Devcon International Corp. Unaudited Consolidated Pro Forma Data

Exhibit 99.2

Devcon International Corp.

Unaudited Pro Forma Condensed Consolidated Financial Statements

Basis of Presentation

The following unaudited pro forma condensed consolidated financial statements give effect to the acquisition (the “Transaction”) of the stock of Guardian International, Inc. (“Guardian”) by Devcon International Corp. (the “Company”) for approximately $65.5 million using the purchase method of accounting.

The unaudited pro forma condensed consolidated financial statements also give effect to other transactions that occurred during the period, based on unaudited pro forma information presented in previously filed Annual Reports on Form 8-K for the acquisition of Starpoint Limited and Coastal Security Company.

The following presents the Company’s unaudited pro forma condensed consolidated financial information as of December 31, 2005 and for the fiscal year ended December 31, 2005. The unaudited pro forma condensed consolidated balance sheet as of December 31, 2005 gives effect to the transaction as if it had occurred on December 31, 2005. The unaudited pro forma condensed consolidated statements of operations for the year ended December 31, 2005 give effect to the Transaction as if it had occurred as of the beginning of such period.

The unaudited pro forma condensed consolidated financial statements should be read together with the Company’s consolidated financial statements as of December 31, 2005, including the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2005.

We are providing the unaudited pro forma condensed consolidated financial information for illustrative purposes only. The results may have been different had these transactions actually occurred during the periods presented. You should not rely on the unaudited pro forma condensed consolidated financial information as being indicative of the historical results that would have been achieved had the transactions actually occurred during the periods presented or the future results that the Company will experience. The unaudited pro forma condensed consolidated statements of operations do not give effect to any cost savings or operating synergies expected to result from the acquisition and divestiture or the costs to achieve such cost savings or operating synergies.

Pro Forma Financial Statements – Statement of Operations – Unaudited

For the twelve months ended December 31, 2005


	Amounts in thousands except share and per share data
	Devcon International Corp.			Starpoint Historical Unaudited			Pro Forma Adjustments For Starpoint Acquisition			Notes	Coastal Historical Unaudited			Pro Forma Adjustments For Coastal Acquisition			Notes	Guardian Historical			Pro Forma Adjustments For Guardian Acquisition			Notes	Pro Forma Adjustments For Promissory Notes, Credit Facility and Warrant Issuance			Notes	Pro Forma Adjustments For Preferred Stock Issuance			Notes	Pro Forma Information
Materials revenue	$	26,318		$	—		$	—			$	—		$	—			$	—		$	—			$	—			$	—			$	26,318
Construction revenue		32,669			—			—				—			—				—			—				—				—				32,669
Construction revenue, related party		6,665			—			—				—			—				—			—				—				—				6,665
Security revenue		18,515			3,046			—		(5)		15,545			—		(10)		27,401			(3,303	)	(14)		—				—				61,204
Other revenue		701			—			—				—			—				262			—				—				—				963

Total revenue		84,868			3,046			—				15,545			—				27,663			(3,303	)			—				—				127,819
Cost of materials		(24,492	)		—			—				—			—				—			—				—				—				(24,492	)
Cost of construction		(36,909	)		—			—				—			—				—			—				—				—				(36,909	)
Cost of security		(8,044	)		(1,992	)		38		(6)		(7,381	)		—				(9,421	)		(414	)	(14)		—				—				(27,214	)
Cost of other		(407	)		—			—				—			—				—			—				—				—				(407	)

Total cost of sale		(69,852	)		(1,992	)		38				(7,381	)		—				(9,421	)		(414	)			—				—				(89,022	)

Gross profit		15,016			1,054			38				8,164			—				18,242			(3,717	)			—				—				38,797

Selling, general and administrative		(26,085	)		(1,243	)		171		(7)		(7,764	)		(206	)	(11)		(15,807	)		165		(15)(16)		—				—				(50,769	)
Severance and retirement		(1,155	)		—			—				—			—				—			—				—				—				(1,155	)
Impairment of Assets		(4,066	)		—			—				—			—				—			—				—				—				(4,066	)

Operating income (loss)		(16,290	)		(189	)		209				400			(206	)			2,435			(3,552	)			—				—				(17,193	)
Interest (expense) income net		(1,834	)		(4	)		(342	)	(8)		(947	)		(1,828	)	(12)		(1,145	)		1,145		(17)		(13,908	)	(19)(20)		—				(18,863	)
(Loss) on early extinguishment of debt		(1,008	)		—			—				—			—				—			—				—				—				(1,008	)
Joint venture equity earnings		340			—			—				—			—				—			—				—				—				340
Gain on Antigua note		804			—			—				—			—				—			—				—				—				804
Derivative instrument income (expense)		—			—			—				—			—				—			—				—		(20)		—		(20)		—
Other (expense) income		861			(246	)		—				(61	)		—				2			—				—				—				556

Income (loss) before income taxes		(17,127	)		(439	)		(133	)			(608	)		(2,034	)			1,292			(2,407	)			(13,908	)			—				(35,364	)
Income tax (expense) benefit		220			—			194		(9)		51			950		(13)		(478	)		873		(18)		1,720		(21)		—				3,530

Net (loss) income from continuing operations		(16,907	)		(439	)		61				(557	)		(1,084	)			814			(1,534	)			(12,188	)			—				(31,834	)
Income from discontinued operations net of income taxes		2,591			—			—				—			—				—			—				—				—				2,591

Net (loss) income		(14,316	)		(439	)		61				(557	)		(1,084	)			814			(1,534	)			(12,188	)			—				(29,243	)
Preferred dividends		—			—			—				—			—				(1,421	)		1,421		(2)		—				—				—
Dividends and accretion of Series A preferred stock		—			—			—				—			—				—			—				—				(6,078	)	(19)(20)		(6,078	)

Net (loss) income applicable to common stock	$	(14,316	)	$	(439	)	$	61			$	(557	)	$	(1,084	)		$	(607	)	$	(113	)		$	(12,188	)		$	(6,078	)		$	(35,321	)

Per share data:

Net income per common share-basic from continuing operations	$	(2.86	)																														$	(6.42	)
Net income per common share-diluted from continuing operations	$	(2.42	)																														$	(5.98	)

Weighted average number of shares outstanding:
Basic		5,904,043																																5,904,043
Diluted		5,904,043																																5,904,043


	Pro Forma Financial Statements – December 31, 2005 Balance Sheet – Unaudited (Amounts shown in thousands except share and per share data)
	Devcon International Corp. (1)		Guardian Historical		Pro Forma Adjustments For Guardian Acquisition			Notes	Pro Forma Adjustments Promissory Notes, Credit Facility and Warrant Issuance		Notes	Pro Forma Adjustments For Preferred Stock Issuance			Notes	Pro Forma Information
ASSETS
Current assets:
Cash and cash equivalent	$	4,634	$	808	$	(66,438	)	(2)(3)	$	68,860	(3)(19)	$	—			$	7,864
Accounts receivable, net		17,575		2,101		—				—			—				19,676
Accounts receivable, related party		469		—		—				—			—				469
Notes receivable		1,622		—		—				—			—				1,622
Notes receivable, related party		2,160		—		—				—			—				2,160
Costs and estimated earnings in excess of billings		2,046		—		—				—			—				2,046
Costs and estimated earnings in excess of billings, related party		20		—		—				—			—				20
Inventories		2,892		1,501		—				—			—				4,393
Other current assets		6,221		749		(516	)	(3)		3,453	(3)		(3,453	)			6,454

Total current assets		37,639		5,159		(66,954	)			72,313			(3,453	)			44,704

Property, plant and equipment, net of accumulated depreciation		21,736		13,050		(11,953	)	(3)		—			—				22,833

Investments in unconsolidated joint ventures and affiliates		339		—		—				—			—				339
Notes receivable, net of current portion		3,504		—		—				—			—				3,504
Customer accounts, net		46,050		5,405		38,595		(3)		—			—				90,050
Goodwill		48,019		1,405		30,230		(3)		—			—				79,654
Intangible assets, net		1,724		147		1,253		(3)		—			—				3,124
Other non-current assets		6,456		1,900		(1,847	)	(2)					—				6,509

Total assets	$	165,467	$	27,066	$	(10,676	)		$	72,313		$	(3,453	)		$	250,717

See accompanying notes to unaudited pro forma financial statements.


	Pro Forma Financial Statements - December 31, 2005 Balance Sheet Amounts shown in thousands except share and per share data
	Devcon International Corp. (1)			Guardian Historical			Pro Forma Adjustments For Guardian Acquisition			Notes	Pro Forma Adjustments Promissory Notes, Credit Facility and Warrant Issuance			Notes	Pro Forma Adjustments For Preferred Stock Issuance			Notes	Pro Forma Information
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable and accrued expenses	$	8,094		$	1,091		$	—			$	—			$	—			$	9,185
Deferred revenue		4,808			4,822			(3,271	)	(3)(4)		—				—				6,359
Current installments long-term debt		69			127			—				—				—				196
Current installments long-term debt, related party		1,725			—			—				—				—				1,725
Billings in excess of costs and estimated earnings		1,205			—			—				—				—				1,205
Billings in excess of costs and estimated earnings, related party		51			—			—				—				—				51
Note payable bank		8,000			—			—				(8,000	)			—				—
Income tax payable		846			—			—				—				—				846
Promissory notes		—			—			—				36,439		(2)(20)		(36,439	)	(4)(20)		—
Accrued expenses and other liabilities		10,281			3,061			(142	)	(3)		—				—				13,200

Total current liabilities		35,079			9,101			(3,413	)			28,439				(36,439	)			32,767

Long term debt, excluding current installments		55,521			14,334			(14,220	)	(2)		35,600		(2)(3)		—				91,235
Retirement and severance, excluding current portion		4,098			—			—				—				—				4,098
Long-term deferred tax liability		5,213			—			10,588		(3)		—				—				15,801
Unearned revenue less current portion		—			11,296			(11,296	)	(3)		—				—				—
Derivative instruments		—			—			—				8,561		(2)(20)		11,252		(4)(20)		19,813
Other long term liabilities, excluding current portion		1,899			—			—				—				—				1,899

Total liabilities		101,810			34,731			(18,341	)			72,600				(25,187	)			165,613


Commitments and contingencies		—			—			—				—				—				—

Convertible Redeemable Preferred Series A Stock		—			—			—				—				21,734		(4)(20)		21,734

Stockholders equity:

Class A voting common stock		—			8			(8	)	(2)		—				—				—
Class B non-voting common stock		—			1			(1	)	(2)		—				—				—
Stockholders equity:
Common stock		600			—			—				—				—				600
Additional paid in capital - preferred stock		—			20,413			(20,413	)	(2)		—				—				—
Additional paid in capital		31,325			9,600			(9,600	)	(2)		—				—				31,325
Accumulated deficit		—			(37,687	)		37,687		(2)		—				—				—
Retained earnings		33,624			—			—				(287	)	(19)(20)		—		(20)		33,337
Accumulated other comprehensive loss - cumulative translation adjustment		(1,892	)		—			—				—				—				(1,892	)


Total stockholders’ equity		63,657			(7,665	)		7,665				(287	)			—				63,370

Total liabilities and stockholders’ equity	$	165,467		$	27,066		$	(10,676	)		$	72,313			$	(3,453	)		$	250,717

See accompanying notes to unaudited pro forma financial statements.

Devcon International Corp.

Notes to Pro Forma Condensed Consolidated Financial Statements

December 31, 2005

(Unaudited)

Pro Forma Financial Statements – Balance Sheet as of December 31, 2005

(1)

The Starpoint and Coastal acquisitions were completed on February 28, 2005 and November 10, 2005, respectively. As such their respective assets and liabilities are included in Devcon’s historical balance sheets as of December 31, 2005. Guardian’s historical balance sheet as of December 31, 2005 is derived from its audited report which is included as an attachment to this Form 8-K.

(2)

Guardian International, Inc., (Guardian), was acquired on March 6, 2006, for a purchase price before adjustments of $65.5 million. The acquisition was financed (see notes 4 and 20 to this pro forma balance sheet) through the issuance of $45.0 million of 8% promissory notes payable to private investors and receipt of $35.6 million of debt proceeds from the increase of the Company’s Revolving Credit Facility. Financing proceeds in excess of amounts needed to acquire Guardian of approximately $15.1 million were used by the Company to repay the Company’s $8.0 million bridge loan with accrued interest, preferred stock issuance cost to finance the acquisition of $3.7 million and provide for additional working capital and operating needs. At issuance of the promissory notes, the private investors were also given warrants, with an expiration date of March 6, 2009, to purchase 1,650,956 shares of Company common stock at a strike price of $11.925 per share. At closing on March 6, 2006, the Guardian purchase price of approximately $65.5 million was used to pay $1.0 million of acquisition costs; retire $23.3 million of Guardian’s Preferred Stock ownership, including accumulated and unpaid dividends; $3.3 million to an escrow account which, depending upon satisfactory completed terms of the purchase agreement, will enure to the benefit of Guardian’s common shareholders; allow Guardian to repay $13.3 million of bank debt, including accumulated interest and debt prepayment penalty of $0.3 million; and $24.6 million to acquire the common stock of Guardian. The pro forma financial statements provide for an adjustment to eliminate Guardian’s bank debt and preference stock ownership.

(3)

The acquisition of Guardian has been accounted for using the purchase method of accounting. Purchase accounting requires that the assets and liabilities acquired be recorded at their fair value at the date of acquisition. The preliminary purchase price allocations is based on managements best estimate of fair value and is therefore subject to adjustment upon completion of an independent valuation. The purchase price allocation will be finalized and the resulting adjustments will be applied to assets and liabilities.

The preliminary purchase price allocation is detailed as follows:


	March 6, 2006 (thousands of dollars)
Cash and cash equivalents	$	930
Accounts receivable		2,377
Inventory		1,470
Other current assets		281
Fixed assets		1,097
Customer accounts		44,000
Trade name and trademark intangible assets		1,400
Trade accounts payable and accrued expenses		(3,590	)
Deferred revenue		(2,782	)
Deferred tax liability		(10,588	)
Goodwill		32,667

Purchase consideration	$	67,262

The financing proceeds and acquisition purchase price is summarized as follows:


	March 6, 2006 (thousand of dollars)
Promissory Notes	$	45,000
Revolving Credit Facility		35,600

Total financing proceeds		80,600

Deferred offering costs		3,740
Guardian purchase		67,262
Repayment of Bridge, with accrued interest		8,133
Additional working capital		4,492
Less return of deposit to acquire Guardian		(3,027	)

Total use of financing proceeds	$	80,600

(4)

Adjustments were made for the issuance of $45.0 million of Series A Convertible Preferred Stock, in exchange for the promissory notes, and which the Company anticipates will occur following delivery of an information statement or Schedule 14 C being mailed to our shareholders, which will upon completion of Securities and Exchange Commission (“SEC”) review of the information statement. Actual issuance of the Series A Convertible Preferred Stock is expected to occur on or before September 15, 2006 but no later than January 1, 2007 depending on whether the information statement is reviewed by the SEC and, if so, the time needed to complete SEC review. The pro forma December 31, 2005 balance sheet includes an adjustment for issuance of the preferred stock as if it had occurred on December 31, 2005.

Pro Forma Statement of Operations for the year ended December 31, 2005

Star Point Limited Acquisition

(5)

The Company’s historical results of operations for the year ended December 31, 2005 include the period from the acquisition date to December 31, 2005. The operating results for the two month period ended February 28, 2005 are adjustments to our own historical financial statements and are presented as “Starpoint Historical Unaudited”.

(6)

Adjustments were made to asset balances in applying purchase accounting. The adjustment reflects (i) the decrease in depreciation and amortization expense to the amortization of identifiable intangibles using the straight-line method over a weighted-average life of 10 years and (ii) a decrease in depreciation resulting from a reduction in carrying value of property, plant and equipment, depreciated on a straight-line basis over an average remaining life of four years resulting from purchase accounting.

(7)

Starpoint Limited recorded a corporate allocation of $241,000 for the two month period ended February 28, 2005. Because the Starpoint Limited acquisition was an acquisition of assets the foregoing expense is not being assumed. However, the treatment of the foregoing expense is not included as a pro forma adjustment.

(8)

Includes interest expense associated with financing of the acquisition consisting of $24.6 million of long-term debt issued under the Credit Agreement at an assumed rate of 7.5%. The Credit Agreement contains provisions regarding unused commitment fees, which costs are included in the adjustment for interest expense on a pro forma basis along with the impact of amortization of loan origination costs over six years.

(9)	Starpoint Limited did not record federal and state income tax expense. The Company is currently in a federal taxable position and accordingly calculated a pro forma income tax expense based upon an estimated effective tax rate of 34%.

Coastal Acquisition

(10)	The acquisition of Coastal was completed on November 10, 2005. The Coastal historical results represent operating results for the ten months in 2005 prior to the Company’s acquisition.

(11)

As part of its purchase accounting for Coastal, the Company recorded certain definite lived assets at fair value. These assets included customer contracts and non-compete agreements. An adjustment was recorded to amortization expense for the ten months ended October 31, 2005, based on remaining useful lives of between 4 and 17 years for the customer contracts and 3 years for the non-compete agreements.

(12)

In order to finance its acquisition of Coastal, the Company used $31.4 million of its Revolving Credit Facility bearing interest at a rate of 10% per annum and subscribed to an $8.0 million Bridge Loan bearing interest at a rate of 7% per annum. Additionally, this Revolving Credit Facility and Bridge Loan allowed the early extinguishment of the Credit Agreement entered into to finance the Starpoint Limited acquisition.

(13)	Includes the income tax effects of the adjustments discussed in footnotes (11) and (12), based on a 34% tax rate.

Guardian Acquisition

(14)

In accordance with Staff Accounting Bulletin SAB 104, certain costs to sell and install customer contracts were capitalized on Guardian’s historical financial statements. As a result of the purchase accounting, these capitalized costs and the associated deferred revenue are adjusted to fair value in the allocation of the purchase price paid for Guardian to the intangible assets of customer accounts and goodwill.

(15)

As part of its purchase accounting, the Company recorded certain definite-lived intangible assets at fair value. These assets included customer contracts and the Mutual trade name used in the New York customer market. An adjustment was recorded to amortization expense to recognize the difference between the amortization expense for customer contracts acquired by Guardian prior to the Company’s acquisition of Guardian and amortization of customer contracts valued at fair value at the date of the Company’s acquisition. The amortization period for customer contracts acquired with Guardian is four (4) and ten (10) years.

(16)	As part of its purchase accounting, the Company made certain adjustments to the carrying value of the acquired fixed assets of Guardian. The acquired fixed assets at fair value are being depreciated over an average weighted useful life of five years.

(17)

Because the financing of the Guardian acquisition was used to repay the existing bank debt and preferred stock of Guardian, the interest expense recorded in the Guardian historical financial statements is replaced by the cost of the acquisition financing, as presented in the adjustments for the Promissory Notes and Preferred Stock issuance. See Notes (19), (20) and (21).

(18)	Includes the income tax effects of the adjustments discussed in footnotes (14), (15), (16) and (17), based on a 34% tax rate.

Promissory Notes, Warrants and Preferred Stock

(19)

For purposes of the pro forma financial statements, the proceeds from the issuance of the Promissory Notes and Revolving Credit Facility were reduced by transaction costs and interest expense on the financing for the year ended December 31, 2005. In connection with entering into the Notes, Warrants and Preferred Stock arrangements, we paid fees totaling $3.7 million. Of the total $3.7 million, $3.4 million relates to the Preferred Stock and $0.3 relates to the Notes and Warrants. We will record the amount associated with the Preferred Stock as a deferred offering cost until the issuance of the Preferred Stock. We will record the fee associated with the Notes and Warrants as additional interest expense using the effective interest rate method over the estimated life of the note which is five months. Accordingly for purposes of the pro forma financial statements, the $0.3 million of fees related to the Notes and Warrants has been fully expensed and the $3.4 million related to the Preferred Stock is recorded on the pro forma Balance Sheet as a reduction to the Preferred Stock and will be accreted over the life of the Preferred Stock as charges to dividend expense.

(20)

On February 10, 2006, we entered into a securities purchase agreement with certain accredited investors with respect to the private placement of an aggregate principal amount of $45,000,000 of notes (the “Notes”), along with warrants to acquire an aggregate of 1,650,956 shares of our common stock (the “Warrants”) subject to certain caps based upon the Nasdaq Marketplace Rules. The issuance of the Notes and the Warrants was completed as an initial step to the private placement of the Series A convertible preferred stock (the “Preferred Stock”), which we anticipate issuing to the same accredited investors in exchange for the Notes. The Notes and Warrants were issued to allow us to complete our acquisition of Guardian International, Inc. (“Guardian”) in a timely manner and to avoid certain payments which would have been due to Guardian as a result of our failure to do so, including forfeiture of a $3.0 million deposit. We anticipate that the private placement investors will subsequently receive an aggregate of 45,000 shares of our Preferred Stock in exchange for the Notes, which bear an aggregate principal amount equal to $45,000,000 and for no additional consideration. Each share of our Preferred Stock will have a liquidation preference equal to $1,000. The transaction is subject to customary closing conditions. The sale of the Notes and the Warrants and the closing of the Guardian acquisition occurred on March 6, 2006. The sale of the shares of our Preferred Stock is expected to take place on or before September 15, 2006 but not later than January 1, 2007.

On February 10, 2006, the holders of 3,082,640 shares of our issued and outstanding common stock, representing approximately 51.4% of the votes entitled to be cast at a meeting of our shareholders, executed a written consent approving the amendment to our Articles of Incorporation and the private placement and the issuance of the Preferred Stock and the common stock Warrants. These shareholders have also entered into a voting agreement under the terms of which they have agreed to vote the shares they represent in favor of the same matters when these matters are submitted to a vote of our shareholders. The approval by the shareholders will not become effective until 20 days from the date this information statement is initially transmitted to our shareholders.

The Warrants and an embedded derivative, that being the right to purchase preferred stock in the future (the “Purchase Rights”), were issued in connection with the issuance of the Notes, are detachable, or need to be bifurcated, and will be accounted for as a derivative instrument liability. In accordance with Accounting Principle Board Opinion No. 14, the initial carrying value of the Notes is reduced at issuance by the $8.5 million total value associated with the Warrants and the Purchase Rights (the “Discount”). See below for further details. The resulting discount from the face amount of the Notes will be accreted over the period of expected maturity of the Notes. The accretion amount recorded in each period will be determined using the effective interest method.

Since our Preferred Stock when issued will be convertible at the option of the holder, and we have a call option within the agreement. This Preferred Stock will be classified as temporary equity when issued in accordance with ASR 268. Dividends paid or accrued on these shares will be deducted from net income in determining net income attributable to common shareholders.

We have reviewed the terms of the Preferred Stock to determine whether there are embedded derivative instruments that are required to be bifurcated and accounted for separately as derivative financial instruments. We have determined that the Preferred Stock contains more than one embedded derivative instrument, which includes the conversion feature; a dividend payment conversion feature; and a change in control redemption right, which are required to be bifurcated from the Preferred Stock host instrument. In accordance with Derivative Implementation Group Issue No. B15, the bifurcated derivative instruments embedded in the preferred stock will be accounted for as a single, compound derivative instrument and we have estimated the value to be approximately $19.8 million.

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

accordance with EITF-00-19, due to the existence of these conditions, the Preferred Stock are required to be accounted for as a derivative instrument liability.

The derivative financial instrument liability will initially be measured at fair value and will then be re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. We will determine the fair value of these instruments using an appropriate option-pricing model. That model requires assumptions related to the remaining term of the instruments, risk-free rates of return, our current common stock price, expected dividend yield and the expected volatility of our common stock price over the life of the respective option. The assumptions used to value these instruments can significantly affect our financial statements. The initial value of the 1,650,943 Warrants issued to the purchasers of the Notes and the Purchase Rights were initially valued at $4.8 million and $3.7 million, respectively. In addition, the initial fair value of the compound derivative instrument of the Preferred Stock is initially estimated to be $19.8 million. Since the re-valuation of derivative financial instruments can only be determined based upon current market factors which change with the passage of time, the Pro Forma Statement of Operations does not reflect an adjustment with respect to re-valuation of these derivative instruments.

Since the Preferred Stock contains embedded derivative instruments that are to be bifurcated and accounted for as a derivative instrument liability, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds are then allocated to the Preferred Stock host contract, resulting in the Preferred Stock being recorded at a discount from its face amount. This discount will be accreted using the effective interest method over the term of the preferred stock. Dividends payable on the Preferred Stock will be recognized as they accrue and, together with the periodic amortization of the discount, will be deducted from net income to determine net income attributable to common shareholders. Dividends and accretion of Series A Convertible Preferred Stocks set out in the Pro Forma Statement of Operations has been adjusted to reflect seven (7) months of preference dividends, associated accretion of debt discount (compound embedded derivatives) and associated accretion of deferred financing costs amounting to $2.4 million, $3.3 million and $0.4 million respectively.

The Registration Rights Agreement requires us to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on exercise of the Warrants or of the conversion of the Preferred Stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants. These registration rights agreements require us to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the Agreement. These penalties are expressed as a fixed percentage, per month, of the original amount we received on issuance of the preferred stock or warrants. We will account for these penalties as a contingent liability and not as a derivative instrument. Accordingly, we will recognize the penalties, if any, when it becomes probable that they will be incurred. Any penalties will be expensed over the period to which they relate.

Interest expense set out in the proforma statement of operations, for pro forma adjustments for Promissory Notes, Credit Facility and Warrant issuance, has been adjusted to reflect the following:


Estimated annual incremental interest expense due to the increased borrowing from CapitalSource	$	3,570
Estimated interest expense on the Notes		1,500
Accretion of Debt Discount over the life of the Notes		8,500
Amortization of transaction fees		338

Total	$	13,908

(21)	A tax benefit of 34% of cash interest expense is included for the pro forma year ended December 31, 2005.