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, 2009


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)
      454-3703
              
              Securities registered pursuant to
      Section 12(b) of the Act:




Title
      of each class
            Name
      of each exchange on which registeredCommon Stock, par value $0.0001
      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 [ ] 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 [ ] 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$19,954,573as of September 30,
2008.




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 10,804,683 outstanding shares
of the registrant’s common stock as of June 19, 2009.




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 2009
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, 2009.





Command
Security Corporation


Annual
Report on Form 10-K


For
the Fiscal Year Ended March 31, 2009





Table
of Contents








Page


PART
      IItem
      1.  Business
            1
      - 3Item
      1A.  Risk Factors
            4
      - 7Item
      1B.  Unresolved Staff Comments
            7Item
      2.  Properties
            7
      - 10Item
      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
            12
      - 13and
      Issuer Purchases of Equity SecuritiesItem
      6.  Selected Financial Data
            14Item
      7.  Management's Discussion and Analysis of Financial Condition
      and Results
            14
      - 22of
      OperationsItem
      7A.  Quantitative and Qualitative Disclosures About Market
      Risk
            23Item
      8.  Financial Statements and Supplementary Data
            23Item
      9.  Changes in and Disagreements with Accountants on Accounting
      and Financial
            23DisclosureItem
      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
            24Stockholder
      MattersItem
      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 $56.9 million, or 43.5% of our revenues for our
fiscal year ended March 31, 2009.





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 $73.7 million, or 56.4% of
our revenues for our fiscal year ended March 31, 2009.





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, 2009.





Operations





We
conduct our operations through our offices located throughout the United
States.  Since March 2008, we have grown from thirty plus offices in
fifteen states to forty plus offices in eighteen states including California,
Colorado, Connecticut, Delaware, District of Columbia, Florida, Illinois, Maine,
Maryland, Massachusetts, New Jersey, New York, Oregon, Pennsylvania, Rhode
Island, Texas, Virginia and Washington.  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 the past five months,
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.  Recently, our aviation services division
has been successful in obtaining a new service 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
$5,000,000) 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.





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.


1





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
the latest 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 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.  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, 2009, we generated revenues of approximately
$19,341,000 from services we provided to Delta Airlines (“Delta”) which
represented approximately 15% 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.”





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.


2





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
contracts provide for termination, it is both destabilizing and expensive to a
customer’s security profile to cancel and change contractors and, in general, a
difficult decision to make.  However, we believe that quality of
service is the most important factor to our customers.  While all
security service companies experience customer attrition, we believe that we can
minimize customer attrition by adhering to basic performance standards in
meeting these essential customer requirements.  We have traditionally
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 6,000
employees, the majority of whom are hourly service workers, and approximately
320 of whom serve as managers, administrative employees and
executives.





Approximately
30% 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 trademark “Smartwheel” for the computer program we use
in dispatching and tracking small vehicles, such as carts and wheelchairs at
transportation terminals.  This 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 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.





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 56% 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.





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.


6





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 $5,000,000) 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, 2009, 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 also lease office
space at the following locations:


Location48521
      Warm Springs BoulevardSuite
      301-302Fremont,
      CA8939
      S. Sepulveda BoulevardSuites
      201 & 208Los
      Angeles, CA2194
      Edison AvenueSuite
      1San
      Leandro, CA2230
      S. Fairview AvenueSanta
      Ana, CA3180
      University AvenueSuites
      110 & 120San
      Diego, CA








7




Norman
      Y. Mineta San Jose Int’l Airport1661
      Airport BoulevardSan
      Jose, CASan
      Jose Int'l. Airport1400
      Coleman AvenueSuites
      D24 & D25Santa
      Clara, CA40
      Richards Avenue3rd
      FloorNorwalk,
      CT100
      Wells Street#2AHartford,
      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, IL21
      Cummings ParkSuite
      224Woburn,
      MA1601
      & 1605 Main StreetSpringfield,
      MA780
      Elkridge Landing RoadSuite
      220Linthicum
      Heights, MD




8






Portland
      International Airport1001
      Westbrook StreetPortland,
      ME1767
      Morris AvenueSuite
      101First
      FloorUnion,
      NJ1280
      Route 463rd
      FloorParsippany,
      NJ2204
      Morris AvenueSuite
      302, 3rd
      FloorUnion,
      NJ52
      Oswego StreetBaldwinsville,
      NY2144
      Doubleday AvenueBallston
      Spa, NY4099
      Genesee StreetCheektowaga,
      NYLaGuardia
      International AirportUnited
      Hangar #2, Rooms 328 & 329Flushing,
      NYJFK
      International Airport175-01
      Rockaway BoulevardJamaica,
      NY17
      Battery PlaceSuite
      223New
      York, NY720
      Fifth Avenue10th
      FloorNew
      York, NY






9




22
      IBM RoadSuite
      105Poughkeepsie,
      NYTwo
      Gannett DriveSuite
      208White
      Plains, NY265
      Sunrise HighwaySuites
      41 & 44Rockville
      Centre, NYPortland
      International Airport700
      NE Airport WaySuite
      D2404Portland,
      OR29
      Bala AvenueSuite
      118Bala
      Cynwyd, PA2
      International PlazaSuite
      242Philadelphia,
      PAPittsburgh
      International Airport1000
      Airport BoulevardTicketing
      Level of the Landside Terminal BuildingPittsburgh,
      PA669
      Elmwood AvenueSuite
      B-4Providence,
      RI1250
      Capital of Texas Highway SouthBuilding
      III, Suite 400Austin,
      TXSeattle-Tacoma
      Int’l. AirportMain
      Terminal Building Ticketing LevelRoom
      MT3469BSeattle,
      WA




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







10








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, 2009.


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 OTC Bulletin Board Service
(until June 7, 2007) and thereafter the NYSE Amex for each full quarterly period
within the two most recent fiscal years.





Last Sales Price
      Period (1)
            
            Common stock market
      priceHigh
            
            
            Low2009First
      Quarter
            
            
            $4.02
            
            
            
            $2.60Second
      Quarter
            
            
            3.55
            
            
            
            2.80Third
      Quarter
            
            
            3.35
            
            
            
            2.53Fourth
      Quarter
            
            
            3.64
            
            
            
            2.762008First
      Quarter
            
            
            $3.25
            
            
            
            $2.70Second
      Quarter
            
            
            3.40
            
            
            
            2.55Third
      Quarter
            
            
            3.60
            
            
            
            2.70Fourth
      Quarter
            
            
            4.43
            
            
            
            3.35





_________________________________





(1)
Reflects fiscal years ended March 31, 2009 and 2008 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 19, 2009 there were approximately 950 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, 2009 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, 2009, 2008, 2007, 2006
and 2005, 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
      DataYears
      Ended March 31,2009
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005Revenues
                
                
                130,813
                
                
                
                119,404
                
                
                
                93,823
                
                
                
                85,209
                
                
                
                79,655Gross
      profit
                
                
                18,664
                
                
                
                16,242
                
                
                
                13,665
                
                
                
                11,420
                
                
                
                10,523Operating
      income (loss)
                
                
                3,008
                
                
                
                2,969
                
                
                
                1,135
                
                
                
                8
                
                
                
                (289
                )Net
      income (loss)
                
                
                1,282
                
                
                
                2,474
                
                
                
                1,240
                
                
                
                (100
                )
                
                
                (390
                )Income
      (loss) per common share
                
                
                .12
                
                
                
                .23
                
                
                
                .12
                
                
                
                (.01
                )
                
                
                (.06
                )Weighted
      average numberof
      common shares
                
                
                10,772,613
                
                
                
                10,733,797
                
                
                
                10,137,970
                
                
                
                8,834,952
                
                
                
                7,302,738




Balance
      Sheet Data at March 31,2009
                
                
                2008
                
                
                2007
                
                
                2006
                
                
                2005Working
      capital
                
                
                7,106
                
                
                
                6,097
                
                
                
                6,514
                
                
                
                6,838
                
                
                
                3,679Total
      assets
                
                
                34,265
                
                
                
                32,786
                
                
                
                25,330
                
                
                
                18,113
                
                
                
                16,511Short-term
      debt (1)
                
                
                11,071
                
                
                
                8,775
                
                
                
                8,751
                
                
                
                3,475
                
                
                
                4,866Long-term
      debt  (2)
                
                
                109
                
                
                
                18
                
                
                
                16
                
                
                
                57
                
                
                
                81Stockholders'
      equity
                
                
                14,722
                
                
                
                13,360
                
                
                
                9,104
                
                
                
                7,625
                
                
                
                4,409




(1)
            Our
      short-term debt includes the current maturities of long-term debt,
      obligations under capital leases and short term borrowings. See Notes 7, 8
      and 16, “Short-Term Borrowings”, “Long-Term Debt” and “Lease 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.  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
Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.”





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





In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”).  SFAS No. 123R 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 SFAS
No. 123R 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 SFAS No. 123R resulted in
non-cash charges of $172,097, $239,900 and $226,550 for stock based compensation
for the years ended March 31, 2009, 2008 and 2007, respectively.  Such
non-cash charges would have been the same under the provisions of SFAS No.
148.





OVERVIEW





We
principally provide uniformed security officers and aviation services to
commercial, residential, financial, industrial, aviation and governmental
customers through over forty company-offices in eighteen 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 and manage 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.





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, 2009 was $1,281,883.  The
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.





Our net
income for the fiscal year ended March 31, 2008 was $2,473,585.  The
net income primarily resulted from:  (i) the continuing growth and
expansion of our aviation and security services divisions including the
acquisitions of security services businesses in California and Maryland; (ii)
lower workers’ compensation insurance costs reflecting our ongoing commitment to
implement loss prevention practices in the workplace, provide safety training to
our employees and reduce the frequency and severity of job-related claims
incurred; (iii) greater leveraging of our general and administrative expenses;
(iv) a recovery related primarily to the stock that we received under our claim
associated with the bankruptcy filing of Northwest Airlines and (v) an income
tax benefit associated with the recognition of deferred tax
assets.  Partially offsetting this net income were:  (i)
higher labor ratio margins for both our aviation and security services divisions
due mainly to increases in wages, salaries and related taxes and benefits of our
employees at rates in excess of the amount that we are willing to pass on to our
customers through increased billing rates charged under our service contracts;
(ii) the loss of document verification services to the TSA, as discussed below;
(iii) increased overhead costs at JFK resulting from a shortage of manpower
needed to meet increased demand for services; and (iv) additional investment in
our sales and marketing group.





Revenues





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
is 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.





Our
revenues for the fiscal year ended March 31, 2008 increased by $25,581,319, or
27.3%, to $119,403,865 from $93,822,546 in fiscal 2007.  The increase
resulted primarily from:  (i)  incremental revenues of
approximately $11,395,000 associated with the acquisitions of security services
businesses in California and Maryland in April 2007 and January 2008,
respectively; (ii) approximately $9,172,000 from new and existing airline
customers at our terminal operations in Los Angeles and JFK International
Airports; (iii) approximately $2,473,000 due mainly to expanded services with an
existing major medical center, a new contract to provide security services to a
New York based metropolitan hospital center and the expansion of domestic
services with a major international commercial bank; (iv) approximately
$1,072,000 from expanded services at San Jose International Airport in
California and LaGuardia Airport in New York; (v) approximately $1,300,000 under
new contracts that commenced during fiscal 2007 with groups of airlines at new
airport locations in Oakland, California and Seattle, Washington; and (vi)
expanded security services to new customers in the New England
region.  These increases in revenues were partially offset
by:  (i)  the loss of revenues at seven domestic airport
locations of approximately $2,000,000 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) the termination in
fiscal 2007 of a short-term contract to provide security services to a national
insurance company at multiple domestic locations, which generated revenues of
approximately $840,000 in the prior year.





Gross
Profit





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.


17





Our gross
profit for the fiscal year ended March 31, 2008 increased by $2,577,045, or
18.9%, to $16,242,277 (13.6% of revenues), from $13,665,232 (14.6% of revenues)
for fiscal 2007.  The increase resulted primarily from:  (i)
our acquisitions of security services businesses in California and Maryland;
(ii) expanded aviations services at the airports described above, with the
exception of JFK (see below); and (iii) lower workers’ compensation
costs.  The increase in our gross profit was partially offset
by:  (i) higher labor ratio margins for both our aviation and security
services divisions due mainly to increases in wages, salaries and related taxes
and benefits of our employees at rates in excess of the amount that we are
willing to pass on to our customers through increased billing rates charged
under our service contracts; (ii) the loss of the TSA document verification
services, as described above; (iii) higher overtime costs at JFK resulting from
a shortage of manpower needed to meet increased demand for services; (iv) the
absence of a short-term contract to provide security services to a national
insurance company at multiple domestic locations; and (v) the loss of service
fees under our service agreement contracts that were discontinued during fiscal
2007.





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 $1,656,742, $1,609,009 and
$2,042,618, for the fiscal years ended March 31, 2009, 2008 and 2007,
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
$5,000,000) 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, 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.





Our
general and administrative expenses for the fiscal year ended March 31, 2008
increased by $1,109,417 to $13,425,162 (11.2% of revenues), from $12,315,745
(13.1% of revenues) in fiscal 2007.  The increase resulted primarily
from:  (i) higher administrative payroll costs associated mainly with
expanded operations, including the acquisitions noted above, and additional
investment in our sales and marketing group; (ii) professional and related fees
principally associated with settlement of employment related claims; (iii)
facility costs; (iv) amortization costs associated with the acquisitions noted
above; (v) stock compensation costs; and (vi) expenses associated with our (A)
reporting, compliance and other obligations under applicable securities laws,
(B) advertising and promotion including our participation in an annual security
industry conference program and (C) the initial listing of our common shares on
the American Stock Exchange.  The increases in our general and
administrative expenses were partially offset by lower professional fees of
approximately $1,646,000 related primarily to the expiration in December 2006 of
our consulting agreement with Giuliani Security & Safety LLC.





Provision
for Doubtful Accounts





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.





The
provision for doubtful accounts for the fiscal year ended March 31, 2008
increased by $91,557 to $359,675, compared with $268,118 in fiscal
2007.  The increase was due mainly to the timing and amounts of
uncollectible accounts charged and/or credited to expense between the fiscal
2008 and fiscal 2007 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, 2009 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, 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 related to the bankruptcy filing of Northwest Airlines
as noted below.





Bad debt
recoveries for the fiscal year ended March 31, 2008 increased by $458,364 to
$511,593, from $53,229 in fiscal year 2007 primarily as a result 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, 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
income for the fiscal year ended March 31, 2008 principally represents interest
earned on:  (i) cash balances and (ii) trust funds for potential
future workers’ compensation claims.  Interest income in fiscal 2008
decreased as a result of the loss of financing income from our service agreement
contracts which were discontinued during fiscal 2007 and lower trust fund
balances due to favorable trending for potential future workers’ compensation
claims.





Interest
Expense





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.





Interest
expense for the fiscal year ended March 31, 2008 increased by $215,904 to
$783,669, from $567,765 in fiscal 2007.  The increase is due mainly to
higher average outstanding borrowings under our commercial revolving loan
agreement, partially offset by lower weighted average interest
rates.





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
$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.





The
$3,040 gain on equipment dispositions for the fiscal year ended March 31, 2008
was primarily due to the disposition of Company vehicles at amounts in excess of
their respective book values.





Sale
of Investments





The
$50,007 gain on sale of investments for the fiscal year ended March 31, 2008
represents proceeds in excess of carrying amount for the sale of stock received
under our claim related to the bankruptcy filing of United
Airlines.





Provision
for Income Taxes





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.   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, 2009 and 2008.





Income
tax benefit for the fiscal year ended March 31, 2008 decreased $290,000 to
$160,000 from $450,000 in fiscal 2007 due mainly to an increase in our pre-tax
earnings which were offset by recognition of our deferred tax
assets.





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, National
Association, acting through its Wells Fargo Business Credit operating division
(“Wells Fargo”).





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:  (i) our ongoing expansion and
organic growth; (ii) the October 1, 2006 change in a majority of Delta Airline’s
billing and payment terms from monthly invoices prepaid in advance to weekly
invoices due in thirty (30) days; and (iii) our acquisitions of Eagle
International Group, LLC and International Security & Safety Group, LLC,
Expert Security Services, Inc., Brown Security Industries, Inc. and Sterling
Protective Services, Inc. on September 12, 2008, January 1, 2008, April 12, 2007
and June 14, 2006, respectively (see Note 9).  We intend to continue
to use our short-term borrowings to support our working capital
requirements.


19





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.





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.


20





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, 2009, the interest rates were 4.75% and 4.00% for revolving and LIBOR
loans under the Credit Agreement, respectively.  Closing costs for the
Credit Agreement totaled $303,762 and are being amortized over the three year
life of the Credit Agreement.





As of
March 31, 2009, we had borrowed $3,006,134 in revolving loans, $8,000,000 in
LIBOR loans and had $147,000 letters of credit outstanding representing
approximately 77% 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, 2009, 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, 2009, 2008 and 2007:





2009
            
            
            2008
            
            
            2007Net
      cash provided by (used in) operating activities
            
            $
            410,620
            
            
            $
            2,145,225
            
            
            $
            (4,
      001,190
            )Net
      cash used in investing activities
            
            
            (1,536,327
            )
            
            
            (2,277,876
            )
            
            
            (639,633
            )Net
      cash provided by financing activities
            
            
            1,155,936
            
            
            
            59,393
            
            
            
            4,828,620





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, 2009, we increased our short-term borrowings
principally to support higher accounts receivable associated
with:  (i) our ongoing expansion and organic growth; and (ii) our
acquisitions of Eagle International Group, LLC and International Security &
Safety Group, LLC on September 12, 2008 (see Note 9).





Working
Capital





Working
capital increased by $1,009,008 to $7,106,044 as of March 31, 2009, from
$6,097,036 as of March 31, 2008.





We
experienced checks issued in advance of deposits (defined as checks drawn in
advance of future deposits) of $1,149,038 as of March 31, 2009, compared with
$1,962,314 at March 31, 2008.  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.


21


Contractual
Obligations





The
impact that our contractual obligations as of March 31, 2009 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
                                      
                                      
                                      $173,518
                                      
                                      
                                      
                                      $64,827
                                      
                                      
                                      
                                      $108,691
                                      
                                      
                                      
                                      $--
                                      
                                      
                                      
                                      $--Operating
      lease obligations
                                      
                                      
                                      2,926,585
                                      
                                      
                                      
                                      1,382,011
                                      
                                      
                                      
                                      1,480,084
                                      
                                      
                                      
                                      64,490
                                      
                                      
                                      
                                      --Purchase
      obligations (1)
                                      
                                      
                                      147,531
                                      
                                      
                                      
                                      91,322
                                      
                                      
                                      
                                      56,209
                                      
                                      
                                      
                                      --
                                      
                                      
                                      
                                      --Total
                                      
                                      
                                      $3,247,634
                                      
                                      
                                      
                                      $1,538,160
                                      
                                      
                                      
                                      $1,644,984
                                      
                                      
                                      
                                      $64,490
                                      
                                      
                                      
                                      $--





(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.





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 most recently
with the ongoing federalization of 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 2010 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 pursued as they are determined.





The
aviation services division represents approximately 56% of our total revenues
and Delta, at annual billings of approximately $19,341,000 during fiscal 2009,
is the largest customer of our aviation division representing, on an annual
basis, approximately 26% of the revenues from our aviation services division and
15% 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 19, 2009, our cash availability was approximately
$4,700,000, 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.  As of the date of this annual report and for the past
several months, 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.


22


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





During
the fiscal year ended March 31, 2009, 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, 2009, 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.”





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, 2009 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, 2009 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, 2009 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 2009 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 2009 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,
2009 (the “2009 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 2009 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 RELATED STOCKHOLDER MATTERS.





The information required by this Item 12 will be set
forth in the 2009 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 2009 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 2009 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, 2009 and 2008
            F-2Consolidated
      Statements of Income - years ended
            F-3March
      31, 2009, 2008 and 2007Consolidated
      Statements of Changes in Stockholders'
            F-4Equity
      and Comprehensive Income years endedMarch
      31, 2009, 2008 and 2007Consolidated
      Statements of Cash Flows - years ended
            F-5
      - F-6March
      31, 2009, 2008 and 2007Notes
      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 eithernot
      applicable, immaterial or disclosed in the FinancialStatements
      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 orfurnished
      by us) is provided in the Exhibit Index on pages27-28of 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 26, 2009
              By:
              /s/
      Edward S. FleuryEdward
      S. Fleury
                Chief
      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
      26, 2009Peter
      Kikis/s/
      Edward S. Fleury
              Director
      and Chief Executive
              June
      26, 2009Edward
      S. Fleury
              Officer
      (Principal ExecutiveOfficer)/s/
      Barry I. Regenstein
              Director,
      President and
              June
      26, 2009Barry
      I. Regenstein
              Chief
      Financial Officer(Principal
      Accounting Officer)/s/
      Martin C. Blake, Jr.
              Director
      and Chief Operating
              June
      26, 2009Martin
      C. Blake, Jr.
              Officer/s/
      Robert S. Ellin
              Director
              June
      26, 2009Robert
      S. Ellin/s/
      Thomas Kikis
              Director
              June
      26, 2009Thomas
      Kikis/s/
      Laurence A. Levy
              Director
              June
      26, 2009Laurence
      A. Levy


26


COMMAND
SECURITY CORPORATION


EXHIBIT
INDEX








Exhibit
              Number
            Exhibit
      Description


3.1
            Amended
      & Restated Articles of Incorporation
            Incorporated
      by reference to Exhibit of Incorporation 3.3 ofthe
      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-Kfor
      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-Kfiled
      September 20, 2006.3.4
            Certificate
      of Amendment of
            Incorporated
      by reference to Exhibit 3.4 of the EighthCertificate
      of Incorporation
            Amendment
      to the Registration Statement filed on FormS-1,
      File No. 33-75336 (the "S-1").4.1
            Specimen
      Stock Certificate
            Incorporated
      by reference to Exhibit 4.A to Amendment #1 toRegistrant'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 4.2of
      the Third Amendment to the S-1.10.1
            Purchase
      and Sale Agreement dated
            Incorporated
      by reference to Exhibit 2.1February
      24, 1996, for the acquisition
            of
      the Form 8-K filed March 23, 1996.of
      United Security Group Inc.10.2
            CIT
      Group/Business Credit, Inc. Financing
            Incorporated
      by reference to Exhibit 10.41Agreement
      dated December 12, 2003
            of
      the Form 10-K for the fiscal year endedMarch
      31, 2004 filed on July 14, 2004.10.3
            Amended
      and Restated Financing Agreement with
            Incorporated
      by reference to Exhibit 10.4CIT
      Group/Business Credit, Inc. dated March 21, 2006
            of
      the Form 8-K filed March 21, 2006.10.4
            Consulting
      Agreement with Giuliani Security &
            Incorporated
      by reference to Exhibit 10.3Safety
      LLC dated January 9, 2006
            of
      the Form 8-K filed January 9, 2006.10.5
            Consulting
      Agreement with Jericho State Capital
            Incorporated
      by reference to Exhibit 10.4Consulting
      LLC dated February 3, 2006
            of
      the Form 8-K filed February 3, 2006.10.6
            First
      Amendment and Consent to Amended and Restated
            Incorporated
      by reference to Exhibit 10.5Financing
      Agreement with CIT Group/Business Credit,
            of
      the Form 8-K filed June 13, 2006.Inc.
      dated June 13, 200610.7
            Agreement
      for Purchase and Sale of Assets dated June
            Incorporated
      by reference to Exhibit 10.613,
      2006, for the acquisition of Sterling Protective
            of
      the Form 8-K filed June 13, 2006.Group,
      Inc.10.8
            Second
      Amendment to the Amended and Restated Financing
            Incorporated
      by reference to Exhibit 10.7Agreement
      with CIT Group/Business Credit, Inc.
            of
      the Form 10-Q filed February 13, 2007.dated
      September 30, 200610.9
            Third
      Amendment to Amended and Restated Financing
            Incorporated
      by reference to Exhibit 10.1Agreement
      with CIT Group/Business Credit, Inc.
            of
      the Form 8-K filed April 12, 2007.Inc.
      dated April 12, 200710.10
            Fifth
      Amendment to Amended and Restated Financing
            Incorporated
      by reference to Exhibit 10.1Agreement
      with CIT Group/Business Credit, Inc.
            of
      the Form 8-K filed November 24, 2008.10.11
            Stock
      Purchase Agreement dated April 12, 2007, for
            Incorporated
      by reference to Exhibit 10.2the
      acquisition of Brown Security Industries, Inc.
            of
      the Form 8-K filed April 12, 2007.10.12
            Amended
      and Restated Plan of Merger dated April 12,
            Incorporated
      by reference to Exhibit 10.32007,
      for the acquisition of Brown Security Indus-
            of
      the Form 8-K filed April 12, 2007.tries,
      Inc.10.13
            Asset
      Purchase Agreement dated January 1, 2008 for
            Incorporated
      by reference to Exhibit 10.1the
      acquisition of Expert Security Services, Inc.
            of
      the Form 8-K filed January 7, 2008.10.14
            Wells
      Fargo Business Credit, Credit and Security
            Incorporated
      by reference to Exhibit 10.1Agreement
      dated February 12, 2009
            of
      the Form 10-Q filed on February 17, 2009.11
            Computation
      of Income (Loss) Per Share of Common Stock
            Incorporated
      by reference to Note 10of
      the Financial Statements.14
            Command
      Code of Ethics
            Incorporated
      by reference to Exhibit 14of
      the Form 10-K for the fiscal year endedMarch
      31, 2008 filed on June 27, 2008.31.1
            Certifications
      Pursuant to
            Exhibit
      31.1 attached hereto.Rule
      13(a)-14(a)/15(d)-14(a)






27






31.2
            Certifications
      Pursuant to
            Exhibit
      31.2 attached hereto.Rule
      13(a)-14(a)/15(d)-14(a)32.1
            Section
      1350 Certifications
            Exhibit
      32.1 attached hereto.99.1
            Registration
      Rights Agreement
            Incorporated
      by reference to Exhibit 99.22of
      the Form 8-K filed September 27, 2000.99.2
            Audit
      Committee of the Board
            Incorporated
      by reference to Exhibit 99.3of
      Directors Charter and Powers of the Form 10-K
            for
      the fiscal year endedMarch
      31, 2008 filed on June 27, 2008.99.3
            2000
      Stock Option Plan
            Incorporated
      by reference to Exhibit 99.25of
      the Form 10-K for the fiscal year endedMarch
      31, 2001 filed on July 3, 2001.99.4
            2005
      Stock Incentive Plan
            Incorporated
      by reference to Exhibit 99.5of
      the Form 10-K for the fiscal year endedMarch
      31, 2006 filed on June 28, 2006.99.5
            Barry
      I. Regenstein Employment Agreement
            Incorporated
      by reference to Exhibit 10.1of
      the Form 8-K/A filed August 27, 2004.99.6
            Marc
      W. Brown Employment Agreement
            Incorporated
      by reference to Exhibit 10.4of
      the Form 8-K filed April 12, 2007.99.7
            Martin
      C. Blake, Jr. Employment Agreement
            Incorporated
      by reference to Exhibit 99.2of
      the Form 10-Q filed on August 14, 2008.99.8
            Edward
      S. Fleury Employment Agreement
            Incorporated
      by reference to Exhibit 10.1of
      the Form 8-K filed September 29, 2008.99.9
            Press
      Release dated June 26, 2009 announcing
            Exhibit
      99.9 attached hereto.March
      31, 2009 fourth quarter and fiscal year results


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, 2009 and 2008, 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,
2009.  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, 2009 and 2008, and the results of its operations and its cash
flows for each of the years in the three-year period ended March 31, 2009, 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 26,
2009


Poughkeepsie,
New York





Command
Security Corporation


Consolidated
Balance Sheets


March 31,
2009 and 2008











2009
            
            
            2008ASSETSCurrent
      assets:Cash
      and cash equivalents
            
            $
            177,011
            
            
            $
            146,782Accounts
      receivable from security services customers, less allowance
      fordoubtful
      accounts of $1,000,507 and $1,020,442, respectively
            
            
            21,603,826
            
            
            
            20,097,835Prepaid
      expenses
            
            
            2,256,238
            
            
            
            2,680,751Other
      current assets
            
            
            1,861,089
            
            
            
            1,910,163Total
      current assets
            
            
            25,898,164
            
            
            
            24,835,531Furniture
      and equipment at cost, net
            
            
            672,166
            
            
            
            559,665Intangible
      assets, net
            
            
            5,180,077
            
            
            
            4,049,273Restricted
      cash
            
            
            82,636
            
            
            
            302,736Other
      assets
            
            
            2,431,992
            
            
            
            3,039,244Total
      assets
            
            $
            34,265,035
            
            
            $
            32,786,449LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Checks
      issued in advance of deposits
            
            $
            1,149,038
            
            
            $
            1,962,314Current
      maturities of long-term debt
            
            
            --
            
            
            
            5,901Current
      maturities of obligations under capital leases
            
            
            64,827
            
            
            
            17,100Short-term
      borrowings
            
            
            11,006,134
            
            
            
            8,752,433Accounts
      payable
            
            
            313,745
            
            
            
            1,025,963Accrued
      expenses and other liabilities
            
            
            6,258,376
            
            
            
            6,974,784Total
      current liabilities
            
            
            18,792,120
            
            
            
            18,738,495Insurance
      reserves
            
            
            642,656
            
            
            
            670,617Obligations
      under capital leases, due after one year
            
            
            108,691
            
            
            
            17,588Total
      liabilities
            
            
            19,543,467
            
            
            
            19,426,700Commitments
      and contingencies (Notes 15 and 16)Stockholders'
      equity:Preferred
      stock, convertible Series A,$.0001
      par value per share, 1,000,000shares
      authorized
            
            
            --
            
            
            
            --Common
      stock, $.0001 par value per share, 20,000,000 sharesauthorized,
      10,804,683 and 10,757,216 shares issued andoutstanding,
      respectively
            
            
            1,080
            
            
            
            1,076Additional
      paid-in capital
            
            
            16,045,620
            
            
            
            15,924,947Accumulated
      deficit
            
            
            (1,044,121
            )
            
            
            (2,326,004
            )Accumulated
      other comprehensive income
            
            
            (281,011
            )
            
            
            (240,270
            )Total
      stockholders' equity
            
            
            14,721,568
            
            
            
            13,359,749Total
      liabilities and stockholders' equity
            
            $
            34,265,035
            
            
            $
            32,786,449




See
accompanying Notes to
Consolidated Financial Statements





F-2





Command
Security Corporation


Consolidated
Statements of Income


Years
Ended March 31, 2009, 2008 and 2007








2009
              
              
              2008
              
              
              2007Revenues
              
              $
              130,813,244
              
              
              $
              119,403,865
              
              
              $
              93,822,546Cost
      of revenues
              
              
              112,149,026
              
              
              
              103,161,588
              
              
              
              80,157,314Gross
      profit
              
              
              18,664,218
              
              
              
              16,242,277
              
              
              
              13,665,232Operating
      expensesGeneral
      and administrative expenses
              
              
              15,351,021
              
              
              
              13,425,162
              
              
              
              12,315,745Provision
      for doubtful accounts
              
              
              347,180
              
              
              
              359,675
              
              
              
              268,118Bad
      debt recoveries
              
              
              (41,624
              )
              
              
              (511,593
              )
              
              
              (53,229
              )15,656,577
              
              
              
              13,273,244
              
              
              
              12,530,634Operating
      income
              
              
              3,007,641
              
              
              
              2,969,033
              
              
              
              1,134,598Other
      income (expenses)Interest
      income
              
              
              28,031
              
              
              
              75,174
              
              
              
              226,057Interest
      expense
              
              
              (514,453
              )
              
              
              (783,669
              )
              
              
              (567,765
              )Gain
      (loss) on equipment dispositions
              
              
              24,803
              
              
              
              3,040
              
              
              
              (2,851
              )Gain
      on sale of investments
              
              
              --
              
              
              
              50,007
              
              
              
              --(461,619
              )
              
              
              (655,448
              )
              
              
              (344,559
              )Income
      before provision (benefit) for income taxes
              
              
              2,546,022
              
              
              
              2,313,585
              
              
              
              790,039Income
      tax expense (benefit)
              
              
              1,264,139
              
              
              
              (160,000
              )
              
              
              (450,000
              )Net
      income
              
              $
              1,281,883
              
              
              $
              2,473,585
              
              
              $
              1,240,039Income
      per share of common stockBasic
              
              $
              .12
              
              
              $
              .23
              
              
              $
              .12Diluted
              
              $
              .11
              
              
              $
              .22
              
              
              $
              .12Weighted
      average number of commonshares
      outstandingBasic
              
              
              10,772,613
              
              
              
              10,733,797
              
              
              
              10,137,970Diluted
              
              
              11,391,047
              
              
              
              11,383,985
              
              
              
              10,620,756




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, 2009, 2008 and 2007





AccumulatedOtherPreferred
              
              
              Common
              
              
              Paid-In
              
              
              Accumulated
              
              
              ComprehensiveStock
              
              
              Stock
              
              
              Capital
              
              
              Deficit
              
              
              Income
              
              
              TotalBalance
      at March 31, 2006
              
              
              $--
              
              
              
              $1,014
              
              
              
              $13,663,311
              
              
              
              $(6,039,628
              )
              
              
              $--
              
              
              
              $7,624,697Other
      comprehensive income (a)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              12,550
              
              
              
              12,550Stock
      compensation cost
              
              
              
              
              
              
              
              
              
              
              226,550
              
              
              
              
              
              
              
              
              
              
              
              226,550Net
      income
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              1,240,039
              
              
              
              
              
              
              
              1,240,039Balance
      at March 31, 2007
              
              
              --
              
              
              
              1,014
              
              
              
              13,889,861
              
              
              
              (4,799,589
              )
              
              
              12,550
              
              
              
              9,103,836Issuance
      of 614,246 shares foracquisition
              
              
              
              
              
              
              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 withexpired
      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
              )
              
              
              $14,721,568








(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, 2009, 2008 and 2007




INCREASE
(DECREASE) IN CASH AND CASH EQUIVALENTS





2009
            
            
            2008
            
            
            2007OPERATING
      ACTIVITIESNet
      income
            
            $
            1,281,883
            
            
            $
            2,473,585
            
            
            $
            1,240,039Adjustments
      to reconcile net income to netcash
      provided by (used in) operating activities:Depreciation
      and amortization
            
            
            799,323
            
            
            
            697,334
            
            
            
            315,222Stock
      based compensation costs
            
            
            172,097
            
            
            
            239,900
            
            
            
            226,550Tax
      effect associated with expired warrants
            
            
            (115,500
            )
            
            
            --
            
            
            
            --Provision
      for doubtful accounts, net of recoveries
            
            
            19,935
            
            
            
            (151,918
            )
            
            
            214,888(Gain)
      loss on equipment dispositions
            
            
            (24,803
            )
            
            
            (3,040
            )
            
            
            2,851Gain
      on sale of investments
            
            
            --
            
            
            
            (50,007
            )
            
            
            --Deferred
      income taxes
            
            
            549,905
            
            
            
            (1,246,408
            )
            
            
            (450,000
            )Insurance
      reserves
            
            
            (27,961
            )
            
            
            131,114
            
            
            
            237,439Changes
      in operating assets and liabilities:Restricted
      cash
            
            
            220,100
            
            
            
            (224,610
            )
            
            
            --Accounts
      receivable
            
            
            (1,539,163
            )
            
            
            (2,379,431
            )
            
            
            (4,389,524
            )Prepaid
      expenses
            
            
            424,514
            
            
            
            (2,123,798
            )
            
            
            164,496Other
      receivables
            
            
            171,611
            
            
            
            347,786
            
            
            
            (1,253,293
            )Other
      assets
            
            
            (92,696
            )
            
            
            1,593,616
            
            
            
            (643,438
            )Accounts
      payable and other current liabilities
            
            
            (1,428,625
            )
            
            
            2,841,102
            
            
            
            434,971Due
      to administrative service clients
            
            
            --
            
            
            
            --
            
            
            
            (101,391
            )Net
      cash provided by (used in) operating activities
            
            
            410,620
            
            
            
            2,145,225
            
            
            
            (4,001,190
            )INVESTING
      ACTIVITIESPurchases
      of equipment
            
            
            (202,694
            )
            
            
            (169,337
            )
            
            
            (344,986
            )Proceeds
      from equipment dispositions
            
            
            24,803
            
            
            
            3,040
            
            
            
            2,050Acquisition
      of businesses
            
            
            (1,358,436
            )
            
            
            (2,260,675
            )
            
            
            (412,500
            )Proceeds
      from sale of investments
            
            
            --
            
            
            
            149,096
            
            
            
            --Principal
      collections on notes receivable
            
            
            --
            
            
            
            --
            
            
            
            115,803Net
      cash used in investing activities
            
            
            (1,536,327
            )
            
            
            (2,277,876
            )
            
            
            (639,633
            )FINANCING
      ACTIVITIESNet
      advances on line-of-credit
            
            
            2,253,701
            
            
            
            265,368
            
            
            
            5,116,687(Decrease)
      increase in checks issued in advance of deposits
            
            
            (813,276
            )
            
            
            202,159
            
            
            
            (68,647
            )Proceeds
      from option exercises
            
            
            64,080
            
            
            
            10,247
            
            
            
            --Principal
      payments on other borrowings
            
            
            (5,901
            )
            
            
            (247,055
            )
            
            
            (178,477
            )Principal
      payments on capital lease obligations
            
            
            (38,906
            )
            
            
            (17,854
            )
            
            
            (40,943
            )Debt
      issuance costs
            
            
            (303,762
            )
            
            
            (153,472
            )
            
            
            --Net
      cash provided by financing activities
            
            
            1,155,936
            
            
            
            59,393
            
            
            
            4,828,620Net
      change in cash and cash equivalents
            
            
            30,229
            
            
            
            (73,258
            )
            
            
            187,797Cash
      and cash equivalents, beginning of year
            
            
            146,782
            
            
            
            220,040
            
            
            
            32,243Cash
      and cash equivalents, end of year
            
            $
            177,011
            
            
            $
            146,782
            
            
            $
            220,040




See
accompanying Notes to
Consolidated Financial Statements











F-5





Command Security Corporation


Consolidated
Statements of Cash Flows, Continued


Years
Ended March 31, 2009, 2008 and 2007








1.
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION





Cash paid
during the years for:


2009
            
            
            2008
            
            
            2007Interest
            
            $
            520,327
            
            
            $
            803,521
            
            
            $
            527,024Income
      taxes
            
            
            1,332,560
            
            
            
            1,747,299
            
            
            
            208,223





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





For the
fiscal years ended March 31, 2009 and 2008, we purchased security and
transportation equipment with lease financing of $177,736 and $26,165,
respectively.  These amounts have been excluded from investing and
financing activities on 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.





During
the fiscal year ended March 31, 2007, we acquired a security services business
for a purchase price of $750,000.  At the closing, we paid $412,500 of
the purchase price in cash and issued a note payable in the amount of $337,500
for the remaining balance of the purchase price.  This note payable
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,
2009, 2008 and 2007





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 Connecticut, California, Colorado, Delaware, District of
Columbia, Florida, Illinois, Maine, Maryland, Massachusetts, New Jersey, New
York, Oregon, Pennsylvania, Rhode Island, Texas, Virginia and
Washington.  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 the accounts of the
Company and its wholly-owned subsidiaries.  All significant
intercompany accounts and transactions are 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 $141,732, $218,852 and $87,375
for the fiscal years ended March 31, 2009, 2008 and 2007,
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.





Investments





We
account for our investments in marketable securities in accordance with
Statement of Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain Investments
in Debt and Equity Securities.”  At March 31, 2009, 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.





F-7





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





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
SFAS No. 144, “Accounting for
the Impairment or Disposal of Long-Lived Assets.”





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 SFAS No. 128, "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, 2009, 2008 and 2007 because of
the effect the assumed issuance of common shares would have if the outstanding
stock options and warrants were exercised.





Stock-Based
Compensation





In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”).  SFAS No. 123R 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 SFAS
No. 123R 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 SFAS No. 123R resulted in
non-cash charges of $172,097, $239,900 and $226,550 for stock based compensation
for the years ended March 31, 2009, 2008 and 2007, respectively.  Such
non-cash charges would have been the same under the provisions of SFAS No.
148.





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.

















F-8





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





Recent
Accounting Pronouncements





In
September 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standards No. 157 "Fair


Value Measurements" ("SFAS
No. 157"), which defines fair value, establishes a framework for measuring fair
value in accordance with generally accepted accounting principles, and expands
disclosures about fair value measurements.  SFAS No. 157 is effective
for financial


statements
issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years.  In February 2008, the FASB issued Staff
Position (“FSP”) 157-2, “Effective Date of FASB Statement No.
157”,which
delays the effective date of SFAS No. 157 for  nonfinancial assets and
nonfinancial liabilities that are recognized or disclosed in the financial
statements on a nonrecurring basis.  The FSP partially defers the
effective date of SFAS No. 157 to fiscal years beginning after November 15, 2008
and interim periods within those fiscal years for items within the scope of this
FSP.  Although the adoption of SFAS No.157, as applied to financial
assets and financial liabilities, did not have a material effect on our
consolidated financial position or results of operations, we are now required to
provide additional disclosures as part of our financial
statements.  SFAS No. 157 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.





In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159 "The Fair Value Option for
Financial Assets and Financial Liabilities" ("SFAS No.
159").  SFAS No. 159 permits entities to choose to measure certain
financial assets and financial liabilities at fair value. The stated objective
of SFAS No. 159 is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  SFAS No. 159 is effective for financial
statements issued for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years.  The adoption of SFAS No.159 did
not have a material effect on our consolidated financial position or results of
operations.





In
December 2007, the FASB issued Statement of Financial Accounting Standards
No. SFAS 141, (revised 2007), "Business Combinations"(“SFAS No. 141(R)”), 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.  SFAS No. 141(R) introduces new accounting concepts and
valuation complexities and many of the changes have the potential to generate
greater earnings volatility after the acquisition.  SFAS No. 141(R)
also requires that acquisition costs be expensed as incurred and restructuring
costs be expensed in periods after the acquisition date.  SFAS No.
141(R) will only affect our financial condition or results of operations to the
extent we have business combinations after the effective date.





2.
Furniture and Equipment





Furniture
and equipment at March 31, 2009 and 2008 consist of the following:








2009
            
            
            2008Transportation
      equipment
            
            $
            582,903
            
            
            $
            670,076Security
      equipment
            
            
            863,778
            
            
            
            652,309Office
      furniture and equipment
            
            
            1,980,271
            
            
            
            1,781,5103,426,952
            
            
            
            3,103,895Accumulated
      depreciation
            
            
            (2,754,786
            )
            
            
            (2,544,230
            )Total
            
            $
            672,166
            
            
            $
            559,665





Depreciation
expense for the fiscal years ended March 31, 2009, 2008 and 2007, was $297,929,
$291,482 and $216,222, respectively, and includes amortization of assets
purchased under capital lease arrangements in the amounts of $40,554, $31,340
and $35,408 for each of the respective years then ended (see Note 16).














F-9





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





3.
Intangible Assets





Intangible
assets at March 31, 2009 and 2008 consist of the following:





2009
            
            
            2008Customer
      list
            
            $
            4,703,859
            
            
            $
            3,450,423Borrowing
      cost
            
            
            303,762
            
            
            
            443,635Goodwill
            
            
            895,258
            
            
            
            895,258Non-compete
      covenant
            
            
            100,000
            
            
            
            25,0006,002,879
            
            
            
            4,814,316Accumulated
      amortization
            
            
            (822,802
            )
            
            
            (765,043
            )Total
            
            $
            5,180,077
            
            
            $
            4,049,273





Amortization
expense for the fiscal years ended March 31, 2009, 2008 and 2007, was $501,394,
$405,852 and $99,000, respectively.    Amortization expense
for the years ending March 31, 2010, 2011, 2012, 2013 and 2014 for the
intangible assets noted above will be $600,478, $598,395, $575,068, $467,143 and
$467,143, respectively.





Included
in intangible assets for the fiscal years ended March 31, 2009 and 2008 is
goodwill of $895,258 that is not subject to amortization and net borrowing costs
of $295,429 and $68,376, 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 and a portion of the Brown
acquisition consideration which is being held pending finalization of any
potential downward purchase price adjustment.





5.
Other Assets





Other
assets at March 31, 2009 and 2008 consist of the following:








2009
            
            
            2008Workers’
      compensation insurance
            
            $
            1,775,027
            
            
            $
            1,622,489Other
      receivables
            
            
            33,845
            
            
            
            138,413Security
      deposits
            
            
            202,874
            
            
            
            247,122Deferred
      tax asset
            
            
            2,055,348
            
            
            
            2,605,253Other
      (a)
            
            
            225,987
            
            
            
            336,1304,293,081
            
            
            
            4,949,407Current
      portion
            
            
            (1,861,089
            )
            
            
            (1,910,163
            )Total
      non-current portion
            
            $
            2,431,992
            
            
            $
            3,039,244





(a)
            Our
      marketable equity securities were measured at fair value using quoted
      market prices.  They were classified as Level 1, in accordance
      with the SFAS No. 157 hierarchy, as they trade in an active market for
      which closing stock prices are readily available.  The fair
      value of investments included in other assets at March 31, 2009 and 2008
      was $144,740 and $172,245, respectively, resulting in unrealized losses of
      $281,011 and $240,270, respectively.  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:  (i)
      the financial condition and business plans of the investee including its
      future earnings potential; (ii) 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 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
      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,
  2009.





F-10








Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007




6.
Accrued Expenses and Other Liabilities





Accrued
expenses and other liabilities at March 31, 2009 and 2008 consist of the
following:








2009
            
            
            2008Payroll
      and related expenses
            
            $
            4,666,079
            
            
            $
            4,048,102Taxes
      and fees payable
            
            
            1,260,174
            
            
            
            2,139,846Accrued
      interest payable
            
            
            38,779
            
            
            
            46,659Other
            
            
            293,344
            
            
            
            740,177Total
            
            $
            6,258,376
            
            
            $
            6,974,784





7.
Short-Term Borrowings





Short-term
borrowings at March 31, 2009 and 2008 consist of the following:





2009
            
            
            2008Line
      of credit
            
            $
            11,006,134
            
            
            $
            8,752,433Total
            
            $
            11,006,134
            
            
            $
            8,752,433





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 9).  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.





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.





F-11





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007








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, 2009, the interest rates were 4.75% and 4.00% for revolving and LIBOR
loans, respectively.  Closing costs for the Credit Agreement totaled
$303,762 and are being amortized over the three year life of the Credit
Agreement.





At March
31, 2009, we had borrowed $3,006,134 in revolving loans, $8,000,000 in LIBOR
loans and had $147,000 letters of credit outstanding representing approximately
77% 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, 2009, we were in
compliance with all covenants under the Credit Agreement.





8.
Long-Term Debt





Current
maturities of long-term debt was $5,901 as of March 31, 2008 consisting of
various installment loans payable to General Motors Acceptance Corporation and
Ford Motor Credit Corporation due at various dates through March 31, 2009, with
interest rates ranging from 8.24% to 10.25%.  The notes were
collateralized by automobiles.   There was no long-term debt
outstanding as of March 31, 2009 and 2008.





9.
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.





Activity
related to the acquisition of Brown and its related subsidiaries included in the
consolidated statements of income consisted of the following:





Twelve
      Months Ended
            
            
            Twelve
      Months EndedMarch
      31, 2008
            
            
            March
      31, 2009Revenues
            
            $
            11,494,573
            
            
            $
            10,903,293Earnings
      before taxes
            
            
            105,558
            
            
            
            410,608





(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.


F-12





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





(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.





10.
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, 2009, 2008 and 2007:





Income
            
            
            Shares
            
            
            Per-Share(Numerator)
            
            
            (Denominator)
            
            
            AmountYear
      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
            
            
            $
            .22Year
      ended March 31, 2007Basic
      EPS
            
            $
            1,240,039
            
            
            
            10,137,970
            
            
            $
            .12Effect
      of dilutive shares:Options
      issued February 2001,August
      2004, May 2005,September
      2005, February 2006,September
      2006 and October 2006
            
            
            
            
            
            
            482,786Diluted
      EPS
            
            $
            1,240,039
            
            
            
            10,620,756
            
            
            $
            .12





11.
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.  For the fiscal year ended March 31, 2007,
discretionary contributions in the amount of $2,168 were paid.  No
discretionary amounts were accrued or paid for the fiscal years ended March 31,
2009 and 2008.





12.
Concentrations of Credit Risk





Geographic
concentrations of credit risk with respect to trade receivables are primarily in
California with 36% (in both periods) and in the New York Metropolitan area with
37% and 41% of total receivables as of March 31, 2009 and 2008,
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, 2009, 2008 and 2007,
the Company generated 56%, 62% and 66%, respectively, of its revenue from
aviation and related services. Trade receivables due from the commercial airline
industry comprised 53% and 57% of net receivables as of March 31, 2009 and 2008,
respectively.  The Company's remaining customers are not concentrated
in any specific industry and no single customer accounts for more than 10% 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.




F-13





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





13.
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:





2009
            
            
            2008
            
            
            2007Security
      Officer Services
            
            $
            56,932,537
            
            
            $
            45,587,205
            
            
            $
            31,413,964Aviation
      Services
            
            
            73,688,558
            
            
            
            73,617,327
            
            
            
            62,086,936Support
      Services
            
            
            192,149
            
            
            
            199,333
            
            
            
            321,646Total
            
            $
            130,813,244
            
            
            $
            119,403,865
            
            
            $
            93,822,546





For the
fiscal years ended March 31, 2009, 2008 and 2007, one airline customer accounted
for approximately $19,341,000, $18,117,000 and $14,700,000, respectively, of the
Company’s total revenue.





14.
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 $1,656,742, $1,609,009 and
$2,042,618, for the fiscal years ended March 31, 2009, 2008 and 2007,
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
$5,000,000) 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.





15.
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.





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.











F-14





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





16.
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 $1,788,812, $1,526,789 and $1,148,894, for the fiscal
years ended March 31, 2009, 2008 and 2007, 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, 2009 are $843,170 and $683,210 and at March 31, 2008 are $701,985 and
$679,206, respectively.





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


Capital
                
                
                OperatingLeases
                
                
                LeasesYear
      ending:
                March
      31, 2010
                
                
                $64,827
                
                
                
                $1,382,011March
      31, 2011
                
                
                70,119
                
                
                
                1,031,505March
      31, 2012
                
                
                38,572
                
                
                
                448,579March
      31, 2013
                
                
                --
                
                
                
                60,314March
      31, 2014
                
                
                --
                
                
                
                4,176Total
                
                
                
                $173,518
                
                
                
                $2,926,585


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 $91,322,
$91,322 and $93,079 for the fiscal years ended March 31, 2009, 2008 and 2007,
respectively.





The
required future minimum payments under the agreement are as
follows:


Year
      ending:
                  March
      31, 2010
                  
                  
                  $91,322March
      31, 2011
                  
                  
                  56,209Total
                  
                  
                  
                  $147,531


17. 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.  In January 2007, options to purchase 25,000 shares were
cancelled due to a termination of employment.  During fiscal 2009, the
Company received proceeds of $54,000 in connection with the exercise of stock
options to purchase 40,000 shares 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 2007, options to purchase 80,000 shares of the
Company’s common stock were issued.  In December, September and June
2008, options to purchase 70,000, 58,068 and 50,000 shares of the Company’s
common stock were issued, respectively.  The outstanding options are
exercisable at any time before December 30, 2018 at $3.08 per share, September
17, 2018 at $3.36 per share, June 4, 2018 at $2.68 per share, September 19, 2017
at $3.19 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, 2009, 2008 and
2007








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.  In February 2009, warrants to purchase 350,000 shares
of common stock expired.  The outstanding warrants are exercisable at
any time before September 30, 2009 and March 31, 2010 at $2.70 per
share.





In April
2007, January 2008 and September 2008, we granted stock options in connection
with employment agreements to purchase 65,000, 25,000 and 510,000 shares of the
Company’s common stock at exercise prices of $3.00, $3.35, $3.35 (with respect
to 10,000 options) and $3.37 (with respect to 500,000 options)  per
share, respectively.  The options 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 April 11, 2017, December 31, 2017, September 11,
2018 and September 28, 2018, 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 vest, and may be exercised by the Executive with
respect to 200,000 shares on the Effective Date and commencing one year after
the Effective Date, 12,500 shares per month through August
2007.  During fiscal 2009, the Company received proceeds of $10,080 in
connection with the exercise of stock options to purchase 7,467 shares 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, 2009, 2008 and 2007, are as follows:





Options
                  
                  
                  WarrantsExercise
                  
                  
                  Number
      of
                  
                  
                  Exercise
                  
                  
                  Number
      ofPrice
                  
                  
                  Shares
                  
                  
                  Price
                  
                  
                  SharesOutstanding
      at March 31, 2006
                  
                  
                  $.75-
      2.05
                  
                  
                  
                  840,000
                  
                  
                  
                  $2.00
                  
                  
                  
                  350,000Issued
                  
                  
                  2.67
                  
                  
                  
                  80,000
                  
                  
                  
                  2.70
                  
                  
                  
                  100,000Forfeited
                  
                  
                  1.49
                  
                  
                  
                  (25,000
                  )Outstanding
      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
                  
                  
                  
                  150,000





At March
31, 2009 there were 1,700,601 and 150,000 options and warrants outstanding,
respectively, exercisable at prices ranging from $.75 to $3.37, and 2,042,533
shares reserved for issuance under all stock arrangements.





Significant
option and warrant groups outstanding and exercisable at March 31, 2009 and the
related weighted average exercise price and life information are as
follows:





Weighted
              
              
              WeightedOptions/
              
              
              Options/
              
              
              Average
              
              
              AverageRange
      of
              
              Warrants
              
              
              Warrants
              
              
              Exercise
              
              
              RemainingExercise
      Price
              
              Outstanding
              
              
              Exercisable
              
              
              Price
              
              
              Life
      (years)$.75  -  $3.37
              
              
              1,700,601
              
              
              
              1,270,601
              
              
              
              $2.40
              
              
              
              7.48$2.70
              
              
              150,000
              
              
              
              150,000
              
              
              
              2.70
              
              
              
              .67$.75  -  $3.37
              
              
              1,850,601
              
              
              
              1,420,601
              
              
              
              $2.43
              
              
              
              6.93







F-16





Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





The
weighted average estimated values of stock options granted during fiscal 2009,
2008 and 2007 were $.68, $.97 and $.88, respectively.  The weighted
average assumptions used in the Black-Scholes option-pricing model were as
follows:





2009
            
            
            2008
            
            
            2007Risk-free
      interest rate
            
            
            2.20
            %
            
            
            3.94
            %
            
            
            3.97
            %Years
      until exercise
            
            
            3.00
            
            
            
            3.00
            
            
            
            3.00Volatility
            
            
            26.0
            %
            
            
            39.7
            %
            
            
            41.4
            %Dividend
      yield
            
            
            0.00
            %
            
            
            0.00
            %
            
            
            0.00
            %Termination
      rate
            
            
            n/a
            
            
            
            n/a
            
            
            
            n/a





In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS
No. 123R”), which replaced SFAS No. 123.  SFAS No. 123R 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 SFAS No. 123R 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 adoption of SFAS No. 123R resulted in a non-cash charge of
$226,550 for stock based compensation for the year ended March 31,
2007.





The
Company recorded total stock based compensation costs of $172,097, $239,900 and
$226,550 for the fiscal years ended March 31, 2009, 2008 and 2007,
respectively.





18.
Income Taxes





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





2009
              
              
              2008
              
              
              2007Current:Federal
              
              $
              561,666
              
              
              $
              810,000
              
              
              $
              375,000State
      and local
              
              
              252,473
              
              
              
              265,000
              
              
              
              200,000814,139
              
              
              
              1,075,000
              
              
              
              575,000Deferred:Federal
              
              
              324,000
              
              
              
              (902,000
              )
              
              
              (730,000
              )State
      and local
              
              
              126,000
              
              
              
              (333,000
              )
              
              
              (295,000
              )450,000
              
              
              
              (1,235,000
              )
              
              
              (1,025,000
              )Net
      income tax expense (benefit)
              
              $
              1,264,139
              
              
              $
              (160,000
              )
              
              $
              (450,000
              )





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:





2009
              
              
              2008
              
              
              2007Statutory
      federal income tax rate
              
              
              34.0
              
              
              
              34.0
              
              
              
              34.0State
      and local income taxes
              
              
              7.4
              
              
              
              7.0
              
              
              
              7.0Valuation
      allowance and reserves
              
              
              --
              
              
              
              (47.5
              )
              
              
              (49.4
              )Permanent
      differences
              
              
              5.9
              
              
              
              .7
              
              
              
              9.7Utilization
      of net operating loss carryforwards
              
              
              --
              
              
              
              (1.0
              )
              
              
              (52.7
              )Other
              
              
              2.4
              
              
              
              --
              
              
              
              --Effective
      tax rate
              
              
              49.7
              %
              
              
              (6.8
              )%
              
              
              (51.4
              )%





The
significant components of deferred tax assets and liabilities as of March 31,
2009 and 2008 are as follows:




2009
            
            
            2008Current
      deferred tax assets:Accounts
      receivable
            
            $
            327,570
            
            
            $
            349,957Accrued
      expenses
            
            
            122,540
            
            
            
            127,707Contingency
      reserves
            
            
            --
            
            
            
            4,300Net
      current deferred tax assets
            
            $
            450,110
            
            
            $
            481,964





F-17


Command
Security Corporation


Notes to
Consolidated Financial Statements, Continued March 31, 2009, 2008 and
2007





Non-current
      deferred tax assets (liabilities):Equipment
            
            $
            (157,040
            )
            
            $
            (55,952
            )Intangible
      assets
            
            
            233,609
            
            
            
            350,259Self-insurance
            
            
            265,160
            
            
            
            288,365Workers
      compensation reserve
            
            
            941,090
            
            
            
            1,124,807Employee
      stock compensation
            
            
            322,419
            
            
            
            415,810Net
      non-current deferred tax assets
            
            
            1,605,238
            
            
            
            2,123,289Total
      deferred tax assets
            
            $
            2,055,348
            
            
            $
            2,605,253





The
valuation allowance decreased by $1,108,676 and $842,205 during the fiscal years
ended March 31, 2008 and 2007, respectively.  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, 2009 and 2008.  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 9), as previously available federal net operating loss carryforwards
were fully utilized during the year ended March 31, 2007.





19.
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.





20.
Quarterly Results (unaudited)





Summary
data relating to the results of operations for each quarter for the fiscal years
ended March 31, 2009 and 2008 follows:





Three
      Months EndedJune
      30
              
              
              Sept.
      30
              
              
              Dec.
      31
              
              
              March
      31Fiscal
      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 (loss)
              
              
              549,935
              
              
              
              606,464
              
              
              
              248,810
              
              
              
              (123,326
              )Net
      income (loss)per
      common share (basic)
              
              
              0.05
              
              
              
              0.06
              
              
              
              0.02
              
              
              
              (0.01
              )per
      common share (diluted)
              
              
              0.05
              
              
              
              0.05
              
              
              
              0.02
              
              
              
              (0.01
              )Fiscal
      year 2008Security
      officer service revenue
              
              
              28,034,825
              
              
              
              30,563,886
              
              
              
              30,173,901
              
              
              
              30,431,920Administrative
      service revenue
              
              
              49,063
              
              
              
              49,896
              
              
              
              51,427
              
              
              
              48,947Total
      revenue
              
              
              28,083,888
              
              
              
              30,613,782
              
              
              
              30,225,328
              
              
              
              30,480,867Gross
      profit
              
              
              3,577,637
              
              
              
              4,389,273
              
              
              
              4,151,730
              
              
              
              4,123,636Net
      income
              
              
              458,865
              
              
              
              555,818
              
              
              
              540,471
              
              
              
              918,431Net
      incomeper
      common share (basic)
              
              
              0.04
              
              
              
              0.05
              
              
              
              0.05
              
              
              
              0.09per
      common share (diluted)
              
              
              0.04
              
              
              
              0.05
              
              
              
              0.05
              
              
              
              0.08




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, 2009:Deducted
      from asset accounts:Allowance
      fordoubtful
      accountsreceivable
      - currentmaturities
              
              $
              1,020,442
              
              
              $
              305,556
              
              
              $
              --
              
              
              $
              (5,556
              )
              
              $
              (319,935
              )
              
              $
              1,000,507Year
      ended March 31, 2008:Deducted
      from asset accounts:Allowance
      fordoubtful
      accountsreceivable
      - currentmaturities
              
              
              831,397
              
              
              
              (151,918
              )
              
              
              --
              
              
              
              477,493
              
              
              
              (136,530
              )
              
              
              1,020,442Year
      ended March 31, 2007:Deducted
      from asset accounts:Allowance
      fordoubtful
      accountsreceivable
      - currentmaturities
              
              
              332,892
              
              
              
              214,889
              
              
              
              126,386
              
              
              
              187,979
              
              
              
              (30,749
              )
              
              
              831,397








See
auditor's report








F-19








End of Filing