U.S. SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 Amendment No. 2 to
 FORM 10-K/A
 (Mark one)
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2009
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 Commission File No. 000-23279
 Homeland Security Capital Corporation
  1005 North Glebe Road, Suite 550Delaware
    
    52-2050585
    
    Arlington, Virginia 22201(State or other jurisdiction 
of incorporation)
    
    (IRS Employer
Identification No.)
    
    (Address of principal executive offices)
(Zip Code)
 (703) 528-7073
 Common Stock, par value $.001 per share
   o þ
 o þ
 þ o
 o o
 þ
  Large accelerated filer o
    
    Accelerated filer oNon-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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##### 



EXPLANATORY NOTE
 Amendment we us, our Company SEC Original Filing Comment Letter




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##### 



Item 8. Financial Statements and Supplementary Data
 INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
 PageReport of Coulter & Justus, P.C.
    
    
    F-2Report of HJ & Associates, LLC
    
    
    F-3Consolidated Balance Sheets as of June 30, 2009 and 2008 and December 31, 2007
    
    
    F-4Consolidated Statements of Operations for the year ended June 30, 2009, six
months ended June 30, 2008, six months ended June 30, 2007 (unaudited) and
the year ended December 31, 2007
    
    
    F-5Consolidated Statements of Cash Flows for the year ended June 30, 2009, six
months ended June 30, 2008, six months ended June 30, 2007 (unaudited) and
the year ended December 31, 2007
    
    
    F-6Consolidated Statements of Stockholders Equity for the years ended June 30,
2009 and 2008 and December 31, 2007
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
  F-1




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##### 



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




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
  F-3




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##### 



June 30,
    
    
    June 30,
    
    
    December 31,Assets
    
    2009
    
    
    2008
    
    
    2007Cash
    
    $
    2,356,534
    
    
    $
    3,182,357
    
    
    $
    57,521Accounts receivable  net
    
    
    13,425,804
    
    
    
    11,977,737
    
    
    
    3,993,723Cost in excess of billings on uncompleted contracts
    
    
    3,937,086
    
    
    
    5,659,217
    
    
    
    538,540Other current assets
    
    
    613,348
    
    
    
    258,958
    
    
    
    101,611Total current assets
    
    
    20,332,772
    
    
    
    21,078,269
    
    
    
    4,691,395Fixed assets  net
    
    
    4,398,833
    
    
    
    5,493,396
    
    
    
    269,255Deferred financing costs  net
    
    
    386,210
    
    
    
    841,079
    
    
    
    733,626Notes receivable  related party
    
    
    412,127
    
    
    
    393,360
    
    
    
    414,099Notes payable  other
    
    
    
    
    
    
    90,400
    
    
    
    90,400Securities available for sale
    
    
    193,945
    
    
    
    2,057,197
    
    
    
    3,248,571Other non-current assets
    
    
    319,516
    
    
    
    178,670
    
    
    
    150,000Intangible assets  net
    
    
    391,372
    
    
    
    497,622
    
    
    
    Goodwill
    
    
    6,403,982
    
    
    
    4,266,702
    
    
    
    Total assets
    
    $
    32,838,757
    
    
    $
    34,896,695
    
    
    $
    9,597,346Liabilities and Stockholders (Deficit) EquityCurrent liabilitiesAccounts payable
    
    $
    10,003,336
    
    
    $
    6,202,137
    
    
    $
    2,639,721Derivative liability
    
    
    
    
    
    
    
    
    
    
    7,263,204Current portion of related party debt
    
    
    
    
    
    
    
    
    
    
    6,252,887Current portion of long term debt
    
    
    1,247,016
    
    
    
    647,576
    
    
    
    72,319Notes payable  related party
    
    
    50,110
    
    
    
    1,526,137
    
    
    
    Accrued interest and other liabilities
    
    
    3,257,903
    
    
    
    3,201,607
    
    
    
    656,837Billings in excess of costs on uncompleted contracts
    
    
    1,022,125
    
    
    
    824,402
    
    
    
    144,885Deferred revenue
    
    
    59,636
    
    
    
    43,164
    
    
    
    Total current liabilities
    
    
    15,640,126
    
    
    
    12,445,023
    
    
    
    17,029,853Senior notes payable  related party
    
    
    13,904,870
    
    
    
    13,856,796
    
    
    
    Interest payable  related party
    
    
    2,210,131
    
    
    
    493,060
    
    
    
    Secured notes payable  related party
    
    
    250,000
    
    
    
    
    
    
    
    Long term debt, less current maturities
    
    
    1,421,272
    
    
    
    4,463,844
    
    
    
    134,688Dividends payable
    
    
    1,869,107
    
    
    
    400,833
    
    
    
    Total liabilities
    
    
    35,295,506
    
    
    
    31,659,556
    
    
    
    17,164,541Warrants Payable  Series H
    
    
    169,768
    
    
    
    169,768
    
    
    
    Stockholders (Deficit) EquityPreferred stock, $0.01 par value, 10,000,000 shares
authorized,
1,918,080, 1,918,080 and 1,358,080 shares issued
and outstanding, respectively
    
    
    14,261,207
    
    
    
    12,346,481
    
    
    
    135,808Common stock, $0.001 par value, 2,000,000,000 shares
authorized,
53,270,160, 48,846,244 and 48,764,677 shares issued and
49,699,729, 48,846,244 and 48,764,677 shares
outstanding,
respectively
    
    
    53,270
    
    
    
    48,846
    
    
    
    48,765Additional paid-in capital
    
    
    54,131,548
    
    
    
    51,385,199
    
    
    
    47,799,790Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    148,652
    
    
    
    Treasury stock - 3,570,431 shares at cost
    
    
    (250,000
    )
    
    
    
    
    
    
    Accumulated deficit
    
    
    (70,953,480
    )
    
    
    (59,339,836
    )
    
    
    (55,219,082
    )Accumulated comprehensive loss
    
    
    (141,591
    )
    
    
    (1,521,971
    )
    
    
    (332,476
    )Total stockholders (deficit) equity
    
    
    (2,626,517
    )
    
    
    3,067,371
    
    
    
    (7,567,195
    )Total liabilities and stockholders (deficit) equity
    
    $
    32,838,757
    
    
    $
    34,896,695
    
    
    $
    9,597,346
   F-4




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##### 



Six MonthsSix Months
    
    
    EndedYear Ended
    
    
    Ended
    
    
    June 30,
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    2007
    
    
    December 31,2009
    
    
    2008
    
    
    (Unaudited)
    
    
    2007Net contract revenue
    
    $
    79,489,509
    
    
    $
    23,154,250
    
    
    $
    6,285,087
    
    
    $
    12,628,183Contract costs
    
    
    67,806,658
    
    
    
    19,166,303
    
    
    
    4,856,212
    
    
    
    9,592,926Gross profit on contract revenue
    
    
    11,682,851
    
    
    
    3,987,947
    
    
    
    1,428,875
    
    
    
    3,035,257Operating expensesMarketing
    
    
    308,499
    
    
    
    89,274
    
    
    
    16,648
    
    
    
    28,499Personnel
    
    
    8,881,940
    
    
    
    3,219,413
    
    
    
    1,430,164
    
    
    
    3,037,205Insurance and facility costs
    
    
    1,027,224
    
    
    
    448,604
    
    
    
    215,099
    
    
    
    352,796Travel and transportation
    
    
    502,888
    
    
    
    285,110
    
    
    
    136,574
    
    
    
    352,994Other operating costs
    
    
    939,776
    
    
    
    145,824
    
    
    
    70,040
    
    
    
    114,160Depreciation and amortization
    
    
    1,285,756
    
    
    
    192,068
    
    
    
    36,699
    
    
    
    71,480Amortization of intangible assets
    
    
    106,250
    
    
    
    45,866
    
    
    
    
    
    
    
    Professional services
    
    
    711,776
    
    
    
    234,820
    
    
    
    419,788
    
    
    
    698,616Administrative costs
    
    
    1,253,394
    
    
    
    825,659
    
    
    
    45,835
    
    
    
    263,403Total operating expenses
    
    
    15,017,503
    
    
    
    5,486,638
    
    
    
    2,370,847
    
    
    
    4,919,153Operating loss
    
    
    (3,334,652
    )
    
    
    (1,498,691
    )
    
    
    (941,972
    )
    
    
    (1,883,896
    )Other (expense) incomeInterest expense
    
    
    (2,011,991
    )
    
    
    (882,358
    )
    
    
    (323,611
    )
    
    
    (954,846
    )Amortization of debt discounts and offering costs
    
    
    (552,943
    )
    
    
    (805,214
    )
    
    
    (1,192,766
    )
    
    
    (2,799,123
    )Currency loss
    
    
    (405,821
    )
    
    
    
    
    
    
    
    
    
    
    Adjustment of fair value of derivative liability
    
    
    
    
    
    
    (513,516
    )
    
    
    (155,710
    )
    
    
    1,000,193Impairment loss on securities available for sale
    
    
    (3,317,837
    )
    
    
    
    
    
    
    
    
    
    
    Gain on extinguishment of debt
    
    
    
    
    
    
    3,377,997
    
    
    
    
    
    
    
    Other income
    
    
    92,597
    
    
    
    62,408
    
    
    
    58,668
    
    
    
    51,673Total other (expense) income
    
    
    (6,195,995
    )
    
    
    1,239,317
    
    
    
    (1,613,419
    )
    
    
    (2,702,103
    )Loss from continuing operations
    
    
    (9,530,647
    )
    
    
    (259,374
    )
    
    
    (2,555,391
    )
    
    
    (4,585,999
    )(Loss) income from discontinued operationsLoss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,959,218
    )
    
    
    (2,023,197
    )Gain from sale of operating segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,657,930(Loss) gain from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,959,218
    )
    
    
    1,634,733Net loss
    
    
    (9,530,647
    )
    
    
    (259,374
    )
    
    
    (4,514,609
    )
    
    
    (2,951,266
    )Less preferred dividends and other beneficial conversion
features associated with preferred stock issuance
    
    
    (2,082,998
    )
    
    
    (3,934,993
    )
    
    
    
    
    
    
    Net loss attributable to common stockholders
    
    $
    (11,613,645
    )
    
    $
    (4,194,367
    )
    
    $
    (4,514,609
    )
    
    $
    (2,951,266
    )(Loss) income per common share  basic and dilutedLoss from continuing operations
    
    $
    (0.24
    )
    
    $
    (0.09
    )
    
    $
    (0.06
    )
    
    $
    (0.11
    )Loss from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (0.05
    )
    
    
    0.04Basic and diluted EPS
    
    $
    (0.24
    )
    
    $
    (0.09
    )
    
    $
    (0.11
    )
    
    $
    (0.07
    )Weighted average shares outstanding Basic and diluted
    
    
    47,664,614
    
    
    
    48,819,354
    
    
    
    41,755,250
    
    
    
    43,043,114
   F-5




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##### 



Six MonthsSix Months
    
    
    EndedYear Ended
    
    
    Ended
    
    
    June 30,
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    2007
    
    
    December 31,2009
    
    
    2008
    
    
    (Unaudited)
    
    
    2007Cash flows from operating activities:Net loss
    
    $
    (9,530,647
    )
    
    $
    (259,374
    )
    
    $
    (4,514,609
    )
    
    $
    (2,951,266
    )Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:Gain on sale of operating segment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,657,930
    )Gain on extinguishment of debt
    
    
    
    
    
    
    (3,377,997
    )
    
    
    
    
    
    
    Settlement of debt
    
    
    
    
    
    
    
    
    
    
    (51,261
    )
    
    
    (6,024
    )Share-based compensation expense
    
    
    2,150,773
    
    
    
    121,764
    
    
    
    181,151
    
    
    
    352,056Depreciation
    
    
    1,842,723
    
    
    
    620,279
    
    
    
    36,699
    
    
    
    71,480Amortization of intangibles
    
    
    106,250
    
    
    
    45,866
    
    
    
    
    
    
    
    Disposal of fixed assets
    
    
    5,843
    
    
    
    
    
    
    
    
    
    
    
    Change in allowance for bad debts
    
    
    
    
    
    
    215,998
    
    
    
    
    
    
    
    (57,407
    )Impairment loss of securities available for sale
    
    
    3,317,837
    
    
    
    
    
    
    
    
    
    
    
    Write off of note receivable  related party
    
    
    90,400
    
    
    
    
    
    
    
    
    
    
    
    Equity valuation in subsidiaries
    
    
    
    
    
    
    
    
    
    
    582,470
    
    
    
    582,470Amortization of debt discount
    
    
    48,074
    
    
    
    570,021
    
    
    
    1,003,277
    
    
    
    2,382,601Amortization of debt offering costs
    
    
    504,869
    
    
    
    235,191
    
    
    
    97,004
    
    
    
    416,522Valuation losses for changes in derivative liability
    
    
    
    
    
    
    513,516
    
    
    
    155,710
    
    
    
    (1,000,193
    )Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,448,066
    )
    
    
    3,631,614
    
    
    
    (1,379,273
    )
    
    
    (120,888
    )Net assets of discontinued operations
    
    
    
    
    
    
    
    
    
    
    745,271
    
    
    
    476,741Costs in excess of billings on uncompleted
contracts
    
    
    1,722,131
    
    
    
    (743,841
    )
    
    
    (87,241
    )
    
    
    (272,568
    )Other assets
    
    
    (514,004
    )
    
    
    97,924
    
    
    
    (12,885
    )
    
    
    (137,430
    )Accounts payable
    
    
    3,801,201
    
    
    
    136,758
    
    
    
    589,244
    
    
    
    352,269Billings in excess of costs on uncompleted
contracts
    
    
    197,723
    
    
    
    (696,874
    )
    
    
    (94,525
    )
    
    
    (356,196
    )Accrued interest and other liabilities
    
    
    1,855,587
    
    
    
    798,624
    
    
    
    98,284
    
    
    
    638,893Deferred revenue
    
    
    16,472
    
    
    
    43,164
    
    
    
    
    
    
    
    Net cash provided by (used in)
operating activities
    
    
    4,167,166
    
    
    
    1,952,633
    
    
    
    (2,650,684
    )
    
    
    (3,286,870
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (799,144
    )
    
    
    (571,340
    )
    
    
    (82,574
    )
    
    
    (97,163
    )Proceeds from sale of assets
    
    
    45,141
    
    
    
    
    
    
    
    
    
    
    
    Issuance of notes receivable from related parties
    
    
    
    
    
    
    
    
    
    
    (500,000
    )
    
    
    (504,499
    )Collection of notes receivable from related parties
    
    
    
    
    
    
    808,820
    
    
    
    
    
    
    
    Investment in equity of subsidiaries
    
    
    (113,403
    )
    
    
    (9,539,773
    )
    
    
    
    
    
    
    Investment activity from discontinued operations
    
    
    
    
    
    
    
    
    
    
    55,434
    
    
    
    743,142Net cash (used in) provided by
investing activities
    
    
    (867,406
    )
    
    
    (9,302,293
    )
    
    
    (527,140
    )
    
    
    141,480Cash flows from financing activities:Proceeds from convertible debentures  related party
    
    
    
    
    
    
    
    
    
    
    2,750,000
    
    
    
    2,750,000Costs of convertible debentures  related party
    
    
    
    
    
    
    
    
    
    
    (190,000
    )
    
    
    (190,000
    )Proceeds from preferred stock  related party
    
    
    
    
    
    
    6,190,000
    
    
    
    
    
    
    
    Proceeds from senior notes  related party
    
    
    
    
    
    
    6,310,000
    
    
    
    
    
    
    
    Debt offering costs
    
    
    (50,000
    )
    
    
    (982,773
    )
    
    
    
    
    
    
    Proceeds from notes payable
    
    
    58,136
    
    
    
    2,771,622
    
    
    
    480,128
    
    
    
    514,277Net (payments) borrowings on line of credit
    
    
    (1,853,935
    )
    
    
    2,365,935
    
    
    
    
    
    
    
    Repayments of term debt
    
    
    (647,333
    )
    
    
    (6,182,166
    )
    
    
    
    
    
    
    (474,402
    )Proceeds from notes payable  related parties
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    Repayments of notes payable to related parties
    
    
    (1,608,247
    )
    
    
    
    
    
    
    
    
    
    
    Financing activity from discontinued operations
    
    
    
    
    
    
    
    
    
    
    62,974
    
    
    
    (611,147
    )Net cash (used in) provided by
financing activities
    
    
    (4,051,379
    )
    
    
    10,472,618
    
    
    
    3,103,102
    
    
    
    1,988,728Effect of exchange rate changes on cash and cash equivalents
    
    
    (74,204
    )
    
    
    1,878
    
    
    
    
    
    
    
    Net (decrease) increase in cash
    
    
    (825,823
    )
    
    
    3,124,836
    
    
    
    (74,722
    )
    
    
    (1,156,662
    )Cash, beginning of period
    
    
    3,182,357
    
    
    
    57,521
    
    
    
    776,139
    
    
    
    1,214,183Cash, end of period
    
    $
    2,356,534
    
    
    $
    3,182,357
    
    
    $
    701,417
    
    
    $
    57,521
   F-6




---



##### 



Additional
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    TotalAdditional
    
    
    Paid-In
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    Stockholders'Preferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Capital -
    
    
    Treasury
    
    
    Accumulated
    
    
    Comprehensive
    
    
    (Deficit)Stock
    
    
    Shares Issued
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Stock
    
    
    Deficit
    
    
    Loss
    
    
    EquityBalance, January 1, 2007
    
    $
    200,000
    
    
    
    41,755,250
    
    
    $
    41,755
    
    
    $
    46,854,476
    
    
    $
    
    
    
    $
    
    
    
    $
    (52,267,816
    )
    
    $
    
    
    
    $
    (5,171,585
    )Conversion of debentures to
common stock
    
    
    
    
    
    
    4,120,787
    
    
    
    4,121
    
    
    
    531,955
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536,076Conversion of preferred stock -
Series G
    
    
    (64,192
    )
    
    
    2,888,640
    
    
    
    2,889
    
    
    
    61,303
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,056
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,056Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (332,476
    )
    
    
    (332,476
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,951,266
    )
    
    
    
    
    
    
    (2,951,266
    )Balance, December 31, 2007
    
    
    135,808
    
    
    
    48,764,677
    
    
    
    48,765
    
    
    
    47,799,790
    
    
    
    
    
    
    
    
    
    
    
    (55,219,082
    )
    
    
    (332,476
    )
    
    
    (7,567,195
    )Conversion of debentures to
common stock
    
    
    
    
    
    
    81,567
    
    
    
    81
    
    
    
    3,105
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,186Issuance of preferred stockSeries H
    
    
    9,930,674
    
    
    
    
    
    
    
    
    
    
    
    2,740,540
    
    
    
    
    
    
    
    
    
    
    
    (2,740,540
    )
    
    
    
    
    
    
    9,930,674Series I
    
    
    2,280,000
    
    
    
    
    
    
    
    
    
    
    
    720,000
    
    
    
    
    
    
    
    
    
    
    
    (720,000
    )
    
    
    
    
    
    
    2,280,000Series I warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    148,652Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,191,374
    )
    
    
    (1,191,374
    )Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,879
    
    
    
    1,879Dividends on Series H
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (400,840
    )
    
    
    
    
    
    
    (400,840
    )Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,764Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (259,374
    )
    
    
    
    
    
    
    (259,374
    )Balance, June 30, 2008
    
    
    12,346,482
    
    
    
    48,846,244
    
    
    
    48,846
    
    
    
    51,385,199
    
    
    
    148,652
    
    
    
    
    
    
    
    (59,339,836
    )
    
    
    (1,521,971
    )
    
    
    3,067,372Amortization of Series H
warrants
    
    
    14,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,725
    )
    
    
    
    
    
    
    Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (250,000
    )
    
    
    
    
    
    
    
    
    
    
    (250,000
    )Dividends on Series H and
Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,468,272
    )
    
    
    
    
    
    
    (1,468,272
    )Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,929,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,929,577Stock options exercised
    
    
    
    
    
    
    4,423,916
    
    
    
    4,424
    
    
    
    216,772
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,196Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,863,253
    )
    
    
    (1,863,253
    )Realization of impairment in
value of assets held for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,317,837
    
    
    
    3,317,837Value or Series I shares released
from escrow
    
    
    1,900,000
    
    
    
    
    
    
    
    
    
    
    
    600,000
    
    
    
    123,877
    
    
    
    
    
    
    
    (600,000
    )
    
    
    
    
    
    
    2,023,877Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,204
    )
    
    
    (74,204
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,530,647
    )
    
    
    
    
    
    
    (9,530,647
    )Balance, June 30, 2009
    
    $
    14,261,207
    
    
    
    53,270,160
    
    
    $
    53,270
    
    
    $
    54,131,548
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,953,480
    )
    
    $
    (141,591
    )
    
    $
    (2,626,517
    )
   F-7




---



##### 



HOMELAND SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
 1. Organization and Nature of Business
         F-8




---



##### 



2. Summary of Significant Accounting Policies
        -
 -
  F-9




---



##### 



2009
    
    
    2008
    
    
    2007Beginning of period
    
    $
    841,079
    
    
    $
    733,626
    
    
    $
    867,662New debt offering costs
    
    
    50,000
    
    
    
    982,773
    
    
    
    282,486Amortized with converted debt
    
    
    
    
    
    
    (434
    )
    
    
    (24,286
    )Amortized with debt extinguishment
    
    
    
    
    
    
    (640,129
    )
    
    
    Amortization expense
    
    
    (504,869
    )
    
    
    (234,757
    )
    
    
    (392,236
    )Debt financing cost, net
    
    $
    386,210
    
    
    $
    841,079
    
    
    $
    733,626
 Accounting for Certain Investments in Debt and Equity Securities.
  Gross
    
    
    RecognizedUnrealized
    
    
    Impairment
    
    
    EstimatedCost
    
    
    Loss
    
    
    Loss
    
    
    Fair ValueJune 30, 2009
    
    $
    3,581,047
    
    
    $
    69,265
    
    
    $
    3,317,837
    
    
    $
    193,945June 30, 2008
    
    $
    3,581,047
    
    
    $
    1,523,850
    
    
    
    
    
    
    $
    2,057,197December 31, 2007
    
    $
    3,581,047
    
    
    $
    332,476
    
    
    
    
    
    
    $
    3,248,571
   F-10




---



##### 



-
     F-11




---



##### 



Recent Accounting Pronouncements
 Goodwill and Other Intangible
Assets. Business
Combinations
 The Hierarchy of Generally Accepted
Accounting Principles The FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles
 Subsequent Events"
 Amendments to FASB Interpretation No.
46(R) Accounting for Transfers of Financial Assets
    F-12




---



##### 



3. Fixed Assets, net
  2009
    
    
    2008
    
    
    2007Office equipment
    
    $
    382,293
    
    
    $
    367,942
    
    
    $
    42,347Operating equipment
    
    
    3,622,584
    
    
    
    3,139,423
    
    
    
    Computer equipment
    
    
    1,951,472
    
    
    
    1,781,828
    
    
    
    30,731Vehicles
    
    
    908,124
    
    
    
    886,360
    
    
    
    338,470Accumulative depreciation
    
    
    (2,465,640
    )
    
    
    (682,157
    )
    
    
    (142,293
    )Total fixed assets, net
    
    $
    4,398,833
    
    
    $
    5,493,396
    
    
    $
    269,255
  4. Intangible Assets, net
  2009
    
    
    2008Depreciable intangibles:Non-compete agreements
    
    $
    92,665
    
    
    $
    92,665Contracts
    
    
    445,823
    
    
    
    445,823538,488
    
    
    
    538,488Less accumulated amortization
    
    
    (152,116
    )
    
    
    (45,866
    )386,372
    
    
    
    492,622Non-depreciable intangibles:Trademarks
    
    
    5,000
    
    
    
    5,000Total intangible assets, net of amortization at
June 30,
    
    $
    391,372
    
    
    $
    497,622
   F-13




---



##### 



5. Goodwill
  6. Discontinued operations
    June 30,2007
    
    
    December 31,(unaudited)
    
    
    2007Revenue
    
    $
    2,163,570
    
    
    $
    3,029,306Gross Margin
    
    
    874,119
    
    
    
    1,279,261Operating expenses (includes $483,942
of goodwill impairment write-down for
the year ended December 31, 2007)
    
    
    2,840,340
    
    
    
    3,300,480Other Expense
    
    
    7,003
    
    
    
    (1,978
    )(Loss) gain from Discontinued Operations
    
    
    (1,959,218
    )
    
    
    (2,023,197
    )Gain on Sale of Operating Segment
    
    
    
    
    
    
    3,657,930Income from Discontinued Operations
    
    
    (1,959,218
    )
    
    
    1,634,733Total Assets
    
    
    1,613,408
    
    
    
    1,861,572Total Liabilities
    
    
    1,596,312
    
    
    
    1,938,456
 7. Minority Interest in Secure America Acquisition Corporation
   F-14




---



##### 



8. Investment in Safety & Ecology Holdings Corporation
      F-15




---



##### 



pari passu
   Safety & EcologyHomeland
    
    
    HoldingsSecurity Capital
    
    
    CorporationCorporation
    
    
    (Safety)(Consolidated)
    
    
    January 1, 2008 -June 30, 2008
    
    
    February 29, 2008
    
    
    Pro FormaNet contract revenue
    
    $
    23,154,250
    
    
    $
    9,583,863
    
    
    $
    32,738,113Gross margin on contracts
    
    
    3,987,947
    
    
    
    2,140,919
    
    
    
    6,128,866Operating income (loss)
    
    
    (1,498,691
    )
    
    
    534,741
    
    
    
    (963,950
    )Net loss
    
    $
    (259,374
    )
    
    $
    (123,913
    )
    
    $
    (383,287
    )Loss applicable to
common shareholders
    
    $
    (4,194,367
    )
    
    $
    (123,913
    )
    
    $
    (4,318,280
    )Basic and diluted
earnings (loss) per
share
    
    $
    (0.09
    )
    
    $
    0.00
    
    
    $
    (0.09
    )
  Estimated FairValueCurrent assets
    
    $
    18,724,000Property, plant and equipment
    
    
    5,273,000Other assets
    
    
    29,000Goodwill and other intangible assets
    
    
    6,835,000Total assets acquired
    
    $
    30,861,000Current liabilities
    
    $
    13,501,000Long term debt
    
    
    1,885,000Other liabilities
    
    
    1,203,000Total liabilities assumed
    
    $
    16,589,000Net assets acquired
    
    $
    14,272,000
   F-16




---



##### 



9. Securities Purchase Agreement with YA Global Investments, L.P.
  June 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Senior Secured Notes Payable (the New Notes)
    
    $
    6,310,000
    
    
    $
    6,310,000
    
    
    $
    Senior Secured Notes Payable (the Exchange
Notes)
    
    
    6,750,000
    
    
    
    6,750,000
    
    
    
    Convertible Debentures (net of discounts)
Extinguished in 2008
    
    
    
    
    
    
    
    
    
    
    10,563,186Debenture interest conversion note
    
    
    878,923
    
    
    
    878,923
    
    
    
    Less debt discount
    
    
    (34,053
    )
    
    
    (82,127
    )
    
    
    (4,310,299
    )Senior notes payable
    
    
    13,904,870
    
    
    
    13,856,796
    
    
    
    6,252,887Less current portion
    
    
    
    
    
    
    
    
    
    
    (6,252,887
    )Long term portion
    
    $
    13,904,870
    
    
    $
    13,856,796
    
    
    $
    
          F-17




---



##### 



pari passu
       10. Income Taxes
    F-18




---



##### 



Accounting for Uncertainty
in Income Taxes
    June 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Deferred tax assets:Net operating loss, capital loss and
research credit carryforwards
    
    $
    5,603,009
    
    
    $
    4,382,868
    
    
    $
    16,493,000Related party accruals
    
    
    846,259
    
    
    
    188,793
    
    
    
    256,200Allowance for doubtful accounts
    
    
    89,915
    
    
    
    132,101
    
    
    
    50,700Vacation and workers compensation
    
    
    109,850
    
    
    
    146,914
    
    
    
    Impairment loss on securities
available for sale
    
    
    1,270,400
    
    
    
    
    
    
    
    Other temporary differences
    
    
    21,388
    
    
    
    48,281
    
    
    
    Valuation allowance
    
    
    (6,985,061
    )
    
    
    (3,978,608
    )
    
    
    (16,799,900
    )Total deferred tax assets
    
    $
    955,760
    
    
    $
    920,349
    
    
    $
    Deferred tax liabilities:Depreciation and amortization expenses
    
    $
    (745,236
    )
    
    $
    (688,800
    )
    
    $
    Amortization of intangible assets
    
    
    (147,945
    )
    
    
    (188,670
    )
    
    
    Other temporary differences
    
    
    (62,579
    )
    
    
    (42,879
    )
    
    
    Total deferred tax liabilities
    
    
    (955,760
    )
    
    
    (920,349
    )
    
    
    Net deferred tax assets
    
    $
    
    
    
    $
    
    
    
    $
    
   Six monthsSix months
    
    
    EndedYear ended
    
    
    ended
    
    
    June 30
    
    
    Year endedJune 30
    
    
    June 30
    
    
    2007
    
    
    December 312009
    
    
    2008
    
    
    (unaudited)
    
    
    2007Computed expected tax benefit
    
    $
    (3,335,726
    )
    
    $
    (14,482
    )
    
    $
    (1,760,698
    )
    
    $
    (1,015,700
    )Increase in valuation reserve
    
    
    3,006,453
    
    
    
    724,558
    
    
    
    846,969
    
    
    
    238,548Compensation from options
    
    
    823,530
    
    
    
    43,354
    
    
    
    
    
    
    
    137,300
  F-19




---



##### 



Six monthsSix months
    
    
    EndedYear ended
    
    
    ended
    
    
    June 30
    
    
    Year endedJune 30
    
    
    June 30
    
    
    2007
    
    
    December 312009
    
    
    2008
    
    
    (unaudited)
    
    
    2007Gain on debt conversion
    
    
    
    
    
    
    (1,293,435
    )
    
    
    
    
    
    
    Valuation of derivative
    
    
    
    
    
    
    505,805
    
    
    
    659,880
    
    
    
    539,139Other
    
    
    40,997
    
    
    
    34,200
    
    
    
    65,479
    
    
    
    57,413Loss from foreign subsidiary
    
    
    248,061
    
    
    
    
    
    
    
    
    
    
    
    State income tax benefit
    
    
    (47,016
    )
    
    
    
    
    
    
    
    
    
    
    (135,800
    )Other, net
    
    
    (736,299
    )
    
    
    
    
    
    
    188,370
    
    
    
    179,100Income tax (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
  Year of
    
    Capital Loss
    
    
    NOL
    
    
    TotalExpiration
    
    Carryover
    
    
    Carryover
    
    
    Carryover2014
    
    $
    90,400
    
    
    $
    0
    
    
    $
    90,4002021
    
    
    
    
    
    
    5,438
    
    
    
    5,4382022
    
    
    
    
    
    
    3,438,195
    
    
    
    3,438,1952023
    
    
    
    
    
    
    14,695
    
    
    
    14,6952024
    
    
    
    
    
    
    4,031,488
    
    
    
    4,031,4882025
    
    
    
    
    
    
    1,055,115
    
    
    
    1,055,1152026
    
    
    
    
    
    
    3,066,650
    
    
    
    3,066,6502027
    
    
    
    
    
    
    2,934,007
    
    
    
    2,934,0072028
    
    
    
    
    
    
    1,830,649
    
    
    
    1,830,649$
    90,400
    
    
    $
    16,376,237
    
    
    $
    16,466,637
 11. Debentures
       F-20




---



##### 



February 2006
    
    
    August 2006
    
    
    June 2007Debenture
    
    
    Debenture
    
    
    Debenture
    
    
    August 2006
    
    
    June 20072006 A
    
    
    2006 B
    
    
    2007 A
    
    
    Warrant
    
    
    Warrant
    
    
    TotalFace amount
    
    $
    4,000,000
    
    
    $
    4,000,000
    
    
    $
    2,750,000
    
    
    
    
    
    
    
    
    
    
    $
    10,750,000Less: Cost of issuance
    
    
    (520,000
    )
    
    
    (569,863
    )
    
    
    (282,491
    )
    
    
    
    
    
    
    
    
    
    
    (1,372,354
    )Net proceeds
    
    $
    3,480,000
    
    
    $
    3,430,137
    
    
    $
    2,467,509
    
    
    
    
    
    
    
    
    
    
    $
    9,377,646Value of derivative
liability at issue
date
    
    $
    3,331,544
    
    
    $
    2,298,787
    
    
    $
    2,335,962
    
    
    $
    154,863
    
    
    $
    92,486
    
    
    $
    8,213,642Gain (Loss) of value
of derivative liability
    
    
    (585,631
    )
    
    
    679,818
    
    
    
    35,441
    
    
    
    (142,833
    )
    
    
    (74,646
    )
    
    
    (87,851
    )Converted debt
    
    
    (349,071
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (349,071
    )Gain on sale of debt
    
    
    2,396,842
    
    
    
    2,978,605
    
    
    
    2,371,403
    
    
    
    12,030
    
    
    
    17,840
    
    
    
    7,776,720Face amount
    
    $
    4,000,000
    
    
    $
    4,000,000
    
    
    $
    2,750,000
    
    
    
    
    
    
    
    
    
    
    $
    10,750,000Less debentures
converted
    
    
    (190,000
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (190,000
    )(3,810,000
    )
    
    
    (4,000,000
    )
    
    
    (2,750,000
    )
    
    
    
    
    
    
    
    
    
    
    (10,560,000
    )Debt discount
    
    
    3,331,544
    
    
    
    2,298,787
    
    
    
    2,335,962
    
    
    
    
    
    
    
    
    
    
    
    7,966,293Less amortization
of discount
    
    
    (2,342,237
    )
    
    
    (1,183,450
    )
    
    
    (618,598
    )
    
    
    
    
    
    
    
    
    
    
    (4,144,285
    )Converted debt
    
    
    (63,413
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (63,413
    )(925,894
    )
    
    
    (1,115,337
    )
    
    
    (1,717,364
    )
    
    
    
    
    
    
    
    
    
    
    (3,758,595
    )Finance costs
    
    
    520,000
    
    
    
    569,863
    
    
    
    282,486
    
    
    
    
    
    
    
    
    
    
    
    1,372,349Less amortization of
costs
    
    
    (339,320
    )
    
    
    (293,375
    )
    
    
    (74,806
    )
    
    
    
    
    
    
    
    
    
    
    (707,501
    )Converted debt
    
    
    (24,720
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (24,720
    )Loss of sale of debt
    
    
    (155,960
    )
    
    
    (276,488
    )
    
    
    (207,680
    )
    
    
    
    
    
    
    
    
    
    
    (640,128
    )Net gain on sale of
debt
    
    $
    1,314,988
    
    
    $
    1,586,780
    
    
    $
    446,359
    
    
    $
    12,030
    
    
    $
    17,840
    
    
    $
    3,377,997
 12. Long-Term Debt
  June 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Safety Promissory Note payable
due in monthly installments of
$38,296 including interest at
5.22% until March 2012, when
the unpaid balance is due,
collateralized by equipment
with an original
cost of $1,993,212
    
    $
    1,452,342
    
    
    $
    1,794,853
    
    
    $
    Safety Promissory Note payable
due in monthly installments of
$20,870 including interest at
5.85% until May 2011, when the
unpaid balance is due,
collateralized by equipment
with an original
cost of $648,000
    
    
    576,693
    
    
    
    769,568
    
    
    
    Safety Revolving Line of Credit
    
    
    512,000
    
    
    
    2,365,935
    
    
    
    
  F-21




---



##### 



June 30,
    
    
    June 30,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Nexus vehicle
purchase
obligations, due in
aggregate monthly
installments of
approximately
$5,200 including
interest ranging
from 7.24% to 12%
until December
2014,
collateralized by
vehicles with an
original cost of
approximately $248,000
    
    
    106,545
    
    
    
    115,234
    
    
    
    149,661Other notes payable
    
    
    20,708
    
    
    
    65,830
    
    
    
    57,346Total notes payable
    
    
    2,668,288
    
    
    
    5,111,420
    
    
    
    207,007Less current portion
    
    
    (1,247,016
    )
    
    
    (647,576
    )
    
    
    (72,319
    )Long term portion
    
    $
    1,421,272
    
    
    $
    4,463,844
    
    
    $
    134,688
       Year End June 30,2010
    
    $
    1,247,0162011
    
    
    787,0852012
    
    
    626,7542013
    
    
    4,9482014
    
    
    2,485Total
    
    $
    2,668,288
 13. Series F Preferred Stock
  14. Series G Preferred Stock
   F-22




---



##### 



15. Series H Preferred Stock
  16. Series I Preferred Stock
  17. Stock Options
 Stock Options Awarded Under the 2005 Plan
    F-23




---



##### 



Stock Options Awarded Under the 2008 Plan
   Stock Options Awarded Outside of Approved Plans
          F-24




---



##### 



June 2009
    
    
    June 2008
    
    
    December 2007Weighted Average
    
    
    
    
    
    
    Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise
    
    
    Grant Date
    
    
    
    
    
    
    Exercise
    
    
    Grant Date
    
    
    
    
    
    
    Price
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Exercise
    
    
    Fair ValueOutstanding at
beginning of Year
    
    
    9,560,000
    
    
    $
    0.103
    
    
    $
    0.107
    
    
    
    9,660,000
    
    
    $
    0.103
    
    
    $
    0.107
    
    
    
    9,660,000
    
    
    $
    0.098
    
    
    $
    0.111Granted
    
    
    73,850,000
    
    
    
    0.050
    
    
    
    0.036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,239,210
    
    
    
    0.161
    
    
    
    Exercised
    
    
    7,673,986
    
    
    
    0.050
    
    
    
    0.036
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    (66,640
    )
    
    
    0.050
    
    
    
    0.036
    
    
    
    (100,000
    )
    
    
    0.140
    
    
    
    
    
    
    
    (1,239,210
    )
    
    
    0.140
    
    
    
    Outstanding at end
of year
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049
    
    
    
    9,560,000
    
    
    $
    0.103
    
    
    $
    0.107
    
    
    
    9,660,000
    
    
    $
    0.103
    
    
    $
    0.107Options exercisable
at year end
    
    
    47,992,293
    
    
    $
    0.060
    
    
    $
    0.050
    
    
    
    8,855,073
    
    
    $
    0.101
    
    
    $
    0.095
    
    
    
    7,410,600
    
    
    $
    0.100
    
    
    $
    0.097
    18. Common Stock Warrants
     19. Reverse Stock Split
   F-25




---



##### 



20. Fair Value Measurements
       21. Business Segments
   F-26




---



##### 



Holding
    
    
    Services
    
    
    Products
    
    
    ServicesHomeland Security Capital Corporation
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Nexus )
    
    
    (PMX.)
    
    
    (Safety)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    6,462,511
    
    
    $
    2,269,958
    
    
    $
    70,757,040
    
    
    $
    79,489,509Gross margin
    
    
    
    
    
    
    1,658,522
    
    
    
    92,477
    
    
    
    9,931,852
    
    
    
    11,682,851Operating expenses
    
    
    4,091,993
    
    
    
    1,111,156
    
    
    
    284,626
    
    
    
    8,243,972
    
    
    
    13,731,747Depreciation expense
    
    
    7,593
    
    
    
    43,116
    
    
    
    
    
    
    
    1,235,047
    
    
    
    1,285,756Other expenses  net
    
    
    (5,396,764
    )
    
    
    (4,058
    )
    
    
    
    
    
    
    (795,173
    )
    
    
    (6,195,995
    )Net (loss) income
from continuing
operations
    
    
    (9,496,350
    )
    
    
    500,192
    
    
    
    (192,149
    )
    
    
    (342,340
    )
    
    
    (9,530,647
    )Current assets
    
    
    413,578
    
    
    
    2,279,900
    
    
    
    748,580
    
    
    
    16,890,714
    
    
    
    20,332,772Total assets
    
    
    631,412
    
    
    
    2,250,198
    
    
    
    748,580
    
    
    
    28,954,567
    
    
    
    32,838,757Interest expense
    
    
    1,717,435
    
    
    
    17,780
    
    
    
    
    
    
    
    276,776
    
    
    
    2,011,991Capital expenditures
    
    
    
    
    
    
    61,165
    
    
    
    
    
    
    
    737,979
    
    
    
    799,144
  Holding
    
    
    Services
    
    
    Products
    
    
    ServicesHomeland Security Capital Corporation
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Nexus )
    
    
    (PMX.)
    
    
    (Safety)(1)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    2,259,837
    
    
    $
    
    
    
    $
    20,894,413
    
    
    $
    23,154,250Gross margin
    
    
    
    
    
    
    268,950
    
    
    
    
    
    
    
    3,718,997
    
    
    
    3,987,947Operating expenses
    
    
    768,495
    
    
    
    1,128,902
    
    
    
    200,313
    
    
    
    3,196,860
    
    
    
    5,294,570Depreciation expense
    
    
    4,600
    
    
    
    36,862
    
    
    
    
    
    
    
    150,606
    
    
    
    192,068Other income
(expenses)  net
    
    
    1,419,904
    
    
    
    (12,684
    )
    
    
    
    
    
    
    (167,903
    )
    
    
    1,239,317Net income (loss)
from continuing
operations
    
    
    646,809
    
    
    
    (907,996
    )
    
    
    (201,815
    )
    
    
    203,628
    
    
    
    (259,374
    )Current assets
    
    
    818,658
    
    
    
    1,887,241
    
    
    
    3,331
    
    
    
    18,369,039
    
    
    
    21,078,269Total assets
    
    
    3,366,471
    
    
    
    2,154,274
    
    
    
    3,331
    
    
    
    29,372,619
    
    
    
    34,896,695Interest expense
    
    
    715,146
    
    
    
    14,188
    
    
    
    
    
    
    
    153,024
    
    
    
    882,358Capital expenditures
    
    
    
    
    
    
    31,468
    
    
    
    
    
    
    
    539,872
    
    
    
    571,340
 (1)
    
    Reflects March 1, 2008 through June 30, 2008  22. Loss Per Share
    F-27




---



##### 



June 30,June 30,
    
    
    June 30,
    
    
    2007
    
    
    December 31,2009
    
    
    2008
    
    
    (unaudited)
    
    
    2007Basic and Diluted Earnings Per Share:Income (Numerator)Loss from continuing operations
    
    $
    (9,530,647
    )
    
    $
    (259,374
    )
    
    $
    (2,555,391
    )
    
    $
    (4,585,999
    )Less: Warrants associated with the Series
H Preferred Stock
    
    
    
    
    
    
    (73,620
    )
    
    
    
    
    
    
    Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (14,724
    )
    
    
    (2,740,540
    )
    
    
    
    
    
    
    Less: Series I Preferred Stock beneficial
conversion feature
    
    
    (600,000
    )
    
    
    (720,000
    )
    
    
    
    
    
    
    Less: Preferred stock dividends
    
    
    (1,468,274
    )
    
    
    (400,833
    )
    
    
    
    
    
    
    $
    (11,613,645
    )
    
    $
    (4,194,367
    )
    
    $
    (2,555,391
    )
    
    $
    (4,585,999
    )Income from discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,959,218
    )
    
    
    1,634,733Net loss attributable to common
stockholders
    
    
    (11,613,645
    )
    
    
    (4,194,367
    )
    
    
    (4,514,609
    )
    
    
    (2,951,266
    )Shares (Denominator)Weighted-average number of common shares
 Basic and Diluted
    
    
    47,664,614
    
    
    
    48,819,354
    
    
    
    41,755,250
    
    
    
    43,043,114Earnings per Common Share: Basic and
DilutedLoss from continuing operations
    
    $
    (0.24
    )
    
    $
    (0.09
    )
    
    $
    (0.06
    )
    
    $
    (0.11
    )Income (loss) from discontinued operations
    
    
    
    
    
    
    
    
    
    $
    (0.05
    )
    
    $
    0.04Basic and diluted earnings per share
    
    $
    (0.24
    )
    
    $
    (0.09
    )
    
    $
    $(0.11
    )
    
    $
    0.07
  23. Cash Flows
  Six MonthsSix Months
    
    
    EndedYear Ended
    
    
    Ended
    
    
    June 30,
    
    
    Year EndedJune 30,
    
    
    June 30,
    
    
    2007
    
    
    December 31,2009
    
    
    2008
    
    
    (unaudited)
    
    
    2007Cash paid during the year for:Interest
    
    $
    294,556
    
    
    $
    165,711
    
    
    $
    309,272
    
    
    $
    345,620Supplemental disclosure of noncash
activity:Preferred Stock released from escrow
    
    $
    2,023,877
    
    
    $
    
    
    
    
    
    
    
    $
    Common Stock acquired with notes
payable
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    Temporary impairment on securities
available for sale
    
    
    1,863,253
    
    
    
    1,191,374
    
    
    
    
    
    
    
    332,476Dividends accrued on Preferred
Stock
    
    
    1,468,274
    
    
    
    400,840
    
    
    
    
    
    
    
    Dividends paid with Preferred Stock
    
    
    14,724
    
    
    
    
    
    
    
    
    
    
    
    Dividends recognized from
beneficial conversion feature
    
    
    
    
    
    
    3,460,540
    
    
    
    
    
    
    
    Issuance of stock warrants
    
    
    
    
    
    
    148,652
    
    
    
    
    
    
    
    Debentures converted to Preferred
Stock
    
    
    
    
    
    
    3,810,000
    
    
    
    
    
    
    
    Debentures converted to Common Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    536,076Preferred Stock converted to Common
Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,192
  F-28




---



##### 



24. Commitments and Contingencies
 Leases
  OperatingYear Ending June 30,
    
    Leases2010
    
    $
    698,3392011
    
    
    455,0302012
    
    
    366,2642013
    
    
    344,0282014
    
    
    344,028Thereafter
    
    
    1,347,443Total
    
    
    3,555,133
  Commitments
  Licenses and Royalties
  Claims
  25. Related Party Transactions
    F-29




---



##### 



26. Concentration of Customers and Suppliers
 Significant Customers
   Significant Suppliers
  27. Changes in Estimates
  28. Continuing Operations
   F-30




---



##### 



29. Subsequent Events
      F-31




---



##### 



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

C. Thomas McMillen,
Chief Executive Officer
    
    March 31,
2011/s/ Michael T. Brigante

Michael T. Brigante,
Vice President and Chief Financial Officer
    
    March 31,
2011
  Signature
    
    Title
    
    Date/s/ C. Thomas McMillen

C. Thomas McMillen
    
    Chief Executive Officer and
Chairman of the Board
(Principal Executive Officer)
    
    March 31, 2011/s/ Michael T. Brigante

Michael T. Brigante
    
    Vice President and Chief
Financial Officer
(Principal Accounting Officer)
    
    March 31, 2011/s/ Christopher P. Leichtweis

Christopher P. Leichtweis
    
    President and Director
    
    March 31, 2011/s/ Brian C. Griffin

Brian C. Griffin
    
    Director
    
    March 31, 2011/s/ Zev E. Kaplan

Zev E. Kaplan
    
    Director
    
    March 31, 2011/s/ Philip A. McNeill

Philip A. McNeill
    
    Director
    
    March 31, 2011