UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    Quarterly Report Pursuant to Section 13 or 15(d) of Securities Exchange Act of 1934
 For the quarterly period ended March 31, 2010
 o
    
    Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the transition period from  to .
 Commission file number
 814-00631
 HOMELAND SECURITY CAPITAL CORPORATION
  Delaware
    
    52-2050585(State or Other Jurisdiction of Incorporation
    
    (I.R.S. Employer Identification No.)or Organization)1005 North Glebe Road, Suite 550Arlington, VA
    
    22201(Address of principal executive offices)
    
    (Zip code)
 
 þ o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ
  o þ




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
   2




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##### 



March 31
    
    
    June 302010
    
    
    2009(unaudited)Assets:Cash
    
    $
    2,708,542
    
    
    $
    2,356,534Accounts receivable  net
    
    
    17,254,331
    
    
    
    13,425,804Cost in excess of billings on uncompleted contracts
    
    
    6,140,024
    
    
    
    3,937,086Other current assets
    
    
    570,856
    
    
    
    613,348Total current assets
    
    
    26,673,753
    
    
    
    20,332,772Fixed assets  net
    
    
    3,168,057
    
    
    
    4,398,833Deferred financing costs  net
    
    
    30,288
    
    
    
    386,210Notes receivable  related party
    
    
    426,015
    
    
    
    412,127Securities available for sale
    
    
    103,899
    
    
    
    193,945Other non-current assets
    
    
    282,299
    
    
    
    319,516Intangible assets  net
    
    
    357,953
    
    
    
    391,372Goodwill
    
    
    6,403,982
    
    
    
    6,403,982Total assets
    
    $
    37,446,246
    
    
    $
    32,838,757Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    7,898,073
    
    
    $
    10,003,336Current portion of long term debt
    
    
    3,617,352
    
    
    
    1,247,016Current portion of long term debt  related party
    
    
    2,500,000
    
    
    
    Notes payable  related party
    
    
    51,986
    
    
    
    50,110Accrued interest and other liabilities
    
    
    3,586,410
    
    
    
    3,257,903Billings in excess of costs on uncompleted contracts
    
    
    1,202,318
    
    
    
    1,022,125Income taxes payable
    
    
    260,649
    
    
    
    Deferred revenue
    
    
    216,122
    
    
    
    59,636Total current liabilities
    
    
    19,332,910
    
    
    
    15,640,126Senior notes payable  related party
    
    
    11,438,923
    
    
    
    13,904,870Interest payable  related party
    
    
    3,574,679
    
    
    
    2,210,131Secured notes payable  related party
    
    
    250,000
    
    
    
    250,000Long term debt, less current maturities
    
    
    933,673
    
    
    
    1,421,272Dividends payable
    
    
    3,067,200
    
    
    
    1,869,107Total liabilities
    
    
    38,597,385
    
    
    
    35,295,506Warrants Payable  Series H Preferred Stock
    
    
    169,768
    
    
    
    169,768Stockholders DeficitHomeland Security Capital Corporation stockholders deficit:Preferred stock, $0.01 par value, 10,000,000 shares authorized,
1,918,080 shares issued and outstanding
    
    
    14,272,250
    
    
    
    14,261,207Common stock, $0.001 par value, 2,000,000,000 shares authorized,
48,864,440 and 53,270,160 shares issued and
45,294,009 and 49,699,729 shares outstanding, respectively
    
    
    48,864
    
    
    
    53,270Additional paid-in capital
    
    
    54,934,748
    
    
    
    54,131,548Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    272,529Treasury stock - 3,571,429 shares at cost
    
    
    (250,000
    )
    
    
    (250,000
    )Accumulated deficit
    
    
    (70,455,921
    )
    
    
    (70,817,549
    )Accumulated comprehensive loss
    
    
    (265,586
    )
    
    
    (141,591
    )Total Homeland Security Capital Corporation stockholders deficit
    
    
    (1,443,116
    )
    
    
    (2,490,586
    )Noncontrolling interest
    
    
    122,209
    
    
    
    (135,931
    )Total stockholders deficit
    
    
    (1,320,907
    )
    
    
    (2,626,517
    )Total liabilities and stockholders deficit
    
    $
    37,446,246
    
    
    $
    32,838,757
   3




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##### 



Three Months Ended March 31,
    
    
    Nine Months Ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Net contract revenue
    
    $
    23,684,204
    
    
    $
    19,059,833
    
    
    $
    71,106,061
    
    
    $
    58,939,525Contract costs
    
    
    17,933,739
    
    
    
    16,688,851
    
    
    
    56,038,934
    
    
    
    50,002,740Gross profit on contracts
    
    
    5,750,465
    
    
    
    2,370,982
    
    
    
    15,067,127
    
    
    
    8,936,785Operating expenses:Marketing
    
    
    151,253
    
    
    
    283,867
    
    
    
    350,200
    
    
    
    407,718Personnel
    
    
    1,969,050
    
    
    
    2,194,717
    
    
    
    6,184,362
    
    
    
    6,581,830Insurance and facility costs
    
    
    264,229
    
    
    
    251,656
    
    
    
    802,743
    
    
    
    773,678Travel and transportation
    
    
    90,889
    
    
    
    103,623
    
    
    
    281,262
    
    
    
    376,124Other operating costs
    
    
    229,448
    
    
    
    250,222
    
    
    
    715,950
    
    
    
    708,273Depreciation and amortization
    
    
    304,771
    
    
    
    307,002
    
    
    
    1,027,217
    
    
    
    923,510Amortization of intangible assets
    
    
    11,140
    
    
    
    26,562
    
    
    
    33,419
    
    
    
    95,110Professional services
    
    
    428,178
    
    
    
    126,911
    
    
    
    874,190
    
    
    
    607,912Administrative costs
    
    
    263,623
    
    
    
    12,126
    
    
    
    781,743
    
    
    
    639,557Total operating expenses
    
    
    3,712,581
    
    
    
    3,556,686
    
    
    
    11,051,086
    
    
    
    11,113,712Operating income (loss)
    
    
    2,037,884
    
    
    
    (1,185,704
    )
    
    
    4,016,041
    
    
    
    (2,176,927
    )Other (expense) income:Interest expense
    
    
    (557,670
    )
    
    
    (501,816
    )
    
    
    (1,538,447
    )
    
    
    (1,508,005
    )Amortization of debt discounts and offering costs
    
    
    (103,596
    )
    
    
    (149,990
    )
    
    
    (389,975
    )
    
    
    (420,212
    )Other (expense) income
    
    
    (57,146
    )
    
    
    36,361
    
    
    
    (10,612
    )
    
    
    95,855Total other expense
    
    
    (718,412
    )
    
    
    (615,445
    )
    
    
    (1,939,034
    )
    
    
    (1,832,362
    )Income (loss) income from continuing operations
before income taxes
    
    
    1,319,472
    
    
    
    (1,801,149
    )
    
    
    2,077,007
    
    
    
    (4,009,289
    )Income tax (expense) benefit
    
    
    (73,819
    )
    
    
    10,622
    
    
    
    (276,103
    )
    
    
    (132,378
    )Net income (loss)
    
    
    1,245,653
    
    
    
    (1,790,527
    )
    
    
    1,800,904
    
    
    
    (4,141,667
    )Less: Net (income) loss attributable to
noncontrolling interests
    
    
    (124,443
    )
    
    
    9,468
    
    
    
    (230,140
    )
    
    
    102,800Net income (loss) attributable to Homeland
Security Capital Corporation stockholders
    
    
    1,121,210
    
    
    
    (1,781,059
    )
    
    
    1,570,764
    
    
    
    (4,038,867
    )Less preferred dividends and other beneficial conversion
features associated with preferred stock issuance
    
    
    (397,215
    )
    
    
    (1,084,106
    )
    
    
    (1,209,136
    )
    
    
    (1,805,287
    )Net income (loss) attributable to common stockholders
of Homeland Security Capital Corporation
    
    $
    723,995
    
    
    $
    (2,865,165
    )
    
    $
    361,628
    
    
    $
    (5,844,154
    )Income (loss) per common share attributable to Homeland Security Capital Corporation stockholders 
basic and dilutedBasic
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.12
    )Diluted
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    $
    0.00
    
    
    $
    (0.12
    )Weighted average shares outstanding Basic
    
    
    48,864,440
    
    
    
    45,694,728
    
    
    
    51,823,026
    
    
    
    47,366,143Diluted
    
    
    787,615,123
    
    
    
    45,694,728
    
    
    
    790,573,709
    
    
    
    47,366,143
   4




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##### 



Nine Months Ended March 31,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    1,800,904
    
    
    $
    (4,141,667
    )Adjustments to reconcile net income (loss) to net
cash used in operating activities:Share-based compensation expense
    
    
    798,794
    
    
    
    1,703,861Depreciation
    
    
    1,505,561
    
    
    
    1,369,256Amortization of intangibles
    
    
    33,419
    
    
    
    95,110Loss (gain) on disposal of assets
    
    
    7,556
    
    
    
    (72,350
    )Impairment loss on securities
    
    
    67,358
    
    
    
    Amortization of debt offering costs and discounts
    
    
    389,975
    
    
    
    405,333Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,828,527
    )
    
    
    (6,311,605
    )Costs in excess of billings on uncompleted contracts
    
    
    (2,202,938
    )
    
    
    1,784,940Other assets
    
    
    (1,537
    )
    
    
    (374,507
    )Accounts payable
    
    
    (2,105,263
    )
    
    
    2,078,967Billings in excess of costs on uncompleted contracts
    
    
    180,193
    
    
    
    1,658,823Accrued interest and other liabilities
    
    
    1,693,055
    
    
    
    1,550,045Income taxes payable
    
    
    260,649
    
    
    
    132,378Deferred revenue
    
    
    156,486
    
    
    
    5,064Net cash used in operating activities
    
    
    (1,244,315
    )
    
    
    (116,352
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (303,841
    )
    
    
    (364,237
    )Proceeds from sale of assets
    
    
    21,500
    
    
    
    Investment received for noncontrolling interest of subsidiary
    
    
    28,000
    
    
    
    Net cash used in investing activities
    
    
    (254,341
    )
    
    
    (364,237
    )Cash flows from financing activities:Net borrowings (payments) on line of credit
    
    
    2,331,000
    
    
    
    (1,428,935
    )Proceeds from notes payable
    
    
    59,270
    
    
    
    27,200Payments on term debt
    
    
    (505,657
    )
    
    
    (535,574
    )Net cash provided by (used in) financing activities
    
    
    1,884,613
    
    
    
    (1,937,309
    )Effect of exchange rate changes on cash
    
    
    (33,949
    )
    
    
    (295,343
    )Net increase (decrease) in cash
    
    
    352,008
    
    
    
    (2,713,241
    )Cash, beginning of period
    
    
    2,356,534
    
    
    
    3,182,357Cash, end of period
    
    $
    2,708,542
    
    
    $
    469,116
   5




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##### 



Homeland Security Capital Corporation ShareholdersAdditionalAdditional
    
    
    Paid-In
    
    
    
    
    
    
    
    
    
    
    Accumulated
    
    
    
    
    
    
    TotalPreferred
    
    
    Common Stock
    
    
    Paid-In
    
    
    Capital -
    
    
    Treasury
    
    
    Accumulated
    
    
    Comprehensive
    
    
    Noncontrolling
    
    
    StockholdersStock
    
    
    Shares Issued
    
    
    Amount
    
    
    Capital
    
    
    Warrants
    
    
    Stock
    
    
    Deficit
    
    
    Loss
    
    
    Interest
    
    
    (Deficit)Balance, June 30, 2009As previously reported
    
    $
    14,261,207
    
    
    
    53,270,160
    
    
    $
    53,270
    
    
    $
    54,131,548
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,953,480
    )
    
    $
    (141,591
    )
    
    $
    
    
    
    $
    (2,626,517
    )Adjustment for adoption of
FASB ASC 810
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,931
    
    
    
    
    
    
    
    (135,931
    )
    
    
    Balance, June 30, 2009 as restated
    
    
    14,261,207
    
    
    
    53,270,160
    
    
    
    53,270
    
    
    
    54,131,548
    
    
    
    272,529
    
    
    
    (250,000
    )
    
    
    (70,817,549
    )
    
    
    (141,591
    )
    
    
    (135,931
    )
    
    
    (2,626,517
    )Amortization of Series H warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,198,093
    )
    
    
    
    
    
    
    
    
    
    
    (1,198,093
    )Dividends on Series H and Series I
    
    
    11,043
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,043
    )
    
    
    
    
    
    
    
    
    
    
    Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    798,794
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    798,794Rescission of option exercise
    
    
    
    
    
    
    (4,405,720
    )
    
    
    (4,406
    )
    
    
    4,406
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noncontrolling interests
investment in subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    28,000
    
    
    
    28,000Decrease in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,046
    )
    
    
    
    
    
    
    (90,046
    )Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,949
    )
    
    
    
    
    
    
    (33,949
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,570,764
    
    
    
    
    
    
    
    230,140
    
    
    
    1,800,904Balance, March 31, 2010
    
    $
    14,272,250
    
    
    
    48,864,440
    
    
    $
    48,864
    
    
    $
    54,934,748
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,455,921
    )
    
    $
    (265,586
    )
    
    $
    122,209
    
    
    $
    (1,320,907
    )
   6




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##### 



HOMELAND SECURITY CAPITAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
  1. Organization and Basis of Presentation of Unaudited Interim Financial Statements.
 Organization
  Basis of Presentation
     Recent Accounting Pronouncements
   7




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##### 



Accounting and Reporting for Decreases in Ownership of a Subsidiary
 2. Fair Value Measurements
 Fair Value Measurements and Disclosures Fair Value Measurements
     3. Minority Interest in Ultimate Escapes, Inc.
     8




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##### 



4. Income Taxes
  5. Stock Options
 Stock Options Awarded Under the 2005 Plan
  Stock Options Awarded Under the 2008 Plan
  Stock Options Awarded Outside of the 2005 Plan and the 2008 Plan
    March 31, 2010
    
    
    June 30, 2009Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise
    
    
    Grant Date
    
    
    
    
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Price
    
    
    Fair ValueOutstanding at
beginning of period
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049
    
    
    
    9,560,000
    
    
    $
    0.103
    
    
    $
    0.107Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,850,000
    
    
    
    0.050
    
    
    
    0.036Rescinded (Exercised)
    
    
    7,640,626
    
    
    
    0.050
    
    
    
    0.036
    
    
    
    (7,673,986
    )
    
    
    0.050
    
    
    
    0.036Forfeited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (66,640
    )
    
    
    0.050
    
    
    
    0.036Outstanding at
end of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049Options exercisable
at end of period
    
    
    76,395,941
    
    
    $
    0.056
    
    
    $
    0.045
    
    
    
    47,992,293
    
    
    $
    0.060
    
    
    $
    0.050
  9




---



##### 



6. Business Segments
   For the Three Months Ended March 31, 2010Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    20,898,415
    
    
    $
    2,514,583
    
    
    $
    271,206
    
    
    $
    23,684,204Gross margin
    
    
    
    
    
    
    4,901,978
    
    
    
    837,732
    
    
    
    10,755
    
    
    
    5,750,465Operating expenses
    
    
    662,340
    
    
    
    2,807,960
    
    
    
    237,915
    
    
    
    4,366
    
    
    
    3,712,581Other (expense) income  net
    
    
    (663,900
    )
    
    
    (58,731
    )
    
    
    4,219
    
    
    
    
    
    
    
    (718,412
    )Income tax (benefit) expense
    
    
    (554,659
    )
    
    
    628,478
    
    
    
    
    
    
    
    
    
    
    
    73,819Net income (loss) from
continuing operations
    
    
    (771,581
    )
    
    
    1,406,809
    
    
    
    604,036
    
    
    
    6,389
    
    
    
    1,245,653Current assets
    
    
    71,124
    
    
    
    21,887,136
    
    
    
    4,345,527
    
    
    
    369,966
    
    
    
    26,673,753Total assets
    
    
    683,680
    
    
    
    31,805,154
    
    
    
    4,587,446
    
    
    
    369,966
    
    
    
    37,446,246Interest expense
    
    
    (492,904
    )
    
    
    (63,338
    )
    
    
    (1,428
    )
    
    
    
    
    
    
    (557,670
    )Depreciation expense
    
    
    
    
    
    
    465,967
    
    
    
    17,407
    
    
    
    
    
    
    
    483,374Capital expenditures
    
    
    
    
    
    
    80,687
    
    
    
    22,350
    
    
    
    
    
    
    
    103,037
 For the Three Months Ended March 31, 2009Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    16,481,205
    
    
    $
    1,034,942
    
    
    $
    1,543,686
    
    
    $
    19,059,833Gross margin
    
    
    
    
    
    
    2,026,235
    
    
    
    283,385
    
    
    
    61,362
    
    
    
    2,370,982Operating expenses
    
    
    801,328
    
    
    
    2,648,115
    
    
    
    245,744
    
    
    
    (138,501
    )
    
    
    3,556,686Other (expense) income  net
    
    
    (517,259
    )
    
    
    (102,785
    )
    
    
    5,203
    
    
    
    (604
    )
    
    
    (615,445
    )Income tax (benefit) expense
    
    
    
    
    
    
    (10,622
    )
    
    
    
    
    
    
    
    
    
    
    (10,622
    )Net income (loss) from
continuing operations
    
    
    (1,318,587
    )
    
    
    (714,043
    )
    
    
    42,844
    
    
    
    199,259
    
    
    
    (1,790,527
    )Current assets
    
    
    119,415
    
    
    
    20,348,775
    
    
    
    2,209,196
    
    
    
    568,713
    
    
    
    23,246,099Total assets
    
    
    568,371
    
    
    
    32,362,525
    
    
    
    2,424,779
    
    
    
    568,713
    
    
    
    35,924,388Interest expense
    
    
    (426,700
    )
    
    
    (71,064
    )
    
    
    (3,448
    )
    
    
    (604
    )
    
    
    (501,816
    )Depreciation expense
    
    
    2,400
    
    
    
    441,501
    
    
    
    38,858
    
    
    
    
    
    
    
    482,759Capital expenditures
    
    
    
    
    
    
    50,916
    
    
    
    
    
    
    
    
    
    
    
    50,916
  10




---



##### 



For the Nine Months Ended March 31, 2010Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    61,330,769
    
    
    $
    7,806,586
    
    
    $
    1,968,706
    
    
    $
    71,106,061Gross margin
    
    
    
    
    
    
    12,300,454
    
    
    
    2,688,018
    
    
    
    78,655
    
    
    
    15,067,127Operating expenses
    
    
    1,825,382
    
    
    
    8,411,862
    
    
    
    786,777
    
    
    
    27,065
    
    
    
    11,051,086Other (expense) income  net
    
    
    (1,747,199
    )
    
    
    (186,322
    )
    
    
    (5,513
    )
    
    
    
    
    
    
    (1,939,034
    )Income tax (benefit) expense
    
    
    (1,122,433
    )
    
    
    1,398,536
    
    
    
    
    
    
    
    
    
    
    
    276,103Net income (loss) from
continuing operations
    
    
    (2,450,148
    )
    
    
    2,303,734
    
    
    
    1,895,728
    
    
    
    51,590
    
    
    
    1,800,904Current assets
    
    
    71,124
    
    
    
    21,887,136
    
    
    
    4,345,527
    
    
    
    369,966
    
    
    
    26,673,753Total assets
    
    
    683,680
    
    
    
    31,805,154
    
    
    
    4,587,446
    
    
    
    369,966
    
    
    
    37,446,246Interest expense
    
    
    (1,366,425
    )
    
    
    (165,936
    )
    
    
    (6,086
    )
    
    
    
    
    
    
    (1,538,447
    )Depreciation expense
    
    
    
    
    
    
    1,454,266
    
    
    
    51,295
    
    
    
    
    
    
    
    1,505,561Capital expenditures
    
    
    
    
    
    
    205,869
    
    
    
    97,972
    
    
    
    
    
    
    
    303,841
 For the Nine Months Ended March 31, 2009Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    54,163,453
    
    
    $
    3,219,424
    
    
    $
    1,556,648
    
    
    $
    58,939,525Gross margin
    
    
    
    
    
    
    7,829,256
    
    
    
    1,043,584
    
    
    
    63,945
    
    
    
    8,936,785Operating expenses
    
    
    3,111,468
    
    
    
    6,946,388
    
    
    
    974,103
    
    
    
    81,753
    
    
    
    11,113,712Other (expense) income  net
    
    
    (1,554,837
    )
    
    
    (272,224
    )
    
    
    (4,697
    )
    
    
    (604
    )
    
    
    (1,832,362
    )Income tax (benefit) expense
    
    
    
    
    
    
    132,378
    
    
    
    
    
    
    
    
    
    
    
    132,378Net income (loss) from continuing operations
    
    
    (4,666,305
    )
    
    
    478,266
    
    
    
    64,784
    
    
    
    (18,412
    )
    
    
    (4,141,667
    )Current assets
    
    
    119,415
    
    
    
    20,348,775
    
    
    
    2,209,196
    
    
    
    568,713
    
    
    
    23,246,099Total assets
    
    
    568,371
    
    
    
    32,362,525
    
    
    
    2,424,779
    
    
    
    568,713
    
    
    
    35,924,388Interest expense
    
    
    (1,285,732
    )
    
    
    (206,819
    )
    
    
    (14,850
    )
    
    
    (604
    )
    
    
    (1,508,005
    )Depreciation expense
    
    
    7,200
    
    
    
    1,288,339
    
    
    
    73,717
    
    
    
    
    
    
    
    1,369,256Capital expenditures
    
    
    
    
    
    
    364,237
    
    
    
    
    
    
    
    
    
    
    
    364,237
 7. Income (Loss) Per Share
    11




---



##### 



Three Months Ended March 31,
    
    
    Nine Months Ended March 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Basic and Diluted Earnings (Loss) Per Share:Income (Loss) (Numerator)
    
    $
    1,121,210
    
    
    $
    (1,781,059
    )
    
    $
    1,570,764
    
    
    $
    (4,038,867
    )Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (3,681
    )
    
    
    
    
    
    
    (11,043
    )
    
    
    Less: Preferred stock dividends
    
    
    (393,534
    )
    
    
    (1,084,106
    )
    
    
    (1,198,093
    )
    
    
    (1,805,287
    )Income (loss) attributable to common
stockholders
    
    $
    723,995
    
    
    $
    (2,865,165
    )
    
    $
    361,628
    
    
    $
    (5,844,154
    )Shares (Denominator)Weighted-average number of common shares:Basic
    
    
    48,864,440
    
    
    
    45,694,728
    
    
    
    51,823,026
    
    
    
    47,366,143Diluted
    
    
    787,615,123
    
    
    
    45,694,728
    
    
    
    790,573,709
    
    
    
    47,366,143Earnings Per Common ShareBasic loss per share
    
    $
    0.01
    
    
    $
    (0.06
    )
    
    $
    0.01
    
    
    $
    (0.12
    )Diluted loss per share
    
    $
    0.00
    
    
    $
    (0.06
    )
    
    $
    0.00
    
    
    $
    (0.12
    )
 8. Cash Flows
  Nine Months Ended March 31,2010
    
    
    2009Cash paid during the period for:Interest
    
    $
    172,022
    
    
    $
    222,273Taxes
    
    $
    6,947
    
    
    $
    Supplemental disclosure for noncash investing
and financing activity:Tempory impairment of value of securities
available for sale
    
    $
    (90,046
    )
    
    $
    (1,641,602
    )Dividends accrued on Preferred Stock
    
    $
    (1,198,093
    )
    
    $
    (713,819
    )Dividends recognized from beneficial
conversion feature
    
    $
    (11,043
    )
    
    $
    (7,362
    )Purchase of treasury stock for notes
    
    $
    
    
    
    $
    (250,000
    )
 9. Related Party Transactions
   12




---



##### 



10. Changes in Estimates
  11. Series H Convertible Preferred Stock
    12. Senior Notes Payable Interest Rate
  13. Continuing Operations
   13




---



##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
 CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 This Quarterly Report on Form 10-Q , including, without limitation, Managements Discussion and
Analysis of Financial Condition and Results of Operations, contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the Exchange Act). We intend that the forward-looking statements be
covered by the safe harbor for forward-looking statements in the Exchange Act. The forward-looking
information is based on various factors and was derived using numerous assumptions. All statements,
other than statements of historical fact, that address activities, events or developments that we
intend, expect, project, believe or anticipate will or may occur in the future are forward-looking
statements. Such statements are based upon certain assumptions and assessments made by our
management in light of their experience and their perception of historical trends, current
conditions, expected future developments and other factors they believe to be appropriate. These
forward-looking statements are usually accompanied by words such as believe, anticipate,
plan, seek, expect, intend and similar expressions.
 Forward-looking statements necessarily involve risks and uncertainties, and our actual results
could differ materially from those anticipated in the forward looking statements due to a number of
factors, including those set forth in Part I, Item 1A, entitled Risk Factors, of our Annual
Report on Form 10-K for the year ended June 30, 2009, as may be updated and supplemented by
Part II, Item 1A, entitled Risk Factors, of this Quarterly Report on Form 10-Q , and elsewhere in
this report. These factors as well as other cautionary statements made in this Quarterly Report on
Form 10-Q, should be read and understood as being applicable to all related forward-looking
statements wherever they appear herein. The forward-looking statements contained in this Quarterly
Report on Form 10-Q represent our judgment as of the date hereof. We encourage you to read those
descriptions carefully. We caution you not to place undue reliance on the forward-looking
statements contained in this report. These statements, like all statements in this report, speak
only as of the date of this report (unless an earlier date is indicated) and we undertake no
obligation to update or revise the statements except as required by law. Such forward-looking
statements are not guarantees of future performance and actual results will likely differ, perhaps
materially, from those suggested by such forward-looking statements. In this report, the
Company, the Holding Company, we, us, and our refer to Homeland Security Capital
Corporation.
 Overview
    14




---



##### 



Results of Operations
 Three Month Period Ended March 31, 2010 as Compared to the Three Month Period Ended March 31, 2009
 Contract revenue
  Three Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    20,898,415
    
    
    
    16,481,205
    
    
    
    4,417,210
    
    
    
    26.8
    %Nexus
    
    
    2,514,583
    
    
    
    1,034,942
    
    
    
    1,479,641
    
    
    
    143.0
    %PMX
    
    
    271,206
    
    
    
    1,543,686
    
    
    
    (1,272,480
    )
    
    
    (82.4
    %)$
    23,684,204
    
    
    $
    19,059,833
    
    
    $
    4,624,371
    
    
    
    24.3
    %
  Contract cost
  Three Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    15,996,437
    
    
    
    14,454,970
    
    
    
    1,541,467
    
    
    
    10.7
    %Nexus
    
    
    1,676,851
    
    
    
    751,557
    
    
    
    925,294
    
    
    
    123.1
    %PMX
    
    
    260,451
    
    
    
    1,482,324
    
    
    
    (1,221,873
    )
    
    
    (82.4
    %)$
    17,933,739
    
    
    $
    16,688,851
    
    
    $
    1,244,888
    
    
    
    7.5
    %
  Operating expenses
  Three Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    662,340
    
    
    $
    801,327
    
    
    $
    (138,987
    )
    
    
    (17.3
    %)Safety
    
    
    2,807,960
    
    
    
    2,648,116
    
    
    
    159,844
    
    
    
    6.0
    %Nexus
    
    
    237,915
    
    
    
    245,744
    
    
    
    (7,829
    )
    
    
    (3.2
    %)PMX
    
    
    4,366
    
    
    
    (138,501
    )
    
    
    142,867
    
    
    
    (103.2
    %)$
    3,712,581
    
    
    $
    3,556,686
    
    
    $
    155,895
    
    
    
    4.4
    %
   15




---



##### 



Other income and expense
  Three Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    (663,900
    )
    
    $
    (517,259
    )
    
    $
    (146,641
    )
    
    
    (28.3
    %)Safety
    
    
    (58,731
    )
    
    
    (102,785
    )
    
    
    44,054
    
    
    
    42.9
    %Nexus
    
    
    4,219
    
    
    
    5,203
    
    
    
    (984
    )
    
    
    (18.9
    %)PMX
    
    
    
    
    
    
    (604
    )
    
    
    604
    
    
    
    100.0
    %$
    (718,412
    )
    
    $
    (615,445
    )
    
    $
    (102,967
    )
    
    
    (16.7
    %)
 Three Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Interest expense
    
    $
    (557,670
    )
    
    $
    (501,816
    )
    
    $
    (55,854
    )
    
    
    (11.1
    %)Amortization of debt
offering costs
    
    
    (103,596
    )
    
    
    (137,971
    )
    
    
    34,375
    
    
    
    24.9
    %Amortization of debt
discount
    
    
    
    
    
    
    (12,019
    )
    
    
    12,019
    
    
    
    100.0
    %Currency loss
    
    
    (148
    )
    
    
    
    
    
    
    (148
    )
    
    
    0.0
    %Impairment loss
    
    
    (67,358
    )
    
    
    
    
    
    
    (67,358
    )
    
    
    0.0
    %Interest and other
income
    
    
    10,360
    
    
    
    36,361
    
    
    
    (26,001
    )
    
    
    (71.5
    %)$
    (718,412
    )
    
    $
    (615,445
    )
    
    $
    (102,967
    )
    
    
    (16.7
    %)
  Net income (loss)
  Nine Month Period Ended March 31, 2010 as Compared to the Nine Month Period Ended March 31, 2009
 Contract revenue
  Nine Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    61,330,769
    
    
    
    54,163,453
    
    
    
    7,167,316
    
    
    
    13.2
    %Nexus
    
    
    7,806,586
    
    
    
    3,219,424
    
    
    
    4,587,162
    
    
    
    142.5
    %PMX
    
    
    1,968,706
    
    
    
    1,556,648
    
    
    
    412,058
    
    
    
    26.5
    %$
    71,106,061
    
    
    $
    58,939,525
    
    
    $
    12,166,536
    
    
    
    20.6
    %
   16




---



##### 



Contract cost
  Nine Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    49,030,315
    
    
    
    46,334,197
    
    
    
    2,696,118
    
    
    
    5.8
    %Nexus
    
    
    5,118,568
    
    
    
    2,175,840
    
    
    
    2,942,728
    
    
    
    135.2
    %PMX
    
    
    1,890,051
    
    
    
    1,492,703
    
    
    
    397,348
    
    
    
    26.6
    %$
    56,038,934
    
    
    $
    50,002,740
    
    
    $
    6,036,194
    
    
    
    12.1
    %
  Operating expenses
  Nine Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    1,825,382
    
    
    $
    3,111,468
    
    
    $
    (1,286,086
    )
    
    
    (41.3
    %)Safety
    
    
    8,411,862
    
    
    
    6,946,388
    
    
    
    1,465,474
    
    
    
    21.1
    %Nexus
    
    
    786,777
    
    
    
    974,103
    
    
    
    (187,326
    )
    
    
    (19.2
    %)PMX
    
    
    27,065
    
    
    
    81,753
    
    
    
    (54,688
    )
    
    
    (66.9
    %)$
    11,051,086
    
    
    $
    11,113,712
    
    
    $
    (62,626
    )
    
    
    (0.6
    %)
  Other income and expense
  Nine Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    (1,747,199
    )
    
    $
    (1,554,837
    )
    
    $
    (192,362
    )
    
    
    (12.4
    %)Safety
    
    
    (186,322
    )
    
    
    (272,224
    )
    
    
    85,902
    
    
    
    31.6
    %Nexus
    
    
    (5,513
    )
    
    
    (4,697
    )
    
    
    816
    
    
    
    17.4
    %PMX
    
    
    
    
    
    
    (604
    )
    
    
    604
    
    
    
    100.0
    %$
    (1,939,034
    )
    
    $
    (1,832,362
    )
    
    $
    (106,672
    )
    
    
    (5.8
    %)
  17




---



##### 



Nine Months Ended March 31,2010
    
    
    2009
    
    
    Increase (Decrease)Interest expense
    
    $
    (1,538,447
    )
    
    $
    (1,508,005
    )
    
    $
    (30,442
    )
    
    
    (2.0
    %)Amortization of debt
offering costs
    
    
    (355,922
    )
    
    
    (384,156
    )
    
    
    28,234
    
    
    
    7.3
    %Amortization of debt
discount
    
    
    (34,053
    )
    
    
    (36,056
    )
    
    
    2,003
    
    
    
    5.6
    %Currency loss
    
    
    (148
    )
    
    
    
    
    
    
    (148
    )
    
    
    0.0
    %Impairment losses
    
    
    (67,358
    )
    
    
    
    
    
    
    (67,358
    )
    
    
    0.0
    %Interest and other
income
    
    
    56,894
    
    
    
    95,855
    
    
    
    (38,961
    )
    
    
    (40.6
    %)$
    (1,939,034
    )
    
    $
    (1,832,362
    )
    
    $
    (106,672
    )
    
    
    (5.8
    %)
  Net income (loss)
  Liquidity and Capital Resources
   Cash Flows From Operating Activities
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
   18




---



##### 



Off-Balance Sheet Arrangements
  Item 3. Quantitative and Qualitative Disclosures About Market Risk
  Item 4(T). Controls and Procedures
 Evaluation of Disclosure Controls and Procedures
  Changes in Internal Controls over Financial Reporting
   19




---



##### 



PART II. OTHER INFORMATION.
 Item 1. Legal Proceedings.
  Item 1A. Risk Factors.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  Item 3. Defaults Upon Senior Securities.
  Item 4.
(Removed and Reserved)
 Item 5. Other Information.
  Item 6. Exhibits
 Exhibits.
 Exhibit
    
    Description31.1
    
    
    Certification of Principal Executive Officer
Pursuant to Securities Exchange Act Rule 13a-14(a)
As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*31.2
    
    
    Certification of Principal Financial Officer
Pursuant to Securities Exchange Act Rule 13a-14(a)
As Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002*32.1
    
    
    Certification of Principal Executive Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*32.2
    
    
    Certification of Principal Financial Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002*
 
 *
    
    Exhibit filed with this Quarterly Report  20




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SIGNATURES
  HOMELAND SECURITY CAPITAL CORPORATIONDate: May 17, 2010
    /s/ Michael T. BriganteMichael T. Brigante(Authorized Officer and Principal Financial Officer)  21