**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 September 30, 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)1005
                Glebe Road, Suite 550Arlington,
                VA
            
            22201(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 45,800,910 shares of the issuer’s common stock, par value $.001 per share,
      outstanding as of November 12, 2007.





Transitional
      Small Business Disclosure Format: Yes o No x








**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 September
      30, 2007 and for the three and nine month periods ended September 30, 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 and nine month periods ended September 30, 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.
      In 2007, the Company has separately disclosed the operating, investing and
      financing portions of the cash flows attributable to its discontinued
      operations, which in prior periods were reported on a combined basis.
      Additionally, certain September 30, 2006 balances have been reclassified to
      conform to the September 30, 2007 financial statement presentation.




2


HOMELAND
                  SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Balance Sheet (Unaudited)




September
                  30, 2007AssetsCash
              
              $
              341,378Accounts
                  receivable - net
              
              
              4,406,564Cost
                  in excess of billings on uncompleted contracts
              
              
              292,528Other
                  current assets
              
              
              106,820Total
                  current assets
              
              
              5,147,290Fixed
                  assets, net
              
              
              270,159Deferred
                  financing costs - net
              
              
              846,295Notes
                  receivable - related party
              
              
              508,082Secutities
                  available for sale
              
              
              3,477,148Total
                  assets
              
              $
              10,248,974Liabilities
                  and Stockholders' Equity (Deficit)Current
                  liabilitiesAccounts
                  payable
              
              $
              2,026,934Billings
                  in excess of costs on uncompleted contracts
              
              
              139,230Current
                  portion of long term debt
              
              
              66,132Notes
                  payable
              
              
              227,219Derivative
                  liability
              
              
              7,141,112Accrued
                  interest and other liabilities
              
              
              510,390Total
                  current liabilities
              
              
              10,111,017Long
                  term debtConvertible
                  debentures - related party, net of $5,025,765 discount
              
              
              5,724,235Long
                  term debt
              
              
              145,395Total
                  long term debt
              
              
              5,869,630Total
                  liabilities
              
              
              15,980,647Stockholders'
                  Equity (Deficit)Preferred
                    stock, $0.01 par value, 3,000,000 shares authorized, 1,795,170
                    shares
                    issued and outstandingPreferred
                  stock Series F
              
              
              100,000Preferred
                  stock Series G
              
              
              79,517Common
                  stock, $0.001 par value, 200,000,000 shares authorized, 42,676,985
                  issued
                  and outstanding
              
              
              42,677Additional
                  paid-in capital
              
              
              47,141,182Accumulated
                  deficit
              
              
              (52,991,150
              )Accumulated
                  comprehensive loss
              
              
              (103,899
              )Total
                  stockholders' equity (deficit)
              
              
              (5,731,673
              )Total
                  liabilities and stockholders' equity (deficit)
              
              $
              10,248,974
  The
                  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 September 30, 2007
              
              Three
                  Months Ended September 30, 2006
              
              Nine
                  Months Ended September 30, 2007
              
              Nine
                  Months Ended September 30, 2006Sales
              
              $
              2,608,358
              
              $
              2,206,767
              
              $
              8,893,445
              
              $
              4,948,504Cost
                  of salesMaterials
              
              
              1,300,289
              
              
              829,241
              
              
              5,392,157
              
              
              2,221,528Labor
              
              
              394,285
              
              
              516,518
              
              
              1,158,629
              
              
              1,055,617Other
              
              
              -
              
              
              123,727
              
              
              -
              
              
              123,727Total
                  cost of sales
              
              
              1,694,574
              
              
              1,469,486
              
              
              6,550,786
              
              
              3,400,872Gross
                  profit on sales
              
              
              913,784
              
              
              737,281
              
              
              2,342,659
              
              
              1,547,632Operating
                  expensesMarketing
              
              
              3,560
              
              
              17,845
              
              
              20,208
              
              
              29,116Personnel
              
              
              733,670
              
              
              917,153
              
              
              2,163,834
              
              
              2,323,590Insurance
                  and facility costs
              
              
              200,738
              
              
              (43,887
              )
              
              415,837
              
              
              160,124Travel
                  and transportation
              
              
              137,517
              
              
              147,138
              
              
              274,091
              
              
              254,073Other
                  operating costs
              
              
              31,080
              
              
              -
              
              
              101,120
              
              
              -Depreciation
                  and amortization
              
              
              19,289
              
              
              14,401
              
              
              55,988
              
              
              35,466Professional
                  services
              
              
              129,167
              
              
              121,052
              
              
              548,955
              
              
              543,799Administrative
                  costs
              
              
              77,857
              
              
              42,173
              
              
              123,692
              
              
              199,673Total
                  operating expenses
              
              
              1,332,878
              
              
              1,215,875
              
              
              3,703,725
              
              
              3,545,841Operating
                  loss
              
              
              (419,094
              )
              
              (478,594
              )
              
              (1,361,066
              )
              
              (1,998,209
              )Other
                  income (expense)Interest
                  expense
              
              
              (306,791
              )
              
              (79,439
              )
              
              (630,402
              )
              
              (169,974
              )Amortization
                  of debt discounts
              
              
              (663,860
              )
              
              (385,282
              )
              
              (1,667,136
              )
              
              (868,615
              )Amortization
                  of debt offering costs
              
              
              (114,363
              )
              
              (59,160
              )
              
              (303,853
              )
              
              (131,380
              )Adjustment
                  of fair value of derivative liability
              
              
              1,627,257
              
              
              83,361
              
              
              1,471,547
              
              
              888,438Settlement
                  of debt
              
              
              59,763
              
              
              -
              
              
              111,024
              
              
              13,275Other
                  income (expense)
              
              
              14,412
              
              
              6,382
              
              
              21,819
              
              
              21,937Total
                  other income (expense)
              
              
              616,418
              
              
              (434,138
              )
              
              (997,001
              )
              
              (246,319
              )Income
                  (loss) from continuing operations
              
              
              197,324
              
              
              (912,732
              )
              
              (2,358,067
              )
              
              (2,244,528
              )Income
                  (loss) from discontinued operationsLoss
                  from discontinued operations
              
              
              (63,979
              )
              
              (161,898
              )
              
              (2,023,197
              )
              
              (161,898
              )Gain
                  from sale of operating segment
              
              
              3,657,930
              
              
              -
              
              
              3,657,930
              
              
              -Income
                  (loss) from discontinued operations
              
              
              3,593,951
              
              
              (161,898
              )
              
              1,634,733
              
              
              (161,898
              )Net
                  income (loss) attributable to common stockholders
              
              $
              3,791,275
              
              $
              (1,074,630
              )
              $
              (723,334
              )
              $
              (2,406,426
              )Income
                  (Loss) per common share, basicIncome
                  (loss) per share from continuing operations
              
              $
              0.00
              
              $
              (0.02
              )
              $
              (0.06
              )
              $
              (0.05
              )Income
                  (loss) per share from discontinued operations
              
              
              0.09
              
              
              (0.01
              )
              
              0.04
              
              
              (0.01
              )Net
                  income (loss) per common share attributableto
                  common stockholders - basic
              
              $
              0.09
              
              $
              (0.03
              )
              $
              (0.02
              )
              $
              (0.06
              )Weighted
                  average shares outstanding - basic
              
              
              41,775,508
              
              
              41,553,805
              
              
              41,762,003
              
              
              41,636,537Net
                  income per common share- dilutedIncome
                  per share from continuing operations
              
              $
              0.00Income
                  per share from discontinued operations
              
              
              0.08Net
                  income per common share attributableto
                  common stockholders - diluted
              
              $
              0.08Weighted
                  average shares outstanding - diluted
              
              
              49,856,678


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




4


HOMELAND
                  SECURITY CAPITAL CORPORATION AND SUBSIDIARIESConsolidated
                  Statements of Cash Flows For the Nine Month Period Ended September
                  30,
                  (Unaudited)
  2007
              
              2006Cash
                  flows from operating activities:Net
                  loss
              
              $
              (723,334
              )
              $
              (2,406,426
              )Adjustments
                  to reconcile net loss to netcash
                  provided by (used in) operating activities:Settlement
                  of debt
              
              
              (111,024
              )
              
              (13,275
              )Stock
                  based payments
              
              
              267,145
              
              
              812,035Valuation
                  reserve for accounts receivable
              
              
              (128,329
              )
              
              184,329Depreciation
                  and amortization
              
              
              55,988
              
              
              35,466Equity
                  in value of subsidiaries
              
              
              582,470
              
              
              (761,555
              )Amortization
                  of debt discount
              
              
              1,667,136
              
              
              868,615Amortization
                  of debt offering costs
              
              
              303,853
              
              
              131,380Valuation
                  losses for changes in derivative liability
              
              
              (1,471,547
              )
              
              (888,438
              )Changes
                  in operating assets and liabilities:Accounts
                  Receivable
              
              
              (370,322
              )
              
              (3,898,061
              )Inventories
              
              
              -
              
              
              (27,283
              )Costs
                  in excess of billings on uncompleted contracts
              
              
              (26,556
              )
              
              (613,358
              )Other
                  assets
              
              
              7,362
              
              
              (71,074
              )Accounts
                  payable
              
              
              194,029
              
              
              1,212,368Accrued
                  liabilities
              
              
              370,116
              
              
              28,186Billings
                  in excess of costs on uncompleted contracts
              
              
              (361,851
              )
              
              576,294Net
                  assets of discontinued operations
              
              
              837,902
              
              
              (1,612,606
              )Net
                  cash provided by (used in) operating activities
              
              
              1,093,038
              
              
              (6,443,403
              )Cash
                  flows from investing activities:Purchase
                  of fixed assets
              
              
              (82,574
              )
              
              (244,458
              )Increase
                  in other assets
              
              
              (508,082
              )
              
              -Increase
                  in assets available for sale
              
              
              (3,477,148
              )
              
              -Investing
                  activities from discontinued operations
              
              
              743,142
              
              
              59,464Loss
                  on assets available for sale
              
              
              (103,899
              )
              
              -Net
                  cash used in investing activities
              
              
              (3,428,561
              )
              
              (184,994
              )Cash
                  flows from financing activities:Proceeds
                  from convertible debentures - related party
              
              
              2,750,000
              
              
              8,000,000Cost
                  of convertible debentures - related party
              
              
              (282,486
              )
              
              (1,089,863
              )Conversion
                  of convertible debentures
              
              
              -
              
              
              (225,423
              )Common
                  stock issued for convertible debentures
              
              
              -
              
              
              -Proceeds
                  of term debt
              
              
              44,395
              
              
              -Financing
                  activity from discontinued operations
              
              
              (611,147
              )
              
              -Net
                  cash provided by financing activities
              
              
              1,900,762
              
              
              6,684,714Net
                  increase (decrease) in cash
              
              
              (434,761
              )
              
              56,317Cash,
                  beginning of period
              
              
              776,139
              
              
              1,094,061Cash,
                  end of period
              
              $
              341,378
              
              $
              1,150,378Cash
                  paid for:Interest
              
              $
              476,122
              
              $
              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 nine months ended September 30, 2007
  Additional
              
              
              
              Accumulated
              
              TotalPreferred
              
              Common
                  Stock
              
              Paid-In
              
              Accumulated
              
              Comprehensive
              
              Stockholders'Stock
              
              Shares
              
              Amount
              
              Capital
              
              Deficit
              
              Loss
              
              DeficitBalance,
                  December 31, 2006
              
              $
              200,000
              
              
              41,755,250
              
              $
              41,755
              
              $
              46,854,476
              
              $
              (52,267,816
              )
              $
              -
              
              $
              (5,171,585
              )Conversion
                  of preferred stock -Series
                  G (Unaudited)
              
              
              (20,483
              )
              
              921,735
              
              
              922
              
              
              19,561
              
              
              
              
              
              
              
              
              -Value
                  of vested stock options(Unaudited)
              
              
              
              
              
              
              
              
              
              
              
              267,145
              
              
              
              
              
              
              
              
              267,145Net
                  loss in value of assetsavailable
                  for sale (Unaudited)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (103,899
              )
              
              (103,899
              )Net
                  loss (Unaudited)
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (723,334
              )
              
              
              
              
              (723,334
              )Balance,
                  September 30, 2007(Unaudited)
              
              $
              179,517
              
              
              42,676,985
              
              $
              42,677
              
              $
              47,141,182
              
              $
              (52,991,150
              )
              $
              (103,899
              )
              $
              (5,731,673
              )




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)





SEPTEMBER
      30, 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 September 30, 2007, the results of operations for the three and nine months
      ended September 30, 2007 and 2006, and cash flows for the nine months ended
      September 30, 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 September 30, 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. SHC, through
      its
      subsidiaries, has been involved in RFID technology, enterprise security software
      systems, access control devices and secure internet portals. In August 2006,
      SHC
      acquired the assets of Compass Technologies, Inc. for $500,000 in cash. As
      further described in Note 8, the Company has sold its ownership interest in
      SHC
      and discontinued operations in the RFID, access control and security software
      components of the business.





On
      September 15, 2006, the Company formed Polimatrix, Inc. (“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 September 30, 2007, the Company owned 51% of
      PMX.




The
      Company owns a majority of the outstanding capital stock of its subsidiaries
      controls each of the subsidiary boards of directors and provides 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.
      Minority Interest in Secure America Acquisition Corporation**





The
      Company has indirectly acquired a minority equity interest in Secure America
      Acquisition Corporation (“SAAC”). SAAC is a blank check company formed for the
      purpose of acquiring one or more operating businesses in the homeland security
      industry. On June 1, 2007, the Company loaned $500,000 to Secure America
      Acquisition Holdings, LLC (“SAAH”), the principal initial stockholder of SAAC,
      pursuant to a promissory note (the “SAAH Note”). The SAAH Note has a maturity
      date of May 31, 2011 and bears interest at a rate of 5% per annum. All principal
      and accrued interest on the SAAH Note is due upon maturity. The obligations
      of
      SAAH under the SAAH Note have been guaranteed by C. Thomas McMillen, our
      President, Chief Executive Officer and Chairman. As consideration for the
      issuance of the SAAH Note, the Company received 250,000 membership interests
      in
      SAAH (the “SAAH Interests”) which equals approximately 10.59% of SAAH. Through
      its membership interests in SAAH, the Company is deemed to beneficially own
      10.59% of the outstanding capital stock of SAAC at September 30, 2007 and is
      entitled to receive 250,000 shares of common stock in SAAC.





In
      addition to the Company’s ownership in SAAH, Mr. McMillen, our President, Chief
      Executive Officer and Chairman beneficially owns 1,309,000 membership interests
      in SAAH or approximately 55.46%, Mr. Brigante our Chief Financial Officer owns
      82,500 membership interests in SAAH or 3.51%, Mr. McNeill, our Director, owns
      100,000 membership interests in SAAH or 4.24% and Mr. Griffin, our Director,
      owns 25,000 membership interests in SAAH or 1.06%.





On
      June
      25, 2007, SAAC filed a registration statement (the “Registration Statement”)
      with the Securities Exchange Commission relating to an initial public offering
      (the “Offering”) of 10,000,000 units, each unit comprised of one common share
      and one warrant to purchase a common share, priced at $8.00/unit. SAAH, has
      agreed to purchase, in a private placement that will occur immediately prior
      to
      SAAC’s Offering, 2,075,000 warrants at a purchase price of $1.00 per warrant.
      Each warrant purchased in the private placement entitles the holder to purchase
      one share of SAAC common stock at a purchase price of $5.25 per
      share.





The
      Company has also entered into an agreement (the “SAAC Agreement”) with SAAC to
      receive a monthly fee of up to $7,500 for providing SAAC with office space
      and
      certain office and administrative services. The SAAC Agreement became effective
      upon the effectiveness of the Registration Statement with the Securities and
      Exchange Commission. Certain employees of the Company will perform required
      services pursuant to the SAAC Agreement.





**3.
      Fair value of investments classified as available-for-sale
      securities**





On
      August
      29, 2007 the Company received 673,317 shares of Vuance, Ltd. (“Vuance”) common
      stock in exchange for all of its preferred stock in SHC. The Company valued
      the
      common stock at $5.17 per share, the agreed upon price in the sale transaction,
      and accordingly recorded a $481,409 gain on sale of its majority interest in
      SHC. On September 30, 2007 the fair value of the Vuance common stock was $5.02
      per share. As a result of classifying the Vuance common stock as
      available-for-sale securities, the Company recorded a decrease in the value
      of
      its investment and a corresponding reduction in Shareholders’ Equity in the
      amount of $103,899, reflecting the change in the fair value of the securities
      as
      an unrealized loss.


8






**4.
      Share-Based Compensation**





In
      2005,
      the Company issued to directors and an officer of the Company options to
      purchase 7,960,000 shares of common stock par value $0.001 per share (the
      "Common Stock") in the future. In January and February 2006, the Company issued
      100,000 and 600,000 options to an employee and a contractor respectively, to
      purchase shares of Common Stock of the Company in the future. Of these options
      100,000 were forfeited in September 2006. In May and July 2006, the Company
      issued 100,000 and 750,000 options to two employees respectively, to purchase
      shares of Common Stock of the Company in the future.. In December 2006, the
      Company issued 250,000 options to an employee to purchase shares of Common
      Stock
      of the Company in the future. On May 10, 2007, the Company modified the terms
      of
      519,210 of the options previously issued to an employee, upon the appointment
      of
      that employee to the position of Chief Financial Officer. Also, on May 10,
      2007
      a director resigned forfeiting 720,000 options and on May 16, 2007 a new
      director was approved and granted 720,000 options to purchase shares of Common
      Stock of the Company in the future, vesting at 90,000 per quarter for eight
      quarters.





Of
      the
      options granted in 2005, 2006 and 2007, options to purchase 1,150,570 shares
      of
      Common Stock vested and 480,000 vested options were forfeited during the nine
      month period ended September 30, 2007 and the Company recorded $165,645 as
      compensation expense related to the vesting of these options. During the nine
      month period ended September 30, 2006, options to purchase 3,322,077 shares
      of
      Common Stock vested and the Company recorded $334,020 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 September
      30, 2007; options exercised during 2005, 2006 and January 1, 2007 through
      September 30, 2007; options forfeited during 2005, 2006 and January 1, 2007
      through September 30, 2007; options outstanding at December 31, 2005, December
      31, 2006 and September 30, 2007; and options exercisable at December 31, 2005,
      December 31, 2006 and September 30, 2007, along with their weighted average
      exercise price:





September
                2007
            
            December
                2006
            
            December
                2005Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                at beginning of Period
            
            
            9,660,000
            
            $
            0.108
            
            
            7,960,000
            
            $
            0.096
            
            
            -
            
            $
            -Granted
            
            
            1,239,210
            
            
            0.120
            
            
            1,800,000
            
            
            0.161
            
            
            7,960,000
            
            
            0.096Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            (1,239,210
            )
            
            0.150
            
            
            (100,000
            )
            
            0.170
            
            
            -
            
            
            -Outstanding
                at end of Period
            
            
            9,660,000
            
            
            0.103
            
            
            9,660,000
            
            
            0.108
            
            
            7,960,000
            
            
            0.096Options
                exercisable at end of Period
            
            
            8,081,170
            
            $
            0.098
            
            
            7,410,600
            
            $
            0.094
            
            
            3,720,000
            
            $
            0.084




All
      of
      the options reflected in the table above have been restated to reflect a 1
      for
      100 reverse split of the Company’s common stock (See Note 7).





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, 2006 and 2007; risk-free interest rate of between 4.4% and
      4.95%
      and volatility between 178% and 456% and expected lives of ten
      years.





Not
      included in the table above, but included in compensation expense are options
      issued by our subsidiaries to purchase 685,000 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.




9


**5.
      Debentures**





On
      June
      1, 2007, the Company entered into a Securities Purchase Agreement with Cornell
      Capital Partners, LP (“Cornell”), which provides for the purchase by Cornell of
      a secured convertible debenture (the “Debenture”) in the amount of $2,750,000.
      The Debenture is convertible into the Company’s common stock, par value $0.001
      per share (the “Common Stock”), based on a conversion price which shall be equal
      to the lesser of (1) $0.40 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 Debenture bears interest at 12% per annum and the principal
      amount will be payable on the third anniversary of the effective date of the
      Debenture. If the closing bid price of the Common Stock is trading below the
      conversion price at the time of the redemption notice, the Company shall pay
      an
      amount equal to the principal amount being redeemed plus a redemption premium
      equal to ten percent (10%) of the principal amount being redeemed, and accrued
      interest. Pursuant to a Security Agreement between the Company and Cornell
      and a
      Pledge and Escrow Agreement between the Company, Cornell and the escrow
      agent, issued in connection with the Debenture, the Company's obligations under
      the Debenture are secured by a pledge of all of its assets. In connection with
      the sale of the Debenture, the Company also entered into an Agreement with
      Cornell (the “Agreement”) increasing the interest rate payable under certain
      existing convertible debentures issued by the Company to Cornell in an aggregate
      amount of $8,000,000 from 5% to 10% per annum, modifying the registration rights
      associated with such existing debentures to require the Company to file a
      registration statement covering the resale of shares of Common Stock issuable
      upon conversion of the existing debentures only upon demand by Cornell of such
      filing and waiving any penalty due for the failure to register the shares
      through the date of the Agreement.




In
      connection with the Securities Purchase Agreement, the Company issued a warrant
      to Cornell for 800,000 shares of the Company’s Common Stock (the “Warrant”). The
      Warrant has an exercise price equal to $0.15, which may be adjusted under the
      terms of the Warrant, and has a term of five years from the date of issuance
      on
      June 1, 2007. The Company also entered into a Registration Rights Agreement
      with
      the Cornell pursuant to which the Company is obligated to file a registration
      statement covering the resale of shares of Common Stock issuable upon the
      conversion of the Debenture.





The
      table
      below reflects all the Company’s debentures currently outstanding:





**February
                2006**
              **Debenture**
              **2006
                A**
            
            **August
                2006**
              **Debenture**
              **2006
                B**
            
            **June
                2007**
              **Debenture**
              **2007
                A**
            
            **August
                2006**
              **Warrant**
            
            **June
                2007**
              **Warrant**
            
            **Total**Face
                amount
            
            $
            4,000,000
            
            $
            4,000,000
            
            $
            2,750,000
            
            
            
            
            
            
            
            $
            10,750,000Less:
                Cost of issuance
            
            
            (520,000
            )
            
            (569,863
            )
            
            (282,491
            )
            
            
            
            
            
            
            
            (1,372,354
            )Net
                proceeds
            
            $
            3,480,000
            
            $
            3,430,137
            
            $
            2,467,509
            
            
            
            
            
            
            
            $
            9,377,646Value
                of derivative liability at issue date
            
            $
            3,331,544
            
            $
            2,298,787
            
            $
            2,335,962
            
            $
            154,863
            
            $
            92,486
            
            $
            8,213,642Gain
                (Loss) of valueof
                derivative liability
            
            
            (1,018,598
            )
            
            395,115
            
            
            (253,036
            )
            
            (137,365
            )
            
            (58,646
            )
            
            (1,072,530
            )Value
                at September 30, 2007
            
            $
            2,312,946
            
            $
            2,693,902
            
            $
            2,082,926
            
            $
            17,498
            
            $
            33,840
            
            $
            7,141,112Face
                amount
            
            $
            4,000,000
            
            $
            4,000,000
            
            $
            2,750,000
            
            
            
            
            
            
            
            $
            10,750,000Debt
                discount
            
            
            3,331,544
            
            
            2,298,787
            
            
            2,335,962
            
            
            
            
            
            
            
            
            7,966,293Less
                amortizationof
                discount
            
            
            (1,850,858
            )
            
            (830,118
            )
            
            (259,552
            )
            
            
            
            
            
            
            
            (2,940,528
            )Net
                debt discount
            
            
            1,480,686
            
            
            1,468,669
            
            
            2,076,410
            
            
            
            
            
            
            
            
            5,025,765Net
                ConvertibleDebentures
            
            $
            2,519,314
            
            $
            2,531,331
            
            $
            673,590
            
            
            
            
            
            
            
            $
            5,724,235





10




**6.
      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 based on the overall performance of a first level
      subsidiary. In the past, our subsidiaries derived their revenues and cash flow
      from different activities, services in the case of Nexus and products in the
      case of SHC and starting in this quarter PMX. However, on July 3, 2007, the
      Company entered into an agreement to sell its SHC subsidiary. Accordingly,
      the
      SHC product sales segment activity is no longer included in results from
      continuing operations and is no longer included as segment information.





The
      following table reflects the Company’s segments at September 30, 2007, excluding
      the discontinued operations of SHC:





Homeland
                Security Capital Corporation Consolidated
            
            Holding
                Company(Homeland
                Security Capital Corporation)
            
            Services
                Company(Nexus
                Technology Group)
            
            Products
                Company(Polimatrix,
                Inc.)
            
            ConsolidatedRevenues
            
            $
            -
            
            $
            8,643,712
            
            $
            249,733
            
            $
            8,893,445Gross
                margin
            
            
            -
            
            
            2,334,265
            
            
            8,394
            
            
            2,342,659Operating
                expenses
            
            
            1,483,343
            
            
            1,979,555
            
            
            184,839
            
            
            3,647,737Depreciation
                expense
            
            
            7,000
            
            
            48,988
            
            
            -
            
            
            55,988Other
                income (expenses) - net
            
            
            (939,145
            )
            
            (57,856
            )
            
            -
            
            
            (997,001
            )Net
                income (loss) from continuingoperations
            
            
            (2,429,488
            )
            
            247,866
            
            
            (176,445
            )
            
            (2,358,067
            )Current
                assets
            
            
            257,857
            
            
            4,812,579
            
            
            76,854
            
            
            5,147,290Total
                assets
            
            
            5,103,464
            
            
            5,068,656
            
            
            76,854
            
            
            10,248,974





**7.
      Reverse Stock Split**





At
      the
      Company’s stockholders meeting held on July 10, 2007, the common stockholders
      approved a resolution to amend the Certificate of Incorporation to effect a
      combination, or reverse split, of the Company’s Common Stock at a ratio of
      1-for-100 and accordingly the Company filed an amendment to the Certificate
      of
      Incorporation with the Secretary of State of Delaware which provided that the
      shares of Common Stock then issued and outstanding will be combined at a ratio
      of 1-for-100. The reverse split reduced number of authorized shares of Common
      Stock from 20,000,000,000 to 200,000,000 but did not change the par value of
      our
      Common Stock. Except for any changes resulting from the treatment of fractional
      shares, each stockholder held the same percentage of Common Stock outstanding
      immediately after the reverse stock split as such stockholder did immediately
      prior to the reverse stock split. Stockholders holding fractional shares will
      be
      entitled to receive cash in the amount of $0.001/share in lieu of their
      fractional shares. As of September 30, 2007 and 2006, the accounts of the
      Company and results of operations and cash flows have been computed giving
      effect to the reverse stock split.





**8.
      Discontinued operations**





The
      Company discontinued its RDIF, access control and security software businesses
      upon the closing of the sale of its SHC subsidiary, effective August 29, 2007.
      O n
      April
      2, 2007, the Company’s and SHC’s boards of directors approved the sale of
      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.





On
      July
      3, 2007, the Company entered into an agreement to sell the remaining SHC
      business to Vuance Ltd. (“Vuance”). Pursuant to the terms of the Purchase
      Agreement, dated July 3, 2007, by and among the Company, as majority shareholder
      of SHC, the other shareholders of SHC (the “Minority Shareholders”) and
      SuperCom, Inc., a Delaware corporation and wholly owned subsidiary of Vuance
      (“SuperCom”), SuperCom agreed to acquire all of the issued and outstanding
      capital stock of SHC for a purchase price of $5.1 million, payable in Vuance
      ordinary (common) shares. All required conditions were met and the sale was
      closed on August 29, 2007.




11




On
      the
      August 29, 2007, 673,317 ordinary (common) shares of Vuance were issued to
      the
      Company at a price of $5.17 per share. Vuance also repaid all obligations of
      SHC
      to the Company under a certain note in the amount of approximately $400,000.
      The
      Company agreed to certain lock-up periods during which it will not sell or
      otherwise dispose of the Vuance ordinary (common) shares.





Management
      has recognized the SHC activity as discontinued operations for the three and
      nine months ended September 30, 2007 and 2006.  The following table
      reflects selected elements of SHC’s three and nine month results for the periods
      ended September 30, 2007 and 2006.




Three
                Months Ended September 30, 2007
            
            Three
                Months Ended September 30, 2006
            
            Nine
                Months Ended September 30, 2007
            
            Nine
                Months Ended September 30, 2006Revenue
            
            $
            865,737
            
            $
            392,841
            
            $
            3,029,306
            
            $
            392,841Gross
                Margin
            
            
            405,143
            
            
            170,253
            
            
            1,279,261
            
            
            170,253Operating
                expenses
              (includes
                $0 and $483,942 of goodwill impairment write- down for the three
                and nine
                months ended September 30, 2007, respectively and $0 for the three
                and
                nine months ended September 30, 2006, respectively)
            
            
            467,143
            
            
            331,145
            
            
            3,300,480
            
            
            331,145Other
                Income (Expense)
            
            
            (1,979
            )
            
            (1,006
            )
            
            (1,978
            )
            
            (1,006
            )Net
                Loss
            
            
            63,979
            
            
            161,898
            
            
            2,023,197
            
            
            161,898Net
                Assets
            
            
            1,861,572
            
            
            3,407,503
            
            
            1,861,572
            
            
            3,407,503Net
                Liabilities
            
            
            1,938,456
            
            
            1,354,361
            
            
            1,938,456
            
            
            1,354,361





In
      2007,
      the Company has separately disclosed the operating, investing and financing
      portions of the cash flows attributable to its discontinued operations, which
      in
      prior periods were reported on a combined basis. Additionally, certain September
      30, 2006 balances have been reclassified to conform to the September 30, 2007
      financial statement presentation including restatements for the discontinued
      operations and the minority interests which are now included in the Company’s
      retained deficit.




**9.
      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 $723,334,
      a
      working capital deficiency of $4,963,727 and a stockholders' deficiency of
      $5,731,673. 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.





**10.
      Earnings per Share**





Diluted
      earnings per share are computed using outstanding shares plus the common stock
      options that can be converted into common stock within the next sixty days.
      The
      diluted number of shares do not reflect the number of shares that could be
      converted from the Company’s debentures in that the Company does not have enough
      shares authorized to convert such instruments. Diluted earnings per share are
      not indicated for the nine month periods ending September 30, 2007 and 2006
      or
      for the three month period ending September 30, 2006 because the periods
      indicate losses and the computation would be anti-dilutive.




12





**11.
      Subsequent Events**




Secure
      America Acquisition Holdings, LLC.  On June 1, 2007, the Company loaned
      $500,000 to Secure America Acquisition Holdings, LLC (“SAAH”), an entity
      controlled by C. Thomas McMillen our CEO. The loan was for working capital
      purposes, is evidenced by a note bearing 5% interest per annum and is due on
      or
      before May 31, 2011, with no prepayment penalties. The loan is guaranteed in
      its
      entirety by Mr. McMillen. SAAH is the initial principal stockholder in Secure
      America Acquisition Corporation (“SAAC”), a blank check company, whose primary
      purpose is to seek an acquisition or business combination in the homeland
      security industry, excluding companies whose primary focus is secure data
      facilities or whose enterprise value is less than $40 million. As an additional
      inducement for granting the loan, the Company received a membership interest
      in
      SAAH, which entitles it to receive 250,000 shares of common stock in SAAC,
      if
      and when SAAC completes an acquisition or business combination, which it has
      twenty four (24) months to due so.





On
      October 22, 2007, the Company purchased 75,000 membership interests in SAAH,
      through an investment in SAAH in the amount of $150,000. SAAH is an entity
      controlled by C. Thomas McMillen our CEO. These membership interests entitle
      the
      Company to receive 75,000 shares of common stock in SAAC, if and when SAAC
      completes an acquisition or business combination, which it has twenty four
      (24)
      months to due so.





On
      October 22, 2007, the Company loaned SAAH $65,000. The unsecured loan was for
      working capital purposes, is evidenced by a note and is due on or before October
      22, 2008, with no prepayment penalties. The loan was repaid on October 29,
      2007
      in its entirety.





In
      addition to Mr. McMillen’s control of SAAH, he also serves as co-CEO and a
      director of SAAC. Mr. McNeill, our Director, is also a director of SAAC and
      an
      investor in SAAH. Mr. Griffin, our Director, is a special advisor to SAAC and
      an
      investor in SAAH. Mr. Brigante, our CFO, is an investor in SAAH.





SAAC
      filed a registration statement with the Securities and Exchange Commission
      (“SEC”) and completed an Initial Public Offering (“IPO”) on October 23, 2007,
      subject to completion by October 29, 2007. SAAC sold 10 million units
      (consisting of one share of common stock and one warrant to purchase one share
      of common stock). SAAC trades on the American Stock Exchange under the symbols
      HLD.U (units), HLD (common stock) and HLD.W (common stock warrants). The SAAC
      IPO was successfully completed on October 29, 2007.





The
      Company has also entered into an agreement (the “SAAC Agreement”) with SAAC to
      receive a monthly fee of up to $7,500 for providing SAAC with office space
      and
      certain office and administrative services for up to 24 months. The SAAC
      Agreement became effective upon the effectiveness of the Registration Statement
      with the Securities and Exchange Commission. Certain employees of the Company
      will perform required services pursuant to the SAAC Agreement.





Notwithstanding
      the completion of the SAAC IPO, the Company does not value, at market prices,
      the shares of common stock of SAAC it is entitled to receive as a result of
      its
      membership interests in SAAH. Management believes that some uncertainty to
      the
      successful completion of an acquisition or business combination exists and
      therefore chooses to carry its loans to SAAH at the principal amount plus
      accrued interest and its investment in SAAH at the original investment amount.
      The Company measures impairment of these amounts on a monthly basis and will
      adjust the amounts accordingly.




Issuance
      of Common Stock.  In October and
      November, holders of the Company’s Series G. Convertible Preferred Stock and the
      Company’s secured convertible debentures converted certain of their securities
      into Common Stock.





13


**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/A 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, NY, 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. (“SHC”) on August
      22, 2006 through the purchase of $3 million of preferred stock in SHC. SHC
      manufactures designs and supports radio frequency identification (“RFID”)
      security and access control devices for the commercial and governmental security
      markets. Based in Milwaukee, Wisconsin, SHC 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. In
      August 2006, SHC acquired the assets of Compass Technologies, Inc. for $500,000
      in cash. On August 28, 2007, the Company finalized the sale of its ownership
      interest in SHC and discontinued operations in the RFID, access control and
      security software components of the business.




14




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. (“PMX”) which will be owned 51% by the
      Company. The PMX 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 and PMX while references to discontinued operations
      will include SHC.




**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. PMX recognizes
      revenue based on sale of its 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.




Investments
      in Available-for-Sale Securities - The Company classifies certain investments
      in
      securities as available-for-sale. Under this classification securities are
      reported at fair value (period end market closing prices) with unrealized gains
      and losses excluded from earnings and reported in a separate component of
      shareholders’ equity until the gains or losses are realized or a provision for
      impairment is recognized.




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.




15




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. The
      discontinued operations represent a component of one of these
      segments.




**Results
      of Operations**




***Three
      Months Ended September 30, 2007 Compared With the Three Months Ended September
      30, 2006***




**Revenues**




For
      the
      three months ended September 30, 2007, the Company had sales of $2,608,358
      compared to sales of $2,206,767 for the three months ended September 30, 2006
      resulting in an increase of $401,591 or 18%. 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 September 30, 2007, cost of sales was $1,694,574 compared
      to
      $1,469,486 for the three months ended September 30, 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 $225,088 or 15% 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 September 30, 2007 were $1,332,878 compared
      to $1,215,875 for the three months ended September 30, 2006. The increase of
      $117,003 or 10% in operating expenses is primarily due to general and
      administrative expenses that were incurred in the operations of Nexus. The
      increase consisted of increases of insurance and facility costs of $244,625,
      depreciation costs of $4,888, other operating costs of $31,080, professional
      costs of $8,115 and administrative costs of $35,684. These cost increases were
      offset by decreases in marketing costs of $14,285, personnel costs of $183,483
      and travel costs of $9,621. 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 income of $616,418 for the three months ended September
      30, 2007 compared to net other expense of $434,138 for the three months ended
      September 30, 2006 for an increase in other income of $1,050,556 or 242%. Income
      was increased by a gain on the settlement of certain trade payables of $59,763,
      an increase in interest income of $8,030 and a change in the derivative
      liability valuation of $1,543,896, offset by an increase in interest expense
      of
      $227,352, amortization of debt discount of $278,578 and amortization of debt
      offering costs of $55,203.




**Net
      income (loss)**




As
      a
      result of the foregoing, the Company recorded a net income from continuing
      operations of $197,324 and an overall net income of $3,791,275 including
      discontinued operations for the three months ended September 30, 2007 compared
      to a net loss from continuing operations of $912,732 and an overall net loss
      of
      $1,074,630 for the three months ended September 30, 2006. The overall net income
      represents an increase of $4,865,905 or 453% when compared to the three months
      ended September 30, 2006.




16




***Nine
      Months Ended September 30, 2007 Compared With the Nine Months Ended September
      30, 2006***




**Revenues**




For
      the
      nine months ended September 30, 2007, the Company had sales of $8,893,445
      compared to sales of $4,948,504 for the nine months ended September 30, 2006
      resulting in an increase of $3,944,941 or 80%. 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
      nine months ended September 30, 2007, cost of sales was $6,550,786 compared
      to
      $3,400,872 for the nine months ended September 30, 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 $3,149,914 or 93% 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 nine months ended September 30, 2007 were $3,703,725 compared
      to $3,545,841 for the nine months ended September 30, 2006. The increase of
      $157,884 or 4% in operating expenses is primarily due to general and
      administrative expenses that were incurred in the operations of Nexus. The
      increase consisted of additional insurance and facility cost of $255,713, travel
      costs of $20,018, depreciation costs of $20,522, other operating costs of
      $101,120 and professional services of 5,156. These cost increases were offset
      by
      decreases in marketing costs or $8,908, personnel costs of $159,756 and
      administrative costs of $75,981. These costs and other expenses were incurred
      in
      connection with the Company's change in business strategy for the nine month
      period.




**Other
      Income and expense**




The
      Company had net other expense of $997,001 for the nine months ended September
      30, 2007 compared to $246,319 for the nine months ended September 30, 2006
      for
      an increase in other expenses of $750,682 or 305%. Expenses were increased
      by
      interest expense of $460,428, amortization of debt discount of $798,521,
      amortization of debt offering costs of $172,473 and a decrease in interest
      income of $118. These increases were offset by increases in a gain on the
      settlement of certain trade payables of $97,749 and by a change in the
      derivative liability valuation of $583,109.




**Net
      income (loss)**




As
      a
      result of the foregoing, the Company recorded a net loss from continuing
      operations of $2,358,067 and an overall net loss of $723,334 including a net
      gain on discontinued operations for the nine months ended September 30, 2007
      compared to a net loss from continuing operations of $2,244,528 and an overall
      net loss of $2,406,426 for the nine months ended September 30, 2006. The overall
      net loss represents a decrease in the net loss of $1,683,092 or
      70%.




**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 $341,378 at September 30, 2007 and $776,139 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.




The
      Company entered into a Securities Purchase Agreement with Cornell, dated as
      of
      February 6, 2006, which provided for the purchase by Cornell 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) $1.00 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 will be entitled to convert the 2006 A
      Debenture at a conversion price into Common Stock, provided that Cornell cannot
      convert into shares of Common Stock that would cause Cornell to own more than
      4.9% of the issued and outstanding Common Stock. The 2006 A Debenture bears
      interest at 5% per annum and the principal amount is 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.




17




On
      February 6, 2006, the Company entered into an Investment Agreement with Cornell,
      pursuant to which the Company exchanged with Cornell 1,000,000 shares of Series
      G Convertible Preferred Stock (the "Series G Preferred Shares") for 4,500,000
      shares of the Company's Common Stock owned by Cornell. Each share of Series
      G
      Preferred Shares may be converted, at Cornell’s discretion, into 4.5 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 Shares has a liquidation preference of $10.00 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,
      which provided for the purchase by Cornell 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) $1.00 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, the Company's obligations
      under the 2006 B Debenture are secured by a pledge of all of its
      assets.




In
      connection with the August 21, 2006 Securities Purchase Agreement, the Company
      issued a warrant to Cornell for 1,000,000 shares of the Company’s Common Stock
      (the “2006 B Warrant”). The 2006 B Warrant has an exercise price equal to $1.00,
      which may be adjusted under the terms of the 2006 B Warrant, and has a term
      of
      five years from the date of issuance on August 21, 2006. The Company also
      entered into a Registration Rights Agreement with Cornell pursuant to which
      the
      Company agreed to file a registration statement covering the resale of shares
      of
      Common Stock issuable upon conversion of the Debenture.




On
      June
      1, 2007, the Company entered into a Securities Purchase Agreement with Cornell,
      which provided for the purchase by Cornell of a secured convertible debenture
      (the “Debenture”) in the amount of $2,750,000. The Debenture is convertible into
      the Company’s common stock, par value $0.001 per share (the “Common Stock”),
      based on a conversion price which shall be equal to the lesser of (1) $0.40
      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 Debenture bears
      interest at 12% per annum and the principal amount will be payable on the third
      anniversary of the effective date of the Debenture. If the closing bid price
      of
      the Common Stock is trading below the conversion price at the time of the
      redemption notice, the Company shall pay an amount equal to the principal amount
      being redeemed plus a redemption premium equal to ten percent (10%) of the
      principal amount being redeemed, and accrued interest. Pursuant to a Security
      Agreement between the Company and Cornell and a Pledge and Escrow Agreement
      between the Company, Cornell and the escrow agent, issued in connection
      with the Debenture, the Company's obligations under the Debenture are secured
      by
      a pledge of all of its assets. In connection with the sale of the Debenture,
      the
      Company also entered into an Agreement with Cornell (the “Agreement”) increasing
      the interest rate payable under certain existing convertible debentures issued
      by the Company to Cornell in an aggregate amount of $8,000,000 from 5% to 10%
      per annum, modifying the registration rights associated with such existing
      debentures to require the Company to file a registration statement covering
      the
      resale of shares of Common Stock issuable upon conversion of the existing
      debentures only upon demand by Cornell of such filing and waiving any penalty
      due for the failure to register the shares through the date of the
      Agreement.




In
      connection with the June 1, 2007 Securities Purchase Agreement, the Company
      issued a warrant to Cornell for 800,000 shares of the Company’s Common Stock
      (the “2007 A Warrant”). The 2007 A Warrant has an exercise price equal to $0.15,
      which may be adjusted under the terms of the 2007 A Warrant, and has a term
      of
      five years from the date of issuance on June 1, 2007. The Company also entered
      into a Registration Rights Agreement with the Cornell pursuant to which the
      Company is obligated to file a registration statement covering the resale of
      shares of Common Stock issuable upon the conversion of the
      Debenture.




18




During
      the nine months ended September 30, 2007, we had a net decrease in cash of
      $434,761. Our sources and uses of funds were as follows:




**Cash
      Flows from Operating Activities**




We
      provided net cash of $1,093,038 in our operating activities during the nine
      month period ended September 30, 2007. Our net cash increase provided by
      operating activities was generated by $267,145 from the use of stock based
      payments for costs and expenses, $55,988 in depreciation and amortization,
      $582,470 in write down of subsidiaries’ assets, $1,970,989 in amortization of
      debt discount and debt offering costs, $650,680 in net changes in operating
      assets and liabilities , including non cash items of assets of discontinued
      operations and assets held for sale. Cash was used as a result of the reduction
      in the valuation reserve for accounts receivable of $128,329, the reduction
      in
      the valuation loss on the derivative liabilities of $1,471,547, the Company’s
      net loss of $723,334, and the settlement of debts of $111,024.




**Cash
      Flows from Investing Activities**




We
      used
      net cash of $3,428,561 in our investing activities during the nine month period
      ended September 30, 2007 through the purchases of fixed assets of $82,574,
      advancing $508,082 to an unconsolidated affiliated company, receiving securities
      available for sale in the amount of $3,477,148 in the disposal of an operating
      subsidiary and the write down of $103,899 in the valuation of the securities
      available for sale. These
      uses were offset by investing activities of $743,142 from discontinued
      operations.




**Cash
      Flows from Financing Activities**




We
      were
      provided cash of $1,900,762 from financing activities during the nine month
      period ended September 30, 2007, consisting of issuance of $2,750,000 of
      convertible debentures (net of $282,486 in issuance costs) and proceeds from
      debt used to acquire operating assets of $44,395. Cash was used by the financing
      activities of discontinued operations of $611,147.




As
      of
      September 30, 2007, we had a deficit in net working capital of $4,963,727.




19


**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 September 30, 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 effective as of
      September 30, 2007.




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.




In
      2007,
      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.




***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.




20


**PART
      II**




**ITEM
      1. LEGAL PROCEEDINGS**




None.




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




On
        September 28, 2007, a holder of the Company’s Series G Convertible Preferred
        Stock (the “Series G Stock”) converted 204,830 shares of Series G Stock into
        921,735 shares of Common Stock. No discounts or commissions were paid in
        connection with the conversion. The issuances were exempt from registration
        pursuant to Section 4(2) of the Securities Act.




**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.




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




The
      annual meeting of stockholders of the Company was held on July 10, 2007. The
      Company’s stockholders elected four directors at the annual meeting. The nameof
      each nominee and the number of shares voted for or against were as
      follows:




NOMINEE
            
            For
            
            WithheldC.
                Thomas McMillen
            
            
            38,182,564
            
            
            495,265Zev
                E. Kaplan
            
            
            38,162,564
            
            
            515,265Philip
                A. McNeill
            
            
            38,162,564
            
            
            515,265Brian
                C. Griffin
            
            
            38,161,564
            
            
            516,265




The
      stockholders of the Company also approved a resolution to amend the Certificate
      of Incorporation to effect a combination, or reverse split, of the Company’s
      Common Stock at a ratio of 1-for-100, with 22,283,887 votes cast for approval,
      1,549,856 votes cast against approval and 33,319 votes abstaining. In total,
      23,867,062 or approximately 57% of the Company’s outstanding shares were voted
      at the annual meeting.




No
      other
      matters (other than procedural matters) were voted upon at the annual
      meeting.




**ITEM
      5. OTHER INFORMATION**




None.




**ITEM
      6. EXHIBITS AND REPORTS ON FORM 8-K**




(a)
      Exhibits




10.1
            
            Purchase
                Agreement, dated as of July 3, 2007, between the Company, the other
                shareholders of Security Holding Corp., and SuperCom, Inc.
            
            Filed
                as Exhibit 10.1 to the Current Report of Form 8-K filed on July 10,
                200731.1
            
            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




21




(b)
      Reports on Form 8-K





On
      July
      10, 2007, the Company filed a Current Report on Form 8-K reporting the execution
      of an agreement to sell all of its ownership interest in Security Holding
      Corp.




22


**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 T. BriganteMichael
                T. Brigante
                Chief
                  Financial OfficerNovember
                14, 2007




23