1006459--9/28/2010--Homeland_Security_Capital

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If our consolidation strategy is not successful, our operations and financial condition will be adversely affected. Competition and industry consolidation may limit our ability to implement our business strategies. Failure to qualify for investment company act exemptions could adversely affect our growth and financial condition. Potential tax consequences of our acquisitions may adversely affect our financial conditions. Our financial condition could be harmed if businesses we acquire failed to comply with applicable laws or have other undisclosed liabilities. We may need to raise additional capital on terms unfavorable to our stockholders. As a government contractor, we are subject to extensive government regulation, and our failure to comply with applicable regulations could subject us to penalties that may restrict our ability to conduct our business. Economic downturns, reductions or diversions in government funding could have a negative impact on our businesses. We and our customers operate in regulated industries that require us and them to obtain, and to comply with, national, state and local government licenses, permits and approvals. We and our customers operate in a politically sensitive environment, and the public perception of radioactive materials can affect our customers and us. The elimination or any modification of the Price-Anderson Act s indemnification authority could have adverse consequents for our business. We are subject to liability under environmental laws and regulation. Construction sites and maintenance sites are inherently dangerous workplaces. If we fail to maintain safe work sites, we can be exposed to significant financial losses as well as civil and criminal proceedings. Our business has inherent operational risks that cannot be adequately covered by insurance or indemnity, and our products and technologies may not qualify for protection under the SAFETY Act. Our failure to maintain our safety record could have an adverse effect on our business. We are engaged in highly competitive businesses and typically must bid against other competitors to obtain major contracts. Our ability to compete depends on our ability to innovate successfully and quickly. Our products compete in markets that are subject to rapid technological change, and one or more of the technologies underlying our products could be made obsolete by new technology. Our CBRNE detection products are subject to a number of risks, including lengthy product development and contract negotiation periods and certain risks inherent in long-term government contracts. Our business qualifies as a small business for significant opportunities which would be negatively impacted if our small business status were to change to other than small. If our teaming members or partners fail to perform their contractual obligations on a project or if we fail to coordinate effectively with our partners or subcontractors, we could be exposed to legal liability, loss of reputation and reduced profit on the project. Our operating results are difficult to predict and may fluctuate significantly in the future. Our business depends on the development of markets for detection and surveillance products and solutions. The contracts in our backlog may be adjusted, cancelled or suspended by our clients. Additionally, even if fully performed, our backlog may not be a good indicator of our future gross margins. The loss of one or a few customers could have an adverse effect on us. We bear the risk of cost overruns in fixed-price contracts. We may experience reduced profits or, in some cases, losses under these contracts if costs increase above our estimates. Our use of level of effort or percent complete performance accounting could result in reduction or elimination of previously reported profits. The outcome of pending and future claims and litigation could have a material adverse effect on our business. Adequate bonding is necessary for us to win certain types of new work. We have substantial financial assurance and insurance requirements, and increases in the costs of obtaining adequate financial assurance, or the inadequacy of our insurance coverage, could negatively impact our liquidity and increase our liabilities. Unforeseen circumstances could result in a need for additional capital. Armed hostilities could constrain our ability to conduct business internationally and could also disrupt our U.S. operations. A substantial portion of our revenues depends on sales to the U.S. government and could be affected by changes in federal funding levels. We may not realize anticipated benefits from stimulus packages. Our operating results may be adversely impacted by worldwide political and economic uncertainties and specific conditions in the markets we address. We derive a majority of our revenue from government agencies, and any disruption in government funding or in our relationship with those agencies could adversely affect our business. A delay in the completion of the budget process of the U.S. government could delay procurement of our services and have an adverse effect on our future revenues. Our failure to win new contracts and renew existing contracts with private and public sector clients could adversely affect our profitability. Restrictive covenants in our credit agreement may restrict our ability to pursue certain business strategies. Because our operating results may fluctuate significantly and may be below the expectations of analysts and investors, the market price for our stock may be volatile. Our common stock is deemed to be penny stock, which may make it more difficult for investors to sell their shares due to suitability requirements. We do not expect to pay dividends with respect to our common stock which may hinder our ability to attract additional capital. We have historically had severe working capital shortages, even following significant financing transactions. We have raised capital and issued securities during the years ended June 30, 2008 and December 31, 2007 and 2006, which has resulted (and will in the future when warrant exercises or conversions occur) result in dilution to our existing stockholders; this was accomplished to provide necessary working capital or obtain assets and services. We will likely issue more securities to raise additional capital or to obtain other services or assets, any of which may result in substantial additional dilution. If demand for any of our products grows suddenly, we may lack the resources to meet demand or we may be required to increase our capital spending significantly. Our common stock is vulnerable to pricing and purchasing actions that are beyond our control and, therefore, persons acquiring or holding our shares may be unable to resell their shares at a profit as a result of this volatility. The conversion ratio of our Series H Stock is subject to adjustment based on the performance of our Safety subsidiary in 2008 and 2009. Outstanding Preferred Stock, options and warrants may make it difficult for us to obtain additional capital on reasonable terms.

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1006459--9/28/2010--Homeland_Security_Capital_CORP