**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, 2007




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




For
      the
      transition period from _______ to _______.




*Commission
      file number*


814-00631




**HOMELAND
      SECURITY CAPITAL CORPORATION**


(Name
      of
      small business issuer in its charter)





Delaware
            
            59-2050585(State
                or Other Jurisdiction of Incorporation
            
            (I.R.S.
                Employer Identification No.)or
                Organization)4100
                N. Fairfax Drive, #1150Arlington,
                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 o No x




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




Yes
o
      No x




**APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY**


**PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS**




Check
      whether the registrant filed all documents and reports required to be filed
      by
      Sections 12, 13 or 15(d) of the Exchange Act subsequent to the distribution
      of
      securities under a plan confirmed by a court. o Yes o
      No




**APPLICABLE
      ONLY TO C****ORPORATE ISSUERS:**




Indicate
      the number of shares outstanding of each of the issuer's classes of common
      stock, as of the latest practicable date:




There
      were 4,175,525,035 par value $.001 per share, shares of common stock outstanding
      as of May 14, 2007.




Transitional
      Small Business Disclosure Format: Yes o Nox





**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,
      2007 and for the three month periods ended March 31, 2007 and 2006, 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, these interim unaudited financial statements 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, 2007, are not necessarily indicative of the results that may
      be
      expected for the year ending December 31, 2007. The condensed consolidated
      financial statements should be read in conjunction with the financial statements
      and notes thereto included in the Form 10-KSB/A of the Company as of and for
      the
      year ended December 31, 2006. Certain March 31, 2006 balances have been
      reclassified to conform to the March 31, 2007 financial statement
      presentation.





2




HOMELAND
                    SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Balance Sheet (Unaudited)
  Assets
              
              
              March
                  31, 2007Cash
              
              $
              267,709Accounts
                  receivable - net
              
              
              4,861,549Inventories
              
              
              719,010Cost
                  in excess of billings on uncompleted contracts
              
              
              124,110Assets
                  held for sale
              
              
              409,467Other
                  current assets
              
              
              153,027Total
                  current assets
              
              
              6,534,872Fixed
                  assets, net
              
              
              376,050Deferred
                  financing costs - net
              
              
              776,841Goodwill
              
              
              976,590Total
                  assets
              
              $
              8,664,353Liabilities
                  and Stockholders' Equity (Deficit)Current
                  liabilitiesAccounts
                  payable
              
              $
              3,242,356Derivative
                  liability
              
              
              6,892,286Current
                  portion of long term debt
              
              
              340,028Accrued
                  interest and other liabilities
              
              
              356,444Billings
                  in excess of costs on uncompleted contracts
              
              
              451,522Deferred
                  revenue
              
              
              114,537Total
                  current liabilities
              
              
              11,397,173Long
                  term debtConvertible
                  debentures - related party, net of $3,887,745 discount
              
              
              4,112,255Long
                  term debt
              
              
              552,519Total
                  long term debt
              
              
              4,664,774Total
                  liabilities
              
              
              16,061,947Stockholders'
                  Equity (Deficit)Preferred
                  stock, $0.001 par value, 3,000,000 shares authorized,2,000,000
                  shares issued and outstandingPreferred
                  stock Series F
              
              
              100,000Preferred
                  stock Series G
              
              
              100,000Common
                  stock, $0.001 par value, 20,000,000,000 shares authorized,4,175,525,035
                  issued and outstanding
              
              
              4,175,525Additional
                  paid-in capital
              
              
              42,815,920Accumulated
                  deficit
              
              
              (54,589,039
              )Total
                  stockholders' equity (deficit)
              
              
              (7,397,594
              )Total
                  liabilities and stockholders' equity (deficit)
              
              $
              8,664,353The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.




3




HOMELAND
                    SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Statements of Operations (Unaudited)
  Three
                  Months Ended March 31, 2007
              
              
              Three
                  Months Ended March 31, 2006 RestatedSales
              
              $
              3,832,688
              
              $
              688,030Cost
                  of salesMaterials
              
              
              2,099,653
              
              
              380,246Labor
              
              
              264,893
              
              
              261,098Other
              
              
              76,292
              
              
              123,727Total
                  cost of sales
              
              
              2,440,838
              
              
              765,071Gross
                  profit (deficit) on sales
              
              
              1,391,850
              
              
              (77,041
              )Operating
                  expensesMarketing
              
              
              178,295
              
              
              4,587Personnel
              
              
              1,388,952
              
              
              630,724Insurance
                  and facility costs
              
              
              205,717
              
              
              12,081Travel
                  and transportation
              
              
              145,628
              
              
              34,905Other
                  operating costs
              
              
              79,125
              
              
              -Depreciation
                  and amortization
              
              
              47,944
              
              
              2,300Professional
                  services
              
              
              246,185
              
              
              299,267Administrative
                  costs
              
              
              89,867
              
              
              72,467Total
                  operating expenses
              
              
              2,381,713
              
              
              1,056,331Operating
                  loss
              
              
              (989,863
              )
              
              (1,133,372
              )Other
                  income (expense)Interest
                  expense
              
              
              (115,998
              )
              
              (38,601
              )Amortization
                  of debt discounts
              
              
              (469,193
              )
              
              (193,333
              )Amortization
                  of debt offering costs
              
              
              (90,821
              )
              
              (28,888
              )Adjustment
                  of fair value of derivative liability
              
              
              (708,075
              )
              
              (429,822
              )Settlement
                  of debt
              
              
              26,261
              
              
              -Other
                  income (expense)
              
              
              26,466
              
              
              9,793Total
                  other income (expense)
              
              
              (1,331,360
              )
              
              (680,851
              )Net
                  loss attributable to common stockholders
              
              $
              (2,321,223
              )
              $
              (1,814,223
              )Loss
                  per common share, basic and dilutedNet
                  loss per common share attributableto
                  common stockholders
              
              $
              (0.00
              )
              $
              (0.00
              )Weighted
                  average shares outstanding -basic
                  and diluted
              
              
              4,175,525,035
              
              
              4,191,801,872The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.






4




HOMELAND
                  SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Statements of Cash Flows (Unaudited)
  Three
                  Months Ended March 31, 2007
              
              
              Three
                  Months Ended March 31, 2006 RestatedCash
                  flows from operating activities:Net
                  loss
              
              $
              (2,321,223
              )
              $
              (1,814,223
              )Adjustments
                  to reconcile net loss to netcash
                  used in operating activities:Settlement
                  of debt
              
              
              (26,261
              )
              
              -Stock
                  issued for payment of expenses
              
              
              95,214
              
              
              226,317Depreciation
                  and amortization
              
              
              47,944
              
              
              2,300Amortization
                  of debt discount
              
              
              469,193
              
              
              193,333Amortization
                  of debt offering costs
              
              
              90,821
              
              
              28,888Valuation
                  losses for changes in derivative liability
              
              
              708,075
              
              
              429,822Changes
                  in operating assets and liabilities:Accounts
                  Receivable
              
              
              (540,295
              )
              
              (2,546,890
              )Inventories
              
              
              228,844
              
              
              (104,195
              )Costs
                  in excess of billings on uncompleted contracts
              
              
              141,862
              
              
              -Other
                  assets
              
              
              (38,845
              )
              
              (271,340
              )Accounts
                  payable
              
              
              348,468
              
              
              968,435Billings
                  in excess of costs on uncompleted contracts
              
              
              (49,559
              )
              
              -Deferred
                  revenue
              
              
              (50,000
              )
              
              -Net
                  cash used in operating activities
              
              
              (895,762
              )
              
              (2,887,553
              )Cash
                  flows from investing activities:Purchase
                  of fixed assets
              
              
              (164,980
              )
              
              (205,665
              )Increase
                  in other assets
              
              
              -
              
              
              (240,000
              )Minority
                  interest in consolidated subsidiaries
              
              
              -
              
              
              377,800Net
                  cash used in investing activities
              
              
              (164,980
              )
              
              (67,865
              )Cash
                  flows from financing activities:Proceeds
                  from convertible debentures - related party
              
              
              -
              
              
              4,000,000Cost
                  of convertible debentures - related party
              
              
              -
              
              
              (520,000
              )Proceeds
                  on notes payable
              
              
              114,268
              
              
              -Net
                  cash provided by financing activities
              
              
              114,268
              
              
              3,480,000Net
                  increase (decrease) in cash
              
              
              (946,474
              )
              
              524,582Cash,
                  beginning of period
              
              
              1,214,183
              
              
              1,094,061Cash,
                  end of period
              
              $
              267,709
              
              $
              1,618,643Cash
                  paid for:Interest
              
              $
              -
              
              $
              115,674Taxes
              
              $
              -
              
              $
              -The
                  accompanying notes are an integral part of these condensed consolidated
                  financial statements.






5




HOMELAND
                  SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Statements of Changes in Stockholders' Equity (Deficit) (Unaudited)For
                  the three months ended March 31, 2007
 
 TotalAdditional
              
              
              
              
              
              Stockholders'Preferred
              
              
              Common
                  Stock
              
              
              Paid-In
              
              
              Accumulated
              
              
              (Deficit)Stock
              
              
              Shares
              
              
              Amount
              
              
              Capital
              
              
              Deficit
              
              
              EquityBalance,
                  December 31, 2006
              
              
              200,000
              
              
              4,175,525,035
              
              
              4,175,525
              
              
              42,720,706
              
              
              (52,267,816
              )
              
              (5,171,585
              )Value
                  of vested stock options
              
              
              
              
              
              
              
              
              
              
              
              95,214
              
              
              
              
              
              95,214Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (2,321,223
              )
              
              (2,321,223
              )Balance,
                  March 31, 2007
              
              $
              200,000
              
              
              4,175,525,035
              
              $
              4,175,525
              
              $
              42,815,920
              
              $
              (54,589,039
              )
              $
              (7,397,594
              )




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





6


**HOMELAND
      SECURITY CAPITAL CORPORATION**




**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


(UNAUDITED)




MARCH
      31,
      2007




**Overview**




Homeland
      Security Capital Corporation (the "Company" or "HSCC"), 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
      is
      involved in the acquisition and management of businesses that provide homeland
      security product and service solutions and will grow organically and through
      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. However, at its stockholders' meeting on December 30, 2005,
      the Company approved the withdrawal of the Company's election as a business
      development company and the Company changed its focus to the homeland security
      industry.





**1.
      Presentation of Unaudited Interim Financial Statements**





The
      accompanying interim condensed financial statements are unaudited, but in the
      opinion of management of the Company, contain all adjustments, which include
      normal recurring adjustments, necessary to present fairly the financial position
      at March 31 2007, the results of operations for the three months ended March
      31,
      2007 and 2006, and cash flows for the three months ended March 31, 2007 and
      2006.





The
      Company was incorporated in 1997. From its inception until June 2003, the
      Company was engaged the manufacture of set top boxes and digital video servers
      for interactive television and high speed internet networks. In June 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. On December 30, 2005 the stockholders of the Company voted to amend
      the
      Certificate of Incorporation of the Company to change the name to Homeland
      Security Capital Corporation and to withdraw the Company’s election as a BDC.
      Accordingly, the Company changed its business plan to primarily seek acquisition
      of and joint ventures with companies that provide homeland security products
      and
      services.




On
      February 7, 2006, the Company organized Nexus Technologies Group, Inc. (“Nexus”)
      and purchased $3,400,000 of Nexus’ convertible preferred stock. Simultaneously
      Nexus acquired 100% of the common stock of Corporate Security Solutions, a
      security integration firm, with a strong presence in the Mid-Atlantic region
      with a focus on the New York City market. At March 31, 2007, the Company owned
      approximately 93% of the outstanding capital stock of Nexus.




On
      August
      21, 2006, the Company organized Security Holding Corp. (“SHC”) and purchased
      $3,000,000 of SHC’s convertible preferred stock. Simultaneously SHC acquired
      100% of the outstanding stock of Security Holdings Enterprises, Inc. (“SHEI”).
      SHEI owned 100% of the outstanding equity of three subsidiaries. SHEI merged
      with SHC, with SHC remaining as the surviving corporate entity. In August 2006
      SHC acquired the assets of Compass Technologies, Inc for $500,000 in cash.
      SHC,
      through its subsidiaries is involved in RFID technology, enterprise security
      software systems, access control devices and secure internet portals. At March
      31, 2007 the Company owned approximately 62% of the outstanding capital stock
      of
      SHC.




On
      September 15, 2006, the
      Company formed Polimatrix (“PMX”) and on September 18, 2006 entered into a U.S.-based joint
      venture with Polimaster, Inc., a company involved in the field of radiological
      detection and isotope identification. At March 31, 2007, the Company owned
      51%
      of PMX.




The
      Company, in each case, owns a majority of the outstanding capital stock of
      its
      subsidiaries, controls each of the subsidiary boards of directors and provides
      an extensive advisory services to the subsidiaries. Accordingly, the Company
      believes it exercises sufficient control over the operations and financial
      results of each company and consolidates the results of operations, eliminating
      minority interests when such minority interests have a basis in the consolidated
      entity.





7


**2.
      Stock-Based Compensation**





In
      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. In July 2006,
      the
      Company issued 85,000,000 options to two employees to purchase shares of Common
      Stock of the Company in the future. Of these options, 10,000,000 were forfeited.
      In December 2006, the Company issued 25,000,000 options to an employee to
      purchase shares in future years.





Of
      the
      options granted in 2005 and 2006, options to purchase 37,685,666 shares of
      Common Stock vested during the three month period ended March 31, 2007 and
      the
      Company recorded $95,214 as compensation expense related to the vesting of
      these
      options. During the three month period ended March 31, 2006, options to purchase
      145,833,333 shares of Common Stock vested and the Company recorded $136,317
      as
      compensation expense related to the vesting of these options.





The
      following table reflects options outstanding at the beginning of 2005, 2006
      and
      2007; options granted during 2005, 2006 and January 1, 2007 through March 31,
      2007; options exercised during 2005, 2006 and January 1, 2007 through March
      31,
      2007; options forfeited during 2005, 2006 and January 1, 2007 through March
      31,
      2007; options outstanding at December 31, 2005, December 31, 2006 and March
      31,
      2007; and options exercisable at December 31, 2005, December 31, 2006 and March
      31, 2007, along with their weighted average exercise price:





March
                2007
            
            December
                2006
            
            December
                2005Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                at beginning ofPeriod
            
            
            966,000,000
            
            
            0.00098
            
            
            796,000,000
            
            $
            0.00096
            
            
            -
            
            $
            -Granted
            
            
            -
            
            
            -
            
            
            180,000,000
            
            
            0.00161
            
            
            796,000,000
            
            
            0.00096Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            -
            
            
            -
            
            
            (10,000,000
            )
            
            0.00170
            
            
            -
            
            
            -Outstanding
                at end ofPeriod
            
            
            966,000,000
            
            
            0.00098
            
            
            966,000,000
            
            
            0.00098
            
            
            796,000,000
            
            
            .0.00096Options
                exercisable at ofPeriod
            
            
            778,745,667
            
            
            0.00097
            
            
            741,000,000
            
            
            0.00095
            
            
            256,000,000
            
            
            0.00096




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
      180% and 456% and expected lives of ten years.





Not
      included in the table above, but included in compensation expense of our
      subsidiaries are options issued to purchase 735,000 shares of the subsidiaries’
common stock in the future. Compensation expense for these options is calculated
      by comparing our subsidiaries to comparable publicly traded companies in their
      industry for stock volatility purposes and using the Black-Scholes
      option-pricing model.




**3.
      Business Segments**





The
      Company analyzes its assets, liabilities, cash flows and results of operations
      by operating unit or subsidiary. In the case of our platform companies, which
      are our first level subsidiaries, the Company relies on local management to
      analyze each of its subsidiaries and report to us based on a consolidated
      entity. As a result, the Company, in its application of SFAS 131, will make
      its
      financial decisions will be made based on the overall performance of a first
      level subsidiary. Additionally, our current subsidiaries derive their revenues
      and cash flow from different activities, services in the case of Nexus and
      products in the case of SHC and PMX.





8


The
      table
      below shows selected data for each of the Company’s operating
      units.




Homeland
                Security Capital Corporation Consolidated
            
            Holding
                Company (Homeland Security Capital Corporation)
            
            Services
                Company (Nexus Technology Group)
            
            Products
                Company (Security Holding Corp.)
            
            ConsolidatedRevenues
            
            
            -
            
            
            2,385,388
            
            
            1,447,300
            
            
            3,832,688Gross
                margin
            
            
            -
            
            
            717,527
            
            
            674,323
            
            
            1,391,850Operating
                expenses
            
            
            581,210
            
            
            566,095
            
            
            1,186,464
            
            
            2,333,769Depreciation
                expense
            
            
            2,300
            
            
            15,211
            
            
            30,433
            
            
            47,944Other
                expenses - net
            
            
            1,336,159
            
            
            5,943
            
            
            (10,742
            )
            
            1,331,360Net
                income (loss)
            
            
            (1,919,669
            )
            
            130,278
            
            
            (531,832
            )
            
            (2,321,223
            )Current
                assets
            
            
            236,828
            
            
            4,457,733
            
            
            1,840,311
            
            
            6,534,872Total
                assets
            
            
            1,032,451
            
            
            4,747,587
            
            
            2,884,315
            
            
            8,664,353





**4.
      Going concern**





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the settlement of liabilities
      and commitments in the normal course of business. As reflected in the
      accompanying financial statements, the company has a net loss of $2,321,223,
      a
      working capital deficiency of $4,853,301 and a stockholders' deficiency of
      $7,397,594. These factors raise substantial doubt about our ability to continue
      as a going concern. The ability of the Company to continue as a going concern
      is
      dependent on the Company's ability to raise additional funds and implement
      its
      business plan. There can be no assurance that we will be able to raise
      additional funds on terms acceptable to the Company or at all. The financial
      statements do not include any adjustments that might be necessary if the Company
      is unable to continue as a going concern.





**5.
      Subsequent Events**




On
      April
      2, 2007, the Company’s and SHC’s boards of directors approved the sale
      Cyberlynk, Inc. (a subsidiary of SHC) to Bridgestone Capital, LLC, a company
      owned by Joel Konicek, the Chief Executive Officer of SHC, and Jim Peroutka,
      the
      Chief Technology Officer of SHC. Mr. Konicek and Mr. Peroutka were two of the
      four shareholders who originally sold Cyberlynk, Inc to SHEI and subsequently
      to
      SHC through its merger with SHEI. The boards of directors of Company and SHC
      (exclusive of Mr. Konicek and Mr. Peroutka) believed that the sale was in the
      best interest of the Company and SHC as Cyberlynk’s business was not consistent
      with SHC’s or the Company’s overall homeland security strategy.





In
      exchange for all of the capital stock of Cyberlynk, SHC received $350,000 in
      cash and 550,000 shares of SHC common stock were transferred back to SHC. The
      value of the purchase price received for Cyberlynk was deemed by boards of
      directors of the Company and SHC to be approximately equal to the original
      valuation of Cyberlynk, Inc. by SHC in August 2006 at the time of its
      acquisition.





The
      following table reflects Cyberlynk’s first quarter results exclusive of its
      consolidation with other SHC operating companies:





**January
                1, 2007 through March 31, 2007**Revenue
            
            $
            327,380Gross
                Margin
            
            
            236,217Expenses
            
            
            160,013Net
                Income
            
            
            76,204Net
                Assets
            
            
            409,467Net
                Liabilities
            
            
            363,629




On
      April
      19, 2007, the Company borrowed, through a bridge financing, $600,000 from
      Cornell. The loan is evidenced by a note, is due in 60 days, bears interest
      at
      24% per year and is guaranteed by C. Thomas McMillen, the Company’s Chief
      Executive Officer. On the same date, Nexus borrowed $600,000 from the Company
      on
      the same terms as the Company’s bridge loan from Cornell; however the Company
      extended the repayment terms to 120 days and has a security in all the accounts
      receivable with the exception of $400,000 in accounts receivable from a
      specified job.





9


On
      April
      19, 2007, Nexus borrowed $400,000 from Bridgestone Capital, LLC (“Bridgestone”)
      a company owned by Joel Konicek, the Chief Executive Officer of SHC, and Jim
      Peroutka, the Chief Technology Officer of SHC. Bridgestone’s note is for 120
      days, bears interest at 24% per year, has a security interest in certain
      accounts receivable and indicated that the funds could only be used for product
      purchases required for specified jobs. The note is required to be repaid as
      accounts receivable from the specified job are collected. The Company guaranteed
      the note.





**6.****Restatement******





Subsequent
      to release of its audited financial statements for the year ended December
      31,
      2006, the Company determined that the allocation of accumulated deficit and
      operational losses to minority interest was inappropriate as a result of the
      minority interest not having any economic basis in the operational entities.
      Previously, the Company had allocated a portion of the accumulated deficit
      and
      the yearly losses from operations to minority interest. The Company has
      determined that the allocation of the percentage ownership of minority interests
      in its subsidiaries will be added to goodwill and the Company will report 100%
      of the losses from operations. Accordingly the Company has revised its financial
      statements for the three months ended March 31, 2006 to reflect a more
      appropriate comparison.





March
                31, 2006As
                Originally
              Reported
            
            As
                RestatedStatements
                of Operations and Comprehensive LossMinority
                interest in loss of consolidated subsidiaries
            
            $
            68,879
            
            $
            -Net
                loss attributable to common shareholders
            
            $
            (1,745,344
            )
            $
            (1,814,223
            )Basic
                and diluted net loss per share
            
            $
            (0.00
            )
            $
            (0.00
            )





10


**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-KSB for the year ended December 31, 2006. 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 businesses.




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
      September 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 Certificate of Incorporation
      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.




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.




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.




The
      Company acquired a majority interest in Security Holding Corp. (“Security”) on
      August 22, 2006 through the purchase of $3 million of preferred stock in
      Security. Security manufactures, designs and supports radio frequency
      identification (“RFID”) security and access control devices for the commercial
      and governmental security markets. Based in Milwaukee, WI, Security and its
      subsidiaries specialize in proprietary and non-proprietary RFID products,
      including access control, asset tracking and the integration of multiple
      disciplines of electronic security and environmental and operational
      systems.




11


On
      September 18, 2006, the Company entered into a joint venture with Polimaster,
      a
      leader in the development and manufacturing of equipment for monitoring,
      detecting, locating and identifying nuclear and radioactive materials. The
      joint
      venture will operate as Polimatrix, Inc., which will be owned 51% by the
      Company. The Polimatrix products and systems offer technology that provides
      a
      networked approach to hardware and software solutions for detection,
      identification, communication and mapping of nuclear and radioactive
      materials.




Where
      applicable in this quarterly report, references to the ‘Company’, ‘we’, ‘us’ and
‘our’ shall include Nexus, Security and Polimatrix.




**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.





Revenue
      Recognition - Nexus recognizes revenue on their security system installation
      and
      integration contracts using the percentage of completion method. Security and
      Polimatrix recognize revenue based on sale of their products and
      services.




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.




Segment
      Reporting - ****** Statement
      of Financial Accounting Standards No. 131 ("SFAS 131"), "Disclosure About
      Segments of an Enterprise and Related Information" requires use of the
      "management approach" model for segment reporting. The management approach
      model
      is based on the way a company's management organizes segments within the company
      for making operating decisions and assessing performance. Reportable segments
      are based on products and services, geography, legal structure, management
      structure, or any other manner in which management disaggregates a company.
      The
      Company's operations are classified into two principal reporting segments that
      provide different products or services.




12


**Results
      of Operations**




***Three
      Months Ended March 31, 2007 Compared With the Three Months Ended March 31,
      2006***




**Revenues**




For
      the
      three months ended March 31, 2007, the Company had sales of $3,832,688 compared
      to sales of $688,030 for the three months ended March 31, 2006 resulting in
      an
      increase of $3,144,658 or 457%. Sales consisted of fees earned on security
      systems installation, integration contracts and product sales and 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, 2007, cost of sales was $2,440,838 compared to
      $765,071 for the three months ended March 31, 2006. Cost of sales consists
      of
      materials, labor and other costs incurred by the Company and associated with
      security systems installation, integration contracts and product sales. The
      increase in cost of sales of $1,675,767 or 219% is due to the implementation
      of
      the Company's new business strategy of acquiring and integrating businesses
      that
      provide homeland security products and services.




**Operating
      expenses**




Operating
      expenses for the three months ended March 31, 2007 were $2,381,713 compared
      to
      $1,056,331 for the three months ended March 31, 2006. The increase of $1,325,382
      or 125% in operating expenses is primarily due to general and administrative
      expenses that were incurred in the acquisitions and operations of Nexus and
      Security. The increase consisted of additional marketing costs of $173,708,
      additional personnel costs of $758,228, increases of insurance, facility and
      depreciation costs of $239,280, increases in travel and transportation cost
      of
      $110,723 and increases in other operating costs and general administrative
      costs
      of $96,525. Operating expenses were offset by reductions in professional costs
      of $53,082. These costs and other expenses were incurred in connection with
      the
      Company's change in business strategy for the three month period.




**Other
      income and expense**




The
      Company had net other expense of $1,331,360 for the three months ended March
      31,
      2007 compared to $680,851 for the three months ended March 31, 2006 for an
      increase in expenses of $650,509 or 96%. Income was increased by interest income
      of $16,673 and a gain on the settlement of certain trade payables of $26,251.
      Other expense was increased by increases in interest expense of $77,397,
      amortization of debt discounts of $275,860, amortization of debt offering costs
      of $61,933 and by a change in the derivative valuation of $278,253.




**Net
      income (loss)**




As
      a
      result of the foregoing, the Company recorded a net loss of $2,321,223 for
      the
      three months ended March 31, 2007 compared to a net loss of $1,814,223 for
      the
      three months ended March 31, 2006. This represents an increase in the net loss
      of $507,000 or 28%.




**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 $267,709 at March 31, 2007 and $1,214,183 at December 31, 2006. 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.




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 shall
      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 shall 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 shall
      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 Partners 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 November
      14,
      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.




13


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 "2006 A Debenture")
      in
      the amount of $4,000,000, which debenture is convertible into Common Stock.
      The
      conversion price of the 2006 A 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 2006 A 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 2006 A
      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 2006 A Debenture.
      If the Common Stock is trading below the conversion price, the Company may
      redeem the 2006 A Debenture at any time upon the payment of a redemption premium
      equal to twenty percent of the amounts redeemed.




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.




On
      August
      21, 2006, the Company entered into a Securities Purchase Agreement with Cornell
      Capital Partners, which provided for the purchase by Cornell Capital Partners
      of
      a secured Convertible Debenture (the "2006 B Debenture") in the amount of
      $4,000,000, which debenture is convertible into Common Stock. The conversion
      price of the 2006 B 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. The 2006 B 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 2006 B Debenture. If the
      Common Stock is trading below the conversion price at the date of redemption
      notice, the Company shall pay an amount equal to the principal amount being
      redeemed plus a redemption premium equal to twenty percent of the amounts
      redeemed and accrued interest Pursuant to a Security Agreement between the
      Company and Cornell Capital Partners, the Company's obligations under the 2006
      B
      Debenture are secured by a pledge of all of its assets.




During
      the three months ended March 31, 2007, we had a net decrease in cash of
      $946,474. Our sources and uses of funds were as follows:




**Cash
      Flows from Operating Activities**




We
      used
      net cash of $895,762 in our operating activities during the three month period
      ended March 31, 2007. Our net cash used in operating activities resulted
      primarily from the Company's net loss of $2,321,223 for the three month period,
      settlement of debt instruments of $26,261. These uses have been offset by
      $95,214 from the use of stock issued as compensation and for payment of
      expenses, $47,944 in depreciation and amortization, $560,014 in amortization
      of
      debt discount and debt offering costs, and the valuation loss on the derivative
      of $708,075 and the change in the operating assets and liabilities of $40,475
      for the three months ended March 31, 2007.




**Cash
      Flows from Investing Activities**




We
      used
      net cash of $164,980 in our investing activities during the three month period
      ended March 31, 2007 through the purchases of fixed assets.




14


**Cash
      Flows from Financing Activities**




We
      were
      provided cash of $114,268 from financing activities during the three month
      period ended March 31, 2007, consisting of increases of long term debt for
      the
      acquisition of operating assets.




As
      of
      March 31, 2007, we had a deficit in net working capital of $4,853,301.




**ITEM
      3. CONTROLS AND PROCEDURES**





***Evaluation
      of Disclosure Controls and Procedures***





Disclosure
      controls and procedures are controls and other procedures that are designed
      to
      ensure that information required to be disclosed by our company is recorded,
      processed, summarized and reported, within the time periods specified in the
      rules and forms of the SEC. C. Thomas McMillen, our Chief Executive Officer,
      and
      Michael Brigante, our Chief Financial Officer, are responsible for establishing
      and maintaining disclosure controls and procedures for our company.




Our
      management has evaluated the effectiveness of our disclosure controls and
      procedures as of March 31, 2007 (under the supervision and with the
      participation of the Chief Executive Officer and the Chief Financial Officer),
      pursuant to Rule 13a-15(b) promulgated under the Exchange Act. As part of
      such evaluation, management considered the matters discussed below relating
      to
      internal control over financial reporting. Based on this evaluation, our
      Company’s Chief Executive Officer and Chief Financial Officer have concluded
      that our company’s disclosure controls and procedures were not effective as of
      March 31, 2007, due to certain material weaknesses in internal control over
      financial reporting.




The
      term
“internal control over financial reporting” is defined as a process designed by,
      or under the supervision of, the registrant’s principal executive and principal
      financial officers, or persons performing similar functions, and effected by
      the
      registrant’s board of directors, management and other personnel, to provide
      reasonable assurance regarding the reliability of financial reporting and the
      preparation of financial statements for external purposes in accordance with
      generally accepted accounting principles and includes those policies and
      procedures that:




·
            pertain
                to the maintenance of records that in reasonable detail accurately
                and
                fairly reflect the transactions and dispositions of the assets of
                the
                registrant;




·
            provide
                reasonable assurance that transactions are recorded as necessary
                to permit
                preparation of financial statements in accordance with generally
                accepted
                accounting principles, and that receipts and expenditures of the
                registrant are being made only in accordance with authorizations
                of
                management and directors of the registrant;
                and




·
            provide
                reasonable assurance regarding prevention or timely detection of
                unauthorized acquisition, use or disposition of the registrant’s assets
                that could have a material effect on the financial
                statements.




15


Our
      auditors believe that our methodology for measuring percent of completed
      contracts for our Nexus subsidiary could lead to a material misstatement of
      revenue. We intend to cooperate with our auditors in the remainder of 2007
      to
      address this material weakness.




16


In
      addition, the
      Company has determined that the allocation of accumulated deficit and
      operational losses to minority interest for the twelve months ended December
      31,
      2006 was inappropriate as a result of the minority interest not having any
      economic basis in the operational entities. Previously, the Company had
      allocated a portion of the accumulated deficit and the yearly losses from
      operations to minority interest. The Company has determined that the allocation
      of the percentage ownership of minority interests in its subsidiaries will
      be
      added to goodwill and the Company will report 100% of the losses from
      operations. Accordingly, the Company revised its financial statements for the
      year ended December 31, 2006 to reflect this error correction and amended its
      annual report on Form 10-KSB. This restatement of our financial statement is
      indicative of a material weakness in internal controls.




17





***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 Chief
      Executive Officer and the Chief Financial Officer have
      determined that there are no changes to the Company’s internal controls over
      financial reporting that have materially affected, or are reasonably likely
      to
      materially effect, the Company’s internal controls over financial
      reporting.





***Inherent
      Limitations on Effectiveness of Controls***




The
      Company’s management does not expect that its disclosure controls or its
      internal control over financial reporting will prevent or detect all error
      and
      all fraud. A control system, no matter how well designed and operated, can
      provide only reasonable, not absolute, assurance that the control system’s
      objectives will be met. The design of a control system must reflect the fact
      that there are resource constraints, and the benefits of controls must be
      considered relative to their costs. Further, because of the inherent limitations
      in all control systems, no evaluation of controls can provide absolute assurance
      that misstatements due to error or fraud will not occur or that all control
      issues and instances of fraud, if any, within the Company have been detected.
      These inherent limitations include the realities that judgments in decision
      making can be faulty and that breakdowns can occur because of simple error
      or
      mistake. Controls can also be circumvented by the individual acts of some
      persons, by collusion of two or more people, or management override of the
      controls. The design of any system of controls is based in part on certain
      assumptions about the likelihood of future events, and there can be no assurance
      that any design will succeed in achieving its stated goals under all potential
      future conditions. Projections of any evaluation of controls effectiveness
      to
      future periods are subject to risks. Over time, controls may become inadequate
      because of changes in conditions or deterioration in the degree of compliance
      with policies or procedures.





18




**PART
      II**




**ITEM
      1. LEGAL PROCEEDINGS**




None.




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




None.




**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**




10.1
            
            Employment
                Agreement by and between Michael T. Brigante and the
                Company
            
            Provided
                herewith31.1
            
            Certification
                by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith31.2
            
            Certification
                by Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith32.1
            
            Certification
                by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith32.2
            
            Certification
                by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith




19


**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/
                Michael BriganteMichael
                Brigante
              Chief
                Financial Officer
              
              May
                15, 2007




20