U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 
 Amendment No. 1 to
 FORM 10-K/A
 
 (Mark one)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2010
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 000-23279
 Homeland Security Capital Corporation
  1005 North Glebe Road, Suite 550Delaware
    
    52-2050585
    
    Arlington, Virginia 22201(State or other jurisdiction
    
    (IRS Employer
    
    (Address of principal executive offices)of incorporation)
    
    Identification No.)
    
    (Zip Code)
 (703) 528-7073
 Common Stock, par value $.001 per share
   Yes o No þ
 Yes o No þ
 þ o
 Yes
o No o
 þ
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Explanatory Note
 Amendment Original Filing we us, our Company SEC Comment Letter




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##### 



ITEM
9T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
 
  
  1




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##### 



Managements Annual Report on Internal Control Over Financial Reporting
      
  
 
  
 Changes in Internal Control over Financial Reporting
  
  2




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##### 



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageIndex to Financial Statements and Financial Statement Schedule
    
    
    F-1Report of Coulter & Justus, P.C.
    
    
    F-2Consolidated Balance Sheets as of June 30, 2010 and 2009
    
    
    F-3Consolidated Statements of Operations for the years ended June 30, 2010 and 2009
    
    
    F-4Consolidated Statements of Cash Flows for the years ended June 30, 2010 and 2009
    
    
    F-5Consolidated Statements of Stockholders Deficit and Comprehensive Loss for the
years ended June 30, 2010 and 2009
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7
  F-1




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##### 



/s/ Coulter & Justus, P.C.
 
 
  F-2




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##### 



BALANCE SHEETS
 
 June 302010
    
    
    2009Assets:Cash
    
    $
    1,829,429
    
    
    $
    2,356,534Marketable fixed income securities
    
    
    872,427
    
    
    
    Accounts receivable  net
    
    
    16,764,897
    
    
    
    13,425,804Cost in excess of billings on uncompleted contracts
    
    
    7,333,931
    
    
    
    3,937,086Other current assets
    
    
    447,925
    
    
    
    613,348Total current assets
    
    
    27,248,609
    
    
    
    20,332,772Fixed assets  net
    
    
    1,129,885
    
    
    
    4,398,833Equipment held for sale
    
    
    1,455,142
    
    
    
    Deferred financing costs  net
    
    
    8,000
    
    
    
    386,210Notes receivable  related party
    
    
    430,627
    
    
    
    412,127Securities available for sale
    
    
    110,826
    
    
    
    193,945Other non-current assets
    
    
    336,499
    
    
    
    319,516Intangible assets  net
    
    
    346,814
    
    
    
    391,372Goodwill
    
    
    6,403,982
    
    
    
    6,403,982Total assets
    
    $
    37,470,384
    
    
    $
    32,838,757Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    8,457,186
    
    
    $
    10,003,336Line of credit
    
    
    
    
    
    
    512,000Current portion of long term debt
    
    
    536,025
    
    
    
    735,016Current portion of long term debt  related party
    
    
    500,000
    
    
    
    Notes payable  related party
    
    
    
    
    
    
    50,110Accrued compensation
    
    
    2,568,857
    
    
    
    2,664,662Accrued other liabilities
    
    
    436,906
    
    
    
    593,241Billings in excess of costs on uncompleted contracts
    
    
    1,027,500
    
    
    
    1,022,125Income taxes payable
    
    
    551,941
    
    
    
    Current portion of deferred revenue
    
    
    85,327
    
    
    
    59,636Total current liabilities
    
    
    14,163,742
    
    
    
    15,640,126Line of credit
    
    
    2,162,000
    
    
    
    Long term debt  related party, less current maturities
    
    
    17,755,890
    
    
    
    16,365,001Long term debt, less current maturities
    
    
    688,593
    
    
    
    1,421,272Long term deferred revenue, less current portion
    
    
    124,667
    
    
    
    Dividends payable
    
    
    3,464,934
    
    
    
    1,869,107Total liabilities
    
    
    38,359,826
    
    
    
    35,295,506Warrants Payable  Series H Preferred Stock
    
    
    169,768
    
    
    
    169,768Stockholders DeficitHomeland Security Capital Corporation stockholders deficit:Preferred stock, $0.01 par value, 10,000,000 shares authorized,
1,559,985 and 1,918,080 shares issued and outstanding, respectively
    
    
    14,225,110
    
    
    
    14,261,207Common stock, $0.001 par value, 2,000,000,000 shares authorized,
51,624,725 and 53,270,160 shares issued and
48,054,294 and 49,699,729 shares outstanding, respectively
    
    
    51,625
    
    
    
    53,270Additional paid-in capital
    
    
    55,297,972
    
    
    
    54,131,548Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    272,529Treasury stock  3,570,431 shares at cost
    
    
    (250,000
    )
    
    
    (250,000
    )Accumulated deficit
    
    
    (70,509,228
    )
    
    
    (70,817,549
    )Accumulated comprehensive loss
    
    
    (301,153
    )
    
    
    (141,591
    )Total Homeland Security Capital Corporation stockholders deficit
    
    
    (1,213,145
    )
    
    
    (2,490,586
    )Noncontrolling interest
    
    
    153,935
    
    
    
    (135,931
    )Total stockholders deficit
    
    
    (1,059,210
    )
    
    
    (2,626,517
    )Total liabilities and stockholders deficit
    
    $
    37,470,384
    
    
    $
    32,838,757
   F-3




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##### 



STATEMENTS OF OPERATIONS
 
 Years Ended June 30,2010
    
    
    2009Net contract revenue
    
    $
    97,899,868
    
    
    $
    80,839,347Contract costs
    
    
    77,807,174
    
    
    
    69,156,496Gross profit on contracts
    
    
    20,092,694
    
    
    
    11,682,851Operating expenses:Marketing
    
    
    278,298
    
    
    
    308,499Personnel
    
    
    7,976,068
    
    
    
    8,881,940Insurance and facility costs
    
    
    718,484
    
    
    
    683,224Rent expense to related party
    
    
    344,000
    
    
    
    344,000Travel and transportation
    
    
    436,749
    
    
    
    502,888Other operating costs
    
    
    609,533
    
    
    
    939,776Depreciation and amortization
    
    
    1,374,456
    
    
    
    1,285,756Amortization of intangible assets
    
    
    44,558
    
    
    
    106,250Professional services
    
    
    1,120,406
    
    
    
    711,776Administrative costs
    
    
    1,396,686
    
    
    
    1,253,394Total operating expenses
    
    
    14,299,238
    
    
    
    15,017,503Operating income (loss)
    
    
    5,793,456
    
    
    
    (3,334,652
    )Other (expense) income:Interest expense
    
    
    (235,160
    )
    
    
    (294,810
    )Interest expense to related party
    
    
    (1,858,750
    )
    
    
    (1,717,181
    )Amortization of debt discounts and offering costs
    
    
    (412,263
    )
    
    
    (552,943
    )Currency loss
    
    
    (59,085
    )
    
    
    (405,821
    )Impairment losses
    
    
    (530,264
    )
    
    
    (3,317,837
    )Other income
    
    
    73,033
    
    
    
    92,597Total other expense
    
    
    (3,022,489
    )
    
    
    (6,195,995
    )Income (loss) before income taxes
    
    
    2,770,967
    
    
    
    (9,530,647
    )Income tax expense
    
    
    (590,230
    )
    
    
    Net income (loss)
    
    
    2,180,737
    
    
    
    (9,530,647
    )Less: Net (income) loss attributable to
noncontrolling interests
    
    
    (261,864
    )
    
    
    74,180Net income (loss) attributable to Homeland
Security Capital Corporation stockholders
    
    
    1,918,873
    
    
    
    (9,456,467
    )Less preferred dividends and other beneficial conversion
features associated with preferred stock issuance
    
    
    (1,610,551
    )
    
    
    (2,082,998
    )Net income (loss) attributable to common stockholders
of Homeland Security Capital Corporation
    
    $
    308,322
    
    
    $
    (11,539,465
    )Income (loss) per common share attributable to Homeland
Security Capital Corporation stockholders 
basic and dilutedBasic
    
    $
    0.01
    
    
    $
    (0.24
    )Diluted
    
    $
    0.00
    
    
    $
    (0.24
    )Weighted average shares outstanding Basic
    
    
    51,291,270
    
    
    
    47,664,614Diluted
    
    
    699,666,666
    
    
    
    47,664,614
   F-4




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##### 



STATEMENTS OF CASH FLOWS
 
 
 Years Ended June 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    2,180,737
    
    
    $
    (9,530,647
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Purchase of marketable fixed income securities
    
    
    (1,656,471
    )
    
    
    Sales of marketable fixed income securities
    
    
    784,044
    
    
    
    Share-based compensation expense
    
    
    1,075,625
    
    
    
    2,150,773Stock issued for services
    
    
    38,333
    
    
    
    Depreciation
    
    
    1,863,333
    
    
    
    1,842,723Amortization of intangibles
    
    
    44,558
    
    
    
    106,250Loss on disposal of assets
    
    
    9,630
    
    
    
    5,843Impairment losses on securities available for sale
    
    
    104,997
    
    
    
    3,317,837Impairment loss on equipment held for sale
    
    
    425,267
    
    
    
    Write off of note receivable  related party
    
    
    
    
    
    
    90,400Amortization of debt offering costs and discounts
    
    
    412,263
    
    
    
    552,943Accrued interest on notes receivable  related parties
    
    
    (18,500
    )
    
    
    Accrued interest due to related parties
    
    
    1,856,836
    
    
    
    1,799,291Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,339,093
    )
    
    
    (1,448,066
    )Costs in excess of billings on uncompleted contracts
    
    
    (3,396,845
    )
    
    
    1,722,131Other assets
    
    
    43,443
    
    
    
    (514,004
    )Accounts payable
    
    
    (1,546,149
    )
    
    
    3,801,201Billings in excess of costs on uncompleted contracts
    
    
    5,375
    
    
    
    197,723Accrued compensation
    
    
    (95,805
    )
    
    
    295,263Accrued other liabilities
    
    
    (156,335
    )
    
    
    (238,967
    )Income taxes payable
    
    
    551,941
    
    
    
    Deferred revenue
    
    
    150,358
    
    
    
    16,472Net cash provided by operating activities
    
    
    (662,458
    )
    
    
    4,167,166Cash flows from investing activities:Purchase of fixed assets
    
    
    (383,206
    )
    
    
    (741,008
    )Proceeds from sale of assets
    
    
    29,481
    
    
    
    45,141Investment in equity of subsidiaries
    
    
    
    
    
    
    (113,403
    )Investment received for noncontrolling interest of subsidiary
    
    
    28,000
    
    
    
    Net cash used in investing activities
    
    
    (325,725
    )
    
    
    (809,270
    )Cash flows from financing activities:Net borrowings (payments) on line of credit
    
    
    1,650,000
    
    
    
    (1,853,935
    )Debt offering costs
    
    
    
    
    
    
    (50,000
    )Repayments of debt
    
    
    (1,062,369
    )
    
    
    (647,333
    )Proceeds from notes payable  related parties
    
    
    
    
    
    
    50,000Repayment of notes payable  related parties
    
    
    (50,110
    )
    
    
    (1,608,247
    )Net cash provided by (used in) financing activities
    
    
    537,521
    
    
    
    (4,109,515
    )Effect of exchange rate changes on cash
    
    
    (76,443
    )
    
    
    (74,204
    )Net decrease in cash
    
    
    (527,105
    )
    
    
    (825,823
    )Cash, beginning of year
    
    
    2,356,534
    
    
    
    3,182,357Cash, end of year
    
    $
    1,829,429
    
    
    $
    2,356,534
  
  F-5




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##### 



STATEMENTS OF STOCKHOLDERS EQUITY
 
 Homeland Security Capital Corporation ShareholdersAdditionalAdditional
    
    
    Paid-In
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    TotalPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Capital 
    
    
    Treasury
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Noncontrolling
    
    
    StockholdersStock
    
    
    Shares Issued
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Stock
    
    
    Deficit
    
    
    Loss
    
    
    Interest
    
    
    (Deficit)Balance, July 1, 2008As previously reported
    
    $
    12,346,482
    
    
    
    48,846,244
    
    
    $
    48,846
    
    
    $
    51,385,199
    
    
    $
    148,652
    
    
    $
    
    
    
    $
    (59,339,836
    )
    
    $
    (1,521,971
    )
    
    $
    
    
    
    $
    3,067,372Adjustment for adoption of
FASB ASC 810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    61,750
    
    
    
    
    
    
    
    (61,750
    )
    
    
    Balance, July 1, 2008 as restated
    
    
    12,346,482
    
    
    
    48,846,244
    
    
    
    48,846
    
    
    
    51,385,199
    
    
    
    148,652
    
    
    
    
    
    
    
    (59,278,086
    )
    
    
    (1,521,971
    )
    
    
    (61,750
    )
    
    
    3,067,372Amortization of Series H warrants
    
    
    14,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,725
    )
    
    
    
    
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250,000
    )Dividends on Series H and Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,468,272
    )
    
    
    
    
    
    
    
    
    
    
    (1,468,272
    )Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,929,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,929,577Stock options exercised
    
    
    
    
    
    
    4,423,916
    
    
    
    4,424
    
    
    
    216,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,196Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,863,253
    )
    
    
    
    
    
    
    (1,863,253
    )Realization of impairment in value
of securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,317,837
    
    
    
    
    
    
    
    3,317,837Value of Series I shares released
from escrow
    
    
    1,900,000
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    123,877
    
    
    
    
    
    
    
    (600,000
    )
    
    
    
    
    
    
    
    
    
    
    2,023,877Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,204
    )
    
    
    
    
    
    
    (74,204
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,456,467
    )
    
    
    
    
    
    
    (74,180
    )
    
    
    (9,530,647
    )Balance, June 30, 2009
    
    
    14,261,207
    
    
    
    53,270,160
    
    
    
    53,270
    
    
    
    54,131,548
    
    
    
    272,529
    
    
    
    (250,000
    )
    
    
    (70,817,550
    )
    
    
    (141,591
    )
    
    
    (135,930
    )
    
    
    (2,626,517
    )Dividends on Series H and Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,595,826
    )
    
    
    
    
    
    
    
    
    
    
    (1,595,826
    )Amortization of Series H warrants
    
    
    14,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,724
    )
    
    
    
    
    
    
    
    
    
    
    Conversion of Series G to common
    
    
    (35,808
    )
    
    
    1,611,360
    
    
    
    1,612
    
    
    
    34,196
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series H to common
    
    
    (15,013
    )
    
    
    500,010
    
    
    
    500
    
    
    
    14,513
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,625Rescission of option exercise
    
    
    
    
    
    
    (4,405,720
    )
    
    
    (4,406
    )
    
    
    4,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of stock for services
    
    
    
    
    
    
    648,915
    
    
    
    649
    
    
    
    37,684
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,333Noncontrolling interests
investment in subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    28,000Decrease in value of securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,119
    )
    
    
    
    
    
    
    (83,119
    )Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (76,443
    )
    
    
    
    
    
    
    (76,443
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,918,873
    
    
    
    
    
    
    
    261,864
    
    
    
    2,180,737Balance, June 30, 2010
    
    $
    14,225,110
    
    
    
    51,624,725
    
    
    $
    51,625
    
    
    $
    55,297,972
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,509,227
    )
    
    $
    (301,153
    )
    
    $
    153,934
    
    
    $
    (1,059,210
    )
   F-6




---



##### 



HOMELAND SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
 
 Notes to Consolidated Financial Statements
 1. Organization and Nature of Business
       2. Summary of Significant Accounting Policies
   F-7




---



##### 



(i)
    
    persuasive evidence of an arrangement exists,(ii)
    
    the services have been rendered and all required milestones achieved,(iii)
    
    the sales price is fixed or determinable, and(iv)
    
    collectability is reasonably assured.
 
 
  
     F-8




---



##### 



-
  -
     Gross Unrealized
    
    
    Recognized
    
    
    EstimatedCost
    
    
    Loss
    
    
    Impairment Loss
    
    
    Fair ValueJune 30, 2010
    
    $
    3,581,047
    
    
    $
    152,384
    
    
    $
    3,317,837
    
    
    $
    110,826June 30, 2009
    
    $
    3,581,047
    
    
    $
    69,265
    
    
    $
    3,317,837
    
    
    $
    193,945
   F-9




---



##### 



-
    F-10




---



##### 



Recent Accounting Pronouncements
  Improving Disclosures about Fair Value Measurements.
      F-11




---



##### 



3. Fixed Assets, net
  June 30,2010
    
    
    2009Office equipment
    
    $
    398,599
    
    
    $
    382,293Operating equipment
    
    
    1,026,496
    
    
    
    3,622,584Computer equipment
    
    
    2,166,648
    
    
    
    1,951,472Vehicles
    
    
    930,706
    
    
    
    908,124Total cost
    
    
    4,522,449
    
    
    
    6,864,473Less accumulated depreciation
    
    
    (3,392,564
    )
    
    
    (2,465,640
    )Fixed assets, net
    
    $
    1,129,885
    
    
    $
    4,398,833
   4. Intangible Assets, net
  June 30,2010
    
    
    2009Depreciable intangibles:Non-compete agreements
    
    $
    92,665
    
    
    $
    92,665Contracts
    
    
    445,823
    
    
    
    445,823538,488
    
    
    
    538,488Less accumulated amortization
    
    
    (196,674
    )
    
    
    (152,116
    )341,814
    
    
    
    386,372Non-depreciable intangiblesTrademarks
    
    
    5,000
    
    
    
    5,000Total intangible assets, net of amortization
    
    $
    346,814
    
    
    $
    391,372
  F-12




---



##### 



5. Goodwill
 
  
 
  
 
  
 6. Minority Interest in Ultimate Escapes, Inc.
    7. Income Taxes
     F-13




---



##### 



June 30,2010
    
    
    2009Deferred tax assets:Net operating loss, capital loss and
research credit carryforwards
    
    $
    14,002,792
    
    
    $
    16,332,874Related party accruals
    
    
    1,557,242
    
    
    
    846,259Allowance for doubtful accounts
    
    
    87,526
    
    
    
    89,915Vacation and workers compensation
    
    
    231,528
    
    
    
    109,850Impairment loss on assets held for sale
    
    
    1,310,603
    
    
    
    1,270,400Other temporary differences
    
    
    7,620
    
    
    
    21,388Valuation allowance
    
    
    (16,574,871
    )
    
    
    (17,714,926
    )Total deferred tax assets
    
    
    622,440
    
    
    
    (955,760
    )Deferred tax liabilities:Depreciation and amortization expenses
    
    
    (440,298
    )
    
    
    (745,236
    )Amortization of intangible assets
    
    
    (130,874
    )
    
    
    (147,945
    )Other temporary differences
    
    
    (51,268
    )
    
    
    (62,579
    )Total deferred tax liabilities
    
    
    (622,440
    )
    
    
    955,760Net deferred tax assets
    
    $
    
    
    
    $
    
   F-14




---



##### 



June 30,2010
    
    
    2009Federal income taxes at 34%
    
    $
    942,129
    
    
    $
    (3,335,726
    )Effect of permanent differences
    
    
    506,500
    
    
    
    376,289Other
    
    
    (107,896
    )
    
    
    State income tax
    
    
    389,552
    
    
    
    (47,016
    )Change in valuation allowance  current year
    
    
    (1,140,055
    )
    
    
    3,006,453Net income tax expense (benefit)
    
    $
    590,230
    
    
    $
    
  Year of
    
    Capital Loss
    
    
    NOL
    
    
    TotalExpiration
    
    Carryover
    
    
    Carryover
    
    
    Carryover2014
    
    $
    90,400
    
    
    $
    
    
    
    $
    90,4002017
    
    
    
    
    
    
    3,171,774
    
    
    
    3,171,7742018
    
    
    
    
    
    
    7,017,587
    
    
    
    7,017,5872019
    
    
    
    
    
    
    5,878,720
    
    
    
    5,878,7202020
    
    
    
    
    
    
    4,942,777
    
    
    
    4,942,7772021
    
    
    
    
    
    
    4,434,157
    
    
    
    4,434,1572022
    
    
    
    
    
    
    3,438,195
    
    
    
    3,438,1952023
    
    
    
    
    
    
    14,695
    
    
    
    14,6952024
    
    
    
    
    
    
    4,031,488
    
    
    
    4,031,4882025
    
    
    
    
    
    
    1,055,115
    
    
    
    1,055,1152026
    
    
    
    
    
    
    3,066,650
    
    
    
    3,066,6502027
    
    
    
    
    
    
    2,415,265
    
    
    
    2,415,2652028
    
    
    
    
    
    
    1,627,859
    
    
    
    1,627,859$
    90,400
    
    
    $
    41,094,282
    
    
    $
    41,184,682
  F-15




---



##### 



8. Long-Term Debt
  June 30,2010
    
    
    2009Safety Promissory Note payable due in monthly
installments of $38,296 including interest at 5.22%
until March 20102 when the unpaid balance is due,
collateralized by equipment with an original cost of
$1,993,212. Repaid in its entirety subsequent to
June 30, 2010. (See Note 3).
    
    $
    1,058,860
    
    
    $
    1,452,342Safety Promissory Note payable due in monthly
installments of $20,870 including interest at 5.85%
until May 2011, when the unpaid balance is due,
collateralized by equipment with an original cost of
$648,000. Repaid in 2010.
    
    
    
    
    
    
    576,693Safety Revolving Line of Credit
    
    
    2,162,000
    
    
    
    512,000Nexus vehicle purchase obligations, due in
aggregate monthly installments of approximately
$7,700 including interest at rates averaging approximately
6% until August 2014, collateralized by
vehicles with an original cost of approximately $284,000
    
    
    165,758
    
    
    
    106,545Other notes payable, repaid in 2010
    
    
    
    
    
    
    20,708Total notes payable
    
    
    3,386,618
    
    
    
    2,668,288Less revolving line of credit
    
    
    (2,162,000
    )
    
    
    (512,000
    )Less current portion of term debt
    
    
    (536,025
    )
    
    
    (735,016
    )Long term portion
    
    $
    688,593
    
    
    $
    1,421,272
        2011
    
    $
    536,0252012
    
    
    662,3222013
    
    
    24,6552014
    
    
    1,616Total
    
    $
    1,224,618
  F-16




---



##### 



9. Related Party Senior Notes Payable
   June 30,2010
    
    
    2009Senior Secured Notes Payable (the New Notes)
    
    $
    6,310,000
    
    
    $
    6,310,000Senior Secured Notes Payable (the Exchange
Notes)
    
    
    6,750,000
    
    
    
    6,750,000Less debt discount
    
    
    
    
    
    
    (34,053
    )Debenture interest conversion note
    
    
    878,923
    
    
    
    878,923Treasury stock purchase note
    
    
    250,000
    
    
    
    250,000Accrued interest on above notes
    
    
    4,066,967
    
    
    
    2,210,131Total notes payable
    
    
    18,255,890
    
    
    
    16,365,001Less current portion of term debt
    
    
    (500,000
    )
    
    
    Long term portion
    
    $
    17,755,890
    
    
    $
    16,365,001
 10. Convertible Preferred Stock
  Series F
  Series G
  Series H
   F-17




---



##### 



Series I
   June 30, 2010
    
    
    June 30, 2009Potential
    
    
    Accrued
    
    
    Potential
    
    
    AccruedPreferred Stock
    
    Common Shares
    
    
    Dividends
    
    
    Common Shares
    
    
    DividendsSeries F
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,000
    
    
    
    Series G
    
    
    
    
    
    
    
    
    
    
    1,611,360
    
    
    
    Series H
    
    
    562,833,323
    
    
    $
    2,745,033
    
    
    
    333,333,333
    
    
    $
    1,545,206Series I
    
    
    110,000,000
    
    
    $
    719,901
    
    
    
    110,000,000
    
    
    $
    323,901Total
    
    
    682,833,323
    
    
    $
    3,464,934
    
    
    
    454,944,693
    
    
    $
    1,869,107
  F-18




---



##### 



11. Stock Options
 Stock Options Awarded Under the 2005 Plan
  Stock Options Awarded Under the 2008 Plan
  Stock Options Awarded Outside of the 2005 Plan and the 2008 Plan
    June 30, 2010
    
    
    June 30, 2009Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise
    
    
    Grant Date
    
    
    
    
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Price
    
    
    Fair ValueOutstanding at
beginning of period
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049
    
    
    
    9,560,000
    
    
    $
    0.103
    
    
    $
    0.107Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,850,000
    
    
    
    0.050
    
    
    
    0.036Rescinded
(Exercised)
    
    
    7,640,626
    
    
    
    0.050
    
    
    
    0.036
    
    
    
    (7,673,986
    )
    
    
    0.050
    
    
    
    0.036Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,640
    )
    
    
    0.050
    
    
    
    0.036Outstanding at
end of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049Options exercisable
at end of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    47,992,293
    
    
    $
    0.060
    
    
    $
    0.050
  F-19




---



##### 



12. Common Stock Warrants
     13. Fair Value Measurements
 Fair Value Measurements and Disclosures Fair Value Measurements,
   F-20




---



##### 



14. Business Segments
   For the Year Ended June 30, 2010Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    85,723,970
    
    
    $
    10,207,192
    
    
    $
    1,968,706
    
    
    $
    97,899,868Gross margin
    
    
    
    
    
    
    17,025,476
    
    
    
    2,988,563
    
    
    
    78,655
    
    
    
    20,092,694Operating expenses
    
    
    2,480,103
    
    
    
    10,743,617
    
    
    
    1,045,631
    
    
    
    29,887
    
    
    
    14,299,238Other expense  net
    
    
    (1,882,547
    )
    
    
    (754,365
    )
    
    
    (385,577
    )
    
    
    
    
    
    
    (3,022,489
    )Income tax (benefit) expense
    
    
    (1,696,641
    )
    
    
    2,184,100
    
    
    
    102,771
    
    
    
    
    
    
    
    590,230Net income (loss)
    
    
    (2,666,009
    )
    
    
    3,343,394
    
    
    
    1,454,584
    
    
    
    48,768
    
    
    
    2,180,737Current assets
    
    
    243,276
    
    
    
    22,730,459
    
    
    
    4,162,952
    
    
    
    111,922
    
    
    
    27,248,609Total assets
    
    
    829,732
    
    
    
    32,087,825
    
    
    
    4,440,905
    
    
    
    111,922
    
    
    
    37,470,384Interest expense
    
    
    1,858,747
    
    
    
    227,486
    
    
    
    7,677
    
    
    
    
    
    
    
    2,093,910Depreciation expense
    
    
    
    
    
    
    1,793,143
    
    
    
    70,190
    
    
    
    
    
    
    
    1,863,333Capital expenditures
    
    
    
    
    
    
    350,949
    
    
    
    162,956
    
    
    
    
    
    
    
    513,905
  F-21




---



##### 



For the Year Ended June 30, 2009Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    72,106,878
    
    
    $
    6,462,511
    
    
    $
    2,269,958
    
    
    $
    80,839,347Gross margin
    
    
    
    
    
    
    9,931,852
    
    
    
    1,658,522
    
    
    
    92,477
    
    
    
    11,682,851Operating expenses
    
    
    4,099,586
    
    
    
    9,763,645
    
    
    
    1,154,272
    
    
    
    
    
    
    
    15,017,503Other expense  net
    
    
    (5,396,764
    )
    
    
    (795,173
    )
    
    
    (4,058
    )
    
    
    
    
    
    
    (6,195,995
    )Income tax (benefit) expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net (loss) income
    
    
    (9,496,350
    )
    
    
    (342,340
    )
    
    
    500,192
    
    
    
    (192,149
    )
    
    
    (9,530,647
    )Current assets
    
    
    413,578
    
    
    
    16,890,714
    
    
    
    2,279,900
    
    
    
    748,580
    
    
    
    20,332,772Total assets
    
    
    631,412
    
    
    
    28,954,567
    
    
    
    2,504,198
    
    
    
    748,580
    
    
    
    32,838,757Interest expense
    
    
    1,717,435
    
    
    
    276,776
    
    
    
    17,780
    
    
    
    
    
    
    
    2,011,991Depreciation expense
    
    
    7,593
    
    
    
    1,792,014
    
    
    
    43,116
    
    
    
    
    
    
    
    1,842,723Capital expenditures
    
    
    
    
    
    
    737,979
    
    
    
    61,165
    
    
    
    
    
    
    
    799,144
 15. Earnings (Loss) Per Share
    Year Ended June 30,2010
    
    
    2009Basic and Diluted Earnings (Loss) Per Share:Income (Loss) (Numerator)
    
    $
    1,918,873
    
    
    $
    (9,456,467
    )Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (14,724
    )
    
    
    (14,724
    )Less: Preferred stock dividends
    
    
    (1,595,827
    )
    
    
    (1,468,274
    )Less: Series I Preferred Stock beneficial
conversion feature
    
    
    
    
    
    
    (600,000
    )Income (Loss) attributable to common
stockholders
    
    $
    308,322
    
    
    $
    (11,539,465
    )Shares (Denominator)Weighted-average number of common
shares:Basic
    
    
    51,291,270
    
    
    
    47,664,614Diluted
    
    
    699,666,666
    
    
    
    47,664,614Earnings Per Common ShareBasic income (loss) per share
    
    $
    0.01
    
    
    $
    (0.24
    )Diluted income (loss) per share
    
    $
    0.00
    
    
    $
    (0.24
    )
  F-22




---



##### 



16. Cash Flows
  Year Ended June 30,2010
    
    
    2009Cash paid during the period for:Interest
    
    $
    227,486
    
    
    $
    294,556Taxes
    
    
    7,677
    
    
    
    Supplemental disclosure for noncash investing
and financing activity:Preferred stock released from escrow
    
    $
    
    
    
    $
    2,023,877Temporary impairment of value of securities
available for sale
    
    
    83,119
    
    
    
    1,863,253Dividends accrued on Preferred Stock
    
    
    1,595,827
    
    
    
    1,468,274Dividends paid with Preferred Stock
    
    
    14,724
    
    
    
    14,724Reverse cashless exercise of stock option
    
    
    (4,406
    )
    
    
    Conversion of Series G Preferred Stock
    
    
    35,808
    
    
    
    Conversion of Series H Preferred Stock
    
    
    15,013
    
    
    
    Purchase of treasury stock for notes
    
    
    
    
    
    
    250,000Equipment purchased under capital leases
    
    
    130,699
    
    
    
    58,136
  F-23




---



##### 



17. Commitments and Contingencies
 Leases
  Year Ended June 30,2011
    
    $
    548,0922012
    
    
    391,7032013
    
    
    344,0282014
    
    
    344,0282015
    
    
    344,028Thereafter
    
    
    1,003,775$
    2,975,654
  Commitments
  Claims
  18. Related Party Transactions
   19. Concentration of Customers and Suppliers
 Significant Customers
   F-24




---



##### 



Significant Suppliers
  20. Changes in Estimates
  21. Continuing Operations
   22. Contingencies
  23. Subsequent Events
 Conversion of Series H Convertible Preferred Shares
   F-25




---



##### 



Ultimate Escapes, Inc. Bankruptcy Filing
    F-26