UNITED
STATES SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549




FORM
10-Q





x
            Quarterly
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the quarterly period ended September 30, 2009. ̈
            Transition
      Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
      1934For
      the transition period _____________ to
  ______________.





Commission
File number:333-146290





DEFENSE
SOLUTIONS HOLDING, INC.


(Exact name of small business
issuer as specified in its charter)





Nevada
            
            26-3624592(State
      or other jurisdiction of Incorporation or organization)
            
            (IRS
      Employee Identification No.)





707
Eagleview Boulevard


Exton,
Pennsylvania  19431-1159


(Address
of principal executive offices)





(610)
833-6000


(Registrant’s
telephone number, including area code)





(Former
name, former address and former fiscal year, if changed since last
report)


Not
Applicable


(Address
of principal executive offices)





Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days.


Yes 
xNo  ̈





Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data file required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files).


Yes 
 ̈No   ̈





Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of “accelerated filer, large accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):





Large
      accelerated filer  ̈
            Accelerated
      filer  ̈Non-accelerated
      filer  ̈ (Do
      not check if a smaller reporting company)
            Smaller
      reporting company x





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).


Yes 
 ̈
   No  x




As of
November 23, 2009, there were 34,246,066 shares of the Registrant’s common stock
outstanding.








DEFENSE
SOLUTIONS HOLDING, INC.


f/k/a
FLEX RESOURCES CO. LTD.


Form
10-Q





IndexPagePart
      I – FINANCIAL INFORMATIONItem
      1.  Financial Statements (Unaudited)Balance
      Sheets as of September 30, 2009, and December 31, 2008
                        
                        1Statements
      of Operations for the Three and Nine Months ended September 30, 2009 and
      2008
                        
                        2Statements
      of Cash Flows for the Nine Months ended September 30, 2009 and
      2008
                        
                        3Notes
      to Financial Statements
                        
                        4Item
      2.  Management’s Discussion of Financial Conditions and Results
      of Operations
                        
                        22Item
      3.  Quantitative and Qualitative Disclosures About Market
      Risk
                        
                        28Item
      4.  Controls and Procedures
                        
                        28Part
      II. OTHER INFORMATIONItem
      1.  Legal Proceedings
                        
                        29Item
      1A.  Risk Factors
                        
                        29Item
      2.  Unregistered Sales of Equity Securities and Use of
      Proceeds
                        
                        29Item
      3.  Defaults Upon Senior Securities
                        
                        30Item
      4.  Submission Of Matters To A Vote of Security
      Holders
                        
                        30Item
      5.  Other Information
                        
                        30Item
      6.  Exhibits
                        
                        30Signatures
                        
                        31





DEFENSE
SOLUTIONS HOLDING, INC.


BALANCE
SHEETS


AS
OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008


(Unaudited)





2009
                                                                                    
                                                                                    
                                                                                    2008ASSETSCurrent
      Assets:Cash
      and cash equivalents
                                                                                    
                                                                                    $
                                                                                    8,783
                                                                                    
                                                                                    
                                                                                    $
                                                                                    61,612Accounts
      receivable-Trade
      ($0 allowance for doubtfulaccounts
      in 2009 and 2008, respectively)
                                                                                    
                                                                                    
                                                                                    125,477
                                                                                    
                                                                                    
                                                                                    
                                                                                    136,657Employee
                                                                                    
                                                                                    
                                                                                    12,063
                                                                                    
                                                                                    
                                                                                    
                                                                                    7,850Inventory
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    100,000Total
      current assets
                                                                                    
                                                                                    
                                                                                    146,323
                                                                                    
                                                                                    
                                                                                    
                                                                                    306,119Property
      and Equipment:Computer
      and office equipment
                                                                                    
                                                                                    
                                                                                    105,290
                                                                                    
                                                                                    
                                                                                    
                                                                                    105,290Furniture
      and fixtures
                                                                                    
                                                                                    
                                                                                    102,928
                                                                                    
                                                                                    
                                                                                    
                                                                                    102,928208,218
                                                                                    
                                                                                    
                                                                                    
                                                                                    208,218Less
      - Accumulated depreciation and amortization
                                                                                    
                                                                                    
                                                                                    (136,389
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (109,659
                                                                                    )Net
      property and equipment
                                                                                    
                                                                                    
                                                                                    71,829
                                                                                    
                                                                                    
                                                                                    
                                                                                    98,559Total
      Assets
                                                                                    
                                                                                    $
                                                                                    218,152
                                                                                    
                                                                                    
                                                                                    $
                                                                                    404,678LIABILITIES AND STOCKHOLDERS'
      (DEFICIT)Current
      Liabilities:Current
      portion of long-term debt and capital lease obligations
                                                                                    
                                                                                    $
                                                                                    1,288,852
                                                                                    
                                                                                    
                                                                                    $
                                                                                    1,095,924Checks
      in excess of bank balance
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    145Bank
      lines of credit
                                                                                    
                                                                                    
                                                                                    773,552
                                                                                    
                                                                                    
                                                                                    
                                                                                    773,552Convertible
      promissory note
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    500,000Accounts
      payable - Trade
                                                                                    
                                                                                    
                                                                                    649,879
                                                                                    
                                                                                    
                                                                                    
                                                                                    560,429Accrued
      liabilities
                                                                                    
                                                                                    
                                                                                    1,209,578
                                                                                    
                                                                                    
                                                                                    
                                                                                    901,654Deferred
      revenues
                                                                                    
                                                                                    
                                                                                    -
                                                                                    
                                                                                    
                                                                                    
                                                                                    -Promissory
      notes - Related parties
                                                                                    
                                                                                    
                                                                                    39,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    40,000Due
      to related parties
                                                                                    
                                                                                    
                                                                                    132,949
                                                                                    
                                                                                    
                                                                                    
                                                                                    140,839Total
      current liabilities
                                                                                    
                                                                                    
                                                                                    4,093,810
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,012,543Long-term
      Debt, less current portion:Capital
      lease obligations
                                                                                    
                                                                                    
                                                                                    11,786
                                                                                    
                                                                                    
                                                                                    
                                                                                    43,262Total
      long-term debt
                                                                                    
                                                                                    
                                                                                    11,786
                                                                                    
                                                                                    
                                                                                    
                                                                                    43,262Total
      liabilities
                                                                                    
                                                                                    
                                                                                    4,105,596
                                                                                    
                                                                                    
                                                                                    
                                                                                    4,055,805Commitments
      and ContingenciesStockholders'
      (Deficit):Preferred
      stock, par value $0.001 per share; 10,000,000 shares authorized; zero
      shares issued and outstandingCommon
      stock, par value $0.001 per share, 75,000,000 shares authorized;
      32,108,566 shares and 31,796,292 shares issued and outstanding in
      2009 and 2008, respectively
                                                                                    
                                                                                    
                                                                                    32,171
                                                                                    
                                                                                    
                                                                                    
                                                                                    31,796Stock
      subscriptions - 875,000 shares of common stock
                                                                                    
                                                                                    
                                                                                    1,125,000
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,750,000Less
      - Stock subscriptions receivable
                                                                                    
                                                                                    
                                                                                    (600,000
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (1,350,000
                                                                                    )Additional
      paid-in capital
                                                                                    
                                                                                    
                                                                                    1,905,376
                                                                                    
                                                                                    
                                                                                    
                                                                                    1,259,262Accumulated
      (deficit)
                                                                                    
                                                                                    
                                                                                    (6,349,991
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (5,342,185
                                                                                    )Total
      stockholders' (deficit)
                                                                                    
                                                                                    
                                                                                    (3,887,444
                                                                                    )
                                                                                    
                                                                                    
                                                                                    (3,651,127
                                                                                    )Total
      Liabilities and Stockholders' (Deficit)
                                                                                    
                                                                                    $
                                                                                    218,152
                                                                                    
                                                                                    
                                                                                    $
                                                                                    404,678$
                                                                                    -




The
accompanying notes to consolidated financial statements are an integral part of
these consolidated financial statements.


1





DEFENSE
SOLUTIONS HOLDING, INC.


STATEMENTS
OF OPERATIONS


FOR
THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008


(Unaudited)





Three
      Months Ended
                                              
                                              
                                              Nine
      Months EndedSeptember
      30,
                                              
                                              
                                              September
      30,2009
                                              
                                              
                                              2008
                                              
                                              
                                              2009
                                              
                                              
                                              2008Revenues
                                              
                                              $
                                              126,984
                                              
                                              
                                              $
                                              126,686
                                              
                                              
                                              $
                                              1,215,084
                                              
                                              
                                              $
                                              434,926Expenses:Operating,
      general and administrative
                                              
                                              
                                              (107,618
                                              )
                                              
                                              
                                              617,914
                                              
                                              
                                              
                                              2,001,024
                                              
                                              
                                              
                                              1,832,464Stock
      option compensation expense
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              21,489
                                              
                                              
                                              
                                              85,956Depreciation
      and amortization
                                              
                                              
                                              88,892
                                              
                                              
                                              
                                              8,892
                                              
                                              
                                              
                                              26,729
                                              
                                              
                                              
                                              26,676Consulting
      fees paid by common stock subscribed
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              41,250Total
      expenses
                                              
                                              
                                              (98,726
                                              )
                                              
                                              
                                              626,806
                                              
                                              
                                              
                                              2,049,242
                                              
                                              
                                              
                                              1,986,346Profit
      (Loss) from Operations
                                              
                                              
                                              225,710
                                              
                                              
                                              
                                              (500,120
                                              )
                                              
                                              
                                              (834,158
                                              )
                                              
                                              
                                              1,551,420Other
      Income (Expense):Other
      income
                                              
                                              
                                              44
                                              
                                              
                                              
                                              192
                                              
                                              
                                              
                                              524
                                              
                                              
                                              
                                              716Interest
      expense and other
                                              
                                              
                                              (41,423
                                              )
                                              
                                              
                                              (32,506
                                              )
                                              
                                              
                                              (174,172
                                              )
                                              
                                              
                                              (140,566
                                              )Total
      other income (expense)
                                              
                                              
                                              (41,379
                                              )
                                              
                                              
                                              (32,314
                                              )
                                              
                                              
                                              (173,648
                                              )
                                              
                                              
                                              (139,850
                                              )Provision
      for income taxes
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              -Net
      Profit (Loss)
                                              
                                              $
                                              184,331
                                              
                                              
                                              $
                                              (532,434
                                              )
                                              
                                              $
                                              (1,007,806
                                              )
                                              
                                              $
                                              (1,691,270
                                              )Profit
      (Loss) Per Common Share:Profit
      (Loss) per common share - Basic and Diluted
                                              
                                              $
                                              0.01
                                              
                                              
                                              $
                                              (0.07
                                              )
                                              
                                              $
                                              (0.03
                                              )
                                              
                                              $
                                              (0.24
                                              )Weighted
      Average Number of Common SharesOutstanding
      - Basic and Diluted
                                              
                                              
                                              32,108,566
                                              
                                              
                                              
                                              7,160,000
                                              
                                              
                                              
                                              31,979,803
                                              
                                              
                                              
                                              7,160,000





The
accompanying notes to financial statements are


an
integral part of these statements.


2


DEFENSE
SOLUTIONS HOLDING, INC.


STATEMENTS
OF CASH FLOWS


FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 2009, AND 2008


(Unaudited)





Nine
      Months EndedSeptember
      30,2009
                                            
                                            
                                            2008Operating
      Activities:Net
      (loss)
                                            
                                            $
                                            (1,007,806
                                            )
                                            
                                            $
                                            (1,691,270
                                            )Adjustments
      to reconcile net (loss) to net cash (used in) operating
      activities:Consulting
      fees paid by common stock subscribed
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Stock
      option compensation expense
                                            
                                            
                                            21,489
                                            
                                            
                                            
                                            85,956Depreciation
      and amortization
                                            
                                            
                                            26,729
                                            
                                            
                                            
                                            26,676Amortization
      of debt issuance costs
                                            
                                            
                                            
                                            
                                            
                                            
                                            22,500Changes
      in net assets and liabilities-Accounts
      receivable – Trade
                                            
                                            
                                            11,180
                                            
                                            
                                            
                                            825,088Inventory
                                            
                                            
                                            100,000
                                            
                                            
                                            
                                            -Accounts
      payable - Trade
                                            
                                            
                                            89,450
                                            
                                            
                                            
                                            431,699Accrued
      liabilities
                                            
                                            
                                            307,924
                                            
                                            
                                            
                                            (9,116
                                            )Deferred
      revenue
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (761,000
                                            )Net
      Cash (Used in) Operating Activities
                                            
                                            
                                            (451,034
                                            )
                                            
                                            
                                            (1,069,467
                                            )Investing
      Activities:Advances
      to Employees
                                            
                                            
                                            (4,213
                                            )
                                            
                                            
                                            (7,850
                                            )Net
      Cash (Used in) Investing Activities
                                            
                                            
                                            (4,213
                                            )
                                            
                                            
                                            (7,850
                                            )Financing
      Activities:Proceeds
      from stock subscriptions
                                            
                                            
                                            250,000
                                            
                                            
                                            
                                            90,000Checks
      in excess of bank balance
                                            
                                            
                                            (145
                                            )
                                            
                                            
                                            (11,413
                                            )Proceeds
      from bank loans and lines of credit
                                            
                                            
                                            
                                            
                                            
                                            
                                            860,386Payments
      of principal on bank loans and lines of credit
                                            
                                            
                                            
                                            
                                            
                                            
                                            (643,555
                                            )Debt
      issuance costs
                                            
                                            
                                            
                                            
                                            
                                            
                                            (25,000
                                            )Payments
      of principal on capital lease obligations
                                            
                                            
                                            (77,347
                                            )
                                            
                                            
                                            (90,143
                                            )Proceeds
      from the issuance of promissory notes
                                            
                                            
                                            238,800
                                            
                                            
                                            
                                            1,000,000Payments
      of principal on promissory notes - Related parties
                                            
                                            
                                            (1,000
                                            )
                                            
                                            
                                            (50,000
                                            )Proceeds
      from related party loans
                                            
                                            
                                            
                                            
                                            
                                            
                                            6,006Payments
      on related party loans
                                            
                                            
                                            (7,890
                                            )
                                            
                                            
                                            (9,763
                                            )Net
      Cash Provided by Financing Activities
                                            
                                            
                                            402,416
                                            
                                            
                                            
                                            1,126,518Net
      Increase (Decrease) in Cash and Cash Equivalents
                                            
                                            
                                            (52,829
                                            )
                                            
                                            
                                            49,201Cash
      and Cash Equivalents - Beginning of Period
                                            
                                            
                                            61,612
                                            
                                            
                                            
                                            34,607Cash
      and Cash Equivalents - End of Period
                                            
                                            $
                                            8,783
                                            
                                            
                                            $
                                            83,808Supplemental
      Disclosure of Cash Flow Information:Cash
      paid during the periods for:Interest
                                            
                                            $
                                            38,681
                                            
                                            
                                            $
                                            44,955Income
      taxes
                                            
                                            $
                                            -
                                            
                                            
                                            $
                                            -





The
accompanying notes to financial statements are


an
integral part of these statements.


3


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





(1)           Summary
of Significant Accounting Policies





Basis of Presentation and
Organization





Defense
Solutions Holding, Inc. (“DSHI” or the “Company” and formerly Flex Resources Co.
Ltd.) is a Nevada corporation that initially pursued the acquisition and
exploration of mineral claims.  (See below for a discussion of the
change in business plan of the Company).  The Company was incorporated
under the laws of the State of Nevada on February 8, 2007.





On
February 8, 2007, the Company acquired, in a reverse merger, all of the issued
and outstanding shares of Flex Resources Ltd. (“Flex Canada”), a British
Columbia, Canada Corporation, from its sole stockholder.  Flex Canada
was incorporated under the laws of the Province of British Columbia, Canada, on
December 15, 2006, and prior to the completion of the reverse merger, had
limited operations.  The consideration for the acquisition of Flex
Canada by the Company was a one-for-one share exchange of 2,900,000 shares of
common stock.  The transaction was treated as a reverse merger for
financial reporting purposes.  The reverse merger was recorded as a
recapitalization of the Company, with the net assets of the Company and Flex
Canada brought forward at their historical bases.  Expenses of
reorganization were expensed as incurred.





On August
23, 2008, the Company sold all of the outstanding shares of common stock of Flex
Canada to its former president and Director for $100, and began to evaluate
other business opportunities.





On
November 14, 2008, the Company acquired, through a second reverse merger (the
“Merger”), all of the outstanding shares of common stock of Defense Solutions,
Inc., a Delaware corporation (“DSI”), and the former stockholders of DSI were
issued an aggregate of 16,793,401 shares of the Company’s common stock (a ratio
of 2.3163 shares of common stock of the Company for each share of common stock
of DSI) in exchange for their shares of DSI common stock.  As a result
of the Merger, the former stockholders of DSI became the majority stockholders
of the Company.  Further, in connection with the Merger, the Company
changed is corporate name to Defense Solutions Holding, Inc.  The
reverse merger was recorded as a recapitalization of the Company, with the
assets and liabilities of the entities being brought over at their historical
cost bases.  Expenses of the reorganization were expensed as
incurred.  In addition, at or about the time of the closing of the
Merger, the Company completed the initial closing of a private placement
pursuant to which it sold to subscribers 125,000 shares of its common stock for
an aggregate purchase price of $250,000 (the “Private Placement”).





DSI was
organized and incorporated on April 10, 2007, under the laws of the State of
Delaware.  DSI is an international program/project management,
business development, and executive consulting firm, initially established as a
limited liability company in 2001, to service the defense, homeland security,
information technology, and telecommunication markets.  The Company
intends to carry on DSI’s business in the same manner as it was carried on by
DSI before the Merger as the Company’s sole line of business.  The
accompanying financial statements of the Company were prepared from the accounts
of the Company under the accrual basis of accounting.  In addition,
the accompanying financial statements reflect the completion of a reverse merger
between the Company and DSI, which was effected on November 14,
2008.


4


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





On August
21, 2008, DSI organized and incorporated Defense Solutions Guinea SARL in the
Republic of Guinea, West Africa, as a wholly owned
subsidiary.  Effective December 31, 2008, the Company discontinued the
development stage activities of this subsidiary.





Interim FinancialStatements





The
accompanying interim financial statements of DSHI as of September 30, 2009, and
for the three and nine months ended September 30, 2009, and 2008, are unaudited,
and have been prepared in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) for interim reporting, and in
accordance with the requirements of this Quarterly Report on Form
10-Q.  In the opinion of management, the accompanying financial
statements include all known adjustments (which consist primarily of normal,
recurring accruals, estimates, and assumptions that impact the financial
statements) necessary to present fairly the financial position at the balance
sheet dates and the results of operations for the three months then
ended.  The results of operations for the three and nine months ended
September 30, 2009, are not necessarily indicative of the operating results for
the full year ending December 31, 2009.  The accompanying financial
statements should be read in conjunction with the financial statements and notes
thereto included within the Company’s Annual Report on Form 10-K for the fiscal
year ended December 31, 2008, including significant accounting
policies.





Cash
and Cash Equivalents





For
purposes of reporting within the statements of cash flows, the Company considers
all cash on hand, cash accounts not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity of
three months or less to be cash and cash equivalents.





Accounts
Receivable





The
Company establishes an allowance for doubtful accounts in amounts sufficient to
absorb potential losses on accounts receivable.  As of September 30,
2009, and December 31, 2008, no allowance for doubtful accounts was deemed
necessary by management.  While management uses the best information
available upon which to base estimates, future adjustments to the allowance may
be necessary if economic conditions differ substantially from the assumptions
used for the purpose of analysis.





Inventory





Inventory
is stated at the lower of cost using the first-in, first-out (FIFO) method or
market.  As of September 30, 2009, and December 31, 2008, inventory
was stated at a market value of $0 and $100,000, respectively.  The
inventory was sold by the Company on April 21, 2009, for
$160,000.


5


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





Revenue
Recognition





DSHI
generates revenues from short-term and long-term project management, executive
consulting, and business development services.





Revenues
from short-term project management, executive consulting, and business
development services are recognized in accordance with Staff Accounting Bulletin
No. 104, “Revenue Recognition
in Financial Statements” (“SAB 104”).  Revenues are recognized
for financial reporting purposes when there is persuasive evidence of an
agreement or contract, contract milestones have been met or delivery has
occurred, acceptance has been approved by the customer, the fee is fixed or
determinable, and collection of the related receivable is probable.





Revenues
from long-term project management, executive consulting, and business
development services are recognized on a percentage-of-completion basis, in
accordance with Statement of Position 81-1, “Accounting for Performance of
Construction-Type and Certain Production-Type
Contracts.”  Customers are billed and related costs are
recognized, according to individual contracts, over the term of such
contracts.  A provision is made for the amount of any expected loss on
a contract at the time it is known.





Property
and Equipment





The
components of property and equipment are stated at cost.  Property and
equipment costs are depreciated or amortized for financial reporting purposes
over the useful lives of the related assets by the straight-line
method.  Useful lives utilized by the Company for calculating
depreciation or amortization are as follows:





Computer
      and office equipment
              5
      yearsFurniture
      and fixtures
              7
      years





Upon
disposition of an asset, its cost and related accumulated depreciation or
amortization are removed from the accounts, and any resulting gain or loss is
recognized.





Share-Based
Compensation





The
Company uses the fair value recognition provision of Financial Accounting
Standards No. 123R, “Share
Based Payment”(“FASB No. 123R”), which requires the Company to expense
the cost of employee services received in exchange for an award of equity
instruments based on the grant date fair value of such
instruments.  The Company uses the Black-Scholes option pricing model
to calculate the fair value of the equity instruments on the grant
date.





The
Company also uses the provisions of EITF 96-18, “Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services” (“EITF 96-18”), to account for stock-based
compensation awards issued to non-employees for services.  Such awards
for services are recorded at either the fair value of the services rendered or
the instruments issued in exchange for such services, whichever is more readily
determinable, using the measurement date guidelines enumerated in EITF
96-18.


6


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





Lease
Obligations





All
noncancellable leases with an initial term greater than one year are categorized
as either capital or operating leases.  Assets recorded under capital
leases are amortized according to the same methods employed for property and
equipment or over the term of the related lease, if shorter.





Impairment
of Long-Lived Assets





Defense
Solutions evaluates the recoverability of long-lived assets and the related
estimated remaining lives at each balance sheet date.  The Company
records an impairment or change in useful life whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable or the
useful life has changed.  For the periods ended September 30, 2009,
and 2008, no events or circumstances occurred for which an evaluation of the
recoverability of long-lived assets was required.





Deferred
Offering Costs





The
Company defers as other assets the direct incremental costs of raising capital
until such time as the offering is completed.  At the time of the
completion of the offering, the costs are charged against the capital
raised.  Should the offering be terminated, deferred offering costs
are charged to operations during the period in which the offering is
terminated.





Advertising and Promotion
Costs





Advertising
and promotion costs are charged to operations when incurred.  For the
periods ended September 30, 2009, and 2008, advertising and promotion costs
amounted to $3,210 and $316, respectively.





Loss Per Common
Share





Basic
loss per share is computed by dividing the net loss attributable to the common
stockholders by the weighted average number of shares of common stock
outstanding during the period.  Diluted loss per share is computed
similar to basic loss per share except that the denominator is increased to
include the number of additional common shares that would have been outstanding
if the potential common shares had been issued and if the additional common
shares were dilutive.  There were no dilutive financial instruments
issued or outstanding for the periods ended September 30, 2009, and
2008.





Income
Taxes


The
Company accounts for income taxes pursuant to SFAS No. 109, “Accounting for Income Taxes”
(“SFAS 109”).  Under SFAS 109, deferred tax assets and liabilities are
determined based on temporary differences between the bases of certain assets
and liabilities for income tax and financial reporting purposes.  The
deferred tax assets and liabilities are classified according to the financial
statement classification of the assets and liabilities generating the
differences.


7


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)







Fair Value of Financial
Instruments





Defense
Solutions estimates the fair value of financial instruments using the available
market information and valuation methods.  Considerable judgment is
required in estimating fair value.  Accordingly, the estimates of fair
value may not be indicative of the amounts the Company could realize in a
current market exchange.  As of September 30, 2009, and December 31,
2008, the carrying value of financial instruments approximated fair value due to
the short-term maturity of these instruments.





Estimates





The
financial statements are prepared on the basis of accounting principles
generally accepted in the United States of America.  The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of September 30, 2009, and
December 31, 2008, and revenues and expenses for the periods ended September 30,
2009, and 2008.  Actual results could differ from those estimates made
by management.





(2)           Operations
and Going Concern





The
operations of the Company are focused on project management, executive
consulting, and business development services to clients in the international
defense and homeland security markets related to technology upgrades to
modernize armored vehicles; strategic studies, analyses, and evaluation
projects.  For the periods ended September 30, 2009, and 2008, the
Company has established only limited sources of revenues to cover its operating
costs.  It also has significant debt and lease obligations, and has
raised only a limited amount of equity.  As such, it has incurred an
accumulated deficit, had negative working capital as of September 30, 2009, and
December 31, 2008, and its cash resources are insufficient to carry out its
business plan.  The Company intends to conduct additional capital
formation activities through the issuance of its common stock, and rely upon
loans from stockholders and other parties.





While
management of the Company believes that the Company will be successful in its
capital formation and planned operating activities, there can be no assurance
that the Company will be able to raise additional equity capital, or be
successful in the conduct of its business that will generate sufficient revenues
to sustain the operations of the Company.





The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America, which
contemplate continuation of the Company as a going concern.  The
operations and financial elements described above, as well as other factors,
raise substantial doubt about the Company’s ability to continue as a going
concern.  The accompanying financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the possible inability of the Company to continue as a going
concern.


8


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





(3)           Related
Party Transactions





As of
September 30, 2009, and December 31, 2008, the Company owed to related parties
$132,949 and $140,839, respectively, for various working capital loans received.
The loans are unsecured, non-interest bearing, and have no terms for
repayment.





As of
September 30, 2009, and December 31, 2008, the Company owed to two-related
parties a total of $40,000 related to the issuance of two subordinated secured
promissory notes.  On each of the subordinated secured promissory
notes, the interest rate on the amount borrowed is 12 percent per
annum.  The total amount of principal and accrued interest related to
the subordinated secured promissory notes was due and payable on October 31,
2008, unless the Company elected to extend the due date for each promissory note
for up to an additional 12 months, and pay an extension fee of 6 percent of the
principal outstanding plus accrued interest.  The Company elected to
extend the due dates of the subordinated secured promissory notes to October 31,
2009, but did not pay any of the extension fees of 6 percent related to such
notes.  The 6 percent extension fees due on the subordinated secured
promissory notes have been accrued as of September 30, 2009, and December 31,
2008, in the accompanying financial statements.  The promissory notes
are each secured by a subordinated lien on the assets of the
Company.  In addition, the promissory notes entitle the related-party
lenders to receive a percentage of the Company’s EBITDA earned from the date of
the promissory notes through December 31, 2009 (regardless of whether the other
amounts owed under the promissory notes have been paid) as determined by the
Company’s Board of Directors, equal to 25 percent multiplied by the aggregate
amounts borrowed under the promissory notes, payable in arrears (the “EBITDA
payment”).  The first EBITDA payments were due to be made on October
31, 2008, and such payments were to be made in respect of the EBITDA earned from
the date of issuance of the promissory notes through September 30,
2008.  Subsequent EBITDA payments shall be made within thirty days
after the end of each successive calendar quarter in respect of the EBITDA
earned from the last day on which the prior payment was calculated and ending on
the last day of such calendar quarter, and continue until the related-party
lenders have received an amount equal to the maximum amount of principal
outstanding under the subordinated secured promissory notes.  For the
period ended September 30, 2009, no EBITDA payments were made under the terms of
the promissory notes due to losses incurred by the Company.





As of
September 30, 2009, the Company owed to unrelated parties a total of $238,800
(December 31, 2008 - $0).  Each note has an option to convert the
amount borrowed into common stock at $0.15 per share.  This interest
rate on the amount borrowed is 8 percent per annum.




(4)           Long-term
Debt and Leases





Leases:





Capital Leases





The
Company currently has capital lease commitments for computer and office
equipment, furniture and fixtures, and inventory.  As of September 30,
2009, and December 31, 2008, the total cost of capitalized leases presented in
the accompanying balance sheets amounted to $168,524 and $168,524, respectively,
for computer and office equipment, and furniture and fixtures, and $0 and
$260,178 (reduced for impairment to $100,000 in 2009 and 2008), respectively,
for inventory.  Amortization of the capital lease costs, except
inventory, is included in depreciation and amortization
expense.


9


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





Operating Lease





In
addition, the Company currently has an operating lease commitment for office
space with an unrelated party for a period of five years through November
2010.  Lease expense related to the office space for the periods ended
September 30, 2009, and 2008, was $132,579 and $74,971,
respectively.





Future
noncancellable minimum rental commitments for leases as of September 30, 2009,
were as follows:





Short-term
and Long-term Debt:





The
Company has bank lines of credit, third-party short-term debt, and related party
notes and loans.  As of September 30, 2009, and December 31, 2008,
short-term and long-term debt consisted of the following:


10




DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)




2009
                  
                  
                  2008Lines
      of credit with Banks, monthly payments of interest only; interest ranging
      from prime - 0.75% to prime + 8%; due on demand; generally personally
      guaranteed by officers and Directors, or collateralized by personal
      residential real estate of Directors.
                  
                  $
                  773,552
                  
                  
                  $
                  773,552Short-term
      promissory notes with unrelated parties; 12% interest; principal and
      interest due on 10/31/09; collateralized by additional terms of a loan
      agreement or subordinated secured promissory note, including all assets of
      the Company subordinated to existing debt, as necessary; EBITDA premium
      payments also due.
                  
                  
                  1,248,800
                  
                  
                  
                  1,010,000Convertible
      note - 6% interest; convertible into 250,000 shares of common stock; due
      October 31, 2008, unsecured; extended to April 23, 2009.
                  
                  
                  -
                  
                  
                  
                  500,000Short-term
      promissory notes with related parties; no interest rate or 12%
      interest; due at various dates through 10/31/09, unsecured or secured by a
      subordinated lien on assets of the Company; EBITDA premium payments also
      due.
                  
                  
                  39,000
                  
                  
                  
                  40,000Loans
      from related parties; non-interest bearing; no terms for repayment;
      unsecured.
                  
                  
                  132,949
                  
                  
                  
                  140,839Capital
      lease obligations, secured.
                  
                  
                  51,838
                  
                  
                  
                  129,186Total
                  
                  
                  2,246,139
                  
                  
                  
                  2,593,577Less
      - Current portion
                  
                  
                  (2,234,353
                  )
                  
                  
                  (2,550,315
                  )Long-term
      portion
                  
                  $
                  11,786
                  
                  
                  $
                  43,262




On
November 1, 2007, Company entered into a loan agreement with a third-party
lender (the “Lender”) to borrow up to $1,000,000.  As of September 30,
2009, and 2008, the Company had borrowed $1,000,000 and $1,000,000,
respectively, under the loan agreement.  The interest rate on amounts
borrowed is 12 percent per annum.  The total amount of principal and
accrued interest was due and payable on October 31, 2008.  However,
under the terms of the loan agreement, the Company elected to extend the due
date for up to an additional 12 months to October 31, 2009, and accrued, but did
not pay as required, an extension fee of 6 percent on the principal outstanding
plus accrued interest.  The loan is secured by a first lien on all
assets of the Company, subordinated to existing debt, as
necessary.


11


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)




In
addition to the loan amounts, accrued interest, and extension fees, and subject
to an election made by the Lender, the Company shall pay to the Lender 25
percent, up to a maximum of one times the aggregate total amount advanced under
the loan agreement by the Lender, of the Company’s earnings before interest,
taxes, depreciation and amortization (“EBITDA”) realized through December 31,
2009 (the “Revenue Stream Payments”).  The Company was not obligated
to make any Revenue Stream Payments on or prior to October 31,
2008.  The Revenue Stream Payments shall be made by the Company to the
Lender no later than September 30, 2010, based on the audited financial
statements from the relevant calendar year.  As an alternative to the
Revenue Stream Payments, the Lender was able to elect, at its sole discretion,
at any time on or prior to October 31, 2008, to have a warrant issued whereby
each $100,000 advanced to the Company under the loan agreement shall entitle the
Lender to purchase such number of shares of common stock of the Company
representing one percent of the Company’s issued and outstanding capital stock,
on a fully diluted basis, at an exercise price per share equal to the par value
of the Company’s common stock ($0.001 per share).  The warrant was
exercisable for a period of seven years from the date of issuance, by means of
cash or cancellation of all or a part of the indebtedness under the loan
agreement, on a dollar for dollar basis.  As of October 31, 2008, the
Lender did not elect to have the warrant issued.




Lastly,
the loan agreement grants to the Lender the right to appoint one member of the
Board of Directors of the Company until the latest of (i) not less than $200,000
is owed in principal under the loan agreement; or (ii) the Lender holds not less
than five percent of the Company’s outstanding common stock, on a fully diluted
basis.




On
November 30, 2007, the Company issued a subordinated secured promissory note to
a third-party lender to borrow $10,000 for working capital
purposes.  The interest rate on the amount borrowed is 12 percent per
annum.  The total amount of principal and accrued interest was due and
payable on October 31, 2008, unless extended by the Company for up to an
additional 12 months, and the payment of an extension fee of 6 percent of the
principal outstanding plus accrued interest.  The Company elected to
extend the due date of the subordinated secured promissory note to October 31,
2009, but did not pay any of the extension fees of 6 percent related to such
note.  The 6 percent extension fees due on the subordinated secured
promissory note has been accrued as of December 31, 2008, in the accompanying
consolidated financial statements.  The promissory note is secured by
a subordinated lien on the assets of the Company.  In addition, the
promissory note entitles the lender to receive a percentage of the Company’s
EBITDA earned from the date of the promissory note through December 31, 2009
(regardless of whether the other amounts owed under the promissory note have
been paid) as determined by the Company’s Board of Directors, equal to 25
percent multiplied by the aggregate amount borrowed under the promissory note,
payable in arrears (the “EBITDA payment”).  The first EBITDA payment
is due to be made on October 31, 2008, and such payment shall be made in respect
of the EBITDA earned from the date of issuance of the promissory note through
September 30, 2008.  Subsequent EBITDA payments shall be made within
thirty days after the end of each successive calendar quarter in respect of the
EBITDA earned from the last day on which the prior payment was calculated and
ending on the last day of such calendar quarter, and continue until the
third-party lender has received an amount equal to the maximum amount of
principal outstanding under the subordinated secured promissory
note.




On July
9, 2008, DSI issued an unsecured convertible promissory note to a third party
lender in the amount of $500,000 for working capital purposes.  The
interest rate on the amount borrowed is 6 percent per annum.  The
total amount of principal and accrued interest was due and payable on October
31, 2008, and was extended to April 23, 2009.  The lender had the
right, at any time prior to the date the note was paid in full, convert any part
or all of the outstanding principal and accrued interest thereon into fully paid
and non-assessable shares of common stock at the price of $2.00 per
share.  On April 23, 2009, the Company agreed to convert the unsecured
convertible promissory note and related accrued interest into 250,000 shares of
common stock of the Company, and release the third party lender from any further
obligation under its subscription agreement with the Company to buy additional
shares of common stock.




12


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)


(5)           Capital
Stock




Preferred Stock




The
Company is authorized to issue 10,000,000 shares of $0.001 par value preferred
stock.  The rights and preferences related to the preferred stock will
be established by the Board of Directors of the Company.




Common Stock




The
Company is authorized to issue 75,000,000 shares of $0.001 par value common
stock.  All shares of common stock shares have equal voting rights,
are non-assessable, and have one vote per share.  Voting rights are
not cumulative and, therefore, the holders of more than 50 percent of the common
stock could, if they choose to do so, elect all of the Directors of the
Company.




On
November 14, 2008, the Company acquired, through the Merger all of the
outstanding shares of common stock of DSI, and the former stockholders of DSI
were issued an aggregate of 16,793,401 shares of the Company’s common stock (a
ratio of 2.3163 shares of common stock of the Company for each share of common
stock of DSI) in exchange for their shares of DSI common stock.  As a
result of the Merger, the former stockholders of DSI became the majority
stockholders of the Company.  This transaction was accounted for as a
reverse merger and reorganization of capital, with the assets and liabilities of
the entities being brought over at their historical cost
bases.  Expenses of the reorganization were expensed as
incurred.





On
November 14, 2008, in connection with the Merger, a former officer and Director
of the Company surrendered 32,074,000 shares of common stock of the Company for
cancellation.





In
November 2008, the Company commenced a capital formation activity through a
Private Placement Offering (“PPO”) to raise capital through the issuance of up
to 3,500,000 shares of common stock, par value $0.001 per share.  At
or about the time of the closing of the Merger, the Company completed the
initial closing of the PPO pursuant to which it sold to subscribers 125,000
shares of its common stock for an aggregate purchase price of $250,000, or $2.00
per share.  The Company sold an additional 75,000 shares in connection
with the PPO in December 2008 and received proceeds of $150,000 in connection
with such sale.  As of September 30, 2009, the 200,000 shares of
common stock sold In the PPO had not been issued, and the proceeds received by
the Company are reflected as common stock subscribed in the accompanying
financial statements.


13


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)


In June
2007, DSI entered into a one-year consulting agreement with an unrelated third
party for strategic, analytic, and advocacy services before the U.S. government,
various foreign governments, and commercial businesses.  Terms of the
agreement called for the payment of consulting fees amounting to $15,000 per
month, with one-half of the monthly fee paid in cash, and the other half paid in
the form of 7,500 shares of common stock of the Company value at $1 per
share.  For the three months ended March 31, 2008, the Company
recorded 22,500 shares of common stock subscribed but unissued under the
agreement.  The subscribed shares of common stock were issued to the
third party prior to the completion of the Merger in November 2008.




On
November 12, 2008, the Company entered into a stock subscription agreement with
a third party entity for the purchase of 500,000 shares of common stock for
proceeds of $1,000,000 in connection with the PPO.  The third party
entity paid $250,000 under the subscription agreement for the purchase of
125,000 shares of common stock on or about November 14, 2008.  In
addition, on July 9, 2008, DSI also issued to the same entity an unsecured
convertible promissory note in the amount of $500,000 as described in Note 4
above.  On April 23, 2009, the Company agreed to convert the unsecured
convertible promissory note and related accrued interest into 250,000 shares of
common stock of the Company, and release the third party lender from any further
obligation under its subscription agreement with the Company to buy additional
shares of common stock.  The accompanying financial statements present
as of September 30, 2009, the cancellation of the stock subscription
agreement to purchase an additional 375,000 shares of common stock for proceeds
of $750,000 that was effected on April 23, 2009.




On
November 12, 2008, the Company entered into a stock subscription agreement with
a separate third party entity for the purchase of 750,000 shares of common stock
for proceeds of $1,500,000.  As of September 30, 2009, the Company had
received $150,000 in proceeds as partial payment under the subscription
agreement.




Effective
November 1, 2007, the Board of Directors of DSI and its stockholders adopted the
Defense Solutions, Inc. 2007 Equity Incentive Plan (the “Plan”) and set aside
2,000,000 shares of common stock to provide eligible persons an opportunity to
acquire a proprietary interest in DSI and as an incentive to remain in the
service of DSI.  The Plan provides for the issuance of two types of
stock options:  (i) Incentive Stock Options (“ISO’s”); and (ii)
Non-Qualified Stock Options (“NSO’s”) to certain employees, Directors and
consultants of DSI.  Options that are forfeited or cancelled are added
back into the Plan.




On the
same date, DSI granted 1,975,000 options to purchase a like number of shares of
common stock (1,275,000 ISO’s and 700,000 NSO’s) to employees and a consultant
at a price of $0.75 per share.  1,475,000 of the options granted
vested immediately on the date of grant.  The remaining 500,000 NSO’s
either vested or will vest to purchase a like number of shares of common stock
as follows:




December
31,
2007                                                  
       100,000 shares


December
31,
2008                                        
                 200,000
shares


December
31,
2009                                                          200,000
shares




The fair
value of the stock options granted is recognized as compensation over the
requisite service period as described above using the Black-Scholes option
pricing model.  For the periods ended September 30, 2009, and 2008,
the amounts of $21,489 and $85,956, respectively, were recognized as stock
option compensation expense.


14


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)


Effective
October 31, 2008, the Board of Directors and stockholders of the Company adopted
the Defense Solutions Holding, Inc. Equity Incentive Plan (the “Equity Plan”)
and set aside 13,850,000 shares of common stock to provide eligible persons an
opportunity to acquire a proprietary interest in the Company and as an incentive
to remain in the service of the Company.  The Equity Plan provides for
the issuance of two types of stock options:  (i) Incentive Stock
Options; and (ii) Non-Qualified Stock Options to certain employees, Directors
and consultants of the Company.  Options that are forfeited or
cancelled are added back to the Equity Plan.




On
November 14, 2008, the holders of 1,975,000 options granted pursuant to a stock
option plan adopted by DSI prior to the Merger exchanged their options to
acquire 5,246,520 shares of common stock at an exercise price of $.32 per share
under the Company Equity Plan.  As of September 30, 2009, a total of
4,178,884 shares of common stock were available for grant under the Equity
Plan.




On April
13, 2009, the Company granted 5,075,000 options to purchase a like number of
shares of common stock under the Equity Plan to employees and a
consultant.  With respect to the options granted, 3,275,000 options
have an exercise price of $0.12 per share, and 1,800,000 options have an
exercise price of $0.13 per share.  Further 1,650,000 of the options
granted vested on the date of grant, and one half of the 3,425,000 options will
vest on each of December 31, 2009 and December 31, 2010,
respectively.  Of the options granted, 3,725,000 are ISO’s, and
1,350,000 are NSO’s.




On July
6, 2009, in conjunction with separation agreements being executed with four
former employees and one consultant, the Company granted options with respect to
an aggregate 592,673 shares of common stock.  These options were
granted as part of a settlement whereby these individuals surrendered their
rights to deferred compensation and severance pay in exchange for stock options
that are exercisable within two years of the date of grant at an exercise price
of $0.17 per share.  Included among the individuals who entered into
the separation agreements was the Company’s former President and Chief Operating
Officer.




The
Company used the average historical stock price volatility of several publicly
traded entities in the same industry to value stock options under SFAS No.
123R.  The forfeiture rate was estimated at zero for the stock option
grant as the award has immediate vesting terms or has a low probability of
forfeiture.




(6)           Commitments and
Contingencies




On June
15, 2007, DSI entered into a one-year consulting agreement with an unrelated
third party for strategic, analytic, and advocacy services before the U.S.
government, various foreign governments, and commercial
businesses.  Terms of the agreement call for the payment of consulting
fees amounting to $15,000 per month, with one-half of the monthly fee paid in
cash, and the other half paid in the form of 7,500 shares of common stock of the
Company value at $1 per share.  For the six months ended June 30,
2008, DSI paid the consultant fees $41,250 in cash.  In addition, DSI
recorded 41,250 shares of common stock subscribed but unissued valued at
$41,250, under the agreement.  Prior to the Merger in November 2008,
DSI issued the subscribed shares to the unrelated third party.




Effective
February 1, 2007, DSI entered into a consulting agreement with an unrelated
third party for strategic planning services related to business development and
tactical planning to attract new clients, capital formation activities, and to
position DSI for additional revenue generation and sustained
growth.  Terms of the agreement call for the payment of consulting
fees of $8,000 per month for approximately 50 hours of consulting time plus
bonuses and reimbursement of expenses.  In addition, on November 1,
2007, the consultant was granted 700,000 options to purchase a like number of
shares of common stock at an option price of $0.75 per share.  The
agreement may be terminated upon 3-months notice to the consultant unless such
termination is for cause.  For the six months ended June 30, 2009, and
2008, DSI paid $8,000 and $48,000, respectively, to the consultant for services
rendered.


15


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)


Effective
March 15, 2007, DSI entered into a consulting agreement with a third party
entity for governmental affairs representation and lobbying services before the
United States government.  The term of the agreement was for 12
months, with an automatic renewal for an additional one-year period unless
terminated by either party.  Fees for services were in the amount of
$20,000 per month.  For services rendered to DSI in 2007, the third
party entity agreed to accept as partial payment in lieu of fees 160,000 shares
of common stock.  During 2008, no fees were paid to the third party
entity for services rendered, and DSI accrued $240,000 for services related to
the contract.





Effective
January 1, 2008, DSI established the Defense Solutions Inc. 401(k) Plan (the
“Retirement Plan”) for the benefit of its employees in saving for
retirement.  Employees may enroll in the Retirement Plan as eligible
participants as of the first day of their employment.  The Retirement
Plan is funded immediately at each payroll payment date through amounts withheld
from employees.  DSI may make, but is not obligated to make,
contributions to the Retirement Plan, and there were no unfunded liabilities
determined as of the date the Retirement Plan was established.  For
the six months ended June 30, 2009, a total of $300 in pension expenses was
incurred related to the Retirement Plan.





Effective
September 1, 2008, DSI entered into an employment agreement with its Chief
Executive Officer.  The initial annual base salary is $240,000, with
an annual review by the Board of Directors.  The agreement also
includes provisions for benefits and an annual performance bonus.  The
initial term of employment under the agreement is three years.  After
the initial term of employment, the term of the agreement shall automatically
renew for successive one-year periods, unless otherwise terminated.




Due to
cash flow constraints, the Company terminated the employment of 8 employees
during the three months ended June 30, 2009.  These former employees
are owed an aggregate of $467,000 in back pay and deferred compensation and the
termination triggered an obligation to pay an aggregate of $425,000 in severance
to the former employees.




(7)           Income
Taxes




The
provision (benefit) for income taxes for the nine months ended September 30,
2009, and December 31, 2008, is as follows (assuming a 23.7 effective tax
rate):


16


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)




2009
                      
                      
                      2008Current
      Tax Provision:Federal-Taxable
      income
                      
                      $
                      -
                      
                      
                      $
                      -Total
      current tax provision
                      
                      $
                      -
                      
                      
                      $
                      -Deferred
      Tax Provision:Federal-Loss
      carryforwards
                      
                      $
                      238,850
                      
                      
                      $
                      175,109Change
      in valuation allowance
                      
                      
                      (238,850
                      )
                      
                      
                      (175,109
                      )Total
      deferred tax provision
                      
                      $
                      -
                      
                      
                      $
                      -




The
Company had deferred income tax assets as of September 30, 2009, and December
31, 2008, as follows:




2009
                            
                            
                            2008Loss carryforwards
                            
                            $
                            1,322,202
                            
                            
                            $
                            1,083,352Less - Valuation allowance
                            
                            
                            (1,322,202
                            )
                            
                            
                            (1,083,352
                            )Total net deferred tax
    assets
                            
                            $
                            -
                            
                            
                            $
                            -




The
Company provided a valuation allowance equal to the deferred income tax assets
for the periods ended September 30, 2009, and 2008, because it is not presently
known whether future taxable income will be sufficient to utilize the loss
carryforwards.




As of
September 30, 2009, and 2008, the Company had approximately $5,578,900 and
$4,571,000 respectively in tax loss carryforwards that can be utilized in future
periods to reduce taxable income, and expire in the year 2029.


17


DEFENSE
SOLUTIONS HOLDING, INC.
 NOTES
TO INTERIM FINANCIAL STATEMENTS
 SEPTEMBER
30, 2009, AND 2008
 (Unaudited)




(8)           Significant
Customers




For the
nine months ended September 30, 2009, and 2008, the Company had certain
customers that accounted for more than 10 percent of total revenues, as
follows:




2009
                  
                  
                  2008Customer
      A
                  
                  $
                  876,395
                  
                  
                  $
                  -Customer
      B
                  
                  
                  145,354
                  
                  
                  
                  55,457Customer
      C
                  
                  
                  120,000
                  
                  
                  
                  -Customer
      D
                  
                  
                  -
                  
                  
                  
                  134,853Customer
      E
                  
                  
                  -
                  
                  
                  
                  76,100Customer
      F
                  
                  
                  -
                  
                  
                  
                  81,684




(9)           Recent
Accounting Pronouncements





In March
2008, the FASB issued FASB Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities – an amendment of FASB Statement 133”
(“SFAS No. 161”).  SFAS No. 161 enhances required disclosures
regarding derivatives and hedging activities, including enhanced disclosures
regarding how:  (a) an entity uses derivative instruments; (b)
derivative instruments and related hedged items are accounted for under SFAS No.
133, “Accounting for
Derivative Instruments and Hedging Activities”; and (c) derivative
instruments and related hedged items affect an entity’s financial position,
financial performance, and cash flows.  Specifically, SFAS No. 161
requires:





●
            Disclosure
      of the objectives for using derivative instruments in terms of underlying
      risk and accounting designation;


●
            Disclosure
      of the fair values of derivative instruments and their gains and losses in
      a tabular format;


●
            Disclosure
      of information about credit-risk-related contingent features;
      and


●
            Cross-reference
      from the derivative footnote to other footnotes in which
      derivative-related information is
disclosed.





SFAS No.
161 is effective for fiscal years and interim periods beginning after November
15, 2008.  Earlier application is encouraged.  The
management of the Company does not expect the adoption of this pronouncement to
have a material impact on its financial statements.





In May
2008, the FASB issued FASB Statement No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (“SFAS No. 162”).  SFAS No. 162
identifies the sources of accounting principles and the framework for selecting
the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles in the United States of America.  The
sources of accounting principles that are generally accepted are categorized in
descending order as follows:





a)
            FASB
      Statements of Financial Accounting Standards and Interpretations, FASB
      Statement 133 Implementation Issues, FASB Staff Positions, and American
      Institute of Certified Public Accountants (AICPA) Accounting Research
      Bulletins and Accounting Principles Board Opinions that are not superseded
      by actions of the FASB.


18




DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





b)
            FASB
      Technical Bulletins and, if cleared by the FASB, AICPA Industry Audit and
      Accounting Guides and Statements of
Position.





c)
            AICPA
      Accounting Standards Executive Committee Practice Bulletins that have been
      cleared by the FASB, consensus positions of the FASB Emerging Issues Task
      Force (EITF), and the Topics discussed in Appendix D of EITF Abstracts
      (EITF D-Topics).





d)
            Implementation
      guides (Q&As) published by the FASB staff, AICPA Accounting
      Interpretations, AICPA Industry Audit and Accounting Guides and Statements
      of Position not cleared by the FASB, and practices that are widely
      recognized and prevalent either generally or in the
    industry.





SFAS No.
162 is effective 60 days following the SEC’s approval of the Public Company
Accounting Oversight Board amendment to its authoritative
literature.  It is only effective for nongovernmental entities;
therefore, the GAAP hierarchy will remain in SAS 69 for state and local
governmental entities and federal governmental entities.  The
management of the Company does not expect the adoption of this pronouncement to
have a material impact on its financial statements.





On May
26, 2008, the FASB issued FASB Statement No. 163, “Accounting for Financial Guarantee
Insurance Contracts—an interpretation of FASB Statement No. 60” (“SFAS
No. 163”).  SFAS No. 163 clarifies how FASB Statement No. 60, “Accounting and Reporting by
Insurance Enterprises” (“SFAS No. 60”), applies to financial guarantee
insurance contracts issued by insurance enterprises, including the recognition
and measurement of premium revenue and claim liabilities.  It also
requires expanded disclosures about financial guarantee insurance
contracts.





The
accounting and disclosure requirements of SFAS No. 163 are intended to improve
the comparability and quality of information provided to users of financial
statements by creating consistency.  Diversity exists in practice in
accounting for financial guarantee insurance contracts by insurance enterprises
under SFAS No. 60, “Accounting
and Reporting by Insurance Enterprises.”  That diversity
results in inconsistencies in the recognition and measurement of claim
liabilities because of differing views about when a loss has been incurred under
FASB Statement No. 5, “Accounting for Contingencies”
(“SFAS No. 5”).  SFAS No. 163 requires that an insurance enterprise
recognize a claim liability prior to an event of default when there is evidence
that credit deterioration has occurred in an insured financial
obligation.  It also requires disclosure about (a) the risk-management
activities used by an insurance enterprise to evaluate credit deterioration in
its insured financial obligations and (b) the insurance enterprise’s
surveillance or watch list.





SFAS No.
163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal years,
except for disclosures about the insurance enterprise’s risk-management
activities.  Disclosures about the insurance enterprise’s
risk-management activities are effective the first period beginning after
issuance of SFAS No. 163.  Except for those disclosures, earlier
application is not permitted.  The management of the Company does not
expect the adoption of this pronouncement to have material impact on its
financial statements.





On May
22, 2009, the FASB issued FASB Statement No. 164, “Not-for-Profit Entities: Mergers and
Acquisitions” (“SFAS No. 164”).  Statement 164 is intended to
improve the relevance, representational faithfulness, and comparability of the
information that a not-for-profit entity provides in its financial reports about
a combination with one or more other not-for-profit entities, businesses, or
nonprofit activities.  To accomplish that, this Statement establishes
principles and requirements for how a not-for-profit entity:


19


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





a.
            Determines
      whether a combination is a merger or an
  acquisition.


b.
            Applies
      the carryover method in accounting for a
merger.


c.
            Applies
      the acquisition method in accounting for an acquisition, including
      determining which of the combining entities is the
    acquirer.


d.
            Determines
      what information to disclose to enable users of financial statements to
      evaluate the nature and financial effects of a merger or an
      acquisition.





This
Statement also improves the information a not-for-profit entity provides about
goodwill and other intangible assets after an acquisition by amending FASB
Statement No. 142, Goodwill
and Other Intangible Assets, to make it fully applicable to
not-for-profit entities.





Statement
164 is effective for mergers occurring on or after December 15, 2009, and
acquisitions for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15,
2009.  Early application is prohibited.  Management of the
Company does not expect the adoption of this pronouncement to have material
impact on its financial statements.





On May
28, 2009, the FASB issued FASB Statement No. 165, “Subsequent Events” (“SFAS No.
165”).  Statement 165 establishes general standards of accounting for
and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be
issued.  Specifically, Statement 165 provides:





1.
            The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.


2.
            The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements.


3.
            The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.





In
accordance with this Statement, an entity should apply the requirements to
interim or annual financial periods ending after June 15,
2009.  Management of the Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.





On June
9, 2009, the FASB issued FASB Statement No. 166, “Accounting for Transfers of
Financial Assets- an amendment of FASB Statement No, 140” (“SFAS
No.166”).  SFAS No.166 revises the derecognition provision of SFAS
No. 140 “Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities” and will require entities to provide more information about
sales of securitized financial assets and similar transactions, particularly if
the seller retains some risk with respect to the assets.  It also
eliminates the concept of a "qualifying special-purpose entity."





This
statement is effective for financial asset transfers occurring after the
beginning of an entity's first fiscal year that begins after November 15,
2009.  Management of the Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.





In June
2009, the FASB issued SFAS 167 "Amendments to FASB Interpretation
No. 46(R).”  SFAS No.167 amends certain requirements of FASB
Interpretation No. 46(R), “Consolidation of Variable Interest
Entities” to improve financial reporting by companies involved with
variable interest entities and to provide additional disclosures about the
involvement with variable interest entities and any significant changes in risk
exposure due to that involvement.  A reporting entity will be required
to disclose how its involvement with a variable interest entity affects the
reporting entity's financial statements.


20


DEFENSE
SOLUTIONS HOLDING, INC.


NOTES
TO INTERIM FINANCIAL STATEMENTS


SEPTEMBER
30, 2009, AND 2008


(Unaudited)





This
Statement shall be effective as of the beginning of each reporting entity’s
first annual reporting period that begins after November 15,
2009.  Management of the Company does not expect the adoption of this
pronouncement to have material impact on its financial statements.





In June
2009, the FASB issued SFAS 168, "The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principle - a
replacement of FASB Statement No. 162" ("SFAS No.168").  SFAS
No.168 establishes the FASB Accounting Standards Codification (the
"Codification") to become the single official source of authoritative,
nongovernmental US generally accepted accounting principles
(GAAP).  The Codification does not change GAAP but reorganizes the
literature.





SFAS
No.168 is effective for interim and annual periods ending after September 15,
2009.  When effective, the Codification will supersede all existing
non-SEC accounting and reporting standards.  All other
nongrandfathered non-SEC accounting literature not included in the Codification
will become nonauthoritative.  Following SFAS No. 168, the FASB will
not issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts.  Instead, the FASB will issue
Accounting Standards Updates, which will serve only to:  (a) update
the Codification; (b) provide background information about the guidance; and (c)
provide the bases for conclusions on the changes(s) in the
Codification.  Management of the Company does not expect the adoption
of this pronouncement to have material impact on its financial
statements.





(10)           Subsequent
Event





On
October 29, 2009, the Company issued a  warrants to purchase 2,000,000
share of Common Stock to an unrelated party.  The warrant was
exercised effective that same date at the per share exercise price of $0.01 per
share.  The warrant was issued in conjunction with consulting services
being provided to the Company.





For the
purposes of these financial statements, the Company has evaluated subsequent
events occurring between the end of its fiscal quarter ended September 30, 2009
and November 23, 2009, which is the date these financial statements were
issued.




21


Item
2.  Management’s Discussion and Analysis of Financial Condition and
Results of Operation.





Forward-Looking
Information





You
should read the following discussion and analysis together with
the  audited financial statements and related notes appearing
elsewhere in this Report. This discussion and analysis contains forward-looking
statements that involve risks, uncertainties, and assumptions. The actual
results may differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including, but not limited to, those
presented under "Risk Factors" in our Report on form 10-K for the fiscal year
ended December 31, 2008 or elsewhere in this Report.




You
should read the following discussion in conjunction with our financial
statements and related notes.  In addition to historical financial
information, the following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs.  Our actual results could
differ materially.





Overview




On
November 14, 2008, we acquired all of the outstanding capital stock of Defense
Solutions, Inc. in connection with the merger (the “Merger”) of our wholly owned
subsidiary with and into Defense Solutions, Inc.  The former
stockholders of Defense Solutions, Inc. were issued an aggregate 16,793,401
shares of our Common Stock, one of our principal stockholders surrendered
32,074,000 shares to us for cancellation at the effective time of the Merger,
and certain other stockholders agreed to surrender shares if we did not raise
$3,000,000 in connection with a proposed private placement; however, no such
shares have yet been surrendered.  In connection with the Merger, we
changed our name to Defense Solutions Holding, Inc.  In addition, our
board of directors was reconstituted at the effective time of the Merger with
designees of Defense Solutions, Inc. replacing our then current board of
directors.  Further, at the effective time of the Merger, we abandoned
our prior business plan and the operations of Defense Solutions, Inc. acquired
as a result of the Merger became our sole line of business. Simultaneously with
the closing of the Merger, we completed the initial closing of a private
placement and issued an aggregate of 125,000 shares of Common Stock for gross
proceeds of $250,000 and net proceeds to us, after deduction of offering
expenses of approximately $180,000.





The
shares of Common Stock issued to the former stockholders of Defense Solutions,
Inc in connection with the Merger represented approximately 51% of our
outstanding Common Stock after giving effect to the Merger and the cancellation
of shares described above.  As a result, the Merger transaction was
accounted for as a reverse acquisition with Defense Solutions, Inc. as the
acquiring party and Defense Solutions Holding, Inc. (formerly Flex Resources Co.
Ltd. ) as the acquired party.  Accordingly, when we refer to our
business and financial information relating to periods prior to the Merger, we
are referring to the business and financial information of Defense Solutions,
Inc., unless the context otherwise requires.  The following discussion
and analysis should be read in conjunction with the financial statements,
including the notes thereto and other information presented in this
report.




We are an
international project management, executive consulting, and business development
firm with branch offices on four continents.  We began operations in
2001, and since that time have built a reputation as a leader in the
refurbishment and upgrade of armored vehicles, as well as the provisioning of
spare parts and equipment for military and police forces
worldwide.  In addition, we conduct program management, business
development, and strategic studies in the Defense and Homeland Security
markets.  We have recently begun to represent U.S. and Asian oil
refineries to secure oil contracts and have been engaged in discussions with
representatives of the IRAQI State Oil Marketing Organization to obtain the
right to purchase Iraqi oil for resale to the refineries; however, no assurance
can be given that we will be successful in entering into material agreements
with respect to the oil and other opportunities we are
pursuing.


22





We
achieved revenues for the nine months ended September 30, 2009 of
$1,215,084.  This represents an increase of $780,158 over revenues for
the nine months ended September 30, 2008.  These revenues were
primarily generated from the sale of optical devices used to calibrate military
vehicles and other equipment.  We believe that we are well positioned
in the project management and business development segments of our business to
take advantage of significant opportunities that are unfolding in
Iraq.  Specifically, the withdrawal of United States and coalition
forces is necessitating the re-armament of the Iraqi military.  Having
supplied refurbished military equipment previously to Iraq, we believe that we
are uniquely positioned to address their ongoing military equipment
requirements.  In the coming years, management will endeavor to
leverage this expertise and provide a wide variety of military and non-military
products to the government of Iraq and other Middle Eastern, African and Asian
countries.




Results
of Operations





Three
months ended September 30, 2009 compared to three months ended September 30,
2008





For the
three months ended September 30, 2009, we had revenues of $126,984 compared
to $126,686 for the three months ended September 30, 2008.




Operating
expenses for the three months ended September 30, 2009 were $(98,726) from
$626,806, or 495% of revenues for the three months ended September 30,
2008.  The negative operating expenses in total dollars were primarily
due to the reversal of an accrual for deferred compensation that was eliminated
in connection with separation agreements reached with terminated
employees.




Other
expenses, net for the three months ended September 30, 2009, were $41,379
compared to $32,314 during the three months ended September 30,
2008.  This increase was primarily due to higher interest expense
caused by higher borrowing levels offset by slightly lower short-term
rates.




Given that
we are in an accumulated loss position, no provision for income taxes is
reflected in the financial statements.




Net
profit for the three months ended September 30, 2009 was $184,331, or 145% of
revenues, from a net loss of $(532,434), or 420% of revenues, during the three
months ended September 30, 2008 as a result of the factors described
above.




Nine
months ended September 30, 2009 compared to nine months ended September 30,
2008




For the
nine months ended September 30, 2009, we reported revenues of $1,215,084
compared to $434,926 for the nine months ended September 30, 2008, 1 179%
increase.  This increase growth was primarily the result of revenue
from a contract to provide optical calibration devices for use in military
vehicles and other equipment which was not in effect during 2008.




Operating
expenses for the nine months ended September 30, 2009 increased to $2,049,242,
or 169% of revenues, from $1,986,346, or 457% of revenues for the nine months
ended September 30, 2008.  The increase in  operating
expenses in total dollars was primarily due to an increase in labor costs
associated with the higher revenue level as well as increased sales and
marketing activities.


23




Other
expenses, net for the nine months ended September 30, 2009, were $173,648
compared to $139,850 during the nine months ended September 30,
2008.  This increase was primarily due to higher interest expense
caused by higher borrowing levels offset by slightly lower short-term
rates.




Given that
we are in an accumulated loss position, no provision for income taxes is
reflected in the financial statements.




Net loss
for the nine months ended September 30, 2009 decreased by 40% to $1,007,806, or
83% of revenues, from $1,691,270, or 389% of revenues, during the nine months
ended September 30, 2008 as a result of the factors described
above.




Seasonality
and Quarterly Periods





Our
business is not seasonal in nature.




Liquidity
and Capital Resources





We have
historically relied on cash flow from operations, borrowings under credit
facilities and loans from related parties to support our
operations.  Our financial statements are prepared on a going concern
basis, which assumes that we will realize our assets and discharge our
liabilities in the normal course of business.  At September 30, 2009,
we had limited liquid resources.  Current liabilities were $4,093,810
and current assets were $146,323.  The difference of $3,947,487 is a
working capital deficit, which is primarily the result of losses incurred during
the last several years.  These conditions raise doubt as to our
ability to continue normal business operations as a going
concern.  The financial statements do not include any adjustments to
reflect the possible future effect on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.




Our
continuation of existence is dependent upon the continued cooperation of our
creditors, our ability to generate sufficient cash flow to meet our continuing
obligations on a timely basis and fund our operating and capital needs, and our
ability to obtain additional financing as may be necessary.  We are
currently seeking to raise additional capital through the issuance of securities
in private transactions; however, no assurance can be given that we will be
successful in raising additional capital.  No such securities will be
offered or sold in the United States absent registration or an applicable
exemption from the registration requirements of the Securities Act of 1933 and
applicable state laws.  This report shall not constitute an offer to
sell or a solicitation of an offer to buy the securities.





Cash used
in operating activities for the nine months ended September 30, 2009 was
$451,034 compared to $1,069,467 for the nine months ended September 30,
2008.  The decrease in cash used is primarily attributable to the fact
that $761,000  of deferred revenue was recognized during the nine
months ended September 30, 2008.




There was
$4,213 used in investing activities during either the nine months ended
September 30, 2009 compared to $7,850 used in investing activities during the
nine months ended September 30, 2008, which represented advances to
employees.




24





Cash
provided by financing activities decreased to $402,418 in the nine months ended
September 30, 2009 compared to $1,126,518 in the nine months ended September 30,
2008, primarily as a result of the receipt of $1,000,000 in proceeds from the
issuance of two promissory notes in the nine months ended September 30,
2008.




There can
be no assurance that we will be successful in raising additional capital through
additional borrowings, private placements (including the private placement
currently being conducted) or otherwise. Even if we are successful in raising
capital through the sources specified, there can be no assurances that any such
financing would be available in a timely manner or on terms acceptable to
us.  Additional equity financing could be dilutive to shareholders,
and any debt financing could involve restrictive covenants with respect to
future capital raising activities and other financial and operational
matters.




Future
Commitments





We
currently have capital lease commitments for computer and office equipment,
furniture and fixtures, and inventory.  As of September 30, 2009, the
total cost of capitalized leases presented in the accompanying balance sheet
amounted to $168,524 for computer and office equipment.  Amortization
of the capital lease costs, except inventory, is included in depreciation and
amortization expense.




In
addition, we currently have an operating lease commitment for office space with
an unrelated party for the period of five years through November
2010.  Lease expense related to the office space for the nine months
ended September 30, 2009, and 2008, was $132,579 and $74,971,
respectively.




Future
noncancellable minimum rental commitments for leases as of September 30, 2009
were as follows:




September
      30,
                  
                  Operating
                    Lease
                  
                  
                  Capital
                    Leases2009
                  
                  $
                  24,751
                  
                  
                  $
                  10,9182010
                  
                  
                  91,406
                  
                  
                  
                  41,2312011
                  
                  
                  0
                  
                  
                  
                  3,595Total
                  
                  $
                  116,157
                  
                  
                  $
                  55,743Less
      – Amount representing interest
                  
                  
                  
                  
                  
                  
                  (3,905
                  )Present
      value of net minimum lease payments
                  
                  
                  
                  
                  
                  
                  51,838Less
      – Current portion
                  
                  
                  
                  
                  
                  
                  (40,052
                  )Capital
      lease obligations, less current portion
                  
                  
                  
                  
                  
                  $
                  11,786




25


We have
bank lines of credit, third-party short-term debt, and related party notes and
loans.  As of September 30, 2009, short-term and long-term debt
consisted of the following:




September
      30,
                      2009Lines
      of credit with Banks, monthly payments of interest only; interest ranging
      from prime – 0.75% to prime + 8.%; due on demand; generally insecured, or
      collateralized by personal residential real estate of
      director.
                    
                    $
                    773,552Short-term
      promissory notes with unrelated parties; 12% interest; principal and
      interest due on 10/31/08; collateralized by additional terms of a loan
      agreement or subordinated secured promissory note, including all assets of
      the Company subordinated to existing debt, as necessary, EBITDA premium
      payments also due.
                    
                    
                    1,248,000Convertible
      note – 6% interest; convertible into 250,000 shares of common stock; due
      October 31, 2008, unsecured; extended to April 23,
    2009.
                    
                    
                    0Short-term
      promissory notes with related parties; no interest rate or 12% interest;
      due at various dates through 10/31/09, unsecured or secured by a
      subordinated lien on assets of the Company; EBITDA premium payments also
      due.
                    
                    
                    39,000Loan
      from related party, monthly payments of principal and interest; 8.5%
      interest; due March 2014, unsecured.Loans
      from related parties; non-interest bearing; no terms for repayment;
      unsecured.
                    
                    
                    132,949Capital
      lease obligations, secured.
                    
                    
                    51,838Total
                    
                    
                    2,246,139Less
      – Current portion
                    
                    
                    (2,234,353
                    )Long-term
      portion
                    
                    $
                    11,786




On
November 1, 2007, we entered into a loan agreement with the Mikal Group (the
“Lender”) to borrow up to $1,000,000.  As of September 30, 2009, we
had borrowed $1,000,000 under the loan agreement.  The interest rate
on amounts borrowed is 12% per annum.  The total amount of principal
and accrued interest was due and payable on October 31, 2008; however, we have
elected to extend the due date for up to an additional 12 months to October 31,
2009, and accrued but did not pay as required an extension fee of six
percent of the principal outstanding plus accrued interest.  The loan
is secured by a first lien on all assets of Defense Solutions, subordinated to
existing debt, as necessary.


26




In
addition to the loan amounts, accrued interest, and extension fees, and subject
to an election made by the Lender, we are required pay to the Lender 25%, up to
a maximum of one times the aggregate total amount advanced under the loan
agreement by the Lender, of our earnings before interest, taxes, depreciation
and amortization (“EBITDA”) realized through December 31, 2009 (the “Revenue
Stream Payments”).  We were not obligated to make any Revenue Stream
Payments on or prior to October 31, 2008.  No EBITDA had been earned
through September 30, 2009 and thus no Revenue Stream Payments were owed through
such date.  The Revenue Stream Payments are required to be made to the
Lender no later than September 30, 2010, based on the audited financial
statements from the relevant calendar year.  As an alternative to the
Revenue Stream Payments, the Lender had the right to elect, at its sole
discretion at any time prior to October 31, 2008, to receive a warrant which
would entitle the Lender to purchase 2,710,071 shares of our Common Stock at an
exercise price of $.0001 per share.  We expect to extend the date by
which the election to receive the warrant was required to be made in connection
with negotiating a restructuring of the terms of the loan agreement with the
Lender; however, as of September 30, 2009, no formal agreement had been reached
with respect to the terms of any such restructuring.  Under the terms
of the loan agreement, the warrant will be exercisable for a period of seven
years from the date of issuance, by means of cash or cancellation of all or a
part of the indebtedness under the loan agreement, on a dollar for dollar
basis.  The loan agreement grants to the Lender the right to appoint
one member of our Board of Directors until the latest of (i) not less than
$200,000 is owed in principal under the loan agreement; or (ii) the Lender holds
not less than five percent of outstanding Common Stock, on a fully diluted
basis.  (See Note 4 for additional information).




In
November 2007, we issued two subordinated secured promissory notes to
lenders to borrow an aggregate of $40,000 for working capital
purposes.  The interest rate on the amount borrowed is 12% per
annum.  The total amount of principal and accrued interest was due and
payable on October 31, 2008, however, we obtained an extension on these notes to
October 31, 2009. We also accrued but did not pay as required an extension fee
of six percent of the principal outstanding plus accrued
interest.  The promissory notes are secured by a subordinated lien on
our assets.  In addition, the promissory notes entitle the lenders to
receive a percentage of our EBITDA earned from the date of the promissory note
through December 31, 2009 (regardless of whether the other amounts owed under
the promissory notes have been paid) as determined by our Board of Directors,
equal to 25% multiplied by the aggregate amount borrowed under the promissory
notes, payable in arrears (the “EBITDA payment”).  The first EBITDA
payment was due to be made on October 31, 2008 for the period ended September
30, 2008; however, no payment was required as a result of the absence of EBITDA
during such period.  No EBITDA payments were due through September 30,
2009 as a result of the absence of positive EBITDA.  Subsequent EBITDA
payments are required within thirty days after the end of each successive
calendar quarter in respect of the EBITDA earned from the last day on which the
prior payment was calculated and ending on the last day of such calendar
quarter, and continue until the lenders have received an amount equal to the
maximum amount of principal outstanding under the subordinated secured
promissory notes.




Due to
cash flow constraints, we terminated the employment of 8 employees during the
three months ended September 30, 2009. These former employees were owed an
aggregate of $467,000 in back pay and deferred compensation and the terminations
triggered an obligation to pay an aggregate of $425,000 in severance to the
former employees.  On July 6, 2009, in conjunction with separation
agreements being executed with four of the former employees and one consultant,
we granted options with respect to an aggregate 592,673 shares of Common
Stock.  These options were granted as part of a settlement whereby the
these individuals surrendered their rights to deferred compensation and
severance pay in exchange for stock options that are exercisable within two
years of the date of grant at an exercise price of $0.17 per share.




27




Item 3.   Quantitative and Qualitative
Disclosure About Market Risk




We
believe that our business operations are not exposed to market risk relating to
interest rate, foreign currency exchange risk or commodity price
risk.




Item
4.         Controls and
Procedures




Disclosure
Controls and Procedures





Under the
supervision and with the participation of management, including our Chief
Executive Officer and our Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures.  Disclosure controls and procedures are controls and
procedures that are designed to ensure that information required to be disclosed
in our reports filed or submitted under the 1934 Act is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and
forms.  Based on this evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of the end of the period covered by this
report.





Internal
Control over Financial Reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act.  Under the supervision and with the participation
of our management, which consists of our President and Chief Financial Officer,
we conducted an evaluation of the effectiveness of its internal control over
financial reporting based on criteria established in the framework in Internal Control-Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission.  Based on their evaluation, our Chief Executive
Officer and Chief Financial Officer identified a number of significant
deficiencies in our internal control over financial reporting as of December 31,
2008.  These significant deficiencies included:





·
            A
      lack of sufficient resources and an insufficient level of monitoring and
      oversight, which restricts our ability to gather, analyze and report
      information relative to the financial statement assertions in a timely
      manner; and





·
            A
      lack of sufficient resources and an insufficient level of monitoring and
      oversight, which restricts our ability to gather, analyze and report
      information relative to the financial statement assertions in a timely
      manner; and





As a
result of the deficiencies described above, we concluded that, as of December
31, 2009, our internal control over financial reporting was not
effective.


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Remediation
of Significant Deficiencies




We intend
to take action to hire additional staff, implement stronger financial reporting
systems and software and develop adequate policies and procedures with the
expanded staff to ensure all noted significant deficiencies are addressed and
resolved.  However, due to our cash flow constraints, the timing of
the implementation implementing the changes has not yet been
determined.




Notwithstanding
the significant deficiencies described above, our management, including our
Chief Executive Officer and Chief Financial Officer, believes that the
consolidated financial statements included in this Report fairly present in all
material respects our financial condition, results of operations and cash flows
for the periods presented.




Change
in Internal Control over Financial Reporting




During
the quarter ended September 30, 2009, there were no changes in our internal
controls that have materially affected or are reasonably likely to have
materially affected our internal controls over financial
reporting.





Our
management, including the Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
control over financial reporting will prevent all error and all
fraud.  A control system, no matter how well designed and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
control system are met.  Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the company have been
detected.




Part
II.  Other Information




Item 1.Legal
Proceedings.




We are
not aware of any pending or threatened litigation against us that we expect will
have a material adverse effect on our business, financial condition, liquidity,
or operating results.  However, legal claims are inherently uncertain
and we cannot assure you that we will not be adversely affected in the future by
legal proceedings.




Item
1A.      Risk Factors




There has
been no material changes to the risk factors disclosed in our Report on Form
10-K for the year ended December 31, 2008.




Item
2.         Unregistered Sales of
Equity Securities and Use of Proceeds




On
October 29, 2009, we issued a  warrants to purchase 2,000,000 share of
Common Stock to an unrelated party.  The warrant was exercised
effective that same date at the per share exercise price of $0.01 per
share.  The warrant was issued in conjunction with consulting services
being provided to us.  We relied upon the exemption provided by
Section 4(2) in connection with such issuances.




On July
6, 2009, in conjunction with separation agreements being executed with four
former employees and one consultant, we granted options with respect to an
aggregate 592,673 shares of Common Stock.  These options were granted
as part of a settlement whereby the these individuals surrendered their rights
to deferred compensation and severance pay in exchange for stock options that
are exercisable within two years of the date of grant at an exercise price of
$0.17 per share.  Included among the individuals who entered into the
separation agreements was our former President and Chief Operating Officer, John
Little, who received options to acquire 266,333 shares of Common
Stock.  We relied upon the exemption provided by Section 4(2) in
connection with the grant of the options.


29





Item
3.         Defaults upon Senior
Securities




None




Item
4.         Submission of Matters to
a Vote of Security Holders




In July
2009, the holders of a majority of the our outstanding Common Stock approved
amendments to our Amended and Restated Certificate of Incorporation which would
have changed our corporate name to Defcom Holdings, Inc and effected a one for
fifteen reverse split of our Common Stock.  Our Board of Directors
subsequently elected not to implement the name change and reverse stock
split.




Item
5.         Other
Information




Our Chief
Executive Officer, Timothy D. Ringgold, assumed the office of President
following the departure of our former President, John A. Little.




Item
6.         Exhibits




Exhibit
                      
                      Description of Exhibit31.1
                      
                      Certification
      of Principal Executive Officer Pursuant to Exchange Act Rule
      13A-14(A)/15D-14(A) as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200231.2
                      
                      Certification
      of Principal Financial Officer Pursuant to Exchange Act Rule
      13A-14(A)/15D-14(A) as Adopted Pursuant to Section 302 of the
      Sarbanes-Oxley Act of 200232.1
                      
                      Certification
      of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      200232.2
                      
                      Certification
      of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as
      Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002


30


Signatures





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized




Defense
      Solutions Holding, Inc.By:
              /s/Timothy D. RinggoldName:
              Timothy
      D. RinggoldTitle:
              Chief
      Executive OfficerDated:
      November 23, 2009By:
              /s/David DiFeliceName:
              David
      DiFeliceTitle:
              Chief
      Financial OfficerDated:
      November 23, 2009


31