##### Table of Contents



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 September 30, 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
000-23279
 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




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial StatementsCondensed Consolidated Balance SheetsCondensed Consolidated Statements of Operations (Unaudited)Condensed Consolidated Statements of Cash Flows (Unaudited)Condensed Consolidated Statements of Changes in Stockholders Deficit and Comprehensive LossNOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTSItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4(T). Controls and ProceduresPART II. OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESExhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.




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##### Table of Contents



September 30,
    
    
    June 30,2010
    
    
    2010(Unaudited)Assets:Cash
    
    $
    1,650,938
    
    
    $
    1,829,429Marketable fixed income securities
    
    
    
    
    
    
    872,427Accounts receivable  net
    
    
    22,154,427
    
    
    
    16,764,897Cost in excess of billings on uncompleted contracts
    
    
    4,727,039
    
    
    
    7,333,931Other current assets
    
    
    278,702
    
    
    
    447,925Total current assets
    
    
    28,811,106
    
    
    
    27,248,609Fixed assets  net
    
    
    1,058,299
    
    
    
    1,129,885Equipment held for sale
    
    
    
    
    
    
    1,455,142Deferred financing costs  net
    
    
    
    
    
    
    8,000Notes receivable  related party
    
    
    435,090
    
    
    
    430,627Securities available for sale
    
    
    
    
    
    
    110,826Other non-current assets
    
    
    241,195
    
    
    
    336,499Intangible assets  net
    
    
    335,674
    
    
    
    346,814Goodwill
    
    
    6,403,982
    
    
    
    6,403,982Total assets
    
    $
    37,285,346
    
    
    $
    37,470,384Liabilities and Stockholders DeficitCurrent liabilities:Accounts payable
    
    $
    9,701,495
    
    
    $
    8,457,186Line of credit
    
    
    1,270,000
    
    
    
    Current portion of long term debt
    
    
    66,000
    
    
    
    536,025Current portion of long term debt  related party
    
    
    18,248,178
    
    
    
    500,000Accrued compensation
    
    
    2,702,502
    
    
    
    2,568,857Accrued other liabilities
    
    
    356,566
    
    
    
    436,906Billings in excess of costs on uncompleted contracts
    
    
    924,140
    
    
    
    1,027,500Income taxes payable
    
    
    650,429
    
    
    
    551,941Current portion of deferred revenue
    
    
    204,061
    
    
    
    85,327Total current liabilities
    
    
    34,123,371
    
    
    
    14,163,742Line of credit
    
    
    
    
    
    
    2,162,000Long term debt  related party, less current maturities
    
    
    
    
    
    
    17,755,890Long term debt, less current maturities
    
    
    127,424
    
    
    
    688,593Long term deferred revenue, less current portion
    
    
    
    
    
    
    124,667Dividends payable
    
    
    3,866,392
    
    
    
    3,464,934Total liabilities
    
    
    38,117,187
    
    
    
    38,359,826Warrants 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,
1,559,899 and 1,559,985 shares issued and outstanding, respectively
    
    
    14,142,791
    
    
    
    14,225,110Common stock, $0.001 par value, 2,000,000,000 shares authorized,
54,491,449 and 51,624,725 shares issued and
50,921,018 and 48,054,294 shares outstanding, respectively
    
    
    54,492
    
    
    
    51,625Additional paid-in capital
    
    
    55,393,869
    
    
    
    55,297,972Additional paid-in capital  warrants
    
    
    272,529
    
    
    
    272,529Treasury stock - 3,570,431 shares at cost
    
    
    (250,000
    )
    
    
    (250,000
    )Accumulated deficit
    
    
    (70,630,230
    )
    
    
    (70,509,227
    )Accumulated comprehensive loss
    
    
    (116,518
    )
    
    
    (301,153
    )Total Homeland Security Capital Corporation stockholders deficit
    
    
    (1,133,067
    )
    
    
    (1,213,144
    )Noncontrolling interest
    
    
    131,458
    
    
    
    153,934Total stockholders deficit
    
    
    (1,001,609
    )
    
    
    (1,059,210
    )Total liabilities and stockholders deficit
    
    $
    37,285,346
    
    
    $
    37,470,384




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##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009Net contract revenue
    
    $
    25,059,138
    
    
    $
    20,849,442Contract costs
    
    
    20,071,230
    
    
    
    17,303,240Gross profit on contracts
    
    
    4,987,908
    
    
    
    3,546,202Operating expenses:Marketing
    
    
    61,591
    
    
    
    67,440Personnel
    
    
    2,093,881
    
    
    
    2,188,309Insurance and facility costs
    
    
    124,364
    
    
    
    174,123Rent expense to related party
    
    
    86,000
    
    
    
    86,000Travel and transportation
    
    
    86,360
    
    
    
    97,919Other operating costs
    
    
    336,155
    
    
    
    216,945Depreciation and amortization
    
    
    271,092
    
    
    
    346,694Amortization of intangible assets
    
    
    11,139
    
    
    
    11,139Professional services
    
    
    402,053
    
    
    
    196,188Administrative costs
    
    
    258,012
    
    
    
    271,926Total operating expenses
    
    
    3,730,647
    
    
    
    3,656,683Operating income (loss)
    
    
    1,257,261
    
    
    
    (110,481
    )Other (expense) income:Interest expense
    
    
    (58,779
    )
    
    
    (61,853
    )Interest expense to related party
    
    
    (492,288
    )
    
    
    (427,939
    )Amortization of debt discounts and offering costs
    
    
    (8,000
    )
    
    
    (147,611
    )Impairment losses
    
    
    (308,213
    )
    
    
    Other income
    
    
    15,666
    
    
    
    32,190Total other expense
    
    
    (851,614
    )
    
    
    (605,213
    )Income (loss) from continuing operations before income taxes
    
    
    405,647
    
    
    
    (715,694
    )Income tax expense
    
    
    (143,987
    )
    
    
    (30,155
    )Net income (loss)
    
    
    261,660
    
    
    
    (745,849
    )Net income (loss) attributable to
noncontrolling interests
    
    
    22,476
    
    
    
    (29,171
    )Net income (loss) attributable to Homeland
Security Capital Corporation stockholders
    
    
    284,136
    
    
    
    (775,020
    )Less preferred dividends and other beneficial conversion
features associated with preferred stock issuance
    
    
    (405,139
    )
    
    
    (405,960
    )Net loss attributable to common stockholders
of Homeland Security Capital Corporation
    
    $
    (121,003
    )
    
    $
    (1,180,980
    )Loss per common share attributable to Homeland
Security Capital Corporation stockholders -
basic and dilutedBasic
    
    $
    (0.00
    )
    
    $
    (0.02
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.02
    )Weighted average shares outstanding Basic
    
    
    52,029,806
    
    
    
    53,270,160Diluted
    
    
    52,029,806
    
    
    
    53,270,160




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##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009Cash flows from operating activities:Net income (loss)
    
    $
    261,660
    
    
    $
    (745,849
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Share-based compensation expense
    
    
    12,764
    
    
    
    273,354Depreciation
    
    
    307,495
    
    
    
    496,572Amortization of intangibles
    
    
    11,140
    
    
    
    11,139(Gain) loss on disposal of assets
    
    
    (74,882
    )
    
    
    2,111Impairment losses on securities available for sale
    
    
    308,214
    
    
    
    Amortization of debt offering costs and discounts
    
    
    8,000
    
    
    
    147,611Changes in operating assets and liabilities:Accounts receivable
    
    
    (5,389,530
    )
    
    
    (2,827,876
    )Costs in excess of billings on uncompleted contracts
    
    
    2,606,892
    
    
    
    517,804Other assets
    
    
    219,524
    
    
    
    189,413Accounts payable
    
    
    1,244,309
    
    
    
    (2,329,065
    )Billings in excess of costs on uncompleted contracts
    
    
    (103,360
    )
    
    
    104,463Accrued interest due to related party
    
    
    487,825
    
    
    
    436,130Accrued compensation
    
    
    133,645
    
    
    
    92,992Accrued other liabilities
    
    
    (80,340
    )
    
    
    (128,113
    )Income taxes payable
    
    
    98,488
    
    
    
    Deferred revenue
    
    
    (5,933
    )
    
    
    (5,702
    )Net cash provided by (used in) operating activities
    
    
    45,911
    
    
    
    (3,765,016
    )Cash flows from investing activities:Purchase of fixed assets
    
    
    (189,950
    )
    
    
    (38,683
    )Proceeds from sale of assets
    
    
    1,545,725
    
    
    
    5,199Sale of marketable fixed income securities
    
    
    872,427
    
    
    
    Net cash provided by (used in) investing activities
    
    
    2,228,202
    
    
    
    (33,484
    )Cash flows from financing activities:Proceeds from notes payable
    
    
    
    
    
    
    15,280Net borrowings (payments) on line of credit
    
    
    (892,000
    )
    
    
    3,245,000Repayments of related party debt
    
    
    (500,000
    )
    
    
    Repayments of debt
    
    
    (1,092,854
    )
    
    
    (223,149
    )Net cash (used in) provided by financing activities
    
    
    (2,484,854
    )
    
    
    3,037,131Effect of exchange rate changes on cash
    
    
    32,250
    
    
    
    (16,459
    )Net decrease in cash
    
    
    (178,491
    )
    
    
    (777,828
    )Cash, beginning of year
    
    
    1,829,429
    
    
    
    2,356,534Cash, end of year
    
    $
    1,650,938
    
    
    $
    1,578,706




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##### Table of Contents



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, July 1, 2010
    
    $
    14,225,110
    
    
    
    51,624,725
    
    
    $
    51,625
    
    
    $
    55,297,972
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,509,227
    )
    
    $
    (301,153
    )
    
    $
    153,934
    
    
    $
    (1,059,210
    )Amortization of Series H warrants
    
    
    3,681
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,681
    )
    
    
    
    
    
    
    
    
    
    
    Dividends on Series H and Series I
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (401,458
    )
    
    
    
    
    
    
    
    
    
    
    (401,458
    )Value of vested stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,764
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,764Preferred stock converted
    
    
    (86,000
    )
    
    
    2,866,724
    
    
    
    2,867
    
    
    
    83,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reduction in value of securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (110,825
    )
    
    
    
    
    
    
    (110,825
    )Realization of impairment in value
of securities available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    263,210
    
    
    
    
    
    
    
    263,210Currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,250
    
    
    
    
    
    
    
    32,250Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    284,136
    
    
    
    
    
    
    
    (22,476
    )
    
    
    261,660Balance, September 30, 2010
    
    $
    14,142,791
    
    
    
    54,491,449
    
    
    $
    54,492
    
    
    $
    55,393,869
    
    
    $
    272,529
    
    
    $
    (250,000
    )
    
    $
    (70,630,230
    )
    
    $
    (116,518
    )
    
    $
    131,458
    
    
    $
    (1,001,609
    )




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##### Table of Contents



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
  2. Fair Value Measurements
 Fair Value Measurements and Disclosures




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##### Table of Contents



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




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##### Table of Contents



Stock Options Awarded Outside of the 2005 Plan and the 2008 Plan
   September 30, 2010
    
    
    June 30, 2010Weighted Average
    
    
    
    
    
    
    Weighted AverageExercise
    
    
    Grant Date
    
    
    
    
    
    
    Exercise
    
    
    Grant DateOptions
    
    
    Price
    
    
    Fair Value
    
    
    Options
    
    
    Price
    
    
    Fair ValueOutstanding at
beginning of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    75,669,374
    
    
    $
    0.057
    
    
    $
    0.049Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rescinded
(Exercised)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,640,626
    
    
    
    0.050
    
    
    
    0.036Outstanding at
end of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044Options exercisable
at end of period
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
    
    
    
    83,310,000
    
    
    $
    0.056
    
    
    $
    0.044
   6. Business Segments




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For the Three Months Ended September 30, 2010Holding
    
    
    Services
    
    
    Services
    
    
    ProductsHomeland Security
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyCapital Corporation - Consolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    23,000,942
    
    
    $
    2,058,196
    
    
    $
    
    
    
    $
    25,059,138Gross margin
    
    
    
    
    
    
    4,476,096
    
    
    
    511,812
    
    
    
    
    
    
    
    4,987,908Operating expenses
    
    
    760,077
    
    
    
    2,787,418
    
    
    
    180,377
    
    
    
    2,775
    
    
    
    3,730,647Other income (expense)  net
    
    
    (586,038
    )
    
    
    (121,133
    )
    
    
    (144,443
    )
    
    
    
    
    
    
    (851,614
    )Income tax benefit (expense)
    
    
    560,775
    
    
    
    (632,016
    )
    
    
    (72,746
    )
    
    
    
    
    
    
    (143,987
    )Net income (loss) from
continuing operations
    
    
    (785,340
    )
    
    
    935,529
    
    
    
    114,246
    
    
    
    (2,775
    )
    
    
    261,660Current assets
    
    
    241,814
    
    
    
    25,070,231
    
    
    
    3,494,299
    
    
    
    4,762
    
    
    
    28,811,106Total assets
    
    
    (197,018
    )
    
    
    33,645,060
    
    
    
    3,832,542
    
    
    
    4,762
    
    
    
    37,285,346Interest expense
    
    
    (492,288
    )
    
    
    (56,949
    )
    
    
    (1,830
    )
    
    
    
    
    
    
    (551,067
    )Depreciation expense
    
    
    
    
    
    
    286,773
    
    
    
    20,722
    
    
    
    
    
    
    
    307,495Capital expenditures
    
    
    
    
    
    
    154,897
    
    
    
    35,053
    
    
    
    
    
    
    
    189,950
 For the Three Months Ended September 30, 2009Holding
    
    
    Services
    
    
    Services
    
    
    ProductsHomeland Security
    
    Company
    
    
    Company
    
    
    Company
    
    
    CompanyCapital Corporation - Consolidated
    
    (HSCC)
    
    
    (Safety)
    
    
    (Nexus)
    
    
    (PMX)
    
    
    ConsolidatedRevenues
    
    $
    
    
    
    $
    18,087,585
    
    
    $
    2,082,857
    
    
    $
    679,000
    
    
    $
    20,849,442Gross margin
    
    
    
    
    
    
    2,940,858
    
    
    
    578,184
    
    
    
    27,160
    
    
    
    3,546,202Operating expenses
    
    
    777,906
    
    
    
    2,659,844
    
    
    
    218,933
    
    
    
    
    
    
    
    3,656,683Other income (expense)  net
    
    
    (547,172
    )
    
    
    (60,266
    )
    
    
    2,225
    
    
    
    
    
    
    
    (605,213
    )Income tax benefit (expense)
    
    
    98,478
    
    
    
    (128,633
    )
    
    
    
    
    
    
    
    
    
    
    (30,155
    )Net income (loss) from
continuing operations
    
    
    (1,226,600
    )
    
    
    92,115
    
    
    
    361,476
    
    
    
    27,160
    
    
    
    (745,849
    )Current assets
    
    
    137,871
    
    
    
    18,099,581
    
    
    
    2,713,509
    
    
    
    709,875
    
    
    
    21,660,836Total assets
    
    
    317,810
    
    
    
    29,681,414
    
    
    
    2,936,751
    
    
    
    709,875
    
    
    
    33,645,850Interest expense
    
    
    (443,566
    )
    
    
    (43,273
    )
    
    
    (2,953
    )
    
    
    
    
    
    
    (489,792
    )Depreciation expense
    
    
    
    
    
    
    479,217
    
    
    
    17,355
    
    
    
    
    
    
    
    496,572Capital expenditures
    
    
    
    
    
    
    15,074
    
    
    
    23,609
    
    
    
    
    
    
    
    38,683
 7. Loss Per Share




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Three Months Ended September 302010
    
    
    2009Basic and Diluted Loss Per Share:Income (Loss) (Numerator)
    
    $
    284,136
    
    
    $
    (775,020
    )Less: Series H Preferred Stock beneficial
conversion feature
    
    
    (3,681
    )
    
    
    (3,681
    )Less: Preferred stock dividends
    
    
    (401,458
    )
    
    
    (402,279
    )Loss attributable to commonstockholders
    
    $
    (121,003
    )
    
    $
    (1,180,980
    )Shares (Denominator)Weighted-average number of common shares:Basic
    
    
    52,029,806
    
    
    
    53,270,160Diluted
    
    
    52,029,806
    
    
    
    53,270,160Loss Per Common ShareBasic loss per share
    
    $
    (0.00
    )
    
    $
    (0.02
    )Diluted loss per share
    
    $
    (0.00
    )
    
    $
    (0.02
    )
 8. Cash Flows
  Three Months Ended September 30,2010
    
    
    2009Cash paid during the period for:Interest
    
    $
    558,779
    
    
    $
    46,226Taxes
    
    
    530
    
    
    
    6,947Supplemental disclosure for noncash investing
and financing activity:(Impairment) recovery of value of
securities available for sale
    
    $
    (110,825
    )
    
    $
    76,192Dividends accrued on Preferred Stock
    
    
    401,458
    
    
    
    402,279Dividends paid with Preferred Stock
    
    
    3,681
    
    
    
    3,681Conversion of Series H Preferred Stock
    
    
    (86,000
    )
    
    
    Equipment purchased under capital lease
    
    
    61,660
    
    
    
    
 9. Related Party Transactions




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##### Table of Contents



10. Debt Extension Agreement
  11. Conversion of Series H Convertible Preferred Shares
  12. Contingencies
  13. Continuing Operations




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##### Table of Contents



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, 2010. 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




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##### Table of Contents



Results of Operations
 Three Month Period Ended September 30, 2010 as Compared to the Three Month Period Ended September
30, 2009
 Contract revenue
  Three Months Ended September 302010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    23,000,942
    
    
    
    18,087,585
    
    
    
    4,913,357
    
    
    
    27.2
    %Nexus
    
    
    2,058,196
    
    
    
    2,082,857
    
    
    
    (24,661
    )
    
    
    -1.2
    %PMX
    
    
    
    
    
    
    679,000
    
    
    
    (679,000
    )
    
    
    -100.0
    %$
    25,059,138
    
    
    $
    20,849,442
    
    
    $
    4,209,696
    
    
    
    20.2
    %
  Contract cost
  Three Months Ended September 302010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    
    Safety
    
    
    18,524,846
    
    
    
    15,146,727
    
    
    
    3,378,119
    
    
    
    22.3
    %Nexus
    
    
    1,546,384
    
    
    
    1,504,673
    
    
    
    41,711
    
    
    
    2.8
    %PMX
    
    
    
    
    
    
    651,840
    
    
    
    (651,840
    )
    
    
    -100.0
    %$
    20,071,230
    
    
    $
    17,303,240
    
    
    $
    2,767,990
    
    
    
    16.0
    %
  Operating expenses
  Three Months Ended September 302010
    
    
    2009
    
    
    Increase (Decrease)Holding Company
    
    $
    760,077
    
    
    $
    777,906
    
    
    $
    (17,829
    )
    
    
    -2.3
    %Safety
    
    
    2,787,418
    
    
    
    2,659,844
    
    
    
    127,574
    
    
    
    4.8
    %Nexus
    
    
    180,377
    
    
    
    218,933
    
    
    
    (38,556
    )
    
    
    -17.6
    %PMX
    
    
    2,775
    
    
    
    
    
    
    
    2,775
    
    
    
    $
    3,730,647
    
    
    $
    3,656,683
    
    
    $
    73,964
    
    
    
    2.0
    %




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##### Table of Contents



Other income and expense
  Three Months Ended September 302010
    
    
    2009
    
    
    (Increase) DecreaseHolding Company
    
    $
    (586,038
    )
    
    $
    (547,172
    )
    
    $
    (38,866
    )
    
    
    7.1
    %Safety
    
    
    (121,133
    )
    
    
    (60,266
    )
    
    
    (60,867
    )
    
    
    101.0
    %Nexus
    
    
    (144,443
    )
    
    
    2,225
    
    
    
    (146,668
    )
    
    
    -6,591.8
    %PMX
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (851,614
    )
    
    $
    (605,213
    )
    
    $
    (246,401
    )
    
    
    40.7
    %
 Three Months Ended September 302010
    
    
    2009
    
    
    (Increase) DecreaseInterest expense
    
    $
    (551,067
    )
    
    $
    (489,792
    )
    
    $
    (61,275
    )
    
    
    12.5
    %Amortization of debt
offering costs
    
    
    (8,000
    )
    
    
    (135,592
    )
    
    
    127,592
    
    
    
    -94.1
    %Amortization of debt
discount
    
    
    
    
    
    
    (12,019
    )
    
    
    12,019
    
    
    
    -100.0
    %Impairment losses
    
    
    (308,213
    )
    
    
    
    
    
    
    (308,213
    )
    
    
    Interest and other
income
    
    
    15,666
    
    
    
    32,190
    
    
    
    (16,524
    )
    
    
    -51.3
    %$
    (851,614
    )
    
    $
    (605,213
    )
    
    $
    (246,401
    )
    
    
    40.7
    %
  Net income (loss)
  Liquidity and Capital Resources
   Cash Flows From Operating Activities




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##### Table of Contents



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




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##### Table of Contents



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




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##### Table of Contents



SIGNATURES
  HOMELAND SECURITY CAPITAL CORPORATIONDate: November 15, 2010
    /s/ Michael T. BriganteMichael T. Brigante(Authorized Officer and Principal Financial Officer)