UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C.  20549




FORM
10-K




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


For the
fiscal year ended March 31, 2010


or




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


For the
transition period from _________ to _________





Commission
File Number:  001-33525




Command
Security Corporation


(Exact
name of registrant as specified in its charter)





New
      York
                                                
                                                14-1626307(State
      or other jurisdiction of incorporation or organization)
                                                
                                                (I.R.S.  Employer
      Identification No.)Lexington
      Park, Lagrangeville, New York 12540
                                                  (Address
      of principal executive offices)Registrant’s
      telephone number, including area code:  (845)
      454-3703Securities
      registered pursuant to Section 12(b) of the Act:Title
      of each class
                                                
                                                Name
      of each exchange on which registeredCommon
      Stock, par value $0.0001 per share
                                                
                                                American
      Stock
Exchange





Securities
registered pursuant to Section 12(g) of the Act:  None




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  Yes x No  ̈




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K.  x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “accelerated filer,” “large
accelerated filer” and smaller reporting company in Rule 12b-2 of the Exchange
Act.




Large
      accelerated filer  ̈
            Accelerated
      filer  ̈
            Non-accelerated
      filer x
            Smaller
      reporting company  ̈




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).  Yes  ̈ No x





The
aggregate market value of the registrant’s voting and non-voting common equity
held by non-affiliates of the registrant was $16,271,442 as of September
30, 2009.




In
determining the market value of the voting or non-voting common equity held by
non-affiliates of the registrant, securities of the registrant beneficially
owned by the directors and officers of the registrant have been
excluded.  This determination of affiliate status is not necessarily a
conclusive determination for any other purpose.




There
were 10,872,098 outstanding shares of the registrant’s common stock as of June
18, 2010.




DOCUMENTS
INCORPORATED BY REFERENCE




Certain
information required by Items 10, 11, 12, 13 and 14 of Form 10-K is incorporated
by reference into Part III hereof from the registrant’s proxy statement relating
to the registrant’s 2010 Annual Meeting of Shareholders, which is expected to be
filed with the Securities and Exchange Commission (the “SEC”) within 120 days of
the close of the registrant’s fiscal year ended March 31, 2010.





Command
Security Corporation


Annual
Report on Form 10-K


For
the Fiscal Year Ended March 31, 2010





Table
of Contents





PagePART
      IItem
      1.  Business
                    
                    1
      - 3Item
      1A.  Risk Factors
                    
                    4
      - 7Item
      1B.  Unresolved Staff Comments
                    
                    7Item
      2.  Properties
                    
                    7
      - 11Item
      3.  Legal Proceedings
                    
                    11Item
      4.  Submission of Matters to a Vote of Security
      Holders
                    
                    11PART
      IIItem
      5. Market for the Registrant's Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities
                    
                    12
      - 13Item
      6.  Selected Financial Data
                    
                    14Item
      7.  Management's Discussion and Analysis of Financial Condition
      and Results of Operations
                    
                    14
      - 22Item
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk
                    
                    22Item
      8.  Financial Statements and Supplementary Data
                    
                    23Item
      9.  Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
                    
                    23Item
      9A(T).  Controls and Procedures
                    
                    23Item
      9B.  Other Information
                    
                    23PART
      IIIItem
      10.  Directors, Executive Officers and Corporate
      Governance
                    
                    24Item
      11.  Executive Compensation
                    
                    24Item
      12.  Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
                    
                    24Item
      13.  Certain Relationships and Related Transactions, and
      Director Independence
                    
                    24Item
      14.  Principal Accounting Fees and Services
                    
                    24PART
      IVItem
      15.  Exhibits, Financial Statement Schedules
                    
                    25Signatures
                    
                    26








PART I





ITEM 1.  BUSINESS.





General





Command
Security Corporation (the “Company,” or “we”) principally provides uniformed
security officers, aviation security services and support security services to
commercial, financial, industrial, aviation and governmental customers
throughout the United States.  We provide our security services to our
customers through our security services division, our aviation services division
and our support services division.





We
provide security services to governmental, quasi-governmental, health,
educational and financial institutions, residential and commercial property
management companies, and industrial, distribution, logistics and retail
customers through our security services division.  Our security
officer services include providing armed and unarmed uniformed security
personnel for access control, mobile patrols, traffic control, security
console/system operators, fire safety directors; and communication, reception,
concierge and front desk/doorman operations.  Our security services
division generated approximately $73.0 million, or 50.1% of our revenues for our
fiscal year ended March 31, 2010.





Our
aviation services division provides aviation security services to more than 100
of the largest domestic and international airlines, airports, airport
authorities and the general aviation community at approximately twenty
international airports and, to a lesser extent, five regional
airports.  Our aviation security services include providing a variety
of uniformed services for domestic and international air carriers, including
security for airlines, aircraft, passengers and cargo; baggage screening,
wheelchair escort services featuring the Company’s proprietary SmartWheelTMtechnology, special escort services and skycap services.  Our
aviation services division generated approximately $72.5 million, or 49.7% of
our revenues for our fiscal year ended March 31, 2010.





We also
provide support services to security services firms and police departments
through our support services division.  Our support services include
providing back office support services to security services firms and police
departments under administrative service agreements.  Support services
generated approximately $0.2 million, or 0.1% of our revenues for our fiscal
year ended March 31, 2010.





Operations





We
conduct our operations through our offices located throughout the United
States.  Since March 2008, we have grown from more than 40 offices in
20 states including Arizona, California, Colorado, Connecticut, Delaware,
District of Columbia, Florida, Illinois, Maine, Maryland, Massachusetts, New
Jersey, New York, Oregon, Pennsylvania, Rhode Island, Texas,
Virginia,  Washington and West Virginia.  As a licensed
watch guard and patrol agency, our security services division provides security
officers to our customers to protect people and property and to prevent the
theft of property.  We principally conduct our security services
business by providing security officers and other personnel who are, depending
on the particular requirements of the customer, uniformed or plain-clothed,
armed or unarmed, and who patrol in marked radio cars or stand duty on the
premises at stationary posts such as fire stations, reception areas or video
monitors.  Our security officers maintain contact with their
headquarters or supervisors via car radio, hand-held radios or cell
phones.  In addition to the more traditional tasks associated with
access control and theft prevention, our security officers respond to emergency
situations and report fires, natural disasters, work accidents and medical
crises to the appropriate authorities.  We provide security officer
services to many of our industrial, commercial and residential property
management customers on a 24-hour basis, 365 days per year.  For these
customers, security officers are on hand to provide plant security, access
control, personnel security checks and traffic and parking control and to
protect against fire, theft, sabotage and safety hazards.  Our
remaining customers include retail establishments, hospitals and governmental
units.  The services provided to these customers may require armed as
well as unarmed security officers.  We also provide specialized
vehicle patrol and inspection services.  During fiscal 2010, our
security services division has been successful in obtaining significant new
security services contracts for a large banking and financial services
organization, a world leader in electronic design automation, a worldwide
technology company, one of the world’s largest banking and financial services
organizations and the world’s largest express transportation
company.





Our
aviation services division provides a variety of uniformed services for domestic
and international air carriers, including aircraft security, access control,
wheelchair escorts, skycaps, baggage handlers and uniformed security officers
for cargo security areas.  During fiscal 2010, our aviation services
division has been successful in obtaining several new airline service contracts
at existing locations and a new contract for a leading global provider in
electrical engineering and electronics.





The
nature of our business also subjects us to claims or litigation alleging that we
are liable for damages as a result of the conduct of our employees or
others.  We insure against such claims and suits through general
liability policies with third-party insurance companies.  Our
insurance coverage limits are currently $7,000,000 per occurrence for
non-aviation related business (with an additional excess umbrella policy of
$10,000,000) and $30,000,000 per occurrence for aviation related
business.  We retain the risk for the first $25,000 per occurrence on
the non-aviation related policy which includes airport wheelchair and electric
cart operations, and $5,000 on the aviation related policy except for $25,000
for damage to aircraft and $100,000 for skycap operations.


1





To ensure
that adequate protection requirements have been established prior to commencing
service to a customer, we conduct a comprehensive security assessment of the
customer's site and prepare recommendations for any required changes to existing
security programs or services.  Site assessments typically include an
examination and evaluation of perimeter controls, lighting, personnel and
vehicle identification and electronic access control, visitor controls,
electronic alarm reporting systems, safety and emergency procedures, key
controls, radio/surveillance systems and security force manning
levels.  While we prepare site assessments and issue recommendations,
the security plan and coverage requirements are ultimately determined by our
customers.





We
frequently establish offices close to our customers and delegate responsibility
and decision-making authority to our local managers.  Our managers
each play an important role with us and our customers, as highlighted by their
responsibility for both service quality and assisting with sales and marketing
efforts.  We believe that, in most situations, providing a single
individual with responsibility for service quality results in better
supervision, quality control and greater responsiveness to customer
needs.





We
generally render our security services pursuant to a standard form security
services agreement that specifies the personnel and/or equipment to be provided
by us at designated locations and the applicable rates, which typically are
hourly rates per person.  Our rates vary depending on base, overtime
and holiday time worked, and the term of engagement.  We assume
responsibility for a variety of functions, including scheduling for each
customer site, paying all security officers and providing uniforms, training,
equipment, supervision, fringe benefits and workers' compensation
insurance.  These security services agreements also provide our
customers with flexibility by permitting reduction or expansion of the security
force on relatively short notice.  We are responsible for preventing
the interruption of security services as a consequence of illness, vacations or
resignations of our security officers.  In most cases our customers
also agree not to hire any of our security personnel for at least 180 days after
the termination of the engagement.  Each security services agreement
may be terminated by our customer or us, typically with not less than thirty
days prior written notice.  We may also terminate an agreement
immediately upon default by the customer in payment of our fees, or if the
customer is involved in a bankruptcy or similar insolvency event.





We are
increasingly dependent on information technology networks and systems to
process, transmit and store electronic information.  In particular, we
depend on our information technology infrastructure for electronic
communications among our locations around the country and between our personnel
and our customers and suppliers.





We use
sophisticated electronic security and access control equipment, including modern
computerized watchkey systems and sophisticated video surveillance
equipment.  Electronic accountability technology logs officer patrols
and generates user-friendly reports for customer and internal use.





We use
state-of-the-art technology for our operational needs, and to support
efficiency, accuracy, and dependability of our general and administrative needs
and functions.  Scheduling, payroll, billing, training, inventory and
e-procurement are integrated through a third party vendor software
platform.  This software platform is used to provide financial, labor
and operations management products.





Employee
Recruitment and Training





We
believe that the high quality of our security officers is essential to our
ability to offer effective and reliable services to our customers.  We
require all selected applicants for security officer positions to undergo a
detailed pre-employment interview and a background investigation covering such
areas as past employment, education, military service, medical history and,
subject to applicable state laws, criminal and other background
searches.  Employees are selected based on a number of criteria,
including physical fitness, maturity, experience, personality, perceived
stability and reliability, among others.  We frequently conduct
medical examinations and substance abuse testing on potential
candidates.  Our security officers and other personnel supplied to our
customers are our employees, even though they may be stationed regularly at our
customer’s facilities.





We are
committed to ensuring that our staff not only meets all state and federal
requirements for training, but also our own rigorous standards in specialized
areas including:  terrorism response, CPR, first-aid, fire safety,
crowd and riot control, media interaction, public relations, crisis management
and emergency situations.  Additionally, we provide our employees with
site-specific training to meet the needs of individual industries, facilities
and customers.





We train
accepted applicants in three phases:  pre-assignment, on-the-job and
refresher training.  Pre-assignment training covers topics such as the
duties and powers of a security officer, report preparation, emergency
procedures, general orders, regulations, grounds for discharge, uniforms,
personal appearance and basic post responsibilities.  On-the-job
assignment training covers specific duties as required by the post and job
orders.  Ongoing refresher training is provided periodically as
determined by the local area supervisor and manager.





We treat
all employees and applicants for employment without unlawful discrimination as
to race, creed, color, national origin, sex, age, disability, marital status or
sexual orientation in all employment-related decisions.





Significant
Customers





For the
fiscal year ended March 31, 2010, we generated revenues of approximately
$25,177,000 from services we provided to Federal Express (“FedEx”) which
represented approximately 17% of our total revenues during such
period.   See “Management's Discussion and Analysis of Financial
Condition and Results of Operations—Liquidity and Capital
Resources—Financing.”


2





Several
of our security and aviation customers filed for protection from creditors under
applicable bankruptcy and similar laws during the past three fiscal
years.  The aviation industry continues to face various financial and
other challenges, including the cost of third-party services and fluctuation in
fuel prices.  Additional bankruptcy filings by aviation and
non-aviation customers could have a material adverse impact on our liquidity,
results of operations and financial condition.





Competition





The
security services business is labor intensive and substantially affected by the
cost of labor and by the availability of qualified personnel.  Our
ability to provide the required number of competent, trained personnel in a
timely manner is critical to retain our business, contain payroll costs and
avoid undue insurance exposure.  To satisfy these requirements, we
need to successfully manage human resources, manpower planning, quality control,
risk management, general and financial management and sales and
marketing.





Although
the majority of our contracts may be terminated by us or by our customers at our
or their discretion, we believe that we can minimize customer attrition by
adhering to basic performance standards in meeting essential customer
requirements.  While all security service companies experience
customer attrition, we have historically been successful in renegotiating
existing contracts.





Competition
in the security service business is intense.  We believe that a
customer’s selection of a company to provide security services is based
primarily on price, quality of services provided, scope of services performed,
name recognition, recruiting, training and the extent and quality of security
officer supervision.  As we have expanded our operations, we have had
to compete more frequently against larger national companies, such as Securitas
North America, the Wackenhut Corporation, AlliedBarton Security and Guardsmark,
LLC, all which have substantially greater financial and other resources,
personnel and facilities than us.  These competitors also offer a
range of security and investigative services that are at least as extensive as,
and directly competitive with, the services that we offer.  In
addition, we compete with many regional and local organizations that offer
substantially all of the services that we provide.  Although our
management believes that, particularly with respect to certain of our markets,
we enjoy a favorable competitive position because of our emphasis on customer
service, supervision and training and are able to compete on the basis of the
quality of our service, personal relationships with customers and reputation, we
cannot assure you that we will be able to continue to effectively compete with
other companies, particularly those having greater financial and other
resources, personnel and facilities.





Government
Regulation





We are
subject to local and state firearm and occupational licensing laws that apply to
security officers and private investigators.  In addition, many states
have laws requiring training and registration of security officers, regulating
the use of badges and uniforms, prescribing the use of identification cards or
badges, and imposing minimum bond, surety or insurance standards.  We
are subject to penalties and fines for licensing irregularities or the
misconduct of our security officers.  However, our management believes
we are in material compliance with all applicable laws and
regulations.





Employees





Our
business is labor intensive and is consequently affected by the availability of
qualified personnel and the cost of labor.  Although the security
services industry is characterized by high turnover, we have not experienced any
material difficulty in hiring qualified security officers.  In some
cases, when labor has been in short supply, we have been required to pay higher
wages and/or incur overtime charges.  We have approximately 5,200
employees, the majority of whom are hourly service workers, and approximately
220 of whom serve as managers, administrative employees and
executives.





Approximately
70% of our employees do not belong to a labor union.  The balance of
our employees are members of labor unions including, in particular, a number of
employees based in our New York City security services office and at our airport
offices at John F. Kennedy, La Guardia and Los Angeles airports.  Our
unionized employees work under collective bargaining agreements with the
following unions:  Allied International Union, Allied Services
Division of the Transportation Communications International Union and Special
& Superior Officers Benevolent Association.  Many of our
competitor’s employees in Los Angeles and New York City are also
unionized.  We have experienced no work stoppage attributable to labor
disputes.  We believe that our relations with our employees are
satisfactory.  The security officers and other personnel that we
provide to our customers are Company employees, even though they may be
stationed regularly at our customer's facilities.





Service
Marks





We
believe that we own the service marks “Command Security Corporation,” “CSC” and
“CSC Plus” design for security officer, detective, private investigation
services and security consulting services.





We also
believe that we own the trademarks “Smartwheel” and “Smart Tracker” for the
computer programs we use in dispatching and tracking small vehicles, such as
carts and wheelchairs at transportation terminals.  The “Smartwheel”
trademark was acquired as part our acquisition of United Security Group,
Inc.  We also believe that we own the service marks “STAIRS” and
“Smart Guard.”


3





ITEM
1A.  RISK FACTORS.





In
addition to the other information set forth in this Annual Report on Form 10-K,
you should carefully consider the following factors that could materially and
adversely affect our business, financial condition or future operating
results.  The risks described below are not the only risks facing our
Company.  Additional risks and uncertainties not currently known to us
or that we currently deem to be immaterial also may materially adversely affect
our business, financial condition or operating results.





Airline
Industry Concerns





Several
of our aviation customers filed for protection from their creditors under
applicable bankruptcy and similar laws during our past three fiscal
years.  The aviation industry continues to face various financial and
other challenges, including the cost of security and fluctuating fuel
prices.  Additional bankruptcy filings by aviation and non-aviation
customers could have a material adverse impact on our liquidity, results of
operations and financial condition.





Acquisitions





Part of
our growth strategy involves acquiring other quality security services
companies.  Our acquisition strategy entails numerous
risks.  The pursuit of acquisition candidates is expensive and may not
be successful.  Our ability to complete future acquisitions will
depend on our ability to identify suitable acquisition candidates, negotiate
acceptable terms for their acquisition and, if necessary, finance those
acquisitions, in each case, before any attractive candidates are purchased by
other parties, some of whom have substantially greater financial and other
resources than we have.  Whether or not any particular acquisition is
successfully completed, each of these activities is expensive and time consuming
and would likely require our management to spend considerable time and effort to
complete, which would detract from our management’s ability to run our current
business.  Although we may spend considerable funds and efforts to
pursue acquisitions, we may not be able to complete them.  Further,
our ability to grow through acquisitions will depend in part on whether we can
identify suitable acquisition candidates upon attractive terms, including
price.





Acquisitions
could result in the occurrence of one or more of the following
events:





·
            dilutive
      issuances of equity securities;


·
            incurrence
      of additional debt and contingent
liabilities;


·
            increased
      amortization expenses related to intangible
  assets;


·
            difficulties
      in the assimilation of the operations, technologies, services and products
      of the acquired companies; and


·
            diversion
      of management’s attention from our other business
    activities.





We
currently have no commitments or agreements with respect to any
acquisition.  Further, we cannot assure you that we will be able to
complete additional acquisitions that we believe are necessary to complement our
growth strategy on acceptable terms, or at all.  Further, if we do not
successfully integrate the operations of any companies that we have acquired or
subsequently acquire, we may not achieve the potential benefits of such
acquisitions.





Additional
Financing





We
believe that our existing funds, cash generated from operations, and existing
sources of and access to financing are adequate to satisfy our working capital,
capital expenditures and debt service requirements for the foreseeable
future.  However, we cannot assure you that this will be the case, and
we may be required to obtain additional financing to maintain and expand our
existing operations through the sale of our securities, an increase in our
credit facilities or otherwise.  The failure by us to obtain such
financing, if needed, would have a material adverse effect upon our business,
financial condition and results of operations.





Credit
and Security Agreement





Our
Credit and Security Agreement imposes operating and financial restrictions on
us, which may prevent us from capitalizing on business opportunities and taking
certain corporate actions.  These restrictions limit our ability
to:





·
            guarantee
      additional indebtedness;


·
            pay
      dividends and make distributions;


·
            make
      certain investments;


·
            repurchase
      stock;


·
            incur
      liens;


·
            transfer
      or sell assets;


·
            enter
      into sale and leaseback
transactions;


·
            merge
      or consolidate; and


·
            engage
      in a materially different line of
business.


4





These
covenants may adversely affect our ability to finance future operations or
capital needs, pursue available business opportunities or take certain corporate
actions.





Competition





Our
assumptions regarding projected results depend largely upon our ability to
retain substantially all of our current customers and obtain new
customers.  Retention is affected by several factors including, but
not limited to, regulatory limitations, the quality of the services that we
provide, the quality and pricing of comparable services offered by competitors
and continuity of our management and non-management personnel.  There
are several major national competitors with substantially greater financial and
other resources than we have and that, therefore, have the ability to provide
more attractive service, cost and compensation incentives to customers and
employees than we are able to provide.  Our ability to gain or
maintain sales, gross margins and/or employees may be limited as a result of
actions by our competitors.





Service
Contracts





Our
largest expenses are for payroll and related taxes and employee
benefits.  Most of our service contracts provide for fixed hourly
billing rates.  Competitive pressures in the security and aviation
services industries may prevent us from increasing our hourly billing rates on
contract anniversary or renewal dates.  Our profitability will be
adversely affected if we are compelled to increase the wages, salaries and
related benefits of our employees in amounts that exceed the amount that we can
pass on to our customers through increased billing rates charged under our
service contracts.





In many
cases, our security and aviation services contracts require us to indemnify our
customers or may otherwise subject us to additional liability for events
occurring on customer premises.  While we maintain insurance programs
that we believe provide appropriate coverage for certain liability risks,
including personal injury, death and property damage, the laws of many states
limit or prohibit insurance coverage for punitive damages arising from willful
or grossly negligent conduct.  Therefore, insurance may not be
adequate to cover all potential claims or damages.  If a plaintiff
brings a successful claim against us for punitive damages in excess of our
insurance coverage, then we could incur substantial liabilities that would have
a material adverse affect on our business, financial condition and results of
operations.





Staffing





Our
business involves the labor-intensive delivery of security and aviation
services.  We derive our revenues primarily from services rendered by
our hourly employees.  Our future performance depends in large part
upon our ability to attract, train, motivate and retain our skilled operational
and administrative staff.  The loss of the services of, or the failure
to recruit, the required complement of operational and administrative staff
would have a material adverse effect on our business, financial condition and
results of operations, including our ability to secure and complete security
service contracts.  Additionally, if we do not successfully manage our
existing operational and administrative staff, we may not be able to achieve the
anticipated gross margins, service quality, overtime levels and other
performance measures that are important to our business, financial condition and
results of operations.





Changes
in Accounting Standards and Taxation Requirements





New
accounting standards or pronouncements that become applicable to us and our
financial statements from time to time, and changes in the interpretation of
existing standards and pronouncements, could have a significant effect on our
reported results for the affected periods.  We are also subject to
income and various other taxes in the numerous jurisdictions where we generate
revenues.  Increases in income or other tax rates could reduce our
after-tax results from affected jurisdictions in which we operate.





Collective
Bargaining Agreements and Organized Labor Action





Many of
our employees at our operating locations are covered by collective bargaining
agreements.  If we are unable to renew such agreements on satisfactory
terms, our labor costs could increase, which would affect our gross
margins.





The
security industry has been the subject of campaigns to increase the number of
unionized employees.  In addition, strikes or work stoppages at our
locations could impair our ability to provide required services to our
customers, which would reduce our revenues and expose us to customer
claims.  Although we believe that our relations with our employees are
satisfactory, we cannot assure you that organized labor action at one or more of
our operating locations will not occur, or that any such activities, or any
other labor difficulties at our operating locations, would not materially affect
our business, financial condition and results of operations.





Cost
Management





Our
ability to realize expectations will be largely dependent upon management and
our ability to maintain or increase gross margins, which in turn will be
determined in large part by management's ability to control our
expenses.  However, to a significant extent, certain costs are not
within the control of management, and margins may be adversely affected by a
number of items, including litigation expenses, fees incurred in connection with
extraordinary business transactions, inflation, labor unrest, increased payroll
and related costs. Our business, financial condition and results of operations
will be adversely affected if the costs associated with these items are greater
than we anticipate.


5





Collection
of Accounts Receivable





The
aviation industry in general poses a high degree of customer credit
risk.  Any default by one or more of our significant customers due to
bankruptcy or otherwise could have a material adverse impact on our liquidity,
results of operations and financial condition.





Loss
of Large Customers





Our
success depends in part upon retaining our large security and aviation services
customers.  In general, security services companies such as ours face
the risk of losing customers as a result of the expiration or termination of a
contract, or as a result of a merger or acquisition or business failure
involving our large customers, or the selection by such customers of another
provider of security services.  We generate a significant portion of
our revenues from large airline and security services customers, some of which
are experiencing substantial financial difficulties.  We cannot assure
you that we will be able to retain all or a substantial portion of our long-term
or significant customers or develop relationships with new significant customers
in the future.





Loss
of Key Management Personnel





Our
success depends to a significant extent upon the talents and efforts of our key
management personnel, several of whom have been with our company or have worked
in our industry for decades.  We have programs in place that have been
designed to motivate, reward and retain such employees, including cash bonus and
equity incentive plans.  The loss or unavailability of any such
management personnel, due to retirement, resignation or otherwise could have a
material adverse effect on our business, financial condition and results of
operations if we are unable to attract and retain highly qualified replacement
personnel on a timely basis, or at all.





Concentration
of Stock Ownership





Although
none of our directors and officers has any agreement relating to the manner in
which they will vote their shares of our common stock, such parties together own
shares representing approximately 35% of the combined voting power of our
outstanding common stock.  The concentration of ownership among these
shareholders could give them the power to influence the outcome of substantially
all matters subject to a vote of our shareholders, including mergers,
consolidations and the sale of all or substantially all of our
assets.  Such decisions may conflict with the interests of our other
shareholders.





Stock
Price Volatility





The stock
markets have experienced price and volume fluctuations that have affected and
continue to affect the market prices of equity securities of many
companies.  These fluctuations often have been unrelated or
disproportionate to the operating performance of those companies.  The
market price of our common stock may also fluctuate as a result of variations in
our operating results.  Due to the nature of our business, the market
price of the common stock may fall in response to a number of factors, some of
which are beyond our control, including:  announcements of competitive
developments by others; changes in estimates of our financial performance or
changes in recommendations by securities analysts; a loss of a major customer;
additions or departures of key management or other personnel; future sale of our
common or preferred stock; acquisitions or strategic alliances by us or our
competitors; our historical and anticipated operating results; quarterly
fluctuations in our financial and operating results; changes in market
valuations of other companies that operate in our business markets or industry
sector; and general market and economic conditions.





Information
Systems/Technology





We are
increasingly dependent on information technology networks and systems, including
the Internet, to process, transmit and store electronic
information.  In particular, we depend on our information technology
infrastructure for electronic communications among our locations around the
country and between our personnel and our customers and
suppliers.  Security breaches of this infrastructure can create
disruptions, shutdowns or unauthorized disclosure of confidential
information.  If we are unable to prevent such breaches, our
operations could be disrupted or we may suffer financial damage or loss because
of lost or misappropriated information.





Changes
in technologies that provide alternatives to security officer services or that
decrease the number of security officers required to effectively perform their
services may decrease our customers’ demand for our security officer
services.  In addition, if such technologies become available
generally for use in the industry, these technologies may be proprietary in
nature and not be available for use by us in servicing our
customers.  Even if these technologies are available for use by us, we
may not be able to successfully integrate such technologies into our business or
we may be less successful in doing so than our competitors or new entrants in
the industry.  A decrease in the demand for our security officer
services or our inability to effectively utilize such technologies may adversely
affect our business, financial condition and results of
operations.


6





Regulation





We are
subject to a large number of city, county and state occupational licensing laws
and regulations that apply to security officers.  Any liability we may
have from our failure to comply with these regulations may materially and
adversely affect our business by restricting our operations and subjecting us to
potential penalties.  If the current regulation and federalization of
pre-board screening and documentation verification services provided by us is
expanded into other areas such as general security and baggage handling at
aviation facilities, our business, financial condition and results of operations
could be materially adversely affected.  In addition, our current and
future operations may be subject to additional regulation as a result of, among
other factors, new statutes and regulations and changes in the manner in which
existing statutes and regulations are or may be interpreted.





Economic
Downturn





During
economic declines, some decisions to implement security programs and install
systems may be deferred or cancelled.  In other cases, customers may
increase their purchases of security systems because they fear more inventory
shrinkage and theft will occur due to increasing economic need.  We
are not able to accurately predict to what extent an economic slowdown will
decrease the demand for our services.  If demand for our services
decreases, then our revenues will decline and the value of your investment in
our company will be adversely affected.





Catastrophic
Events





We are
exposed to potential claims for catastrophic events, such as acts of terrorism,
or based upon allegations that we failed to perform our services in accordance
with contractual or industry standards.  Our insurance coverage limits
are currently $7,000,000 per occurrence for non-aviation related business (with
an additional excess umbrella policy of $10,000,000) and $30,000,000 per
occurrence for aviation related business.  We retain the risk for the
first $25,000 per occurrence on the non-aviation related policy that includes
airport wheelchair and electric cart operations and $5,000 on the aviation
related policy (except $25,000 for damage to aircraft and $100,000 for skycap
operations).  The Terrorism Risk Insurance Act of 2002 established a
program within the United States Department of the Treasury, under which the
federal government and the insurance industry, share the risk of loss from
future “acts of terrorism,” as defined in such Act.  We do not
currently maintain additional insurance coverage for losses arising from “acts
of terrorism.”  In addition, terrorist attacks could have a material
impact on us by increasing our insurance premium costs or making adequate
insurance coverage unavailable.





ITEM
1B.  UNRESOLVED STAFF COMMENTS.





None.





ITEM
2.  PROPERTIES.





As of
March 31, 2010, we did not own any real property.  We occupy executive
offices at Route 55, Lexington Park, Lagrangeville, New York, consisting of
approximately 6,600 square feet with a base annual rental of $105,600 under a
five-year lease expiring September 30, 2010.  We are currently in
discussions with the landlord to extend the lease term on our executive
offices.  We also lease office space at the following
locations:





Location668
      N. 44th
      Street#300Phoenix,
      AZ48521
      Warm Springs BoulevardSuite
      301-302Fremont,
      CA8939
      S. Sepulveda BoulevardSuites
      201 & 208Los
      Angeles, CA2194
      Edison AvenueSuite
      N, I & DSan
      Leandro, CA




7





2230
      S. Fairview AvenueSanta
      Ana, CA3180
      University AvenueSuites
      100San
      Diego, CANorman
      Y. Mineta San Jose Int’l Airport1661
      Airport BoulevardSan
      Jose, CASan
      Jose Int'l. Airport1400
      Coleman AvenueSuites
      D24 & D25Santa
      Clara, CA100
      N. Barrancha Avenue#900West
      Covina, CA40
      Richards Avenue3rd
      FloorNorwalk,
      CT100
      Wells Street#2ABHartford,
      CTSuite
      208 Wilson Building3511
      Silverside RoadConcord
      PlazaWilmington,
      DE3333
      South Congress AvenueDelray
      Beach, FL800
      Virginia AvenueSuite
      53Ft.
      Pierce, FL5775
      Blue Lagoon DriveSuite
      310Miami,
      FL9730
      South Western AvenueEvergreen
      Plaza Shopping CenterSuite
      237Evergreen
      Park, IL




8





21
      Cummings ParkSuite
      224Woburn,
      MA1601
      & 1605 Main StreetSpringfield,
      MA1006
      West StreetFirst
      FloorLaurel,
      MD780
      Elkridge Landing RoadSuite
      220Linthicum
      Heights, MDPortland
      International Airport1001
      Westbrook StreetPortland,
      ME310
      Morris AvenueElizabeth,
      NJ1767
      Morris AvenueSuite
      101First
      FloorUnion,
      NJ1280
      Route 463rd
      FloorParsippany,
      NJ2204
      Morris AvenueSuite
      302, 3rd
      FloorUnion,
      NJ52
      Oswego StreetBaldwinsville,
      NY2144
      Doubleday AvenueBallston
      Spa, NY1458
      Main StreetBuffalo,
      NY




9





LaGuardia
      International AirportUnited
      Hangar #2, Rooms 328 & 329Flushing,
      NYJFK
      International Airport175-01
      Rockaway BoulevardJamaica,
      NY17
      Battery PlaceSuite
      223New
      York, NY720
      Fifth Avenue10th
      FloorNew
      York, NYTwo
      Gannett DriveSuite
      208White
      Plains, NY265
      Sunrise HighwaySuites
      41 & 44Rockville
      Centre, NY10121
      SE Sunnyside RoadSuite
      300Clackamas,
      OR29
      Bala AvenueSuite
      118Bala
      Cynwyd, PA2
      International PlazaSuite
      242Philadelphia,
      PAPittsburgh
      International Airport1000
      Airport BoulevardTicketing
      Level of the Landside Terminal BuildingPittsburgh,
      PA4101
      Chain Bridge RoadFairfax,
      VA669
      Elmwood AvenueSuite
      B-4Providence,
      RI




10





1250Capital of Texas Highway
      SouthBuilding
      III, Suite 400Austin,
      TXSeattle-Tacoma
      Int’l. Airport17801
      International BoulevardMain
      Terminal BuildingRoom
      MT3469BSeattle,
      WA





We
believe that our existing properties are in good condition and are suitable for
the conduct of our business.





ITEM 3.  LEGAL
PROCEEDINGS.





Except as
described below, we are not a party to any material pending legal proceedings,
other than ordinary routine litigation incidental to our business.





The
nature of our business subjects us to claims or litigation alleging that we are
liable for damages as a result of the conduct of our employees or
others.  Except for such litigation incidental to our business and
other claims or actions that are not material, there are no pending legal
proceedings to which we are a party or to which any of our property is
subject.





The
nature of our business is such that there is a significant volume of routine
claims and lawsuits against us, the vast majority of which have never led to the
award of substantial damages.  We maintain general liability and
workers’ compensation insurance coverage that we believe is appropriate to the
relevant level of risk and potential liability.  Some of the claims
brought against us could result in significant payments; however, the exposure
to us for general liability claims is limited to the first $25,000 per
occurrence on the non-aviation and airport wheelchair and electric cart
operations related claims and $5,000 per occurrence on the aviation related
claims, except $25,000 for damage to aircraft and $100,000 for skycap operations
as well as any amount in excess of the maximum coverage provided by such
policies.  Any punitive damage award would not be covered by our
general liability insurance policy.  Also, the premiums we pay under
our insurance policies may be adversely affected by an unfavorable claims
history.





ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS.





No
matters were submitted to a vote of our security holders during the last quarter
of our fiscal year ended March 31, 2010.


11





PART II





ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES.





Our
common stock was quoted on the OTC Bulletin Board Service until June 7, 2007
under the symbol “CMMD.OB.”  On June 8, 2007, our common stock began
trading on the American Stock Exchange (the “AMEX”) under the ticker symbol
“MOC.”  On October 1, 2008, NYSE Euronext completed its acquisition of
the AMEX, where our common shares were traded.  As a result of this
acquisition, our common shares are now traded on the NYSE Amex which is an
exchange-regulated market.  The NYSE Amex is regulated by
Euronext.  Shares of our common stock now trade on the NYSE Amex under
the same and previous trading symbol “MOC.”





The
following table sets forth, for the calendar periods indicated, the high and low
sales price for our common stock as reflected on the NYSE Amex for each full
quarterly period within the two most recent fiscal years.





Last Sales Price Period (1)
                  
                  Common stock market priceHigh
                  
                  
                  Low2010First
      Quarter
                  
                  $
                  3.45
                  
                  
                  $
                  2.69Second
      Quarter
                  
                  
                  3.33
                  
                  
                  
                  2.65Third
      Quarter
                  
                  
                  2.73
                  
                  
                  
                  1.89Fourth
      Quarter
                  
                  
                  2.75
                  
                  
                  
                  2.372009First
      Quarter
                  
                  $
                  4.02
                  
                  
                  $
                  2.60Second
      Quarter
                  
                  
                  3.55
                  
                  
                  
                  2.80Third
      Quarter
                  
                  
                  3.35
                  
                  
                  
                  2.53Fourth
      Quarter
                  
                  
                  3.64
                  
                  
                  
                  2.76










(1)
Reflects fiscal years ended March 31, 2010 and 2009 as indicated.





The above
quotations do not include retail mark-ups, markdowns or commissions and
represent prices between dealers and may not represent actual transactions. The
past performance of our common stock is not necessarily indicative of the price
at which it may trade in the future.





As of
June 18, 2010 there were approximately 850 holders of our common
stock.





To date,
we have neither declared nor paid any cash dividends on shares of our common
stock.  Payment of dividends on our common stock, if any, will be
within the discretion of our Board of Directors and will depend, among other
factors, on the approval of our principal lender, our earnings and capital
requirements and our operating and financial condition.  At present,
our anticipated capital requirements and growth plans are such that we intend to
follow a policy of retaining earnings, if any, to finance our business
operations and any growth in our business.


12





The graph
below compares the cumulative total shareholder return on our common shares with
the cumulative total return of (1) the Nasdaq Stock Market Index (U.S.) (the
“Nasdaq Index”) and (2) an index of publicly traded companies with a Standard
Industrial Classification Code (“SIC Code”) of between 7380 and 7389 (the “SIC
Code Index”).  This graph assumes that $100 was invested in each of
(A) shares of our common stock, (B) the Nasdaq Index and (C) the SIC Code Index
on March 31, 2003 and reflects the return through March 31, 2010 and assumes the
reinvestment of dividends, if any.  The comparisons in the graph below
are based on historical data and are not indicative of, or intended to forecast,
possible future performance of our Common Stock.











THE
INFORMATION CONTAINED IN THE STOCK PERFORMANCE GRAPH SHALL NOT BE DEEMED TO BE
“SOLICITING MATERIAL” OR TO BE FILED WITH THE SEC, NOR SHALL SUCH INFORMATION BE
INCORPORATED BY REFERENCE INTO ANY FUTURE FILING UNDER THE SECURITIES ACT OR THE
EXCHANGE ACT, EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE IT BY REFERENCE
INTO SUCH FILING.


13


ITEM 6.  SELECTED FINANCIAL
DATA.





The
financial data included in the table below has been derived from our financial
statements as of and for the fiscal years ended March 31, 2010, 2009, 2008, 2007
and 2006, which have been audited by independent certified public
accountants.  This information should be read in conjunction with
“Item 7.  Management’s Discussion and Analysis of Financial Condition
and Results of Operations” and with our consolidated financial statements and
related notes included in this Annual Report on
Form 10-K.  The dollar amounts presented below in this Item 6 are in
thousands of dollars, except for per share data.




Statements of Operations Data
                  Years Ended March 31,2010
                
                
                2009
                
                
                2008
                
                
                2007
                
                
                2006Revenues
                
                
                145,695
                
                
                
                130,813
                
                
                
                119,404
                
                
                
                98,823
                
                
                
                85,209Gross
      profit
                
                
                20,482
                
                
                
                18,664
                
                
                
                16,242
                
                
                
                13,665
                
                
                
                11,420Operating
      income
                
                
                3,704
                
                
                
                3,008
                
                
                
                2,969
                
                
                
                1,135
                
                
                
                8Net
      income (loss)
                
                
                1,632
                
                
                
                1,282
                
                
                
                2,474
                
                
                
                1,240
                
                
                
                (100
                )Income
      (loss) per common share
                
                
                .15
                
                
                
                .12
                
                
                
                .23
                
                
                
                .12
                
                
                
                (.01
                )Weighted
      average number of common shares
                
                
                10,848,375
                
                
                
                10,772,613
                
                
                
                10,733,797
                
                
                
                10,137,970
                
                
                
                8,834,952





Balance Sheet Data at March 31,2010
                  
                  
                  2009
                  
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Working
      capital
                  
                  
                  9,423
                  
                  
                  
                  7,106
                  
                  
                  
                  6,097
                  
                  
                  
                  6,514
                  
                  
                  
                  6,838Total
      assets
                  
                  
                  36,715
                  
                  
                  
                  34,265
                  
                  
                  
                  32,786
                  
                  
                  
                  25,330
                  
                  
                  
                  18,113Short-term
      debt (1)
                  
                  
                  11,112
                  
                  
                  
                  11,071
                  
                  
                  
                  8,775
                  
                  
                  
                  8,751
                  
                  
                  
                  3,475Long-term
      debt  (2)
                  
                  
                  43
                  
                  
                  
                  109
                  
                  
                  
                  18
                  
                  
                  
                  16
                  
                  
                  
                  57Stockholders'
      equity
                  
                  
                  16,783
                  
                  
                  
                  14,722
                  
                  
                  
                  13,360
                  
                  
                  
                  9,104
                  
                  
                  
                  7,625





(1)
            Our
      short-term debt includes the current maturities of long-term debt,
      obligations under capital leases and short term borrowings. See Notes 7,
      and 15, “Short-Term Borrowings” and “Commitments”, respectively, to the
      financial statements for further
discussion.





(2)
            Our
      long-term debt includes the long-term portion of obligations under capital
      leases.





ITEM
7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.





This
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with our consolidated financial
statements and related notes thereto contained in this Annual
Report.  In this discussion, the words "Company", "we", "our" and "us"
refer to Command Security Corporation.





FORWARD-
LOOKING STATEMENTS





This
section, Management's Discussion and Analysis of Financial Condition and Results
of Operations, other sections of this Annual Report on Form 10-K and other
reports and verbal statements made by our representatives from time to time may
contain forward-looking statements that are based on our assumptions,
expectations and projections about us and the security
industry.  These include statements regarding our expectations about
revenues, our liquidity, or expenses and our continued growth, among others. You
can identify these statements by forward-looking words such as “may,” “expect,”
“anticipate,” “contemplate,” “believe,” “estimate,” “intends,” and “continue” or
similar words.  You should read statements that contain these words
carefully because they:





·
            discuss
      future expectations;


·
            contain
      projections of future results of operations or financial condition;
      and


·
            state
      other “forward-looking”
information.





Such
forward-looking statements by their nature involve a degree of risk and
uncertainty.  We caution you to not to place undue reliance on these
forward-looking statements, which speak only as of the date of this Annual
Report.  We further caution you that a variety of factors, including
but not limited to the factors described under Item 1A, “Risk Factors” and the
following, could cause business conditions and our results to differ materially
from what is contained in forward-looking statements:





·
            changes
      in general economic conditions in the United States and
      abroad;


·
            changes
      in the financial condition of our
customers;


·
            legislation
      or regulatory environments, requirements or changes adversely affecting
      our business or the businesses in which our customers are
      engaged;


·
            cancellations
      and non-renewals of existing
contracts;


·
            changes
      in our estimates of costs;


14


·
            war
      and/or terrorist attacks on facilities where services are or may be
      provided;


·
            outcomes
      of pending and future litigation;


·
            increasing
      competition by other companies;


·
            changes
      in interest rates;


·
            compliance
      with our loan covenants;


·
            changing
      interpretations of GAAP;


·
            the
      general volatility of the market price of our
  securities;


·
            the
      availability of qualified
personnel;


·
            recoverability
      of claims against our customers and others by us and claims by third
      parties against us; and


·
            changes
      in estimates used in our critical accounting
  policies.





Other
factors and assumptions not identified above were also involved in the formation
of these forward-looking statements and the failure of such other assumptions to
be realized, as well as other factors, may also cause actual results to differ
materially from those projected.  Most of these factors are difficult
to predict accurately and are generally beyond our control.  You
should consider the areas of risk described above in connection with any
forward-looking statements that may be made by us.





All
forward-looking statements included herein attributable to us or any person
acting on our behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section.  We have based
the forward-looking statements included in this Annual Report on information
available to us on the date of this annual report and, except to the extent
required by applicable laws and regulations, we undertake no obligation to
update these forward-looking statements to reflect events or circumstances after
the date of this annual report or to reflect the occurrence of unanticipated
events.  Although we undertake no obligation to revise or update any
forward-looking statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional disclosures that
we make directly to you or through reports that we in the future may file with
the Securities and Exchange Commission, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.  Our
actual results could differ materially from those expressed or implied by the
forward-looking statements as a result of various factors including, but not
limited to, those presented under “Risk Factors” included in Item 1A and
elsewhere in this Annual Report.





CRITICAL
ACCOUNTING POLICIES AND ESTIMATES.





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and
liabilities.  We believe the following critical accounting policies
affect our more significant judgments and estimates used in the preparation of
our financial statements.  Actual results may differ from these
estimates under different assumptions and conditions.





Principles
of Consolidation





The
accompanying consolidated financial statements include our accounts and accounts
of our wholly-owned domestic subsidiaries.  As of December 29, 2009,
Strategic Security Services, Inc., Rodgers Police Patrol, Inc. and Command
Security Services, Inc., the Company’s three wholly-owned subsidiaries, were
merged with and into Command Security Corporation.  All significant
intercompany accounts and transactions have been eliminated in our consolidated
financial statements.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements, the disclosure of contingent assets and
liabilities, and the reported amounts of revenues and expenses during the
reporting period.  The estimates that we make include allowances for
doubtful accounts, depreciation and amortization, income tax assets and
insurance reserves.  Estimates are based on historical experience,
where applicable or other assumptions that management believes are reasonable
under the circumstances.  Due to the inherent uncertainty involved in
making estimates, actual results may differ from those estimates under different
assumptions or conditions.





Revenue
Recognition





We record
revenues as services are provided to our customers.  Revenues consist
primarily of aviation and security services, which are typically billed at
hourly rates.  These rates may vary depending on base, overtime and
holiday time worked.  Revenue for administrative services provided to
other security companies are calculated as a percentage of the administrative
service customer's revenue and are recognized when billings for the related
security services are generated.  Revenue is reported net of
applicable taxes.





Trade
Receivables





We
periodically evaluate the requirement for providing for billing adjustments
and/or credit losses on our accounts receivable.  We provide for
billing adjustments where management determines that there is a likelihood of a
significant adjustment for disputed billings.  Criteria used by
management to evaluate the adequacy of the allowance for doubtful accounts
include, among others, the creditworthiness of the customer, current trends,
prior payment performance, the age of the receivables and our overall historical
loss experience.  Individual accounts are charged off against the
allowance as management deems them as uncollectible.


15





Intangible
Assets





Intangible
assets are stated at cost and consist primarily of customer lists and borrowing
costs that are being amortized on a straight-line basis over three to ten years
and goodwill which is reviewed annually for impairment.  The life
assigned to customer lists acquired is based on management’s estimate of the
attrition rate.  The attrition rate is estimated based on historical
contract longevity and management’s operating experience.  We test for
impairment annually or when events and circumstances warrant such a review, if
sooner.  Any potential impairment is evaluated based on anticipated
undiscounted future cash flows and actual customer attrition in accordance with
FASB ASC 360, Property, Plant,
and Equipment.





Insurance
Reserves





General
liability estimated accrued liabilities are calculated on an undiscounted basis
based on actual claim data and estimates of incurred but not reported claims
developed utilizing historical claim trends.  Projected settlements
and incurred but not reported claims are estimated based on pending claims,
historical trends and data.





Workers’
compensation annual premiums are based on the incurred losses as determined at
the end of the coverage period, subject to minimum and maximum
premium.  Estimated accrued liabilities are based on our historical
loss experience and the ratio of claims paid to our historical payout
profiles.





Income
Taxes





Income
taxes are based on income (loss) for financial reporting purposes and reflect a
current tax liability (asset) for the estimated taxes payable (recoverable) in
the current year tax return and changes in deferred taxes.  Deferred
tax assets or liabilities are determined based on differences between financial
reporting and tax bases of assets and liabilities and are measured using enacted
tax laws and rates.  A valuation allowance is provided on deferred tax
assets if it is determined that it is more likely than not that the asset will
not be realized.  In the event that interest and/or penalties are
assessed in connection with our tax filings, interest will be recorded as
interest expense and penalties as selling, general and administrative
expense.





Stock Based
Compensation





FASB ASC
718, Stock
Compensation, requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values at grant date and the recognition of the related
expense over the period in which the share-based compensation
vests.  We were required to adopt the provisions of FASB ASC 718
effective July 1, 2005 and use the modified-prospective transition
method.  Under the modified-prospective transition method, we
recognize compensation expense in our financial statements issued subsequent to
the date of adoption for all share-based payments granted, modified or settled
after July 1, 2005.  The adoption of FASB ASC 718 resulted in non-cash
charges of $140,528, $172,097 and $239,900 for stock based compensation for the
years ended March 31, 2010, 2009 and 2008, respectively.





OVERVIEW





We
principally provide uniformed security officers and aviation services to
commercial, residential, financial, industrial, aviation and governmental
customers through more than 40 Company-offices in 20 states throughout the
United States.  In conjunction with providing these services, we
assume responsibility for a variety of functions, including recruiting, hiring,
training and supervising all operating personnel as well as paying such
personnel and providing them with uniforms, fringe benefits and workers’
compensation insurance.





Our
customer-focused mission is to provide the best personalized supervision and
management attention necessary to deliver timely and efficient security
solutions so that our customers can operate in safe environments without
disruption or loss.  Technology underpins our efficiency, accuracy and
dependability. We use a sophisticated software system that integrates
scheduling, payroll and billing functions, giving customers the benefit of
customized programs using the personnel best suited to the job.





Renewing
and extending existing contracts and obtaining new contracts are crucial to our
ability to generate revenues, earnings and cash flow.  In addition,
our growth strategy involves the acquisition and integration of complementary
businesses in order to increase our scale within certain geographical areas,
capture market share in the markets in which we operate and improve our
profitability.  We intend to pursue acquisition opportunities for
contract security officer businesses.  We frequently evaluate
acquisition opportunities and, at any given time, may be in various stages of
due diligence or preliminary discussions with respect to a number of potential
acquisitions.  However, we cannot assure you that we will identify any
suitable acquisition candidates or, if identified, that we will be able to
complete the acquisition of such candidates on favorable terms or at
all.





We expect
that security will continue to be a key area of focus both domestically in the
United States and internationally.


16





RESULTS OF OPERATIONS





Earnings





Our net
income for the fiscal year ended March 31, 2010 was $1,631,639.  Our
net income resulted primarily from:  (i) the commencement of security
services during the first quarter of fiscal 2010 under a new contract to provide
such services to a  major transportation company at approximately 120
locations in twenty-one states throughout the eastern and western regions of the
United States; (ii) expansion of security services provided to new and existing
customers, including several of the nation’s largest banks, a large grocery
market distribution center in California, a company that provides merchandising
and distribution services to a major grocery retailer in New Jersey, a world
leader in electronic design automation and a worldwide innovative technology
company; (iii) the acquisition of two security services businesses in Florida in
September 2008; (iv) improved margins principally in our aviation services
locations resulting from successful cost control measures including reductions
in overtime hours; and (v) lower weighted average interest rates and outstanding
borrowings under our commercial revolving loan
agreement.    The increase in net income was partially
offset by decreases in the current year period as compared with the same period
last year primarily due to:  (i) the loss of contracts for skycap,
wheelchair and cargo services previously provided to Delta Air Lines (“Delta”)
at John F. Kennedy International Airport in New York (“JFK”); (ii) reductions of
service hours for several of our airline and security services customers which
we believe is primarily resulting from a downturn in their respective
businesses; and (iii) higher workers’ compensation reserves associated with
increased potential future costs for certain existing claims.





Our net
income for the fiscal year ended March 31, 2009 was $1,281,883.  Our
net income resulted primarily from:  (i) the acquisitions of security
services businesses in Florida (September 2008) and Maryland (January 2008);
(ii) expanded security services provided to new and existing customers,
including (but not limited to) a major medical center, a New York based hospital
center, a major international commercial bank, a large grocery market
distribution center in California and a company that provides merchandising and
distribution services to a major grocery retailer in New Jersey, (iii) expanded
aviation services provided to new and existing customers at John F. Kennedy
International Airport (“JFK”) and LaGuardia Airport in New York; and (iv) lower
weighted average interest rates under our commercial revolving loan
agreement.  Net income decreased in the current year period as
compared with the same period last year primarily due to:  (i) the
loss of business at seven domestic airport locations resulting from a change in
government regulations that requires the Transportation Security Administration
(“TSA”) to provide certain document verification services that we formerly
provided at these airports; and (ii) a higher effective tax rate in the current
year period primarily resulting from the recognition of deferred tax assets in
the prior fiscal year.





Revenues





Our
revenues for the fiscal year ended March 31, 2010 increased by $14,881,386, or
11.4%, to $145,694,630 from $130,813,244 in fiscal 2009.  The increase
was due mainly to:  (i) the commencement of security services during
the first quarter of fiscal 2010 under a new contract to provide such services
to a major transportation company at approximately 120 locations in twenty-one
states throughout the eastern and western regions of the United States that
generated additional aggregate revenues of approximately $23,300,000 during such
period,  (ii) expansion of security services provided to new and
existing customers, including several of the nation’s largest banks, a large
grocery market distribution center in California, a company that provides
merchandising and distribution services to a major grocery retailer in New
Jersey, a world leader in electronic design automation and a worldwide
innovative technology company resulting in additional aggregate revenues of
approximately $5,500,000; and (iii) the acquisition of two security services
businesses in Florida in September 2008 that generated aggregate revenues of
approximately $1,450,000.  The increase in our revenues was partially
offset by:  (i) the loss of revenues associated with skycap,
wheelchair and cargo services previously provided to Delta at JFK of
approximately $7,400,000; (ii) reduced demand for our services from several of
our airline customers that we believe is primarily related to trends in the
aviation industry toward reduced capacity, which resulted in reductions of
service hours that we provided to such carriers and a corresponding reduction of
revenues from such carriers or an aggregate of approximately $3,400,000; and
(iii) reductions in service hours for several of our security services customers
which we believe is principally attributable to current economic conditions
affecting their businesses.





Our
revenues for the fiscal year ended March 31, 2009 increased by $11,409,379, or
9.6%, to $130,813,244 from $119,403,865 in fiscal 2008.  The increase
was primarily due to:  (i) expanded security services provided to new
and existing customers, including, but not limited to, a major medical center, a
New York based hospital center, a major international commercial bank, a large
grocery market distribution center in California and a company that provides
merchandising and distribution services to a major grocery retailer in New
Jersey, resulting in additional aggregate revenues of approximately $9,000,000;
(ii) the acquisitions of security services businesses in Florida (September
2008) and Maryland (January 2008), which generated aggregate revenues of
approximately $3,500,000; and (iii) expanded aviation services to new and
existing customers at our terminal operations at Los Angeles International
Airport in California and JFK and LaGuardia Airport in New York, which generated
additional aggregate revenues of approximately $3,400,000.  The
increase in revenues was partially offset by:  (i) the loss of
revenues at seven domestic airport locations of approximately $2,800,000
resulting from a change in government regulations that requires the TSA to
provide certain document verification services that we formerly provided at
these airports; and (ii) several of our airline customers continuing to reduce
capacity within their systems which resulted in reductions of service hours that
we provided to such carriers.


17





Gross
Profit





Our gross
profit for the fiscal year ended March 31, 2010 increased by $1,818,192, or
9.7%, to $20,482,410 (14.1% of revenues), from $18,664,218 (14.3% of revenues)
for fiscal 2009.  The increase was due mainly to:  (i) the
commencement of security services during the first quarter of fiscal 2010 under
a new contract to provide such services to a  major transportation
company throughout the eastern and western regions of the United States as
described above; (ii) expanded security services provided to new and existing
customers as described above; (iii) the acquisition of two security services
businesses in Florida in September 2008; and (iv) improved margins principally
in our aviation services locations resulting from successful cost control
measures including reductions in overtime hours.    The
increase in gross profit was partially offset by:  (i) the loss of
Delta skycap, wheelchair and cargo services at JFK as noted above; (ii)
reductions of service hours for several of our airline and security services
customers which we believe is primarily resulting from a downturn in their
respective businesses; and (iii) higher workers’ compensation reserves
associated with increased potential future costs for certain existing
claims.





Our gross
profit for the fiscal year ended March 31, 2009 increased by $2,421,941, or
14.9%, to $18,664,218 (14.3% of revenues), from $16,242,277 (13.6% of revenues)
for fiscal 2008.  The increase resulted primarily from:  (i)
the acquisitions of security services businesses in Florida (September 2008) and
Maryland (January 2008); (ii) expanded security services provided to new and
existing customers as described above; and (iii) expanded aviation services
provided to new and existing customers at JFK and LaGuardia Airport in New
York.  The increase in our gross profit was partially offset by the
loss to the TSA of certain document verification services and airline capacity
reductions, described above.





We have
an insurance policy covering workers’ compensation claims in States in which we
perform services.  Estimated accrued liabilities are based on our
historical loss experience and the ratio of claims paid to our historical payout
profiles.  Charges for estimated workers’ compensation related losses
incurred and included in cost of sales were $2,870,685, $1,656,742 and
$1,609,009, for the fiscal years ended March 31, 2010, 2009 and 2008,
respectively.





The
nature of our business also subjects us to claims or litigation alleging that we
are liable for damages as a result of the conduct of our employees or
others.  We insure against such claims and suits through general
liability policies with third-party insurance companies.  Our
insurance coverage limits are currently $7,000,000 per occurrence for
non-aviation related business (with an additional excess umbrella policy of
$10,000,000) and $30,000,000 per occurrence for aviation related
business.  We retain the risk for the first $25,000 per occurrence on
the non-aviation related policy which includes airport wheelchair and electric
cart operations, and $5,000 on the aviation related policy except for $25,000
for damage to aircraft and $100,000 for skycap operations.  Estimated
accrued liabilities are based on specific reserves in connection with existing
claims as determined by third party risk management consultants and actuarial
factors and the timing of reported claims.  These are all factored
into estimated losses incurred but not yet reported to us.





General
and Administrative Expenses





Our
general and administrative expenses for the fiscal year ended March 31, 2010
increased by $979,038 to $16,330,059 (11.2% of revenues), from $15,351,021
(11.7% of revenues) in fiscal 2009.  The increase in general and
administrative expenses resulted primarily from higher:  (i)
administrative payroll and related costs of approximately $814,000 associated
primarily with expanded operations, including the acquisitions in Florida and
new contract awards noted above, additional investment in our sales and
marketing group and the hiring of our Chief Executive Officer; (ii) facility and
related office costs; (iii) insurance related costs and (iv) amortization costs
associated with the acquisitions in Florida in September 2008, noted
above.





Our
general and administrative expenses for the fiscal year ended March 31, 2009
increased by $1,925,859 to $15,351,021 (11.7% of revenues), from $13,425,162
(11.2% of revenues) in fiscal 2008. The increase in general and administrative
expenses resulted primarily from higher:  (i) administrative payroll
and related costs of approximately $1,800,000 associated primarily with expanded
operations, including the acquisitions in Florida and Maryland noted above,
additional investment in our sales and marketing group and the addition of a
Chief Executive Officer; (ii) professional and related fees and (iii) insurance
related costs.  The increase in our general and administrative
expenses was partially offset by reductions of approximately $140,000 resulting
mainly from:  (i) lower stock compensation costs; and (ii) the absence
in the current year period of expenses associated with our initial listing of
our common shares on the American Stock Exchange in fiscal 2008.





Provision
for Doubtful Accounts





The
provision for doubtful accounts for the fiscal year ended March 31, 2010
increased by $108,014 to $455,194, compared with $347,180 in fiscal
2009.  The increase is due mainly to an additional bad debt charge of
$150,000 recorded in the fourth quarter of fiscal 2010 in connection with a
large medical center customer located in the New York Metropolitan area that
filed for protection under Chapter 11 of the bankruptcy code in April
2010.





The
provision for doubtful accounts for the fiscal year ended March 31, 2009
decreased by $12,495 to $347,180, compared with $359,675 in fiscal
2008.  The decrease was due mainly to the timing and amounts of
uncollectible accounts charged and/or credited to expense between the current
and prior year periods.





We
periodically evaluate the requirement for providing for billing adjustments
and/or credit losses on our accounts receivable.  We provide for
billing adjustments where our management determines that there is a likelihood
of a significant adjustment for disputed billings.  Criteria used by
management to evaluate the adequacy of the allowance for doubtful accounts
include, among others, the creditworthiness of the customer, current trends,
prior payment performance, the age of the receivables and our overall historical
loss experience.  Individual accounts are charged off against the
allowance as management deems them as uncollectible.  We do not know
if bad debts will increase in future periods nor does our management believe
that the decrease during the fiscal year ended March 31, 2010 compared with the
same period of the prior year is necessarily indicative of a
trend.


18





Bad
Debt Recoveries





Bad debt
recoveries for the fiscal year ended March 31, 2010 decreased by $34,530 to
$7,094, from $41,624 in fiscal 2009 due mainly to the timing of recoveries
related to accounts receivable previously recorded as bad debts.





Bad debt
recoveries for the fiscal year ended March 31, 2009 decreased by $469,969 to
$41,624, from $511,593 in fiscal 2008 due mainly to the absence in the current
year period of a recovery of approximately $412,000 related primarily to the
stock that we received under our claim related to the bankruptcy filing of
Northwest Airlines.





Interest
Income





Interest
income for the fiscal year ended March 31, 2010 principally represents interest
earned on cash balances.  Interest income in fiscal 2010 decreased as
a result of lower weighted average trust fund balances due to payments on
related workers’ compensation claims, as well as a reduction in the rate at
which interest accrues on such balances.





Interest
income for the fiscal year ended March 31, 2009 principally represents interest
earned on:  (i) cash balances and (ii) trust funds for potential
future workers’ compensation claims.  Interest income in fiscal 2009
decreased as a result of lower trust fund balances due to favorable trending for
potential future workers’ compensation claims, as well as a reduction in the
rate at which interest accrues on such balances.





Interest
Expense





Interest
expense for the fiscal year ended March 31, 2010 decreased by $62,027 to
$452,426, from $514,453 in fiscal 2009.  The decrease is due mainly to
lower weighted average interest rates which were partially offset by higher
weighted average outstanding borrowings under our commercial revolving loan
agreement.





Interest
expense for the fiscal year ended March 31, 2009 decreased by $269,216 to
$514,453, from $783,669 in fiscal 2008.  The decrease is due mainly to
lower weighted average interest rates under our commercial revolving loan
agreement.





Equipment
Dispositions





Equipment
dispositions are a result of the sale of vehicles, office equipment and security
equipment at prices above or below book value.





The
$3,504 gain on equipment dispositions for the fiscal year ended March 31, 2010
was primarily due to the disposition of Company vehicles at amounts in excess of
their respective book values.





The
$24,803 gain on equipment dispositions for the fiscal year ended March 31, 2009
was primarily due to the disposition of Company vehicles at amounts in excess of
their respective book values.





Provision
for Income Taxes





Provision
for income taxes for the fiscal year ended March 31, 2010 increased by $361,561
to $1,625,700 from $1,264,139 in fiscal 2009 due mainly to an increase in our
pre-tax earnings in the current year period.   We have determined
based on our expectations for the future that it is more likely than not that
future taxable income will be sufficient to utilize fully the net deferred tax
assets at March 31, 2010 and 2009.





Provision
for income taxes for the fiscal year ended March 31, 2009 increased $1,424,139
to $1,264,139 from a tax benefit of $160,000 in fiscal 2008 due mainly to a
higher effective tax rate in the current year period and the recognition of
deferred tax assets in the prior year period.





LIQUIDITY
AND CAPITAL RESOURCES





We pay
employees and administrative service customers on a weekly basis, while
customers pay for services generally within 60 days after billing by
us.  In order to fund our payroll and operations, we maintain a
commercial revolving loan arrangement, currently with Wells Fargo, to fund our
payroll and operations.





Our
principal use of short-term borrowings is for carrying accounts
receivable.  Our short-term borrowings have supported the increase in
accounts receivable associated with our ongoing expansion and organic
growth.  We intend to continue to use our short-term borrowings to
support our working capital requirements.





We
believe that our existing funds, cash generated from operations, and existing
sources of and access to financing are adequate to satisfy our working capital,
capital expenditure and debt service requirements for the foreseeable
future.  However, we cannot assure you that this will be the case, and
we may be required to obtain alternative or additional financing to maintain and
expand our existing operations through the sale of our securities, an increase
in our credit facilities or otherwise.  The failure by us to obtain
such financing, if needed, would have a material adverse effect upon our
business, financial condition and results of operations.


19


CIT
Revolving Loan





Until
March 21, 2006, we were parties to a financing agreement (the “Agreement”) with
CIT that had a term of 3 years ending December 12, 2006 and provided for
borrowings in an amount up to 85% of our eligible accounts receivable, as
defined in the Agreement, but in no event more than $15,000,000.  The
Agreement also provided for advances against unbilled revenue (primarily monthly
invoiced accounts) although this benefit was offset by a reserve against all
outstanding payroll checks.  Borrowings under the Agreement bore
interest at the prime rate (as defined in the Agreement) plus 1.25% per annum on
the greater of:  (i) $5,000,000 or (ii) the average of the net
balances owed by us to CIT in the loan account at the close of each day during
the applicable month for which interest was calculated.  Costs to
close the loan totaled $279,963 and were amortized over the three year life of
the Agreement, as extended (see below).





On March
22, 2006, we entered into an Amended and Restated Financing Agreement with CIT
(the “Amended and Restated Agreement”), which provided for borrowings as noted
above, but in no event more that $12,000,000.  The Amended and
Restated Agreement provided for a letter of credit sub-line in an aggregate
amount of up to $1,500,000.  Under the Amended and Restated Agreement,
letters of credit were subject to a two percent (2%) per annum fee on the face
amount of each letter of credit.  The Amended and Restated Agreement
provided for interest to be calculated on the outstanding principal balance of
the revolving loans at the prime rate (as defined in the Amended and Restated
Agreement) plus .25%, if our EBITDA (as defined in the Amended and Restated
Agreement) was equal to or less than $500,000 for the most recently completed
fiscal quarter; otherwise, the outstanding principal balance bore interest at
the prime rate.  For LIBOR loans, interest was calculated on the
outstanding principal balance of the LIBOR loans at the LIBOR rate (as defined
in the Amended and Restated Agreement) plus 2.75%, if our EBITDA was equal to or
less than $500,000 for the most recently completed fiscal quarter; otherwise,
the outstanding principal balance bore interest at the LIBOR rate plus
2.50%.





On April 12, 2007, we entered into an
amendment to the Amended and Restated Agreement (“the Amended
Agreement”).  Under the Amended Agreement, the aggregate amount that
we could borrow from CIT under the credit facility was increased from
$12,000,000 to $16,000,000, and CIT also provided us with a $2,400,000
acquisition advance to fund the cash requirements associated with the
acquisition of a security services business.  Further, the Amended
Agreement extended of the maturity date of this credit facility to December 12,
2008, reduced certain fees and availability reserves and increased the letter of
credit sub-line to an aggregate amount of up to $3,000,000.  Under the
Amended Agreement, letters of credit were subject to a one and three-quarters
percent (1.75%) per annum fee on the fact amount of each letter of
credit.  The Amended Agreement provided that interest was calculated
on the outstanding principal balance of the revolving loans at the prime rate
(as defined in the Amended Agreement) less .25%.  For LIBOR loans,
interest was calculated on the outstanding principal balance of the LIBOR loans
at the LIBOR rate (as defined in the Amended Agreement) plus
2.0%.





On
October 10, 2008, we amended the Amended Agreement to extend the maturity date
of the CIT credit facility to December 31, 2008 and to reduce the written notice
period required to terminate the Amended Agreement from 60 days to 30
days.





On
November 24, 2008, we amended the Amended Agreement to extend the maturity date
of the CIT credit facility to March 31, 2009.  The amendment also
provided for interest to be calculated on the outstanding principal balance of
the revolving loans at the prime rate (as defined in the Amended Agreement) plus
3.50%.  For LIBOR loans, interest will be calculated on the
outstanding principal balance of the LIBOR loans at the LIBOR rate (as defined
in the Amended Agreement) plus 3.50%.  In addition, the Company agreed
to pay CIT a fee (the “Amendment Fee”) in consideration for the extension
provided to the Company under this amendment in the amount of
$20,000.  The Amendment Fee was payable as follows:  (i) If
the Obligations (as defined in the Amended Agreement) were paid in full on or
before January 31, 2009, the entire Amendment Fee shall be forgiven; (ii) If the
Obligations (as defined in the Amended Agreement) were not paid on or before
January 31, 2009, a portion of the Amendment Fee in the amount of $7,500 must be
paid on or before February 1, 2009; (iii) If the Obligations (as defined in the
Amended Agreement) were paid in full on or before February 27, 2009, then the
unpaid balance of the Amendment Fee shall be forgiven; and (iv) If the
Obligations (as defined in the Amended Agreement) were not paid on or before
February 27, 2009, then the unpaid balance of the Amendment Fee must be paid on
or before March 2, 2009.





Wells
Fargo Revolving Loan





On
February 12, 2009, we entered into a new $20,000,000 credit facility with Wells
Fargo (the “Credit Agreement”).  This new credit facility, which
matures in February 2012, contains customary affirmative and negative covenants,
including, among other things, covenants requiring us to maintain certain
financial ratios.  This new facility replaced our existing $16,000,000
revolving credit facility with CIT, and was used to refinance outstanding
indebtedness under that facility, to pay fees and expenses in connection
therewith and, thereafter, for working capital (including acquisitions), letters
of credit and other general corporate purposes.





The
Credit Agreement provides for a letter of credit sub-line in an aggregate amount
of up to $3,000,000.  The Credit Agreement also provides for interest
to be calculated on the outstanding principal balance of the revolving loans at
the prime rate (as defined in the Credit Agreement) plus 1.50%.  For
LIBOR loans, interest will be calculated on the outstanding principal balance of
the LIBOR loans at the LIBOR rate (as defined in the Credit Agreement) plus
2.75%.





As of
March 31, 2010, the interest rates were 4.75% and 3.00% for revolving and LIBOR
loans under the Credit Agreement, respectively.  Closing costs for the
Credit Agreement totaled $314,706 and are being amortized over the three year
life of the Credit Agreement.


20


As of
March 31, 2010, we had borrowed $9,000,000 in LIBOR loans and had approximately
$169,000 letters of credit outstanding representing approximately 54% of the
maximum borrowing capacity under the Credit Agreement based on our “eligible
accounts receivable” (as defined under the Credit Agreement) as of such
date.





We rely
on our revolving loan from Wells Fargo which contains a fixed charge covenant
and various other financial and non-financial covenants.  If we breach
a covenant, Wells Fargo has the right to immediately request the repayment in
full of all borrowings under the Credit Agreement, unless Wells Fargo waives the
breach.  For the fiscal year ended March 31, 2010, we were in
compliance with all covenants under the Credit Agreement.





Cash
Flows





The
following table summarizes our cash flow activity for the fiscal years ended
March 31, 2010, 2009 and 2008:





2010
                        
                        
                        2009
                        
                        
                        2008Net
      cash provided by operating activities
                        
                        $
                        5,282,957
                        
                        
                        $
                        410,620
                        
                        
                        $
                        2,145,225Net
      cash used in investing activities
                        
                        
                        (166,968
                        )
                        
                        
                        (1,536,327
                        )
                        
                        
                        (2,277,876
                        )Net
      cash (used in) provided by financing activities
                        
                        
                        (4,081,052
                        )
                        
                        
                        1,155,936
                        
                        
                        
                        59,393





Investing





We
finance vehicle purchases typically over three years and insurance through
short-term borrowings.  We have no material commitments for capital
expenditures at this time.





Financing





During
the fiscal year ended March 31, 2010, we increased our short-term borrowings
principally to support higher accounts receivable associated with our ongoing
expansion and organic growth.





The
Company may obtain short-term financing to meet its insurance
needs.  For the fiscal year ended March 31, 2010, $3,618,554 was
borrowed for this purpose.





Working
Capital





Working
capital increased by $2,317,414 to $9,423,458 as of March 31, 2010, from
$7,106,044 as of March 31, 2009.





We
experienced checks issued in advance of deposits (defined as checks drawn in
advance of future deposits) of $739,206 as of March 31, 2010, compared with
$1,149,038 at March 31, 2009.  Cash balances and book overdrafts can
fluctuate materially from day to day depending on such factors as collections,
timing of billing and payroll dates, and are covered via advances from the
revolving loan as checks are presented for payment.





Off-Balance
Sheet Arrangements





We do not
have any off-balance sheet arrangements that are currently material or
reasonably likely to be material to our financial position or results of
operations.





Contractual
Obligations





The
impact that our contractual obligations as of March 31, 2010 are expected to
have on our liquidity and cash flow in future periods is as
follows:





Payments Due by PeriodTotal
                    
                    
                    Less than 1 Year
                    
                    
                    1-3 Years
                    
                    
                    3-5 Years
                    
                    
                    More than 5 YearsCapital
      lease obligations
                    
                    $
                    159,163
                    
                    
                    $
                    115,928
                    
                    
                    $
                    43,235
                    
                    
                    $
                    —
                    
                    
                    $
                    —Operating
      lease obligations
                    
                    
                    2,564,588
                    
                    
                    
                    1,479,823
                    
                    
                    
                    1,080,184
                    
                    
                    
                    4,581
                    
                    
                    
                    —Purchase
      obligations (1)
                    
                    
                    57,965
                    
                    
                    
                    57,965
                    
                    
                    
                    —
                    
                    
                    
                    —
                    
                    
                    
                    —Total
                    
                    $
                    2,781,716
                    
                    
                    $
                    1,653,716
                    
                    
                    $
                    1,123,419
                    
                    
                    $
                    4,581
                    
                    
                    $
                    —





(1)
            Purchase
      obligations include an agreement to purchase uniform cleaning services
      that is legally binding on we and that specifies all significant terms,
      including fixed or minimum quantities to be purchased; fixed, minimum or
      variable price provisions; and the approximate timing of the
      transaction.


21


OUTLOOK





Financial
Results





Future
revenues will be largely dependent upon our ability to gain additional business
from new and existing customers in our security and aviation services divisions
at acceptable margins while minimizing terminations of contracts with existing
customers.  Our security services division has started to experience
both organic and transactional growth over recent quarters after a reduction
over the past few years as contracts with unacceptable margins were
cancelled.  Our current focus is on increasing revenues while our
sales and marketing team and branch managers work to develop new business and
retain profitable contracts. The airline industry continues to increase its
demand for third party services provided by us; however, several of our airline
customers have continued to reduce capacity within their system which results in
reductions of service hours provided by us to such
carriers.  Additionally, our aviation services division is continually
subject to government regulation, which has adversely affected us in the past
with the federalization of the pre-board screening services and the document
verification process at several of our domestic airport locations.





We expect
our gross profit margins to average between 14.0% and 15.0% of revenue for
fiscal year 2011 based on current business conditions.  We expect
gross profit to remain under pressure due primarily to continued price
competition.  However, we expect these effects to be moderated by
continued operational efficiencies resulting from better management and
leveraging of our cost structures, improved workers’ compensation experience
ratings, workflow process efficiencies associated with our integrated financial
software system and higher contributions from our continuing new business
development.





Our cost
reduction program is expected to reduce certain of our operating and general and
administrative expenses in future periods.  Additional cost reduction
opportunities are being identified and will be pursued as they are
determined.





The
aviation services division represents approximately 50% of our total revenues
and Delta, with annual billings of approximately $12,660,000 during fiscal 2010,
is the largest customer of our aviation services division representing, on an
annual basis, approximately 18% of the revenues from our aviation services
division and 9% of our total revenues.  The aviation industry
continues to face various financial and other challenges, including the cost of
security and higher fuel prices.  Additional bankruptcy filings by
aviation and non-aviation customers could have a material adverse impact on our
liquidity, results of operations and financial condition.





As
described above on February 12, 2009, we entered into a new $20,000,000 credit
facility (the “Credit Agreement”) with Wells Fargo.  As of the close
of business on June 18, 2010, our cash availability was approximately
$6,700,000, which we believe is sufficient to meet our needs for the foreseeable
future barring any increase in reserves imposed by Wells Fargo.  We
believe that existing funds, cash generated from operations, and existing
sources of and access to financing are adequate to satisfy our working capital,
capital expenditure and debt service requirements for the foreseeable future,
barring any increase in reserves imposed by Wells Fargo.  However, we
cannot assure you that this will be the case, and we may be required to obtain
alternative or additional financing to maintain and expand our existing
operations through the sale of our securities, an increase in credit facilities
or otherwise.  The financial markets generally, and the credit markets
in particular, are and have been experiencing substantial turbulence and
turmoil, and extreme volatility, both in the United States and, increasingly, in
other markets worldwide.  The current market situation has resulted
generally in substantial reductions in available loans to a broad spectrum of
businesses, increased scrutiny by lenders of the credit-worthiness of borrowers,
more restrictive covenants imposed by lenders upon borrowers under credit and
similar agreements and, in some cases, increased interest rates under commercial
and other loans.  If we require alternative or additional financing at
this or any other time, we cannot assure you that such financing will be
available upon commercially acceptable terms or at all.  If we fail to
obtain additional financing when and if required by us, our business, financial
condition and results of operations would be materially adversely
affected.





ITEM
7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.





During
the fiscal year ended March 31, 2010, we did not hold a portfolio of securities
instruments for either trading or speculative purposes.  Periodically,
we hold securities instruments for other than trading purposes.  Due
to the short-term nature of our investments, we believe that we have no material
exposure to changes in the fair value as a result of market
fluctuations.





We are
exposed to market risk in connection with changes in interest rates, primarily
in connection with outstanding balances under our revolving line of credit with
Wells Fargo, which was entered into for purposes other than trading
purposes.  Based on our average outstanding balances during the fiscal
year ended March 31, 2010, a 1% change in the prime lending rate could impact
our financial position and results of operations by approximately $100,000 over
the next fiscal year.  For additional information on the revolving
line of credit with Wells Fargo, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations—Liquidity and Capital
Resources.”





Reference
is made to Item 7 of Part II of this Annual Report on Form 10-K, “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Forward
Looking Statements.”





22




ITEM
8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 
 The
information required by this item is incorporated herein by reference to the
financial statements and schedule listed in Item 15 (a)(1) and (a)(2) of Part IV
of this Form 10-K Annual Report.


ITEM
9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.





None.





ITEM
9A(T).  CONTROLS AND PROCEDURES.





(a)
            Evaluation
      of Disclosure Controls and
Procedures.





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, regarding the effectiveness of the design and operation of
our “disclosure controls and procedures” (as defined in Rule 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”)) as of the end of the period covered by this report.  Based upon
this evaluation, our principal executive officer and principal financial officer
concluded that our disclosure controls and procedures as of March 31, 2010 have
been designed and are functioning effectively to provide reasonable assurance
that the information required to be disclosed by us in reports filed under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms.





We
believe that a controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been
detected.





(b)
            Management’s
      Report on Internal Control Over Financial
  Reporting.





(a)
            Our
      management is responsible for establishing and maintaining adequate
      internal control over financial reporting, as such term is defined in
      Rules 13a-15(f) and 15d-15(f) of the Exchange
  Act.





Under the
supervision and with the participation of our management, we conducted an
evaluation of the effectiveness of our internal control over financial reporting
as of March 31, 2010 based on the framework in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on our evaluation our management concluded
that our internal control over financial reporting was effective as of March 31,
2010 and for the period then ended.





This
Annual Report does not include an attestation report of our registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management’s report in
this Annual Report.





(b)
            There
      has been no change in our internal control over financial reporting
      identified in an evaluation thereof that occurred during the fourth
      quarter of fiscal 2010 that materially affected or is reasonably likely to
      materially affect our internal control over financial
      reporting.





ITEM
9B.  OTHER INFORMATION.





None.


23


PART
III





ITEM
10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE.





The
information required by this Item 10 will be set forth in our Proxy Statement
for our 2010 Annual Meeting of Stockholders which is expected to be filed with
the SEC within 120 days of the close of the our fiscal year ended March 31, 2010
(the “2010 Proxy Statement”) under the caption “Directors, Executive Officers
and Corporate Governance,” and is incorporated herein by reference.





ITEM
11.  EXECUTIVE COMPENSATION.





The
information required by this Item 11 will be set forth in the 2010 Proxy
Statement under the captions “Executive Compensation” and “Director Compensation
and Stock Ownership Guidelines,” and is incorporated herein by
reference.





ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATEDSTOCKHOLDER
      MATTERS.





The
information required by this Item 12 will be set forth in the 2010 Proxy
Statement under the captions “Common Stock Ownership of Certain Beneficial
Owners and Management” and “Executive Compensation-Equity Compensation Plan
Information,” and is incorporated herein by reference.





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





The
information required by this Item 13 will be set forth in the 2010 Proxy
Statement under the captions “Certain Relationships and Related Transactions”
and “Director Independence,” and is incorporated herein by
reference.





ITEM
14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.





The
information required by this Item 14 will be set forth in the 2010 Proxy
Statement under the caption “Principal Accountant Fees and Services,” and is
incorporated herein by reference.


24


PART
IV





ITEM
15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.





(a)





(1)
                                    Consolidated Financial
      Statements:
                                    Page Number FromThis Form 10-KReport
      of Independent Registered Public Accounting Firm
                                    F-1Consolidated
      Balance Sheets - March 31, 2010 and 2009
                                    F-2Consolidated
      Statements of Income - years ended March
      31, 2010, 2009 and 2008
                                    F-3Consolidated
      Statements of Changes in Stockholders' Equity
      and Comprehensive Income years ended March
      31, 2010, 2009 and 2008
                                    F-4Consolidated
      Statements of Cash Flows - years ended March
      31, 2010, 2009 and 2008
                                    F-5
      - F-6Notes
      to Consolidated Financial Statements
                                    F-7
      - F-18(2)
                                    Financial
      Statement Schedules:Schedule
      II - Valuation and Qualifying Accounts
                                    F-19Schedules
      not listed above have been omitted as either not applicable, immaterial or
      disclosed in the Financial Statements or notes thereto.(3)
                                    Exhibits:A
      list of exhibits filed or furnished with this report on Form 10-K (or
      incorporated by reference to exhibits previously filed or furnished by us)
      is provided in the Exhibit Index on pages 27-28 of this
      report.


25


SIGNATURES





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this Annual Report to be signed on our behalf by the undersigned,
thereunto duly authorized.





COMMAND
      SECURITY CORPORATIONDate:
      June 25, 2010By:  /s/ Edward S.
      FleuryEdward
      S. FleuryChief
      Executive Officer





Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated:





Signature
                    
                    Title
                    
                    Date/s/ Peter Kikis
                    
                    Chairman
      of the Board
                    
                    June
      25, 2010Peter
      Kikis/s/ Edward S. Fleury
                    
                    Director
      and Chief Executive
                    
                    June
      25, 2010Edward
      S. Fleury
                    
                    Officer
      (Principal ExecutiveOfficer)/s/ Barry I. Regenstein
                    
                    Director,
      President and
                    
                    June
      25, 2010Barry
      I. Regenstein
                    
                    Chief
      Financial Officer(Principal
      Accounting Officer)/s/ Martin C. Blake, Jr.
                    
                    Director
      and Chief Operating
                    
                    June
      25, 2010Martin
      C. Blake, Jr.
                    
                    Officer/s/ Robert S. Ellin
                    
                    Director
                    
                    June
      25, 2010Robert
      S. Ellin/s/ Thomas Kikis
                    
                    Director
                    
                    June
      25, 2010Thomas
      Kikis/s/ Laurence A. Levy
                    
                    Director
                    
                    June
      25, 2010Laurence
      A. Levy


26


COMMAND
SECURITY CORPORATION


EXHIBIT
INDEX





Exhibit
                                        Number
                                      
                                      Exhibit Description3.1
                                      
                                      Amended
      & Restated Articles of Incorporation
                                      
                                      Incorporated
      by reference to Exhibit of Incorporation 3.3 of the Form 10-K for the
      fiscal year ended March 31, 1993 (the “1993 10-K”).3.2
                                      
                                      By-Laws
                                      
                                      Incorporated
      by reference to Exhibit 3.3 of the Form 10-K for the fiscal year ended
      March 31, 1991 (the "1991 10-K").3.3
                                      
                                      Amendments
      to By-Laws
                                      
                                      Incorporated
      by reference to Exhibit 3.1 of the Form 8-K filed September 20,
      2006.3.4
                                      
                                      Certificate
      of Amendment of Certificate of Incorporation
                                      
                                      Exhibit
      3.4 attached hereto.4.1
                                      
                                      Specimen
      Stock Certificate
                                      
                                      Incorporated
      by reference to Exhibit 4.A to Amendment #1 to Registrant's Registration
      Statement on Form S-18, file number 33, 35007-NY (the
    "S-18").4.2
                                      
                                      Specimen
      Series A Preferred Stock Certificate
                                      
                                      Incorporated
      by reference to Exhibit 4.2 of the Third Amendment to the
    S-1.10.1
                                      
                                      Purchase
      and Sale Agreement dated February 24, 1996, for the acquisition of United
      Security Group Inc.
                                      
                                      Incorporated
      by reference to Exhibit 2.1 of the Form 8-K filed March 23,
      1996.10.2
                                      
                                      CIT
      Group/Business Credit, Inc. Financing Agreement dated December 12,
      2003
                                      
                                      Incorporated
      by reference to Exhibit 10.41  of the Form 10-K for the fiscal
      year ended March 31, 2004 filed on July 14, 2004.10.3
                                      
                                      Amended
      and Restated Financing Agreement with CIT Group/Business Credit, Inc.
      dated March 21, 2006
                                      
                                      Incorporated
      by reference to Exhibit 10.4 of the Form 8-K filed March 21,
      2006.10.4
                                      
                                      Consulting
      Agreement with Jericho State Capital Consulting LLC dated February 3,
      2006
                                      
                                      Incorporated
      by reference to Exhibit 10.4 of the Form 8-K filed February 3,
      2006.10.5
                                      
                                      First
      Amendment and Consent to Amended and Restated Financing Agreement with CIT
      Group/Business Credit, Inc. dated June 13, 2006
                                      
                                      Incorporated
      by reference to Exhibit 10.5 of the Form 8-K filed June 13,
      2006.10.6
                                      
                                      Agreement
      for Purchase and Sale of Assets dated June 13, 2006, for the acquisition
      of Sterling Protective Group, Inc.
                                      
                                      Incorporated
      by reference to Exhibit 10.6 of the Form 8-K filed June 13,
      2006.10.7
                                      
                                      Second
      Amendment to the Amended and Restated Financing  Agreement with
      CIT Group/Business Credit, Inc. dated September 30, 2006
                                      
                                      Incorporated
      by reference to Exhibit 10.7 of the Form 10-Q filed February 13,
      2007.10.8
                                      
                                      Third
      Amendment to Amended and Restated Financing Agreement with CIT
      Group/Business Credit, Inc. Inc. dated April 12, 2007
                                      
                                      Incorporated
      by reference to Exhibit 10.1 of the Form 8-K filed April 12,
      2007.10.9
                                      
                                      Fifth
      Amendment to Amended and Restated Financing Agreement with CIT
      Group/Business Credit, Inc.
                                      
                                      Incorporated
      by reference to Exhibit 10.1 of the Form 8-K filed November 24,
      2008.10.10
                                      
                                      Stock
      Purchase Agreement dated April 12, 2007, for the acquisition of Brown
      Security Industries, Inc.
                                      
                                      Incorporated
      by reference to Exhibit 10.2 of the Form 8-K filed April 12,
      2007.10.11
                                      
                                      Amended
      and Restated Plan of Merger dated April 12, 2007, for the acquisition of
      Brown Security Indus- tries, Inc.
                                      
                                      Incorporated
      by reference to Exhibit 10.3 of the Form 8-K filed April 12,
      2007.10.12
                                      
                                      Asset
      Purchase Agreement dated January 1, 2008 for the acquisition of Expert
      Security Services, Inc.
                                      
                                      Incorporated
      by reference to Exhibit 10.1 of the Form 8-K filed January 7,
      2008.10.13
                                      
                                      Wells
      Fargo Business Credit, Credit and Security Agreement dated February 12,
      2009
                                      
                                      Incorporated
      by reference to Exhibit 10.1 of the Form 10-Q filed on February 17,
      2009.11
                                      
                                      Computation
      of Income Per Share of Common Stock of the Financial
      Statements.
                                      
                                      Incorporated
      by reference to Note 1014
                                      
                                      Command
      Code of Ethics
                                      
                                      Incorporated
      by reference to Exhibit 14 of the Form 10-K for the fiscal year ended
      March 31, 2008 filed on June 27, 2008.31.1
                                      
                                      Certifications
      Pursuant to Rule 13(a)-14(a)/15(d)-14(a)
                                      
                                      Exhibit
      31.1 attached hereto.31.2
                                      
                                      Certifications
      Pursuant to Rule 13(a)-14(a)/15(d)-14(a)
                                      
                                      Exhibit
      31.2 attached
hereto.


27





32.1
                                    
                                    Section
      1350 Certifications
                                    
                                    Exhibit
      32.1 attached hereto.99.1
                                    
                                    Registration
      Rights Agreement
                                    
                                    Incorporated
      by reference to Exhibit 99.22  of the Form 8-K filed September
      27, 2000.99.2
                                    
                                    Audit
      Committee of the Board of Directors Charter and Powers
                                    
                                    Incorporated
      by reference to Exhibit 99.3 of the Form 10-K for the fiscal year ended
      March 31, 2008 filed on June 27, 2008.99.3
                                    
                                    2000
      Stock Option Plan
                                    
                                    Incorporated
      by reference to Exhibit 99.25 of the Form 10-K for the fiscal year ended
      March 31, 2001 filed on July 3, 2001.99.4
                                    
                                    2005
      Stock Incentive Plan
                                    
                                    Incorporated
      by reference to Exhibit 99.5  of the Form 10-K for the fiscal
      year ended March 31, 2006 filed on June 28, 2006.99.5
                                    
                                    2009
      Omnibus Equity Incentive Plan
                                    
                                    Incorporated
      by reference to Exhibit A of the 2009 Proxy Statement filed on July 29,
      2009.99.6
                                    
                                    Barry
      I. Regenstein Employment Agreement
                                    
                                    Incorporated
      by reference to Exhibit 99.2 of the Form 10-Q filed on February 12,
      2010.99.7
                                    
                                    Marc
      W. Brown Employment Agreement
                                    
                                    Incorporated
      by reference to Exhibit 10.4 of the Form 8-K filed April 12,
      2007.99.8
                                    
                                    Martin
      C. Blake, Jr. Employment Agreement
                                    
                                    Incorporated
      by reference to Exhibit 99.2 of the Form 10-Q filed on August 14,
      2008.99.9
                                    
                                    Edward
      S. Fleury Employment Agreement
                                    
                                    Incorporated
      by reference to Exhibit 10.1 of the Form 8-K filed September 29,
      2008.99.10
                                    
                                    Press
      Release dated June 23, 2010 announcing March 31, 2010 fourth quarter and
      fiscal year results
                                    
                                    Exhibit
      99.9 attached
hereto.


28


Report of
Independent Registered


Public
Accounting Firm





To the
Board of Directors


and
Stockholders of


Command
Security Corporation





We have
audited the accompanying consolidated balance sheets of Command Security
Corporation as of March 31, 2010 and 2009, and the related consolidated
statements of income, changes in stockholders' equity and comprehensive income
and cash flows for each of the years in the three-year period ended March 31,
2010.  Our audits also included the financial statement schedule II –
Valuation and Qualifying Accounts.  Command Security Corporation’s
management is responsible for these consolidated financial statements and the
schedule. Our responsibility is to express an opinion on these consolidated
financial statements and the schedule based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement.  The Company is not required to have, nor were we
engaged to perform, an audit of its internal control over financial
reporting.  Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting.  Accordingly, we express no such opinion.  An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements, assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation.  We
believe that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Command Security Corporation
as of March 31, 2010 and 2009, and the results of its operations and its cash
flows for each of the years in the three-year period ended March 31, 2010, in
conformity with accounting principles generally accepted in the United States of
America.  Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly, in all material respects, the information set forth
therein.





/s/
D'Arcangelo & Co., LLP





June 25,
2010


Poughkeepsie,
New York


F-1





Command
Security Corporation


Consolidated
Balance Sheets


March 31,
2010 and 2009





2010
                
                
                2009ASSETSCurrent
      assets:Cash
      and cash equivalents
                
                $
                1,211,948
                
                
                $
                177,011Accounts
      receivable from security services customers, less allowance for doubtful
      accounts of $1,167,437 and $1,000,507, respectively
                
                
                23,131,801
                
                
                
                21,603,826Prepaid
      expenses
                
                
                1,674,132
                
                
                
                2,256,238Other
      current assets
                
                
                2,522,562
                
                
                
                1,861,089Total
      current assets
                
                
                28,540,443
                
                
                
                25,898,164Furniture
      and equipment at cost, net
                
                
                602,847
                
                
                
                672,166Intangible
      assets, net
                
                
                4,635,512
                
                
                
                5,180,077Restricted
      cash
                
                
                82,806
                
                
                
                82,636Other
      assets
                
                
                2,853,473
                
                
                
                2,431,992Total
      assets
                
                $
                36,715,081
                
                
                $
                34,265,035LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Checks
      issued in advance of deposits
                
                $
                739,206
                
                
                $
                1,149,038Current
      maturities of obligations under capital leases
                
                
                115,928
                
                
                
                64,827Short-term
      borrowings
                
                
                10,995,744
                
                
                
                11,006,134Accounts
      payable
                
                
                510,300
                
                
                
                313,745Accrued
      expenses and other liabilities
                
                
                6,755,807
                
                
                
                6,258,376Total
      current liabilities
                
                
                19,116,985
                
                
                
                18,792,120Insurance
      reserves
                
                
                771,626
                
                
                
                642,656Obligations
      under capital leases, due after one year
                
                
                43,235
                
                
                
                108,691Total
      liabilities
                
                
                19,931,846
                
                
                
                19,543,467Commitments
      and contingencies (Notes 15 and 16)Stockholders'
      equity:Preferred
      stock, convertible Series A, $.0001 par value per share, 1,000,000 shares
      authorized
                
                
                —
                
                
                
                —Common
      stock, $.0001 par value per share, 50,000,000 shares authorized,
      10,872,098 and 10,804,683 shares issued and outstanding,
      respectively
                
                
                1,087
                
                
                
                1,080Additional
      paid-in capital
                
                
                16,243,153
                
                
                
                16,045,620Accumulated
      earnings (deficit)
                
                
                587,518
                
                
                
                (1,044,121
                )Accumulated
      other comprehensive income
                
                
                (48,523
                )
                
                
                (281,011
                )Total
      stockholders' equity
                
                
                16,783,235
                
                
                
                14,721,568Total
      liabilities and stockholders' equity
                
                $
                36,715,081
                
                
                $
                34,265,035





See
accompanying Notes to
Consolidated Financial Statements


F-2





Command
Security Corporation


Consolidated
Statements of Income


Years
Ended March 31, 2010, 2009 and 2008





2010
                
                
                2009
                
                
                2008Revenues
                
                $
                145,694,630
                
                
                $
                130,813,244
                
                
                $
                119,403,865Cost
      of revenues
                
                
                125,212,220
                
                
                
                112,149,026
                
                
                
                103,161,588Gross
      profit
                
                
                20,482,410
                
                
                
                18,664,218
                
                
                
                16,242,277Operating
      expensesGeneral
      and administrative expenses
                
                
                16,330,059
                
                
                
                15,351,021
                
                
                
                13,425,162Provision
      for doubtful accounts
                
                
                455,194
                
                
                
                347,180
                
                
                
                359,675Bad
      debt recoveries
                
                
                (7,094
                )
                
                
                (41,624
                )
                
                
                (511,593
                )16,778,159
                
                
                
                15,656,577
                
                
                
                13,273,244Operating
      income
                
                
                3,704,251
                
                
                
                3,007,641
                
                
                
                2,969,033Other
      income (expenses)Interest
      income
                
                
                2,010
                
                
                
                28,031
                
                
                
                75,174Interest
      expense
                
                
                (452,426
                )
                
                
                (514,453
                )
                
                
                (783,669
                )Gain
      on equipment dispositions
                
                
                3,504
                
                
                
                24,803
                
                
                
                3,040Gain
      on sale of investments
                
                
                —
                
                
                
                —
                
                
                
                50,007(446,912
                )
                
                
                (461,619
                )
                
                
                (655,448
                )Income
      before provision (benefit) for income taxes
                
                
                3,257,339
                
                
                
                2,546,022
                
                
                
                2,313,585Income
      tax expense (benefit)
                
                
                1,625,700
                
                
                
                1,264,139
                
                
                
                (160,000
                )Net
      income
                
                $
                1,631,639
                
                
                $
                1,281,883
                
                
                $
                2,473,585Income
      per share of common stockBasic
                
                $
                .15
                
                
                $
                .12
                
                
                $
                .23Diluted
                
                $
                .15
                
                
                $
                .11
                
                
                $
                .22Weighted
      average number of common shares outstandingBasic
                
                
                10,848,375
                
                
                
                10,772,613
                
                
                
                10,733,797Diluted
                
                
                11,210,831
                
                
                
                11,391,047
                
                
                
                11,383,985





See
accompanying Notes to
Consolidated Financial Statements


F-3





Command
Security Corporation


Consolidated
Statements of Changes in Stockholders' Equity and Comprehensive
Income


Years
Ended March 31, 2010, 2009 and 2008





AccumulatedOtherPreferred
                                
                                
                                Common
                                
                                
                                Paid-In
                                
                                
                                Accumulated
                                
                                
                                ComprehensiveStock
                                
                                
                                Stock
                                
                                
                                Capital
                                
                                
                                Equity/(Deficit)
                                
                                
                                Income
                                
                                
                                TotalBalance
      at March 31, 2007
                                
                                $
                                —
                                
                                
                                $
                                1,014
                                
                                
                                $
                                13,889,861
                                
                                
                                $
                                (4,799,589
                                )
                                
                                $
                                12,550
                                
                                
                                $
                                9,103,836Issuance
      of 614,246 shares for acquisition
                                
                                
                                
                                
                                
                                
                                61
                                
                                
                                
                                1,784,939
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,785,000Options
      exercised
                                
                                
                                
                                
                                
                                
                                1
                                
                                
                                
                                10,247
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                10,248Other
      comprehensive income (a)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (252,820
                                )
                                
                                
                                (252,820
                                )Stock
      compensation cost
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                239,900
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                239,900Net
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                2,473,585
                                
                                
                                
                                
                                
                                
                                
                                2,473,585Balance
      at March 31, 2008
                                
                                
                                —
                                
                                
                                
                                1,076
                                
                                
                                
                                15,924,947
                                
                                
                                
                                (2,326,004
                                )
                                
                                
                                (240,270
                                )
                                
                                
                                13,359,749Options
      exercised
                                
                                
                                
                                
                                
                                
                                4
                                
                                
                                
                                64,076
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                64,080Other
      comprehensive income (a)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (40,741
                                )
                                
                                
                                (40,741
                                )Stock
      compensation cost
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                172,097
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                172,097Deferred
      tax effect associated with expired warrants
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (115,500
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (115,500
                                )Net
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,281,883
                                
                                
                                
                                
                                
                                
                                
                                1,281,883Balance
      at March 31, 2009
                                
                                
                                —
                                
                                
                                
                                1,080
                                
                                
                                
                                16,045,620
                                
                                
                                
                                (1,044,121
                                )
                                
                                
                                (281,011
                                )
                                
                                
                                14,721,568Options
      exercised
                                
                                
                                
                                
                                
                                
                                7
                                
                                
                                
                                91,005
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                91,012Other
      comprehensive income (a)
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                232,488
                                
                                
                                
                                232,488Stock
      compensation cost
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                140,528
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                140,528Deferred
      tax effect associated withexpired
      warrants
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (34,000
                                )
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                (34,000
                                )Net
      income
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                1,631,639
                                
                                
                                
                                
                                
                                
                                
                                1,631,639Balance
      at March 31, 2010
                                
                                $
                                —
                                
                                
                                $
                                1,087
                                
                                
                                $
                                16,243,153
                                
                                
                                $
                                587,518
                                
                                
                                $
                                (48,523
                                )
                                
                                $
                                16,783,235





(a) – Represents unrealized gain (loss)
on marketable securities.





See
accompanying Notes to
Consolidated Financial Statements


F-4





Command Security Corporation


Consolidated
Statements of Cash Flows


Years
Ended March 31, 2010, 2009 and 2008





INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS





2010
                
                
                2009
                
                
                2008OPERATING
      ACTIVITIESNet
      income
                
                $
                1,631,639
                
                
                $
                1,281,883
                
                
                $
                2,473,585Adjustments
      to reconcile net income to net cash provided by operating
      activities:Depreciation
      and amortization
                
                
                903,290
                
                
                
                799,323
                
                
                
                697,334Stock
      based compensation costs
                
                
                140,528
                
                
                
                172,097
                
                
                
                239,900Tax
      effect associated with expired warrants
                
                
                (34,000
                )
                
                
                (115,500
                )
                
                
                —Provision
      for doubtful accounts, net of recoveries
                
                
                166,930
                
                
                
                19,935
                
                
                
                (151,918
                )Gain
      on equipment dispositions
                
                
                (3,504
                )
                
                
                (24,803
                )
                
                
                (3,040
                )Gain
      on sale of investments
                
                
                —
                
                
                
                —
                
                
                
                (50,007
                )Deferred
      income taxes
                
                
                (257,682
                )
                
                
                549,905
                
                
                
                (1,246,408
                )Insurance
      reserves
                
                
                128,970
                
                
                
                (27,961
                )
                
                
                131,114Changes
      in operating assets and liabilities:Restricted
      cash
                
                
                (170
                )
                
                
                220,100
                
                
                
                (224,610
                )Accounts
      receivable
                
                
                (1,694,905
                )
                
                
                (1,539,163
                )
                
                
                (2,379,431
                )Prepaid
      expenses
                
                
                1,993,342
                
                
                
                424,514
                
                
                
                (2,123,798
                )Other
      receivables
                
                
                (224,401
                )
                
                
                171,611
                
                
                
                347,786Other
      assets
                
                
                1,838,934
                
                
                
                (92,696
                )
                
                
                1,593,616Accounts
      payable and other current liabilities
                
                
                693,986
                
                
                
                (1,428,625
                )
                
                
                2,841,102Net
      cash provided by operating activities
                
                
                5,282,957
                
                
                
                410,620
                
                
                
                2,145,225INVESTING
      ACTIVITIESPurchases
      of equipment
                
                
                (139,218
                )
                
                
                (202,694
                )
                
                
                (169,337
                )Proceeds
      from equipment dispositions
                
                
                21,819
                
                
                
                24,803
                
                
                
                3,040Acquisition
      of businesses
                
                
                (49,569
                )
                
                
                (1,358,436
                )
                
                
                (2,260,675
                )Proceeds
      from sale of investments
                
                
                —
                
                
                
                —
                
                
                
                149,096Net
      cash used in investing activities
                
                
                (166,968
                )
                
                
                (1,536,327
                )
                
                
                (2,277,876
                )FINANCING
      ACTIVITIESNet
      (repayments) advances on short-term borrowings
                
                
                (3,628,943
                )
                
                
                2,253,701
                
                
                
                265,368(Decrease)increase
      in checks issued in advance of deposits
                
                
                (409,832
                )
                
                
                (813,276
                )
                
                
                202,159Proceeds
      from option exercises
                
                
                91,012
                
                
                
                64,080
                
                
                
                10,247Principal
      payments on other borrowings
                
                
                —
                
                
                
                (5,901
                )
                
                
                (247,055
                )Principal
      payments on capital lease obligations
                
                
                (122,345
                )
                
                
                (38,906
                )
                
                
                (17,854
                )Debt
      issuance costs
                
                
                (10,944
                )
                
                
                (303,762
                )
                
                
                (153,472
                )Net
      cash (used in) provided by financing activities
                
                
                (4,081,052
                )
                
                
                1,155,936
                
                
                
                59,393Net
      change in cash and cash equivalents
                
                
                1,034,937
                
                
                
                30,229
                
                
                
                (73,258
                )Cash
      and cash equivalents, beginning of year
                
                
                177,011
                
                
                
                146,782
                
                
                
                220,040Cash
      and cash equivalents, end of year
                
                $
                1,211,948
                
                
                $
                177,011
                
                
                $
                146,782





See
accompanying Notes to
Consolidated Financial Statements


F-5


Command Security Corporation


Consolidated
Statements of Cash Flows, Continued


Years
Ended March 31, 2010, 2009 and 2008





1.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION





Cash paid
during the years for:


2010
                  
                  
                  2009
                  
                  
                  2008Interest
                  
                  $
                  465,456
                  
                  
                  $
                  520,327
                  
                  
                  $
                  803,521Income
      taxes
                  
                  
                  1,167,740
                  
                  
                  
                  1,332,560
                  
                  
                  
                  1,747,299





2.
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES





For the
fiscal years ended March 31, 2010 and 2009, we purchased security and
transportation equipment with lease financing of $107,298 and $177,736,
respectively.  These amounts have been excluded from investing and
financing activities on the consolidated statements of cash flows
presented.





The
Company may obtain short-term financing to meet its insurance
needs.  For the fiscal year ended March 31, 2010, $3,618,554 was
borrowed for this purpose.  These borrowings have been excluded from
the consolidated statements of cash flows presented.





During
the fiscal year ended March 31, 2008, we acquired a security services business
for a purchase price of $3,400,000.  At the closing, we paid
$1,615,000 of the purchase price in cash and issued 614,246 shares of our common
stock, valued at an aggregate amount of $1,785,000 for the remaining balance of
the purchase price.  The issuance of these shares of our common stock
has been excluded from investing and financing activities on the consolidated
statements of cash flows presented.





During
the fiscal year ended March 31, 2008, we received available-for-sale securities
principally in connection with our claim related to the bankruptcy filing of
Northwest Airlines in the amount of $412,252 which is included as a bad debt
recovery in the accompanying consolidated statements of income.  This
amount has been excluded from investing activities on the consolidated
statements of cash flows presented.





See
accompanying Notes to
Consolidated Financial Statements


F-6


Command
Security Corporation


Notes to
Consolidated Financial Statements


March 31,
2010, 2009 and 2008





1.
Business Description and Summary of Accounting Policies





The
following is a description of the principal business activities and significant
accounting policies employed by Command Security Corporation.





Principal
Business Activities





Command
Security Corporation (the “Company”) is a uniformed security officer service
company operating in Arizona, Connecticut, California, Colorado, Delaware,
District of Columbia, Florida, Illinois, Maine, Maryland, Massachusetts, New
Jersey, New York, Oregon, Pennsylvania, Rhode Island, Texas, Virginia,
Washington and West Virginia.  In addition, the Company also provides
police departments in various states with administrative services, such as
billing, collection and payroll, for a percentage of the related gross
revenue.





Principles
of Consolidation





The
accompanying consolidated financial statements include our accounts and accounts
of our wholly-owned domestic subsidiaries.  As of December 29, 2009,
Strategic Security Services, Inc., Rodgers Police Patrol, Inc. and Command
Security Services, Inc., the Company’s three wholly-owned subsidiaries, were
merged into the parent company.  All significant intercompany accounts
and transactions have been eliminated in our consolidated financial
statements.





Use
of Estimates





The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements, the disclosure of
contingent assets and liabilities, and the reported amounts of revenues and
expenses during the reporting period.  The estimates that we make
include allowance for doubtful accounts, depreciation and amortization, income
tax assets and insurance reserves.  Estimates are based on historical
experience, where applicable or other assumptions that management believes are
reasonable under the circumstances.  Due to the inherent uncertainty
involved in making estimates, actual results may differ from those estimates
under different assumptions or conditions.





Revenue
Recognition





The
Company records revenues as services are provided to its
customers.  Revenues consist primarily of aviation and security
services, which are typically billed at hourly rates.  These rates may
vary depending on base, overtime and holiday time worked.  Revenues
for administrative services provided to police departments are calculated as a
percentage of the administrative service client's revenue and are recognized
when billings for the related security services are
generated.  Revenue is reported net of applicable taxes.





Advertising
Costs





The
Company expenses advertising costs as incurred.  Amounts incurred for
recruitment and general business advertising were $70,533, $141,732 and $218,852
for the fiscal years ended March 31, 2010, 2009 and 2008,
respectively.





Cash
and Cash Equivalents





The
Company defines cash and cash equivalents as operating cash (non-restricted) and
highly liquid investments with maturities of ninety (90) days or less at the
date of purchase.  The carrying amounts of our cash equivalents
approximate their fair values.





Trade
Receivables





The
Company periodically evaluates the requirement for providing for billing
adjustments and/or credit losses on its accounts receivable.  The
Company provides for billing adjustments where management determines that there
is a likelihood of a significant adjustment for disputed
billings.  Criteria used by management to evaluate the adequacy of the
allowance for doubtful accounts include, among others, the creditworthiness of
the customer, current trends, prior payment performance, the age of the
receivables and the Company's overall historical loss
experience.  Individual accounts are charged off against the allowance
as management deems them as uncollectible.


F-7


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





Investments





We
account for our investments in marketable securities in accordance with FASB ASC
320, Debt and Equity
Securities. At March 31, 2010, we had no short-term investments. Other
investments in marketable equity are classified as available-for-sale and
reported in the consolidated balance sheets at fair value, with changes in fair
value reported in accumulated other comprehensive income (loss) until realized.
Realized gains and losses on sales of all these securities are reported in
earnings, computed using the average cost method.





Furniture
and Equipment





Furniture
and equipment are stated at cost. Depreciation is generally recorded using the
straight-line method over estimated useful lives of the equipment ranging from
three to seven years.





Intangible
Assets





Intangible
assets are stated at cost and consist primarily of customer lists and borrowing
costs that are being amortized on a straight-line basis over three to ten years
and goodwill which is reviewed annually for impairment. The life assigned to
customer lists acquired is based on management's estimate of the attrition rate.
The attrition rate is estimated based on historical contract longevity and
management's operating experience. We test for impairment annually or when
events and circumstances warrant such a review, if sooner. Any potential
impairment is evaluated based on anticipated undiscounted future cash flows and
actual customer attrition in accordance with FASB ASC 360, Property, Plant, and
Equipment.





Insurance
Reserves





General
liability estimated accrued liabilities are calculated on an undiscounted basis
based on actual claim data and estimates of incurred but not reported claims
developed utilizing historical claim trends. Projected settlements and incurred
but not reported claims are estimated based on pending claims, historical trends
and data.





Workers’
compensation annual premiums are based on the incurred losses as determined at
the end of the coverage period, subject to minimum and maximum premium.
Estimated accrued liabilities are based on the Company’s historical loss
experience and the ratio of claims paid to the Company’s historical payout
profiles.





Income
Taxes





Income
taxes are based on income (loss) for financial reporting purposes and reflect a
current tax liability (asset) for the estimated taxes payable (recoverable) in
the current year tax return and changes in deferred taxes. Deferred tax assets
or liabilities are determined based on differences between financial reporting
and tax bases of assets and liabilities and are measured using enacted tax laws
and rates. A valuation allowance is provided on deferred tax assets if it is
determined that it is more likely than not that the asset will not be realized.
In the event that interest and/or penalties are assessed in connection with our
tax filings, interest will be recorded as interest expense and penalties as
selling, general and administrative expense.





Income
Per Share





Under the
requirements of FASB ASC 260, Earnings Per Share, the
dilutive effect of potential common shares, if any, is excluded from the
calculation for basic earnings per share. Diluted earnings per share are
presented for the fiscal years ended March 31, 2010, 2009 and 2008 because of
the effect the assumed issuance of common shares would have if the outstanding
stock options and warrants were exercised.





Stock-Based
Compensation





FASB ASC
718, Stock
Compensation,requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the financial statements based on their fair values at grant
date and the recognition of the related expense over the period in which the
share-based compensation vests. We were required to adopt the provisions of FASB
ASC 718 effective July 1, 2005 and use the modified-prospective transition
method. Under the modified-prospective transition method, we recognize
compensation expense in our financial statements issued subsequent to the date
of adoption for all share-based payments granted, modified or settled after July
1, 2005. The adoption of FASB ASC 718 resulted in non-cash charges of $140,528,
$172,097 and $239,900 for stock based compensation for the years ended March 31,
2010, 2009 and 2008, respectively.


F-8


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





Fair
Value of Financial Instruments





The
carrying value of cash, accounts receivable, prepaid expenses, checks issued in
advance of deposits, accounts payable and accrued expenses are reasonable
estimates of the fair values because of their short-term maturity. The fair
value of the Company's long-term debt is based on the borrowing rates currently
available to the Company for loans and leases with similar terms and average
maturities.





FASB ASC
820, Fair Value Measurements
and Disclosures, defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting
principles, and expands disclosures about fair value measurements. FASB ASC 820
establishes a three-tier fair value hierarchy, which prioritizes the inputs used
in measuring fair value. These tiers include:





·
            Level
      1, defined as observable inputs such as quoted prices in active markets
      for identical assets;


·
            Level
      2, defined as observable inputs other than Level 1 prices such as quoted
      prices for similar assets; quoted prices in markets that are not active;
      or other inputs that are observable or can be corroborated by observable
      market data for substantially the full term of the assets or liabilities;
      and


·
            Level
      3, defined as unobservable inputs in which little or no market data
      exists; therefore requiring an entity to develop its own
      assumptions.





Recent
Accounting Pronouncements





In May
2009, the Financial Accounting Standards Board (“FASB”) issued a new standard
pertaining to subsequent events that defined the period after the balance sheet
date during which a reporting entity shall evaluate events or transactions that
may occur for potential recognition or disclosure in the financial statements
and the circumstances under which a company shall recognize events or
transactions occurring after the balance sheet date in its financial statements.
This standard also requires a company to disclose the date through which
subsequent events have been evaluated for recognition or disclosure in the
financial statements. This new guidance was effective for fiscal years and
interim periods ended after June 15, 2009, and must be applied prospectively. We
adopted and applied the recognition and disclosure requirements of this standard
in the first quarter of fiscal 2010. In February 2010, subsequent to our
adoption of the new guidance discussed above, the FASB issued updated guidance
on subsequent events amending the May 2009 guidance. Under this amended
guidance, SEC filers are no longer required to disclose the date through which
subsequent events have been evaluated in originally issued and revised financial
statements. This new guidance was effective immediately and we adopted these new
requirements upon issuance of this guidance.





On July
1, 2009, we adopted FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (“ASC”) 105 (formerly Statement of
Financial Accounting Standards (“SFAS”) No. 168, The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles, a replacement of FASB Statement No. 162). ASC 105 establishes
the FASB ASC as the source of authoritative accounting principles recognized by
the FASB to be applied in preparation of financial statements in conformity with
generally accepted accounting principles in the United States of America. The
adoption of this standard had no impact on our consolidated financial
statements.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141 (revised 2007) “Business Combinations” (SFAS
No, 141(R)”) as codified in FASB ASC 805, Business Combinations, which
continues the evolution toward fair value reporting and significantly changes
the accounting for acquisitions that close beginning in 2009, both at the
acquisition date and in subsequent periods. FASB ASC 805 introduces new
accounting concepts and valuation complexities and many of the changes have the
potential to generate greater earnings volatility after the reported
acquisition. FASB ASC 805 also requires that acquisition costs be expensed as
incurred and restructuring costs be expensed in periods after the acquisition
date. FASB ASC 805 will only affect our financial condition or results of
operations to the extent we complete business combinations after the effective
date.





2.
Furniture and Equipment





Furniture
and equipment at March 31, 2010 and 2009 consist of the following:





2010
                          
                          
                          2009Transportation
      equipment
                          
                          $
                          469,752
                          
                          
                          $
                          582,903Security
      equipment
                          
                          
                          979,502
                          
                          
                          
                          863,778Office
      furniture and equipment
                          
                          
                          2,063,818
                          
                          
                          
                          1,980,2713,513,072
                          
                          
                          
                          3,426,952Accumulated
      depreciation
                          
                          
                          (2,910,225
                          )
                          
                          
                          (2,754,786
                          )Total
                          
                          $
                          602,847
                          
                          
                          $
                          672,166




F-9


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





Depreciation
expense for the fiscal years ended March 31, 2010, 2009 and 2008, was $298,213,
$297,929 and $291,482, respectively, and includes amortization of assets
purchased under capital lease arrangements in the amounts of $75,784, $40,554
and $31,340 for each of the respective years then ended (see Note 15).





3.
Intangible Assets





Intangible
assets at March 31, 2010 and 2009 consist of the following:


2010
                            
                            
                            2009Customer
      list
                            
                            $
                            4,753,428
                            
                            
                            $
                            4,703,859Borrowing
      costs
                            
                            
                            314,706
                            
                            
                            
                            303,762Goodwill
                            
                            
                            895,258
                            
                            
                            
                            895,258Non-compete
      covenant
                            
                            
                            100,000
                            
                            
                            
                            100,0006,063,392
                            
                            
                            
                            6,002,879Accumulated
      amortization
                            
                            
                            (1,427,880
                            )
                            
                            
                            (822,802
                            )Total
                            
                            $
                            4,635,512
                            
                            
                            $
                            5,180,077





Amortization
expense for the fiscal years ended March 31, 2010, 2009 and 2008, was $605,078,
$501,394 and $405,852, respectively. Amortization expense for the years ending
March 31, 2011, 2012, 2013, 2014 and 2015 for the intangible assets noted above
will be $603,665, $576,142, $467,143, $467,143 and $467,143,
respectively.





Included
in intangible assets for the fiscal years ended March 31, 2010 and 2009 is
goodwill of $895,258 that is not subject to amortization and net borrowing costs
of $201,771 and $295,429, respectively, which are subject to amortization on a
straight line basis over the life of the Company’s financing agreement (see Note
7).





4.
Restricted Cash





Restricted
cash represents deposits for the benefit of the Company's insurance carrier as
collateral for workers' compensation claims.





5.
Other Assets





Other
assets at March 31, 2010 and 2009 consist of the following:





2010
                            
                            
                            2009Workers’
      compensation insurance
                            
                            $
                            2,262,816
                            
                            
                            $
                            1,775,027Other
      receivables
                            
                            
                            258,246
                            
                            
                            
                            33,845Security
      deposits
                            
                            
                            194,864
                            
                            
                            
                            202,874Deferred
      tax asset
                            
                            
                            2,313,030
                            
                            
                            
                            2,055,348Other
      (a)
                            
                            
                            347,079
                            
                            
                            
                            225,9875,376,035
                            
                            
                            
                            4,293,081Current
      portion
                            
                            
                            (2,522,562
                            )
                            
                            
                            (1,861,089
                            )Total
      non-current portion
                            
                            $
                            2,853,473
                            
                            
                            $
                            2,431,992





Our
      marketable equity securities were measured at fair value using quoted
      market prices. They were classified as Level 1, in accordance with the
      FASB ASC 820 hierarchy, as they trade in an active market for which
      closing stock prices are readily available. The cost basis of investments
      included in other assets at March 31, 2010 and 2009 was $425,752. The fair
      value of investments included in other assets at March 31, 2010 and 2009
      was $377,229 and $144,741, respectively, resulting in unrealized losses of
      $48,523 and $281,011, respectively, as reported in accumulated other
      comprehensive income. These investments in marketable equity securities
      primarily of companies in the airline industry have been in an unrealized
      loss position for more than twelve months and are classified as
      available-for-sale and reported in the consolidated balance sheets at fair
      value. We review all investments for other-than-temporary impairment at
      least quarterly or as indicators of impairment exist. Indicators of
      impairment include the duration and severity of the decline in fair value
      as well as the intent and ability to hold the investment to allow for a
      recovery in the market value of the investment. In addition, we consider
      qualitative factors that include, but are not limited
  to:




F-10


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





(i)
      the financial condition and business plans of the investee including its
      future earnings potential; (ii) value, and the amount of the write-down is
      included in net earnings. Such a determination is dependent on the facts
      and circumstances relating to each investment. Based on our evaluation of
      the near-term prospects of the issuers and our ability and intent to hold
      these the investee’s credit rating; and (iii) the current and expected
      market and industry conditions in which the investee operates. If a
      decline in the fair value of an investment is deemed by management to be
      other-than-temporary, we write down the cost basis of the investment to
      fair investments for a reasonable period sufficient for a forecasted
      recovery of fair value, we do not consider these investments to be
      other-than-temporarily impaired at March 31,
  2010.





6.
Accrued Expenses and Other Liabilities





Accrued
expenses and other liabilities at March 31, 2010 and 2009 consist of the
following:





2010
                        
                        
                        2009Payroll
      and related expenses
                        
                        $
                        5,675,521
                        
                        
                        $
                        4,666,079Taxes
      and fees payable
                        
                        
                        660,119
                        
                        
                        
                        1,260,174Accrued
      interest payable
                        
                        
                        25,749
                        
                        
                        
                        38,779Other
                        
                        
                        394,418
                        
                        
                        
                        293,344Total
                        
                        $
                        6,755,807
                        
                        
                        $
                        6,258,376





7.
Short-Term Borrowings





Short-term
borrowings at March 31, 2010 and 2009 consist of the following:





2010
                        
                        
                        2009Line
      of credit
                        
                        $
                        9,000,000
                        
                        
                        $
                        11,006,134Insurance
      financing
                        
                        
                        1,995,744
                        
                        
                        
                        —Total
                        
                        $
                        10,995,744
                        
                        
                        $
                        11,006,134





On March
22, 2006, we entered into an Amended and Restated Financing Agreement with CIT
(the “Amended and Restated Agreement”), which provided for borrowings in an
amount up to 85% of our eligible accounts receivable, as defined in the Amended
and Restated Agreement, but in no event more that $12,000,000. The Amended and
Restated Agreement provided for a letter of credit sub-line in an aggregate
amount of up to $1,500,000. Letters of credit are subject to a two percent (2%)
per annum fee on the face amount of each letter of credit. The Amended and
Restated Agreement provided that interest will be calculated on the outstanding
principal balance of the revolving loans at the prime rate, (as defined in the
Amended and Restated Agreement), plus .25% if our EBITDA, (as defined in the
Amended and Restated Agreement), is equal to or less than $500,000 for the most
recently completed fiscal quarter; otherwise, at the prime rate. For LIBOR
loans, interest will be calculated on the outstanding principal balance of the
LIBOR loans at the LIBOR rate, (as defined in the Amended and Restated
Agreement), plus 2.75% if our EBITDA is equal to or less than $500,000 for the
most recently completed fiscal quarter; otherwise, at the LIBOR rate plus
2.50%.





On April
12, 2007, we entered into an amendment to the Amended and Restated Agreement
(“the Amended Agreement”). Pursuant to the Amended Agreement, the aggregate line
of credit was increased from $12,000,000 to $16,000,000, and we were provided
with a $2,400,000 acquisition advance to fund the cash requirements associated
with the acquisition of a security services business (see Note 8). The Amended
Agreement also provided for an extension of the maturity date to December 12,
2008, and for reductions in fees and availability reserves and an increase in
the letter of credit sub-line to an aggregate amount of up to $3,000,000. The
Amended Agreement provides that interest will be calculated on the outstanding
principal balance of the revolving loans at the prime rate (as defined in the
Amended Agreement), less .25% and for LIBOR loans, interest will be calculated
on the outstanding principal balance of the LIBOR loans at the LIBOR rate (as
defined in the Amended Agreement), plus 2.0%.





On
October 10, 2008, we amended the Amended Agreement to extend the maturity date
of the CIT credit facility to December 31, 2008 and to reduce the written notice
period required to terminate the Amended Agreement from 60 days to 30
days.




F-11




Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





On
November 24, 2008, we amended the Amended Agreement to extend the maturity date
of the CIT credit facility to March 31, 2009. The amendment also provided for
interest to be calculated on the outstanding principal balance of the revolving
loans at the prime rate (as defined in the Amended Agreement) plus 3.50%. For
LIBOR loans, interest was calculated on the outstanding principal balance of the
LIBOR loans at the LIBOR
rate (as defined in the Amended Agreement) plus 3.50%. In addition, the Company
agreed to pay CIT a fee (the “Amendment Fee”) in consideration for the extension
provided to the Company under this amendment in the amount of $20,000. The
Amendment Fee was payable as follows: (i) If the Obligations (as defined in the
Amended Agreement) were paid in full on or before January 31, 2009, the entire
Amendment Fee shall be forgiven; (ii) If the Obligations (as defined in the
Amended Agreement) were not paid on or before January 31, 2009, a portion
of the Amendment Fee in the amount of $7,500 must be paid on or before February
1, 2009; (iii) If the Obligations (as defined in the Amended
Agreement) were paid in full on or before February 27, 2009, then the unpaid
balance of the Amendment Fee shall be forgiven; and (iv) If the Obligations (as
defined in the Amended Agreement) were not paid on or before February 27, 2009,
then the unpaid balance of the Amendment Fee must be paid on or before March 2,
2009.





On
February 12, 2009, we entered into a new $20,000,000 credit facility with Wells
Fargo (the “Credit Agreement”). This new credit facility, which matures in
February 2012, contains customary affirmative and negative covenants, including,
among other things, covenants requiring us to maintain certain financial ratios.
This new facility replaced our existing $16,000,000 revolving credit facility
with CIT, and was used to refinance outstanding indebtedness under that
facility, to pay fees and expenses in connection therewith and, thereafter, for
working capital (including acquisitions), letters of credit and other general
corporate purposes.





The
Credit Agreement provides for a letter of credit sub-line in an aggregate amount
of up to $3,000,000. The Credit Agreement also provides for interest to be
calculated on the outstanding principal balance of the revolving loans at the
prime rate (as defined in the Credit Agreement) plus 1.50%. For LIBOR loans,
interest will be calculated on the outstanding principal balance of the LIBOR
loans at the LIBOR rate (as defined in the Credit Agreement) plus 2.75%. In
addition, the Credit Agreement provides a performance pricing provision whereby
if certain conditions are met (as defined in the Credit Agreement) the interest
rates charged shall be reduced by 0.25%.





As of
March 31, 2010, the interest rates were 4.75% and 3.00% for revolving and LIBOR
loans, respectively. Closing costs for the Credit Agreement totaled $314,706 and
are being amortized over the three year life of the Credit
Agreement.





At March
31, 2010, we had borrowed $9,000,000 in LIBOR loans and had approximately
$169,000 letters of credit outstanding representing approximately 54% of the
maximum borrowing capacity under the Credit Agreement based on our “eligible
accounts receivable” (as defined under the Credit Agreement) as of such
date.





We rely
on our revolving loan from Wells Fargo which contains a fixed charge covenant
and various other financial and non-financial covenants. If we breach a
covenant, Wells Fargo has the right to immediately request the repayment in full
of all borrowings under the Credit Agreement, unless Wells Fargo waives the
breach. For the fiscal year ended March 31, 2010, we were in compliance with all
covenants under the Credit Agreement.





The
Company may obtain short-term financing to meet its insurance needs. For the
fiscal year ended March 31, 2010, $3,618,554 was borrowed for this purpose at an
annual interest rate of 2.22%. At March 31, 2010, we had $1,995,744 of
short-term insurance borrowings outstanding.





8.
Acquisitions





(a)
            On
      April 12, 2007, we completed the acquisition of 100% of the security
      services business of California-based Brown Security Industries, Inc.,
      including its wholly-owned operating subsidiaries, Strategic Security
      Services, Inc. and Rodgers Police Patrol, Inc. (“Brown”). The purchase
      price for these companies was $3,000,000, plus an amount equal to their
      estimated consolidated tangible net worth (as defined in the purchase
      agreement) on the closing date of $400,000, subject to adjustment. The
      purchase price was comprised of $1,615,000 in cash and 614,246 shares of
      the our common stock, valued at an aggregate amount of $1,785,000, based
      on the average closing price of our common stock on the OTC Bulletin Board
      for the five consecutive trading days immediately prior to the date that
      the parties first entered into the definitive transaction documents. The
      residual amount of the purchase price, of approximately $875,000, in
      excess of certain operating assets and intangible assets was allocated to
      goodwill.





The
acquisition of Brown is expected to continue to broaden our national network of
office locations and expand our geographical reach as part of the Company’s
ongoing efforts to accelerate growth and profitability. This transaction further
enhances our position as a nationally recognized provider of security services
in this growing market within the United States.





As of
December 29, 2009, Strategic Security Services, Inc., Rodgers Police Patrol,
Inc. and Command Security Services, Inc., the Company’s three wholly-owned
subsidiaries, were merged into the parent company. Activity related to the
acquisition of Brown and its related subsidiaries included in the consolidated
statements of income for the fiscal years ended March 31, 2010, 2009 and 2008
consisted of the following:


2010
                    
                    
                    2009
                    
                    
                    2008Revenues
                    
                    $
                    14,787,113
                    
                    
                    $
                    11,494,573
                    
                    
                    $
                    10,903,293Earnings
      before taxes
                    
                    
                    472,429
                    
                    
                    
                    105,558
                    
                    
                    
                    410,608




F-12


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





(b)
            On
      January 7, 2008 we completed the acquisition of substantially all of the
      assets of Expert Security Services, Inc., a Maryland-based provider of
      guard and related security services (“ESS”). The purchase price for these
      assets was $437,000, subject to adjustment based on the achievement or
      failure to achieve certain revenue targets, as specified in accordance
      with the terms, and subject to the conditions, of that certain Asset
      Purchase Agreement dated as of January 1, 2008, among the Company, ESS and
      the shareholders of ESS. We paid the entire purchase price in cash at the
      closing of the transaction.





(c)
            In
      September 2008, we completed the acquisition of substantially all of the
      assets of Eagle International Group, LLC (“EIG”) and International
      Security & Safety Group, LLC (“ISSG”), providers of security services
      primarily in Broward and Palm Beach counties in Florida. EIG and ISSG have
      an aggregate of approximately 200 employees and estimated combined annual
      sales of approximately $5,000,000 for calendar 2008. The combined cash
      purchase price for these businesses was approximately $1,200,000, subject
      to reduction in the event that certain revenue targets are not
      met.





9.
Income per Share





The
following is a reconciliation of the numerators and the denominators of the
basic and diluted per-share computations for net income for the fiscal years
ended March 31, 2010, 2009 and 2008:





Income
                                                            
                                                            
                                                            Shares
                                                            
                                                            
                                                            Per-Share(Numerator)
                                                            
                                                            
                                                            (Denominator)
                                                            
                                                            
                                                            AmountYear
      ended March 31, 2010Basic
      EPS
                                                            
                                                            $
                                                            1,631,639
                                                            
                                                            
                                                            
                                                            10,848,375
                                                            
                                                            
                                                            $
                                                            .15Effect
      of dilutive shares:Options
      issued February 2001,August
      2004, May 2005, September 2005,September
      2006, April 2007,September
      2007, January 2008, June 2008,September
      2008 and December 2008
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            362,456Diluted
      EPS
                                                            
                                                            $
                                                            1,631,639
                                                            
                                                            
                                                            
                                                            11,210,831
                                                            
                                                            
                                                            $
                                                            .15Year
      ended March 31, 2009Basic
      EPS
                                                            
                                                            $
                                                            1,281,883
                                                            
                                                            
                                                            
                                                            10,772,613
                                                            
                                                            
                                                            $
                                                            .12Effect
      of dilutive shares:Options
      issued February 2001,August
      2004, May 2005, September 2005,September
      2006, October 2006, April 2007,September
      2007, January 2008, June 2008,September
      2008 and December 2008
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            618,434Diluted
      EPS
                                                            
                                                            $
                                                            1,281,883
                                                            
                                                            
                                                            
                                                            11,391,047
                                                            
                                                            
                                                            $
                                                            .11Year
      ended March 31, 2008Basic
      EPS
                                                            
                                                            $
                                                            2,473,585
                                                            
                                                            
                                                            
                                                            10,733,797
                                                            
                                                            
                                                            $
                                                            .23Effect
      of dilutive shares:Options
      issued February 2001,August
      2004, May 2005, September 2005,February
      2006, September 2006,October
      2006, April 2007,September
      2007 and January 2008
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            650,188Diluted
      EPS
                                                            
                                                            $
                                                            2,473,585
                                                            
                                                            
                                                            
                                                            11,383,985
                                                            
                                                            
                                                            $
                                                            .22





10.
Retirement Plans





In
November 1999, the Company adopted a qualified retirement plan providing for
elective employee deferrals and discretionary employer contributions to
non-highly compensated participants. During the fiscal year ended March 31,
2007, the plan was revised to allow for employer matching of elective deferrals,
only for certain employees working under a specific customer contract, as
defined. No discretionary amounts were accrued or paid for the fiscal years
ended March 31, 2010, 2009 and 2008.


F-13


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





11.
Concentrations of Credit Risk





Geographic
concentrations of credit risk with respect to trade receivables are primarily in
California with 41% and 36% and in the New York Metropolitan area with 30% and
37% of total receivables as of March 31, 2010 and 2009, respectively. The
remaining trade receivables consist of a large number of customers dispersed
across many different geographic regions. During the fiscal years ended March
31, 2010, 2009 and 2008, the Company generated 50%, 56% and 62%, respectively,
of its revenue from aviation and related services. Trade receivables due from
the commercial airline industry comprised 53% (in both periods) of net
receivables as of March 31, 2010 and 2009, respectively. The Company’s remaining
customers are not concentrated in any specific industry except for a major
express transportation company which accounts for approximately 11% of accounts
receivable. The Company maintains its cash accounts in bank deposit accounts,
which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts. Company management believes the risk of
loss associated with these accounts to be remote.





12.
Significant Customers





The
Company operates as a provider of security officer services to a wide range of
industries which the Company has categorized into three groups; security officer
services, aviation services and support services. The latter includes revenues
from back office support to police departments.





Net
revenues for the groups noted above were as follows for the three years ended
March 31:





2010
                
                
                2009
                
                
                2008Security
      Officer Services
                
                $
                73,050,991
                
                
                $
                56,932,537
                
                
                $
                45,587,205Aviation
      Services
                
                
                72,453,330
                
                
                
                73,688,558
                
                
                
                73,617,327Support
      Services
                
                
                190,309
                
                
                
                192,149
                
                
                
                199,333Total
                
                $
                145,694,630
                
                
                $
                130,813,244
                
                
                $
                119,403,865





For the
fiscal year ended March 31, 2010, one security services customer accounted for
approximately $25,177,000 of the Company’s total revenue. For the fiscal years
ended March 31, 2009 and 2008, one airline customer accounted for approximately
$19,341,000 and $18,117,000, respectively, of the Company’s total
revenue.





13.
Insurance Reserves





We have
an insurance policy covering workers’ compensation claims in states that we
perform services. Estimated accrued liabilities are based on our historical loss
experience and the ratio of claims paid to our historical payout profiles.
Charges for estimated workers’ compensation related losses incurred and included
in cost of sales were $2,870,685, $1,656,742 and $1,609,009, for the fiscal
years ended March 31, 2010, 2009 and 2008, respectively.





The
nature of our business also subjects us to claims or litigation alleging that we
are liable for damages as a result of the conduct of our employees or others. We
insure against such claims and suits through general liability policies with
third-party insurance companies. Our insurance coverage limits are currently
$7,000,000 per occurrence for non-aviation related business (with an additional
excess umbrella policy of $10,000,000) and $30,000,000 per occurrence for
aviation related business. We retain the risk for the first $25,000 per
occurrence on the non-aviation related policy which includes airport wheelchair
and electric cart operations, and $5,000 on the aviation related policy except
for $25,000 for damage to aircraft and $100,000 for skycap operations. Estimated
accrued liabilities are based on specific reserves in connection with existing
claims as determined by third party risk management consultants and actuarial
factors and the timing of reported claims. These are all factored into estimated
losses incurred but not yet reported to us.





Cumulative
amounts estimated to be payable by us with respect to pending and potential
claims for all years in which we are liable under our general liability
retention and workers’ compensation policies have been accrued as liabilities.
Such accrued liabilities are necessarily based on estimates; thus, our ultimate
liability may exceed or be less than the amounts accrued. The methods of making
such estimates and establishing the resultant accrued liability are reviewed
continually and any adjustments resulting therefrom are reflected in current
results of operations.





14.
Contingencies





The
nature of our business is such that there is a significant volume of routine
claims and lawsuits that are issued against us, the vast majority of which never
lead to substantial damages being awarded. We maintain general liability and
workers’ compensation insurance coverage that we believe is appropriate to the
relevant level of risk and potential liability. Some of the claims brought
against us could result in significant payments; however, the exposure to us
under general liability is limited to the first $25,000 per occurrence on the
non-aviation, airport wheelchair and electric cart operations related claims and
$5,000 per occurrence on the aviation related claims except $25,000 for damage
to aircraft and $100,000 for skycap operations. Any punitive damage award would
not be covered by the general liability insurance policy. The only other
potential impact would be on future premiums, which may be adversely affected by
an unfavorable claims history.





In
addition to such cases, we have been named as a defendant in several uninsured
employment related claims which are currently before various courts, the Equal
Employment Opportunities Commission or various state and local agencies. We have
instituted policies to minimize these occurrences and monitor those that do
occur. At this time, we are unable to determine the impact on the financial
position and results of operations that these claims may have, should the
investigations conclude that they are valid.


F-14


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





The
Company has employment agreements with certain of its officers and key employees
with terms which range from one to three years. The agreements generally provide
for annual salaries and for salary continuation for a specified number of months
under certain circumstances, including a change in control of the
Company.





15.
Commitments





Lease





The
Company is obligated under various operating lease agreements for office space,
equipment and auto rentals. Rent expense under operating lease agreements
approximated $2,014,100, $1,788,812 and $1,526,789, for the fiscal years ended
March 31, 2010, 2009 and 2008, respectively.





The
Company leases certain equipment and vehicles under agreements that are
classified as capital leases. Most equipment leases have purchase options at the
end of the original lease term. Cost and related accumulated depreciation of
leased capital assets included in furniture and equipment at March 31, 2010 are
$875,082 and $683,605 and at March 31, 2009 are $843,170 and $683,210,
respectively.





The
future minimum payments under long-term non-cancelable capital and operating
lease agreements are as follows:





Capital
                      
                      
                      OperatingLeases
                      
                      
                      LeasesYear
      ending:  March 31, 2011
                      
                      $
                      115,928
                      
                      
                      $
                      1,479,823March 31, 2012
                      
                      
                      43,235
                      
                      
                      
                      786,899March 31, 2013
                      
                      
                      —
                      
                      
                      
                      227,889March 31, 2014
                      
                      
                      —
                      
                      
                      
                      65,396March 31, 2015
                      
                      
                      —
                      
                      
                      
                      4,581Total
                      
                      $
                      159,163
                      
                      
                      $
                      2,564,588





Other





On March
31, 2004, the Company settled a dispute with a uniform cleaning service that
calls for the Company to pay approximately $1,756 per week for 344 weeks or a
total amount of $604,133 ending in fiscal 2011. The expense recorded in
connection with weekly payments under this agreement amounted to $89,566,
$91,322 and $91,322 for the fiscal years ended March 31, 2010, 2009 and 2008,
respectively. For the fiscal year ending March 31, 2011, the required future
minimum payments under the agreement are $57,965.





16.
Stock Option Plan and Warrants





In
November 2000, the Company's Board of Directors and stockholders approved the
adoption of a qualified stock option plan. Under the stock option plan,
substantially all employees are eligible to receive options to purchase up to an
aggregate of 500,000 shares at an exercise price that cannot be less than the
fair market value of the shares on the date the options are granted. During the
fiscal years ended March 31, 2010 and 2009, the Company received proceeds of
$89,775 and $54,000, respectively, in connection with the exercise of stock
options to purchase 66,500 and 40,000 shares, respectively, of the Company’s
common stock at an exercise price of $1.35 per share. The outstanding options
are exercisable at any time before January 31, 2011, August 29, 2014 and May 23,
2015 at $.75, $1.35 and $1.49 per share, respectively.





In
September 2005, the Company’s Board of Directors and stockholders approved the
adoption of a qualified stock incentive plan. Under the stock incentive plan,
substantially all employees of and consultants to, the Company, are eligible to
receive options to purchase up to an aggregate of 1,000,000 shares of the
Company’s common stock at an exercise price that cannot be less than the fair
market value of the shares on the date the options are granted. In September and
April 2007, options to purchase 80,000 and 65,000 shares of the Company’s common
stock were issued. In December, September, June and January 2008, options to
purchase 70,000, 568,068, 50,000 and 25,000 shares of the Company’s common stock
were issued, respectively. Stock options granted in April 2007, January 2008 and
September 2008 (with respect to 510,000 options) were granted in connection with
employment agreements and vest with respect to one-twelfth (1/12) of the
aggregate number of shares on the date of issuance and on the same date of each
succeeding month. The vested outstanding options are exercisable at any time
before December 30, 2018 at $3.08 per share, September 28, 2018 at $3.37 per
share, September 17, 2018 at $3.36 per share, September 11, 2018 at $3.35 per
share, June 4, 2018 at $2.68 per share, December 31, 2017 at $3.35 per share,
September 19, 2017 at $3.19 per share, April 11, 2017 at $3.00 per share,
September 19, 2016 at $2.67 per share and September 21, 2015 at $2.05 per share,
respectively.


F-15


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





In
September 2009, the Company’s Board of Directors and stockholders approved the
adoption of a qualified stock incentive plan. Under the stock incentive plan,
substantially all employees of and consultants to, the Company, are eligible to
receive options to purchase up to an aggregate of 1,500,000 shares of the
Company’s common stock at an exercise price that cannot be less than the fair
market value of the shares on the date the options are granted. In December
2008, subject to the approval by the Board of Directors and stockholders at the
Company’s 2009 Annual Meeting of Shareholders, options to purchase 50,082 shares
of the Company’s common stock were issued. The outstanding options are
exercisable at any time before December 30, 2018 at $3.08 per
share.





In
February and October 2006 and April 2007, the Company granted consultants
warrants to purchase an aggregate of 350,000, 100,000 and 50,000 shares of the
Company’s common stock at exercise prices of $2.00, $2.70 and $2.70 per share,
respectively. Such warrants expired in February 2009, September 2009 and March
2010, respectively.





On August
30, 2004 (the “Effective Date”), the Company issued stock options to its
President and former Chief Operating Officer (the “Executive”) to purchase
500,000 shares of the Company’s common stock at an exercise price of $1.35 per
share. The options became fully vested during August 2007. During the fiscal
years ended March 31, 2010 and 2009, the Company received proceeds of $1,235 and
$10,080, respectively, in connection with the exercise of stock options to
purchase 915 and 7,467 shares, respectively, of the Company’s common stock at an
exercise price of $1.35 per share. The vested outstanding options are
exercisable at any time before August 29, 2014.





Certain
of the option and warrant agreements contain anti-dilution adjustment
clauses.





A summary
of activity related to all Company stock option and warrant activity for the
years ended March 31, 2010, 2009 and 2008, are as follows:





Options
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                WarrantsExercise
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Number
      of
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Exercise
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Number
      ofPrice
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Shares
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                Price
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                SharesOutstanding
      at March 31, 2007
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                .75
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                2.67
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                895,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                2.00
                                                                                                                                                -
                                                                                                                                                2.70
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                450,000Issued
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3.00
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                3.35
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                170,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.70
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                50,000Forfeited
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1.49
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (5,000
                                                                                                                                                )Outstanding
      at March 31, 2008
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                .75
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                3.35
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,060,000
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.00
                                                                                                                                                -
                                                                                                                                                2.70
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                500,000Issued
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.68
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                3.37
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                688,068Forfeited
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.00
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (350,000
                                                                                                                                                )Exercised
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1.35
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (47,467
                                                                                                                                                )Outstanding
      at March 31, 2009
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                .75
                                                                                                                                                -
                                                                                                                                                
                                                                                                                                                3.37
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,700,601
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.70
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                150,000Issued
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3.08
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                50,082Forfeited
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                3.08
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (13,068
                                                                                                                                                )
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                2.70
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (150,000
                                                                                                                                                )Exercised
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1.35
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                (67,415
                                                                                                                                                )Outstanding
      at March 31, 2010
                                                                                                                                                
                                                                                                                                                $
                                                                                                                                                .75
                                                                                                                                                -
                                                                                                                                                $
                                                                                                                                                3.37
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                1,670,200
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                
                                                                                                                                                —




At March
31, 2010 there were 1,670,200 options outstanding exercisable at prices ranging
from $.75 to $3.37 and 3,325,118 shares reserved for issuance under all stock
arrangements. At March 31, 2010, there was $179,928 of total unrecognized
compensation expense from stock-based compensation granted under the plans,
which is related to non-vested options. The compensation expense is expected to
be recognized over a weighted average vesting period of 1.5 years.





Significant
option groups outstanding and exercisable at March 31, 2010 and the related
weighted average exercise price and life information are as
follows:


Weighted
                                
                                
                                WeightedAverage
                                
                                
                                AverageRange
      of
                                
                                Options
                                
                                
                                Options
                                
                                
                                Exercise
                                
                                
                                RemainingExercise
      Price
                                
                                Outstanding
                                
                                
                                Exercisable
                                
                                
                                Price
                                
                                
                                Life
      (years)$  .75     -     $  3.37
                                
                                
                                1,670,200
                                
                                
                                
                                1,420,200
                                
                                
                                $
                                2.46
                                
                                
                                
                                6.61




F-16


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008





The
weighted average estimated values of stock options granted during fiscal 2010,
2009 and 2008 were $.46, $.68 and $.97, respectively. The weighted average
assumptions used in the Black-Scholes option-pricing model were as
follows:





2010
                  
                  
                  2009
                  
                  
                  2008Risk-free
      interest rate
                  
                  
                  1.15
                  %
                  
                  
                  2.20
                  %
                  
                  
                  3.94
                  %Years
      until exercise
                  
                  
                  3.00
                  
                  
                  
                  3.00
                  
                  
                  
                  3.00Volatility
                  
                  
                  19.3
                  %
                  
                  
                  26.0
                  %
                  
                  
                  39.7
                  %Dividend
      yield
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %
                  
                  
                  0.00
                  %Termination
      rate
                  
                  
                  n/a
                  
                  
                  
                  n/a
                  
                  
                  
                  n/a





FASB ASC
718, Stock
Compensation, requires all share-based payments to employees, including
grants of employee stock options, to be recognized in the financial statements
based on their fair values at grant date and the recognition of the related
expense over the period in which the share-based compensation vest. The Company
was required to adopt the provisions of FASB ASC 718 effective July 1, 2005 and
use the modified-prospective transition method. Under the modified-prospective
method, the Company recognizes compensation expense in the financial statements
issued subsequent to the date of adoption for all share-based payments granted,
modified or settled after July 1, 2005.





The
Company recorded total stock based compensation costs of $140,528, $172,097 and
$239,900 for the fiscal years ended March 31, 2010, 2009 and 2008,
respectively.





17.
Income Taxes





Net
income tax expense (benefit) for the fiscal years ended March 31 consists of the
following:





2010
                              
                              
                              2009
                              
                              
                              2008Current:Federal
                              
                              $
                              1,503,000
                              
                              
                              $
                              561,666
                              
                              
                              $
                              810,000State
      and local
                              
                              
                              320,700
                              
                              
                              
                              252,473
                              
                              
                              
                              265,0001,823,700
                              
                              
                              
                              814,139
                              
                              
                              
                              1,075,000Deferred:Federal
                              
                              
                              (160,000
                              )
                              
                              
                              324,000
                              
                              
                              
                              (902,000
                              )State
      and local
                              
                              
                              (38,000
                              )
                              
                              
                              126,000
                              
                              
                              
                              (333,000
                              )(198,000
                              )
                              
                              
                              450,000
                              
                              
                              
                              (1,235,000
                              )Net
      income tax expense (benefit)
                              
                              $
                              1,625,700
                              
                              
                              $
                              1,264,139
                              
                              
                              $
                              (160,000
                              )





The
differences (expressed as a percentage of pretax income) between the statutory
federal income tax rate and the effective income tax rate as reflected in the
accompanying statements of operations are as follows:





2010
                        
                        
                        2009
                        
                        
                        2008Statutory
      federal income tax rate
                        
                        
                        34.0
                        
                        
                        
                        34.0
                        
                        
                        
                        34.0State
      and local income taxes
                        
                        
                        7.3
                        
                        
                        
                        7.4
                        
                        
                        
                        7.0Valuation
      allowance and reserves
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (47.5
                        )Permanent
      differences
                        
                        
                        4.7
                        
                        
                        
                        5.9
                        
                        
                        
                        .7Utilization
      of net operating loss carryforwards
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (1.0
                        )Other
                        
                        
                        3.9
                        
                        
                        
                        2.4
                        
                        
                        
                        —Effective
      tax rate
                        
                        
                        49.9
                        %
                        
                        
                        49.7
                        %
                        
                        
                        (6.8
                        )%




The
significant components of deferred tax assets and liabilities as of March 31,
2010 and 2009 are as follows:





2010
                      
                      
                      2009Current
      deferred tax assets:Accounts
      receivable
                      
                      $
                      448,825
                      
                      
                      $
                      327,570Accrued
      expenses
                      
                      
                      123,780
                      
                      
                      
                      122,540Contingency
      reserves
                      
                      
                      —
                      
                      
                      
                      —Net
      current deferred tax assets
                      
                      $
                      572,605
                      
                      
                      $
                      450,110




F-17


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2010, 2009 and
2008




Non-current
      deferred tax assets (liabilities):Equipment
                                
                                $
                                (183,203
                                )
                                
                                $
                                (157,040
                                )Intangible
      assets
                                
                                
                                166,539
                                
                                
                                
                                233,609Self-insurance
                                
                                
                                318,373
                                
                                
                                
                                265,160Workers
      compensation reserve
                                
                                
                                1,128,713
                                
                                
                                
                                941,090Employee
      stock compensation
                                
                                
                                310,003
                                
                                
                                
                                322,419Net
      non-current deferred tax assets
                                
                                
                                1,740,425
                                
                                
                                
                                1,605,238Total
      deferred tax assets
                                
                                $
                                2,313,030
                                
                                
                                $
                                2,055,348





The
valuation allowance decreased by $1,108,676 during the fiscal year ended March
31, 2008. The Company has determined based on its expectations for the future
that it is more likely than not that future taxable income will be sufficient to
utilize fully the net deferred tax assets at March 31, 2010 and 2009. Federal
and state net operating loss carryforwards utilized during the year ended March
31, 2008 were acquired via the acquisition of Brown Security Industries, Inc. in
April 2007 (see Note 8), as previously available federal net operating loss
carryforwards were fully utilized during the year ended March 31,
2007.





Fiscal
years 2007 through 2010 remain subject to examination by federal and state
taxing authorities with certain states having open tax years beginning in fiscal
2006.





18.
Related Party Transactions





Each of
the Company’s non-employee directors receives from the Company an annual cash
fee of $10,000, paid quarterly in arrears. Such fee was increased to $18,000 in
December 2008. Non-employee directors are also paid $1,000 per meeting attended
of the board and certain of its committees.





In
addition, effective as of December 2008, the Company’s Chairman of the Board,
Chairman of the Audit Committee and Chairman of the Compensation Committee
receive an additional cash payment of $5,000 per annum. Prior to December 2008,
the Company’s Chairman of the Audit Committee and Chairman of the Compensation
Committee received an additional cash payment of $2,500 and $1,500 per annum,
respectively.





19.
Quarterly Results (unaudited)





Summary
data relating to the results of operations for each quarter for the fiscal years
ended March 31, 2010 and 2009 follows:





Three Months EndedJune 30
                              
                              
                              Sept. 30
                              
                              
                              Dec. 31
                              
                              
                              March 31Fiscal
      year 2010Security
      officer service revenue
                              
                              $
                              35,021,830
                              
                              
                              $
                              37,426,248
                              
                              
                              $
                              37,545,196
                              
                              
                              $
                              35,511,047Administrative
      service revenue
                              
                              
                              46,054
                              
                              
                              
                              48,624
                              
                              
                              
                              47,472
                              
                              
                              
                              48,159Total
      revenue
                              
                              
                              35,067,884
                              
                              
                              
                              37,474,872
                              
                              
                              
                              37,592,668
                              
                              
                              
                              35,559,206Gross
      profit
                              
                              
                              4,544,787
                              
                              
                              
                              5,360,585
                              
                              
                              
                              5,624,162
                              
                              
                              
                              4,952,876Net
      income
                              
                              
                              159,220
                              
                              
                              
                              561,697
                              
                              
                              
                              729,530
                              
                              
                              
                              181,192Net
      incomeper
      common share (basic)
                              
                              
                              0.01
                              
                              
                              
                              0.05
                              
                              
                              
                              0.07
                              
                              
                              
                              0.02per
      common share (diluted)
                              
                              
                              0.01
                              
                              
                              
                              0.05
                              
                              
                              
                              0.07
                              
                              
                              
                              0.02Fiscal
      year 2009Security
      officer service revenue
                              
                              
                              31,900,624
                              
                              
                              
                              33,658,259
                              
                              
                              
                              32,712,146
                              
                              
                              
                              32,350,068Administrative
      service revenue
                              
                              
                              48,332
                              
                              
                              
                              47,882
                              
                              
                              
                              48,327
                              
                              
                              
                              47,606Total
      revenue
                              
                              
                              31,948,956
                              
                              
                              
                              33,706,141
                              
                              
                              
                              32,760,473
                              
                              
                              
                              32,397,674Gross
      profit
                              
                              
                              4,604,999
                              
                              
                              
                              5,056,345
                              
                              
                              
                              4,727,013
                              
                              
                              
                              4,275,861Net
      income
                              
                              
                              549,935
                              
                              
                              
                              606,464
                              
                              
                              
                              248,810
                              
                              
                              
                              (123,326
                              )Net
      incomeper
      common share (basic)
                              
                              
                              0.05
                              
                              
                              
                              0.06
                              
                              
                              
                              0.02
                              
                              
                              
                              (0.01
                              )per
      common share (diluted)
                              
                              
                              0.05
                              
                              
                              
                              0.05
                              
                              
                              
                              0.02
                              
                              
                              
                              (0.01
                              )




F-18





Schedule II





COMMAND
SECURITY CORPORATION





SCHEDULE
OF VALUATION AND QUALIFYING ACCOUNTS





AgainstAdditions
                    
                    
                    Amounts(Reductions)
                    
                    
                    Due toBalance at
                    
                    
                    Charged or
                    
                    
                    Administrative
                    
                    
                    Charged
                    
                    
                    Deductions
                    
                    
                    BalanceBeginning
                    
                    
                    Credited to
                    
                    
                    Service
                    
                    
                    to Other
                    
                    
                    from
                    
                    
                    at End ofof
      Period
                    
                    
                    Expenses
                    
                    
                    Clients
                    
                    
                    Accounts
                    
                    
                    Reserve
                    
                    
                    PeriodYear
      ended March 31, 2010:Deducted
      from asset accounts:Allowance
      for doubtful accounts receivable - current maturities
                    
                    $
                    1,000,507
                    
                    
                    $
                    448,101
                    
                    
                    $
                    (126,950
                    )
                    
                    $
                    1,900
                    
                    
                    $
                    (156,121
                    )
                    
                    $
                    1,167,437Year
      ended March 31, 2009:Deducted
      from asset accounts:Allowance
      for doubtful accounts receivable - current maturities
                    
                    
                    1,020,442
                    
                    
                    
                    305,556
                    
                    
                    
                    —
                    
                    
                    
                    (5,556
                    )
                    
                    
                    (319,935
                    )
                    
                    
                    1,000,507Year
      ended March 31, 2008:Deducted
      from asset accounts:Allowance
      for doubtful accounts receivable - current maturities
                    
                    
                    831,397
                    
                    
                    
                    (151,918
                    )
                    
                    
                    —
                    
                    
                    
                    477,493
                    
                    
                    
                    (136,530
                    )
                    
                    
                    1,020,442





See
auditor's report





End
of Filing


F-19