##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 (Mark one)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2011
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission file number 000-23279
 Homeland Security Capital Corporation
  Delaware
    
    52-2050585(State or other jurisdiction 
of incorporation or 
organization)
    
    (I.R.S. Employer
Identification No.)
 4601 North Fairfax Drive, Suite 1200
Arlington, Virginia 22203  (address of principal executive offices, including zip code)
 Registrants telephone number, including area code: (703) 528-7073
 Securities Registered pursuant to Section 12(b) of the Act:
 Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.001 per share
    
    OTC Bulletin Board
 Securities Registered under Section 12(g) of the Act: None.
 o þ
 o þ
 o þ
 o o
 o
  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




---



##### 



TABLE OF CONTENTS
 PageSPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
    
    3PART IItem 1. Business
    
    4Item 1A. Risk Factors
    
    15Item 1B. Unresolved Staff Comments
    
    34Item 2. Properties
    
    34Item 3. Legal Proceedings
    
    35Item 4. (Removed and Reserved)
    
    35PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    36Item 6. Selected Financial Data
    
    37Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    38Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    42Item 8. Financial Statements and Supplementary Data
    
    42Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    43Item 9A. Controls and Procedures
    
    43Item 9B. Other Information
    
    44PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    45Item 11. Executive Compensation
    
    50Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    56Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    58Item 14. Principal Accountant Fees and Services
    
    59PART IVItem 15. Exhibits, Financial Statement Schedules
    
    61SIGNATURES
    
    65Exhibit 3.2Exhibit 21Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




---



##### Table of Contents



SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
           3




---



##### Table of Contents



PART I
 
 ITEM 1.
    
    BUSINESS
 General
  th
  Recent Developments
 .
    4




---



##### Table of Contents



5




---



##### Table of Contents



th
  Our History
       6




---



##### Table of Contents



Business Overview
    
    
    identifying acquisition candidates which meet our consolidation
criteria, including the presence of a strong management team as a
platform company;
    
    attracting and acquiring companies through implantation of our
decentralized management approach coupled with strong performance
incentives including the use of financially attractive earn-out
arrangements and contingent purchase payments for selling
managers;
    
    achieving operating efficiencies and synergies by combining
non-customer related administrative functions, implementing system
and technology improvements and purchasing products and services
in large volumes; and
    
    achieving organic growth in our platform companies through
cross-selling, targeted marketing and streamlined management and
acquiring follow-on companies that provide complementary products
or services to our platform companies.
   Our Strategy
   7




---



##### Table of Contents



Management and Operational Strategy
  
    
    Marketing. The identification of the companys market position and
the development and implementation of effective market
penetration, branding and marketing strategies.
    
    Business Development. Providing access to the initial reference
customers and external marketing channels that generate growth
opportunities through strategic partnerships, joint ventures or
acquisitions.
    
    Technology. The strategic assessment of technology, market
opportunities and trends; the design, development and
commercialization of proprietary technology solutions; and access
to complementary technologies and strategic partnerships.
    
    Operations. Significant management interaction to optimize a
companys business, ranging from the establishment of facilities
and administrative processes to the operations and financial
infrastructure a growing enterprise requires.
    
    Legal and Financial. The development of appropriate corporate,
legal and financial structures and the expertise to execute a wide
variety of corporate and financial transactions.
   Operating Strategy
 Capitalize on Cross-Selling Opportunities.
 Achieve Operating Efficiencies.
  8




---



##### Table of Contents



Leverage Platform Company Autonomy.
 Implement Technology.
 Management Execution Teams.
 Acquisition Strategy
 Identify and Pursue Strategic Consolidation Opportunities.
 
    
    generating revenues and preferably profits, with established customers;
    
    long-term growth prospects for technology-based products and services offered;
    
    experienced management team willing to continue managing the enterprise;
    
    significant acquisition consideration that is performance-based; and
    
    a highly fragmented sector of their industry characterized by significant
potential smaller acquisition targets with few market leaders in the sector.
  Acquire Complementary Businesses.
  9




---



##### Table of Contents



Our Former and Current Platform Companies
  Name, Address And
    
    Place Of
    
    OwnershipHeadquarters
    
    Formation
    
    Percentage
    
    BusinessSafety & Ecology Holdings 
Corporation
2800 Solway Road 
Knoxville, TN 37931www.sec-tn.com
    
    Nevada, USA
    
    Definitive
agreement to sell
100% of our
ownership was
signed on July 15,
2011.
    
    Safety & Ecology
Holdings
Corporation is an
international
provider of
environmental,
nuclear and
radiological
infrastructure
remediation,
disaster relief
solutions and
advanced
construction
services.NTG Management Corp. (formerly,
Nexus Technologies Group) 
7 West Cross Street
Hawthorne, NY 10532
    
    Delaware, USA
    
    Sold 100% of our
ownership on August
19, 2011.
    
    Through its
subsidiary, CSS,
designs, develops
and installs
integrated security
systems for
government and
commercial clients.Polimatrix, Inc. 
4601 North Fairfax Drive 
Suite 1200
Arlington, VA 22203www.polimatrix.com
    
    Virginia, USA
    
    51% (remaining 49%
owned by Polimaster
Inc.)
    
    Polimatrix, Inc.
markets, sells and
distributes
proprietary
radiological
detection
equipment.Fiducia Real Estate Solutions, Inc. 
4601 North Fairfax Drive 
Suite 1200
Arlington, VA 22203
    
    Delaware, USA
    
    80% ownership.
20% owned by
management of
Timios.
    
    Fiducia Real Estate
Solutions, Inc.
provides products
and services
through its two
wholly owned
subsidiaries
Timios, Inc. and
Default Servicing
USA, Inc., which
include title and
escrow services for
mortgage
origination
refinance, reverse
mortgages, real
estate owned,
deed-in-lieu
transactions, and
real estate-owned
liquidation
services to
institutional REO
customers.
  Current Platform Company Businesses, Products and Services
 Fiducia Real Estate Solutions, Inc.
  Timios, Inc.
   10




---



##### Table of Contents



Locations
  Default Servicing USA, Inc.
     Location
   11




---



##### Table of Contents



Investments
    Significant Customers
 Timios
  DSUSA
  Significant Suppliers
 Timios
   12




---



##### Table of Contents



DSUSA
  Patents and Proprietary Rights
  Competition
  Timios.
  DSUSA
 Supply Availability
   13




---



##### Table of Contents



Federal and State Government Regulation
  Title Insurance.
 Escrow Services.
   Product Liability and Insurance
  Employees
    14




---



##### Table of Contents



ITEM 1A.
    
    RISK FACTORS
 In analyzing our Company, you should consider carefully the following risk factors, together
with all of the other information included in this Annual Report on Form 10-K . Factors that could
cause or contribute to differences in our actual results include those discussed in the following
subsection, as well as those discussed in Managements Discussion and Analysis of Financial
Condition and Results of Operations and elsewhere throughout this Annual Report on Form 10-K . Each
of the following risk factors, either alone or taken together, could adversely affect our business,
operating results and financial condition, as well as adversely affect the value of an investment
in our Company.
 General and Economic Risks Related to the Operations of the Company
 We are currently in default with respect to our outstanding indebtedness and our assets are subject
to foreclosure by our lender without notice.
  We will not be able to repay our outstanding indebtedness to YA, which is currently in default,
unless and until we sell our Safety subsidiary. If we cannot sell our Safety subsidiary, we will
not be able to continue operations as a going concern.
  Restrictive covenants in our outstanding indebtedness with YA may restrict our ability to pursue
certain business strategies.
  
    
    Incur additional indebtedness;
    
    Create liens securing debt or other encumbrances on our assets;
    
    Make loans or advances;
  15




---



##### Table of Contents




    
    Pay dividends or make distributions to our stockholders;
    
    Purchase or redeem our stock;
    
    Repay indebtedness that is junior to indebtedness under our credit agreement,
except for our subsidiaries revolving credit agreement;
    
    Acquire the assets of, or merge or consolidate with, other companies; and
    
    Sell, lease or otherwise dispose of assets.
  We have historically had severe working capital shortages, even following significant financing
transactions.
   We may need to raise additional capital on terms unfavorable to our stockholders.
  We have raised capital and issued securities at the commencement of our operations, which has
resulted result in dilution (and will result in future dilution upon future warrant exercises or
stock conversions) to our existing stockholders. We will likely issue more securities to raise
additional capital or to obtain other services or assets, which may result in further substantial
dilution to our existing stockholders.
   16




---



##### Table of Contents



The conversion ratio of our Series H Stock has been automatically adjusted and if the majority
holder does not agree to amend or waive the terms of such adjustment and converts its Series H
Stock, our existing stockholders will be substantially diluted.
   Outstanding Preferred Stock, options and warrants may make it difficult for us to obtain additional
capital on reasonable terms.
  We are a holding company and depend on distributions from our subsidiaries for cash.
  Our common stock is vulnerable to pricing and purchasing actions that are beyond our control and,
therefore, persons acquiring or holding our shares may be unable to resell their shares at a profit
as a result of this volatility.
   17




---



##### Table of Contents



If we fail to effect and maintain registration of the common stock issued or issuable pursuant to
conversion of our Preferred Stock, the Additional Shares or certain of our outstanding common stock
warrants, we may be obligated to pay the investors of those securities liquidated damages.
  We have a limited operating history, especially in the real estate services industry, which makes
it difficult to evaluate our current business and future prospects and may cause our revenues to
decline.
  Failure to achieve and maintain internal controls in accordance with Sections 302 and 404 of the
Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business.
  We are dependent upon key personnel who would be difficult to replace and whose loss could impede
our development.
   18




---



##### Table of Contents



Because our operating results may fluctuate significantly and may be below the expectations of
analysts and investors, the market price for our stock may be volatile.
  
    
    expenses incurred in pursuing and closing acquisitions and in follow-up
integration efforts;
    
    changes in customers budgets and procurement policies and priorities, and
funding delays, particularly with respect to government contracts;
    
    new competitors and the introduction of enhanced products from new or
existing competitors;
    
    unforeseen legal expenses, including litigation and bid protest costs;
    
    unanticipated delays or problems in releasing new products and services; and
    
    the amount and timing of our investments in research and development
activities and manufacturing improvements.
  Our common stock is deemed to be penny stock, which may make it more difficult for investors to
sell their shares due to suitability requirements.
  
    
    with a price of less than $5.00 per share;
    
    that are not traded on a recognized national exchange;
    
    whose price is not quoted on the NASDAQ automated quotation system
(NASDAQ-listed stock must still have a price of not less than
$5.00 per share); or
    
    stock in issuers with net tangible assets less than $2,000,000 (if
the issuer has been in continuous operation for at least three
years) or $5,000,000 (if in continuous operation for less than
three years), or with average revenues of less than $6,000,000 for
the last three years.
   19




---



##### Table of Contents



If persons engage in short sales of our common stock, including sales of shares to be issued upon
exercise of our outstanding warrants, the price of our common stock may decline.
  The current economic conditions and financial market turmoil could adversely affect our business
and results of operations.
  We do not expect to pay dividends with respect to our common stock which may hinder our ability to
attract additional capital.
  Appropriate acquisitions may not be available, which may adversely affect our growth.
   20




---



##### Table of Contents



If our consolidation strategy is not successful, our operations and financial condition will be
adversely affected.
  Competition and industry consolidation may limit our ability to implement our business strategies.
  Failure to qualify for Investment Company Act exemptions could adversely affect our growth and
financial condition.
   21




---



##### Table of Contents



Potential tax consequences of our acquisitions may adversely affect our financial conditions.
  Our financial condition could be harmed if businesses we acquire failed to comply with applicable
laws or have other undisclosed liabilities.
  Risks Related to the Homeland Security Industry
 As a government contractor, we are subject to extensive government regulation, and our failure to
comply with applicable regulations could subject us to penalties that may restrict our ability to
conduct our business.
    22




---



##### Table of Contents



Economic downturns or reductions or diversions in government funding could have a negative impact
on our business.
  We and our customers in the homeland security industry operate in a regulated industry that
requires us and them to obtain, and to comply with, national, state and local government licenses,
permits and approvals.
  
    
    failure to provide adequate financial assurance for decommissioning or closure;
    
    failure to comply with environmental and safety laws and regulations or permit conditions;
    
    local community, political or other opposition;
    
    executive action; and
    
    legislative action.
  We and our customers operate in a politically sensitive environment, and the public perception of
radioactive materials can affect us and our customers.
   23




---



##### Table of Contents



The elimination or any modification of the Price-Anderson Acts indemnification authority could
have adverse consequents for our business.
  We are subject to liability under environmental laws and regulation.
  Construction sites and maintenance sites are inherently dangerous workplaces. If we fail to
maintain safe work sites, we can be exposed to significant financial losses as well as civil and
criminal proceedings.
  Our failure to maintain our safety record could have an adverse effect on our business.
   24




---



##### Table of Contents



The homeland security industry is highly competitive and we must typically bid against other
competitors to obtain major contracts.
  As a result of the acquisition of Timios, our business no longer qualifies as a small business and,
as a result, we are unable to take advantage of opportunities available to small businesses.
  If our teaming members or partners fail to perform their contractual obligations on a project or if
we fail to coordinate effectively with our partners or subcontractors, we could be exposed to legal
liability, loss of reputation and reduced profit on a project.
  Our operating results are difficult to predict and may fluctuate significantly in the future.
  
    
    the seasonality of the spending cycle of our government customers and the
spending patterns of our commercial customers;
    
    the number and significance of projects commenced and completed during a quarter;
    
    unanticipated changes in contract performance, particularly with contracts that
have funding limits;
    
    the timing of resolutions of change orders, requests for equitable adjustments
and other contract adjustments;
  25




---



##### Table of Contents




    
    decisions by customers to terminate our contracts;
    
    seasonal variations in shipments of radioactive materials;
    
    weather conditions that delay work at project sites;
    
    staff levels and utilization rates;
    
    changes in the prices of services offered by our competitors; and
    
    general economic or political conditions.
  The contracts in our backlog may be adjusted, cancelled or suspended by our clients. Additionally,
even if fully performed, our backlog may not be a good indicator of our future gross margins.
   The loss of one or a few of Safetys customers could have an adverse effect on us.
  We bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or,
in some cases, losses under these contracts, if costs increase above our estimates.
   26




---



##### Table of Contents



Our use of level of effort or percent complete performance accounting could result in reduction or
elimination of previously reported profits.
  The outcome of pending and future claims and litigation could have a material adverse effect on our
business.
  Adequate bonding is necessary for us to win certain types of new work.
  We have substantial financial assurance and insurance requirements, and increases in the costs of
obtaining adequate financial assurance, or the inadequacy of our insurance coverage, could
negatively impact our liquidity and increase our liabilities.
   27




---



##### Table of Contents



Armed hostilities could constrain our ability to conduct business internationally and could also
disrupt our U.S. operations.
  A substantial portion of our revenues depends on sales to the U.S. government and could be affected
by changes in federal funding levels.
   We may not realize anticipated benefits from global stimulus packages.
   28




---



##### Table of Contents



Our operating results may be adversely impacted by worldwide political and economic uncertainties
and specific conditions in the markets we address.
  We derive a majority of our revenue from government agencies, and any disruption in government
funding or in our relationship with those agencies could adversely affect our business.
   
    
    Changes in and delays or cancellations of government programs, requirements or
appropriations;
 
    
    Budget constraints or policy changes resulting in delay or curtailment of
expenditures related to the services we provide;
 
    
    Re-competes of government contracts;
 
    
    The timing and amount of tax revenue received by federal, state and local
governments, and the overall level of government expenditures;
 
    
    Curtailment of the use of government contracting firms;
 
    
    Delays associated with a lack of a sufficient number of government staff to
oversee contracts;
 
    
    The increasing preference by government agencies for contracting with small and
disadvantaged businesses;
 
    
    Competing political priorities and changes in the political climate with regard
to the funding or operation of the services we provide;
 
    
    The adoption of new laws or regulations affecting our contracting relationships
with the federal, state or local governments;
 
    
    Unsatisfactory performance on government contracts by us or one of our
subcontractors, negative government audits, or other events that may impair our
relationship with the federal, state or local governments;
 
    
    A dispute with or improper activity by any of our subcontractors; and
    
    General economic or political conditions.
  29




---



##### Table of Contents



A delay in the completion of the budget process of the U.S. government could delay procurement of
our services and have an adverse effect on our future revenues.
  Our failure to win new contracts and renew existing contracts with private and public sector
clients could adversely affect our profitability.
  Restrictive covenants in our revolving credit agreement may restrict our ability to pursue certain
business strategies, and if we do not have access to this revolving credit facility, our business,
financial condition and results of operations may be materially and adversely affected.
  
    
    Incur additional indebtedness;
 
    
    Create liens securing debt or other encumbrances on our assets;
 
    
    Make loans or advances;
 
    
    Pay dividends or make distributions to our stockholders;
 
    
    Purchase or redeem our stock;
 
    
    Repay indebtedness that is junior to indebtedness under our credit agreement;
 
    
    Acquire the assets of, or merge or consolidate with, other companies; and
 
    
    Sell, lease or otherwise dispose of assets.
   30




---



##### Table of Contents



Risks Related to the Real Estates Services and Asset Management Industry
 If adverse changes in the levels of real estate activity occur, the revenues of our Default and
Timios subsidiaries may decline.
   
    
    when mortgage interest rates are high or increasing;
    
    when the mortgage funding supply is limited; and
    
    when the United States economy is weak, including high unemployment levels.
  If financial institutions at which we hold escrow funds fail, it could have a material adverse
impact on our company.
  If we experience changes in the rate or severity of title insurance or asset management claims, it
may be necessary for us to record additional charges to our claim loss reserve. This may result in
lower net earnings and the potential for earnings volatility.
    31




---



##### Table of Contents



Our asset management business was dependent on one contract, which contract just expired. If we
are unable to renew this contract, or enter into other contracts with substantially similar terms,
our asset management business will be materially and adversely harmed.
  The financial projections of our asset management contracts could prove inaccurate.
  Because our Timios subsidiary is dependent upon California for a substantial portion of our title
insurance premiums, our business may be adversely affected by regulatory conditions in California.
  The title insurance business is highly competitive.
   32




---



##### Table of Contents



The asset management business is intensely competitive.
  
    
    a number of our competitors in some of our businesses
have greater financial, technical, marketing and other resources and more
personnel than we do;
    
    some of our property portfolios may not perform as well as
competitors property portfolios or other available asset management
portfolios;
    
    some of our competitors may be subject to less regulation and
accordingly may have more flexibility to undertake and execute certain
lines of business than we can and/or bear less compliance expense than we
do;
    
    some of our competitors may have more flexibility than us in the
use of asset management software, giving them a technological advantage
over us;
    
    some of our competitors may have higher risk tolerances, different
risk assessments or lower return thresholds, which could allow them to
consider a wider variety of property portfolio mixes and to bid more
aggressively than us for these portfolios;
    
    there are relatively few barriers to entry impeding new asset
management firms, and the successful efforts of new entrants into our
business is expected to continue to result in increased competition;
    
    some of our competitors may have better expertise or be regarded
by potential customers as having better expertise in a specific asset
class or geographic region than we do; and
    
    other industry participants will from time to time seek to recruit
our professionals and other employees away from us.
  Industry regulatory scrutiny and investigations could adversely affect our ability to compete for
or retain business or increase our cost of doing business.
   33




---



##### Table of Contents



We may pursue opportunities that involve business, regulatory, legal or other complexities.
  Our business depends upon our ability to keep pace with the latest technological changes, and our
failure to do so could make us less competitive in our industry.
  Rapid technological changes in our industry require timely and cost-effective responses. Our
earnings may be adversely affected if we are unable to effectively use technology to increase
productivity.
  
 ITEM 1B.
    
    UNRESOLVED STAFF COMMENTS
  
 ITEM 2.
    
    PROPERTIES
     34




---



##### Table of Contents



ITEM 3.
    
    LEGAL PROCEEDINGS
  
 ITEM 4.
    
    (Removed and Reserved)
  35




---



##### Table of Contents



PART II
 
 ITEM 5.
    
    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
 Market Information
  Fiscal Year 2011
    
    High
    
    
    Low4th Quarter (April  June 2011)
    
    $
    0.0285
    
    
    $
    0.0173rd Quarter (January  March 2011)
    
    $
    0.031
    
    
    $
    0.01312nd Quarter (October  December 2010)
    
    $
    0.027
    
    
    $
    0.0111st Quarter (July  September 2010)
    
    $
    0.032
    
    
    $
    0.020
 Fiscal Year 2010
    
    High
    
    
    Low4th Quarter (April  June 2010)
    
    $
    0.063
    
    
    $
    0.0353rd Quarter (January  March 2010)
    
    $
    0.130
    
    
    $
    0.0552nd Quarter (October  December 2009)
    
    $
    0.190
    
    
    $
    0.1111st Quarter (July  September 2009)
    
    $
    0.215
    
    
    $
    0.115
 Holders of our Common Stock
  Dividends
  Recent Sales of Unregistered Securities
   36




---



##### Table of Contents



Securities Authorized for Issuance under Equity Compensation Plans
  Number ofsecuritiesNumber of
    
    
    
    
    
    
    remainingsecurities to
    
    
    Weighted
    
    
    available forbe issued
    
    
    average
    
    
    futureupon exercise
    
    
    exercise price
    
    
    issuance underof
    
    
    of
    
    
    equity compensationoutstanding
    
    
    outstanding
    
    
    plans (excludingoptions, warrants
    
    
    options, warrants
    
    
    securities reflectedPlan category
    
    and rights
    
    
    and rights
    
    
    in column (a))Equity compensation
plans approved by
security holders
    
    
    250,000
    
    
    $
    0.120
    
    
    
    6,950,000
    (1)Equity compensation
plans not approved
by security holders
(2)(3)
    
    
    11,440,000
    
    
    $
    0.061
    
    
    
    64,958,310
    (1)Total
    
    
    11,690,000
    
    
    $
    0.063
    
    
    
    71,508,310
 (1)
    
    6,950,000 options available for future issuance pursuant to the Companys 2005 Stock Option Plan (the
2005 Plan) and 64,958,310 options available for future issuance pursuant to the Companys 2008 Stock
Option Plan (the 2008 Plan).(2)
    
    Includes 10,000,000 non-qualified options to purchase common stock to our non-employee directors
pursuant to the Companys 2008 Plan.(3)
    
    Includes 1,440,000 non-qualified options to purchase common stock issued to our non-employee directors.  Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 ITEM 6.
    
    SELECTED FINANCIAL DATA
   37




---



##### Table of Contents



ITEM 7.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 The following information should be read in conjunction with the Consolidated Financial
Statements of the Company and the Notes thereto appearing elsewhere in this Annual Report on Form
10-K. Statements in this Managements Discussion and Analysis and Results of Operation and
elsewhere in this Annual Report on form 10-K that are not statements of historical or current fact
constitute forward-looking statements.
 Overview
      Results of Continuing Operations
    38




---



##### Table of Contents



Year Ended June 30, 2011 as Compared to the Year Ended June 30, 2010
 Operating expenses from continuing operations
   Other income and expense from continuing operations
  Year Ended June 30,2011
    
    
    2010
    
    
    (Increase)
    
    
    DecreaseInterest expense
    
    $
    2,003,558
    
    
    $
    1,877,204
    
    
    $
    (126,354
    )
    
    
    6.7
    %Amortization of debt
offering costs
    
    
    
    
    
    
    335,683
    
    
    
    335,683
    
    
    
    Amortization of debt
discount
    
    
    
    
    
    
    34,053
    
    
    
    34,053
    
    
    
    Impairment losses
    
    
    308,213
    
    
    
    104,997
    
    
    
    (203,216
    )
    
    
    193.5
    %Interest and other
income
    
    
    (61,774
    )
    
    
    (60,933
    )
    
    
    841
    
    
    
    1.4
    %$
    2,249,997
    
    
    $
    2,291,004
    
    
    $
    41,007
    
    
    
    (1.8
    %)
  Net loss from continuing operations
  Discontinued Operations
   Years Ended June 30,Safety
    
    
    NTG
    
    
    PMX
    
    
    Total2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010
    
    
    2011
    
    
    2010Net income
    
    
    1,144,175
    
    
    
    5,736,294
    
    
    
    44,604
    
    
    
    1,619,632
    
    
    
    236,622
    
    
    
    48,768
    
    
    
    1,425,401
    
    
    
    7,404,694Tax effect
    
    
    217,392
    
    
    
    425,182
    
    
    
    
    
    
    
    165,048
    
    
    
    
    
    
    
    
    
    
    
    217,392
    
    
    
    590,230Discontinued
operations
    
    
    926,783
    
    
    
    5,311,112
    
    
    
    44,604
    
    
    
    1,454,584
    
    
    
    236,622
    
    
    
    48,768
    
    
    
    1,208,009
    
    
    
    6,814,464
  39




---



##### Table of Contents



Liquidity and Capital Resources
    Cash Flows From Operating Activities
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
   Off-Balance Sheet Arrangements
    40




---



##### Table of Contents



Critical Accounting Policies and Estimates Used in Continuing and Discontinued Operations
 Revenue Recognition 
 (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.
    Foreign Operations 
 Use of Estimates 
   Fair Value of Financial Instruments 
  41




---



##### Table of Contents



Recognition of Losses on Receivables 
 Investments in Assets Held for Sale 
 Investment Valuation 
  Valuation of Stock Options and Warrants 
 Goodwill
    
 ITEM 7A.
    
    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   42




---



##### Table of Contents



ITEM 8.
    
    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  
 ITEM 9.
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A.
    
    CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Managements Annual Report on Internal Control Over Financial Reporting
        43




---



##### Table of Contents



Attestation Report of the Independent Registered Public Accounting Firm
  Changes in Internal Control over Financial Reporting
  
 ITEM 9B.
    
    OTHER INFORMATION
   44




---



##### Table of Contents



PART III
 
 ITEM 10.
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 Executive Officers and Directors
  Name
    
    
    Age
    
    
    PositionC. Thomas McMillen
    
    
    59
    
    
    Chief Executive Officer and
Chairman of the Board of DirectorsChristopher P. Leichtweis
    
    
    52
    
    
    President and DirectorMichael T. Brigante
    
    
    57
    
    
    Senior Vice President of Finance and
Chief Financial OfficerZev E. Kaplan
    
    
    59
    
    
    DirectorPhilip A. McNeill
    
    
    52
    
    
    Director
 C. Thomas McMillen. th
   45




---



##### Table of Contents



Christopher P. Leichtweis.
  Michael T. Brigante.
 Zev. E. Kaplan.
  Philip A. McNeill.
  46




---



##### Table of Contents



Term of Office
  Director Nominations
  Family Relationships
  Involvement in Certain Legal Proceedings
  Corporate Governance
 Committees of the Board of Directors and Meetings
 Audit Committee.
 www.hscapcorp.com
 AUDIT COMMITTEE REPORT
   47




---



##### Table of Contents



Compensation Committee.
 Meeting Attendance .
 Board Leadership Structure
   48




---



##### Table of Contents



Role in Risk Oversight
    Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics
 www.hscapcorp.com
 Stockholder Communications to the Board of Directors
 MBrigante@hscapcorp.com
  49




---



##### Table of Contents



ITEM 11.
    
    EXECUTIVE COMPENSATION
 Summary Compensation Table
  Non-Equity
    
    
    Non-qualifiedIncentive
    
    
    DeferredOptions
    
    
    Plan
    
    
    Compensation
    
    
    All OtherName and Principal Position
    
    Year
    
    
    Salary
    
    
    Bonus
    
    
    Awards(1)
    
    
    Compensation(2)
    
    
    Earnings
    
    
    Compensation(3)
    
    
    TotalC. Thomas McMillen,
    
    
    2011
    
    
    $
    304,167
    
    
    $
    300,000
    
    
    
    
    
    
    
    
    
    
    $
    20,000
    
    
    $
    23,090
    (4)
    
    $
    647,257Chairman of the Board and
Chief Executive Officer
    
    
    2010
    
    
    $
    300,000
    
    
    
    
    
    
    $
    678,356
    
    
    
    
    
    
    
    
    
    
    $
    20,122
    (4)
    
    $
    999,478Michael T. Brigante
    
    
    2011
    
    
    $
    229,375
    
    
    $
    200,000
    
    
    
    
    
    
    
    
    
    
    $
    20,000
    
    
    $
    720
    
    
    $
    450,095Vice President of Finance and
Chief Financial Officer
    
    
    2010
    
    
    $
    222,500
    
    
    
    
    
    
    $
    118,712
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    341,212Christopher P. Leichtweis
    
    
    2011
    
    
    $
    323,220
    
    
    $
    100,000
    
    
    
    
    
    
    $
    6,111
    
    
    
    
    
    
    $
    17,354
    
    
    $
    446,685President and Chief Executive
Officer of Safety & Ecology
    
    
    2010
    
    
    $
    312,000
    
    
    $
    100,000
    
    
    
    
    
    
    $
    6,111
    
    
    
    
    
    
    $
    17,354
    
    
    $
    435,465
 1.
    
    These amounts represent the dollar amount recognized for financial
statement reporting purposes for the fair value of option awards with respect
to the fiscal years 2010 and 2011 in accordance with FASB ASC Topic 718. A
discussion of the assumptions used in determining grant date fair value may be
found in Note 11 to our consolidated financial statements included elsewhere in
this annual report.
2. Reflects Company contributions to a 401(k) plan.3.
    
    Reflects Company-paid health, life and disability insurance.4.
    
    Includes $12,000 of car allowance. Narrative Disclosure to Summary Compensation Table
 C. Thomas McMillen Employment Agreement.
    50




---



##### Table of Contents



Michael T. Brigante Employment Agreement.
      51




---



##### Table of Contents



Christopher Leichtweis Employment Agreement.
  The 2005 Stock Option Plan.
 The 2008 Stock Option Plan.
  OptionsOptions Vesting
    
    
    Expected to
    
    
    OptionsTotal
    
    
    Options
    
    
    Options
    
    
    Options
    
    
    Options
    
    
    Quarterly-
    
    
    be
    
    
    AvailableOption
    
    Options in
    
    
    Vested at
    
    
    Forfeited at
    
    
    Exercised
    
    
    Outstanding
    
    
    Next 4 Quarters
    
    
    outstanding
    
    
    for GrantPlan
    
    the Plan
    
    
    6/30/10
    
    
    6/30/11
    
    
    at 6/30/11
    
    
    at 6/30/11
    
    
    Through 6/30/11
    
    
    at 6/30/12
    
    
    at 6/30/112005 Plan
    
    
    7,200,000
    
    
    
    6,800,000
    
    
    
    (6,550,000
    )
    
    
    
    
    
    
    250,000
    
    
    
    
    
    
    
    250,000
    
    
    
    6,950,0002008 Plan
    
    
    75,000,000
    
    
    
    73,750,000
    
    
    
    (63,750,000
    )
    
    
    
    
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,000
    
    
    
    65,000,000
   52




---



##### Table of Contents



Outstanding Equity Awards at Fiscal Year-End
  Nonqualified Deferred Compensation
  Potential Payments Upon Termination or Change-In-Control
   C. Thomas McMillen
     53




---



##### Table of Contents



Michael T. Brigante
    Involuntary
    
    
    
    
    InvoluntaryInvoluntary
    
    
    By Executive
    
    
    
    
    
    
    Termination
    
    
    
    
    TerminationTermination without
    
    
    for Good Reason
    
    
    
    
    
    
    without cause
    
    
    By Executive
    
    For cause orPayments and
    
    cause before a
    
    
    before a change
    
    
    Change In
    
    
    after a change in
    
    
    for Good Reason after
    
    without GoodBenefits
    
    change in control
    
    
    in control
    
    
    Control
    
    
    control
    
    
    a change in control
    
    Reason(5)C. Thomas McMillenBase Salary(1)
    
    $
    670,833
    
    
    $
    670,833
    
    
    
    
    
    
    $
    670,833
    
    
    $
    670,833
    
    $
    29,167Annual Bonus(2)
    
    $
    350,000
    
    
    $
    350,000
    
    
    
    
    
    
    $
    350,000
    
    
    $
    350,000
    

    Special Bonus
    
    
    
    
    
    
    
    
    
    $
    726,665
    
    
    $
    726,665
    
    
    $
    726,665
    

    Other
Benefits(3)
    
    $
    43,600
    
    
    $
    43,600
    
    
    
    
    
    
    $
    43,600
    
    
    $
    43,600
    

    Michael T. BriganteBase Salary(1)
    
    $
    479,167
    
    
    $
    479,167
    
    
    
    
    
    
    $
    479,167
    
    
    $
    479,167
    
    $
    20,833Annual Bonus(2)
    
    $
    125,000
    
    
    $
    125,000
    
    
    
    
    
    
    $
    125,000
    
    
    $
    125,000
    

    Special Bonus
    
    
    
    
    
    
    
    
    
    $
    124,463
    
    
    $
    124,463
    
    
    $
    124,463
    

    Other
Benefits(4)
    
    $
    37,600
    
    
    $
    37,600
    
    
    
    
    
    
    $
    37,600
    
    
    $
    37,600
    

    
  54




---



##### Table of Contents



(1)
    
    Represents the balance of the annual salary for the calendar year plus one years base salary.(2)
    
    Payable at the sole discretion of the Board of Directors and
represents the maximum amount payable, or 100% of base salary.
Amount will be prorated upon happening of certain circumstances set
forth in Employment Agreement.(3)
    
    Represents $1,000 per month automobile allowance, $22,000 in company matching contributions to the
employees 401(k), and an aggregate of $9,600 in life, dental, long term care and disability coverage.(4)
    
    Represents $500 per month automobile residual value, $22,000 in company matching contributions to the employees 401(k), and an
aggregate of $9,600 in life, dental, long term care and disability coverage.(5)
    
    Represents payments owed regardless of whether such triggering events take place before or after a change in control. Golden Parachute Compensation
  TaxEquity
    
    
    Pension/
    
    
    Perquisites/
    
    
    Reimbursements
    
    
    OtherName
    
    Cash ($)
    
    
    ($)(1)
    
    
    NQDC($)
    
    
    Benefits($)
    
    
    ($)
    
    
    ($)
    
    
    Total($)Christopher P. Leichtweis
    
    $
    100,000.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    100,000.00
 (1)
    
    Mr. Leichtweis, together with two additional executives and certain key employees, are entitled to a retention bonus of an aggregate of $100,000.00, as
described above, if they remain employed until the closing of the Purchase Agreement. Director Compensation
  Name
    
    Fees Earned or Paid in Cash
    
    
    TotalPhilip A. McNeill
    
    $
    70,000
    
    
    $
    70,000Zev E. Kaplan
    
    $
    69,000
    
    
    $
    69,000Brian C. Griffin (1)
    
    $
    90,000
    
    
    $
    90,000
 (1)
    
    Mr. Griffin resigned on May 27, 2011.  Fees ReceivedPer QuarterDirector
    
    2011Philip McNeill
    
    $
    11,250Zev Kaplan
    
    $
    11,000Brian C. Griffin(1)
    
    $
    10,000
 (1)
    
    Mr. Griffin resigned on May 27, 2011.   55




---



##### Table of Contents



ITEM 12.
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
     Number of Shares
    
    
    Percentage ofof Common Stock
    
    
    Common StockBeneficially Owned(1)
    
    
    OwnedDirectors and Executive OfficersC. Thomas McMillen(2)
    
    
    26,041,883
    
    
    
    37.9
    %Christopher P. Leichtweis(3)
    
    
    121,312,800
    
    
    
    68.7
    %Michael T. Brigante
    
    
    
    
    
    
    Zev E. Kaplan(4)
    
    
    5,720,000
    
    
    
    9.4
    %Philip A. McNeill(5)
    
    
    5,720,000
    
    
    
    9.4
    %Executive officers and directors as a group (5 persons)(6)
    
    
    158,795,683
    
    
    
    92.1
    %5% or more stockholdersYA Global Investments, L.P. 
101 Hudson Street 
Jersey City, NJ 07302(7)
    
    
    5,510,386
    
    
    
    9.99
    %Frank P. Crivello 
3408 Dover Road 
Pompano Beach, FL 33062(8)
    
    
    3,000,303
    
    
    
    5.44
    %
 *
    
    Represents beneficial ownership of less than 1% of the outstanding shares of our Common Stock.(1)
    
    Beneficial ownership is determined in accordance with the rules of the Commission and generally includes voting or investment power with respect
to securities. Beneficial ownership also includes shares of Common Stock subject to options and warrants currently exercisable or convertible,
or exercisable or convertible within 60 days of September 30, 2011.(2)
    
    Includes 325 shares of Series H Preferred which are convertible into 10,833,550 shares of Common Stock and warrants to purchase up to additional
2,708,333 shares of Common Stock at an exercise price of $0.03 per share.(3)
    
    Includes 505,470 shares of Series I Preferred which are convertible into 101,094,000 shares of Common Stock and warrants to purchase up to
20,218,800 shares of Common Stock at an exercise price of $0.03 per share.  56




---



##### Table of Contents



(4)
    
    Represents options to purchase up to 720,000 shares of Common Stock at an exercise price of $0.14 per share and options to purchase up to
5,000,000 shares of Common Stock at an exercise price of $0.05 per share.(5)
    
    Represents options to purchase up to 720,000 shares of Common Stock at an exercise price of $0.14 per share and options to purchase up to
5,000,000 shares of Common Stock at an exercise price of $0.05 per share.(6)
    
    See footnotes (2)-(5).(7)
    
    Based solely on information reported in a Schedule 13G/A filed with the Securities and Exchange Commission on May 26, 2010. YA Global
Investments, L.P., or YA, does not own any shares of Common Stock. As the Investment Manager of YA, Yorkville Advisors, LLC (Yorkville) may
be deemed to beneficially own the same amount of shares of Common Stock beneficially owned by YA. As the president of Yorkville, the investment
manager to YA, and as portfolio manager to YA, Mark Angelo (Angelo) may be deemed to beneficially own the same amount of shares of Common
Stock beneficially owned by YA. Angelo directly owns 6,250 shares of Common Stock. YA may be deemed to beneficially own the 6,250 shares of
Common Stock beneficially owned by Angelo, as he is the president of Yorkville and the investment manager to YA and the portfolio manager to YA.
Yorkville may be deemed to beneficially own the 6,250 shares of Common Stock beneficially owned by Angelo, as he is the president of Yorkville.
In addition to the number of shares indicated above, YA is the owner of derivative securities which have a cap that prevents each derivative
security from being converted and/or exercised if such conversion and/or exercise would cause the aggregate number of shares of Common Stock
beneficially owned by YA and its affiliates to exceed 9.99% of the outstanding shares of the Common Stock of the Company following such
conversion and/or exercise of the derivative security. In addition, the cap pertaining to the derivative securities limits YAs entitlement to
9.9% of the outstanding shares of Common Stock of the Company on an as-converted basis for purposes of any corporate vote. Except for the 6,250
shares of Common Stock beneficially owned by Angelo, YA Global and Yorkville disclaim beneficial ownership of these securities except to the
extent of her, his or its pecuniary interest. Yorkville holds an aggregate of (i) 964,754 shares of Common Stock, (ii) 9,574 shares of Series H
Preferred which are convertible into 319,139,716 shares of Common Stock, (iii) warrants to purchase up to 80,625,000 shares of Common Stock at
an exercise price of $0.03 per share, (iv) warrants to purchase up to 1,000,000 shares of Common Stock at an exercise price of $1.00 per share,
(v) warrants to purchase up to 800,000 shares of Common Stock at an exercise price of $0.15 per share, and (vi) 1,000,000 shares of Series F
Convertible Preferred Stock, with no voting rights.(8)
    
    Based solely on information reported in a Schedule 13G filed with the Securities and Exchange Commission on October 16, 2007.  57




---



##### Table of Contents



ITEM 13.
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
        58




---



##### Table of Contents



ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES
  2011
    
    
    2010Audit fees:(1)
    
    $
    203,084
    
    
    $
    218,022Audit related fees:
    
    
    98,027
    
    
    
    118,090Tax fees:
    
    
    
    
    
    
    All other fees:
    
    
    
    
    
    
    Total
    
    $
    301,111
    
    
    $
    336,112
 
 (1)
    
    Audit fees represent fees of Coulter & Justus P.C. for the audit of the
Companys annual consolidated financial statements; review of the Companys quarterly results of
operations and reports on Form 10-Q; and the services that an independent registered public
accounting firm would customarily provide in connection with subsidiary audits, other regulatory
filings, and similar engagements for each fiscal year shown, such as consents and assistance with
review of documents filed with the Commission. Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors
  
    
    approved by our audit committee; or
    
    entered into pursuant to pre-approval policies and procedures
established by the audit committee, provided the policies and
procedures are detailed as to the particular service, the audit
committee is informed of each service, and such policies and
procedures do not include delegation of the audit committees
responsibilities to management.
    Audit
 Audit-Related
  59




---



##### Table of Contents



Tax
 Other Fees
  60




---



##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a) (1) and (2)
  (a) (3)
 EXHIBITNUMBER
    
    
    DESCRIPTION2.1
    
    
    Agreement and Plan Of Merger and Stock Purchase Agreement dated March
13, 2008, among Homeland Security Capital Corp., HSCC Acquisition
Corp., Safety & Ecology Holdings Corp., and certain individuals named
therein (previously filed as Exhibit 2.1 to the Registrants
Registration Current Report on Form 8-K, originally filed with the
SEC on March 19, 2008 and incorporated herein by reference).2.2
    
    
    First Amendment to the Agreement and Plan of Merger and Stock
Purchase Agreement, dated March 13, 2008, among Homeland Security
Capital Corp., Safety & Ecology Holdings Corp., and Christopher
Leichtweis and John H. Macrae (previously filed as Exhibit 2.2 to the
Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on May 7, 2008 and incorporated herein by
reference).3.1
    
    
    Bylaws of Celerity Systems, Inc. (previously filed as Exhibit 3.2 to
the Registrants Registration Statement on Form SB-2, originally
filed with the SEC on August 13, 1997, and incorporated herein by
reference).3.2*
    
    
    Certificate of Incorporation of Homeland Security Capital Corporation.3.3
    
    
    Certificate of Designation of Series C Preferred Stock (incorporated
by reference to the Registrants Registration Statement on Form SB-2,
originally filed with the SEC on October 18, 2001).3.4
    
    
    Certificate of Designation of Series D Preferred Stock (previously
filed as Exhibit 3.4 to the Registrants Annual Report on Form 10-K,
originally filed with the SEC on March 27, 2002, and incorporated
herein by reference).3.5
    
    
    Certificate of Designation of Series E Preferred Stock (previously
filed as Exhibit 3.4 to the Registrants Annual Report on Form 10-K,
originally filed with the SEC on April 15, 2005, and incorporated
herein by reference).3.6
    
    
    Certificate of Designation of Series F Preferred Stock (previously
filed as Exhibit 99.2 to the Registrants Registration Current Report
on Form 8-K, originally filed with the SEC on October 7, 2005, and
incorporated herein by reference).3.7
    
    
    Certificate of Designation, Series G Convertible Preferred Stock
(previously filed as Exhibit 3.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on February
14, 2006, and incorporated herein by reference).3.8
    
    
    Certificate of Designation of Relative Rights and Preferences, Series
I Convertible Preferred Stock of Homeland Security Capital Corp.
(previously filed as Exhibit 3.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on March
19, 2008 and incorporated herein by reference).3.9
    
    
    Certificate of Designation of Relative Rights and Preferences, Series
H Convertible Preferred Stock Of Homeland Security Capital Corp.
(previously filed as Exhibit 3.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on March
19, 2008 and incorporated herein by reference).4.1
    
    
    Secured Convertible Debenture (previously filed as Exhibit 4.1 to the
Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on February 14, 2006, and incorporated herein by
reference).
  61




---



##### Table of Contents



EXHIBITNUMBER
    
    
    DESCRIPTION4.2
    
    
    Form of Warrant to purchase shares of Homeland Security Capital Corp.
Common Stock (previously filed as Exhibit 4.1 to the Registrants
Registration Current Report on Form 8-K, originally filed with the
SEC on March 19, 2008 and incorporated herein by reference).4.3
    
    
    Warrant to purchase shares of Homeland Security Capital Corp. Common
Stock held by YA Global Investments, L.P., dated March 14, 2008
(previously filed as Exhibit 4.2 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on March
19, 2008 and incorporated herein by reference).10.1
    
    
    Indemnification Agreement by and between C. Thomas McMillen and
Celerity Systems, Inc. (previously filed as Exhibit 99.1 to the
Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on October 7, 2005 and incorporated herein by
reference).10.2
    
    
    Escrow Agreement, dated as of October 6, 2005, by and between
Celerity Systems, Inc. and Cornell Capital Partners, L.P. (previously
filed as Exhibit 99.3 to the Registrants Registration Current Report
on Form 8-K, originally filed with the SEC on October 7, 2005 and
incorporated herein by reference).10.3
    
    
    Securities Purchase Agreement dated as of October 6, 2005, by and
between the Celerity Systems, Inc. and Cornell Capital Partners, LP
(previously filed as Exhibit 99.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on October
7, 2005 and incorporated herein by reference).10.4
    
    
    Securities Purchase Agreement, dated February 6, 2006, by and among
Homeland Security Capital Corp., and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on February
14, 2006, and incorporated herein by reference).10.5
    
    
    Registration Rights Agreement, dated February 6, 2006, by and among
Homeland Security Capital Corp., and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.2 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on February
14, 2006, and incorporated herein by reference).10.6
    
    
    Investment Agreement, dated February 6, 2006, by and between Cornell
Capital Partners, L.P., and Homeland Security Capital Corp.
(previously filed as Exhibit 10.3 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on February
14, 2006, and incorporated herein by reference).10.7
    
    
    Security Agreement, dated February 6, 2006, by and between Homeland
Security Capital Corp. and Cornell Capital Partners, (previously
filed as Exhibit 10.4 to the Registrants Registration Current Report
on Form 8-K, originally filed with the SEC on February 14, 2006, and
incorporated herein by reference).10.8
    
    
    Agreement And Plan Of Merger, dated February 8, 2006, by and among
Nexus Technologies Group, Inc., CSS Acquisition, Inc., and
shareholders of Corporate Security Solutions, Inc. (previously filed
as Exhibit 10.1 to the Registrants Registration Current Report on
Form 8-K, originally filed with the SEC on February 14, 2006, and
incorporated herein by reference).10.9
    
    
    Series A Convertible Preferred Stock Purchase Agreement, dated
February 8, 2006 by and among Nexus Technologies Group, Inc. and
Homeland Security Capital Corp. (previously filed as Exhibit 10.2 to
the Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on February 14, 2006, and incorporated herein by
reference).10.10
    
    
    Celerity Systems, Inc. 2005 Stock Option Plan (previously filed as
Exhibit 10.8 to the Registrants Optional Form for Quarterly and
Transition Reports of Small Business Issuers on Form 10QSB,
originally filed with the SEC on May 22, 2006, and incorporated
herein by reference).10.11
    
    
    Securities Purchase Agreement, dated August 21, 2006, by and among
Homeland Security Capital Corp. and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on August
24, 2006, and incorporated herein by reference).10.12
    
    
    Registration Rights Agreement, dated August 21, 2006, by and among
Homeland Security Capital Corp. and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.2 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on August
24, 2006, and incorporated herein by reference).10.13
    
    
    Pledge And Security Agreement, dated August 21, 2006, by and between
Homeland Security Capital Corp. and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.3 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on August
24, 2006, and incorporated herein by reference).
  62




---



##### Table of Contents



EXHIBITNUMBER
    
    
    DESCRIPTION10.14
    
    
    Secured Convertible Debenture issued by Homeland Security Capital
Corp. to Cornell Capital Partners, L.P. on August 21, 2006
(previously filed as Exhibit 10.4 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on August
24, 2006, and incorporated herein by reference).10.15
    
    
    Warrant to purchase shares of Homeland Security Capital Corp. Common
Stock, dated August 21, 2006, held by Cornell Capital Partners, L.P.,
(previously filed as Exhibit 10.5 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on August
24, 2006, and incorporated herein by reference).10.16
    
    
    Agreement And Plan Of Merger, dated August 21, 2006, by and among
Security Holding Corp., and Security Holding Enterprises, Inc. and
its stockholders (previously filed as Exhibit 10.1 to the
Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on August 29, 2006, and incorporated herein by
reference).10.17
    
    
    Series A Convertible Preferred Stock Purchase Agreement dated August
21, 2006 by and among Security Holding Corp. and Homeland Security
Capital Corp. (previously filed as Exhibit 10.2 to the Registrants
Registration Current Report on Form 8-K, originally filed with the
SEC on August 29, 2006, and incorporated herein by reference).10.18
    
    
    Employment Agreement, dated May 15, 2007, by and between Homeland
Security Capital Corp., and Michael T. Brigante (previously filed as
Exhibit 10.1 to the Registrants Optional Form For Quarterly and
Transition Reports of Small Business Issuers on Form 10QSB,
originally filed with the SEC on May 15, 2007, and incorporated
herein by reference).10.19
    
    
    Securities Purchase Agreement,dated June 1, 2007, by and among
Homeland Security Capital Corp. And Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on June 6,
2007, and incorporated herein by reference).10.20
    
    
    Registration Rights Agreement, dated June 1, 2007, by and among
Homeland Security Capital Corp. and Cornell Capital Partners, L.P.
(previously filed as Exhibit 10.2 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on June 6,
2007, and incorporated herein by reference).10.21
    
    
    Security Agreement dated June 1, 2007, by and among Homeland Security
Capital Corp. and Cornell Capital Partners, L.P. (previously filed as
Exhibit 10.3 to the Registrants Registration Current Report on Form
8-K, originally filed with the SEC on June 6, 2007, and incorporated
herein by reference).10.22
    
    
    Pledge And Escrow Agreement, dated June 1, 2007 by and among Homeland
Security Capital Corp., Cornell Capital Partners, L.P., and David
Gonzalez, Esq., as escrow agent (previously filed as Exhibit 10.4 to
the Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on June 6, 2007, and incorporated herein by
reference).10.23
    
    
    Secured Convertible Debenture issued by Homeland Security Capital
Corp. to Cornell Capital Partners, L.P, dated June 1, 2007
(previously filed as Exhibit 10.5 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on June 6,
2007, and incorporated herein by reference).10.24
    
    
    Warrant to purchase shares of Homeland Security Capital Corp. Common
Stock held by Cornell Capital Partners, L.P., dated June 1, 2007
(previously filed as Exhibit 10.6 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on June 6,
2007, and incorporated herein by reference).10.25
    
    
    Letter Agreement, dated June 1, 2007, in connection with the Purchase
Agreement dated February 6, 2006 between Homeland Security Capital
Corp. and Cornell Capital Partners (previously filed as Exhibit 10.7
to the Registrants Registration Current Report on Form 8-K,
originally filed with the SEC on June 6, 2007, and incorporated
herein by reference).10.26
    
    
    Purchase Agreement, dated July 3, 2007 by and between Supercom Inc.
and the Shareholders of Security Holding Corp. (previously filed as
Exhibit 10.1 to the Registrants Registration Current Report on Form
8-K, originally filed with the SEC on July 10, 2007, and incorporated
herein by reference).10.27
    
    
    Securities Purchase Agreement, dated March 13, 2008, by and among
Homeland Security Capital Corp.,and YA Global Investments, L.P.
(previously filed as Exhibit 10.1 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on March
19, 2008 and incorporated herein by reference).
  63




---



##### Table of Contents



EXHIBITNUMBER
    
    
    DESCRIPTION10.28
    
    
    Registration Rights Agreement, dated March 14, 2008, by and among
Homeland Security Capital Corp., and YA Global Investments, L.P.
(previously filed as Exhibit 10.2 to the Registrants Registration
Current Report on Form 8-K, originally filed with the SEC on March
19, 2008 and incorporated herein by reference).10.29
    
    
    Security Agreement, dated March 14, 2008, by and among Homeland
Security Capital Corp.,and YA Global Investments, L.P. (previously
filed as Exhibit 10.3 to the Registrants Registration Current Report
on Form 8-K, originally filed with the SEC on March 19, 2008 and
incorporated herein by reference).10.30
    
    
    Form of Senior Secured Note between Homeland Security Capital Corp.
and YA Global Investments, L.P. (previously filed as Exhibit 10.4 to
the Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on March 19, 2008 and incorporated herein by
reference).10.31
    
    
    Guaranty Agreement, dated March 14, 2008, in favor of YA Global
Investments, L.P. (previously filed as Exhibit 10.6 to the
Registrants Registration Current Report on Form 8-K, originally
filed with the SEC on March 19, 2008 and incorporated herein by
reference).10.32
    
    
    Executive Employment Agreement, dated September 1, 2007, by and
between Homeland Security Capital Corp. and C. Thomas McMillen
(previously filed as Exhibit 10.3 to the Registrants Optional Form
for Annual and Transition Reports of Small Business Issuers on Form
10KSB, originally filed with the SEC on March 31, 2008 and
incorporated herein by reference).10.33
    
    
    Homeland Security Capital Corp. 2008 Stock Incentive Plan(previously filed as Exhibit 10.1 to the Registrants Quarterly
Report on Form 10-Q, originally filed with the SEC on February 17,
2009 and incorporated herein by reference).10.34
    
    
    Common Stock Purchase Agreement, dated November 26, 2008, by and
between YA Global Investments, L.P. and Homeland Security Capital
Corp. (previously filed as Exhibit 10.2 to the Registrants Quarterly
Report on Form 10-Q, originally filed with the SEC on February 17,
2009 and incorporated herein by reference).10.35
    
    
    Common Stock Purchase Agreement, dated November 28, 2008, by and
between YA Global Investments, L.P. and Homeland Security Capital
Corp. (previously filed as Exhibit 10.3 to the Registrants Quarterly
Report on Form 10-Q, originally filed with the SEC on February 17,
2009 and incorporated herein by reference).10.36
    
    
    Debt Maturity Extension Agreement, dated September 23, 2010, by and
between Homeland Security Capital Corp. and YA Global Investments,
L.P. (previously filed as Exhibit 10.1 to the Registrants Current
Report on Form 8-K, originally filed with the SEC on September 29,
2010 and incorporated herein by reference).10.37
    
    
    Indemnification and Compensation Agreement, dated as of February 22,
2011, by and among Homeland Security Capital Corporation and
Christopher P. Leichtweis and Myra Leichtweis (previously filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K,
originally filed with the SEC on February 28, 2011 and incorporated
herein by reference).10.38
    
    
    Stock Purchase Agreement, dated May 27, 2011, by and among Homeland
Security Capital Corporation, Timios Acquisition Corp., Timios, Inc.
and DAL Group, LLC (previously filed as Exhibit 10.1 to the
Registrants Current Report on Form 8-K, originally filed with the
SEC on May 31, 2011 and incorporated herein by reference).10.39
    
    
    Employment Agreement, dated June 15, 2011, by and between Homeland
Security Capital Corporation and C. Thomas McMillen (previously filed
as Exhibit 10.1 to the Registrants Current Report on Form 8-K,
originally filed with the SEC on June 17, 2011 and incorporated
herein by reference).10.40
    
    
    Employment Agreement, dated June 15, 2011, by and between Homeland
Security Capital Corporation and Michael T. Brigante (previously
filed as Exhibit 10.2 to the Registrants Current Report on Form 8-K,
originally filed with the SEC on June 17, 2011 and incorporated
herein by reference).10.41
    
    
    Asset Purchase Agreement, dated June 22, 2011, by and among Homeland
Security Capital Corporation, Default Servicing USA, Inc., Default
Servicing, LLC and DAL Group, LLC. (previously filed as Exhibit 10.2
to the Registrants Current Report on Form 8-K, originally filed with
the SEC on June 23, 2011 and incorporated herein by reference).
  64




---



##### Table of Contents



EXHIBITNUMBER
    
    
    DESCRIPTION14.1
    
    
    Code of Business Conduct and Ethics (previously filed as Exhibit 14.1
to the Registrants Annual Report on Form 10-K, originally filed with
the SEC on April 14, 2004 and incorporated herein by reference).21*
    
    
    Subsidiaries of Homeland Security Capital Corp.31.1*
    
    
    Certificate of C. Thomas McMillen, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.31.2*
    
    
    Certification of Michael T. Brigante, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.32.1**
    
    
    Certification of C. Thomas McMillen , pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title
18, United States Code).32.2**
    
    
    Certification of Michael T. Brigante, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350,
Chapter 63 of Title 18, United States Code).
 
    
    Indicates management compensatory plan, contract or arrangement.*
    
    Filed herewith.**
    
    Furnished herewith.  65




---



##### Table of Contents



SIGNATURES
  HOMELAND SECURITY CAPITAL
CORPORATION/s/ C. Thomas McMillen

C. Thomas McMillen
    
    Chief Executive Officer 
(Principal
Executive Officer)
    
    October 6, 2011/s/ Michael T. Brigante

Michael T. Brigante
    
    Senior Vice President and Chief Financial
Officer
(Principal Financial and Accounting Officer)
    
    October 6, 2011
  Signature
    
    Title
    
    Date/s/ C. Thomas McMillen

C. Thomas McMillen
    
    Chief Executive Officer and
Chairman of the Board

(Principal Executive Officer)
    
    October 6, 2011/s/ Michael T. Brigante

Michael T. Brigante
    
    Senior Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
    
    October 6, 2011/s/ Christopher P. Leichtweis

Christopher P. Leichtweis
    
    President and Director
    
    October 6, 2011/s/ Zev E. Kaplan

Zev E. Kaplan
    
    Director
    
    October 6, 2011/s/ Philip A. McNeill

Philip A. McNeill
    
    Director
    
    October 6, 2011
  66




---



##### Table of Contents



INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageReport of Coulter & Justus, P.C.
    
    
    F-2Consolidated Balance Sheets as of June 30, 2011 and 2010
    
    
    F-3Consolidated Statements of Operations for the years ended June 30, 2011 and 2010
    
    
    F-4Consolidated Statements of Cash Flows for the years ended June 30, 2011 and 2010
    
    
    F-5Consolidated Statements of Stockholders Deficit and Comprehensive Loss for the years ended June 30, 2011 and 2010
    
    
    F-6Notes to Consolidated Financial Statements
    
    
    F-7




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     /s/ Coulter & Justus, P.C.
 
  F-2




---



##### Table of Contents



June 30,2011
    
    
    2010Assets:Cash
    
    $
    2,113,324
    
    
    $
    220,944Other current assets
    
    
    38,072
    
    
    
    22,332Current assets of discontinued operations
    
    
    23,552,012
    
    
    
    28,460,475Total current assets
    
    
    25,703,408
    
    
    
    28,703,751Fixed assets of discontinued operations
    
    
    853,050
    
    
    
    1,129,885Notes receivable  related party
    
    
    449,127
    
    
    
    430,627Securities available for sale
    
    
    
    
    
    
    110,826Other non-current assets
    
    
    
    
    
    
    45,003Non-current assets of discontinued operations
    
    
    6,728,807
    
    
    
    7,050,292Total assets
    
    $
    33,734,392
    
    
    $
    37,470,384Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    952,804
    
    
    $
    289,000Current portion of long term debt  related party
    
    
    19,725,040
    
    
    
    500,000Accrued other liabilities
    
    
    166,894
    
    
    
    167,273Current liabilities of discontinued operations
    
    
    14,390,292
    
    
    
    14,810,313Total current liabilities
    
    
    35,235,030
    
    
    
    15,766,586Long term debt  related party, less current maturities
    
    
    
    
    
    
    17,755,890Dividends payable
    
    
    5,051,048
    
    
    
    3,464,934Non-current liabilities of discontinued operations
    
    
    69,843
    
    
    
    1,372,416Total liabilities
    
    
    40,355,921
    
    
    
    38,359,826Warrants 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,
1,559,899 and 1,559,985 shares issued and outstanding, respectively
    
    
    14,153,834
    
    
    
    14,225,110Common stock, $0.001 par value, 2,000,000,000 shares authorized,
54,491,449 and 51,624,725 shares issued and
50,921,018 and 48,054,294 shares outstanding, respectively
    
    
    54,492
    
    
    
    51,625Additional paid-in capital
    
    
    55,189,354
    
    
    
    55,297,972Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    272,529Treasury stock - 3,570,431 shares at cost
    
    
    (250,000
    )
    
    
    (250,000
    )Accumulated deficit
    
    
    (76,495,077
    )
    
    
    (70,509,228
    )Accumulated comprehensive loss
    
    
    
    
    
    
    (152,385
    )Accumulated comprehensive loss of discontinued operations
    
    
    (118,215
    )
    
    
    (148,768
    )Total Homeland Security Capital Corporation stockholders deficit
    
    
    (7,193,083
    )
    
    
    (1,213,145
    )Noncontrolling interest of discontinued operations
    
    
    401,786
    
    
    
    153,935Total stockholders deficit
    
    
    (6,791,297
    )
    
    
    (1,059,210
    )Total liabilities and stockholders deficit
    
    $
    33,734,392
    
    
    $
    37,470,384
   F-3




---



##### Table of Contents



Year Ended June 30,2011
    
    
    2010Net revenue
    
    $
    
    
    
    $
    Costs of revenue
    
    
    
    
    
    
    Gross profit on revenue
    
    
    
    
    
    
    Operating expenses:Personnel
    
    
    1,270,411
    
    
    
    1,774,622Insurance and facility costs
    
    
    186,747
    
    
    
    102,731Travel and transportation
    
    
    34,727
    
    
    
    34,122Professional services
    
    
    1,387,237
    
    
    
    568,628Administrative costs
    
    
    68,273
    
    
    
    Total operating expenses
    
    
    2,947,395
    
    
    
    2,480,103Operating loss
    
    
    (2,947,395
    )
    
    
    (2,480,103
    )Other (expense) income:Interest expense to related party
    
    
    (2,003,558
    )
    
    
    (1,877,204
    )Amortization of debt discounts and offering costs
    
    
    
    
    
    
    (369,736
    )Impairment losses
    
    
    (308,213
    )
    
    
    (104,997
    )Other income
    
    
    61,774
    
    
    
    60,933Total other expense
    
    
    (2,249,997
    )
    
    
    (2,291,004
    )Loss from continuing operations
    
    
    (5,197,392
    )
    
    
    (4,771,107
    )Income from discontinued operations, net of tax of $217,392 in
2011 and $590,230 in 2010
    
    
    1,208,009
    
    
    
    6,814,464Net (loss) income
    
    
    (3,989,383
    )
    
    
    2,043,357Less: Net loss attributable to noncontrolling interests
    
    
    (395,732
    )
    
    
    (124,484
    )Net (loss) income attributable to Homeland
Security Capital Corporation stockholders
    
    
    (4,385,115
    )
    
    
    1,918,873Less preferred dividends and other beneficial conversion
features associated with preferred stock issuance
    
    
    (1,600,733
    )
    
    
    (1,610,551
    )Net (loss) income attributable to common stockholders
of Homeland Security Capital Corporation
    
    $
    (5,985,848
    )
    
    $
    308,322(Loss) income per common share attributable to Homeland
Security Capital Corporation stockholders 
basic and dilutedBasic  continuing operations
    
    $
    (0.10
    )
    
    $
    (0.09
    )Diluted  continuing operations
    
    $
    (0.10
    )
    
    $
    (0.09
    )Basic  discontinued operations
    
    $
    0.02
    
    
    $
    0.13Diluted  discontinued operations
    
    $
    0.02
    
    
    $
    0.01Weighted average shares outstanding -Basic
    
    
    53,870,980
    
    
    
    51,291,270Diluted
    
    
    53,870,980
    
    
    
    699,666,666
   F-4




---



##### Table of Contents



Year Ended June 30,2011
    
    
    2010Cash flows from operating activities:Net (loss) income
    
    $
    (3,989,383
    )
    
    $
    2,180,737Adjustments to reconcile net (loss) income to net
cash provided by operating activities:Sale of marketable fixed income securities
    
    
    872,427
    
    
    
    784,044Share-based compensation expense
    
    
    24,449
    
    
    
    1,075,625Stock issued for services
    
    
    
    
    
    
    38,333Depreciation
    
    
    1,042,250
    
    
    
    1,863,333Amortization of intangibles
    
    
    52,558
    
    
    
    44,558(Gain) loss on disposal of assets
    
    
    (73,956
    )
    
    
    9,630Impairment losses on securities available for sale
    
    
    571,424
    
    
    
    104,997Impairment losses on equipment held for sale
    
    
    
    
    
    
    425,267Amortization of debt offering costs and discounts
    
    
    
    
    
    
    412,263Accrued interest on notes payable  related parties
    
    
    
    
    
    
    (18,500
    )Accrued interest due to related parties
    
    
    1,950,651
    
    
    
    1,856,836Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,623,946
    )
    
    
    (3,339,093
    )Costs in excess of billings on uncompleted contracts
    
    
    3,773,749
    
    
    
    (3,396,845
    )Other assets
    
    
    193,515
    
    
    
    43,443Accounts payable
    
    
    2,316,247
    
    
    
    (1,546,149
    )Billings in excess of costs on uncompleted contracts
    
    
    782,445
    
    
    
    5,375Accrued compensation
    
    
    164,740
    
    
    
    (95,805
    )Accrued other liabilities
    
    
    (172,253
    )
    
    
    (156,335
    )Income taxes payable
    
    
    (886,643
    )
    
    
    551,941Deferred revenue
    
    
    (12,828
    )
    
    
    150,358Net cash provided by operating activities
    
    
    4,985,446
    
    
    
    994,013Cash flows from investing activities:Purchase of fixed assets
    
    
    (730,962
    )
    
    
    (383,206
    )Proceeds from sale of assets
    
    
    1,562,825
    
    
    
    29,481Repayment of related party receivable
    
    
    
    
    
    
    (1,656,471
    )Investment received for noncontrolling interest of subsidiary
    
    
    
    
    
    
    28,000Net cash provided by (used in) investing activities
    
    
    831,863
    
    
    
    (1,982,196
    )Cash flows from financing activities:Net (payments) borrowings on line of credit
    
    
    (2,162,000
    )
    
    
    1,650,000Distributions to noncontrolling interest
    
    
    (147,880
    )
    
    
    Repayment of related party debt
    
    
    (500,000
    )
    
    
    (50,110
    )Repayments of debt
    
    
    (1,156,955
    )
    
    
    (1,062,369
    )Repurchase of stock options outstanding
    
    
    (216,200
    )
    
    
    Net cash (used in) provided by financing activities
    
    
    (4,183,035
    )
    
    
    537,521Effect of exchange rate changes on cash
    
    
    30,553
    
    
    
    (76,443
    )Net increase (decrease) in cash
    
    
    1,664,827
    
    
    
    (527,105
    )Cash, beginning of period
    
    
    1,829,429
    
    
    
    2,356,534Cash, end of period (including $1,380,932 in 2011 and $1,608,485 in
2010 in discontinued operations)
    
    $
    3,494,256
    
    
    $
    1,829,429
   F-5




---



##### Table of Contents



Homeland Security Capital Corporation ShareholdersAdditional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedAdditional
    
    
    Paid-In
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Equity of
    
    
    TotalPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Capital -
    
    
    Treasury
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Loss-Discontinued
    
    
    Noncontrolling
    
    
    StockholdersStock
    
    
    Shares Issued
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Stock
    
    
    Deficit
    
    
    Loss
    
    
    Operations
    
    
    Interests
    
    
    (Deficit)Balance, July 1, 2009
    
    $
    14,261,207
    
    
    
    53,270,160
    
    
    $
    53,270
    
    
    $
    54,131,548
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,817,550
    )
    
    $
    (69,266
    )
    
    $
    (72,325
    )
    
    $
    (135,930
    )
    
    
    (2,626,517
    )Amortization of Series H
warrants
    
    
    14,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,724
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends on Series H and
Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,595,826
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,595,826
    )Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,625
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,075,625Issuance of stock for services
    
    
    
    
    
    
    648,915
    
    
    
    649
    
    
    
    37,684
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    38,333Conversion 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rescission of option exercise
    
    
    
    
    
    
    (4,405,720
    )
    
    
    (4,406
    )
    
    
    4,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (83,119
    )
    
    
    
    
    
    
    
    
    
    
    (83,119
    )Noncontrolling interests
investment in subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    28,000Currency 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
    )
    
    
    (152,385
    )
    
    
    (148,768
    )
    
    
    153,934
    
    
    
    (1,059,210
    )Dividends on Series H and
Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,586,011
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,586,011
    )Amortization of Series H
warrants
    
    
    14,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,724
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Conversion of Series H to common
    
    
    (86,000
    )
    
    
    2,866,724
    
    
    
    2,867
    
    
    
    83,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,449
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,449Repurchase of stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216,200
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (216,200
    )Impairment loss on securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    152,385
    
    
    
    
    
    
    
    
    
    
    
    152,385Liquidating distribution of
noncontroling interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (147,880
    )
    
    
    (147,880
    )Currency tranlation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,553
    
    
    
    
    
    
    
    30,553Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,385,115
    )
    
    
    
    
    
    
    
    
    
    
    395,732
    
    
    
    (3,989,383
    )Balance, June 30, 2011
    
    $
    14,153,834
    
    
    
    54,491,449
    
    
    $
    54,492
    
    
    $
    55,189,354
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (76,495,077
    )
    
    $
    
    
    
    $
    (118,215
    )
    
    $
    401,786
    
    
    
    (6,791,297
    )
   F-6




---



##### Table of Contents



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




---



##### Table of Contents



(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




---



##### Table of Contents



-
 -
        F-9




---



##### Table of Contents



-
        F-10




---



##### Table of Contents



Recent Accounting Pronouncements
   3. Going Concern
    .
  F-11




---



##### Table of Contents



.
   4. Discontinued Operations
     F-12




---



##### Table of Contents



5. Fair Value Measurements
 Fair Value Measurements and Disclosures Fair Value Measurements,
      6. Goodwill
    F-13




---



##### Table of Contents



7. Minority Interest in Ultimate Escapes, Inc.
   8. Income Taxes
      June 30,2011
    
    
    2010Deferred tax assets:Net operating loss and capital loss
carryforwards
    
    $
    14,392,334
    
    
    $
    14,002,792Related party accruals
    
    
    2,119,780
    
    
    
    1,557,242Allowance for doubtful accounts
    
    
    95,281
    
    
    
    87,526Vacation and workers compensation
    
    
    110,984
    
    
    
    231,528Impairment loss on assets held for sale
    
    
    1,428,618
    
    
    
    1,310,603Other temporary differences
    
    
    
    
    
    
    7,620Valuation allowance
    
    
    (17,633,225
    )
    
    
    (16,574,871
    )Total deferred tax assets
    
    
    513,772
    
    
    
    622,440Deferred tax liabilities:Depreciation and amortization expenses
    
    
    (256,959
    )
    
    
    (440,298
    )Amortization of intangible assets
    
    
    (113,804
    )
    
    
    (130,874
    )Other temporary differences
    
    
    (143,009
    )
    
    
    (51,268
    )Total deferred tax liabilities
    
    
    (513,772
    )
    
    
    (622,440
    )Net deferred tax assets
    
    $
    
    
    
    $
    
  F-14




---



##### Table of Contents



June 30,2011
    
    
    2010Federal income taxes at 34%
    
    $
    (1,364,291
    )
    
    $
    $942,129Effect of permanent differences
    
    
    (36,984
    )
    
    
    506,500Other
    
    
    377,191
    
    
    
    (107,896
    )State income tax
    
    
    66,525
    
    
    
    389,552Change in valuation allowance  current year
    
    
    1,058,354
    
    
    
    (1,140,055
    )Net income tax expense
    
    $
    100,795
    
    
    $
    590,230
  Year of
    
    Capital Loss
    
    
    NOL
    
    
    TotalExpiration
    
    Carryover
    
    
    Carryover
    
    
    Carryover2014
    
    $
    90,400
    
    
    $
    
    
    
    $
    90,4002017
    
    
    
    
    
    
    3,830,504
    
    
    
    3,830,5042018
    
    
    
    
    
    
    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
    
    
    
    3,438,1952024
    
    
    
    
    
    
    2,338,824
    
    
    
    2,338,8242025
    
    
    
    
    
    
    1,055,115
    
    
    
    1,055,1152026
    
    
    
    
    
    
    2,542,659
    
    
    
    2,542,6592027
    
    
    
    
    
    
    1,209,152
    
    
    
    1,209,1522028
    
    
    
    
    
    
    976,338
    
    
    
    976,3382029
    
    
    
    
    
    
    1,627,859
    
    
    
    1,627,8592031
    
    
    
    
    
    
    2,948,105
    
    
    
    2,948,105$
    90,400
    
    
    $
    42,239,992
    
    
    $
    42,330,392
  F-15




---



##### Table of Contents



9. Related Party Senior Notes Payable
    June 30,2011
    
    
    2010Senior Secured Notes Payable (the New Notes)
    
    $
    6,310,000
    
    
    $
    6,310,000Senior Secured Notes Payable (the Exchange
Notes)
    
    
    6,750,000
    
    
    
    6,750,000Debenture interest conversion note
    
    
    878,923
    
    
    
    878,923Treasury stock purchase note
    
    
    250,000
    
    
    
    250,000Accrued interest on above notes
    
    
    5,536,117
    
    
    
    4,066,967Total notes payable
    
    
    19,725,040
    
    
    
    18,255,890Less current portion of term debt
    
    
    19,725,040
    
    
    
    (500,000
    )Long term portion
    
    $
    
    
    
    $
    17,755,890
  10. Convertible Preferred Stock
   F-16




---



##### Table of Contents



Series F
  Series H
    Series I
   June 30, 2011
    
    
    June 30, 2010Potential
    
    
    Accrued
    
    
    Potential
    
    
    AccruedPreferred Stock
    
    Common Shares
    
    
    Dividends
    
    
    Common Shares
    
    
    DividendsSeries F
    
    
    10,000,000
    
    
    
    
    
    
    
    10,000,000
    
    
    
    Series H
    
    
    557,313,700
    
    
    $
    3,935,147
    
    
    
    562,833,323
    
    
    $
    2,745,033Series I
    
    
    110,000,000
    
    
    $
    1,115,901
    
    
    
    110,000,000
    
    
    $
    719,901Total
    
    
    677,313,700
    
    
    $
    5,051,048
    
    
    
    682,833,323
    
    
    $
    3,464,934
  F-17




---



##### Table of Contents



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, 2011
    
    
    June 30, 2010Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise
    
    
    Grant Date
    
    
    
    
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Price
    
    
    Fair ValueOutstanding at
beginning of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rescinded
(Exercised)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,640,626
    
    
    
    0.050
    
    
    
    0.036Forfeited
    
    
    71,620,000
    
    
    
    0.056
    
    
    
    0.043
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at
end of period
    
    
    11,690,000
    
    
    $
    0.058
    
    
    $
    0.051
    
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044Options exercisable
at end of period
    
    
    11,690,000
    
    
    $
    0.058
    
    
    $
    0.051
    
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
  F-18




---



##### Table of Contents



12. Common Stock Warrants
     13. Earnings (Loss) Per Share
    F-19




---



##### Table of Contents



Year Ended June 30,2011
    
    
    2010Basic and Diluted Earnings (Loss) Per Share:Income (Loss) (Numerator)
    
    $
    (4,385,115
    )
    
    $
    1,918,872Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (14,724
    )
    
    
    (14,724
    )Less: Preferred stock dividends
    
    
    (1,586,009
    )
    
    
    (1,595,827
    )Income (Loss) attributable to common
stockholders
    
    $
    (5,985,848
    )
    
    $
    308,321Shares (Denominator)Weighted-average number of common shares:Basic
    
    
    53,870,980
    
    
    
    51,291,270Diluted
    
    
    53,870,980
    
    
    
    699,666,666(Loss) Earnings Per Common ShareBasic  continuing operations
    
    $
    (0.10
    )
    
    $
    0.09Diluted  continuing operations
    
    $
    (0.10
    )
    
    $
    0.09Basic  discontinued operations
    
    $
    0.02
    
    
    $
    0.13Diluted  discontinued operations
    
    $
    0.02
    
    
    $
    0.01
 14. Cash Flows
  Year Ended June 30,2011
    
    
    2010Cash paid during the period for:Interest
    
    $
    596,495
    
    
    $
    227,486Taxes
    
    
    782,670
    
    
    
    7,677Supplemental disclosure for noncash investing
and financing activity:Temporary impairment of value of securities
available for sale
    
    $
    
    
    
    $
    83,119Dividends accrued on Preferred Stock
    
    
    1,586,114
    
    
    
    1,595,827Dividends paid with Preferred Stock
    
    
    14,724
    
    
    
    14,724Reverse cashless exercise of stock option
    
    
    
    
    
    
    (4,406
    )Conversion of Series G Preferred Stock
    
    
    
    
    
    
    35,808Conversion of Series H Preferred Stock
    
    
    86,000
    
    
    
    15,013Equipment purchased under capital leases
    
    
    68,180
    
    
    
    130,699
  F-20




---



##### Table of Contents



15. Commitments and Contingencies
 Leases
   Commitments
  Claims
  16. Related Party Transactions
        F-21




---



##### Table of Contents



17. Subsequent Events
 Acquisitions
   F-22




---



##### Table of Contents



F-23