Dow Jones 10104.93 -12.69 12:20 pm PST, May 26, 2004  NASDAQ 1969.79 +5.14 For info, visit access.smallcapnetwork.com S & P 500 1113.52 +0.47 To be removed, please click here Russell 2000 565.75 +0.36 VOLUME 04: ISSUE 41  Feature: Spectrum - Of cash, contracts and the grassy knoll. A little over a year ago, Spectrum Sciences (OTCBB: SPSC) was in fairly dire straights. Previous management made some bad corporate choices and the company teetered on the verge of oblivion. That was then... Fast forward to yesterday. The company filed its quarterly report--a 10QSB--and its financial picture looks markedly different.  While we are actually quite surprised that the shares pulled back to $1.17 we believe that the sirocco that has blown through the shares of late has resulted in a significant point of entry for risk- oriented investors.  Here are the salient points: As of May 18th, cash and equivalents on hand stands at $28.8 million dollars Shares outstanding 40 million Revenues for the first quarter up 10 percent to $3.6 million over the same period 2003. Total revenue FY2003 $13.3 million Book value of almost 90 cents a share Large deal potential, including the $45 million Gila Bend Range management contract to be awarded-- hopefully to SPSC--in the next few weeks Negligible debt-- largely consisting of a fully secured mortgage of just over $1.4 million Order backlog (as at March 30) of approximately $8.5 million. I will grant you, the chart looks ugly, even though the fundamentals of the company have been growing steadily. Some recent negative--and apparently flawed--press was preceded and followed by what appears to be a concerted attack by rabid short-sellers, ultimately roiling the share price down to $1.17.  Remember our caution last piece: SmallCaps can be risky and extremely volatile. If you can't stand the prickly heat... well, you know the rest. Do the math Here's our opinion of the situation. With the numbers as we know them, it appears that with the shares at $1.30, and net free cash approaching $29 million, the cash component of the share price is roughly 75 cents or 66 percent of the current price. Strip out the cash component and you're buying the business for around 50 cents a share. As well, the shares are trading at roughly 25 percent above book value. We believe that for risk-oriented investors, the shares, even on a purely mathematical basis, represent a compelling risk/reward situation and should be accumulated. Technically, the shares have been more than bombed out. However, to be safe, a stop loss at the $1.05-$1.10 level would be prudent.  The company is also the subject of an informal SEC investigation to determine--among a few other things--Spectrum's relationship with one of its consultants, Robert Genovese. The arrangement with Mr. Genovese has been terminated at least until the questions are cleared up. The company has and will continue to cooperate fully to satisfy any queries the regulators may have. Lone Gunman? The grassy knoll part is this: it seems passing strange that after a decent run-up from December 2003 to April 2004, the shares were virtually carpet bombed by what appears to be a concerted effort by short sellers to capitalize on some perceived controversy that hit the stock. The rapid rise in the share price to $4 began a few days prior to the first NY Times article published on April 29th to which, as we reported on May 5th, the company strongly responded. The latest decline to $1.17 from just under $2 began a few days prior to the publication, Tuesday, of a NYT follow-up piece. I leave it to the readership to discern whether the timing of all these actions was mere coincidence. Now, with the shares virtually back to the levels they were before the rise began in December, Spectrum is a completely different and, we believe, more viable company.  There's the long and the short of it. The numbers look compelling and, although some controversy swirls, Spectrum continues to execute its business plan against a backdrop of virtually no debt, a sizeable bag o' cash, a significant order backlog and excellent prospects for both more acquisitions as well as further significant contract wins. We will continue to monitor and report on the situation, as the facts are made     We Value Your Feedback Got comments, questions or suggestions? Send 'em on over: Editor@smallcapnetwork.com If you wish to send a written request or inquiry, please send it to our physical address: TGR Group, LLC 3525 Del Mar Heights Rd #334 San Diego, CA 92130 Unsubscribe Here D I S C L A I M E R : The SmallCap Digest is an independent electronic publication committed to providing our readers with factual information on selected  publicly traded companies. SmallCap Digest is not a registered investment advisor or broker-dealer. 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