**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-KSB**





**x**
            **ANNUAL
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934**


**For
      the fiscal year ended December 31, 2005**


or


 ̈
            TRANSITION
                REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
                ACT OF
                1934


For
      the
      transition period from ___________ to ___________





**Commission
      file number 000-15216**





**Homeland
        Security Network, Inc.**
 (Name
        of
        small business issuer in its charter)
 
 **Nevada**
              **86-0892913**(State
                  or other jurisdiction of
                incorporation
                  or organization)
              (I.R.S.
                  Employer
                Identification
                  No.)**2500
                  Legacy Drive, Suite 226, Frisco TX 75034**
              **75034**(Address
                  of principal executive offices)
              (Zip
                  Code)
  Registrant’s
        telephone number, including area code: **(214)
        618-6400**
 
 Securities
        registered under Section 12(b) of the Exchange Act:
 Title
                  of each class
              Name
                  of each exchange on which registered**None**
              **None**
 
 Securities
        registered under Section 12(g) of the Exchange Act:
 
 **Common
        Stock, Par Value of $.001 per Share**
 (Title
        of
        class)
 
 Check
        whether the issuer is not required to file reports pursuant to Section 13
        or
        15(d) of the Exchange Act.  ̈
 
 Check
        whether the issuer (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  ̈ No x
 
 Check
        if
        there is no disclosure of delinquent filers in response to Item 405 of
        Regulation S-B contained in this form, and no disclosure will be contained,
        to
        the best of registrant's knowledge, in definitive proxy or information
        statements incorporated by reference in Part III of this Form 10-KSB or any
        amendment to this Form 10-KSB.  ̈
 
 Indicate
        by check mark whether the registrant is a shell company (as defined in Rule
        12b-2 of the Exchange Act). Yes  ̈ No x
  State
        issuer's revenues for its most recent fiscal year: $318,978.
 
 State
        the
        aggregate market value of the voting and non-voting common equity held by
        non-affiliates computed by reference to the price at which the common equity
        was
        sold, or the average bid and asked price of such common equity as of a specified
        date within the past 60 days: $2,471,855, based on the $0.05 per share price
        at
        which common equity was sold on March 30, 2006.
 
 State
        the
        number of shares outstanding of each of the issuer’s classes of common equity,
        as of the latest practicable date: 171,623,930 shares of Common Stock, $.001
        par
        value, as of March 30, 2006.
 
  
  **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **FORM
        10-KSB**
 **YEAR
        ENDED DECEMBER 31, 2005**
 
 **INDEX**
 PagePART
                  I
              
              3Item 1.
              
              Description
                  of Business
              
              3Item 2.
              
              Description
                  of Property
              
              8Item 3.
              
              Legal
                  Proceedings
              
              8Item 4.
              
              Submission
                  of Matters to a Vote of Security Holders
              
              9PART
                  II
              
              9Item 5.
              
              Market
                  for Common Equity and Related Stockholder Matters
              
              9Item 6.
              
              Management’s
                  Discussion and Analysis or Plan of Operations
              
              11Item 7.
              
              Financial
                  Statements
              
              16Item 8.
              
              Changes
                  in and Disagreements with Accountants on Accounting and Financial
                  Disclosure
              
              16Item 8A.
              
              Controls
                  and Procedures
              
              18Item 8B.
              
              Other
                  Information
              
              18PART
                  III
              
              18Item 9.
              
              Directors,
                  Executive Officers, Promoters and Control Persons; Compliance with
                  Section
                  16(a) of the Exchange Act
              
              18Item 10.
              
              Executive
                  Compensation
              
              20Item 11.
              
              Security
                  Ownership of Certain Beneficial Owners and Management
              
              20Item 12.
              
              Certain
                  Relationships and Related Transactions
              
              22Item 13.
              
              Exhibits
              
              26Item 14.
              
              Principal
                  Accountants Fees and Services
              
              26INDEX
                  TO FINANCIAL STATEMENTS
              
              27SIGNATURES
              
              53
   2
 
 **Cautionary
        Statement Regarding Forward Looking Statements**
 
 Certain
        of the statements contained in this Form 10-kSB for the period ended December
        31, 2005 should be considered “forward-looking statements” within the meaning of
        Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and
        Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange
        Act”), which reflect the current views of Homeland Security Network, Inc.
        (collectively, with its subsidiaries, “HSNI” or the “Company”) with respect to
        current events and financial performance. You can identify these statements
        by
        forward-looking words such as “may,” “will,” “expect,” “intend,” “anticipate,”
“believe,” “estimate,” “plan,” “could,” “should,” and “continue” or similar
        words. These forward-looking statements may also use different phrases. From
        time to time, HSNI also provides forward-looking statements in other materials
        HSNI releases to the public or files with the SEC, as well as oral
        forward-looking statements. You should consult any further disclosures on
        related subjects in HSNI’s quarterly reports on Form 10-QSB and current reports
        on Form 8-K filed with the SEC.
 
 Such
        forward-looking statements are and will be subject to many risks, uncertainties
        and factors relating to HSNI’s operations and the business environment in which
        HSNI operates, which may cause its actual results to be materially different
        from any future results, express or implied, by such forward-looking statements.
        Statements in this annual report and the exhibits to this report should be
        evaluated in light of these important risks, uncertainties and factors. HSNI
        is
        not obligated to, and undertakes no obligation to publicly update any
        forward-looking statement due to actual results, changes in assumptions,
        new
        information or as the result of future events.
 
 **PART
        I**
 
 **ITEM
        I. DESCRIPTION OF BUSINESS**
 
 **The
        Company**
 
 The
        Company is a Nevada corporation formed in 1993. HSNI’s principal executive
        office is located at 2500 Legacy Drive, Suite 226, Frisco, Texas. HSNI’s
        telephone number is (214) 618-6400. HSNI’s website is www.hsni.us.
 
 This
        report, quarterly reports on Form 10-QSB, current reports on Form 8-K and
        amendments to these reports filed or furnished pursuant to Section 13(a)
        of the
        Exchange Act are made available free of charge through the SEC’s website
        (www.sec.gov), which contains reports, proxy and information statements and
        other information regarding issuers that file electronically with the SEC.
        In
        addition, these documents are made available on HSNI’s website as soon as
        reasonably practicable after the material is electronically filed with, or
        furnished to, the SEC. The public may read and copy any material HSNI files
        with
        the SEC at the SEC’s Public Reference Room located at 450 Fifth Street, N.W.,
        Washington, D.C. 20549. The public may obtain information on the operation
        of
        the Public Reference Room by calling the SEC at 1-800-SEC-0330.
 
 From
        1998
        until the third quarter of 2004, the Company provided financial products
        and
        related services to the new and pre-owned automotive finance industry. The
        Company primarily purchased and subsequently sold automobile finance receivables
        collateralized by new and pre-owned automobiles. The receivables were
        predominately purchased from automobile retailers nationwide and sold to
        banks
        and credit unions.
 
 The
        Company changed its name to Homeland Security Network, Inc. (OTC: HSYN) on
        March
        1, 2005 to reflect the direction of a new course of business. The Company
        intends `Homeland Security Network, Inc.' to be recognized as a provider
        of
        technology products and services for tracking and recovering valuable mobile
        assets. The Company anticipates its new course of business will capitalize
        on
        rapidly emerging, largely under-served, GPS tracking markets. HSNI plans
        to
        serve the concerns and requirements of the individual consumer and corporations.
        HSNI is predominantly targeting markets such as commercial trucking and
        cargo management, commercial fleet management, equipment rental and personal
        vehicle tracking. These markets could have a potential demand in excess of
        100
        million units in the United States, Canada and Mexico over the next decade.
        The
        Company expects to impact the GPS tracking industry with state-of-the-art
        software, as with its ability to provide low cost tracking hardware, and
        its
        ability to offer a cost-effective data transmission fee. The Company's GPS
        products incorporates map tracking and trailing, geo-fencing alerts for
        designated parameter infringements, and the ability to control vehicle functions
        with voice commands from its customer's web-enabled mobile phones or personal
        computers, via the company's internet website system software. The Company
        plans
        to continually enhance features.
 
 
 3
 
 **2003
        Merger**
 
 On
        June
        30, 2003, HSNI (when operating as AutoCorp Equities, Inc.) issued 100,000,000
        shares of its Common Stock and 4,086,586 shares of its Series A convertible
        stock to Pacific Holdings Group, Inc., the parent company of Pacific Auto
        Group,
        Inc., resulting in Pacific Holdings Group owning approximately 94.0% of the
        outstanding HSNI shares. The form of the transaction was a reverse triangular
        merger, whereby a newly formed, wholly owned acquisition subsidiary of HSNI
        merged with and into Pacific Auto Group, with Pacific Auto Group being the
        surviving corporation in the merger. Pacific Holdings Group was 100% owned
        by
        Pacific USA Holdings Group, Inc., which was the primary domestic parent company
        of the entire group, owning all of the outstanding stock of Pacific Holdings
        Group. The ultimate parent company was Pacific Electric Wire & Cable Co. in
        Taiwan. On December 2, 2002, Pacific USA Holdings Group filed a voluntary
        petition under Chapter 11 of the U.S. Bankruptcy Code. On November 24, 2004,
        the
        Debtors' joint plan of reorganization became effective and the Debtors emerged
        from Chapter 11 of the Bankruptcy Code. Neither Pacific Holdings Group nor
        Pacific Auto Group was party to the petition under Chapter 11 of the Bankruptcy
        Code.
 
 **2004
        Stock Acquisition by AutoCorp Acquisition Partners**
 
 In
        August
        2004, Pacific Holdings Group, the then controlling shareholder of the Company,
        and one of its affiliates, Pacific Financial Group collectively sold their
        stock
        to a partnership, AutoCorp Acquisition Partners formed by the then President
        (and CEO) and Executive Vice President of the Company.
 
 AutoCorp
        Acquisition Partners designated two persons who were elected to the Board
        of
        Directors. The designees became a majority of the board after the tenth day
        subsequent to the mailing and filing of the Information Statement pursuant
        to
        Section 14(f) of the Exchange Act and Rule 14f-1 promulgated there under.
        The
        designees are now the beneficial owners of the majority of the Company's
        stock
        and constitute 100% of the Company's Board of Directors.
 
 **Plan
        of Operation**
 
 In
        August
        2004, the Company began developing plans to "run-off" its operations in the
        new
        and pre-owned automotive finance industry by not accepting new business and
        terminating its business relationships. Its new focus is to transition into
        several new markets with new products. The Company intends `Homeland Security
        Network, Inc.' to be recognized as a provider of technology products and
        services for tracking and recovering valuable mobile assets. The Company
        anticipates its new course of business will capitalize on rapidly emerging,
        largely under-served, GPS tracking markets.
 
 On
        April
        14, 2005, HSNI completed negotiations and entered into a Licensing and Exclusive
        Distribution Agreement and a Sales Purchase Agreement (collectively
        "Agreements") with Advantra International NV, a major international electronics
        developer and manufacturer, to manufacture its products. Under the terms
        of the
        Agreements, the Company has certain rights to distribute, develop, market,
        and
        sell select hardware devices.
 
 The
        Company entered into a letter of intent dated as of January 2005 with Rodwell
        Software Systems, Inc. (“RSSI) regarding the Company's acquisition of all of the
        issued and outstanding capital stock of RSSI subject to certain adjustments
        at
        the closing of the acquisition plus assumption of certain transaction and
        related costs and expenses. The letter of intent was subject to various
        conditions and approvals and contemplated that the acquisition would be effected
        through the merger of RSSI with and into the Company, with the Company as
        the
        surviving corporation. The Company's intention to acquire RSSI was to
        significantly increase its software/firmware development capabilities, which
        combines GPS tracking with a web interface in one simple device working in
        tandem with a cell phone, PDA or computer. The acquisition was not consummated
        by mutual agreement.
 
 On
        December 26, 2005, the Company, as a prerequisite to a more definitive
        agreement, entered into an agreement to solely purchase certain software,
        firmware and product enhancements developed by RSSI. The transaction is subject
        to the execution and delivery of the more definitive written agreement and
        other
        documents between the Company and RSSI. In September 2005, the Company issued
        7,000,000 shares of common stock to RSSI as compensation for the purchase
        of the
        software, firmware and product enhancements. In December 2005, pursuant to
        its
        agreement with RSSI, the Company issued 4,100,000 shares of common stock
        as
        additional compensation to RSSI. Further, the Company will provide an
        intermittent royalty based on the sale of components and usage of the web
        interface by consumers as compensation to RSSI, subject to certain milestones.
        The Company incurred product development costs of $313,000 during the year
        ended
        December 31, 2005 for software related to the GPS tracking devices.
 The
        more
        definitive agreement will include additional language, without limitation,
        regarding an exclusive permanent License, attached schedules, representations,
        warranties and exceptions, and other matters with respect to the
        transaction.
 
 
 4
 
 The
          general terms and conditions related to the exclusivity of the permanent
          license
          are as follows. The exclusivity relates primarily to the retail automotive
          industry, which encompasses end users of the products. Other unrelated
          markets
          are also provided for. The exclusivity, however, is conditional.
 
 The
        purchase from RSSI provides the Company with technology products and support
        services for tracking and recovering valuable mobile assets.
 
 HSNI's
        plan further incorporates engaging and developing strategic alliances with
        third
        party sale and installation entities and distributors that have a distinct
        sales
        and marketing presence in the automobile retail industry, and the commercial
        and
        government sectors. The Company expects these types of engagements to be
        particularly beneficial and anticipates the results of such alliances to
        create
        name recognition for the Company.
 
 The
        Company entered into a second letter of intent in January 2005 with ComTrak
        Solutions, Inc. regarding the Company's acquisition of all of the issued
        and
        outstanding capital stock of ComTrak Solutions subject to certain adjustments
        at
        the closing of the acquisition plus assumption of certain transaction and
        related costs and expenses. The letter of intent was subject to various
        conditions and approvals and contemplated that the acquisition would be effected
        through the merger of ComTrak Solutions with and into the Company, with the
        Company as the surviving corporation. The Company's intention to acquire
        was to
        increase its sales and marketing capabilities. The acquisition was not
        consummated and no further overtures will be made. The Company's letter of
        intent to acquire ComTrak Solutions has been withdrawn. The Company believes
        that the withdrawal will not have a material affect and as such has actively
        engaged other more favorable and significant entities regarding sales and
        marketing initiatives.
 
 Additionally,
        the Company is in the process of developing a business model, in which it
        plans
        to incorporate the re-introduction of its automated, web-based, installment
        loan
        application processing system that enables automobile dealers to underwrite
        motor vehicle retail installment sale contracts. This system, which was utilized
        in the Company's past business, is structured as an application service provider
        and has the capability of providing for the automobile retailer continually
        without being affected by conflicting hours of operation. This system will
        provide the independent dealer and financial institutions with system
        capabilities comparable to those of new car franchises and technologically
        progressive lenders. The system has been developed to provide the automobile
        retailer and financial institutions with a full range of web delivered services
        and products, which would include internet vehicle auctions, vehicle flooring,
        internet banking, management systems (accounting, reporting, inventory, cash
        management, payroll, etc), advertising programs, websites, insurance and
        retail
        insurance products. This system is proprietary to the Company. The Company
        has
        not yet ascertained the capital requirements necessary for the implementation
        of
        this part of the plan.
 
 Ultimately,
        the Company expects to generate significant and sustaining revenues derived
        primarily from the sale and installation of its GPS products and components
        to
        domestic and international licensees, the receipt of license fees and royalties.
        Additionally, the Company expects to generate revenues relating to the sale
        of
        service contracts, which terms of service is anticipated to range from 12
        to 36
        months and are payable in full upon activation of the related tracking unit
        and
        subsequently the renewal of a previous service contract.
 
 Costs
        for
        product development are expensed as incurred and include salaries, fees to
        consultants, and other related costs associated with the development of
        products. The Company’s product development effort has thus far been outsourced
        to third parties. Because the rate of achievement is unpredictable, product
        development expenses may vary significantly from period to period. Such
        variability can have a significant impact on the Company’s income from
        operations and cash flows.
 
 **Risk
        Factors**
 
 ***Limited
        Operating History of Present Business:***
 
 In
        August
        2004, as described under Part I, Item 1, the heading “Acquisition by AutoCorp
        Acquisition Partners”, the Company’s stock was acquired by a partnership formed
        by the then President (and CEO) and Executive Vice President of the Company.
        Although the Company’s current management has extensive operating experience in
        the consumer finance industry, the brief operating history as a provider
        of
        technology products and services for tracking and recovering valuable mobile
        assets provides only a limited basis for evaluation. The prospects for the
        Company must be considered in light of the risks, expenses, difficulties
        and
        problems frequently encountered in transitioning a company.
 
 5
 Risks,
        uncertainties and factors that could cause HSNI’s actual results to differ
        materially from forward-looking statements include, but are not limited to,
        the
        following:
 
 •
              
              The
                  ability to maintain adequate liquidity and produce sufficient cash
                  flow to
                  meet HSNI’s capital expenditure requirements;
 •
              
              The
                  ability to attract and retain qualified management and other personnel;•
              
              The
                  number of potential customers in a target market;•
              
              Changes
                  in the competitive environment in which HSNI operates;•
              
              Changes
                  in government and regulatory policies;•
              
              Uncertainty
                  relating to economic conditions generally and in particular affecting
                  the
                  markets in which HSNI operates;•
              
              Pricing
                  and availability of equipment, materials, inventory and programming;•
              
              The
                  ability to complete acquisitions or divestitures and to integrate
                  any
                  business or operation acquired;•
              
              The
                  ability to enter into strategic alliances or other business relationships;•
              
              The
                  ability to overcome significant operating losses;•
              
              The
                  ability to reduce costs;•
              
              The
                  ability to develop HSNI’s products and services and to penetrate existing
                  and new markets;•
              
              Technological
                  developments and changes in the industry; and
 
 ***Risk
        Associated with Expansion:***
 
 The
        Company's growth strategy may include future mergers or acquisitions, or
        expansion of services and products offered. There can be no assurance that
        management will successfully integrate the “refocused” operations of the Company
        with those that may be acquired or established in the future and effectively
        manage the combined enterprise. There will be a need to limit overhead as
        additional operations may be acquired while still maintaining sufficient
        staff.
        Failure to do so would have a materially adverse effect on the business,
        financial condition and results of operations of the Company (See Plan of
        Operations).
 
 ***General
        Economic Conditions:***
 
 The
        Company's new business is related, in part, to the sale of new and pre-owned
        automobiles. Sales are affected by employment rates, prevailing interest
        rates,
        and other general economic conditions. Economic slowdown or recession could
        lead
        to inventory and production decreases. Adverse economic changes and sluggish
        sales of new and pre-owned automobiles and weaknesses in the economy could
        lead
        to a decline in the sale of tracking devices.
 
 ***Competition:***
 
 The
        Company will compete with other product and service suppliers in the GPS
        industries. The GPS tracking industry relies on coordinating the merging
        of four
        separate components in order to operate as a GPS tracking system. They are;
        hardware, firmware, a software or application system, and wireless communication
        providers. The Company is a GPS tracking company that has adapted its hardware
        and software capabilities to operate on what is currently the least costly
        type
        of airtime network provider in the industry. It is possible that our competitors
        could adapt their hardware and software to also utilize the Company’s current
        airtime provider. This event could reduce the size of the Company’s targeted
        markets.
 
 ***Dependence
        on Key Alliances:***
 
 Presently,
        the Company is dependent on a single electronics developer and manufacturer
        to
        develop and manufacture the Company’s products. It is possible that new emerging
        technologies could render the Company’s product obsolete or that procurement of
        supplies could become scarce or more costly to acquire should the Company’s
        supplier terminate its alliance with the Company or drop from the market
        place.
 
 Additionally,
        the Company presently relies on the ability of a single wholesale distributor
        to
        market and sell the products. Many competitors are larger and have greater
        financial and marketing resources than the Company. Should the Company or
        its
        distributor terminate its alliance to market and distribute products, the
        Company’s ability to generate required capital could be significantly
        impaired.
 
 6
  ***Dependence
        on Management Information Systems:***
 
 The
        Company's future success depends in part on the ability to continue to adapt
        technology on a timely and cost-effective basis to meet changing customer
        and
        industry standards and requirements.
 
 ***Dependence
        on Key Personnel:***
 
 The
        Company is highly dependent on the services of certain key employees. The
        Company has entered into an employment agreement with some, but not all such
        employees. The loss of certain key employees' services could have a materially
        adverse effect on the business and operations of the Company. In addition,
        the
        future success of the Company depends upon its ability to attract and retain
        qualified general personnel, which have sufficient and suited expertise in
        the
        GPS tracking industry. There can be no assurance of success in attracting
        and
        retaining qualified personnel in the future.
 
 ***Market
        for Common Stock; Volatility of Prices:***
 
 There
        has
        been a limited public trading market for the Company’s shares of common stock.
        There can be no assurance that a regular trading market for the common stock
        will ever develop or, if developed, that it will be sustained. No assurance
        can
        be given that the common stock will be re-listed on the
        Over-The-Counter-Bulletin-Board (OTCBB). The market price of the common stock
        could also be subject to significant fluctuations in response to such factors
        as
        variations in the anticipated or actual results of operations of the Company
        or
        other companies in the GPS tracking industries, changes in conditions affecting
        the economy generally, analyst reports, general trends in industry, and other
        political or socioeconomic events or factors.
 
 ***Liquidity
        and Need for Additional Funding:***
 
 Due
        to
        recurring operating losses and the Company's current working capital deficit,
        there is a need to obtain additional funding of working capital for the Company
        to operate as a going concern. Various types of additional funding such as
        issuance of additional common or preferred stock, additional lines of credit,
        or
        issuance of subordinated debentures on other forms of debt will be pursued.
        The
        Company is currently negotiating additional investments in the Company. However,
        there can be no assurance that additional funding will be available when
        needed,
        or if available, that its terms will be favorable or acceptable.
 
 ***Substantial
        Leverage:***
 
 Although
        substantially leveraged at the end of fiscal year 2005, in order to meet
        the
        ongoing working capital requirements of the Company, additional indebtedness
        may
        have to be incurred, perhaps resulting in a more highly leveraged capital
        structure. A highly leveraged capital structure could have adverse consequences,
        including:
 
 •
              
              Limiting
                  the ability to obtain additional financing;•
              
              Requiring
                  the use of operating cash flow to meet interest and principal repayment
                  obligations;•
              
              Increasing
                  the Company's vulnerability to changes in general economic conditions
                  and
                  competitive pressures; and•
              
              Limiting
                  the Company's ability to realize some or all of the benefits of
                  significant business opportunities.
 
 In
        addition, any indebtedness that would be incurred is expected to contain
        covenants that limit, among other things, the ability to incur additional
        indebtedness, engage in mergers and acquisitions, pay dividends or take other
        actions. These covenants may also require the meeting of certain financial
        tests
        and the maintenance of a minimum level of collateral and may give the lender
        the
        right to perform periodic audits to ensure compliance with the terms of the
        applicable loan. Non-compliance with any of the terms of such covenants may
        result in a suspension of funding, acceleration and consequent demand for
        repayment and a foreclosure on collateral, as well as the pursuit of other
        rights and remedies, all of which could have a materially adverse effect
        on the
        financial condition, results of operations and prospects of the
        Company.
 
 ***Interest
        Rate Fluctuations:***
 
 The
        Company's profitability is based, in part, on the interest rate charged on
        interest bearing liabilities. Interest rates with respect to outstanding
        indebtedness or indebtedness that may be incurred in the future are, or will
        be,
        as the case may be, based on interest rates prevailing in the market at the
        time
        the debt is incurred. In some cases, the rates may be floating rates. Increases
        in interest rates paid on outstanding indebtedness would adversely affect
        the
        profitability of the Company and consume cash allocated for other operating
        activities.
  7
  ***Seasonality;
        Variability of Quarterly Operating Results:***
 
 The
        Company's new business is related, in part, to the sale of new and pre-owned
        automobiles. The new and pre-owned automobile sales and finance industry
        is
        subject to substantial seasonal variations in revenues. Demand for new and
        pre-owned automobiles is generally lower in the winter than in other seasons.
        Sales tend to be lower during the holiday and back-to-school seasons, while
        sales tend to be higher during the late spring and through the summer months.
        The planned growth strategy may subject the Company's operating results to
        substantial variables and changes each quarter. Accordingly, given the
        possibility of such fluctuations, management believes that quarterly comparisons
        of the results of operations during any fiscal year are not necessarily
        meaningful and that results for any one fiscal quarter should not be relied
        upon
        as an indication of future performance.
 
 ***Lack
        of Prospective Dividends:***
 
 The
        Company has not paid any dividends on its Common Stock and anticipates that
        future earnings, if any, will be used to reduce debt or finance future growth
        and that dividends will not be paid to shareholders. There can be no assurance
        that operations will result in sufficient revenues to enable the Company
        to
        operate at profitable levels or to generate positive cash flow. Accordingly,
        the
        Company does not anticipate the payment of any dividends on Common Stock
        for the
        foreseeable future (see Item 5, Market for Common Equity and Related Stockholder
        Matters).
 
 ***Inflation:***
 
 Higher
        interest rates, which generally occur with inflation, would tend to increase
        the
        cost of credit used by the Company and would thus, decrease
        profits.
 
 ***Possible
        Other Risks:***
 
 In
        addition to all risks and assumptions including, but not limited to, those
        identified under this "Risk Factors" section, businesses are often subject
        to
        risks not foreseen or fully appreciated by management. In reviewing this
        report,
        investors and potential investors should keep in mind other possible risks
        that
        could be important. Among key factors that may have a direct bearing on the
        Company's results are competitive practices in GPS tracking industries, the
        ability to meet existing financial obligations in the event of adverse industry
        or economic conditions or to obtain additional capital to fund future research
        and development requirements of GPS products, commitments and expansion,
        and the
        impact of current and future laws and governmental regulations on
        operations.
 
 **Employees**
 
 At
        December 31, 2005, the Company employed a total of 8 people. No employees
        are
        covered by a collective bargaining agreement. The Company considers its
        relations with its employees to be good.
 
 **ITEM
        2. DESCRIPTION OF PROPERTY**
 
 The
        principal executive office of the Company is located at 2500 Legacy Dr.,
        Suite
        226, Frisco, Texas 75034. Approximately 4,069 square feet of leased premises
        are
        at this location. The rent is approximately $84,000 per year. The lease expires
        in December 2010.
 
 The
        Company leases its principal executive office in Frisco, Texas from a related
        party on a month to month basis, which commenced in September 2004. The Company
        is responsible for its proportionate share of operating expenses of the
        premises. Rent expense totaled $45,064 for the year ended December 31, 2005
        and
        $235,753 for the year ended December 31, 2004. The Company intends to
        contractually assume the lease that the related party has entered into with
        the
        property owners.
 
 Management
        believes the Company's facilities and equipment are in good repair and are
        adequate for current needs.
 
 **ITEM
        3. LEGAL PROCEEDINGS**
 
 The
        Company is presently not a party to any legal proceeding that it considers
        other
        than to be routine litigation incidental to the business.
 
 8
 **ITEM
        4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 
 Not
        Applicable
  **PART
        II**
 
 **ITEM.
        5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**
 
 The
        Common Stock of the Company is categorized as “Other OTC” as a security that is
        neither listed on NASDAQ or any stock exchange, nor quoted on the OTC Bulletin
        Board; bids and offers are not centrally collected. The name of the Company
        was
        changed to Homeland Security Network, Inc. on March 1, 2005, and the symbol
        was
        changed to “HSYN” effective March 16, 2005. It can be viewed at
        http://quotes.nasdaq.com.
 
 Trading
        in the Company’s securities was suspended from April 5, 2005 through April 18,
        2005 by the Securities and Exchange Commission because the Company was
        delinquent in its periodic filing obligations under Section 13(a) of the
        Exchange Act of 1934 and because of possible manipulative conduct occurring
        in
        the market for the Company’s stock.
 
 To
        reinstitute trading, the Company filed the March, June, and September 2004
        10QSB
        on April 27, 2005, which include interim financial statements that have been
        reviewed by a certified public accountant but not by its independent registered
        public accounting firm.
 
 The
        table
        below lists the high and low bid prices for each quarter of the last two
        fiscal
        years.
  Bid
        Quotations*
 
 **Fiscal
                  2005:**
              
              **Low**
              
              **High**First
                  Quarter
              
              $
              0.11
              
              $
              0.18Second
                  Quarter
              
              
              0.025
              
              
              0.10Third
                  Quarter
              
              
              0.07
              
              
              0.08Fourth
                  Quarter
              
              
              0.06
              
              
              0.06Fiscal
                  2004:First
                  Quarter
              
              
              0.06
              
              
              0.10Second
                  Quarter
              
              
              0.05
              
              
              0.45Third
                  Quarter
              
              
              0.02
              
              
              0.06Fourth
                  Quarter
              
              
              0.015
              
              
              0.30
 
 *These
        quotations reflect inter-dealer prices, without retail mark-up, markdown,
        or
        commission and thus may not represent actual transactions.
 
 **Information
        Relating to the Company’s Voting Securities**
 
 Shares
        of
        Common Stock are the only voting securities of the Company. Holders of the
        Common Stock are entitled to one vote on all matters presented to stockholders
        for each share registered in their respective names. As of March 15, 2006,
        there
        were 171,623,930 shares of Common Stock outstanding. The Series A and Series
        B
        Preferred Stock have no voting rights.
 
 At
        December 31, 2005, there were approximately 489 holders of record of the
        Common
        Shares of the Company.
 
 The
        Company has not paid any dividends on its Common Stock and anticipates that
        future earnings, if any, will be retained to finance future growth.
 
 As
        part
        of the 2003 merger transaction, of the 10,000,000 Preferred Shares authorized
        in
        the Company's Articles of Incorporation, a total of 4,086,856 of those shares
        were designated as Series "A".
 
 The
        terms
        of the Series "A" Preferred Shares are:
 
 •
              
              They
                  have no voting rights, sinking fund provision or redemption rights;
                  and•
              
              They
                  are convertible into Common Shares on a 10-for-1 basis at any time
                  at the
                  option of the holder.
 
 9
 When
        or
        if the Company's Common Stock is accepted for trading in the NASDAQ National
        Marketing System, the Company will obtain conversion rights with respect
        to the
        preferred stock.
 
 The
        Company has authorized 2,000,000 shares of Series "B" Preferred Stock of
        which
        1,621,642 shares have been issued. The terms of the Series "B" Preferred
        Shares
        are:
  •
              
              They
                  pay non-cumulative dividends at the rate of 5% per
                  year;•
              
              They
                  have a liquidation preference of $14.64 per share;•
              
              They
                  have no voting rights, sinking fund provisions or redemption rights;
                  and•
              
              They
                  are convertible into Common Shares on a 1-for-1
                  basis.
 
 The
        holder of the preferred shares will have the right and option with the
        conversion. A required conversion at the Company’s election will occur if either
        of the following events takes place:
 
 •
              
              When
                  or if the Company's Common Stock is accepted for trading in the
                  NASDAQ
                  National Marketing System; and•
              
              When
                  or if the Company's Common Stock is publicly traded at a price
                  equal to
                  $14.64 per share or more.
 
 From
        January 1, 2003 through December 31, 2005, the Company issued the following
        securities without registration under the Securities Act of 1933:
 
 •
              
              50,000
                  shares common stock were issued in 2003 to the Chairman of the
                  Board for
                  services rendered as a consultant.•
              
              In
                  January 2005, 100,000 shares of common stock were issued to an
                  executive
                  as a hiring bonus at $0.15 per share ($15,000).•
              
              Under
                  rights obtained pursuant to an Assignment and Assumption Agreement
                  entered
                  into December 2004, the note holder of a $61,538 note elected to
                  convert
                  principal payments remitted into common stock. In January 2005,
                  the
                  Company issued 3,429,355 shares at $0.11 per share valued at $377,229.
                  In
                  March 2005, the Company issued 12,000,000 shares at $0.18 per share
                  valued
                  at $2,160,000, totaling $2,537,229 resulting in a charge in the
                  statement
                  of operations.•
              
              In
                  April 2005, 2,070,000 shares common stock were issued to executives
                  and
                  other employees in payment of performance bonuses; 70,000 shares
                  at $0.11
                  and 2,000,000 shares at $0.02 (totaling $47,000).•
              
              In
                  April 2005, 380,091 shares common stock were issued as payment
                  for past
                  due interest due on certain notes payable at $0.11 per share ($41,810).•
              
              In
                  April 2005, 50,000 shares common stock were issued as payment to
                  an
                  executive as a hiring bonus at $0.11 per share ($5,500).•
              
              In
                  April 2005, 2,207,327 shares common stock were issued as payment
                  to
                  officers in full satisfaction of notes payable at $0.11 per share
                  ($242,806).•
              
              In
                  April 2005, 1,000,000 shares common stock were issued in payment
                  for
                  financing costs at $0.175 per share ($175,000).•
              
              In
                  June 2005, 11,000,000 shares common stock were issued to an executive
                  in
                  lieu of compensable salary for the 2005 year at $0.045 per share
                  ($495,000).•
              
              In
                  July 2005, 2,500,000 shares of common stock were issued at $0.08
                  per share
                  under a Subscription Agreement (Regulation S Investment) whereby
                  the
                  Company received $200,000.•
              
              In
                  September 2005, the Company issued 7,000,000 shares of common stock
                  at
                  $0.07 per share ($490,000) for the purchase of certain software,
                  firmware
                  and product enhancements.•
              
              In
                  December 2005, 9,200,000 shares of common stock were issued to
                  executives
                  and other employees in payment of performance bonuses: $0.03 per
                  share
                  totaling $276,000.•
              
              In
                  December 2005, 394,793 shares of common stock were issued as compensation
                  and expense reimbursement to an officer: $0.03 per share totaling
                  $11,844.•
              
              In
                  December 2005, 1,478,693 shares of common stock were issued as
                  payment for
                  past due interest due on certain notes payable: $0.03 per share
                  totaling
                  $44,361.•
              
              In
                  December 2005, the Company issued 4,100,000 shares of common stock
                  at
                  $0.08 per share for the purchase of certain software, firmware
                  and product
                  enhancements totaling $328,000.•
              
              In
                  December 2005, the Company issued 5,250,000 shares of common stock
                  at an
                  agreed conversion rate of $0.02 per share as payment in full satisfaction
                  for funds advanced of $105,000, used for working capital
                  needs.
  10
 •
              
              In
                  December 2005, the Company issued 2,500,000 shares of common stock
                  as
                  compensation paid for services rendered by Securities Acquisition
                  New
                  York, LLC in 2005.
  **ITEM
        6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
        OPERATION**
 
 The
        Company's consolidated financial statements have been prepared on the assumption
        that the Company will continue as a going concern. Management is seeking
        various
        types of additional funding such as issuance of additional common or preferred
        stock, additional lines of credit, or issuance of subordinated debentures
        or
        other forms of debt. The funding would alleviate the Company's working capital
        deficiency and increase profitability. However, it is not possible to predict
        the success of management's efforts to achieve profitability or to secure
        additional funding. Also, there can be no assurance that additional funding
        will
        be available when needed or, if available, that its terms will be favorable
        or
        acceptable. Management is also seeking to renegotiate certain present
        liabilities in order to alleviate the working capital deficiency.
 
 If
        the
        additional financing or arrangements cannot be obtained, the Company would
        be
        materially and adversely affected and there would be substantial doubt about
        the
        Company's ability to continue as a going concern. The consolidated financial
        statements do not include any adjustments relating to the recoverability
        and
        realization of assets and classifications of liabilities necessary if the
        Company becomes unable to continue as a going concern.
 
 Management's
        Discussion and Analysis or Plan of Operations should be read in conjunction
        with
        the Audited Consolidated Financial Statements and related notes. The
        results of operations for the period ended December 31, 2005 are not necessarily
        indicative of operating results expected for future reporting
        periods.
 
 **Forward
        Looking Statements**
 
 As
        previously stated on page 3, this report contains forward-looking statements.
        Additional written or oral forward-looking statements may be made by the
        Company
        from time to time in filings with the Securities and Exchange Commission
        or
        otherwise. Such forward-looking statements are within the meaning of that
        term
        in section 27A of the Securities Act, and Section 21E of the Securities Exchange
        Act of 1934, as amended (the “Exchange Act”). Such statements may include, but
        not limited to, projections of revenue, income, or loss, estimates of capital
        expenditures, plans for future operations, products, or services, financing
        needs or plans, as well as assumptions relating to the foregoing. The words
        "believe," "expect," "anticipate," "estimate," and similar expressions identify
        forward-looking statements, which speak only as of the date the statement
        was
        made.
 
 Forward-looking
        statements are inherently subject to risks, uncertainties, some of which
        cannot
        be predicted or quantified. Future events and actual results could differ
        materially from those set forth herein. The Company undertakes no obligation
        to
        publicly update or revise any forward-looking statements, whether as a result
        of
        new information, future events, or otherwise. Aforementioned disclosures,
        as
        well as other statements in this Report on Form 10-KSB, including those in
        the
        notes to the Company’s consolidated financial statements, describe factors,
        among others, that could contribute to or cause such differences, or that
        could
        affect the Company’s stock price.
 
 **Revenues**
 
 ***Product
        Sales:***
 
 For
        the
        year ended December 31, 2005 revenues from product sales increased by 100%,
        or
        $255,060 as compared to the same period a year ago, primarily due
        to:
 
 •
              
              An
                  increase of $255,060, or 100% in product sales revenue from the
                  sale of
                  tracking devices.
 
 ***Other
        Income:***
 
 For
        the
        year ended December 31, 2005 revenue from sources categorized as other income
        decreased by 88%, or $479,525 as compared to the same period a year ago,
        primarily due to:
 
 •
              
              A
                  decrease in interest income of $334,779, or 90%, primarily resulting
                  from
                  a reduction of interest income earned on the Company's portfolio
                  of
                  automobile finance receivables due to terminations of certain servicing
                  and loan pools and sales of certain loan pools;•
              
              A
                  decrease of $11,865, or 51% in other loan fees is the result of
                  terminations of the servicing of loan pools with various credit
                  unions;•
              
              A
                  decrease of $53,768, or 100%, in direct mail revenue as these services
                  were phased out by June 30, 2004;
                  and
  11
 •
              
              A
                  decrease of $79,113, or 87%, in gain (loss) on sale of loans resulting
                  from a reduction in the Company’s portfolio of automobile finance
                  receivables.
  **Cost
        of Sales**
 
 ***Product
        Sales:***
 
 For
        the
        year ended December 31, 2005 cost of product sales increased by 100%, or
        $191,500 as compared to the same period a year ago, primarily due
        to:
 
 •
              
              An
                  increase of $191,500, or 100%, in product sales cost relating to
                  the sale
                  of tracking devices.
 
 ***Operating
        Expenses:***
 
 Operating
        expenses for the year ended December 31, 2005 decreased by $291,377, or 9%
        as compared to the same periods a year earlier primarily due to:
 
 •
              
              Interest
                  Expense decreased by $264,623 for the year ended December 31, 2005
                  as
                  compared to the same period a year earlier mainly attributed to
                  the
                  reduction of amounts payable related to the Company's credit facility
                  and
                  amounts payable related to credit union participation transactions;•
              
              Deferred
                  Financing Costs decreased by $118,846 for the year ended December
                  31, 2005
                  as compared to the same period a year earlier primarily as a result
                  of the
                  Company selling a large portion of the finance receivable portfolio.•
              
              Compensation
                  and benefits increased by $8,964 for the year ended December 31,
                  2005 as
                  compared to the same period a year earlier primarily due to an
                  increase of
                  staff and related benefits for the Company’s GPS product sales;•
              
              Office,
                  occupancy and equipment decreased by $508,872 for the year ended
                  December
                  31, 2005 as compared to the same period a year earlier primarily
                  due to a
                  decrease in rent and associated rent expense as a result of closing
                  office
                  locations in California and Texas;•
              
              Professional
                  fees increased by $107,328 for the year ended December 31, 2005
                  as
                  compared to the same period a year earlier primarily due to increased
                  needs related to legal council, accounting fee requirements, and
                  consulting fees;•
              
              Loan
                  Servicing expenses decreased by $114,523 for the year ended December
                  31,
                  2005 as compared to the same period a year earlier primarily due
                  to a
                  direct result of the Company's sale of a significant portion of
                  the
                  finance receivables portfolio and its termination of the servicing
                  of loan
                  pools with various credit unions;•
              
              Depreciation
                  and amortization expense decreased by $267,119 for the year ended
                  December
                  31, 2005 as compared to the same period a year earlier due to specific
                  assets being fully depreciated by year ending 2004;•
              
              The
                  Company incurred product development costs of $313,000 during the
                  year
                  ended December 31, 2005 for software and enhancements related to
                  the GPS
                  tracking devices.•
              
              The Company
                  recognized a gain in decrease of provision for loan losses
                  of $534,269 for the year ended December 31, 2005 as compared to the
                  same period a year earlier primarily due to the loan loss reserve
                  requirement calculated on a minimal loan pool in 2005.•
              
              Marketing
                  expense increased by $67,094 for the year ended December 31, 2005
                  as
                  compared to the same period a year earlier primarily due to advertising
                  expense associated with marketing GPS products.•
              
              Other
                  operating expense decreased by $86,140 for the year ended December
                  31,
                  2005 as compared to the same period a year earlier primarily due
                  to a
                  reduction in travel, data processing, and direct mail
                  expenses.•
              
              The
                Company incurred bad debt expense of $22,937 during the year ended
                December 31, 2005 for accounts receivable
                losses.
 
 Other
        expenses increased by $1,928,348 for the year ended December 31, 2005 as
        compared to the same period a year earlier primarily due to:
 
 •
              
              Impairment
                  of intangible assets decreased by $546,275 for the year ended December
                  31,
                  2005 as compared to the same period a year earlier due to an impairment
                  of
                  software development in the prior year period.•
              
              A
                  beneficial conversion feature expense of $2,521,803 was recorded
                  for the
                  year ending December 31, 2005 due to certain terms of an obligation,
                  which
                  was assigned to a related third party (see Note 15); In the three
                  months
                  ending September 30, 2005, $13,876 was recorded as a repayment
                  of the
                  obligation. In December 2005, the obligation was released by the
                  maker and
                  the Company recorded $46,112 of debt
                  relief.
 
 12
 
 **Liquidity**
 
 The
        Company's consolidated financial statements have been prepared on the assumption
        that the Company will continue as a going concern. Management is seeking
        various
        types of additional funding such as issuance of additional common or preferred
        stock, additional lines of credit, or issuance of subordinated debentures
        or
        other forms of debt will be pursued. The funding should alleviate the Company's
        working capital deficiency and increase profitability. However, it is not
        possible to predict the success of management's efforts to achieve
        profitability. Also, there can be no assurance that additional funding will
        be
        available when needed or, if available, that its terms will be favorable
        or
        acceptable.
 
 These
        factors raise substantial doubt about the Company's ability to continue as
        a
        going concern. The financial statements do not include adjustments relating
        to
        the recoverability and realization of assets and classification of liabilities
        that might be necessary should the Company be unable to continue in operation.
        Management is seeking to raise additional capital and to renegotiate certain
        liabilities in order to alleviate the working capital deficiency.
 
 Due
        to
        recurring operating losses and the Company's current working capital deficit,
        there is a need to obtain additional funding of working capital for the Company
        to operate as a going concern. The Company incurred operating losses of
        $2,719,905, and net losses of $5,194,526 for the year ended December 31,
        2005.
        In 2005, the Company has been able to minimally sustain its working capital
        needs based on capital derived primarily from: issuances of additional common
        stock; notes payable; proceeds from the sales of auto finance receivables;
        interest income and service fees related to auto finance receivables and
        from
        the sale of tracking devices.
 
 •
              
              In
                  January 2005, the Company obtained funds after issuing a note payable
                  bearing interest at 8% per annum from a related third party. The
                  note
                  provides a line of credit totaling $500,000. In February 2006,
                  the note
                  was modified to include the outstanding accrued interest of $17,000
                  and
                  the maturity date renewed to January 2007. As of February 2006,
                  the
                  balance of the note is $246,325. The note is uncollateralized and
                  the
                  proceeds were used for working capital needs;•
              
              In
                  March 2005, the Company obtained funds of $134,500 under a note
                  payable
                  bearing interest at 7% per annum from a related third party. In
                  February
                  2006, the note was modified to include the outstanding accrued
                  interest of
                  $7,375. The note is uncollateralized and matures in April 2006.
                  The
                  proceeds were utilized for working capital;•
              
              In
                  August 2005, the Company issued 2,500,000 shares of Common Stock
                  at $0.08
                  per share under a subscription agreement (Regulation S Investment)
                  whereby
                  the Company received $200,000. The proceeds were utilized for working
                  capital;•
              
              The
                  Company's debt to certain executives at December 31, 2005 is $443,467,
                  which represents unpaid compensation for fiscal year 2005 and loans
                  from
                  executives for certain working capital needs. The Board of Directors
                  approved these amounts to be converted to notes payable. The interest
                  rate
                  is 6% and matures in July 2006;•
              
              The
                  Company's debt to a former director consisted of two obligations
                  in
                  default at December 31, 2004 totaling $286,874. The obligations
                  matured in
                  October 2004 and June 2005 with interest rates at 12% and 18%.
                  The Company
                  and its former director have completed its negotiations of renewed
                  terms
                  with interest rates at 8% and a maturity date of February
                  2007;•
              
              In
                  November 2003, the Company executed a revolving credit facility
                  in the
                  amount of $10,000,000 with a financial institution that bore interest
                  at a
                  rate of prime plus 2% and matured in November 2004. The purpose
                  of the
                  credit facility was to provide funding for the purchase of automobile
                  finance installment contracts for sale to banks and credit unions.
                  At
                  December 31, 2005, the balance equals $166,085 and is in default.
                  The
                  Company is presently negotiating revised payment terms with the
                  lender.•
              
              In
                  December 2005, the Company issued 5,250,000 shares of Common Stock
                  at
                  $0.02 per share to a related party as full repayment of funds advanced
                  for
                  working capital needs in the amount of
                  $105,000;
 
 13
 The
        Company's cash flows from operating, investing and financing activities,
        as
        reflected in the consolidated statements of cash flows, are summarized in
        the
        following table:
  **Year
                    Ended**
                  **December
                    31,****2005**
                
                
                **2004**
 Cash
                    provided by (used in):Operating
                    activities
                
                $
                (1,044,799
                )
                $
                (2,388,784
                )Investing
                    activities
                
                
                3,108
                
                
                15,878Financing
                    activities
                
                
                1,023,128
                
                $
                1,398,472Decrease
                    in cash
                
                $
                (18,563
                )
                $
                (974,434
                )
 
 The
        Company provided collection and servicing activities on a fee basis for finance
        receivables sold to credit unions on a non-guaranteed basis in addition to
        providing such services to credit unions for financing receivables not purchased
        from the Company. At December 31, 2005, the total outstanding balance of
        finance
        receivables for which collection, asset management, and servicing activities
        were performed was approximately $87,414.
 
 Net
        cash
        used in operating activities for the year ended December 31, 2005 decreased
        to
        $1,044,799 from cash used in operations of $2,388,784 for the year ended
        December 31, 2004. The decrease is essentially comprised of the following
        specifics:
 
 •
              
              Deferred
                  financing costs decreased by $71,617 due to costs incurred for
                  funds
                  received under a note payable in the year ended December
                  2004;•
              
              Principal
                  payments collected on finance receivables decreased by $819,492
                  due to the
                  reduction of the automobile installment loan portfolio from sales
                  to
                  financial institutions;•
              
              Consumer
                  loan originations decreased by $1,315,730 due to the termination
                  of
                  point-of-sale acquisitions;•
              
              The
                  credit provision for loan losses increased by $231,491 due to loan
                  pool
                  sales reducing the need for a large loan loss
                  provision;•
              
              Accounts
                  payable and other accrued expenses increased by $343,884 due to
                  an
                  increase in rent and contractual obligations and other compensation.•
              
              Proceeds
                  from loans sold decreased by $815,460 due to the reduction of the
                  automobile installment loan portfolio from sales to financial
                  institutions;•
              
              Depreciation
                  and amortization expense decreased by $274,653 due to impairment
                  write-off
                  of intangible assets and fully depreciated assets in December 2004;•
              
              Stock
                  issuances used for compensation and obligations related to notes
                  payable
                  increased by $1,009,394 due to Company’s limited availability of working
                  capital.•
              
              Interest
                  expense relating to a beneficial conversion feature of $2,535,679
                  was
                  recorded in March 2005 due to certain terms of an obligation, which
                  was
                  assigned to a related third party (see Note 15). In September 2005,
                  $13,876 was recorded as a repayment of the obligation. In December
                  2005,
                  the obligation was released by the maker and the Company recorded
                  $46,112
                  of debt relief.•
              
              Payments
                  to credit unions decreased by $217,917 due to the release of servicing
                  certain participation pools and monthly collections.
 
 Net
        cash
        provided by investing activities was $3,108 for the year ended December 31,
        2005
        compared to cash provided by investing activities of $15,878 for the year
        ended
        December 31, 2004. The Company purchased fixed assets of approximately $3,142
        and sold fixed assets of approximately $6,250 for the year ended December
        31,
        2005.
 
 Net
        cash
        provided by financing activities was $1,023,128 for the year ended December
        31,
        2005 compared to cash provided by financing activities of $1,398,472 for
        the
        year ended December 31, 2004. Approximately $134,500 received from notes
        payable
        and approximately $672,832 in advances from related parties, and $305,000
        in
        proceeds from issuance of common stock financed the Company's working capital
        needs for the year ended December 31, 2005. For the year ended December 31,
        2004, the Company received $183,755 from borrowings under the line of credit,
        $986,423 in advances from affiliates, and $306,900 in proceeds from notes
        payable.
 
 14
  **Market
        for Common Stock; Volatility of Prices**
 
 There
        has
        been a limited public trading market for Common Shares of the Company. There
        can
        be no assurance that a regular trading market for the Common Shares will
        ever
        develop or, if developed, that it will be sustained. No assurance can be
        given
        that the Common Shares will be re-listed on the Over-The-Counter-Bulletin-Board
        (OTCBB). The market price of the Common Shares could also be subject to
        significant fluctuations in response to such factors as variations in the
        anticipated or actual results of operations of the Company or other companies
        in
        the automotive finance and GPS tracking industries, changes in conditions
        affecting the economy generally, analyst reports, general trends in industry,
        and other political or socioeconomic events or factors.
  **Critical
        Accounting Policies**
 
 The
        Company's critical accounting policies are as follows.
 
 ***Off
        Balance Sheet Arrangements:***
 
 The
        Company does not have any transactions, agreements or other contractual
        arrangements that constitute off-balance sheet arrangements.
 
 ***Deferred
        Tax Valuation:***
 
 The
        Company continues to incur tax net operating losses, which are available
        to
        carry forward and offset future taxable income. These net operating losses
        were
        generated, principally as a result of losses resulting from the operations
        of
        the Company. A deferred tax asset results from the benefit of utilizing these
        net operating loss carry-forwards in future years.
 
 Due
        to
        the current uncertainty of realizing the benefits of the tax NOL carry-forward,
        a valuation allowance equal to the tax benefits for the deferred taxes has
        been
        established. The full realization of the tax benefit associated with the
        carry-forward depends predominately upon the Company's ability to generate
        taxable income during future periods, which is not assured.
 
 ***Auto
        Finance Receivables:***
 
 Finance
        receivables consist of purchased automobile installment contracts, which
        were
        assigned to the Company upon acquisition. The titles to the automobiles,
        which
        serve as security for the payment of the purchased contracts, are held either
        by
        the company or the financial institution for which the finance receivables
        serve
        as collateral.
 
 Finance
        receivables that management has the intent and ability to hold for the
        foreseeable future or until maturity of payoff are reported at their outstanding
        gross contractual balances, net of allowance for losses and unearned finance
        revenue. Unearned finance revenue consists of unearned interest and discounts
        realized on contract purchases. Discounts are amortized as adjustments of
        the
        yields on the related contracts.
 
 Allowance
        for credit losses is increased by allocating a portion of the discount recorded
        on the acquisition of contracts. The Company performs periodic evaluations
        of
        the adequacy of the allowance for losses taking into consideration the past
        loss
        experience, known and inherent risks in the portfolio, adverse situations
        that
        may affect the borrower's ability to repay, the estimated value of any
        underlying collateral, as well as recovery potential of any underlying
        collateral and current economic conditions. Any increases in the allowance
        for
        losses subsequent to the acquisition of the contract are charged to earnings.
        In
        conjunction with the Company's contract purchases, dealers make certain
        representations and warranties regarding the validity of the contract and
        the
        enforceability of the security interest in the related vehicle. Consequently,
        the Company has recourse to the dealer in the event the dealer's representations
        and warranties are false. Furthermore, the Company's standard form agreement
        with all of its dealers requires that the dealer repurchase any contract
        where
        the borrower has failed to make the first two payments. In such cases, it
        is the
        Company's responsibility to return the related vehicle to the dealer. Consumer
        loans are ordinarily charged off when they are 120 - 180 days contractually
        past
        due.
 
 ***Intangible
        Assets:***
 
 Software
        development costs, recorded at cost, are amortized over five years, the expected
        useful life of the asset. Intangible assets are reviewed for impairment whenever
        events or circumstances indicate impairment might exist, or at least annually.
        The Company assesses the recoverability of its assets in accordance with
        SFAS
        No. 142 "Goodwill and Other Intangible Assets," comparing projected undiscounted
        cash flows associated with those assets against their respective carrying
        amounts. Impairment, if any, is based on the excess of the carrying amount
        over
        the fair value of those assets. The Company determined that impairment existed
        at December 31, 2004 and has recorded such loss on the statement of
        operations.
 
 15
 
 **Quantitative
        and Qualitative Disclosures about Market Risk**
 
 There
        has
        been no material change to the information from what was disclosed in the
        Company’s annual report on Form 10-KSB for the year ended December 31, 2004 and
        the Company’s quarterly reports on Form 10QSB for periods ended September 30,
        2005. Refer to the Company’s December 31, 2004 annual report on Form 10-KSB and
        quarterly reports on Form 10QSB for periods ended September 30, 2005 for
        information regarding quantitative and qualitative disclosures about market
        risk.
 
 **ITEM
        7. FINANCIAL STATEMENTS**
 
 The
        following audited consolidated financial statements are attached to and filed
        as
        part of this report:
 
 •
              
              Consolidated
                  Balance Sheets for the Years Ended December 31, 2005 and
                  2004;•
              
              Consolidated
                  Statements of Operations for the Years Ended December 31, 2005
                  and
                  2004;•
              
              Consolidated
                  Statements of Cash Flows for the Years Ended December 31, 2005
                  and 2004;•
              
              Consolidated
                  Statement of Changes in Shareholders' Equity (Deficit) For the
                  Years Ended
                  December 31, 2005 and 2004; and•
              
              Notes
                  to Consolidated Financial Statements.
 
 **ITEM
        8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
        DISCLOSURE**
 
 The
        Company has discharged its Certifying Accountant, KBA Group LLP, effective
        October 29, 2003. The principal accountant’s reports for the last two fiscal
        years did not contain adverse opinions as to the Company’s financial statements
        but were modified to report as to the Company’s ability to continue as a going
        concern. The decision to change the Company’s accountants was approved by the
        Company's Board of Directors. During the last two most recent fiscal years
        or in
        the subsequent period ended June 30, 2003, there have been no disagreements
        with
        the former accountants on any matter of accounting principles or practices,
        financial statement disclosure, or auditing scope or procedure.
 
 Effective
        October 29, 2003, Ehrenkrantz Sterling & Co., LLC had been retained as the
        independent auditor of the Company, and was retained as independent auditor
        of
        the registrant for the fiscal year ending December 31, 2003. Prior to the
        engagement, the Registrant did not consult with Ehrenkrantz Sterling & Co.,
        LLC regarding the application of accounting principles to a specified
        transaction, or the type of audit opinion that may be rendered with respect
        to
        the Registrant’s financial statements. In addition, the Registrant did not
        consult with Ehrenkrantz Sterling & Co., LLC, as to the application of
        accounting principles to a specific completed or contemplated transaction,
        or
        the type of audit opinion that might be rendered on the small business issuer’s
        financial statements and either written or oral advice was provided that
        was an
        important factor considered by the small business issuer in reaching a decision
        as to the accounting, auditing or financial reporting issue.
 
 On
        June
        1, 2004, Ehrenkrantz Sterling & Co., LLC merged with the firm of Friedman
        Alpren & Green LLP, which changed its name to Friedman LLP. The new entity,
        Friedman LLP, has been retained as the independent auditor of Homeland Security
        Network, Inc., the Registrant, and was retained as independent auditor of
        the
        registrant for the fiscal year ending December 31, 2004.
 
 For
        the
        period since Ehrenkrantz Sterling & Co., LLC appointment through May 31,
        2004 and Friedman LLP through December 31, 2004, there have been no
        disagreements with Ehrenkrantz or Friedman on any matter of accounting
        principles or practices, financial statement disclosure, or auditing scope
        or
        procedure, which disagreements if not resolved to the satisfaction of
        Ehrenkrantz Sterling & Co., LLC would have caused them to make reference
        thereto in their report.
 
 For
        the
        period since Friedman LLP appointment through December 31, 2004, the Company
        did
        not consult with Friedman LLP regarding any matter that was the subject of
        a
        "disagreement" with Ehrenkrantz, as that term is defined in Item 304(a)(1)(iv)
        of Regulation S-K and the related instructions to Item 304 of Regulation
        S-K, or
        with regard to any "reportable event," as that term is defined in Item
        304(a)(1)(v) of Regulation S-K, except as such consultations as may have
        been
        made with former employees of Ehrenkrantz who are now employees of Friedman.
        The
        Company filed the March, June, and September 2004 10QSB on April 27, 2005,
        which
        include interim financial statements that have not been reviewed by its
        independent registered public accounting firm, Friedman LLP.
  16
  In
        October 2005, Friedman LLP, the Company's independent registered public
        accounting firm notified the Company's Board of Directors that it has declined
        to stand for re-election. The Company's Board of Directors approved the change
        of its independent registered public accounting firm. The change was not
        related
        to any matter concerning the Company, including its selection or application
        of
        accounting policies or judgments, the scope of audit, internal controls or
        integrity of management.
  On
        November 3, 2005, the Company engaged Blaise S. Mazzoni, Certified Public
        Accountant, of HR Outsourcing Services, Inc. as an independent certified
        public
        accountant to review the Company's interim consolidated financial statements
        on
        Form 10-QSB for the quarterly reports ended March 31, 2005, June 30, 2005
        and
        September 30, 2005. Prior to the engagement, the Company did not consult
        with
        Blaise S. Mazzoni, C.P.A. regarding the application of accounting principles
        to
        any completed or contemplated transaction, or the type of audit opinion that
        may
        be rendered with respect to the Company's financial statements. No written
        or
        oral advise was provided by Blaise S. Mazzoni, C.P.A. that was any factor
        considered by the Company in reaching a decision as to the accounting, auditing
        or financial reporting. The Company's Board of Directors approved the engagement
        with its independent certified public accountant.
 
 Effective
        November 11, 2005, the Company dismissed Blaise S. Mazzoni, C.P.A. as its
        independent certified public accountant. Blaise S. Mazzoni, C.P.A. did not
        render any type of accountants' report on the Company's financial statements
        during his period of engagement. The Company's Board of Directors approved
        the
        change in its independent certified public accountant. The change in the
        Company's independent certified public accountant was not related to any
        matter
        or disagreement with Blaise S. Mazzoni, C.P.A. concerning the Company's
        selection or application of accounting principles or practices, policies
        or
        judgments, the scope of audit, internal controls or integrity of management.
        There is no matter of disagreement, which would cause the Company to make
        reference to with its report and there were no "reportable events", other
        than
        the engagement and dismissal, as that term is defined in Item 304 (a)(1)(iv)
        of
        Regulation S-B.
 
 Effective
        November 29, 2005, the Company engaged Swalm & Associates, P.C. of Plano,
        Texas as its independent registered accounting firm of the Company for the
        fiscal year ending December 31, 2005. Prior to the engagement, the Company
        did
        not consult with Swalm & Associates, P.C. regarding the application of
        accounting principles to any completed or contemplated transaction, or the
        type
        of audit opinion that may be rendered with respect to the Company's financial
        statements. No written or oral advise was provided by Swalm & Associates,
        P.C. that was any factor considered by the Company in reaching a decision
        as to
        the accounting, auditing or financial reporting. The Company's Board of
        Directors approved the change in its independent registered public accounting
        firm.
 
 Effective
        December 1, 2005, the Company dismissed Swalm & Associates, P.C. as its
        independent registered public accounting firm. Swalm & Associates, P.C. did
        not render any type of accountants' report on the Company's financial statements
        during their period of engagement. The Company's Board of Directors approved
        the
        change in its independent registered public accounting firm. The change in
        the
        Company's independent registered public accounting firm was not related to
        any
        matter or disagreement with Swalm & Associates, P.C. concerning the
        Company's selection or application of accounting principles or practices,
        policies or judgments, the scope of audit, internal controls or integrity
        of
        management. There is no matter of disagreement, which would cause the Company
        to
        make reference to with its report and there were no "reportable events",
        other
        than the engagement and dismissal, as that term is defined in Item 304
        (a)(1)(iv) of Regulation S-B.
 
 Effective
        December 1, 2005, the Company engaged BKR Cornwell Jackson & Company, P.C.
        of Plano, Texas as the independent registered public accounting firm of the
        Company for the fiscal year ending December 31, 2005. Prior to the engagement,
        the Company did not consult with BKR Cornwell Jackson & Company, P.C.
        regarding the application of accounting principles to any specific completed
        or
        contemplated transaction, or the type of audit opinion that may be rendered
        with
        respect to the Company's financial statements. The Company's Board of Directors
        approved the change in its independent registered public accounting
        firm.
  17
 **ITEM
        8A. CONTROLS AND PROCEDURES**
 
 HSNI’s
        Chief Executive Officer and Chief Financial Officer, have evaluated the
        effectiveness of the Company's "disclosure controls and procedures"(as defined
        in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934,
        as
        amended) as of the end of the period covered by this report. Based on that
        evaluation, the Company’s Chief Executive Officer and Chief Financial Officer
        have identified the following material weaknesses:
 
 •
              
              Less
                  than adequate staff to prepare financial footnotes in accordance
                  with
                  generally accepted accounting principles;•
              
              Lack
                  of certain internal controls over period-end reporting related
                  to the
                  identification of significant transactions; primarily equity transactions,
                  and accounting for them in the proper periods; and•
              
              Lack
                  of certain internal controls related to the identification of contractual
                  transactions.
 
 The
        Company is beginning to undertake a review of its disclosure, financial
        information and internal controls and procedures. The Company believes the
        appropriate direction to be undertaken is as follows:
 
 •
              
              The
                  Company will augment, as necessary, such procedures by obtaining
                  concurrence with independent outside accounting experts prior to
                  finalizing financial reporting;•
              
              A
                  process has been established whereby accounting and operational
                  personnel
                  and an executive management member collectively determine the appropriate
                  accounting and disclosure review of material agreements;
                  and•
              
              The
                  Company has instituted regular quarterly meetings to review each
                  department's significant activities and respective disclosure controls
                  and
                  procedures.
 
 The
        Chief
        Executive Officer and the Chief Financial Officer believe these actions have
        and
        will further strengthen the internal controls of the Company. Although not
        yet
        accomplished, the Company is committed to augment, as necessary, such procedures
        by obtaining concurrence with independent outside accounting experts prior
        to
        finalizing financial reporting. The Company intended and expected to have
        such
        in place by the end of the first quarter of 2006; however, the Company now
        expects to have such in place by the end of the second quarter of
        2006.
 
 **ITEM
        8B. OTHER INFORMATION**
 
 None
        applicable
 
 **PART
        III**
 
 **ITEM
        9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH
        SECTION 16(A) OF THE EXCHANGE ACT**
 
 Members
        of the Board of Directors are elected to serve until the next annual meeting
        or
        until their successor is elected and qualified. As of March 15, 2006, the
        date
        of the next annual meeting has not been selected. The Company presently
        contemplates that should a 2006 Annual Meeting of Shareholders be held, the
        newly elected Directors will hold a regular annual meeting of the Board of
        Directors. If a regular meeting is not held, the Directors will sign a unanimous
        consent in lieu of holding the meeting and will re-elect the current officers
        to
        the same positions for the coming year.
 
 The
        Executive Officers and Directors of the Company as of March 15, 2006
        are:
 
 **Name**
              
              **Age**
              
              **Position**
              
              **Director
                  Since**Charles
                  Norman
              
              48
              
              Chief
                  Executive Officer; Director; Chairman
              
              2003Peter
                  Ubaldi
              
              60
              
              President;
                  Director; Chief Financial Officer; Treasurer
              
              2004
 
 18
 
 A
        brief
        statement setting forth the principal occupation and certain other information
        for each of them is set forth below.
 
 Mr.
        Norman’s experience includes consumer banking, consumer finance companies, and
        the automobile industry. Mr. Norman has been involved in raising capital
        and has
        served in successful turnaround executive management roles in private and
        publicly help companies, as well as extensive entrepreneurship as a passive
        investor and/or managing partner. Mr. Norman has ten years of experience
        in
        various senior capacities running publicly traded companies.
 
 In
        April
        2003, (amended and restated January 2004, amended and restated January 2005)
        HSNI entered into an Employment Agreement (“Agreement”) with Charles W. Norman.
        The Agreement provides that Mr. Norman shall serve as the Chief Executive
        Officer of HSNI to January 1, 2007. The duration of the Agreement is for
        a
        period of two years marked by the amended and restated date of January 1,
        2005.
        At any time prior to the expiration of the Agreement, HSNI and Mr. Norman
        may
        mutually agree to extend the duration of employment under the terms of the
        Agreement for an additional period or periods. As payment for services, HSNI
        agrees to pay Mr. Norman, as the Chief Executive Officer, a minimum base
        salary
        of $250,000 per annum. As provided in the Agreement, Mr. Norman is eligible
        to
        be paid bonuses, from time to time, at the discretion of HSNI’s Board of
        Directors, of cash, stock or other valid form of compensation. Upon termination
        of and under the terms of the Agreement, Mr. Norman shall be entitled to
        severance compensation in an amount equal to twenty-four months’ of base salary
        as shall exist at the time of such termination.
 
 Mr.
        Ubaldi has worked in the finance industry for thirty six years. Mr. Ubaldi
        began
        his career with a major CPA firm and has since specialized in various
        finance-related industries as an investment banker and executive manager.
        Mr.
        Ubaldi has extensive experience with major banking institutions, as well
        as
        specialty finance and equipment leasing companies. Mr. Ubaldi has three years
        of
        experience in various senior capacities running publicly traded
        companies.
 
 In
        May
        2004, (amended and restated January 2005) HSNI entered into an Employment
        Agreement (“Agreement”) with Peter Ubaldi. The Agreement provides that Mr.
        Ubaldi shall serve as the President of HSNI to January 1, 2007. The duration
        of
        the Agreement is for a period of two years marked by the amended and restated
        date of January 1, 2005. At any time prior to the expiration of the Agreement,
        HSNI and Mr. Ubaldi may mutually agree to extend the duration of employment
        under the terms of the Agreement for an additional period or periods. As
        payment
        for services, HSNI agrees to pay Mr. Ubaldi, as the President, a minimum
        base
        salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is
        eligible to be paid bonuses, from time to time, at the discretion of HSNI’s
        Board of Directors, of cash, stock or other valid form of compensation. Upon
        termination of and under the terms of the Agreement, Mr. Ubaldi shall be
        entitled to severance compensation in an amount equal to twenty-four months’ of
        base salary as shall exist at the time of such termination.
 
 **Indemnification
        of Directors and Officers**
 
 Subject
        to and subsequent to an appointment or election as an officer or director,
        the
        Company provides contractually indemnification.
 
 The
        Company agrees to indemnify the positions of directors and officers as follows:
        A director or officer shall not be liable for any claim or demand on account
        of
        damages in any manner. The Company agrees to indemnify and hold directors
        or
        officers, without limitation, harmless from any and all damages, losses (which
        shall include any diminution in value), shortages, liabilities (joint or
        several), payments, obligations, penalties, claims, litigation, demands,
        defenses, judgments, suits, proceedings, costs, disbursements or expenses
        of any
        kind or nature whatsoever, specifically including without limitation, fees,
        disbursements and expenses of attorneys, accountants and other professional
        advisors and of expert witnesses and cost of investigation and preparation.
        A
        director or officer will be indemnified from any decision or action taken
        prior
        to his or her hire date as a director or officer.
 
 **Code
        of Ethics**
 
 The
        Company has not yet adopted a code of ethics that applies to its principal
        executive officer, principal financial officer, principal accounting officer,
        or
        controller, or persons performing similar functions.
 
 The
        Company deferred its adoption of a code of ethics due to events such as the
        change of control, the Company's contraction, and the refocus of the Company’s
        business.
 
 The
        Company anticipates adopting a code of ethics as soon as is practical and
        it
        will be posted on the Company’s Web Site.
  19
 **ITEM
        10. EXECUTIVE COMPENSATION**
 
 The
        following table sets forth, for each of the last three fiscal years, cash
        and
        certain other compensation paid by the Company for its Chief Executive Officer,
        President and Chief Financial Officer. None of the next highly compensated
        officers serving on December 31, 2005 received more than $100,000 for fiscal
        2005.
  **Long
        Term Compensation**
 
 **Name/Principal**
              
              **Fiscal
                  Year**
              
              **Annual
                  Compensation**
              
              **Awards
                  and Payouts**Position
              
              
              
              Salary
              
              Bonus
              
              Stock
              
              Options
              
              LTIPAwards
              
              SARsCharles
                  NormanCEO
              
              
              2005
              
              $
              256,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —CEO
              
              
              2004
              
              $
              250,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —CEO
                  & President
              
              
              2003
              
              $
              250,000
              
              $
              25,000
              
              
              —
              
              
              —
              
              
              —Peter
                  UbaldiPresident
                  & CFO
              
              
              2005
              
              $
              256,000
              
              
              —
              
              
              —
              
              
              —
              
              
              —CFO
              
              
              2004
              
              $
              206,458
              
              
              —
              
              
              —
              
              
              —
              
              
              —2003
              
              
              —
              
              
              —
              
              
              —
              
              
              —
              
              
              —
 
 **Stock
        Plan**
 
 The
        Company has a non-qualified stock option plan (the “Plan”) that was adopted by
        the Board of Directors in March 1997. The Plan, as authorized, provides for
        the
        issuance of up to 2,000,000 shares of the Company’s stock. Persons eligible to
        participate in the Plan as recipients of stock options include full and
        part-time employees of the Company, as well as officers, directors, attorneys,
        consultants and other advisors to the Company or affiliated
        corporations.
 
 Options
        issued under the Plan are exercisable at a price that is not less than twenty
        percent (20%) of the fair market value of such shares (as defined) on the
        date
        the options are granted. The non-qualified stock options are generally
        non-transferable and are exercisable over a period not to exceed ten (10)
        years
        from the date of the grant. Earlier expiration is operative due to termination
        of employment or death of the issuee. The entire Plan expires on March 20,
        2007,
        except as to non-qualified stock options then outstanding, which will remain
        in
        effect until they have expired or have been exercised. As of December 31,
        2005,
        1,990,289 shares had been exercised and issued under the Plan, 9,711 shares
        were
        available for future issuance.
 
 In
        January 2005, HSNI issued 100,000 shares of common stock with a par value
        of
        $.001. They were issued to an executive as a hiring bonus and are reflected
        in
        operating expenses of the consolidated financial statements at $0.15 per
        share
        ($15,000) for period ended December 31, 2005. No options were granted and
        no
        warrants were authorized during 2005.
 
 **Compensation
        of Directors**
 
 No
        Directors fees were paid during fiscal 2005.
 
 **ITEM
        11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT**
 
 The
        following table sets forth certain information, as of March 30, 2006, concerning
        the beneficial ownership of Common Stock by all Directors and nominees,
        officers, all Directors and officers of the Company, as a group, and each
        person
        who beneficially owns more than 5% of the 171,623,930 outstanding shares
        of
        Common Stock, $.001 par value. Unless otherwise indicated, each person named
        has
        sole voting and investment power over the shares indicated;
 
 
 20
 
 Number
        of
        Shares Beneficially Owned and Percent of Class
  Directors,
                    Named
                  Officers
                    and 5% Stockholders
                
                Common
                  Stock
                
                Percent
                    ofCommonStock
                
                Series
                    APreferred
                
                Percentof
                    Series
                
                Series BPreferred
                
                Percentof
                    Series
                
                PercentVoting
                  PowerAutoCorp
                    Acquisition Partners (1)
                
                —
                
                —
                
                4,086,856
                
                100
                %
                1,621,642
                
                100
                %
                —Charles
                    Norman, Director, Chief ExecutiveOfficer
                    (2)
                
                47,017,922
                
                27.40
                %
                2,043,428
                
                50
                %
                810,821
                
                50
                %
                27.48
                %Peter
                    Ubaldi, Director President, ChiefFinancial
                    Officer, Treasurer (3)
                
                45,761,905
                
                26.66
                %
                2,043,428
                
                50
                %
                810,821
                
                50
                %
                26.66
                %William
                    Merritt (4)
                
                9,400,000
                
                5.48
                %
                —
                
                —
                
                —
                
                —
                
                5.48
                %Securities
                    Acquisition New York, LLC (5)
                
                8,907,000
                
                5.19
                %
                —
                
                —
                
                —
                
                —
                
                5.19
                %Roderick
                    Michael Johnson (6)
                
                11,100,000
                
                6.47
                %
                —
                
                —
                
                —
                
                —
                
                6.47
                %Jay
                    Doleh, Chief Technology Officer (7)
                
                2,000,000
                
                1.17
                %
                —
                
                —
                
                —
                
                —
                
                1.17
                %Michael
                    R. Dumont, Chief Compliance Officer
                
                4,000,000
                
                2.33
                %
                —
                
                —
                
                —
                
                —
                
                2.33
                %Donna
                    Blohm, VP of Accounting and Controller
                
                1,050,000
                
                0.61
                %
                —
                
                —
                
                —
                
                —
                
                0.61
                %Terri
                    Ashley, Secretary, VP of Investor Relations
                
                3,024,131
                
                1.76
                %
                —
                
                —
                
                —
                
                —
                
                1.76
                %Roy
                    Pardini, VP of Sales
                
                5,453,577
                
                3.18
                %
                
                
                
                
                
                
                
                
                3.18
                %All
                        directors, director nominees and officers as a
                        group
                
                108,307,535
                
                63.11
                %
                4,086,856
                
                100
                %
                1,621,642
                
                100
                %
                63.11
                %All
                    5% beneficial owners
                
                122,186,827
                
                71.19
                %
                4,086,856
                
                100
                %
                1,621,642
                
                100
                %
                71.19
                %
 1.
              Messrs.
                  Norman and Ubaldi each own a 50% interest in AutoCorp Acquisition
                  Partners
                  and constitute 100% of the HSNI’s Board of Directors. AutoCorp Acquisition
                  Partners as a company does not have a common equity position in
                  HSNI. The
                  preferred shares, however, reside in the name of AutoCorp Acquisition
                  Partners. As a corporation, AutoCorp Acquisition Partners is not
                  listed on
                  the issuer’s shareholder list.
 
 2.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  Charles Norman, (1,445,422); Charles and/or Desiree Norman, (45,000,000
                  shares); and CEDE & Co. - cert. no. 5124, (572,500). HSNI knows these
                  parties to be affiliated.
 
 3.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  Peter Ubaldi Revocable Trust, (36,000,000); Peter Ubaldi, (3,761,905
                  shares); Jason Ubaldi, (3,000,000 shares); and Michael & Allison
                  Louro, (3,000,000). HSNI knows these parties to be
                  affiliated.
 
 4.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  William Merritt, (600,000); and BBK Investments (9,000,000). HSNI
                  knows
                  these parties to be affiliated.
 
 5.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  Market Connexxions LLC, (5,857,000); W-Two LTD, (1,250,000 shares);
                  and
                  ProMark, Inc., (1,800,000 shares). HSNI believes, but has not been
                  able to
                  ascertain that these parties are affiliated with Securities Acquisition
                  New York, LLC.
  6.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  Roderick Michael Johnson, (7,000,000); and Rodwell Software Systems,
                  Inc.
                  (4,100,000). HSNI knows these parties to be related
                  parties.
  21
 7.
              HSNI’s
                  shareholder records reflect that this block of shares is held as
                  follows:
                  Versa Tech Solutions, (2,000,000). HSNI knows these parties to
                  be
                  affiliated. Mr. Doleh is an officer and a principal of Versa Tech
                  Solutions.
 
 Any
        of
        the above parties may wish to disclaim beneficial ownership of any of such
        shares. Additionally, HSNI has not been able to ascertain any affiliation
        other
        than stated, which may have interest in shares of HSNI common
        stock.
 
 **Section
        16(a) Beneficial Ownership Reporting Compliance**
 
 Section
        16(a) of the Securities Exchange Act of 1934 and the rules promulgated there
        under require that directors and executive officers of the Company and
        beneficial owners of greater than 10% of the Company's Common Stock file
        various
        reports with the Securities and Exchange Commission.
 
 The
        Company does not file on these individuals’ behalf and solely reviews reports
        furnished to HSNI. The Company has reviewed its files with respect to fiscal
        2005. The following persons failed to file timely or did not file a Form
        3, Form
        4 or Form 5 within fiscal year 2005: Charles Norman; and Peter
        Ubaldi.
 
 **ITEM
        12. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS**
  ***Pacific
        Holdings Group, Inc.***
  On
        June
        30, 2003, Pacific Auto Group, Inc. (“PAG”) became a wholly owned subsidiary of
        Homeland Security Network, Inc. (“HSNI”), and the HSNI securities described
        below were issued to Pacific Holdings Group, Inc. (“PHG”), the sole stockholder
        of PAG. The form of the transaction was a reverse triangular merger, whereby
        a
        newly formed, wholly owned, acquisition subsidiary of HSNI merged with and
        into
        PAG, with PAG being the surviving corporation in the merger and a subsidiary
        of
        HSNI.
 
 On
        June
        30, 2003, PHG was 100% owned by PUSA. On December 2, 2002, PUSA filed a
        voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The ultimate
        parent company was PEWC. PAG is the holding company for its wholly owned
        subsidiary American Finance Company, Inc. (“AFCO”). AFCO's principal operations
        consisted of the purchase of automobile finance receivables, collateralized
        by
        new and pre-owned automobiles, from franchised and independent automotive
        dealers throughout the United States.
 
 PUSA
        was
        the primary domestic parent company of the entire group, owning all of the
        outstanding stock of PHG.
 
 Effective
        June 30, 2003, HSNI issued 100,000,000 shares of its Common Stock and 4,086,586
        shares of its Series A convertible stock to PHG, the parent company of PAG,
        resulting in PHG owning approximately 94.0% of the outstanding HSNI
        shares.
 
 Pacific
        Financial Group, Inc. (“PFG”), an affiliate of PHG, owned 1,621,642 shares of
        Series B Non-Cumulative Convertible Preferred Stock of HSNI; par value $0.001
        per share (the "Series B Preferred Shares"). Those Series B Preferred Shares
        were convertible at any time, at the option of the holder on a one-for-one
        basis, into 1,621,642 HSNI Common Shares. The Series B Preferred is non-voting
        stock.
 
 Subsequent
        to the June 30, 2003 merger transaction, on a fully-diluted basis, PFG
        immediately beneficially owned 1,621,642 HSNI Common Shares, and PHG
        beneficially owned 136,490,202 HSNI Common Shares. On a fully diluted basis,
        PHG
        and PFG together beneficially owned 142,490,202 HSNI Common Shares, which
        represented 95.66% of the 148,953,873 HSNI Common Shares that would then
        be
        outstanding.
 
 On
        June
        30, 2003, Pacific USA Holdings Corp. (“PUSA”) was the sole stockholder of PFG
        and PHG and as such beneficially owned 142,490,202 HSNI Common Shares. Pacific
        Electric Wire and Cable (“PEWC”) was the sole shareholder of PUSA and as such
        beneficially owned 142,490,202 HSNI Common Shares, which represented 95.66%
        of
        the 148,953,873 HSNI Common Shares then, outstanding.
 
 On
        August
        20, 2004, PHG, the then controlling shareholder of the Company, and one of
        its
        affiliates, Pacific Financial Group (“PFG”) and, collectively with PHG, the
        ("Sellers"), sold their stock to a partnership, AutoCorp Acquisition Partners
        (“AAP”, the "Purchaser") formed by the then President (and CEO) and Executive
        Vice President of the Company.
 
 The
        Purchaser designated Charles Norman, the then President (and CEO) and Peter
        Ubaldi, the then Executive Vice President of the Company (the "Purchaser
        Designees") who were elected to the Board of Directors. The Purchaser Designees
        became a majority of the Board after the tenth day subsequent to the mailing
        and
        filing of the Information Statement pursuant to Section 14(f) of the Exchange
        Act and Rule 14f-1 promulgated there under. The Purchaser is now the beneficial
        owner of the majority of the Company's stock and the Purchaser Designees
        constitute 100% of the Company's Board of Directors.
 
 22
  ***Background
        of Transaction and Change in Control***
 
 Pursuant
        to an acquisition agreement entered into as of August 20, 2004 by and among
        the
        Sellers, the Purchaser and the Company, the Sellers sold all of the stock
        of the
        Company held by it to the Purchaser. Pursuant to the acquisition agreement,
        the
        Board members, all of who had been appointed by PHG as controlling shareholder
        of the Company, appointed the Purchaser Designees to the Board. Two of the
        PHG-appointed directors then resigned immediately and the remaining two
        PHG-appointed directors resigned on September 13, 2004, being more than ten
        days
        after the mailing and filing of the Information Statement pursuant to Section
        14(f) of the Exchange Act and Rule 14f-1 promulgated there under.
 
 AAP
        acquired the stock of the Sellers and by its principles (1) delivered their
        personal guarantee to Far East National Bank ("FENB") to obtain the release
        of
        the guarantee by PEWC discussed below; and (2) agreed the Company could make
        the
        transfers and give the releases to PHG described (and in the amounts indicated)
        below; simultaneously with PHG funding and canceling the obligations of the
        Company described (and in the amounts indicated) below. The Purchasers paid
        no
        cash to the Sellers for the stock.
 
 PEWC
        is
        PHG's indirect parent. PEWC had provided a guarantee to FENB in connection
        with
        a $10 million revolving credit facility from FENB to AFCO Receivables Funding
        Corp, an indirect subsidiary of the Company. At the date of the closing of
        the
        acquisition agreement, there was $661,796 outstanding under the revolving
        credit
        facility. It was a condition to the closing that PEWC be released from its
        guarantee.
 
 The
        Company transferred to PHG (i) the entire ownership of certain residual
        interests in securitization assets, which were then on the books of American
        Finance Company, a PAG subsidiary, in the amount of $2 million; (ii) the
        balances in certain bank accounts of the Company and its subsidiaries in
        the
        amount of $404; and (iii) a 1993 Lexus automobile owned by AutoCorp Financial
        Services, Inc., a wholly owned subsidiary of HSNI; along with the agreement
        of
        the Company to transfer subsequent to the closing any other assets not directly
        associated with the Company's then primary business of automobile sub-prime
        receivable acquisition.
 
 The
        Company released PHG and its affiliates from certain receivables due from
        them
        to the Company in the amount of $37,395.
 
 Simultaneously
        with the transfers and releases by the Company, PHG funded certain payroll
        obligations in the amount of $173,852 and loan portfolio obligations of the
        Company in the amount of $56,000, and to cancel certain obligations owed
        to PHG
        and its affiliates by the Company and the Company's subsidiaries in the amount
        of $4,139,880.
 
 As
        part
        of the transaction, PHG secured the release of 35 million shares of restricted
        Company Common Stock pledged to FENB in connection with an outstanding loan
        to
        PHG and an affiliate of PHG. Such shares are part of the 94,000,000 Common
        Shares Sellers sold to Purchaser.
  23
 ***Rodwell
          Software Systems, Inc.***
 
 The
          Company entered into a letter of intent dated as of January 2005 with Rodwell
          Software Systems, Inc. (“RSSI) regarding the Company's acquisition of all of the
          issued and outstanding capital stock of RSSI subject to certain adjustments
          at
          the closing of the acquisition plus assumption of certain transaction and
          related costs and expenses. The letter of intent was subject to various
          conditions and approvals and contemplated that the acquisition would be
          effected
          through the merger of RSSI with and into the Company, with the Company
          as the
          surviving corporation. The Company's intention to acquire RSSI was to
          significantly increase its software/firmware development capabilities,
          which
          combines GPS tracking with a web interface in one simple device working
          in
          tandem with a cell phone, PDA or computer. The acquisition was not consummated
          by mutual agreement.
 
 On
          December 26, 2005, the Company, as a prerequisite to a more definitive
          agreement, entered into an agreement to solely purchase certain software,
          firmware and product enhancements developed by RSSI. The transaction is
          subject
          to the execution and delivery of the more definitive written agreement
          and other
          documents between the Company and RSSI. In September 2005, the Company
          issued
          7,000,000 shares of common stock to RSSI as compensation for the purchase
          of the
          software, firmware and product enhancements. In December 2005, pursuant
          to its
          agreement with RSSI, the Company issued 4,100,000 shares of common stock
          as
          additional compensation to RSSI. Further, the Company will provide an
          intermittent royalty based on the sale of components and usage of the web
          interface by consumers as compensation to RSSI, subject to certain milestones.
          The Company incurred product development costs of $313,000 during the year
          ended
          December 31, 2005 for software related to the GPS tracking devices.
 The
          more
          definitive agreement will include additional language, without limitation,
          regarding an exclusive permanent License, attached schedules, representations,
          warranties and exceptions, and other matters with respect to the transaction.
 
 The
          general terms and conditions related to the exclusivity of the permanent
          license
          are as follows. The exclusivity relates primarily to the retail automotive
          industry, which encompasses end users of the products. Other unrelated
          markets
          are also provided for. The exclusivity, however, is conditional.
 
 The
          purchase from RSSI provides the Company with technology products and support
          services for tracking and recovering valuable mobile assets.
 
 HSNI's
          plan further incorporates engaging and developing strategic alliances with
          third
          party sale and installation entities and distributors that have a distinct
          sales
          and marketing presence in the automobile retail industry, and the commercial
          and
          government sectors. The Company expects these types of engagements to be
          particularly beneficial and anticipates the results of such alliances to
          create
          name recognition for the Company.
  24
  ***Beneficial
          Conversion Transaction***
 
 In
          March
          2001, the Company issued a note payable with a limited conversion feature
          in the
          principal sum of $125,000, bearing interest at 12% per annum, to a related
          party. In December 2004, the related party endorsed and assigned all rights,
          title and interest in the remaining obligation of this note payable to
          another
          entity. At such time, the outstanding principal balance was
          $61,538.
 
 In
          December 2004, subsequent to the assumption of this note payable by Securities
          Acquisition New York, LLC (“SANY”), a related party, the Board of Directors of
          the Company resolved to both convert this note payable and consent to an
          amended
          conversion calculation at a rate permitting 10,000 shares of common stock
          to be
          issued in exchange for each $1.00 of reduction in the outstanding principal
          of
          this note payable.
 
 Based
          on
          the aforementioned amendment to the conversion calculation rate, the Company
          performed two conversions, which were elected by the entity holding the
          note
          payable: January 2005, the Company issued 3,429,355 shares valued at $0.11
          per
          share at $377,229; and in March 2005, the Company issued 12,000,000 shares
          valued at $0.18 per share at $2,160,000, totaling $2,537,229 resulting
          in a
          charge in the statement of operations. See Item 11, Security Ownership
          of
          Certain Beneficial Owners and Management. The applied conversion rate was
          adjusted and recalculated by the Board of Directors.
 
 In
          August
          2005, as a result of a termination and settlement agreement of the assignment
          and assumption of the note payable by and between the related party and
          SANY,
          the Company was relieved of additional debt requiring no further issuances
          of
          shares of common stock. And as such, the conversion calculation was corrected
          and amended to 1,000 shares of common stock having been issued in exchange
          for
          each $1.00 deducted from the outstanding principal of this note payable.
 
 Further,
          under the terms of the termination and settlement agreement no party has
          any
          future right nor does the Company have any future obligation to convert
          or issue
          shares of common stock in exchange for debt relief related to this note
          payable.
 
 In
          the
          year ended December 31, 2005, $13,876 was recorded as a repayment of the
          obligation. On December 30, 2005, the Company was entirely relieved of
          this
          related party note payable of $46,113 with a recorded balance of $46,311.
          The
          Company received an unconditional release by the holder of the note from
          any and
          all obligations.
 
 ***Operating
          Lease***
 
 The
          Company leases its principal executive office in Frisco, Texas from a related
          party on a month to month basis, which commenced in September 2004. Effective
          January 2006, the annual rent will increase to approximately $84,000 per
          year.
          The Company is responsible for its proportionate share of operating expenses
          of
          the premises.
 
 ***Securities
          Acquisition New York, LLC***
 
 In
          November 2004, the Company signed a proposal for certain services to be
          performed by Securities Acquisition New York, LLC to plan and re-capitalize
          the
          business. The proposal agreement provided for various services, which included
          certain merger services and capital sourcing activities and related services.
          The Company only partially implemented the services provided by the proposal
          agreement from January 2005 through March 2005, and since then effectively
          abandoned the core strategy encompassed in the agreement. Formerly, the
          Company
          had not agreed to nor had it made any provisions for any additional
          compensation. The Company and Securities Acquisition New York, LLC concluded
          their discussions regarding a resolution of the matter. In December 2005,
          the
          Company issued 2,500,000 shares of common stock as compensation paid for
          services rendered by Securities Acquisition New York, LLC in 2005. Given
          the
          additional consideration, Securities Acquisition New York, LLC is fully
          and
          entirely compensated.
 
 For
          other
          related party transactions see Financial Footnotes 12, 13, 14, 15, 19 and
          24.
 25
 
 **ITEM
        13. EXHIBITS**
 
 **Exhibit
        Index**
 
 The
        following exhibits are filed herewith or are incorporated by reference to
        exhibits previously filed with the Commission.
 
 **Exhibit
                  Number**
              
              **Description**3.1
              
              Amendments
                  to Articles of Incorporation (incorporated by reference to Exhibit
                  C of
                  HSNI’s February 7, 2005 DEF 14C)10.1
              
              Acquisition
                  Agreement (incorporated by reference to Exhibit 2.1 of HSNI’s August 31,
                  2004 8-K)10.2
              
              Purchase
                  Agreement (Rodwell Software Systems, Inc.)21.1
              
              List
                  of Subsidiaries (incorporated by reference to Exhibit 10.1 of HSNI’s May
                  18, 2004 10-KSB)31.1
              
              Certification
                  of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley
                  Act of 2002.31.2
              
              Certification
                  of President and Chief Financial Officer pursuant to Section 302
                  of the
                  Sarbanes-Oxley Act of 2002.32.1
              
              Certification
                  of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                  Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2
              
              Certification
                  of President and Chief Financial Officer Pursuant to 18 U.S.C.
                  Section 1350, as Adopted Pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002
 
 **ITEM
        14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES**
 
 Fees
        for
        audit services totaled approximately $55,500 and $40,000 in 2005 and 2004,
        respectively. There were no audit related tax, or other fees paid to the
        Company’s independent registered public accounting firm.
 
 
 26
 
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **INDEX
        TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 **December
        31, 2005 and 2004**
 
 REPORTS
                  OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
              
              28CONSOLIDATED
                  FINANCIAL STATEMENTSConsolidated
                  Balance Sheets
              
              30Consolidated
                  Statements of Operations
              
              31Consolidated
                  Statements of Cash Flows
              
              32Consolidated
                  Statement of Changes in
                Shareholders'
                  Equity (Deficit)
              
              33Notes
                  to Consolidated Financial Statements
              
              34
  27
 
 **REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 To
        the
        Board of Directors and Shareholders
 Homeland
        Security Network, Inc.
 
 We
        have
        audited the accompanying consolidated balance sheet of Homeland Security
        Network, Inc. and its subsidiaries as of December 31, 2005, and the related
        consolidated statements of operations, shareholders’ deficit, and cash flows for
        the year then ended. These consolidated financial statements are the
        responsibility of the Company’s management. Our responsibility is to express an
        opinion on these financial statements based on our audit.
 
 We
        conducted our audit in accordance with standards of the Public Company
        Accounting Oversight Board (United States). Those standards require that
        we plan
        and perform the audit to obtain reasonable assurance about whether the financial
        statements are free of material misstatement. We were not engaged to perform
        an
        audit of the Company’s internal control over financial reporting. Our audit
        included consideration of internal control over financial reporting as a
        basis
        for designing audit procedures that are appropriate in the circumstances,
        but
        not for the purpose of expressing an opinion on the effectiveness of the
        Company’s internal control over financial reporting. Accordingly we express no
        such opinion. An audit includes examining, on a test basis, evidence supporting
        the amounts and disclosures in the financial statements. An audit also includes
        assessing the accounting principles used and significant estimates made by
        management, as well as evaluating the overall financial statement presentation.
        We believe that our audit provides a reasonable basis for our
        opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Homeland
        Security Network, Inc. and its subsidiaries as of December 31, 2005, and
        the
        results of its operations and its cash flows for the year then ended, in
        conformity with accounting principles generally accepted in the United States
        of
        America.
 
 The
        accompanying financial statements have been prepared assuming that the Company
        will continue as a going concern. As discussed in Note 5 to the financial
        statements, the Company has suffered losses from operations, incurred negative
        cash flows from operations, and has a shareholders’ deficit at December 31,
        2005. These conditions raise substantial doubt about the Company’s ability to
        continue as a going concern. Management’s plans in regards to these matters are
        also described in Note 5. These consolidated financial statements do not
        include
        any adjustments to reflect the possible future effects on the recoverability
        and
        classification of assets or the amounts and classification of liabilities
        that
        may result from the outcome of this uncertainty.
 
 /s/
        BKR
        Cornwell Jackson
 Plano,
        Texas
 March
        31,
        2006
 
 
 28
  **REPO** **RT
          OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  The
          Board
          of Directors and Stockholders of Homeland Security Network, Inc.
 Frisco,
          TX
 
 We
          have audited the accompanying consolidated balance sheet of Homeland Security
          Network, Inc., formerly AutoCorp Equities, Inc., and Subsidiaries, as of
          December 31, 2004 and the related consolidated statements of operations,
          and
          stockholders deficit and cash flows for the years ended December 31, 2004
          and
          2003. These consolidated financial statements are the responsibility of
          the
          Company's management. Our responsibility is to express an opinion on these
          consolidated financial statements based on our audits.
 
 We
          conducted our audits in accordance with the standards of the Public Company
          Accounting Oversight Board (United States). Those standards require that
          we plan
          and perform the audit to obtain reasonable assurance about whether the
          financial
          statements are free of material misstatement. We were not engaged to perform
          an
          audit of internal control over financial reporting. Our audit included
          consideration of internal control over financial reporting as a basis for
          designing audit procedures that are appropriate in the circumstances, but
          not
          for the purpose of expressing an opinion on the effectiveness of the Company's'
          internal control over financial reporting. Accordingly, we express no such
          opinion. An audit includes examining, on a test basis, evidence supporting
          the
          amounts and disclosure in the financial statements, assessing the accounting
          principles used and significant estimates made by management, and evaluating
          the
          overall financial statement presentation. We believe that our audits provide
          a
          reasonable basis for our opinion.
 
 In
          our
          opinion, the financial statements referred to above present fairly, in
          all
          material respects, the consolidated financial position of Homeland Security
          Network, Inc. and Subsidiaries as of December 31, 2004 and the consolidated
          results of its operations and its cash flows for the years ended December
          31,
          2004 and 2003 in conformity with accounting principles generally accepted
          in the
          United States of America.
 
 The
          accompanying consolidated financial statements have been prepared assuming
          that
          the Company will continue as a going concern. As discussed in Note 3 to
          the
          consolidated financial statements, the Company has suffered losses from
          operations and has a working capital deficit at December 31, 2004. These
          conditions raise substantial doubt about the Company's ability to continue
          as a
          going concern. Management's plans in regard to these matters are also described
          in Note 3. The consolidated financial statements do not include any adjustments
          that might result from the outcome of this uncertainty.
 
 Friedman
          LLP
 East
          Hanover, New Jersey
  August
          23, 2005
 
 29
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        BALANCE SHEETS**
  **December
                    31,**
                  **2005**
                
                
                **December
                    31,**
                  **2004**
 **ASSETS****Current
                    Assets:**Cash
                
                $
                2,776
                
                $
                21,339Accounts
                    Receivable - related parties
                
                
                133,250
                
                
                —Finance
                    receivables, net of allowances of $132,077 and$322,213,
                    respectively
                
                
                10,482
                
                
                412,932Prepayments
                    and other current assets
                
                
                1,055
                
                
                11,846Total
                    current assets
                
                
                147,563
                
                
                446,117**Property,
                    plant and equipment, net of accumulated****depreciation
                    of $38,674 and $427,772, respectively**
                
                
                19,065
                
                
                21,439**Capitalized
                    software, net of accumulated amortization of****$29,967
                    and $0, respectively**
                
                
                788,033
                
                
                —**Deferred
                    charges and other assets:**Security
                    deposits
                
                
                7,036
                
                
                20,750Miscellaneous
                    receivable
                
                
                599
                
                
                24,185Total
                    other assets
                
                
                7,635
                
                
                44,935**Total
                    assets**
                
                $
                962,296
                
                $
                512,491**LIABILITIES
                    AND STOCKHOLDERS’ DEFICIT**Accounts
                    payable and accrued liabilities
                
                $
                872,557
                
                $
                861,894Accounts
                    payable and accrued liabilities to related parties
                
                
                318,713Notes
                    payable to related parties
                
                
                1,094,206
                
                
                657,438Amounts
                    payable to credit unions
                
                
                202,555
                
                
                547,144Line
                    of credit
                
                
                166,085
                
                
                193,751Total
                    current liabilities
                
                
                2,654,116
                
                
                2,260,227**Commitments
                    and contingencies****Shareholders’
                    deficit:**Series
                    A cumulative convertible preferred stock, $.001par
                    value, 10,000,000 shares authorized, 4,086,856issued
                    and outstanding
                
                
                4,087
                
                
                4,087Series
                    B cumulative convertible preferred stock, no parvalue,
                    5% non-cumulative; liquidation preference of$14.64
                    per share; 2,000,000 shares authorized,1,621,642
                    issued and outstanding
                
                
                352,643
                
                
                352,643Common
                    Stock, par value $.001; 400,000,000 sharesauthorized,
                    171,123,930 and 106,463,671 sharesissued
                    and outstanding
                
                
                171,124
                
                
                106,464**Additional
                    paid-in-capital**
                
                
                19,677,632
                
                
                14,491,850**Accumulated
                    deficit**
                
                
                (21,497,566
                )
                
                (16,303,040
                )(1,292,080
                )
                
                (1,347,996
                )Less
                    treasury at cost, 1,817,000 shares
                
                
                (399,740
                )
                
                (399,740
                )Total
                    Stockholders’ deficit
                
                
                (1,691,820
                )
                
                (1,747,736
                )**Total
                    liabilities and stockholders’ deficit**
                
                $
                962,296
                
                $
                512,491
 
 The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
 
 
 30
 
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF OPERATIONS**
  **For
                    the Years Ended December 31,****2005**
                
                
                **2004**
 **Revenues:**Net
                    Product Sales – related parties
                
                $
                255,060
                
                $
                —Cost
                    of goods sold
                
                
                191,500
                
                
                —Gross
                    Margin – Product Sales
                
                
                63,560
                
                
                —Interest
                    income – finance receivables
                
                
                39,258
                
                
                374,037Gain
                    (Loss) on sale of loans and other
                
                
                12,304
                
                
                91,417Other
                    Income
                
                
                11,287
                
                
                76,920Other
                    Income
                
                
                62,849
                
                
                542,374**Gross
                    Margin**
                
                
                126,409
                
                
                542,374**Expenses:**Interest
                    expense
                
                
                104,593
                
                
                369,216Deferred
                    financing costs
                
                
                175,000
                
                
                293,846Compensation
                    and benefits
                
                
                1,764,376
                
                
                1,755,412Office
                    occupancy and equipment
                
                
                118,568
                
                
                627,440Professional
                    fees
                
                
                235,614
                
                
                128,286Loan
                    servicing
                
                
                10,059
                
                
                124,582Depreciation
                    and amortization
                
                
                35,482
                
                
                302,601Product
                    development expense
                
                
                313,000
                
                
                —Provision
                    for loan loss
                
                
                (59,198
                )
                
                (593,467
                )Marketing
                    expense
                
                
                63,203
                
                
                —Other
                    operating expense
                
                
                62,679
                
                
                129,774Bad
                    debt expense
                
                
                22,937
                
                
                —Total
                    expenses
                
                
                2,846,313
                
                
                3,137,690**Loss
                    from Operations**
                
                $
                (2,719,904
                )
                $
                (2,595,316
                )**Other
                    income (deductions):**Other
                    Income
                
                
                1,069
                
                
                —Forgiveness
                    of Debt
                
                
                46,112
                
                
                —Impairment
                    of Intangible Asset
                
                
                —
                
                
                (546,275
                )Interest
                    Expense from beneficial conversion(See
                    Note 15)
                
                
                (2,521,803
                )
                
                —Total
                    other deductions
                
                
                (2,474,622
                )
                
                (546,275
                )**Net
                    loss**
                
                $
                (5,194,526
                )
                $
                (3,141,591
                )**Net
                    loss per share, basic and diluted**
                
                $
                (0.04
                )
                $
                (0.03
                )**Weighted
                    average shares outstanding, basic and diluted**
                
                
                133,820,103
                
                
                106,463,671
 
 The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
 
 
 31
 
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENTS OF CASH FLOWS**
  **For
                      the Years Ended December 31,****2005**
                  
                  
                  **2004**
 **Cash
                        flows from operating activities:**Net
                        loss
                    
                    $
                    (5,194,526
                    )
                    $
                    (3,141,591
                    )**Adjustments
                        to reconcile net loss from continuing operations
                        to****net
                        cash used in operating activities:**Gain
                        on sale of assets
                    
                    
                    (6,250
                    )
                    
                    (91,417
                    )Depreciation
                        and amortization
                    
                    
                    35,482
                    
                    
                    310,135Amortization
                        of deferred financing costs
                    
                    
                    —
                    
                    
                    355,306Provision
                        for loan loss
                    
                    
                    190,137
                    
                    
                    (421,628
                    )Impairment
                        of intangible asset
                    
                    
                    —
                    
                    
                    546,275Common
                        stock issued for interest-Beneficial ConversionFeature
                    
                    
                    2,535,679
                    
                    
                    —Common
                        stock issued for services and compensation
                    
                    
                    832,844
                    
                    
                    —Common
                        stock issued for interest expense
                    
                    
                    176,550
                    
                    
                    —Deferred
                        financing costs
                    
                    
                    —
                    
                    
                    (71,617
                    )**Changes
                        in:**Accounts
                        receivable
                    
                    
                    (133,250
                    )
                    
                    —Other
                        current assets
                    
                    
                    10,791
                    
                    
                    (10,854
                    )Other
                        assets
                    
                    
                    37,301
                    
                    
                    15,803Accounts
                        payable and other accrued expenses
                    
                    
                    602,720
                    
                    
                    258,836Consumer
                        loans originated
                    
                    
                    —
                    
                    
                    (1,315,730
                    )Principal
                        payments collected on consumer loans
                    
                    
                    103,933
                    
                    
                    923,425Payments
                        to credit unions
                    
                    
                    (344,589
                    )
                    
                    (562,506
                    )Finance
                        receivable/non-cash
                    
                    
                    107,060
                    
                    
                    —Proceeds
                        from loans sold
                    
                    
                    1,319
                    
                    
                    816,779**Net
                        cash used in operating activities**
                    
                    
                    (1,044,799
                    )
                    
                    (2,388,784
                    )**Cash
                        flows from investing activities:**Purchases
                        of property and equipment
                    
                    
                    (3,142
                    )
                    
                    —Sale
                        of fixed assets
                    
                    
                    6,250
                    
                    
                    15,878**Net
                        cash provided by investing activities**
                    
                    
                    3,108
                    
                    
                    15,878**Cash
                        flows from financing activities:**Borrowings
                        (repayment) under line of credit
                    
                    
                    (27,666
                    )
                    
                    183,755Advances
                        from affiliates
                    
                    
                    672,832
                    
                    
                    986,423Principal
                        payments of long-term debt
                    
                    
                    (61,538
                    )
                    
                    (78,606
                    )Proceeds
                        from notes payable
                    
                    
                    134,500
                    
                    
                    306,900Proceeds
                        from issuance of common stock
                    
                    
                    305,000
                    
                    
                    —**Net
                        cash provided by financing activities**
                    
                    
                    1,023,128
                    
                    
                    1,398,472**Net
                        decrease in cash**
                    
                    
                    (18,563
                    )
                    
                    (974,434
                    )**Cash
                        beginning of the year**
                    
                    
                    21,339
                    
                    
                    995,773**Cash
                        end of the year**
                    
                    $
                    2,776
                    
                    $
                    21,339**Supplemental
                        disclosure of cash flow information:**Cash
                        paid for interest
                    
                    $
                    17,140
                    
                    $
                    196,672Forgiveness
                        of related entities’ liabilities and receivables
                    
                    $
                    118,962
                    
                    $
                    4,411,815Stock
                        issued to purchase software
                    
                    $
                    818,000
                    
                    $
                    —Stock
                        issued for debt conversion
                    
                    $
                    309,026
                    
                    $
                    —Stock
                        issued for accrued expenses
                    
                    $
                    154,371
                    
                    $
                    —Return
                        of undivided interest in securitization assets
                    
                    $
                    —
                    
                    $
                    2,000,000Finance
                        receivables surrendered in satisfaction of amounts duecredit
                        unions
                    
                    $
                    —
                    
                    $
                    1,359,810
 The
        accompanying notes are an integral part of these Consolidated Financial
        Statements.
 
 
 32
 
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **CONSOLIDATED
        STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit)**
 
 **For
        the Years Ended December 31, 2005 and 2004**
  Common
                    Stock
                
                Additional
                
                Preferred
                    Stock - Series AShares
                
                Amount
                
                Paid-In
                    Capital
                
                Shares
                
                AmountBalance
                    at December 31, 2003
                
                
                106,463,671
                
                $
                106,464
                
                $
                12,080,035
                
                
                4,086,856
                
                $
                4,087Return
                    of capitalCapital
                    contributionForgiveness
                    of related entities’liabilities
                    and receivables
                
                
                
                
                
                
                
                
                4,411,815Return
                    of capital of undividedinterest
                    in securitization assets
                
                
                
                
                
                
                
                
                (2,000,000
                )Common
                    Stock issuancesNet
                    lossBalance
                    at December 31, 2004
                
                
                106,463,671
                
                $
                106,464
                
                $
                14,491,850
                
                
                4,086,856
                
                $
                4,087Return
                    of capitalCapital
                    contributionForgiveness
                    of related entities’liabilities
                    and receivables
                
                
                
                
                
                
                
                
                118,973Common
                    Stock issuances
                
                
                64,660,259
                
                
                64,660
                
                
                5,066,809Balance
                    at December 31, 2005
                
                
                171,123,930
                
                $
                171,124
                
                $
                19,677,632
                
                
                4,086,856
                
                $
                4,087
 TotalPreferred
                    Stock - Series B
                
                Treasury
                    Stock
                
                
                Accumulated
                
                Stockholders’Shares
                
                
                Amount
                
                
                Shares
                
                
                Amount
                
                
                Deficit
                
                Equity
                    (Deficit)Balance
                    at December 31, 2003
                
                
                1,621,642
                
                $
                352,643
                
                
                1,817,000
                
                
                (399,740
                )
                $
                (13,161,449
                )
                $
                (1,017,960
                )Return
                    of capitalCapital
                    contributionForgiveness
                    of related entities’liabilities
                    and receivables
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                4,411,815Return
                    of capital of undividedinterest
                    in securitization assets
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (2,000,000
                )Net
                    loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,141,591
                )
                
                (3,141,591
                )Balance
                    at December 31, 2004
                
                
                1,621,642
                
                $
                352,643
                
                
                1,817,000
                
                
                (399,740
                )
                $
                (16,303,040
                )
                $
                (1,747,736
                )Return
                    of capitalCapital
                    contributionForgiveness
                    of related entities’liabilities
                    and receivables
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                118,973Common
                    Stock issuances
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                5,131,469Net
                    Loss
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (5,194,526
                )
                
                (5,194,526
                )Balance
                    at December 31, 2005
                
                
                1,621,642
                
                $
                352,643
                
                
                1,817,000
                
                
                (399,740
                )
                $
                (21,497,566
                )
                $
                (1,691,820
                )
  The
        accompanying notes are an integral part of these consolidated financial
        statements.
 
 
 33
 
 **HOMELAND
        SECURITY NETWORK, INC. AND SUBSIDIARIES**
 **NOTES
        TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS**
 
 **Note
        1. Basis of Presentation**
 
 The
        financial information presented in this report comprises the consolidated
        financial information of (i) for the year ended December 31, 2005; and (ii)
        for
        the year ended December 31, 2004.
 
 The
        consolidated financial statements include the Company’s accounts and those of
        its subsidiaries. All material inter-company balances have been
        eliminated.
 
 In
        the
        opinion of HSNI’s management, the consolidated financial statements include all
        adjustments, which consist of normal recurring adjustments, necessary to
        present
        fairly the consolidated financial position, results of operations and cash
        flows
        of the Company for the period presented.
 
 **Note
        2. Segment Reporting**
 
 The
        Company has two reportable business segments. The Company considers reportable
        segments as business units that offer different products and are managed
        separately. The operating results of each segment are regularly reviewed
        and
        evaluated by senior management. The measure of segment profit or loss includes
        all revenues and expenses, and allocates certain corporate office expense
        to
        certain segments based on resources allocated. The accounting policies of
        the
        reportable segments are the same as those described in the summary of
        Significant Accounting Policies (Note 3).
 
 **Automobile
        Finance Segment**
 
 Until
        the
        third quarter of 2004, the Company provided financial products and related
        services to the new and pre-owned automotive finance industry. The Company
        primarily purchased and subsequently sold automobile finance receivables
        collateralized by new and pre-owned automobiles. The receivables were
        predominately purchased from automobile retailers nationwide and sold to
        banks
        and credit unions. The Company also provided collection and servicing activities
        on a fee basis for finance receivables. In August 2004, the Company began
        to
        develop plans to “run-off” its operations in this industry by not accepting new
        business and terminating its business relationships. Its new focus is to
        transition into a new market with new products. See “Item 1. Description of
        Business”.
 
 **GPS
        Tracking Devices Segment**
 
 The
        Company changed its name to Homeland Security Network, Inc. (OTC: HSYN) on
        March
        1, 2005 to reflect the change in its formal business model discussed herein.
        The
        Company intends ‘Homeland Security Network, Inc.’ to be recognized as a provider
        of technology products and services for tracking and recovering valuable
        mobile
        assets. The Company anticipates its new course of business will capitalize
        on
        rapidly emerging, largely under-served, GPS tracking markets. HSNI plans
        to
        serve the concerns and requirements of the individual consumer, corporations
        and
        the security operations of government.
 
 **Business
        Segment Assets**
  **December
                    31,**
                
                **December
                    31,****2005**
                
                **2004**
 GPS
                    Tracking Devices
                
                $
                951,814
                
                $
                —Automobile
                    Finance
                
                
                10,482
                
                
                512,491Total
                
                $
                962,296
                
                $
                512,491
 
 
 34
  The
        following tables’ present information about the Company’s operating segments for
        the years ended December 31, 2005 and 2004.
 
 **December
                      31,**
                  
                  **December
                      31,****2005**
                  
                  **2004**
 GPS
                        Tracking Devices
                    
                    $
                    255,060
                    
                    $
                    —Automobile
                        Finance
                    
                    
                    62,849
                    
                    
                    542,374Total
                    
                    $
                    317,909
                    
                    $
                    542,374
  **Business
        Segment Interest Expense**
 **December
                      31,**
                  
                  **December
                      31,****2005**
                  
                  **2004**
 GPS
                        Tracking Devices
                    
                    $
                    50,242
                    
                    $
                    —Automobile
                        Finance
                    
                    
                    54,351
                    
                    
                    369,216Total
                    
                    $
                    104,593
                    
                    $
                    369,216
 
 **Business
        Segment Depreciation and Amortization**
 **December
                      31,**
                  
                  **December
                      31,****2005**
                  
                  **2004**
 GPS
                    Tracking Devices
                
                $
                35,482
                
                $
                —Automobile
                    Finance
                
                
                —
                
                
                302,601Total
                
                $
                35,482
                
                $
                302,601
 **Business
        Segment Profit/ (Loss)**
  **December
                    31,**
                
                **December
                    31,****2005**
                
                **2004**
 GPS
                    Tracking Devices
                
                $
                (2,485,510
                )
                $
                —Automobile
                    Finance
                
                
                (2,709,016
                )
                
                (3,141,591
                )Total
                
                $
                (5,194,526
                )
                $
                (3,141,591
                )
 
 **Note
        3. Significant Accounting Policies**
 
 **Use
        of Estimates**
 
 The
        Company’s consolidated financial statements are prepared in accordance with
        accounting principles generally accepted in the United States of America
        (“GAAP”). These accounting principles require management to make estimates,
        judgments and assumptions that affect the amounts reported in the consolidated
        financial statements and accompanying notes. When sources of information
        regarding the carrying values of assets, liabilities and reported amounts
        of
        revenue and expenses are not readily apparent, HSNI bases its estimates on
        historical experience and on various other assumptions that HSNI’s management
        believes to be reasonable for making judgments. HSNI evaluates all of its
        estimates on an on-going basis and may consult outside experts to assist
        in
        HSNI’s evaluations. These estimates, judgments and assumptions can affect the
        reported amounts of assets and liabilities as of the date of the consolidated
        financial statements, as well as the reported amounts of revenue and expenses
        during the periods presented. Actual results could differ from those
        estimates.
 
 35
  **Revenue
        Recognition**
 
 Interest
        income from finance receivables is recognized using the interest method.
        Accrual
        of income on finance receivables is suspended when a contract is contractually
        delinquent for ninety days or more. The accrual is resumed when the contract
        becomes contractually current, and past due interest and discount income
        is
        recognized at that time. Origination Fees are recognized for services provided
        during the loan origination process at the point in time the loan is funded
        by
        the third-party lender. Service Fees are based on a percentage of collections
        and are recognized as collected on a monthly basis from the Obligor of the
        receivable. Participation income is based on a percentage of collections
        and is
        recognized as collected on a monthly basis from the obligor of the
        receivable.
 
 The
        Company recognizes revenue on sales from tracking devices when products are
        shipped and customers take ownership and assume the risk of loss.
 
 **Accounts
        Receivable**
 
 Accounts
        receivable relating to the Company’s tracking device segment consist of payments
        due from wholesalers of the products. In the normal course of business, the
        Company monitors the financial condition of the Company’s customer base. The
        Company does not believe that it has significant exposure to any individual
        customer, accordingly no provision for uncollectible accounts have been recorded
        as of December 31, 2005.
 
 **Finance
        Receivables**
 
 Finance
        receivables consist of purchased automobile installment contracts, which
        were
        assigned to the Company upon acquisition. The titles to the automobiles,
        which
        serve as security for the payment of the purchased contracts, are held either
        by
        the Company or the financial institution for which the finance receivables
        serve
        as collateral.
 
 Finance
        receivables that management has the intent and ability to hold for the
        foreseeable future or until maturity of payoff are reported at their outstanding
        gross contractual balances, net of allowance for losses and unearned finance
        revenue. Unearned finance revenue consists of unearned interest and discounts
        realized on contract purchases. Discounts are amortized as adjustments of
        the
        yields on the related contracts.
 
 Allowance
        for credit losses is increased by allocating a portion of the discount recorded
        on the acquisition of contracts. The Company performs periodic evaluations
        of
        the adequacy of the allowance for losses taking into consideration the past
        loss
        experience, known and inherent risks in the portfolio, adverse situations
        that
        may affect the borrower's ability to repay, the estimated value of any
        underlying collateral, as well as recovery potential of any underlying
        collateral and current economic conditions. Any increases in the allowance
        for
        losses subsequent to the acquisition of the contract are charged to earnings.
        In
        conjunction with the Company's contract purchases, dealers make certain
        representations and warranties regarding the validity of the contract and
        the
        enforceability of the security interest in the related vehicle. Consequently,
        the Company has recourse to the dealer in the event the dealer's representations
        and warranties are false. Furthermore, the Company's standard form agreement
        with all of its dealers requires that the dealer repurchase any contract
        where
        the borrower has failed to make the first two payments. In such cases, it
        is the
        Company's responsibility to return the related vehicle to the dealer. Consumer
        loans are ordinarily charged off when they are 120 - 180 days contractually
        past
        due.
 
 **Depreciation
        and Amortization**
 
 Furniture
        and equipment are carried at cost net of accumulated depreciation. Depreciation
        and amortization is calculated using the straight-line method over the estimated
        useful life of the assets.
 
 The
        Company capitalizes certain computer software costs, after technological
        feasibility has been established which are amortized utilizing the straight-line
        method over the economic life of the related software which has been estimated
        at five years.
 
 **Goodwill
        and Intangible Assets**
 
 Goodwill
        and intangible assets are accounted for in accordance with SFAS No. 142
        "Goodwill and Other Intangible Assets" ("SFAS 142"). Under SFAS 142, goodwill
        and indefinite lived intangible assets are not amortized but instead are
        reviewed annually for impairment, or more frequently, if impairment indicators
        arise. Separable intangible assets that are not deemed to have an indefinite
        life will continue to be amortized over their estimated useful lives. The
        Company tests for impairment whenever events or changes in circumstances
        indicate that the carrying amount of goodwill or other intangible assets
        may not
        be recoverable, or at least annually at December 31 of each year. These tests
        are performed at the reporting unit level using a two-step, fair-value based
        approach. The first step compares the fair value of the reporting unit with
        its
        carrying amount, including goodwill. If the fair value of the reporting unit
        is
        less than its carrying amount, a second step is performed to measure the
        amount
        of impairment loss. The second step allocates the fair value of the reporting
        unit to the Company's tangible and intangible assets and liabilities. This
        derives an implied fair value for the reporting unit's goodwill. If the carrying
        amount of the reporting unit's goodwill exceeds the implied fair value of
        that
        goodwill, an impairment loss is recognized equal to that excess. In the event
        that the Company determines that the value of goodwill or other intangible
        assets have become impaired, the Company will incur a charge for the amount
        of
        the impairment during the fiscal quarter in which the determination is
        made.
 
 
 36
 
 **Software
        Development Costs**
 
 Software
        development costs relating to an installment loan application processing
        system,
        recorded at cost, are amortized over five years, the expected useful life
        of the
        asset. Intangible assets are reviewed for impairment whenever events or
        circumstances indicate impairment might exist, or at least annually. The
        Company
        assesses the recoverability of its assets in accordance with SFAS No. 142
        "Goodwill and Other Intangible Assets," comparing projected undiscounted
        cash
        flows associated with those assets against their respective carrying amounts.
        Impairment, if any, is based on the excess of the carrying amount over the
        fair
        value of those assets. At December 31, 2004, the balance of intangible assets
        after performing the annual impairment test was zero in accordance with SFAS
        No.
        142, after an impairment resulted in a charge on the statements of operations
        in
        the amount of $546,275.
 
 Capitalized
        software is amortized on a straight-line basis over an estimated useful life
        of
        5 years. Acquired contracts are amortized over a period that approximates
        the
        estimated life of the contracts, based upon the estimated annual cash flows
        obtained from those contracts, generally five to six years.
 
 **Deferred
        financing costs**
 
 The
        Company capitalizes costs associated with the issuance of debt instruments.
        These costs are amortized on a straight-line basis over the term of the related
        debt instruments.
 
 **Income
        Taxes**
 
 Income
        taxes are accounted for under the asset and liability method. Under this
        method,
        deferred tax assets and liabilities are generally recognized for the future
        tax
        consequences attributable to differences between the financial statement
        carrying amounts of existing assets and liabilities and their respective
        tax
        basis, and net operating loss carry forwards.
 
 Deferred
        tax assets and liabilities are measured using enacted tax rates expected
        to
        apply to taxable income in the years in which those temporary differences
        are
        expected to be recovered or settled. The effect on deferred tax assets and
        liabilities of a change in tax rates is recognized in income in the period
        that
        includes the enactment date. In addition, a valuation allowance has been
        established to reduce any deferred tax asset in which the Company is not
        able to
        determine on a more likely than not basis that the deferred tax asset will
        be
        realized.
 
 **Long-Lived
        Assets**
 
 HSNI
        accounts for its long-lived assets in accordance with SFAS No. 144, “Accounting
        for the Impairment or Disposal of Long-Lived Assets,” (“SFAS No. 144”) which
        requires that long-lived assets be evaluated whenever events or changes in
        circumstances indicate that the carrying amount may not be recoverable. If
        the
        total of the undiscounted future cash flows is less than the carrying amount
        of
        the asset or asset group, an impairment loss is recognized for the difference
        between the estimated fair value and the carrying value of the asset or asset
        group.
 
 **Fair
        Value of Financial Instruments**
 
 The
        fair
        value of a financial instrument represents the amount at which the instrument
        could be exchanged in a current transaction between willing parties, other
        than
        a forced sale or liquidation. Significant differences can arise between the
        fair
        value and carrying amount of financial instruments that are recognized at
        historical cost amounts. The carrying value of cash, accounts payable and
        accrued liabilities approximate the fair value because of the short maturity
        of
        those instruments. The finance receivables have been reduced to their estimated
        fair value.
 
 **Concentrations
        of Credit Risk**
 
 The
        Company maintains its cash with high credit quality financial institutions.
        The
        Federal Deposit Insurance Corporation up to $100,000 secures each
        account.
 
 37
  Loans
        to
        persons with non-prime credit involve an increased probability of delinquency
        and/or default and involve greater servicing costs than loans made to borrowers
        with prime credit profiles. The ability to operate profitably depends, in
        part,
        on an accurate evaluation of the creditworthiness of customers and the
        minimization of losses following defaults. As a result, it is likely that
        delinquency and loss rates in the Company's portfolio will fluctuate in the
        near
        term and may increase as a greater portion of the portfolio of automobile
        receivables matures. A significant variation in the timing of or increases
        in
        credit losses experienced on the portfolio of automobile receivables could
        have
        a materially adverse effect on the Company. There can be no assurance that
        any
        loans made to customers will be repaid in whole or in part or that reserves
        for
        such credit risks will be adequate. Any loans that are in default may need
        to be
        charged off against the reserves. Further, any default that is with recourse
        to
        a Credit Union may require the Company to repurchase the receivable from
        the
        Credit Union.
 
 **Stock-Based
        Compensation**
 
 HSNI
        has
        followed the recognition provisions of SFAS No. 123— “Accounting for Stock-Based
        Compensation” since January 1, 2000. Under SFAS No. 123, the fair value of an
        option on the date of the grant is amortized over the vesting periods of
        the
        options in accordance with FASB Interpretation No. 28 “Accounting For Stock
        Appreciation Rights and Other Variable Stock Option or Award Plans”. The
        recognition provisions of SFAS No. 123 are applied prospectively to all stock
        awards granted subsequent to January 1, 2000 and to prior awards accounted
        for
        in accordance with Accounting Principles Board Opinion (“APB”) No. 25—
“Accounting for Stock Issued to Employees” that were significantly modified
        after adoption.
 
 **Note
        4. Certain Relationships of Transaction and Change in
        Control**
 
 On
        June
        30, 2003, Pacific Auto Group, Inc. (“PAG”) became a wholly owned subsidiary of
        Homeland Security Network, Inc. (“HSNI”), and the HSNI securities described
        below were issued to Pacific Holdings Group, Inc. (“PHG”), the sole stockholder
        of PAG. The form of the transaction was a reverse triangular merger, whereby
        a
        newly formed, wholly owned, acquisition subsidiary of HSNI merged with and
        into
        PAG, with PAG being the surviving corporation in the merger and a subsidiary
        of
        HSNI.
 
 On
        June
        30, 2003, PHG was 100% owned by PUSA. On December 2, 2002, PUSA filed a
        voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The ultimate
        parent company was PEWC. PAG is the holding company for its wholly owned
        subsidiary American Finance Company, Inc. (“AFCO”). AFCO's principal operations
        consisted of the purchase of automobile finance receivables, collateralized
        by
        new and pre-owned automobiles, from franchised and independent automotive
        dealers throughout the United States.
 
 PUSA
        was
        the primary domestic parent company of the entire group, owning all of the
        outstanding stock of PHG.
 
 Effective
        June 30, 2003, HSNI issued 100,000,000 shares of its Common Stock and 4,086,586
        shares of its Series A convertible stock to PHG, the parent company of PAG,
        resulting in PHG owning approximately 94.0% of the outstanding HSNI
        shares.
 
 Pacific
        Financial Group, Inc. (“PFG”), an affiliate of PHG, owned 1,621,642 shares of
        Series B Non-Cumulative Convertible Preferred Stock of HSNI; par value $0.001
        per share (the "Series B Preferred Shares"). Those Series B Preferred Shares
        were convertible at any time, at the option of the holder on a one-for-one
        basis, into 1,621,642 HSNI Common Shares. The Series B Preferred is non-voting
        stock.
 
 Subsequent
        to the June 30, 2003 merger transaction, on a fully-diluted basis, PFG
        immediately beneficially owned 1,621,642 HSNI Common Shares, and PHG
        beneficially owned 136,490,202 HSNI Common Shares. On a fully diluted basis,
        PHG
        and PFG together beneficially owned 142,490,202 HSNI Common Shares, which
        represented 95.66% of the 148,953,873 HSNI Common Shares that would then
        be
        outstanding.
 
 On
        June
        30, 2003, Pacific USA Holdings Corp. (“PUSA”) was the sole stockholder of PFG
        and PHG and as such beneficially owned 142,490,202 HSNI Common Shares. Pacific
        Electric Wire and Cable (“PEWC”) was the sole shareholder of PUSA and as such
        beneficially owned 142,490,202 HSNI Common Shares, which represented 95.66%
        of
        the 148,953,873 HSNI Common Shares then, outstanding.
 
 On
        August
        20, 2004, PHG, the then controlling shareholder of the Company, and one of
        its
        affiliates, Pacific Financial Group (“PFG”) and, collectively with PHG, the
        ("Sellers"), sold their stock to a partnership, AutoCorp Acquisition Partners
        (“AAP”, the "Purchaser") formed by the then President (and CEO) and Executive
        Vice President of the Company.
 
 38
  The
        Purchaser designated two persons (the "Purchaser Designees") who were elected
        to
        the Board of Directors. The Purchaser Designees became a majority of the
        Board
        after the tenth day subsequent to the mailing and filing of the Information
        Statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1
        promulgated there under. The Purchaser is now the beneficial owner of the
        majority of the Company's stock and the Purchaser Designees constitute 100%
        of
        the Company's Board of Directors.
 
 **Note
        5. Background of Transaction and Change in Control and Acquisition by
        AAP**
 
 On
        August
        20, 2004, PHG, the then controlling shareholder of the Company, and one of
        its
        affiliates, Pacific Financial Group (“PFG”) and, collectively with PHG, the
        ("Sellers"), sold their stock to a partnership, AutoCorp Acquisition Partners
        (“AAP”, the "Purchaser") formed by the then President (and CEO) and Executive
        Vice President of the Company.
 
 Pursuant
        to an acquisition agreement entered into as of August 20, 2004 by and among
        the
        Sellers, the Purchaser and the Company, the Sellers sold all of the stock
        of the
        Company held by it to the Purchaser. Pursuant to the acquisition agreement,
        the
        Board members, all of who had been appointed by PHG as controlling shareholder
        of the Company, appointed the Purchaser Designees to the Board. Two of the
        PHG-appointed directors then resigned immediately and the remaining two
        PHG-appointed directors resigned on September 13, 2004, being more than ten
        days
        after the mailing and filing of the Information Statement pursuant to Section
        14(f) of the Exchange Act and Rule 14f-1 promulgated there under.
 
 AAP
        acquired the stock of the Sellers and by its principles (1) delivered their
        personal guarantee to Far East National Bank ("FENB") to obtain the release
        of
        the guarantee by PEWC discussed below; and (2) agreed the Company could make
        the
        transfers and give the releases to PHG described (and in the amounts indicated)
        below; simultaneously with PHG funding and canceling the obligations of the
        Company described (and in the amounts indicated) below. The Purchasers paid
        no
        cash to the Sellers for the stock.
 
 PEWC
        is
        PHG's indirect parent. PEWC had provided a guarantee to FENB in connection
        with
        a $10 million revolving credit facility from FENB to AFCO Receivables Funding
        Corp, an indirect subsidiary of the Company. At the date of the closing of
        the
        acquisition agreement, there was $661,796 outstanding under the revolving
        credit
        facility. It was a condition to the closing that PEWC be released from its
        guarantee.
 
 The
        Company transferred to PHG (i) the entire ownership of certain residual
        interests in securitization assets, which were then on the books of American
        Finance Company, a PAG subsidiary, in the amount of $2 million; (ii) the
        balances in certain bank accounts of the Company and its subsidiaries in
        the
        amount of $404; and (iii) a 1993 Lexus automobile owned by AutoCorp Financial
        Services, Inc., a wholly owned subsidiary of HSNI; along with the agreement
        of
        the Company to transfer subsequent to the closing any other assets not directly
        associated with the Company's then primary business of automobile sub-prime
        receivable acquisition.
 
 The
        Company released PHG and its affiliates from certain receivables due from
        them
        to the Company in the amount of $37,395.
 
 Simultaneously
        with the transfers and releases by the Company, PHG funded certain payroll
        obligations in the amount of $173,852 and loan portfolio obligations of the
        Company in the amount of $56,000, and to cancel certain obligations owed
        to PHG
        and its affiliates by the Company and the Company's subsidiaries in the amount
        of $4,139,880.
 
 As
        part
        of the transaction, PHG secured the release of 35 million shares of restricted
        Company Common Stock pledged to FENB in connection with an outstanding loan
        to
        PHG and an affiliate of PHG. Such shares are part of the 94,000,000 Common
        Shares Sellers sold to Purchaser.
 
 **Note
        6. Recently issued Accounting Pronouncements**
 
 The
        FASB
        issued Statement of Financial Accounting Standard No. 123 (revised 2004),
        Share-Based Payment (“SFAS 123(R)”), in December 2004; it replaces SFAS
        123, and supersedes APB 25. Under SFAS 123(R), companies would have been
        required to implement the standard as of the beginning of the first interim
        reporting period that begins after June 15, 2005. However, in
        April 2005, the SEC announced the adoption of an Amendment to
        Rule 4-01(a) of Regulation S-X regarding the compliance date for SFAS
        123(R) that amends the compliance dates and allows companies to implement
        SFAS
        123(R) beginning with the first annual reporting period beginning on or after
        June 15, 2005. The Company intends to adopt SFAS 123(R) in its fiscal year
        beginning January 1, 2006.
 
 39
  The
        Company currently uses the intrinsic value method to value stock options,
        and
        accordingly, no compensation expense has been recognized for stock options
        since
        the Company grants stock options with exercise prices equal to the Company’s
        common stock market price on the date of the grant. SFAS 123(R) requires
        the
        expensing of all stock-based compensation, including stock options and
        restricted shares, using the fair value method. The Company intends to expense
        stock options using the Modified Prospective Transition method as described
        in
        SFAS 123(R). This method will require expense to be recognized for stock
        options
        over their respective remaining vesting periods. No expense will be recognized
        for stock options vested in periods prior to the adoption of SFAS 123(R).
        The
        Company is evaluating the impact of its adoption of SFAS 123(R) on its results
        of operations and financial position. Adoption is not expected to have a
        material effect on the Company’s financial position or results of
        operations.
 
 The
        FASB
        issued FASB Statement No. 154, “Accounting Changes and Error Corrections, a
        replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS No. 154).
        Previously, APB No. 20, “Accounting Changes” and SFAS No. 3, “Reporting
        Accounting Changes in Interim Financial Statements” required the inclusion of
        the cumulative effect of changes in accounting principle in net income of
        the
        period of the change. SFAS No. 154 requires companies to recognize changes
        in
        accounting principle, including changes required by a new accounting
        pronouncement when the pronouncement does not include specific transition
        provisions, retrospectively to prior periods’ financial statements. The Company
        will assess the impact of a retrospective application of a change in accounting
        principle in accordance with SFAS No. 154 if the need for such a change arises
        after the effective date of January 1, 2006. Adoption is not expected to
        have a
        material effect on the Company’s financial position or results of
        operations.
 
 The
        FASB
        issued SFAS No. 153 “Exchanges of Non-monetary Assets—an amendment of APB
        Opinion No. 29.” This Statement amended APB Opinion No. 29 to eliminate the
        exception for non-monetary exchanges of similar productive assets and replaces
        it with a general exception for exchanges of non-monetary assets that do
        not
        have commercial substance. A non-monetary exchange has commercial substance
        if
        the future cash flows of the entity are expected to change significantly
        as a
        result of the exchange. The Company is currently evaluating the impact of
        this
        new standard, but believes that it will not have a material impact upon the
        Company’s financial position, results of operations or cash flows.
 
 **Note
        7. Going Concern Uncertainty**
 
 The
        Company has incurred net losses in the years ended December 31, 2005 and
        2004
        and has had working capital deficiency both periods.
 
 The
        Company's consolidated financial statements have been prepared on the assumption
        that the Company will continue as a going concern. Management is seeking
        various
        types of additional funding such as issuance of additional common or preferred
        stock, additional lines of credit, or issuance of subordinated debentures
        or
        other forms of debt. The funding would alleviate the Company's working capital
        deficiency and increase profitability. However, it is not possible to predict
        the success of management's efforts to achieve profitability or to secure
        additional funding. Also, there can be no assurance that additional funding
        will
        be available when needed or, if available, that its terms will be favorable
        or
        acceptable. Management is also seeking to renegotiate certain liabilities
        in
        order to alleviate the working capital deficiency.
 
 40
  If
        the
        additional financing or arrangements cannot be obtained, the Company would
        be
        materially and adversely affected and there would be substantial doubt about
        the
        Company's ability to continue as a going concern. The consolidated financial
        statements do not include any adjustments relating to the recoverability
        and
        realization of assets and classifications of liabilities necessary if the
        Company becomes unable to continue as a going concern.
 **For
                      the Years Ended December 31,****2005**
                  
                  
                  **2004**
 Loss
                  from operations
              
              $
              (2,719,904
              )
              $
              (2,595,316
              )Other
                  income (deductions)
              
              
              (2,474,622
              )
              
              (546,275
              )Net
                  loss
              
              $
              (5,194,526
              )
              $
              (3,141,591
              )
 
 **Note
        8. Income (Loss) Per Share**
 
 Basic
        loss per share is computed based on net loss divided by the weighted average
        number of shares of common stock outstanding during the period.
 
 Diluted
        loss per share is computed based on net loss divided by the weighted average
        number of shares of common stock outstanding during the period after giving
        effect to convertible securities considered to be dilutive common stock
        equivalents. The conversion of preferred stock and stock options during the
        periods in which the Company incurs a loss from continuing operations before
        giving effect to gains from the sale of the discontinued operations is not
        assumed since the effect is anti-dilutive. The number of shares of preferred
        stock, which would have been assumed to be converted and have a dilutive
        effect
        if the Company had income from continuing operations, is 42,490,202 for the
        years ended December 31, 2005 and 2004. See Note 24 for common stock
        transactions subsequent to December 31, 2005.
  **Note
        9. Finance Receivables**
 
 Finance
        receivables are comprised of the following at December 31, 2005 and December
        31,
        2004:
 **December
                      31,**
                    **2005**
                  
                  
                  **December
                      31,**
                    **2004**
 Finance
                  receivables
              
              $
              142,559
              
              $
              735,145Allowance
                  for credit losses
              
              
              (132,077
              )
              
              (322,213
              )Finance
                  receivables net
              
              $
              10,482
              
              $
              412,932
 
 41
 
 **Note
        10. Property, Plant and Equipment**
 
 Property,
        plant and equipment are comprised of the following at December 31, 2005 and
        December 31, 2004:
  Description:
                  
                  
                  **December
                      31,**
                    **2005**
                  
                  
                  **December
                      31,**
                    **2004**
 Furniture
                  and office equipment
              
              $
              55,554
              
              $
              356,933Software
              
              
              2,185
              
              
              92,27857,739
              
              
              449,211Less
                  accumulated depreciation
              
              
              (38,674
              )
              
              (427,772
              )Property
                  and equipment, net
              
              $
              19,065
              
              $
              21,439
 
 **Note
        11. Capitalized Software Costs**
 
 The
        Company accounts for the development cost of software intended for sale in
        accordance with Statement of Financial Accounting Standards No. 86, “Accounting
        for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” (SFAS
        86). SFAS 86 requires product development costs to be charged to expense
        as
        incurred until technology feasibility is attained. Technological feasibility
        is
        attained when the Company’s software has completed system testing and been
        determined viable for its intended use. Accordingly the Company did not
        capitalize any development costs other than product development costs acquired
        through a third party purchase. The Company capitalizes software through
        technology purchases if the related software under development has reached
        technological feasibility or if there are alternative future uses for the
        software. During 2005, the Company purchased software from a third party
        totaling $1,131,000, for which the Company allocated $313,000 to product
        development expense for efforts to reach technological feasibility.
 
 Capitalized
        software costs and accumulated amortization were as follows for the years
        ended
        December 31, 2005 and at December 31, 2004. As of December 31, 2005, the
        Company
        determined that there is no impairment of these assets, as management has
        projected, there will be sufficient future cash flows from operations related
        to
        this software purchased in 2005.
 **December
                        31,**
                      **2005**
                    
                    
                    **December
                        31,**
                      **2004**
 Software
                  development costs
              
              $
              818,000
              
              $
              —Less
                  accumulated amortization
              
              
              (29,967
              )
              
              —Capitalized
                  Software, net
              
              $
              788,033
              
              $
              —
 
 Expected
        future capitalized software amortization expense for the years ended December
        31
        is as follows.
  **Year**
                
                **Amount**2006
                
                163,6002007
                
                163,6002008
                
                163,6002009
                
                163,6002010
                
                133,633Total
                
                $
                788,033
 
 42
 
 **Note 12.
        Stock Plans**
 
 The
        Company has a non-qualified stock option plan (the “Plan”) that was adopted by
        the Board of Directors in March 1997. The Plan, as authorized, provides for
        the
        issuance of up to 2,000,000 shares of the Company’s stock. Persons eligible to
        participate in the Plan as recipients of stock options include full and
        part-time employees of the Company, as well as officers, directors, attorneys,
        consultants and other advisors to the Company or affiliated
        corporations.
 
 Options
        issued under the Plan are exercisable at a price that is not less than twenty
        percent (20%) of the fair market value of such shares (as defined) on the
        date
        the options are granted. The non-qualified stock options are generally
        non-transferable and are exercisable over a period not to exceed ten (10)
        years
        from the date of the grant. Earlier expiration is operative due to termination
        of employment or death of the issuee. The entire Plan expires on March 20,
        2007,
        except as to non-qualified stock options then outstanding, which will remain
        in
        effect until they have expired or have been exercised. As of December 31,
        2005,
        1,990,289 shares had been exercised and issued under the Plan, and 9,711
        shares
        were available for future issuance.
 
 In
        January 2005, HSNI issued 100,000 shares of common stock with a par value
        of
        $.001. They were issued to an executive as a hiring bonus and are reflected
        in
        operating expenses of the consolidated financial statements at $0.15 per
        share
        ($15,000) for period ending September 30, 2005. No options were granted and
        no
        warrants were authorized during 2004.
 
 **Note
        13. Undivided Interest in Securitization Assets**
 
 The
        Company had an undivided interest in securitization assets. The rights to
        these
        assets were contributed to the Company by its prior major shareholder, PHG.
        In
        May 2003, PAG returned an undivided interest of $4,000,000 of this asset
        to PHG.
        In June 2003, PAG received proceeds of $3,000,000 under a sale to a third
        party
        and recorded no gain or loss. In August 2004, the company transferred the
        balance of the securitization asset of $2,000,000 to PHG as part of the
        acquisition by AAP. See Note 5.
 
 
 43
 
 **Note
        14. Notes Payable**
  **December
                            31,**
                          **2005**
                        
                        
                        **December
                            31,**
                          **2004**
 Note
                    payable to a related party bears interestat
                    12% per annum and is presently paidin
                    full. (See Note 15.)
                
                $
                —
                
                $
                61,538Two
                    notes payable to a former director ofthe
                    Company. Both bear interest at 8% perannum.
                    The notes are due in February 2007.The
                    Company has completed itsnegotiations
                    of renewed terms. [See (1) and(2)
                    below.]
                
                
                286,874
                
                
                286,874Note
                    payable, unsecured, to an Executive,bears
                    interest at 6% per annum and ispresently
                    paid in full.
                
                
                —
                
                
                106,667Note
                    payable, unsecured, to an Executive,bears
                    interest at 6% per annum and ispresently
                    paid in full.
                
                
                —
                
                
                202,359In
                    2005, the Company obtained funds undera
                    financing arrangement bearing interest at8%
                    per annum from a related third party.The
                    note provides a line of credit totaling$500,000.
                    The note is uncollateralized andthe
                    proceeds were utilized for workingcapital.
                    This note has been renegotiated withan
                    extended term. This note matures inJanuary
                    2007. (See Note 24.)
                
                
                229,365
                
                
                —In
                    March 2005, the Company obtained$134,500
                    under a financing arrangementbearing
                    interest at 7% per annum from arelated
                    third party. The note isuncollateralized
                    and the proceeds wereutilized
                    for working capital. This note hasbeen
                    renegotiated with an extended term.This
                    note matures in April 2006. (See Note24.)
                
                
                134,500
                
                
                —Note
                    payable, unsecured, to an Executivebearing
                    interest at 6% per annum andmature
                    in July 2006.
                
                
                224,750
                
                
                —Note
                    payable, unsecured, to an Executivebearing
                    interest at 6% per annum andmature
                    in July 2006.
                
                
                197,417
                
                
                —Note
                    payable, unsecured, to an Executivebearing
                    interest at 6% per annum andmature
                    in July 2006.
                
                
                21,300
                
                
                —$
                1,094,206
                
                $
                657,438
  (1)
        In
        December 2005, the Company completed negotiations to modify certain terms
        of a
        related party note payable of $193,708. The interest rate was lowered from
        12
        percent to 8 percent and accrues commencing January 1, 2006. The principal
        amount of the related party note payable and interest thereon, are due and
        payable as follows: Twelve installment payments of principal and interest,
        each
        in the amount of $1,403 shall be due on the first day of each month and payable
        by the fifth day of each month, commencing on February 1, 2006. On February
        1,
        2007, one final payment of $193,708, together with any outstanding accrued
        interest, shall be due and payable in full.
  44
  (2)
        In
        December 2005, the Company completed negotiations to modify certain terms
        of a
        related party note payable. The interest rate was lowered from 12 percent
        to 8
        percent and accrues commencing January 1, 2006. The principal amount of the
        related party note payable and interest thereon, are due and payable as follows:
        Twelve installment payments of principal and interest, each in the amount
        of
        $661 shall be due on the first day of each month and payable by the fifth
        day of
        each month, commencing on February 1, 2006. On February 1, 2007, one final
        payment of $91,874, together with any outstanding accrued interest, shall
        be due
        and payable in full.
 
 **Note
        15. Beneficial Conversion Transaction**
 
 In
        March
        2001, the Company issued a note payable with a limited conversion feature
        in the
        principal sum of $125,000, bearing interest at 12% per annum, to a related
        party. In December 2004, the related party endorsed and assigned all rights,
        title and interest in the remaining obligation of this note payable to another
        entity. At such time, the outstanding principal balance was
        $61,538.
 
 In
        December 2004, subsequent to the assumption of this note payable by Securities
        Acquisition New York, LLC (“SANY”), a related party, the Board of Directors of
        the Company resolved to both convert this note payable and consent to an
        amended
        conversion calculation at a rate permitting 10,000 shares of common stock
        to be
        issued in exchange for each $1.00 of reduction in the outstanding principal
        of
        this note payable.
 
 Based
        on
        the aforementioned amendment to the conversion calculation rate, the Company
        performed two conversions, which were elected by the entity holding the note
        payable: January 2005, the Company issued 3,429,355 shares valued at $0.11
        per
        share at $377,229; and in March 2005, the Company issued 12,000,000 shares
        valued at $0.18 per share at $2,160,000, totaling $2,537,229 resulting in
        a
        charge in the statement of operations. See Item 11, Security Ownership of
        Certain Beneficial Owners and Management. The applied conversion rate was
        adjusted and recalculated by the Board of Directors.
 
 In
        August
        2005, as a result of a termination and settlement agreement of the assignment
        and assumption of the note payable by and between the related party and SANY,
        the Company was relieved of additional debt requiring no further issuances
        of
        shares of common stock. And as such, the conversion calculation was corrected
        and amended to 1,000 shares of common stock having been issued in exchange
        for
        each $1.00 deducted from the outstanding principal of this note
        payable.
 
 Further,
        under the terms of the termination and settlement agreement no party has
        any
        future right nor does the Company have any future obligation to convert or
        issue
        shares of common stock in exchange for debt relief related to this note
        payable.
 
 In
        the
        year ended December 31, 2005, $13,876 was recorded as a repayment of the
        obligation. On December 30, 2005, the Company was entirely relieved of this
        related party note payable of $46,113 with a recorded balance of $46,311.
        The
        Company received an unconditional release by the holder of the note from
        any and
        all obligations.
 
 **Note
        16. Credit Union Participations**
 
 On
        August
        31, 2004, the Company entered into a Mutual Termination and Separation Agreement
        with a credit union and received a full release of all guarantees and servicing
        obligations in connection with four of the six guaranteed participations
        totaling $1,359,810.
 
 At
        December 31, 2004, loan participations payable to credit unions in the amount
        of
        $547,144 represented the remaining 90% interest purchased by credit unions
        in
        two pools of automobile finance receivables guaranteed by the
        Company.
 
 On
        February 28, 2005, the Company entered into a Mutual Termination and Separation
        Agreement with an additional credit union and again received a full release
        of
        all guarantees and servicing obligations in connection with a fifth
        participation totaling $297,809.
 
 As
        of
        March 31, 2006, one final credit union participation transaction with guarantee
        provisions and servicing obligations remains.
 
 The
        Company also provided, on a fee basis, collection and servicing of automobile
        finance receivables sold to credit unions by the Company as a non-guaranteed
        participation transaction. At December 31, 2005, the total outstanding balance
        of finance receivables for which collection, asset management, and servicing
        activities were performed was approximately $87,414.
 
 45
  **Note
        17. Related Party Transactions**
  ***Pacific
          Holdings Group, Inc.***
 
 On
          June
          30, 2003, Pacific Auto Group, Inc. (“PAG”) became a wholly owned subsidiary of
          Homeland Security Network, Inc. (“HSNI”), and the HSNI securities described
          below were issued to Pacific Holdings Group, Inc. (“PHG”), the sole stockholder
          of PAG. The form of the transaction was a reverse triangular merger, whereby
          a
          newly formed, wholly owned, acquisition subsidiary of HSNI merged with
          and into
          PAG, with PAG being the surviving corporation in the merger and a subsidiary
          of
          HSNI.
 
 On
          June
          30, 2003, PHG was 100% owned by PUSA. On December 2, 2002, PUSA filed a
          voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The ultimate
          parent company was PEWC. PAG is the holding company for its wholly owned
          subsidiary American Finance Company, Inc. (“AFCO”). AFCO's principal operations
          consisted of the purchase of automobile finance receivables, collateralized
          by
          new and pre-owned automobiles, from franchised and independent automotive
          dealers throughout the United States.
 
 PUSA
          was
          the primary domestic parent company of the entire group, owning all of
          the
          outstanding stock of PHG.
 
 Effective
          June 30, 2003, HSNI issued 100,000,000 shares of its Common Stock and 4,086,586
          shares of its Series A convertible stock to PHG, the parent company of
          PAG,
          resulting in PHG owning approximately 94.0% of the outstanding HSNI
          shares.
 
 Pacific
          Financial Group, Inc. (“PFG”), an affiliate of PHG, owned 1,621,642 shares of
          Series B Non-Cumulative Convertible Preferred Stock of HSNI; par value
          $0.001
          per share (the "Series B Preferred Shares"). Those Series B Preferred Shares
          were convertible at any time, at the option of the holder on a one-for-one
          basis, into 1,621,642 HSNI Common Shares. The Series B Preferred is non-voting
          stock.
 
 Subsequent
          to the June 30, 2003 merger transaction, on a fully-diluted basis, PFG
          immediately beneficially owned 1,621,642 HSNI Common Shares, and PHG
          beneficially owned 136,490,202 HSNI Common Shares. On a fully diluted basis,
          PHG
          and PFG together beneficially owned 142,490,202 HSNI Common Shares, which
          represented 95.66% of the 148,953,873 HSNI Common Shares that would then
          be
          outstanding.
 
 On
          June
          30, 2003, Pacific USA Holdings Corp. (“PUSA”) was the sole stockholder of PFG
          and PHG and as such beneficially owned 142,490,202 HSNI Common Shares.
          Pacific
          Electric Wire and Cable (“PEWC”) was the sole shareholder of PUSA and as such
          beneficially owned 142,490,202 HSNI Common Shares, which represented 95.66%
          of
          the 148,953,873 HSNI Common Shares then, outstanding.
 
 On
          August
          20, 2004, PHG, the then controlling shareholder of the Company, and one
          of its
          affiliates, Pacific Financial Group (“PFG”) and, collectively with PHG, the
          ("Sellers"), sold their stock to a partnership, AutoCorp Acquisition Partners
          (“AAP”, the "Purchaser") formed by the then President (and CEO) and Executive
          Vice President of the Company.
 
 The
          Purchaser designated Charles Norman, the then President (and CEO) and Peter
          Ubaldi, the then Executive Vice President of the Company (the "Purchaser
          Designees") who were elected to the Board of Directors. The Purchaser Designees
          became a majority of the Board after the tenth day subsequent to the mailing
          and
          filing of the Information Statement pursuant to Section 14(f) of the Exchange
          Act and Rule 14f-1 promulgated there under. The Purchaser is now the beneficial
          owner of the majority of the Company's stock and the Purchaser Designees
          constitute 100% of the Company's Board of Directors.
 
 ***Background
          of Transaction and Change in Control***
 
 Pursuant
          to an acquisition agreement entered into as of August 20, 2004 by and among
          the
          Sellers, the Purchaser and the Company, the Sellers sold all of the stock
          of the
          Company held by it to the Purchaser. Pursuant to the acquisition agreement,
          the
          Board members, all of who had been appointed by PHG as controlling shareholder
          of the Company, appointed the Purchaser Designees to the Board. Two of
          the
          PHG-appointed directors then resigned immediately and the remaining two
          PHG-appointed directors resigned on September 13, 2004, being more than
          ten days
          after the mailing and filing of the Information Statement pursuant to Section
          14(f) of the Exchange Act and Rule 14f-1 promulgated there under.
  46
  AAP
          acquired the stock of the Sellers and by its principles (1) delivered their
          personal guarantee to Far East National Bank ("FENB") to obtain the release
          of
          the guarantee by PEWC discussed below; and (2) agreed the Company could
          make the
          transfers and give the releases to PHG described (and in the amounts indicated)
          below; simultaneously with PHG funding and canceling the obligations of
          the
          Company described (and in the amounts indicated) below. The Purchasers
          paid no
          cash to the Sellers for the stock.
 
 PEWC
          is
          PHG's indirect parent. PEWC had provided a guarantee to FENB in connection
          with
          a $10 million revolving credit facility from FENB to AFCO Receivables Funding
          Corp, an indirect subsidiary of the Company. At the date of the closing
          of the
          acquisition agreement, there was $661,796 outstanding under the revolving
          credit
          facility. It was a condition to the closing that PEWC be released from
          its
          guarantee.
 
 The
          Company transferred to PHG (i) the entire ownership of certain residual
          interests in securitization assets, which were then on the books of American
          Finance Company, a PAG subsidiary, in the amount of $2 million; (ii) the
          balances in certain bank accounts of the Company and its subsidiaries in
          the
          amount of $404; and (iii) a 1993 Lexus automobile owned by AutoCorp Financial
          Services, Inc., a wholly owned subsidiary of HSNI; along with the agreement
          of
          the Company to transfer subsequent to the closing any other assets not
          directly
          associated with the Company's then primary business of automobile sub-prime
          receivable acquisition.
 
 The
          Company released PHG and its affiliates from certain receivables due from
          them
          to the Company in the amount of $37,395.
 
 Simultaneously
          with the transfers and releases by the Company, PHG funded certain payroll
          obligations in the amount of $173,852 and loan portfolio obligations of
          the
          Company in the amount of $56,000, and to cancel certain obligations owed
          to PHG
          and its affiliates by the Company and the Company's subsidiaries in the
          amount
          of $4,139,880.
 
 As
          part
          of the transaction, PHG secured the release of 35 million shares of restricted
          Company Common Stock pledged to FENB in connection with an outstanding
          loan to
          PHG and an affiliate of PHG. Such shares are part of the 94,000,000 Common
          Shares Sellers sold to Purchaser.
 
 ***Rodwell
          Software Systems, Inc.***
 
 The
          Company entered into a letter of intent dated as of January 2005 with Rodwell
          Software Systems, Inc. (“RSSI) regarding the Company's acquisition of all of the
          issued and outstanding capital stock of RSSI subject to certain adjustments
          at
          the closing of the acquisition plus assumption of certain transaction and
          related costs and expenses. The letter of intent was subject to various
          conditions and approvals and contemplated that the acquisition would be
          effected
          through the merger of RSSI with and into the Company, with the Company
          as the
          surviving corporation. The Company's intention to acquire RSSI was to
          significantly increase its software/firmware development capabilities,
          which
          combines GPS tracking with a web interface in one simple device working
          in
          tandem with a cell phone, PDA or computer. The acquisition was not consummated
          by mutual agreement.
 
 On
          December 26, 2005, the Company, as a prerequisite to a more definitive
          agreement, entered into an agreement to solely purchase certain software,
          firmware and product enhancements developed by RSSI. The transaction is
          subject
          to the execution and delivery of the more definitive written agreement
          and other
          documents between the Company and RSSI. In September 2005, the Company
          issued
          7,000,000 shares of common stock to RSSI as compensation for the purchase
          of the
          software, firmware and product enhancements. In December 2005, pursuant
          to its
          agreement with RSSI, the Company issued 4,100,000 shares of common stock
          as
          additional compensation to RSSI. Further, the Company will provide an
          intermittent royalty based on the sale of components and usage of the web
          interface by consumers as compensation to RSSI, subject to certain milestones.
          The Company incurred product development costs of $313,000 during the year
          ended
          December 31, 2005 for software related to the GPS tracking devices.
 The
          more
          definitive agreement will include additional language, without limitation,
          regarding an exclusive permanent License, attached schedules, representations,
          warranties and exceptions, and other matters with respect to the transaction.
  47
  The
          general terms and conditions related to the exclusivity of the permanent
          license
          are as follows. The exclusivity relates primarily to the retail automotive
          industry, which encompasses end users of the products. Other unrelated
          markets
          are also provided for. The exclusivity, however, is conditional.
 
 The
          purchase from RSSI provides the Company with technology products and support
          services for tracking and recovering valuable mobile assets.
 
 HSNI's
          plan further incorporates engaging and developing strategic alliances with
          third
          party sale and installation entities and distributors that have a distinct
          sales
          and marketing presence in the automobile retail industry, and the commercial
          and
          government sectors. The Company expects these types of engagements to be
          particularly beneficial and anticipates the results of such alliances to
          create
          name recognition for the Company.
 
 ***Beneficial
          Conversion Transaction***
 
 In
          March
          2001, the Company issued a note payable with a limited conversion feature
          in the
          principal sum of $125,000, bearing interest at 12% per annum, to a related
          party. In December 2004, the related party endorsed and assigned all rights,
          title and interest in the remaining obligation of this note payable to
          another
          entity. At such time, the outstanding principal balance was
          $61,538.
 
 In
          December 2004, subsequent to the assumption of this note payable by Securities
          Acquisition New York, LLC (“SANY”), a related party, the Board of Directors of
          the Company resolved to both convert this note payable and consent to an
          amended
          conversion calculation at a rate permitting 10,000 shares of common stock
          to be
          issued in exchange for each $1.00 of reduction in the outstanding principal
          of
          this note payable.
 
 Based
          on
          the aforementioned amendment to the conversion calculation rate, the Company
          performed two conversions, which were elected by the entity holding the
          note
          payable: January 2005, the Company issued 3,429,355 shares valued at $0.11
          per
          share at $377,229; and in March 2005, the Company issued 12,000,000 shares
          valued at $0.18 per share at $2,160,000, totaling $2,537,229 resulting
          in a
          charge in the statement of operations. See Item 11, Security Ownership
          of
          Certain Beneficial Owners and Management. The applied conversion rate was
          adjusted and recalculated by the Board of Directors.
 
 In
          August
          2005, as a result of a termination and settlement agreement of the assignment
          and assumption of the note payable by and between the related party and
          SANY,
          the Company was relieved of additional debt requiring no further issuances
          of
          shares of common stock. And as such, the conversion calculation was corrected
          and amended to 1,000 shares of common stock having been issued in exchange
          for
          each $1.00 deducted from the outstanding principal of this note payable.
  48
  Further,
          under the terms of the termination and settlement agreement no party has
          any
          future right nor does the Company have any future obligation to convert
          or issue
          shares of common stock in exchange for debt relief related to this note
          payable.
 
 In
          the
          year ended December 31, 2005, $13,876 was recorded as a repayment of the
          obligation. On December 30, 2005, the Company was entirely relieved of
          this
          related party note payable of $46,113 with a recorded balance of $46,311.
          The
          Company received an unconditional release by the holder of the note from
          any and
          all obligations.
 
 ***Operating
          Lease***
 
 The
          Company leases its principal executive office in Frisco, Texas from a related
          party on a month to month basis, which commenced in September 2004. Effective
          January 2006, the annual rent will increase to approximately $84,000 per
          year.
          The Company is responsible for its proportionate share of operating expenses
          of
          the premises.
 
 ***Securities
          Acquisition New York, LLC***
 
 In
          November 2004, the Company signed a proposal for certain services to be
          performed by Securities Acquisition New York, LLC to plan and re-capitalize
          the
          business. The proposal agreement provided for various services, which included
          certain merger services and capital sourcing activities and related services.
          The Company only partially implemented the services provided by the proposal
          agreement from January 2005 through March 2005, and since then effectively
          abandoned the core strategy encompassed in the agreement. Formerly, the
          Company
          had not agreed to nor had it made any provisions for any additional
          compensation. The Company and Securities Acquisition New York, LLC concluded
          their discussions regarding a resolution of the matter. In December 2005,
          the
          Company issued 2,500,000 shares of common stock as compensation paid for
          services rendered by Securities Acquisition New York, LLC in 2005. Given
          the
          additional consideration, Securities Acquisition New York, LLC is fully
          and
          entirely compensated.
 
 For
          other
          related party transactions see Financial Footnotes 12, 13, 14, 15, 19 and
          24.
 
 **Note
        18. Line of Credit**
 
 In
        November 2003, the Company executed a revolving credit facility in the amount
        of
        $10,000,000 with a financial institution that bore interest at a rate of
        prime
        plus 2% and matured in November 2004. The purpose of the credit facility
        was to
        provide funding for the purchase of automobile finance installment contracts
        for
        sale to banks and credit unions. The outstanding balance totaling $166,085
        at
        December 31, 2005 is in default. The line of credit is collateralized by
        automobile finance installment contracts approximating $52,693. However,
        the
        Company is presently negotiating revised payment terms with the lender.
 
 **Note
        19. Commitments and Contingencies**
 
 **Employment
        Contracts**
 
 In
        April
        2003, (amended and restated January 2004, amended and restated January 2005)
        HSNI entered into an Employment Agreement (“Agreement”) with Charles W. Norman.
        The Agreement provides that Mr. Norman shall serve as the Chief Executive
        Officer of HSNI to January 1, 2007. The duration of the Agreement is for
        a
        period of two years marked by the amended and restated date of January 1,
        2005.
        At any time prior to the expiration of the Agreement, HSNI and Mr. Norman
        may
        mutually agree to extend the duration of employment under the terms of the
        Agreement for an additional period or periods. As payment for services, HSNI
        agrees to pay Mr. Norman, as the Chief Executive Officer, a minimum base
        salary
        of $250,000 per annum. As provided in the Agreement, Mr. Norman is eligible
        to
        be paid bonuses, from time to time, at the discretion of HSNI’s Board of
        Directors, of cash, stock or other valid form of compensation. Upon termination
        of and under the terms of the Agreement, Mr. Norman shall be entitled to
        severance compensation in an amount equal to twenty-four months’ of base salary
        as shall exist at the time of such termination.
 
 In
        May
        2004, (amended and restated January 2005) HSNI entered into an Employment
        Agreement (“Agreement”) with Peter Ubaldi. The Agreement provides that Mr.
        Ubaldi shall serve as the President of HSNI to January 1, 2007. The duration
        of
        the Agreement is for a period of two years marked by the amended and restated
        date of January 1, 2005. At any time prior to the expiration of the Agreement,
        HSNI and Mr. Ubaldi may mutually agree to extend the duration of employment
        under the terms of the Agreement for an additional period or periods. As
        payment
        for services, HSNI agrees to pay Mr. Ubaldi, as the President, a minimum
        base
        salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is
        eligible to be paid bonuses, from time to time, at the discretion of HSNI’s
        Board of Directors, of cash, stock or other valid form of compensation. Upon
        termination of and under the terms of the Agreement, Mr. Ubaldi shall be
        entitled to severance compensation in an amount equal to twenty-four months’ of
        base salary as shall exist at the time of such termination.
 
 **Operating
        Leases**
 
 The
        Company leases its principal executive office in Frisco, Texas from a related
        party on a month to month basis, which commenced in September 2004. Effective
        January 2006, the annual rent will increase to approximately $84,000 per
        year.
        The Company is responsible for its proportionate share of operating expenses
        of
        the premises.
  49
  Rent
        expense totaled $45,064 for the year ended December 31, 2005 and $235,753
        for
        the year ended December 31, 2004. The Company intends to contractually assume
        the lease that the related party has entered into with the property owners.
        The
        following table sets forth the Company’s commitment thereof.
  Future
        minimum annual payments expected under the operating lease are as
        follows:
 
 **Year
                  Ending December 31,**
              
              
              **Amount**
 2006
              
              $
              84,4322007
              
              
              88,5012008
              
              
              92,5702009
              
              
              95,6212010
              
              
              95,621Total
              
              $
              456,745
 
 **Note
        20. Adjustments**
 
 For
        the
        period ended September 30, 2004, the Company determined that certain entries
        reported in the third quarter 10-QSB filing were in error and was corrected
        in
        the 10-KSB filing for December 31, 2004. The transaction was originally recorded
        as Extraordinary Income - Forgiveness of Indebtedness. The correcting entry
        was
        to reduce extraordinary income - forgiveness of indebtedness and increase
        additional paid in capital and miscellaneous expense.
 
 **Note
        21. Income Taxes**
 
 The
        Company continues to incur tax net operating losses (NOL's), which are available
        to carry forward and offset future taxable income. These NOL's were generated,
        principally as a result of the tax losses resulting from the operations of
        the
        Company. A deferred tax asset results from the benefit of utilizing the NOL
        carry-forwards in future years.
 
 Due
        to
        the current uncertainty of realizing the benefits of the tax NOL carry-forward,
        a valuation allowance equal to the tax benefits for the deferred taxes has
        been
        established. The full realization of the tax benefit associated with the
        carry-forward depends predominately upon the Company's ability to generate
        taxable income during future periods, which is not assured.
  The
        components of income taxes are comprised as follows:
 **December
                    31,**
                
                **December
                    31,****2005**
                
                
                **2004**
 DeferredFederal
                  
                  $
                  (2,794,600
                  )
                  $
                  (1,156,500
                  )State
                  
                  
                  (347,500
                  )
                  
                  (143,800
                  )(3,142,100
                  )
                  
                  (1,300,300
                  )Effect
                      of ValuationAllowance
                  
                  
                  3,142,100
                  
                  
                  1,300,300$
                  —
                  
                  $
                  —
   50
 The
        difference between the U.S. Federal statutory rate and the Company's effective
        rate is:
 **December
                        31,**
                    
                    **December
                        31,****2005**
                    
                    **2004**Federal
                        statutory tax rate
                    
                    
                    (34
                    %)
                    
                    (34
                    %)Valuation
                        allowance
                    
                    
                    34
                    %
                    
                    34
                    %Effective
                        tax rate
                    
                    
                    —
                    
                    
                    —
  Deferred
            tax assets are comprised of the following:
 **December
                    31,**
                
                **December
                    31,****2005**
                
                
                **2004**
 Deferred
                    Tax SummaryNet
                    operating loss carry-forward
                
                $
                13,414,000
                
                $
                8,529,700Provision
                    for financereceivable
                    losses
                
                
                82,200
                
                
                125,700Compensation
                    Accruals
                
                
                —
                
                
                22,80013,496,200
                
                
                8,678,200Valuation
                    allowance
                
                
                (13,496,200
                )
                
                (8,678,200
                )$
                —
                
                $
                —
 
 The
        net
        operating loss carry-forwards as of December 31, 2005 and 2004 are subject
        to
        certain loss limitations under IRS Section 382 regulations. The deferred
        tax
        summary set forth above does not reflect the effect of the IRS Section 382
        limitation for the years ended December 31, 2005 and 2004.
 
 **Note
        22. Pension Plans**
 
 The
        employees of AFCO were covered under the PUSA 401(K) Savings Plan. Upon
        completion of certain eligibility requirements, employees were allowed to
        contribute up to 15% of their annual compensation. AFCO matched 50% of such
        contributions up to 6%. Contributions by AFCO totaled $3,892 at December
        31,
        2004. The coverage terminated under this plan for Company employees in 2004
        when
        the Acquisition Agreement became effective in August 2004.
 
 The
        employees of Homeland Security Network, Inc. and its subsidiary AutoCorp
        Financial Services, Inc. were covered under a 401(K) Savings Plan. The Company
        did not elect a matching contribution provision in this plan. This plan was
        terminated in 2004.
 
 The
        Company does not currently provide, administer or manage a 401(K) plan or
        any
        other pension plan.
 
 **Note
        23. Legal Proceedings**
 
 The
        Company is presently not a party to any legal proceeding that it considers
        other
        than to be routine litigation incidental to the business.
 
 **Note
        24. Subsequent Events**
 
 1.
              Subsequent
                  to December 31, 2005, the Company issued the following securities
                  without
                  registration under the Securities Act of 1933. These shares were
                  issued
                  under the Section 4(2) exemption of the Securities
                  Act:
 
 In
        February 2006, 500,000 shares of common stock were issued to a party as a
        settlement for non-payment of a total purchase price paid for certain retail
        motor vehicle loan contracts: 500,000 shares at $0.05 totaling
        $25,000.
 
 51
 2.
              In
                  February 2006, the Company obtained $100,000 under a note payable
                  bearing
                  interest at 10% per annum from a third party. The note matures
                  in February
                  2007. The note is convertible, exercisable by the payee, at any
                  time
                  during the term into 1,000,000 shares of common stock. Such conversion
                  to
                  shares of common stock will be computed at the market rate on the
                  date of
                  conversion if so exercised. The proceeds were utilized for working
                  capital.
 
 3.
              In
                  2005, the Company obtained funds under a financing arrangement
                  bearing
                  interest at 8% per annum from a related third party. The note provides
                  a
                  line of credit totaling $500,000. The note is uncollateralized
                  and the
                  proceeds were utilized for working capital. In February 2006, the
                  note was
                  renegotiated with an extended term. The outstanding unpaid principal
                  sum
                  of $229,365 of the Note is modified to include the outstanding
                  accrued
                  interest of $16,960 thus equaling a principal sum of $246,325,
                  which will
                  continue to accrue at a rate equal to 8% per annum. The note matures
                  in
                  January 2007.
 
 4.
              In
                  January 2006, the Company completed negotiations to modify certain
                  terms
                  of a related party note payable of $134,000. The outstanding unpaid
                  principal sum of $134,000 of the note payable was modified to include
                  the
                  outstanding accrued interest of $7,375 as of December 31, 2005
                  thus
                  equaling a principal sum of $141,375, which will accrue at a rate
                  equal to
                  7% per annum. The note matures in April
                  2006.
 
 
 52
 
 **SIGNATURES**
 
 In
        accordance with Section 13 or 15(d) of the Exchange Act, the registrant has
        caused this report to be signed on its behalf by the undersigned, thereunto
        duly
        authorized.
 
 Homeland
                    Security Network, Inc.Registrant/s/
                    CHARLES NORMANCharles
                    NormanChief
                    Executive OfficerDate:
                    April 4, 2006/s/
                    PETER UBALDIPeter
                    UbaldiPresident
                    and Chief Financial OfficerDate:
                    April 4, 2006
   53