UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-QSB

(MARK ONE)

|X|   Quarterly  Report  Pursuant to Section 13 or 15(d) of Securities  Exchange
      Act of 1934

                  For the quarterly period ended March 31, 2006

|_|   Transition report under Section 13 or 15(d) of the Securities Exchange Act
      of 1934

               For the transition period from _______ to _______.

                             Commission file number
                                    814-00631
                                    ---------

                      HOMELAND SECURITY CAPITAL CORPORATION
                      -------------------------------------
                 (Name of small business issuer in its charter)

                  Delaware                                    59-2050585
                  --------                                    ----------
(State or Other Jurisdiction of Incorporation              (I.R.S. Employer
              or Organization)                            Identification No.)

        4100 N. Fairfax Drive, #1150
                Arlington, VA                                    22203
                -------------                                    -----
  (Address of principal executive offices)                     (Zip code)

                                 (703) 528-7073
                (Issuer's Telephone Number, Including Area Code)

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 |X| No |_|

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

                                                          Yes |_| No |X|

There  were  4,039,159,719  par value  $.001 per share,  shares of common  stock
outstanding as of May 22, 2006.

------------------------

Transitional Small Business Disclosure Format: Yes |_| No |X|

<PAGE>

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

      The accompanying interim condensed  consolidated  financial statements and
notes to the  consolidated  financial  statements for the interim  periods as of
March 31,  2006 and for the three  months  ended  March 31,  2006 and 2005,  are
unaudited.  The accompanying  interim unaudited  financial  statements have been
prepared by the  Company in  accordance  with  accounting  principles  generally
accepted in the United States for interim  financial  statements and pursuant to
the  requirements for reporting on Form 10-QSB and Article 10 of Regulation S-B.
Accordingly,  they do not include all the information and footnotes  required by
generally accepted accounting principles for complete financial  statements.  In
the opinion of  management,  all  adjustments  (consisting  of normal  recurring
adjustments)  considered  necessary for a fair  presentation have been included.
Operating  results for the three month  period  ended  March 31,  2006,  are not
necessarily  indicative  of the results that may be expected for the year ending
December 31, 2006. The condensed  consolidated  financial  statements  should be
read in conjunction with the financial  statements and notes thereto included in
the Form 10-K of the  Company as of and for the year ended  December  31,  2005.
Certain March 31, 2005 balances have been  reclassified  to conform to the March
31, 2006 financial statement presentation.


                                       2
<PAGE>

HOMELAND SECURITY CAPITAL CORPORATION
Condensed Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                      (unaudited)
Assets                                                               March 31, 2006    December 31,2005
                                                                     --------------    ----------------
<S>                                                                   <C>                <C>
  Cash                                                                $  1,618,643       $  1,094,061
  Accounts receivable                                                    2,673,577                 --
  Inventories                                                              104,195                 --
  Costs in excess of billings on uncompleted contracts                     112,663                 --
  Other current assets                                                     176,646            144,656
                                                                      ------------       ------------
        Total current assets                                             4,685,724          1,238,717
                                                                      ------------       ------------

Fixed assets, net                                                          227,671             24,306
Due from officers in subsidiaries                                          240,000                 --
Deferred financing costs - net                                             491,112                 --
                                                                      ------------       ------------

     Total assets                                                     $  5,644,507       $  1,263,023
                                                                      ============       ============

Liabilities and Stockholders' Equity

Accounts payable                                                      $  1,104,959       $    384,791
Judgments and defaults payable                                              44,000             44,000
Accrued interest                                                            96,965             64,911
Billings in excess of costs on uncompleted contracts                        78,921                 --
Derivative liability                                                     3,909,822                 --
Other current liabilities                                                  139,565              4,601
                                                                      ------------       ------------

     Total current liabilities                                           5,374,232            498,303
Convertible debentures - related party,
    net of $3,286,667 discount                                             713,333                 --
Convertible debentures, net                                                147,500            222,500
                                                                      ------------       ------------
                                                                           860,833            222,500
                                                                      ------------       ------------

     Total liabilities                                                   6,235,065            720,803
                                                                      ------------       ------------

Commitments and contingencies                                                   --                 --

Minority interest in consolidated subsidiaries                             308,921                 --

Stockholders' Equity
Preferred stock Series F                                                   100,000            100,000
Preferred stock Series G                                                   100,000                 --
Common stock, $.001 par value, 20,000,000,000 shares authorized,
     4,053,447,204 shares issued and outstanding                         4,053,447          4,397,729
Additional paid-in capital                                              42,370,477         41,822,550
Accumulated deficit                                                    (47,523,403)       (45,778,059)
                                                                      ------------       ------------
     Total stockholders' equity                                           (899,479)           542,220
                                                                      ------------       ------------

     Total liabilities and stockholders' equity                       $  5,644,507       $  1,263,023
                                                                      ============       ============
</TABLE>

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


                                       3
<PAGE>

HOMELAND SECURITY CAPITAL CORPORATION
Condensed Consolidated Statements of Operations (unaudited)

<TABLE>
<CAPTION>
                                                                        Three Months          Three Months
                                                                       Ended March 31,       Ended March 31,
                                                                             2006                 2005
                                                                       ---------------       ---------------
<S>                                                                    <C>                   <C>
Sales                                                                  $       688,030       $            --
                                                                       ---------------       ---------------

Cost of sales
   Materials                                                                   380,246                    --
   Labor                                                                       261,098
   Other                                                                       123,727                    --
                                                                       ---------------       ---------------
     Total cost of sales                                                       765,071                    --
                                                                       ---------------       ---------------
     Gross profit (Deficit) on sales                                           (77,041)                   --
     General and administrative expenses                                     1,056,331               200,681
                                                                       ---------------       ---------------
           Operating income (loss)                                          (1,133,372)             (200,681)
  Other income (expense)
     Amortization of debt offering costs                                       (28,888)              (40,529)
     Beneficial conversion feature - convertible debentures                         --              (189,279)
     Amortization of debt discount                                            (193,333)
     Interest expense                                                          (38,601)              (58,738)
     Settlement of debt                                                             --               188,446
     Minority interest in loss of consolidated subsidiary                       68,879                    --
     Other expense                                                            (420,029)                   --
                                                                       ---------------       ---------------
  Total other income (expense)                                                (611,972)             (100,100)
                                                                       ---------------       ---------------
          Net loss attributable to common stockholders                 $    (1,745,344)      $      (300,781)
                                                                       ===============       ===============

Loss per common share, basic and diluted
Net loss per common share attributable to common stockholders          $         (0.00)      $         (0.00)
                                                                       ===============       ===============

          Weighted average shares outstanding - basic and diluted        4,191,801,872         4,768,446,271
                                                                       ===============       ===============
</TABLE>

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


                                       4
<PAGE>

HOMELAND SECURITY CAPITAL CORPORATION
Condensed Consolidated Statements of Cash Flows (unaudited)

<TABLE>
<CAPTION>
                                                                           Three Months     Three Months
                                                                          Ended March 31,  Ended March 31,
                                                                               2006             2005
                                                                          ---------------  ---------------
<S>                                                                         <C>              <C>
Cash flows from operating activities:
   Net loss                                                                 $(1,745,344)     $  (300,781)
   Adjustments to reconcile net loss to net
        cash used in operating activities:
            Settlement of debt                                                       --         (181,901)
            Stock issued for payment of expenses                                226,317               --
            Depreciation and amortization                                         2,300            2,800
            Beneficial conversion - convertible notes                                --          189,279
            Amortization of debt discount                                       193,333
            Amortization of debt offering costs                                  28,888           40,529
            Financing costs of debenture and related derivative                 429,822
            Changes in operating assets and liabilities:
                Accounts Receivable                                          (2,546,890)
                Inventories                                                    (104,195)
                Other assets                                                   (271,340)
                Accounts payable                                                720,168           17,145
                Judgments and defaults payable                                       --         (103,774)
                Accrued interest                                                 32,054         (209,108)
                Other current liabilities                                       216,213            4,230
                                                                            -----------      -----------
                    Net cash used in operating activities                    (2,818,674)        (541,581)

Cash flows from investing activities:
   Purchase of fixed assets                                                    (205,665)              --
   Increase in other assets                                                    (240,000)
   Minority interest in consolidated subsidiaries                               308,921
   Proceeds from liquidation of Yorkville Advisors Management, LLC                   --        2,240,000
                                                                            -----------      -----------
                    Net cash provided by (used in) investing activities        (136,744)       2,240,000

Cash flows from financing activities:
   Proceeds from convertible debentures - related party                       4,000,000               --
   Cost of convertible debentures - related party                              (520,000)              --
   Proceeds from convertible debentures
   Payments on  notes payable - related party                                        --       (1,330,000)
   Acquisition of treasury stock                                                     --         (228,321)
                                                                            -----------      -----------
                    Net cash provided by (used in) financing activities       3,480,000       (1,558,321)

Net increase in cash                                                            524,582          140,098
Cash, beginning of period                                                     1,094,061            1,863
                                                                            -----------      -----------

Cash, end of period                                                         $ 1,618,643      $   141,961
                                                                            ===========      ===========

Cash paid for:
     Interest                                                               $     7,505      $   245,000
                                                                            ===========      ===========
     Taxes                                                                  $        --      $        --
                                                                            ===========      ===========
</TABLE>

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


                                       5
<PAGE>

HOMELAND SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Changes in Stockholders' Equity
For the three months ended March 31, 2006

<TABLE>
<CAPTION>
                                                        Common Stock            Additional                         Total
                                    Preferred   ----------------------------      Paid-In      Accumulated     Stockholders'
                                      Stock         Shares         Amount         Capital        Deficit      (Deficit) Equity
                                    ---------   --------------    ----------    -----------    ------------   ----------------
<S>                                  <C>         <C>              <C>           <C>            <C>               <C>
Balance December 31, 2005            $100,000    4,397,728,539    $4,397,729    $41,822,550    $(45,778,059)     $   542,220

Issuance of preferred stock
   Series G                           100,000                                       710,000                          810,000
   Exchanged for common stock                     (450,000,000)     (450,000)      (360,000)                        (810,000)

Conversion of debentures to common
   stock                                            55,718,665        55,718         21,610                           77,328

Value of vested stock options                                                       136,317                          136,317

Issuance of common stock for fees                   50,000,000        50,000         40,000                           90,000

Net loss (unaudited)                                                                             (1,745,344)      (1,745,344)
                                     --------   --------------    ----------    -----------    ------------      -----------
Balance, March 31, 2006              $200,000    4,053,447,204    $4,053,447    $42,370,477    $(47,523,403)     $  (899,479)
                                     ========   ==============    ==========    ===========    ============      ===========
</TABLE>

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


                                       6
<PAGE>

                      HOMELAND SECURITY CAPITAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                 MARCH 31, 2006

      Overview

      Homeland Security Capital  Corporation  (formerly Celerity Systems,  Inc.)
(the "Company" or "HMSC"),  a Delaware  corporation,  is a  consolidator  in the
fragmented homeland security industry. The company is focused on long-term value
by taking  controlling  interests in and  developing  its  subsidiary  companies
through  superior  operations  and  management.  The Company  intends to acquire
businesses that provide homeland security product and service solutions, growing
organically  and by  acquisitions.  The targets are emerging  companies that are
generating  revenues  from  promising  security  products  and services but face
challenges in scaling their businesses to capitalize on the opportunities in the
homeland  security  industry.  Prior to  changing  its focus,  the Company was a
closed-end  management  investment  company that was initially formed to design,
develop,  integrate,  install,  operate and support  interactive  video services
hardware  and  software  ("interactive  video")  systems.  On June 3, 2003,  the
Company  elected  to  become a  Business  Development  Company  ("BDC")  that is
regulated  under the  Investment  Company Act of 1940,  as amended  ("Investment
Company  Act").  A BDC is an  investment  company  designed  to assist  eligible
portfolio  companies with capital formation and which are required to offer, and
many  times  do  render,   substantial  and  continuing  management  advice.  As
contemplated by this election,  the Company materially changed its business plan
to primarily  seek  investments in developing  companies  that offer  attractive
investment opportunities.  However, at its stockholders' meeting on December 30,
2005,  the  Company's  stockholders  approved the  withdrawal  of the  Company's
election as a BDC and the Company  changed  its focus to the  homeland  security
industry.

1.    Presentation of Unaudited Interim Financial Statements

      On May 20, 2003, the Company formed a subsidiary,  Celerity Systems, Inc.,
a Nevada corporation, ("Celerity NV"). The assets and liabilities related to the
existing  interactive video business were transferred to Celerity NV for 100% of
the common stock. As this subsidiary is not an investment company,  between June
3, 2003 and December 31, 2005, it is not  consolidated  with the parent company.
During fourth  quarter 2003,  management  assessed its investment in Celerity NV
and based upon market conditions recorded a write-down of its investment to nil.
In September 2004,  management  decided to close the interactive video business,
write the assets down to nil and have an orderly liquidation of the business and
the  assets of  Celerity  NV. The  Company  subsequently  entered  into an asset
purchase agreement with Escent System,  Inc.  ("Escent").  Celerity NV thereupon
exchanged all of its assets and business  interests as well as a cash payment of
$15,000  for  working  capital to Escent in return for 25% of the  ownership  of
Escent.  Escent is a start up company without a significant  sales history.  The
future of the  interactive  video business is dependent upon continued  research
and  development  of both  equipment  and  content and Escent may not be able to
secure financing to fund that research and development.  Therefore,  the Company
has considered the fair value of its investment in Escent to be nil. The Company
exercises no business or managerial  controls over Escent's  operations  and the
Company guarantees no debt or advances to Escent.

      During its designation as a BDC the Company's  principal  investment was a
minority ownership interest in Yorkville Advisors Management, LLC ("Yorkville").

      In accordance with Article 6 of Regulation S-X under the Securities Act of
1933, as amended (the "Securities Act") and Securities  Exchange Act of 1934, as
amended (the "Exchange Act"), the Company does not consolidate portfolio company
investments  in which the  Company  has a  controlling  interest.  However,  for
periods  after  December  31,  2005,  the Company  will  consolidate  controlled
companies.

      The  results of  operations  for the three  months  ended  March 31,  2005
reflect  the  Company's  results  as a BDC.  Accounting  principles  used in the
preparation  of the financial  statements  between June 3, 2003 and December 31,
2005 are different than those of prior or subsequent periods and, therefore, the
financial  position and results of  operations of these periods are not directly
comparable.  The primary  differences  in  accounting  principles  relate to the
carrying value of investments.


                                       7
<PAGE>

      At its annual  meeting on December 30,  2005,  the  stockholders  passed a
resolution to withdraw the  Company's  election as a BDC under Section 54 of the
Investment  Company Act. The termination of the Company's BDC status occurred on
January 5, 2006.  Financial  statements  for periods  subsequent to December 31,
2005 will be prepared on the basis used prior to becoming a BDC.

2.    Stock-Based Compensation

      In December  2005,  the Company  issued to directors and an officer of the
Company options to purchase  796,000,000 shares of common stock par value $0.001
per share (the  "Common  Stock") in the future.  In February  2006,  the Company
issued 60,000,000  options to a contractor and 10,000,000 options to an employee
of the Company to purchase shares of Common Stock of the Company in the future.

      Of the options granted in 2005 and 2006,  options to purchase  145,833,333
shares of Common  Stock  vested  during the three month  period  ended March 31,
2006.  The Company  recorded  $136,317 as  compensation  expense  related to the
vesting of these options.

      The fair  value of each  option  grant is  estimated  on the date of grant
using the Black-Scholes option-pricing model with the following assumptions used
for grants in 2005 and 2006; risk-free interest rate of 4.4%, volatility between
426% and 456% and expected lives of ten years.

3.    Investment in Celerity Systems, Inc. (A Nevada corporation)

      Celerity NV had no operations for the three months ended March 31, 2006 or
for the three months ended March 31, 2005.

      Celerity NV developed and manufactured, at third party plants, digital set
top boxes and digital  video  servers for the  interactive  television  and high
speed Internet markets.

      Because  of lack of sales of  systems  and  consequent  lack of  operating
profits,  the Company's directors decided to cease operations and dispose of the
remaining business and related assets.  Accordingly,  the Company entered into a
sales  agreement with Escent whereby the Company  transferred all the assets and
business plus $15,000 for working capital in return for a 25% equity position in
Escent.  Since the net assets of Celerity NV had been written to nil,  there was
no further loss recorded on the  transaction.  Because of the lack of operations
and uncertainty of continued operations,  Celerity NV has not assigned any value
to the investment.

4.    Investment in Sagamore Holdings, Inc.

      In  September  2004,  the  Company  entered  into a  business  development
agreement with Sagamore  Holdings,  Inc.  ("Sagamore') with an effective date of
October 4, 2004. The Company received  7,500,000 shares of Sagamore common stock
as consideration for its agreement to provide future services  regarding capital
formation and management  advise.  The Company has reviewed the valuation of the
Sagamore stock using fair value, and, based on the liquidation preference of the
preferred stockholder,  management has considered the value of the stock as nil.
Also, the Company has rendered no specific  services in 2006 or 2005. There have
been no events or  circumstances  occurring  in the three months ended March 31,
2005 that would change the  valuation.  Accordingly,  the Board of Directors has
continued to include the value of the Sagamore stock in its financial statements
as nil and has not recognized any revenue from the transaction


                                       8
<PAGE>

5.    Investment in Yorkville Advisors Management, LLC

      On  December  1,  2003,  the  Company  purchased  a minority  interest  in
Yorkville,  which is the  investment  manager of a private equity fund that is a
principal  holder  of equity  securities  of the  Company.  The  purchase  price
amounted  to  $5,240,000.  The  acquisition  was  funded  through  the  sale  of
2,000,000,000 shares of Common Stock to the aforementioned  private equity fund,
resulting in net proceeds of $4,000,000  and the balance paid using the proceeds
received  from the  issuance of  convertible  notes  payable.  These shares were
issued  subsequent to December 31, 2003. During the year ended December 31, 2004
and 2003, the Company received  $1,255,000 and $65,000  respectively in dividend
income from this  investment,  which has been recorded as Dividend Income in the
consolidated  statements of  operations.  In 2005, the Company was informed that
Yorkville was in the process of an orderly  liquidation  of its business.  Under
the terms of a Preferential Rights Agreement,  the Company's membership interest
in  Yorkville  has been  converted  into a new class with  certain  preferential
rights and shall receive consideration equal to the original purchase price less
certain  debt  of  approximately  $1,500,000  due to an  affiliated  company  of
Yorkville. The Company received this consideration in full and in cash by May 3,
2005.

6.    Series G Preferred Stock

      On February 6, 2006, the Company entered into an Investment Agreement with
Cornell  Capital  Partners,  LP,  pursuant to which the Company  exchanged  with
Cornell  Capital  Partners  1,000,000  shares of Series G Convertible  Preferred
Stock (the "Series G Preferred  Shares") for 450,000,000 shares of the Company's
Common Stock owned by Cornell Capital Partners. Each share of Series G Preferred
Shares may be  converted,  at Cornell  Capital  Partners'  discretion,  into 450
shares of the  Common  Stock.  The Series G  Preferred  Shares are senior to all
Common  Stock and all series of preferred  stock of the  Company.  Each share of
Series G Preferred Share has a liquidation  preference of $0.10 plus any accrued
and unpaid dividends.  The holders of Series G Preferred Shares are not entitled
to  receive  any  dividends.  The  Company  paid a  $10,000  structuring  fee to
Yorkville in connection with the transaction.

      In connection with the Investment  Agreement,  the Company entered into an
Investor  Registration  Rights  Agreement with the Cornell  Capital  pursuant to
which the Company agreed to file a registration statement covering the resale of
shares of Common Stock  issuable  upon the  conversion of the Series G Preferred
Shares.  The Company also filed a Certificate of  Designation  with the State of
Delaware  amending its  certificate of  incorporation  to include the rights and
terms of the Series G Preferred Shares.

7.    Sale of Convertible Debentures

      On  February 6, 2006,  the  Company  entered  into a  Securities  Purchase
Agreement  with  Cornell  Capital,  which  provided  for the purchase by Cornell
Capital  of  a  Convertible   Debenture  (the  "Debenture")  in  the  amount  of
$4,000,000,  which  debenture is convertible  into Common Stock.  The conversion
price of the  Debenture  shall be equal to the  lesser of (1) $0.01 or (2) a ten
percent discount to the lowest daily volume weighted average price of the Common
Stock for the thirty days preceding  conversion.  Cornell Capital is entitled to
convert the  Debenture at a conversion  price into Common  Stock,  provided that
Cornell  Capital  cannot  convert  into shares of Common  Stock that would cause
Cornell  Capital  to own more than 4.9% of the  issued  and  outstanding  Common
Stock.  The  Debenture has an interest at rate of 5% per annum and the principal
amount will be payable on the third  anniversary  of the  effective  date of the
Debenture.  If the  Common  Stock is trading  below the  conversion  price,  the
Company may redeem the  Debenture  at any time upon the payment of a  redemption
premium equal to twenty percent of the amounts redeemed.

      Pursuant to a Security  Agreement between the Company and Cornell Capital,
the Company's  obligations under the Debenture are secured by a pledge of all of
its assets.  Pursuant to the Securities Purchase  Agreement,  the Company paid a
commitment fee of $400,000 and $20,000 in structuring  fees and diligence  fees,
all to Yorkville.  Accordingly,  the Company is entitled to receive net proceeds
of approximately $3,580,000 upon issuance of the Debenture. The Company has also
issued to Cornell  Capital  50,000,000  shares of Common Stock  pursuant to this
transaction.

      In connection with the Securities Purchase Agreement,  the Company entered
into an Investor  Registration Rights Agreement with Cornell Capital pursuant to
which the Company agreed to file a registration statement covering the resale of
shares of Common Stock issuable upon the conversion of the Debenture.

      In  accordance  with  EITF-00-19  and SFAS 150,  and  because  there is no
explicit limit on the number of shares that are to be delivered upon exercise of
the  conversion  feature,  the  Company is not able to assert  that it will have
sufficient  authorized and unissued shares to settle the conversion option. As a
result, the conversion feature will be accounted for as a derivative  liability,
with the fair value recorded in earnings each period.


                                       9
<PAGE>

8.    Acquisition of Nexus Preferred Shares

      On  February  8, 2006,  the Company  entered  into a Series A  Convertible
Preferred  Stock  Purchase  Agreement  (the  "Purchase  Agreement")  with  Nexus
Technologies  Group, Inc.  ("Nexus").  Pursuant to the Purchase  Agreement,  the
Company purchased 3,400,000 shares of Nexus Series A Convertible Preferred Stock
(the "Nexus  Preferred  Shares") for an aggregate  purchase price of $3,400,000.
The Company also committed to purchase an additional  6,400,000  Nexus Preferred
Shares,  in one or more  transactions  and subject to certain  conditions,  at a
purchase price of $1.00 per share at any time prior to February 8, 2008.

      Each Nexus Preferred Share accrues  dividends  cumulatively at the rate of
eight percent (8%) per annum and is convertible  into one (1) share of the Nexus
common  stock  at any time by the  Company,  subject  to  adjustment  for  stock
dividends,  stock splits,  and similar  events.  Each Nexus  Preferred  Share is
entitled to one vote as if converted into Nexus common stock. The holders of the
outstanding  Nexus  Preferred  Shares,  as a class,  have  the  right to elect a
majority of the board of directors of Nexus.  Each Nexus  Preferred  Share has a
liquidation preference of $1.00 per share plus any accrued and unpaid dividends.

      The following is an unaudited  condensed  statement of operations  for the
three months ended March 31, 2006 showing the combined  results of operations of
the Company and Nexus as though the Company  had  acquired  the Nexus  Preferred
Shares on January 1, 2006:

<TABLE>
<CAPTION>
                                                               Pro Forma
                                HMSC             Nexus         Adjustments       Pro Forma
                             -----------      -----------      -----------      -----------
<S>                          <C>              <C>              <C>              <C>
      Sales                  $        --      $ 1,256,817      $        --      $ 1,256,817

      Net loss               $(1,125,435)     $  (656,315)     $  (212,994)     $(1,994,744)

      Net loss per share            0.00             0.00               --             0.00
</TABLE>

      Since the Company operated during 2005 as a BDC with an entirely different
business  strategy and had no meaningful  operations  for the three months ended
March 31, 2005, we believe that it would not provide a meaningful  comparison to
provide a pro forma  unaudited  condensed  statement of  operations  showing the
combined  results of  operations  of the Company and Nexus as though the Company
had acquired the Nexus Preferred Shares on January 1, 2005.

      Investment in Nexus Technology Group

      On February 8, 2006,  Nexus,  a subsidiary  of the Company,  completed its
acquisition of Corporate Security  Solutions,  Inc., a Pennsylvania  corporation
("CSS")  pursuant to the terms of an  Agreement  and Plan of Merger (the "Merger
Agreement"),  dated  February 8, 2006,  by and among Nexus,  Corporate  Security
Solutions, Inc., CSS Acquisition,  Inc. and certain other persons named therein.
Pursuant  to the  Merger  Agreement,  CSS  Acquisition,  Inc.,  a  wholly  owned
subsidiary of Nexus,  merged with and into CSS (the "Merger") with CSS surviving
the Merger. The stockholders of CSS received an aggregate of 3,675,000 shares of
Nexus common stock in exchange for all of the issued and  outstanding CSS common
stock. Of these shares, 3,000,000 are deemed restricted stock and are subject to
vesting and performance  provisions.  Upon the effectiveness of the Merger,  the
Company gained control of 82.1% of the voting power of Nexus.

10.   Loss Per Share

      Basic and  diluted  loss per share  were  computed  by  dividing  net loss
attributable  to Common Stock by the weighted  average  number of common  shares
outstanding  during each  period.  Potential  common  equivalent  shares are not
included in the  computation  of per share  amounts in the  periods  because the
Company reported a net loss and their effect would be anti-dilutive.


                                       10
<PAGE>

11.   Long-term Debt

      The long-term debt of the Company includes the following items:

<TABLE>
<CAPTION>
                                                               March 31, 2006  December 31, 2005
                                                               --------------  -----------------
<S>                                                               <C>               <C>
                  5% convertible debentures - 2004                $147,500          $222,500
                  5% convertible debentures - 2006                 713,333               -0-
                                                                  --------          --------
                  Long-term debt less current maturities          $860,833          $222,500
                                                                  ========          ========
</TABLE>

      During the three  months  ended  March 31,  2006  $75,000 in face value of
convertible  debentures  plus  accrued  interest  of $2,329 were  presented  for
conversion, accordingly, 55,718,665 shares of Common Stock were issued.

12.   Stock Buyback Program

      In  September  2004,  the Board of  Directors  authorized  the  Company to
establish  a stock  buyback  program  whereby the  Company  would  acquire up to
500,000,000  shares of its Common Stock over a twelve month period from the open
market at  favorable  prices.  There was no  obligation  to acquire any specific
number of shares or purchase at any specific  price.  At December 31, 2004,  the
Company had acquired  226,843,599  shares at a cost of $561,334 and from January
through  March  2005,  the  Company  acquired  87,180,000  shares  at a cost  of
$228,321.  The  acquisitions  have been  accounted  for as treasury  stock.  The
funding was  provided  primarily  through a short term note of  $500,000  from a
related party  through  December  2004. In the three month period  through March
2005,  the  purchases  were funded from  proceeds  from the  liquidation  of its
Yorkville investment. When the buyback program was complete, the Company retired
all shares acquired under the program.

13.   Judgments and Defaults Payable

      In January 2002, the Company  terminated the Equity Line of Credit entered
into on September 14, 2001 due to delays in getting  related  shares  registered
and in order to pursue other types of financing  arrangements.  As a result, the
Company  does not have an  effective  registration  statement  including  common
shares to be issued in connection with certain debentures issued in 2001 and the
first quarter of 2002 under the 1999 Line of Credit Agreement, entered into with
Cornell Capital.  The Company is required to pay liquidated  damages in the form
of increased interest on the convertible debentures as a result of not filing an
effective  registration  statement  for these  debentures at a rate of 2% of the
principle plus interest per month. The liability for liquidated damages has been
accrued at its maximum  amount.  The Company has  remaining  accrued  liquidated
damages of $36,000 at March 31, 2006 and 2005.

      In 2003, Del Rio Enterprises  sued the Company for non-payment of services
rendered.  During 2003 a judgment was rendered against the Company in the amount
of $8,000. This amount has been accrued at March 31, 2006.

14.   Common Stock

      During  the  three  months  ended  March  31,  2006,  the  Company  issued
50,000,000  share of Common Stock valued at $90,000 in partial payment for costs
of issuance on its 5% convertible debenture.


                                       11
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

      Introductory Statements

      Forward-Looking  Statements and  Associated  Risks.  This Report  contains
forward-looking  statements.  Such forward-looking statements include statements
regarding,  among other things, (a) our projected sales and  profitability,  (b)
our growth strategies,  (c) anticipated  trends in our industry,  (d) our future
financing plans, (e) our anticipated needs for working capital,  (f) our lack of
operational experience,  and (g) the benefits related to ownership of our common
stock.  Forward-looking  statements,  which involve assumptions and describe our
future plans, strategies, and expectations, are generally identifiable by use of
the  words  "may,"  "will,"  "should,"   "expect,"   "anticipate,"   "estimate,"
"believe,"  "intend,"  or  "project"  or the  negative  of these  words or other
variations  on these  words or  comparable  terminology.  These  forward-looking
statements are based largely on our company's  expectations and are subject to a
number of risks and  uncertainties,  including those described in "Business Risk
Factors" of our Form 10-K for the year ended  December 31, 2005.  Actual results
could differ  materially  from these  forward-looking  statements as a result of
changes in trends in the  economy  and our  company's  industry,  demand for our
products,   competition,   reductions  in  the  availability  of  financing  and
availability  of raw materials,  and other factors.  In light of these risks and
uncertainties,  there can be no assurance  that the  forward-looking  statements
contained in this Report will in fact occur as projected.

      Overview

      Homeland  Security  Capital  Corporation  (together with any  subsidiaries
shall be referred to as the 'Company,' 'we,' 'us' and 'our') was incorporated in
Delaware on August 12, 1997, and is located in Arlington,  Virginia. The Company
focuses on the acquisition and development of homeland security business.

      The Company's  original business was to develop and manufacture,  at third
party  plants,  digital  set  top  boxes  and  digital  video  servers  for  the
interactive television and high speed Internet markets.

      On June 3, 2003,  the  Company  elected  to become a business  development
company  ("BDC"),  to be  regulated  pursuant  to Section  54 of the  Investment
Company Act of 1940,  as amended  (the  "Investment  Company  Act").  A business
development  company  is an  investment  company  designed  to  assist  eligible
portfolio  companies with capital formation and management  advice.  The Company
then  changed its business  plan to primarily  seek  investments  in  developing
companies.

      On December  30, 2005,  at a special  stockholders  meeting (the  "Special
Meeting"),  the  stockholders  of the Company voted to amend the Articles of the
Company to change the name to 'Homeland Security Capital  Corporation' and voted
to  withdraw  the  Company's  election  as a BDC.  Accordingly,  the Company has
changed its  business  plan to primarily  seek  acquisition  of  companies  that
provide homeland security products and services.

      As part of the Company's  new business  strategy,  the Company  acquired a
majority interest in Nexus  Technologies  Group,  Inc.  ("Nexus") on February 8,
2006 through the purchase of $3.4 million in preferred stock of Nexus.  Nexus is
a mid-Atlantic  security integrator for the corporate and governmental  security
markets. Based in Hawthorne, N.Y., Nexus' subsidiaries began operations in 2001.
Nexus specializes in non-proprietary  integrated security  solutions,  including
access control, alarm, video,  communication,  perimeter protection and bomb and
metal  detection  security  systems.  Where  applicable  in this annual  report,
references to the 'Company,' 'we,' 'us' and 'our' shall include Nexus.

      The  Company is  seeking to build  consolidated  enterprises  through  the
acquisition  and  integration  of multiple  businesses in the homeland  security
industry.  We  will  seek  to  create  long-term  shareholder  value  by  taking
controlling  interests in companies that provide homeland  security products and
services and helping them develop through  superior  operations,  management and
acquisitions.  Our value  creation  strategy is  designed to foster  significant
growth at our platform  companies by providing  leadership and counsel,  capital
support and financial  expertise,  strategic guidance and operating  discipline,
access to best  practices  and industry  knowledge.  We are  targeting  emerging
companies in fragmented sectors of the homeland security industry.  These target
companies are generating  revenues from promising security products and services
but face challenges in scaling their  businesses to capitalize on  opportunities
in the homeland security industry.

      Critical Accounting Policies

      The  preparation  of financial  statements in conformity  with  accounting
principles  generally  accepted in the United States  requires our management to
make  assumptions,  estimates and judgments that affect the amounts  reported in
the financial  statements,  including the notes thereto, and related disclosures
of commitments and  contingencies,  if any. We consider our critical  accounting
policies  to be those  that are  complex  and  those  that  require  significant
judgments  and  estimates  in  the  preparation  of  our  financial  statements,
including  valuation  of  our  investments.   Management  relies  on  historical
experience  and  on  other  assumptions  believed  to be  reasonable  under  the
circumstances in making its judgment and estimates.  Actual results could differ
materially from those estimates.


                                       12
<PAGE>

      Revenue  Recognition - Nexus  recognizes  revenues on its security  system
installation  and  integration  contracts  using the  percentage  of  completion
method.

      Estimates - The  preparation  of financial  statements in conformity  with
accounting  principles  generally  accepted  in the  United  States  of  America
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

      Fair  Value  of  Financial  Instruments  - The  carrying  amount  of items
included  in  working  capital  approximates  fair  value  because  of the short
maturity  of  those  instruments.  The  carrying  value  of the  Company's  debt
approximates  fair value because it bears  interest at rates that are similar to
current borrowing rates for loans of comparable terms,  maturity and credit risk
that are available to the Company.

      Debt  Offering  Costs  -  Debt  offering  costs  are  related  to  private
placements and are being amortized on a straight line basis over the term of the
related debt,  most of which is in the form of  convertible  debentures.  Should
conversion  occur prior to the stated  maturity date the  remaining  unamortized
cost is expensed.

      Investment  Valuation - Investments  in equity  securities are recorded at
fair  value,  represented  as cost,  plus or minus  unrealized  appreciation  or
depreciation,  respectively.  The fair value of  investments  that have no ready
market, are determined in good faith by management, and approved by the Board of
Directors,  based upon assets and revenues of the underlying  investee companies
as well as general market trends for businesses in the same industry. Because of
the inherent uncertainty of valuations,  management's estimates of the values of
the  investments may differ  significantly  from the values that would have been
used had a ready market for the investments existed and the differences could be
material.

      Income  Taxes - The Company  accounts for income taxes using the asset and
liability  method,  whereby  deferred tax assets and  liabilities are determined
based upon the differences  between financial  reporting and tax bases of assets
and  liabilities and are measured using the enacted tax rates and laws that will
be in effect when the differences are expected to reverse. A valuation allowance
related to the deferred tax assets is also  recorded when it is more likely than
not that some or all of the deferred tax asset will not be realized.

      Results of Operations

      Three  Months  Ended March 31, 2006  Compared  With the Three Months Ended
March 31, 2005

      Revenues

      For the three  months  ended  March 31,  2006,  the  Company  had sales of
$688,030 consisting of fees earned by Nexus on security systems installation and
integration contracts. The Company had no sales for the three month period ended
March  31,  2005.  The  increase  in sales is due to the  implementation  of the
Company's new business  strategy of acquiring and  integrating  businesses  that
provide homeland security products and services.

      Cost of goods sold

      For the three  months  ended March 31,  2006,  cost of sales was  $765,071
consisting of materials, labor and other costs incurred by Nexus associated with
security systems installation and integration contracts. The Company had no cost
of sales for the three  months  ended March 31,  2005.  The  increase in cost of
sales is due to the  implementation  of the Company's  new business  strategy of
acquiring and integrating businesses that provide homeland security products and
services.

      General and administrative expenses

      General and  administrative  expenses  for the three month  periods  ended
March 31, 2006 and March 31, 2005 were  $1,056,331  and $200,681,  respectively.
The increase of 81% in general and  administrative  expenses is primarily due to
general  and  administrative  expenses  of  Nexus  for  the  period  ($448,434),
professional  fees and  other  expenses  incurred  in the  acquisition  of Nexus
($159,475),  stock based compensation expense for the period ($136,317), as well
as various  professional  fees,  personnel costs and other expenses  incurred in
connection with the Company's change in business strategy.


                                       13
<PAGE>

      Other income and expense

      The Company had other  expenses of  $611,972  for the three  months  ended
March 31, 2006,  consisting  of  amortization  of debt offering cost of $28,888,
debt discount amortization of $193,333, interest expense of $38,601, and expense
related to  derivative  liability of  $429,822.  These  expenses  were offset by
recording a minority  interest in the loss of the consolidated  Nexus subsidiary
of $68,879 and interest income of $9,793. The Company had other expenses for the
three months ended March 31, 2005 were $100,100,  consisting of  amortization of
debt  offering  costs of  $40,529,  amortization  of the  beneficial  conversion
feature related to various convertible debentures of $189,279,  interest expense
of $58,738 and a gain on settlement of debt of $188,446.

      Net loss

      As a result of the  foregoing,  the  Company  recorded  a net loss for the
three  months  ended March 31, 2006 of  $1,552,011  and a net loss for the three
months ended March 31, 2005 of $300,781.  This represents an increase in the net
loss of 83% compared to the three months ended March 31, 2005.

      Liquidity and Capital Resources

      The primary  source of financing  for the Company  since its inception has
been through the issuance of common and  preferred  stock and debt.  The Company
had cash on hand of $1,618,643 at March 31, 2006 and  $1,094,061 at December 31,
2005. Our primary needs for cash are to fund our ongoing  operations  until such
time as they begin to generate  sufficient  cash to fund  operations and to have
cash  available  to make  additional  acquisitions  of  businesses  that provide
homeland  security  products  and  services.  While  we  believe  that  we  have
sufficient cash on hand to satisfy our current  operating  commitments,  we will
require significant additional funding in order to make additional acquisitions.

      While we currently  do not have any  commitments  in place for  additional
funding,  on August 29, 2005, the Company entered into term sheet agreement with
Cornell Capital Partners to enter into a $50 million standby equity distribution
agreement (the "SEDA Financing").  Based on the SEDA term sheet, Cornell Capital
Partners  will  commit to  purchase  up to $50  million  of Common  Stock of the
Company  over the course of 24 months  after an  effective  registration  of the
Company's  common  stock,  par value $.001 per share (the "Common  Stock").  The
Company  will have the right,  but not the  obligation,  to sell Common Stock to
Cornell Capital Partners,  in advances up to $1,000,000 each. Upon closing,  the
Company will issue to Cornell restricted shares and/or warrants of the Company's
Common Stock in an amount equal to 2% of the commitment  amount based on a share
price of $0.001  per share.  The number of  restricted  shares  issued  shall be
limited  to less than 4.9% of the total  outstanding  shares of the  Company  at
closing. Upon each advance, Cornell Capital Partners shall receive directly from
escrow cash compensation equal to 5% of the gross proceeds of such advance.  The
Company shall sell to Cornell Capital the Common Stock at a purchase price equal
to 98% of the market price,  which is defined as the lowest closing bid price of
the Common  Stock  during the five  consecutive  trading  days after the date an
advance  notice is given to Cornell  Capital  Partners.  As of May 18, 2006, the
Company has not received any  definitive  documents in connection  with the SEDA
Financing.  The final terms and  conditions of the SEDA Financing may be subject
to  modification  as mutually  agreed  upon by the  Company and Cornell  Capital
Partners at the time of entering into definitive agreements.

      During the three  months  ended March 31,  2006,  we had a net increase in
cash of $524,582. Our source and uses of funds were as follows:

      Cash Flows from Operating Activities

      We used net cash of  $2,818,674  in our  operating  activities  during the
three  month  period  ended  March  31,  2006.  Our net cash  used in  operating
activities  resulted  primarily  from the Company's net loss of $1,745,344 and a
use of $1,953,990 from net changes in operating assets and  liabilities,  offset
by a gain in cash of $226,317 from stock issued as compensation  and for payment
of expenses,  $2,300 in depreciation and amortization,  $193,333 in amortization
of debt discount,  $28,888 in amortization of debt offering costs,  and $429,822
related to financing costs and derivative liability.


                                       14
<PAGE>

      Cash Flows from Investing Activities

      We used net cash of $136,744 in our investing  activities during the three
month period ended March 31, 2006, consisting primarily $205,665 in purchases of
fixed assets and an increase of $240,000 in other assets,  offset by an increase
of $308,921 in minority interest in consolidated subsidiaries.

      Cash Flows from Financing Activities

      We provided cash of $3,480,000 from financing  activities during the three
month period ended March 31, 2006,  consisting  of  $4,000,000  in proceeds from
convertible  debentures  issued  less  $520,000  in  costs  associated  with the
issuance of those debentures.

      As of March 31, 2006, we had negative net working capital of $688,508.

      ITEM 3. CONTROLS AND PROCEDURES

      (a) Evaluation of Disclosure Controls and Procedures:

      As of the end of the period  covered by this Report,  the Company  carried
out an  evaluation,  under the  supervision  and with the  participation  of the
Company's Principal Executive Officer/Principal Accounting Officer (which is one
person),  of the  effectiveness  of the design and  operation  of the  Company's
disclosure  controls  and  procedures.  The  Company's  disclosure  controls and
procedures are designed to produce a reasonable  level of assurance of achieving
the Company's  disclosure control objectives.  The Company's Principal Executive
Officer/Principal Accounting Officer has concluded that the Company's disclosure
controls and  procedures  were,  in fact,  adequate and effective to ensure that
material information relating to the Company that is required to be disclosed by
the Company in reports that it files or submits  under the  Securities  Exchange
Act of 1934, as amended, is recorded, processed,  summarized and reported within
the  time  periods  specified  in  rules of the U. S.  Securities  and  Exchange
Commission (the  "Commission") and accumulated and communicated to the Company's
management,  including  its  Principal  Executive  Officer/Principal  Accounting
Officer, to allow timely decisions regarding required disclosure.

      (b) Changes In Internal Controls Over Financial Reporting

      In  connection  with the  evaluation of the  Company's  internal  controls
during the Company's  last fiscal  quarter,  the Company's  Principal  Executive
Officer/Principal Accounting Officer has determined that there are no changes to
the Company's  internal  controls over  financial  reporting that has materially
affected,  or is reasonably likely to materially  effect, the Company's internal
controls over financial reporting.


                                       15
<PAGE>

                                     PART II

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

      The Company  entered into a  Securities  Purchase  Agreement  with Cornell
Capital Partners,  dated as of February 6, 2006, which provided for the purchase
by Cornell Capital Partners of a Convertible  Debenture (the "Debenture") in the
amount of  $4,000,000,  which  debenture is convertible  into Common Stock.  The
conversion  price of the Debenture  shall be equal to the lesser of (1) $0.01 or
(2) a ten percent  discount to the lowest daily volume weighted average price of
the Common  Stock for the thirty  days  preceding  conversion.  Cornell  Capital
Partners  will be entitled to convert the  Debenture at a conversion  price into
Common Stock,  provided that Cornell Capital Partners cannot convert into shares
of Common  Stock that would cause  Cornell  Capital to own more than 4.9% of the
issued and outstanding  Common Stock. The Debenture will bear interest at 5% per
annum and the principal  amount will be payable on the third  anniversary of the
effective  date of the  Debenture.  If the  Common  Stock is  trading  below the
conversion  price,  the  Company may redeem the  Debenture  at any time upon the
payment of a redemption premium equal to twenty percent of the amounts redeemed.
The Company also issued to Cornell Capital Partners  50,000,000 shares of Common
Stock pursuant to their transaction.

      On February 6, 2006, the Company entered into an Investment Agreement with
Cornell Capital  Partners,  pursuant to which the Company exchanged with Cornell
Capital Partners  1,000,000 shares of Series G Convertible  Preferred Stock (the
"Series G Preferred  Shares") for  450,000,000  shares of the  Company's  Common
Stock owned by Cornell Capital Partners. Each share of Series G Preferred Shares
may be converted,  at Cornell Capital Partners'  discretion,  into 450 shares of
the Common Stock.  The Series G Preferred  Shares are senior to all Common Stock
and all  series  of  preferred  stock of the  Company.  Each  share of  Series G
Preferred  Share has a  liquidation  preference  of $0.10 plus any  accrued  and
unpaid  dividends.  The holders of Series G Preferred Shares are not entitled to
receive any dividends.  The Company paid a $10,000  structuring fee to Yorkville
Advisors Management, LLC in connection with the transaction.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

      (a) The following exhibits are filed as part of this filing:

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Exhibit No    Description                                                Location
-----------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                                        <C>
3.1           Certificate of Amendment to Certificate of                 Incorporated by reference as Exhibit 3.1 to Form
              Incorporation                                              8-K filed with the Commission on February 6, 2006

3.2           Certificate of Designation for the Series G                Incorporated by reference as Exhibit 3.1 to Form
              Convertible Preferred Stock                                8-K filed with the Commission on February 14, 2006

4.1           Form of Convertible Debenture due February 2009            Incorporated by reference as Exhibit 4.1 to Form
                                                                         8-K filed with the Commission on February 14, 06
</TABLE>


                                       16
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
Exhibit No    Description                                                Location
-----------------------------------------------------------------------------------------------------------------------------------
<S>           <C>                                                        <C>
10.1          Securities  Purchase  Agreement  dated  February 6,        Incorporated by reference as Exhibit 10.1 to Form
              2006,  by and  between  Homeland  Security  Capital        8-K filed with the Commission on February 14, 2006
              Corporation and Cornell Capital Partners LP

10.2          Investment Agreement dated February 6, 2006, by            Incorporated by reference as Exhibit 10.2 to Form
              and between Homeland Security Capital Corporation          8-K filed with the Commission on February 14, 2006
              and Cornell Capital Partners LP

10.3          Investor   Registration   Rights   Agreement  dated        Incorporated by reference as Exhibit 10.3 to Form
              February 6, 2006, by and between Homeland  Security        8-K filed with the Commission on February 14, 2006
              Capital Corporation and Cornell Capital Partners LP

10.4          Investor Registration Rights Agreement dated               Incorporated by reference as Exhibit 10.4 to Form
              February 14, 2006, by and between Homeland                 8-K filed with the Commission on February 14, 2006
              Security Capital Corporation and Cornell Capital
              Partners LP

10.5          Security  Agreement  dated February 6, 2006, by and        Incorporated by reference as Exhibit 10.5 to Form
              between Homeland  Security Capital  Corporation and        8-K filed with the Commission on February 14, 2006
              Cornell Capital Partners, LP.

10.6          Agreement and Plan of Merger, dated February 14,           Incorporated by reference as Exhibit 10.1 to Form
              2006, by and among Nexus Technologies Group, Inc.,         8-K filed with the Commission on February 14, 2006
              Corporate Security Solutions, Inc., CSS
              Acquisitions, Inc. and certain other persons named
              therein.

10.7          Series A Convertible Preferred Stock Purchase              Incorporated by reference as Exhibit 10.2 to Form
              Agreement, dated February 14, 2006, by and between         8-K filed with the Commission on February 14, 2006
              Homeland  Security  Capital  Corporation  and Nexus
              Technologies Group, Inc.

10.8          2005 Stock Option Plan                                     Provided herewith

31.1          Certification by Chief Executive Officer and               Provided herewith
              Principal Accounting Officer pursuant to 15 U.S.C.
              Section 7241, as adopted pursuant to Section 302
              of the Sarbanes-Oxley Act of 2002

32.1          Certification by Chief Executive Officer and               Provided herewith
              Principal Accounting Officer pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906
              of the Sarbanes-Oxley Act of 2002
</TABLE>

      (b) Reports of Form 8-K:

      On  January  5,  2006,  the  Company  filed a  Current  Report on Form 8-K
reporting  the  results  of the  Special  Meeting  of its  stockholders  held on
December 30, 2005, whereby,  among other actions,  the stockholders (i) approved
amendments to the Company's  Certificate of  Incorporation to change the name of
the Company to  'Homeland  Security  Capital  Corporation';  and to increase the
number of authorized shares of Common Stock of the Company from 5,000,000,000 to
20,000,000,000.

      On January  6, 2006,  the  Company  filed a Current  Report on Form 8-K to
correct a typographical mistake in its Form 8-K filed on January 5, 2006.

      On February 6, 2006,  the  Company  filed a Current  Report on Form 8-K to
disclose  the  filing  of its  amended  Certificate  of  Incorporation  and  the
Company's new ticker symbol.


                                       17
<PAGE>

      On February 14, 2006,  the Company  filed a Current  Report on Form 8-K to
disclose the entry into an Investment  Agreement,  dated February 6, 2006,  with
Cornell Capital Partners, and related ancillary documents, pursuant to which the
Company  exchanged with Cornell Capital  1,000,000  shares of Series G Preferred
Shares for  450,000,000  shares of the  Company's  Common Stock owned by Cornell
Capital.  The Form 8-K also  disclosed  the  entry  into a  Securities  Purchase
Agreement,  dated  February 6, 2006,  with  Cornell  Capital  Partners,  whereby
Cornell  Capital  Partners  purchased a Debenture  in the amount of  $4,000,000,
which debenture is convertible into Common Stock.

      On February 14, 2006,  the Company  filed a Current  Report on Form 8-K to
disclose  the  entry  into a  Series  A  Convertible  Preferred  Stock  Purchase
Agreement (the "Purchase  Agreement") with Nexus, pursuant to which, the Company
purchased  3,400,000  shares of Nexus Series A Convertible  Preferred Stock (the
"Preferred   Shares")  for  an  aggregate  purchase  price  of  $3,400,000  (the
"Offering").  The Company  also  committed to purchase an  additional  6,400,000
Preferred Shares, in one or more transactions,  at a purchase price of $1.00 per
share at any time prior to February  14,  2008,  subject to certain  conditions.
Additionally, on February 14, 2006, Nexus completed its acquisition of Corporate
Security  Solutions,  Inc., a Pennsylvania  corporation  ("CSS") pursuant to the
terms of an Agreement and Plan of Merger,  dated February 14, 2006, by and among
Nexus,  Corporate Security  Solutions,  Inc., CSS Acquisition,  Inc. and certain
other persons named therein.  Immediately following the Merger and the Offering,
the Company will control 82.1% of the voting power of Nexus.

      On March 15,  2006,  the  Company  filed a  Current  Report on Form 8-K to
disclose the entry into two Letters of Intent. On March 8, 2006, the Company and
SecurityInc.,   a   single-source   manufacturer   of  active  radio   frequency
identification  (RFID) enabled security  solutions for commercial and government
sectors,  entered into a non-binding letter of intent for a business combination
between a  subsidiary  of the Company  and  SecurityInc.  On March 9, 2006,  the
Company and Viscom  Systems,  Inc., a security  integrator  based in  Cambridge,
Massachusetts,  entered  into a  non-binding  letter  of intent  for a  business
combination between a subsidiary of the Company and Viscom Sytems, Inc.


                                       18
<PAGE>

                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the  Registrant  has duly  caused  this Report to be signed in its behalf by the
undersigned, thereunto duly authorized.

HOMELAND SECURITY CAPITAL CORPORATION


/s/ C. Thomas McMillen
------------------------
C. Thomas McMillen               President, Chief Executive         May 22, 2006
                                 Officer and Interim Chief
                                 Financial Officer


                                       19