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 December 31, 2009
 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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
  o þ




---



##### 



PART I. FINANCIAL INFORMATION
 Item 1.
    
    Financial Statements.




---



##### 



December 31,
    
    
    June 302009
    
    
    2009(unaudited)Assets:Cash
    
    $
    1,087,259
    
    
    $
    2,356,534Accounts receivable  net
    
    
    16,937,245
    
    
    
    13,425,804Cost in excess of billings on uncompleted contracts
    
    
    5,895,497
    
    
    
    3,937,086Other current assets
    
    
    547,101
    
    
    
    613,348Total current assets
    
    
    24,467,102
    
    
    
    20,332,772Fixed assets  net
    
    
    3,548,394
    
    
    
    4,398,833Deferred financing costs  net
    
    
    139,026
    
    
    
    386,210Notes receivable  related party
    
    
    421,453
    
    
    
    412,127Securities available for sale
    
    
    138,532
    
    
    
    193,945Other non-current assets
    
    
    327,937
    
    
    
    319,516Intangible assets  net
    
    
    369,093
    
    
    
    391,372Goodwill
    
    
    6,403,982
    
    
    
    6,403,982Total assets
    
    $
    35,815,519
    
    
    $
    32,838,757Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    9,263,780
    
    
    $
    10,003,336Current portion of long term debt
    
    
    2,907,735
    
    
    
    1,247,016Current portion of long term debt  related party
    
    
    2,500,000
    
    
    
    Notes payable  related party
    
    
    51,370
    
    
    
    50,110Accrued interest and other liabilities
    
    
    2,839,065
    
    
    
    3,257,903Billings in excess of costs on uncompleted contracts
    
    
    1,703,534
    
    
    
    1,022,125Income taxes payable
    
    
    182,816
    
    
    
    Deferred revenue
    
    
    32,562
    
    
    
    59,636Total current liabilities
    
    
    19,480,862
    
    
    
    15,640,126Senior notes payable  related party
    
    
    11,428,907
    
    
    
    13,904,870Interest payable  related party
    
    
    3,082,392
    
    
    
    2,210,131Secured notes payable  related party
    
    
    250,000
    
    
    
    250,000Long term debt, less current maturities
    
    
    1,102,621
    
    
    
    1,421,272Dividends payable
    
    
    2,673,666
    
    
    
    1,869,107Total liabilities
    
    
    38,018,448
    
    
    
    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
    
    
    14,268,569
    
    
    
    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
    
    
    54,679,705
    
    
    
    54,131,548Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    272,529Treasury stock - 3,570,431 shares at cost
    
    
    (250,000
    )
    
    
    (250,000
    )Accumulated deficit
    
    
    (71,179,916
    )
    
    
    (70,817,549
    )Accumulated comprehensive loss
    
    
    (210,214
    )
    
    
    (141,591
    )Total Homeland Security Capital Corporation stockholders
deficit
    
    
    (2,370,463
    )
    
    
    (2,490,586
    )Noncontrolling interest
    
    
    (2,234
    )
    
    
    (135,931
    )Total stockholders deficit
    
    
    (2,372,697
    )
    
    
    (2,626,517
    )Total liabilities and stockholders deficit
    
    $
    35,815,519
    
    
    $
    32,838,757




---



##### 



Three Months Ended December 31,
    
    
    Six Months Ended December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Net contract revenue
    
    $
    26,572,415
    
    
    $
    22,212,461
    
    
    $
    47,421,857
    
    
    $
    39,879,692Contract costs
    
    
    20,801,955
    
    
    
    18,480,949
    
    
    
    38,105,195
    
    
    
    33,313,889Gross profit on sales
    
    
    5,770,460
    
    
    
    3,731,512
    
    
    
    9,316,662
    
    
    
    6,565,803Operating expenses:Marketing
    
    
    131,507
    
    
    
    54,094
    
    
    
    198,947
    
    
    
    123,851Personnel
    
    
    2,027,003
    
    
    
    1,744,094
    
    
    
    4,215,312
    
    
    
    4,353,851Insurance and facility costs
    
    
    278,391
    
    
    
    226,407
    
    
    
    538,514
    
    
    
    522,022Travel and transportation
    
    
    92,454
    
    
    
    109,053
    
    
    
    190,373
    
    
    
    272,501Other operating costs
    
    
    269,557
    
    
    
    225,428
    
    
    
    486,502
    
    
    
    458,051Depreciation and amortization
    
    
    375,752
    
    
    
    468,978
    
    
    
    722,446
    
    
    
    616,508Amortization of intangible assets
    
    
    11,140
    
    
    
    34,274
    
    
    
    22,279
    
    
    
    68,548Professional services
    
    
    249,824
    
    
    
    199,080
    
    
    
    446,012
    
    
    
    514,263Administrative costs
    
    
    246,194
    
    
    
    326,140
    
    
    
    518,120
    
    
    
    627,432Total operating expenses
    
    
    3,681,822
    
    
    
    3,387,548
    
    
    
    7,338,505
    
    
    
    7,557,027Operating income (loss)
    
    
    2,088,638
    
    
    
    343,964
    
    
    
    1,978,157
    
    
    
    (991,224
    )Other (expense) income:Interest expense
    
    
    (490,985
    )
    
    
    (504,537
    )
    
    
    (980,777
    )
    
    
    (1,006,189
    )Amortization of debt discounts and offering costs
    
    
    (138,768
    )
    
    
    (135,111
    )
    
    
    (286,379
    )
    
    
    (270,222
    )Other income
    
    
    14,344
    
    
    
    28,633
    
    
    
    46,534
    
    
    
    59,494Total other expense
    
    
    (615,409
    )
    
    
    (611,015
    )
    
    
    (1,220,622
    )
    
    
    (1,216,917
    )Income (loss) income from continuing operations
before income taxes
    
    
    1,473,229
    
    
    
    (267,051
    )
    
    
    757,535
    
    
    
    (2,208,141
    )Income tax expense
    
    
    (172,129
    )
    
    
    (143,000
    )
    
    
    (202,284
    )
    
    
    (143,000
    )Net income (loss)
    
    
    1,301,100
    
    
    
    (410,051
    )
    
    
    555,251
    
    
    
    (2,351,141
    )Less: Net (income) loss attributable to
noncontrolling interests
    
    
    (76,524
    )
    
    
    65,799
    
    
    
    (105,697
    )
    
    
    112,269Net income (loss) attributable to HomelandSecurity Capital Corporation stockholders
    
    
    1,224,576
    
    
    
    (344,252
    )
    
    
    449,554
    
    
    
    (2,238,872
    )Less preferred dividends and other beneficial
conversion
features associated with preferred stock issuance
    
    
    (405,960
    )
    
    
    (360,591
    )
    
    
    (811,921
    )
    
    
    (721,180
    )Net income (loss) attributable to common stockholders
of Homeland Security Capital Corporation
    
    $
    818,616
    
    
    $
    (704,843
    )
    
    $
    (362,367
    )
    
    $
    (2,960,052
    )Income (loss) per common share attributable to Homeland
Security Capital Corporation stockholders -
basic and dilutedBasic
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )Diluted
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )Weighted average shares outstanding -Basic
    
    
    53,270,160
    
    
    
    47,506,560
    
    
    
    53,270,160
    
    
    
    48,183,683Diluted
    
    
    536,203,500
    
    
    
    47,506,560
    
    
    
    53,270,160
    
    
    
    48,183,683




---



##### 



Six Months Ended December 31,2009
    
    
    2008Cash flows from operating activities:Net income (loss)
    
    $
    555,251
    
    
    $
    (2,351,141
    )Adjustments to reconcile net income (loss) to net
cash (used in) operating activities:Share-based compensation expense
    
    
    543,751
    
    
    
    1,348,278Depreciation
    
    
    1,022,187
    
    
    
    886,497Amortization of intangibles
    
    
    22,279
    
    
    
    68,548Loss on disposal of assets
    
    
    7,556
    
    
    
    Amortization of debt discount
    
    
    24,037
    
    
    
    24,037Amortization of debt offering costs
    
    
    247,184
    
    
    
    246,185Changes in operating assets and liabilities:Accounts receivable
    
    
    (3,511,441
    )
    
    
    (6,227,294
    )Costs in excess of billings on uncompleted
contracts
    
    
    (1,958,411
    )
    
    
    (76,718
    )Other assets
    
    
    48,500
    
    
    
    17,678Accounts payable
    
    
    (739,556
    )
    
    
    936,206Billings in excess of costs on uncompleted
contracts
    
    
    681,409
    
    
    
    2,625,933Accrued interest and other liabilities
    
    
    453,423
    
    
    
    507,563Income taxes payable
    
    
    182,816
    
    
    
    143,000Deferred revenue
    
    
    (27,074
    )
    
    
    (15,407
    )Net cash used in operating activities
    
    
    (2,448,089
    )
    
    
    (1,866,635
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (200,804
    )
    
    
    (313,321
    )Proceeds from sale of assets
    
    
    21,500
    
    
    
    Investment received for noncontrolling interest of
subsidiary
    
    
    28,000
    
    
    
    Net cash used in investing activities
    
    
    (151,304
    )
    
    
    (313,321
    )Cash flows from financing activities:Net borrowings on line of credit
    
    
    1,691,000
    
    
    
    1,178,065Proceeds from notes payable
    
    
    59,270
    
    
    
    Payments on term debt
    
    
    (406,942
    )
    
    
    (332,107
    )Net cash provided by financing activities
    
    
    1,343,328
    
    
    
    845,958Effect of exchange rate changes on cash
    
    
    (13,210
    )
    
    
    (268,534
    )Net decrease in cash
    
    
    (1,269,275
    )
    
    
    (1,602,532
    )Cash, beginning of period
    
    
    2,356,534
    
    
    
    3,182,357Cash, end of period
    
    $
    1,087,259
    
    
    $
    1,579,825




---



##### 



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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (804,559
    )
    
    
    
    
    
    
    
    
    
    
    (804,559
    )Dividends on Series H and Series I
    
    
    7,362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,362
    )
    
    
    
    
    
    
    
    
    
    
    Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    543,751
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    543,751Rescission 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,413
    )
    
    
    
    
    
    
    (55,413
    )Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,210
    )
    
    
    
    
    
    
    (13,210
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    449,554
    
    
    
    
    
    
    
    105,697
    
    
    
    555,251Balance, December 31, 2009
    
    $
    14,268,569
    
    
    
    48,864,440
    
    
    $
    48,864
    
    
    $
    54,679,705
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (71,179,916
    )
    
    $
    (210,214
    )
    
    $
    (2,234
    )
    
    $
    (2,372,697
    )
 The accompanying notes are an integral part of these condensed consolidated financial
statements.




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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
   Noncontrolling Interest




---



##### 



Recent Accounting Pronouncements
 Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing
 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.




---



##### 



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
    December 2009
    
    
    June 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 year
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049Options exercisable
at end of period
    
    
    69,481,878
    
    
    $
    0.057
    
    
    $
    0.046
    
    
    
    47,992,293
    
    
    $
    0.060
    
    
    $
    0.050




---



##### 



6. Business Segments
   For the Three Months Ended December 31, 2009Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    22,344,769
    
    
    $
    3,209,146
    
    
    $
    1,018,500
    
    
    $
    26,572,415Gross margin
    
    
    
    
    
    
    4,457,618
    
    
    
    1,272,102
    
    
    
    40,740
    
    
    
    5,770,460Operation expenses
    
    
    385,135
    
    
    
    2,305,371
    
    
    
    304,263
    
    
    
    22,699
    
    
    
    3,017,468Depreciation expense
    
    
    
    
    
    
    638,687
    
    
    
    25,667
    
    
    
    
    
    
    
    664,354Other income (expense)  net
    
    
    (536,128
    )
    
    
    (67,325
    )
    
    
    (11,956
    )
    
    
    
    
    
    
    (615,409
    )Income tax (benefit) expense
    
    
    (469,296
    )
    
    
    641,425
    
    
    
    
    
    
    
    
    
    
    
    172,129Net income (loss) from
continuing operations
    
    
    (451,967
    )
    
    
    804,810
    
    
    
    930,216
    
    
    
    18,041
    
    
    
    1,301,100Current assets
    
    
    166,912
    
    
    
    20,166,258
    
    
    
    3,383,327
    
    
    
    750,605
    
    
    
    24,467,102Total assets
    
    
    101,159
    
    
    
    31,343,452
    
    
    
    3,620,303
    
    
    
    750,605
    
    
    
    35,815,519Interest expense
    
    
    (429,955
    )
    
    
    (59,325
    )
    
    
    (1,705
    )
    
    
    
    
    
    
    (490,985
    )Capital expenditures
    
    
    
    
    
    
    110,108
    
    
    
    52,013
    
    
    
    
    
    
    
    162,121




---



##### 



For the Three Months Ended December 31, 2008Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    21,096,372
    
    
    $
    1,114,289
    
    
    $
    1,800
    
    
    $
    22,212,461Gross margin
    
    
    
    
    
    
    3,461,847
    
    
    
    267,865
    
    
    
    1,800
    
    
    
    3,731,512Operation expenses
    
    
    744,483
    
    
    
    1,736,713
    
    
    
    278,854
    
    
    
    124,246
    
    
    
    2,884,296Depreciation expense
    
    
    2,400
    
    
    
    478,211
    
    
    
    22,641
    
    
    
    
    
    
    
    503,252Other income (expense)  net
    
    
    (521,788
    )
    
    
    (85,494
    )
    
    
    (3,733
    )
    
    
    
    
    
    
    (611,015
    )Income tax (benefit) expense
    
    
    
    
    
    
    143,000
    
    
    
    
    
    
    
    
    
    
    
    143,000Net income (loss) from
continuing operations
    
    
    (1,268,671
    )
    
    
    1,018,429
    
    
    
    (37,363
    )
    
    
    (122,446
    )
    
    
    (410,051
    )Current assets
    
    
    128,954
    
    
    
    23,664,296
    
    
    
    1,960,382
    
    
    
    2,495
    
    
    
    25,756,127Total assets
    
    
    827,457
    
    
    
    34,033,548
    
    
    
    2,151,187
    
    
    
    2,495
    
    
    
    37,014,687Interest expense
    
    
    (431,093
    )
    
    
    (68,652
    )
    
    
    (4,792
    )
    
    
    
    
    
    
    (504,537
    )Capital expenditures
    
    
    
    
    
    
    134,289
    
    
    
    
    
    
    
    
    
    
    
    134,289
  For the Six Months Ended December 31, 2009Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    40,432,354
    
    
    $
    5,292,003
    
    
    $
    1,697,500
    
    
    $
    47,421,857Gross margin
    
    
    
    
    
    
    7,398,476
    
    
    
    1,850,286
    
    
    
    67,900
    
    
    
    9,316,662Operation expenses
    
    
    1,163,042
    
    
    
    4,615,603
    
    
    
    514,974
    
    
    
    22,699
    
    
    
    6,316,318Depreciation expense
    
    
    
    
    
    
    988,299
    
    
    
    33,888
    
    
    
    
    
    
    
    1,022,187Other income (expense)  net
    
    
    (1,083,299
    )
    
    
    (127,591
    )
    
    
    (9,732
    )
    
    
    
    
    
    
    (1,220,622
    )Income tax (benefit) expense
    
    
    (567,774
    )
    
    
    770,058
    
    
    
    
    
    
    
    
    
    
    
    202,284Net income (loss) from
continuing operations
    
    
    (1,678,567
    )
    
    
    896,925
    
    
    
    1,291,692
    
    
    
    45,201
    
    
    
    555,251Current assets
    
    
    166,912
    
    
    
    20,166,258
    
    
    
    3,383,327
    
    
    
    750,605
    
    
    
    24,467,102Total assets
    
    
    101,159
    
    
    
    31,343,452
    
    
    
    3,620,303
    
    
    
    750,605
    
    
    
    35,815,519Interest expense
    
    
    (873,521
    )
    
    
    (102,598
    )
    
    
    (4,658
    )
    
    
    
    
    
    
    (980,777
    )Capital expenditures
    
    
    
    
    
    
    125,182
    
    
    
    75,622
    
    
    
    
    
    
    
    200,804
 For the Six Months Ended December 31, 2008Homeland Security
    
    Holding
    
    
    Services
    
    
    Services
    
    
    ProductsCapital Corporation -
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyConsolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    37,682,248
    
    
    $
    2,184,482
    
    
    $
    12,962
    
    
    $
    39,879,692Gross margin
    
    
    
    
    
    
    5,803,021
    
    
    
    760,199
    
    
    
    2,583
    
    
    
    6,565,803Operation expenses
    
    
    2,305,341
    
    
    
    3,644,395
    
    
    
    701,981
    
    
    
    220,254
    
    
    
    6,871,971Depreciation expense
    
    
    4,800
    
    
    
    653,878
    
    
    
    26,378
    
    
    
    
    
    
    
    685,056Other income (expense)  net
    
    
    (1,037,578
    )
    
    
    (169,439
    )
    
    
    (9,900
    )
    
    
    
    
    
    
    (1,216,917
    )Income tax (benefit) expense
    
    
    
    
    
    
    143,000
    
    
    
    
    
    
    
    
    
    
    
    143,000Net income (loss) from
continuing operations
    
    
    (3,347,719
    )
    
    
    1,192,309
    
    
    
    21,940
    
    
    
    (217,671
    )
    
    
    (2,351,141
    )Current assets
    
    
    128,954
    
    
    
    23,664,296
    
    
    
    1,960,382
    
    
    
    2,495
    
    
    
    25,756,127Total assets
    
    
    827,457
    
    
    
    34,033,548
    
    
    
    2,151,187
    
    
    
    2,495
    
    
    
    37,014,687Interest expense
    
    
    (859,032
    )
    
    
    (135,755
    )
    
    
    (11,402
    )
    
    
    
    
    
    
    (1,006,189
    )Capital expenditures
    
    
    
    
    
    
    307,514
    
    
    
    5,807
    
    
    
    
    
    
    
    313,321




---



##### 



7. Income (Loss) Per Share
    Three Months Ended December 31,
    
    
    Six Months Ended December 31,2009
    
    
    2008
    
    
    2009
    
    
    2008Basic and Diluted Earnings (Loss) Per Share:Income (Loss) (Numerator)
    
    $
    1,224,576
    
    
    $
    (344,252
    )
    
    $
    449,554
    
    
    $
    (2,238,872
    )Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (3,681
    )
    
    
    (3,681
    )
    
    
    (7,362
    )
    
    
    (7,362
    )Less: Preferred stock dividends
    
    
    (402,279
    )
    
    
    (356,910
    )
    
    
    (804,559
    )
    
    
    (713,818
    )Loss attributable to common
stockholders
    
    $
    818,616
    
    
    $
    (704,843
    )
    
    $
    (362,367
    )
    
    $
    (2,960,052
    )Shares (Denominator)Weighted-average number of common shares:Basic
    
    
    53,270,160
    
    
    
    47,506,560
    
    
    
    53,270,160
    
    
    
    48,183,683Diluted
    
    
    536,203,500
    
    
    
    47,506,560
    
    
    
    53,270,160
    
    
    
    48,183,683Earnings Per Common ShareBasic income (loss) per share
    
    $
    0.02
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )Diluted loss per share
    
    $
    0.00
    
    
    $
    (0.01
    )
    
    $
    (0.01
    )
    
    $
    (0.06
    )
 8. Cash Flows
  Six Months Ended December 31,2009
    
    
    2008Cash paid during the period for:Interest
    
    $
    107,256
    
    
    $
    147,157Taxes
    
    $
    6,947
    
    
    $
    Supplemental disclosure for noncash investing and financing activity:Temporary impairment of value of
securities available for sale
    
    $
    (55,413
    )
    
    $
    (1,641,602
    )Dividends accrued on Perferred Stock
    
    $
    (804,559
    )
    
    $
    (713,818
    )Dividends recognized from beneficial
conversion feature
    
    $
    (7,362
    )
    
    $
    (7,362
    )Purchase of treasury stock for notes
    
    $
    
    
    
    $
    (250,000
    )




---



##### 



9. Related Party Transactions
     10. Series H Convertible Preferred Stock
    11. Continuing Operations
  12. Subsequent Events




---



##### 



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




---



##### 



Results of Operations
 Three Month Period Ended December 31, 2009 as Compared to the Three Month Period Ended December 31,
2008
 Contract revenue
  Three Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    22,344,769
    
    
    
    21,096,372
    
    
    
    1,248,397
    
    
    
    5.9
    %Nexus
    
    
    3,209,146
    
    
    
    1,114,289
    
    
    
    2,094,857
    
    
    
    188.0
    %PMX
    
    
    1,018,500
    
    
    
    1,800
    
    
    
    1,016,700
    
    
    
    56,483.3
    %$
    26,572,415
    
    
    $
    22,212,461
    
    
    $
    4,359,954
    
    
    
    19.6
    %
  Contract cost
  Three Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    17,887,151
    
    
    
    17,634,525
    
    
    
    252,626
    
    
    
    1.4
    %Nexus
    
    
    1,937,044
    
    
    
    846,424
    
    
    
    1,090,620
    
    
    
    128.9
    %PMX
    
    
    977,760
    
    
    
    0
    
    
    
    977,760
    
    
    
    $
    20,801,955
    
    
    $
    18,480,949
    
    
    $
    2,321,006
    
    
    
    12.6
    %
  Operating expenses
  Three Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    385,135
    
    
    $
    746,883
    
    
    $
    (361,747
    )
    
    
    (48.4
    %)Safety
    
    
    2,944,058
    
    
    
    2,214,924
    
    
    
    729,133
    
    
    
    32.9
    %Nexus
    
    
    329,930
    
    
    
    301,495
    
    
    
    28,435
    
    
    
    9.4
    %PMX
    
    
    22,699
    
    
    
    124,246
    
    
    
    (101,547
    )
    
    
    (81.7
    %)$
    3,681,822
    
    
    $
    3,387,548
    
    
    $
    294,274
    
    
    
    8.7
    %




---



##### 



Other income and expense
  Three Months Ended December 31,2009
    
    
    2008
    
    
    (Increase) DecreaseHolding Company
    
    $
    (536,128
    )
    
    $
    (521,788
    )
    
    $
    (14,340
    )
    
    
    (2.7
    %)Safety
    
    
    (67,325
    )
    
    
    (85,494
    )
    
    
    18,169
    
    
    
    21.3
    %Nexus
    
    
    (11,956
    )
    
    
    (3,733
    )
    
    
    (8,223
    )
    
    
    (220.3
    %)PMX
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (615,409
    )
    
    $
    (611,015
    )
    
    $
    (4,394
    )
    
    
    (0.7
    %)
 Three Months Ended December 31,2009
    
    
    2008
    
    
    (Increase) DecreaseInterest expense
    
    $
    (490,985
    )
    
    $
    (504,537
    )
    
    $
    13,552
    
    
    
    2.7
    %Amortization of debt
offering costs
    
    
    (126,750
    )
    
    
    (123,092
    )
    
    
    (3,658
    )
    
    
    (3.0
    %)Amortization of debt
discount
    
    
    (12,018
    )
    
    
    (12,019
    )
    
    
    1
    
    
    
    Interest and other
income
    
    
    14,344
    
    
    
    28,633
    
    
    
    (14,289
    )
    
    
    (49.9
    %)$
    (615,409
    )
    
    $
    (611,015
    )
    
    $
    (4,394
    )
    
    
    (0.7
    %)
  Net income (loss)
  Six Month Period Ended December 31, 2009 as Compared to the Six Month Period Ended December 31, 2008
 Contract revenue
  Six Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    40,432,354
    
    
    
    37,682,248
    
    
    
    2,750,106
    
    
    
    7.3
    %Nexus
    
    
    5,292,003
    
    
    
    2,184,482
    
    
    
    3,107,521
    
    
    
    142.3
    %PMX
    
    
    1,697,500
    
    
    
    12,962
    
    
    
    1,684,538
    
    
    
    12,996.0
    %$
    47,421,857
    
    
    $
    39,879,692
    
    
    $
    7,542,165
    
    
    
    18.9
    %




---



##### 



Contract cost
  Six Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    33,033,878
    
    
    
    31,879,227
    
    
    
    1,154,651
    
    
    
    3.6
    %Nexus
    
    
    3,441,717
    
    
    
    1,424,283
    
    
    
    2,017,434
    
    
    
    141.6
    %PMX
    
    
    1,629,600
    
    
    
    10,379
    
    
    
    1,619,221
    
    
    
    15,600.9
    %$
    38,105,195
    
    
    $
    33,313,889
    
    
    $
    4,791,306
    
    
    
    14.4
    %
  Operating expenses
  Six Months Ended December 31,2009
    
    
    2008
    
    
    Increase (Decrease)Holding Company
    
    $
    1,163,042
    
    
    $
    2,310,141
    
    
    $
    (1,147,099
    )
    
    
    (49.7
    %)Safety
    
    
    5,603,902
    
    
    
    4,298,273
    
    
    
    1,305,629
    
    
    
    30.4
    %Nexus
    
    
    548,862
    
    
    
    728,359
    
    
    
    (179,497
    )
    
    
    (24.6
    %)PMX
    
    
    22,699
    
    
    
    220,254
    
    
    
    (197,555
    )
    
    
    (89.7
    %)$
    7,338,505
    
    
    $
    7,557,027
    
    
    $
    (218,522
    )
    
    
    (2.9
    %)
  Other income and expense
  Six Months Ended December 31,2009
    
    
    2008
    
    
    (Increase) DecreaseHolding Company
    
    $
    (1,083,299
    )
    
    $
    (1,037,578
    )
    
    $
    (45,721
    )
    
    
    (4.4
    %)Safety
    
    
    (127,591
    )
    
    
    (169,439
    )
    
    
    41,848
    
    
    
    24.7
    %Nexus
    
    
    (9,732
    )
    
    
    (9,900
    )
    
    
    168
    
    
    
    1.7
    %PMX
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,220,622
    )
    
    $
    (1,216,917
    )
    
    $
    (3,705
    )
    
    
    (0.3
    %)




---



##### 



Six Months Ended December 31,2009
    
    
    2008
    
    
    (Increase) DecreaseInterest expense
    
    $
    (980,777
    )
    
    $
    (1,006,189
    )
    
    $
    25,412
    
    
    
    2.5
    %Amortization of debt
offering costs
    
    
    (262,342
    )
    
    
    (246,185
    )
    
    
    (16,157
    )
    
    
    (6.6
    %)Amortization of debt
discount
    
    
    (24,037
    )
    
    
    (24,037
    )
    
    
    
    
    
    
    Currency loss
    
    
    (151
    )
    
    
    
    
    
    
    (151
    )
    
    
    Interest and other
income
    
    
    46,685
    
    
    
    59,494
    
    
    
    (12,809
    )
    
    
    (21.5
    %)$
    (1,220,622
    )
    
    $
    (1,216,917
    )
    
    $
    (3,705
    )
    
    
    (0.3
    %)
  Net income (loss)
  Liquidity and Capital Resources
   Cash Flows From Operating Activities
  Cash Flows From Investing Activities
  Cash Flows From Financing Activities
  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




---



##### 



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. Submission of Matters to a Vote of Security Holders.
  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




---



##### 



SIGNATURES
  HOMELAND SECURITY CAPITAL CORPORATIONDate: February 22, 2010
    /s/ Michael T. BriganteMichael T. Brigante(Authorized Officer and Principal Financial Officer)