1 share of common stock, par value $0.10 (the "Common Stock"), of
the Company (ii) a warrant to purchase 1 share of Common Stock at an exercise
price of $10.00 per share with a term of 3 years, (iii) a warrant to purchase
1/2 share of Common Stock at an exercise price of $11.00 per share with a term
of 4 years and (iv) a warrant to purchase 1/2 share of Common Stock at an
exercise price of $15.00 per share with a term of 5 years.

14

Notes to Unaudited Condensed Consolidated Financial Statements
(Continued)

Based on that number and the number of shares of Common Stock of the Company
outstanding on April 9, 2004, Coconut Palm will acquire up to approximately
36.6% of Common Stock outstanding immediately after the closing of the Purchase
Agreement. Coconut Palm will also be entitled, on a fully diluted basis, to
acquire up to 58.7% of the Common Stock of the Company outstanding immediately
after the closing of the Purchase Agreement (including shares acquired at
Closing) upon exercise of the warrants. In addition, Coconut Palm has designated
two individuals, Richard C. Rochon and Mario B. Ferrari, to be nominated to the
Company's board of directors, subject to closing of the transactions
contemplated by the Purchase Agreement.

In connection with the Purchase Agreement, Donald L. Smith, Jr., the Company's
Chairman, Chief Executive Officer and President and certain relatives and
affiliates of his entered into a voting agreement, dated April 2, 2004 (the
"Voting Agreement"). Pursuant to the terms of the Voting Agreement, they agreed
to vote their beneficially owned shares of Common Stock in favor of the issuance
and sale of the Units by the Company to Coconut Palm at a special meeting of the
Company and grant Coconut Palm an irrevocable proxy to vote such shares of
Common Stock (i) in favor of the transactions contemplated by the Purchase
Agreement and (ii) against any actions or approval that could compete with or
could serve to materially interfere with, delay, discourage adversely or inhibit
the timely consummation of the transactions contemplated by the Purchase
Agreement. The Voting Agreement terminates upon the earlier to occur of (i) the
consummation of the transactions contemplated by the Purchase Agreement, (ii)
any termination of the Purchase Agreement in accordance with its terms or (iii)
the withdrawal by the Company's board of directors of its approval of the
transactions contemplated by the Purchase Agreement in accordance with the
Purchase Agreement.

In connection with the investment by Coconut Palm, the Company plans to enter
into the security services business. The Company entered into an employment
agreement (the "Employment Agreement") with Stephen J. Ruzika on April 2, 2004
under which he would become the Company's Executive Vice President and President
of Devcon's Security Services Division. The effectiveness of the Employment
Agreement is conditioned upon the closing of the transactions contemplated by
the Purchase Agreement. Under the employment agreement, the Company would pay
Mr. Ruzika an annual salary of $325,000 plus any bonuses which the Compensation
Committee determines to pay him. The terms of the Employment Agreement provide
that, upon effectiveness, Mr. Ruzika would be granted 50,000 options with an
exercise price of $9.00 per share. The Employment Agreement has a three-year
term, which may be extended by the parties.

The Company has entered into a nonbinding letter of intent to purchase a company
managed and controlled by Mr. Ruzika for approximately $4 million, subject to
certain purchase price adjustments. The Company anticipates paying the purchase
price with a combination of cash and shares of the Company's Common Stock. This
contemplated acquisition of Mr. Ruzika's company will be conditioned upon the
Company closing upon the issuance of the Units described above.

15




ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements, as well as the financial
statements and related notes included in the Company's 2003 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 both our Construction and Materials
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:

o The strength of the construction economies on various islands in the
Caribbean, primarily in the United States Virgin Islands, Sint Maarten,
St. Martin, Antigua and Puerto Rico. Our business is subject to
economic conditions in our markets, including recession, inflation,
deflation, general weakness in construction and housing markets, and
changes in infrastructure requirements.

o Our ability to maintain mutually beneficial relationships with key
customers. We have a number of significant customers. The loss of
significant customers, the financial

16

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.

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

o 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.

o Increased competition. The Materials division operates in markets,
which are highly competitive on the basis of price and quality. We
compete with local suppliers of ready-mix, and foreign suppliers of
aggregates and concrete block. Competition from certain of these
manufacturers has intensified in recent years and is expected to
continue. The Construction division has local and foreign competitors
in its markets. Customer and competitive pressures sometimes have an
adverse effect on our pricing.

o 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.

o 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.

o 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.

o 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.

o The outcome of tax litigation in Antigua and the compliance review of
our EDC benefits in the U.S. Virgin Islands.

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

o Interest rate fluctuations and other capital market conditions.

17

o 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.

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

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

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.

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 consolidated financial
statements reported on our Form 10-K for December 31, 2003, 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, valuation of the Antigua and Barbuda
notes, inventories and loss reserve for inventories, cost to complete of
construction contracts, assets held for sale, intangible assets, income taxes,
including specifically the Antigua tax assessments, tax 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:

18




o 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. Provisions are recognized in
the statement of operations 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. Revenue in
an amount equal to cost incurred is recognized prior to contracts
reaching 25% completion. The related earnings are not recognized until
the period in which such percentage completion is attained. In our
judgment, until a project reaches 25% completion, there is insufficient
information to determine with a reasonable level of assurance what the
estimated profit on the project will be. Change-orders for additional
contract revenue and revenue for claims 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.

o 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 previous impaired receivable, income is then recognized.

o We write down inventory for estimated obsolescence or unmarketability
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
write downs could be required. If the actual market demand surpasses the
projected levels, inventory write downs are not reversed.

o We maintain an accrual for retirement agreements with the Company's
President and certain other employees. This accrual is based on the life
expectancy of these persons and an assumed discount rate, weighted
average, of 5.3 %. Should the actual longevity vary significantly from
the United States insurance norms, or should the discount rate used to
establish the present value of the obligation vary, the accrual may have
to be significantly increased or diminished at that time.

o Based on written legal opinion from Antiguan counsel, we have not
recorded a contingent liability of $6.1 million, excluding any interest
or penalties, for taxes assessed by the Government of Antigua and Barbuda
for the years 1995 through 1999. The Government may also assess further
taxes for the years prior and subsequent to the assessed tax years.

19

We are appealing said assessments. However, if our appeal is not
successful, a significant tax liability may have to be recorded. We do
not believe losing the appeal would have an immediate effect on our cash
flow, as the Government of Antigua and Barbuda owes us in excess of
$29.4 million, and we have the right to offset this against any amounts
owed to the government.

o The EDC completed a compliance review on our subsidiary in the US Virgin
Islands on February 6, 2004. The compliance review covers the period
from April 1, 1998 through March 31, 2003 and resulted from the Company's
application to request an extension of tax exemptions from the EDC. The
Company is working with the EDC to resolve the issues raised.One of those
issues is whether certain items of income qualified for exemption
benefits under the Company's then existing tax exemption, including
notice of failure to make gross receipts tax payments of $504,919 and
income taxes of $2,240,070, not including interest and penalties. This
is the first time that a position contrary to the Company's or any
position on this specific issue has been raised by the EDC. The Company
intends to vigorously contest the EDC's interpretation. In light of
these recent events, and based on discussions with legal counsel, the
Company established tax accrual at December 31, 2003 for such exposure
which approximates the amounts set forth in the EDC notice.

o We have $31.8 million of un-repatriated earnings in our foreign
subsidiaries. We have no intention of bringing these earnings back to the
United States, unless we can do so in a tax-free or cash-flow neutral
manner. However, should we be forced to repatriate the earnings, we would
have to recognize and pay a substantial U.S. federal income tax. The tax
would be approximately 34 % of the repatriated amount, or potentially
$10.8 million, as of March 31, 2004.

o We were accounting for the notes receivable from the Government of
Antigua and Barbuda under the cost-recovery method until April 2000.
Subsequent to a restructuring of the notes, we started to account for
the notes using the accrual method. We record payments received, first
to the projected principal reductions for the period, then to accrued
interest, and lastly to additional reduction of principal. Interest
income is recognized on the notes only to the extent payments are
received for accrued interest. Should the payments from the government
diminish substantially or become uncertain, we may have to revert to the
cost-recovery method, impair the notes or adjust the implicit interest
rate based on estimated future cash flows. This could decrease our
earnings significantly. The Government did not make certain of its
payments due in the first quarter 2004 and certain quarters of 2003.
We do not believe that the current delay in payments materially affects
the recoverability of the recorded amount of the notes receivable.

o 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 determination was made. Likewise, should we determine
that we would not be able to realize all or part of our net

20


deferred tax asset in the future, an adjustment to the deferred tax
asset would be charged to income in the period such determination was
made.

o 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 are not presently considering changes to any of our critical accounting
policies and we do not presently believe that any of our critical accounting
policies are reasonably likely to change in the near future. There have not been
any material changes to the methodology used in calculating our estimates during
the last three years, except for the Company starting to recognize interest
income for payments received from the Government of Antigua and Barbuda in April
2000. 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, 2004 WITH THREE MONTHS ENDED MARCH
31, 2003

REVENUE

The Company's revenue during the first quarter of 2004 was $14.8 million as
compared to $12.1 million during the same period in 2003. This 22.4 percent
increase was due to an increase of $2.0 million in materials revenue and
$652,000 in construction revenue.

The Company's materials division revenue increased 23.8 percent to $10.7 million
during the first quarter of 2004 as compared to $8.6 million for the same period
in 2003, due to a 32.6 percent increase in sales of aggregates, and a 15.6
percent increase in concrete sales. The largest increases were in St. Croix, St.
Martin and St. Thomas. Revenue in St. Croix and St. Martin was 123 and 48
percent, respectively, higher than the same quarter last year due to increasing
demand for aggregates and concrete. St. Thomas also improved its volumes this
quarter as compared to the same quarter last year. The Company expects similar
or better volumes as compared to the first three months of 2004 for the rest of
2004.

Revenue from the Company's construction division increased 18.9 percent to $4.1
million during the first quarter of 2004 as compared to $3.5 million for the
same period in 2003. This increase is mainly due to contracts in Exuma, Bahamas
and Antigua, offset to a lesser degree by lower revenue in the U.S. Virgin
Islands. The Company's backlog of unfilled portions of land development
contracts at March 31, 2004 was $1.4 million, involving nine contracts. The
backlog of contracts for a project in the Bahamas amounted to $587,000. A
Company subsidiary, our President and a director are minority partners of the
entity developing this project. The Company expects that these contracts will be
completed during 2004. The Company is actively bidding in various areas of the
Caribbean. Based on existing contracts and negotiations, the Company expects
construction volumes to increase throughout 2004, and to significantly surpass
2003 revenues for the full year.

21

COST OF MATERIALS

Cost of materials as a percentage of materials revenue decreased to 82.6 percent
during the first quarter of 2004 as compared to 89.5 percent for the same period
in 2003. This improvement resulted from an increase in revenue with stable fixed
costs in most islands. The percentage of cost of materials decreased in most
operations. We also showed a $151,000 improvement in our concrete delivery costs
in the first quarter of 2004 as compared to the same period in 2003. Similarly,
we can see an improvement in margins for the quarries, mainly due to decreased
cost per ton as a result of increased volumes.

COST OF CONSTRUCTION

Cost of construction as a percentage of construction revenue decreased to 67.8
percent during the first quarter of 2004 from 114.8 percent during the same
period in 2003. This decrease is primarily attributable to improved margins on
certain contracts in the Bahamas and Antigua. Also the dredge was in use during
most of the quarter, which had a positive impact on our margin, as compared to
the negative impact of the expense of the idle dredge for the same quarter last
year. The estimated cost to complete, the varying profitability levels of
individual contracts and the stage of completion of such contracts can affect
the cost of construction and margins either positively or negatively.

OPERATING EXPENSES

Selling, general and administrative expense ("SG&A expense") decreased by 19.6
percent to $2.7 million for the first quarter of 2004 from $3.4 million for the
same period in 2003. The decrease in SG&A expense was primarily due to decreased
depreciation, decreased consulting fees and exchange rate differences which
resulted in income for the current year as compared to an expense for the same
period last year offset to a lesser extent by increased labor and certain
labor-related costs. There were also minor increases and decreases of other
expense items. As a percentage of revenue, SG&A expense decreased to 18.6
percent during the first quarter as compared to 28.3 percent for the same period
last year, as a result of the foregoing factors, as well as increased revenue.

OPERATING INCOME (LOSS)

The Company had operating income of $148,000 for the first quarter of 2004,
compared to an operating loss of $6.8 million for the same period in 2003. The
Company's materials division operating loss was $45,000 during the first quarter
of 2004 compared to $4.6 million during the same period in 2003. This decrease
in operating loss is attributable to no impairment cost in 2004, improved gross
margins on all islands and decreased depreciation.

The Company's construction division had operating income of $724,000 during the
first quarter of 2004 compared to an operating loss of $1.1 million during the
same period in 2003. This improvement in profitability was primarily
attributable to improved profitability on contracts in Exuma and Antigua and
improved profitability for the marine equipment. The varying profitability
levels of individual contracts and the stage of completion of such contracts can

22



affect the cost of construction and margins either positively or negatively. The
Company expects to maintain or improve the profitability for the construction
division for the remainder of the year as compared to the first three months of
2004, although there is no assurance that this will occur.

OTHER INCOME (DEDUCTIONS)

Interest income decreased in the first quarter of 2004 to $340,000 compared to
$957,000 for the same period in 2003, primarily due to a decrease in the
interest recognized on the note receivable from the Government of Antigua and
Barbuda ("Government"). The Government did not comply with all of its payment
obligations during the first quarter this year, and therefore interest
recognized on the notes was significantly lower than last year. The Company is
not sure that the Government will comply with its payment obligations in 2004;
consequently, the Company is unsure if the interest to be recognized on the
notes during the rest of the year will continue at this lower level.

INCOME TAXES

The Company operates in various tax jurisdictions with various tax rates, and
depending on where profits or losses are recognized during the period, the
effective tax rate will vary. The effective tax rate for the three months ended
March 31, 2004 was 69.4 percent as compared to 4.4 percent for the same period
in 2003. In certain jurisdictions, certain income is not taxable, and in certain
jurisdictions, the Company enjoys certain tax exemptions. The tax expense in the
first quarter of 2004 is mainly due to taxes accrued in the United States and
Antigua.

LIQUIDITY AND CAPITAL RESOURCES

The Company generally funds its working capital needs from operations and bank
borrowings. In the land development construction business, the Company must
expend considerable funds for equipment, labor and supplies to meet the needs of
particular projects. The Company's capital needs are greatest at the start of
any new contract, since the Company 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 all work
is complete, further increasing the need for capital. During the first quarter
of 2004, the Company provided long-term financing in the amount of $328,000 to
certain customers who utilized its land development construction services and
purchased materials, equipment or property. The outstanding balances of the
previously financed construction services, materials and equipment totaled $6.5
million as of March 31, 2004, all of which is due to be paid within the next
three years. The Company has also provided financing for other business ventures
from time to time. With respect to the Company's materials division, accounts
receivable are typically outstanding for a minimum of 60 days and in some cases
much longer.

The nature of the Company's business requires a continuing investment in plant
and equipment, along with the related maintenance and upkeep costs of such
equipment. These purchases of equipment totaled $924,000 during the first three
months this year and should result in cash expenditures of approximately $3.0
million during the full year. The Company has, since the beginning of 2000,
funded most of these expenditures out of its current working capital.

23

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,
since 2001 there are no outstanding amounts owed to these lenders. Management
believes it has significant collateral and financial stability to be able to
obtain significant financing, should it be required, though no assurance can be
made.

As of March 31, 2004, the Company's liquidity and capital resources included
cash and cash equivalents of $11.5 million and working capital of $16.5 million.
As of March 31, 2004, total outstanding liabilities were $19.7 million. As of
March 31, 2004, the Company had available lines of credit totaling $1.4 million.

Cash flows provided by operating activities for the three months ended March 31,
2004 were $1.8 million compared to $103,000 for the same period in 2003. The
primary source of cash for the first three months in 2004 was an increase in
accounts payable, accruals and other liabilities of $511,000 and an increase in
tax payable of $242,000, offset to a lesser extent by an increase in prepaid
expenses and other current assets of $119,000.

Net cash used in investing activities was $308,000 in the first three months of
2004. Purchases of property, plant and equipment were $924,000 and receipts on
notes receivable were $617,000. Net cash provided by financing activities was
$12,000 for the first three months of 2003, consisting primarily of the issuance
of stock.

The Company's accounts receivable averaged 57 days of sales outstanding as of
March 31, 2004. This is a decrease compared to 59 days at the end of December
2003. The Company's materials segment improved to 51 days as compared to 55 days
at the end of last quarter, mainly due to faster collections in St. Croix. The
construction segment has deteriorated to 72 days as compared to 68 days at the
end of last year. The slowdown in collections was primarily due to receivables
for work in the Bahamas and Aruba.

The Company has an unsecured credit line of $1.0 million with a bank in Florida.
The credit line expires in June 2004 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, 2004. There was no outstanding balance as of March 31, 2004. The
interest rate on indebtedness outstanding under the credit line is at a rate
variable with LIBOR.

In May 2003, the Company entered into a joint venture with a utility equipment
company to own and/or operate reverse osmosis fresh water, wastewater treatment
and power systems. The joint venture will be 80 percent owned by Devcon. As the
Company approves projects, Devcon will fund the venture with up to $2.4 million
in cash and loans plus a guarantee of up to an additional $2.4 million in
project financing. As of March 31, 2004 there have been no projects funded, but
a rental unit has been built and purchased.

The Company has borrowed approximately $2.1 million from the Company President.
The note is unsecured and bears interest at the prime rate. Three hundred
thousand is due on demand, and

24



$1.8 million is due on July 1, 2005. The President has the option of making the
note due on demand should a "Change of Control" occur. A Change of Control has
occurred if a person or group acquires 15.0 percent or more of the common stock
or announces a tender offer, the consummation of which would result in ownership
by a person or group of 15.0 percent or more of the common stock. This would
occur if consummated, however, of the amount borrowed, $1.7 million is
collateral for a loan guarantee that the President has extended to the Company
on behalf of a project in the Bahamas, in which the President and the Company
have a minority ownership.

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, 2004 was $3.5 million, of which $1.7
million is for the Company's President. The Company has used an average discount
rate of 5.2% and standard mortality tables.

As part of the 1995, subsequently renegotiated in 1999, acquisition of Societe
des Carrieres 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 July 2005. The agreements
may be renewed, at the Company's option, for a successive five-year period and
would require annual payments of $550,000 and $50,000 per year, respectively. At
the end of the 15-year royalty period, the Company has the option to purchase
this 50-hectare property for $4.4 million.

Receivables at March 31, 2004 include a net balance of $6.1 million, consisting
of promissory notes due from the Government of Antigua and Barbuda, of which
$5.8 million is classified as a long-term receivable. The gross balance of the
notes is $29.4 million. The notes were restructured on April 28, 2000 and call
for both quarterly and monthly principal and interest payments until maturity in
2015. During the first quarter this year, the Government did not make all the
payments due under the notes; therefore, the interest recognized on the notes
was lower than expected. The notes are paid from agreed upon sources, which
consist of lease proceeds from the rental of a United States military base, fuel
tax revenue, proceeds from a real estate venture and other sources. Receipts
recorded for the three months ended March 31, 2004 were $96,000, of which
$55,000 was recorded as reduction of principal.

During the second quarter of 2003, 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 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 one year subsequent to the issuance of a
certificate of occupancy. If the owner of the project does not declare a default
during this one-year period the letter of credit will be voided and the Company
will have no further liability. The Company received an up front fee of
$154,000. At the same time, a long-term liability of the same amount has been
recorded, which may be recognized to income, once it is determined that no
liability exists for the project, less any amounts paid by us in connection with
the performance guarantee.

25




The Company did not repurchase any shares in the first quarter of 2004. The
repurchase plan is still in existence and may be utilized from time to time up
to the remaining balance of $576,000; however, the Company does not anticipate
repurchasing the full amount of the plan.

On April 2, 2004, the Company entered into a purchase agreement (the "Purchase
Agreement") with Coconut Palm Capital Investors I, Ltd. ("Coconut Palm"),
pursuant to which, Coconut Palm agreed to purchase from the Company up to
2,000,000 units for a purchase price of $9.00 per unit, subject to certain
closing conditions, including shareholder approval. Each unit (a "Unit") would
consist of (i) 1 share of common stock, par value $0.10 (the "Common Stock"), of
the Company (ii) a warrant to purchase 1 share of Common Stock at an exercise
price of $10.00 per share with a term of 3 years, (iii) a warrant to purchase
1/2 share of Common Stock at an exercise price of $11.00 per share with a term
of 4 years and (iv) a warrant to purchase 1/2 share of Common Stock at an
exercise price of $15.00 per share with a term of 5 years.

Based on that number and the number of shares of Common Stock of the Company
outstanding on April 9, 2004, Coconut Palm will acquire up to approximately
36.6% of Common Stock outstanding immediately after the closing of the Purchase
Agreement. Coconut Palm will also be entitled, on a fully diluted basis, to
acquire up to 58.7% of the Common Stock of the Company outstanding immediately
after the closing of the Purchase Agreement (including shares acquired at
Closing) upon exercise of the warrants. In addition, Coconut Palm has designated
two individuals, Richard C. Rochon and Mario B. Ferrari, to be nominated to the
Company's board of directors, subject to closing of the transactions
contemplated by the Purchase Agreement.

In connection with the Purchase Agreement, Donald L. Smith, Jr., the Company's
Chairman, Chief Executive Officer and President and certain relatives and
affiliates of his entered into a voting agreement, dated April 2, 2004 (the
"Voting Agreement"). Pursuant to the terms of the Voting Agreement, they agreed
to vote their beneficially owned shares of Common Stock in favor of the issuance
and sale of the Units by the Company to Coconut Palm at a special meeting of the
Company and grant Coconut Palm an irrevocable proxy to vote such shares of
Common Stock (i) in favor of the transactions contemplated by the Purchase
Agreement and (ii) against any actions or approval that could compete with or
could serve to materially interfere with, delay, discourage adversely or inhibit
the timely consummation of the transactions contemplated by the Purchase
Agreement. The Voting Agreement terminates upon the earlier to occur of (i) the
consummation of the transactions contemplated by the Purchase Agreement, (ii)
any termination of the Purchase Agreement in accordance with its terms or (iii)
the withdrawal by the Company's board of directors of its approval of the
transactions contemplated by the Purchase Agreement in accordance with the
Purchase Agreement.

In connection with the investment by Coconut Palm, the Company plans to enter
into the security services business. The Company entered into an employment
agreement (the "Employment Agreement") with Stephen J. Ruzika on April 2, 2004
under which he would become the Company's Executive Vice President and President
of Devcon's Security Services Division. The effectiveness of the Employment
Agreement is conditioned upon the closing of the transactions contemplated by
the Purchase Agreement. Under the employment agreement, the Company would pay
Mr. Ruzika an annual salary of $325,000 plus any bonuses which the Compensation
Committee determines to pay him. The terms of the Employment Agreement provide
that, upon effectiveness, Mr. Ruzika would be granted 50,000 options
with an exercise

26

price of $9.00 per share. The Employment Agreement has a three-year term,
which may be extended by the parties.

The Company has entered into a nonbinding letter of intent to purchase a company
managed and controlled by Mr. Ruzika for approximately $4 million, subject to
certain purchase price adjustments. The Company anticipates paying the purchase
price with a combination of cash and shares of the Company's Common Stock. This
contemplated acquisition of Mr. Ruzika's company will be conditioned upon the
Company closing upon the issuance of the Units described above.

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 2003 Form 10-K and Form 10-K/A.

As of January 1, 2003, the Company entered into a payment deferral agreement
with a resort project in the Bahamas, in which the President, one of our
directors and a Company subsidiary are minority partners. The loan agreement
calls for 50 percent deferral of payments due for construction contract
obligations incurred after November 1, 2002, up to a maximum of $2.5 million.
Several notes, which are guaranteed partly by certain owners of the project,
evidence the loan totaling $2.4 million and the President of the Company has
issued a personal guarantee for the total amount due under this loan agreement
to the Company.

The Company has a $31.1 million construction contract with an entity in the
Bahamas. The President, 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 President, is also a member of the entity's
managing committee. In connection with this contract, the Company recorded
revenue of $473,000 and $721,000 for the three months ended March 31, 2004 and
2003, respectively. The backlog on the contract as of March 31, 2004 was
$587,000. The Company had accounts and notes receivables from the venture of
$3.6 million and $3.5 million as of March 31, 2004 and December 31, 2003,
respectively. The Company has recorded interest income of $51,000 and $1,000 for
the three months ended March 31, 2004 and 2003, respectively. The cost and
estimated earnings in excess of billings was $469,000 and $905,000 as of March
31, 2004 and December 31, 2003, respectively. Mr. Smith has guaranteed the
payment of the receivables from the entity, up to a maximum of $2.8 million,
including the deferral agreement described above.

The Company has borrowed monies from Mr. Smith, our President, to provide
long-term financing to the Company and security for a payment-guarantee issued
by Mr. Smith on behalf of an entity in the Bahamas. The outstanding amount was
$2.1 million as of March 31, 3004 and December 31, 2003. The loan is documented
with an unsecured note; of which $300,000 is payable on demand and $1.8 million
is due on July 1, 2005. The interest charged by Mr. Smith is at the prime rate.
Management believes that these terms are similar to what the Company would be
able to achieve if it was to borrow this money from a bank.

27




The Company's subsidiary in Puerto Rico sells a significant portion of its
products to a company controlled by a minority shareholder in the subsidiary.
The Company's revenue from these sales was $694,000 and $710,000, for the
three-month period ended March 31, 2004 and 2003, respectively, and the
outstanding balance of receivables from the minority shareholder was $123,000
and $65,000 as of March 31, 2004 and December 31, 2003, respectively. This
minority shareholder is controlled by one of our directors; Jose A. Bechara, Jr.
Esq. The price of the products is governed by firm supply agreements,
renegotiated every other year. Comparable prices from other quarries are studied
and used in the price negotiation.

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 $31.1
million as of March 31, 2004, with an entity in the Bahamas in which The
Company's President and a director are minority shareholders. During 2003, a
Company subsidiary commenced certain additional work for this entity for it;
which it has billed or is billing approximately $1.3 million, of which $510,000
has been paid through April 30, 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. In addition
to the guarantee Mr. Smith has provided with respect to earlier work for this
entity as described above, Mr. Smith has guaranteed $270,000 of the amount due
for this work. Taking into consideration the amount paid for this work,
available Company offsets, Mr. Smith's guarantee and other factors, the Company
believes that this work will be profitable for the Company.

On April 1, 2004, our Audit committee approved a transaction to enter into an
excavation venture with the real estate joint venture in the Bahamas to excavate
certain parcels of the entity's real estate. The transaction contemplates we
will finance the excavation in an amount equal to $485,000, which financing will
be paid in 18 months accruing interest at a rate of six percent, provided that
the debt is guaranteed in full by Donald L. Smith, Jr., our Chairman, Chief
Executive Officer and President and two other owners of the real estate venture.

There have been no other material changes to the Company's related party
transactions.

28


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. Management does not
believe a change in interest rate will materially affect the Company's financial
position or results of operations.

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 result of operations. The French operations are
approximately 10% of the Company's total operations.

Item 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to provide reasonable
assurance that information required to be disclosed in the reports we file with
the SEC is recorded, processed, summarized and reported within the time periods
specified in the rules of the SEC. As of the end of the period covered by this
Quarterly Report, on Form 10-Q, we carried out an evaluation, under the
supervision and participation of our management, including our Chief Executive
Officer and Chief Financial Officer, of the design and operation of these
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based
upon that evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures are effective, at the
reasonable assurance level, to ensure that information required to be disclosed
by us in reports that we file under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms. There have been no changes in our internal controls over financial
reporting during the quarter ended March 31, 2004, that have materially
affected, or are reasonably likely to materially affect, our internal controls
over financial reporting.

29



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. Changes in Securities, Use of Proceeds and Purchases of Equity
Securities by Issuer or Affiliated Purchasers
None

Item 3. Defaults Upon Senior Securities
None

Item 4. Submission of Matter to a Vote of Security Holders
None

Item 5. Other Information
The Company's board of directors approved its nominating committee
charter on February 27, 2004 and the charter is available on the
Company's web site, www.devc.com.

Item 6. Exhibits and Reports on Form 8-K

(a) 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 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

(b) Reports on Form 8-K:
The Company filed form 8-K on March 16, 2004 giving information
about earnings and an upcoming conference call with analysts.

The company filed form 8-K on April 5, 2004 giving information
about a possible transaction involving a private placement of the
Company's common stock up to $18 million and entry into new
business potential.

30



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 14, 2004 /S/ JAN A. NORELID
-------------------
Jan A. Norelid
Vice President - Finance
Chief Financial and
Accounting Officer

31




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

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.






EXHIBIT 31.1
CERTIFICATION
I, Donald L. Smith, Jr., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Devcon
International Corp.

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report.

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared.

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.


Date: May 14, 2004 /s/ Donald L. Smith, Jr.
------------------------
Donald L. Smith, Jr.
President and
Chairman of the Board

33

EXHIBIT 31.2
CERTIFICATION
I, Jan A. Norelid, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Devcon
International Corp.

2. Based on my knowledge, this report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this report.

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and have:

(a) Designed such disclosure controls and procedures, or caused
such disclosure controls and procedures to be designed under
our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiaries, is
made known to us by others within those entities, particularly
during the period in which this report is being prepared.

(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our
conclusions about the effectiveness of the disclosure controls
and procedures, as of the end of the period covered by this
report based on such evaluation; and

(c) Disclosed in this report any change in the registrant's
internal control over financial reporting that occurred during
the registrant's most recent fiscal quarter (the registrant's
fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial
reporting; and

5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):

(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrant's ability to record, process, summarize and report
financial information; and

(b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal control over financial reporting.


Date: May 14, 2004 /s/ Jan A. Norelid
------------------
Jan A. Norelid
Chief Financial Officer

34



EXHIBIT 32.1

CERTIFICATION PURSUANT TO
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Devcon International Corp. (the
"Company") on Form 10-Q for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Donald
L. Smith, Jr., Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that:

(1) The report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.



Date: May 14, 2004 /s/ Donald L. Smith, Jr.
------------------------
Donald L. Smith, Jr.
Chief Executive Officer







Note: This certification is being furnished, not filed, as exhibit 32.1

35





EXHIBIT 32.2

CERTIFICATION PURSUANT TO
U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Quarterly Report of Devcon International Corp. (the
"Company") on Form 10-Q for the period ending March 31, 2004 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Jan A.
Norelid, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

(1) The report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the report fairly presents, in
all material respects, the financial condition and result of
operations of the Company.



Date: May 14, 2004 /s/ Jan A. Norelid
------------------
Jan A. Norelid
Chief Financial Officer








Note: This certification is being furnished, not filed, as exhibit 32.2