**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


Washington,
      D.C. 20549





**FORM
      10-QSB**





(MARK
      ONE)





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





For
      the
      quarterly period ended March 31, 2008





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 CORPORATE 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 49,346,274 shares of the issuer’s common stock, par value $.001 per share,
      outstanding as of May 14, 2008.





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 quarter ended March 31, 2008
      and
      for the three month periods ended March 31, 2008 and 2007, 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 under Subpart A of Regulation S-B.
      Accordingly, these interim unaudited financial statements do not include all
      the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements. In the opinion of management, all adjustments
      (consisting of normal recurring adjustments) considered necessary for a fair
      presentation have been included. Operating results for the three month period
      ended March 31, 2008, are not necessarily indicative of the results that may
      be
      expected for the year ending June 30, 2008 (see Note 15). 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, 2007. 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 March 31, 2007 balances
      have
      been reclassified to conform to the March 31, 2008 financial statement
      presentation.




-
          2
          -





HOMELAND
      SECURITY CAPITAL CORPORATION AND SUBSIDIARIES


Consolidated
      Balance Sheet (Unaudited)





As
                of March 31, 2008AssetsCash
            
            $
            3,078,076Accounts
                receivable - net
            
            
            14,812,058Cost
                in excess of billings on uncompleted contracts
            
            
            4,240,358Other
                current assets
            
            
            249,603Total
                current assets
            
            
            22,380,095Fixed
                assets, net
            
            
            4,176,051Deferred
                financing costs - net
            
            
            906,064Notes
                receivable - related party
            
            
            479,148Assets
                held for sale
            
            
            2,493,572Other
                non-current assets
            
            
            178,670Goodwill
                and other intangible assets
            
            
            5,951,375Total
                assets
            
            $
            36,564,975Liabilities
                and Stockholders’ EquityCurrent
                liabilitiesAccounts
                payable
            
            $
            5,888,583Current
                portion of long term debt
            
            
            717,574Notes
                payable
            
            
            3,159,674Notes
                payable - related party
            
            
            1,500,000Accrued
                interest and other liabilities
            
            
            3,353,014Billings
                in excess of costs on uncompleted contracts
            
            
            1,064,077Deferred
                revenue
            
            
            40,277Total
                current liabilities
            
            
            15,723,199Long
                term debtNotes
                payable - related party, net of $1,718,850 discount
            
            
            12,220,073Term
                notes to banks
            
            
            1,649,199Other
                non-current liabilities
            
            
            117,575Total
                long term debt
            
            
            13,986,847Total
                liabilities
            
            
            29,710,046Warrants
                Payable - Series H Perferred Stock
            
            
            3,099,542Stockholders’
                EquityPreferred
                stock, $0.01 par value
            
            
            11,071,688Common
                stock, $0.001 par value, 200,000,000 shares authorized, 48,846,244
                shares
                issued and outstanding
            
            
            48,846Additional
                paid-in capital
            
            
            53,683,792Additional
                paid-in capital - warrants
            
            
            400,982Accumulated
                deficit
            
            
            (60,362,445
            )Accumulated
                comprehensive loss
            
            
            (1,087,476
            )Total
                stockholders’ equity
            
            
            3,755,387Total
                liabilities and stockholders’ equity
            
            $
            36,564,975





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





-
            3
            -





HOMELAND
      SECURITIES CAPITAL CORPORATION AND SUBSIDIARIES


Consolidated
      Statements of Operations (Unaudited)





Three Months
              Ended March
              31, 2008
            
            Three Months
              Ended March
              31, 2007Sales
            
            $
            5,797,905
            
            $
            2,385,388Cost
                of salesMaterials
            
            
            4,260,843
            
            
            1,377,489Labor
            
            
            426,303
            
            
            260,038Total
                cost of sales
            
            
            4,687,146
            
            
            1,637,527Gross
                profit on sales
            
            
            1,110,759
            
            
            747,861Operating
                expensesMarketing
            
            
            30,697
            
            
            8,402Personnel
            
            
            1,135,189
            
            
            684,416Insurance
                and facility costs
            
            
            154,803
            
            
            99,774Travel
                and transportation
            
            
            97,777
            
            
            60,086Other
                operating costs
            
            
            74,854
            
            
            34,520Depreciation
                and amortization
            
            
            148,626
            
            
            17,511Professional
                services
            
            
            411,038
            
            
            218,848Administrative
                costs
            
            
            155,127
            
            
            41,259Total
                operating expenses
            
            
            2,208,111
            
            
            1,164,816Operating
                loss
            
            
            (1,097,352
            )
            
            (416,955
            )Other
                income (expense)Interest
                expense
            
            
            (364,428
            )
            
            (105,186
            )Amortization
                of debt discounts
            
            
            (588,276
            )
            
            (469,193
            )Amortization
                of debt offering costs
            
            
            (114,062
            )
            
            (90,821
            )Adjustment
                of fair value of derivative liability
            
            
            (513,516
            )
            
            (708,075
            )Investment
                income
            
            
            5,889
            
            
            4,912Gain
                on extinguishment of debt
            
            
            3,377,997
            
            
            -Other
                income (expense)
            
            
            22,596
            
            
            26,261Total
                other income (expense)
            
            
            1,826,200
            
            
            (1,342,102
            )Income
                (loss) from continuing operations
            
            
            728,848
            
            
            (1,759,057
            )Loss
                from discontinued operations
            
            
            -
            
            
            (562,166
            )Net
                income (loss)
            
            $
            728,848
            
            $
            (2,321,223
            )Less
                preferred dividends and other beneficial features associated with
                preferred stock issuances (See Note 12)
            
            $
            7,216,332
            
            $
            -Net
                loss attributable to common stockholders
            
            $
            (6,487,484
            )
            $
            (2,321,223
            )Income
                (loss) per common share - basic and dilutedIncome
                (loss) from continuing operations
            
            $
            (0.13
            )
            $
            (0.05
            )Loss
                from discontinued operations
            
            
            0.00
            
            
            (0.01
            )Basic and
                diluted earnings per share
            
            $
            (0.13
            )
            $
            (0.06
            )Weighted
                average shares outstanding -Basic
                and diluted
            
            
            48,792,464
            
            
            41,755,250





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





-
            4
            -





HOMELAND
      SECURITIES CAPITAL CORPORATION AND SUBSIDIARIES


Consolidated
      Statements of Cash Flows (Unaudited)





Three Months
              Ended March 31,
              2008
            
            Three Months
              Ended March
              31, 2007Cash
                flows from operating activities:Net
                income (loss)
            
            $
            728,848
            
            $
            (2,321,223
            )Adjustments
                to reconcile net loss to net cash used in operating activities:Settlement
                of debt
            
            
            -
            
            
            (26,261
            )Gain
                on extinguishment of debt
            
            
            (3,377,997
            )
            
            -Value
                of vested options
            
            
            56,496
            
            
            95,214Depreciation
                and amortization
            
            
            148,626
            
            
            47,944Valuation
                reserve for accounts receivable
            
            
            57,407
            
            
            -Amortization
                of debt discount
            
            
            588,276
            
            
            469,193Amortization
                of debt offering costs
            
            
            114,062
            
            
            90,821Valuation
                losses for changes in derivative liability
            
            
            513,516
            
            
            708,075Changes
                in operating assets and liabilities:Accounts
                Receivable
            
            
            995,713
            
            
            (540,295
            )Inventories
            
            
            -
            
            
            228,844Costs
                in excess of billings on uncompleted contracts
            
            
            675,018
            
            
            141,862Other
                assets
            
            
            8,682
            
            
            (38,845
            )Accounts
                payable
            
            
            (176,790
            )
            
            348,468Billings
                in excess of costs on uncompleted contracts
            
            
            (457,199
            )
            
            (49,559
            )Accrued
                liabilities
            
            
            (329,144
            )
            
            -Deferred
                revenue
            
            
            40,277
            
            
            (50,000
            )Net
                cash (used in) operating activities
            
            
            (414,209
            )
            
            (895,762
            )Cash
                flows from investing activities:Purchase
                of fixed assets
            
            
            (21,131
            )
            
            (164,980
            )Payments
                received on notes receivable - related party
            
            
            813,432
            
            
            -Investment
                in equity of subsidiaries
            
            
            (9,176,480
            )
            
            -Net
                cash (used in) investing activities
            
            
            (8,384,179
            )
            
            (164,980
            )Cash
                flows from financing activities:Proceeds
                from preferred stock - related party
            
            
            6,190,000
            
            
            -Proceeds
                from senior notes - related party
            
            
            6,310,000
            
            
            -Debt
                offering costs
            
            
            (926,803
            )
            
            -Debt
                discount
            
            
            36,563
            
            
            -Proceeds
                from term debt
            
            
            209,183
            
            
            114,268Net
                cash provided by financing activities
            
            
            11,818,943
            
            
            114,268Net
                increase (decrease) in cash
            
            
            3,020,555
            
            
            (946,474
            )Cash,
                beginning of period
            
            
            57,521
            
            
            1,214,183Cash,
                end of period
            
            $
            3,078,076
            
            $
            267,709Cash
                paid for Interest
            
            $
            76,558
            
            $
            -





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





-
            5
            -





HOMELAND
      SECURITIES CAPITAL CORPORATION AND SUBSIDIARIES


Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit)
      (Unaudited)


For
      the
      three months ended March 31, 2008





Common
                Stock
            
            Additional
            
            Additional
              Paid-In
            
            
            
            Accumulated
            
            Total
              Stockholders’Preferred
              Stock
            
            Shares
            
            Amount
            
            Paid-In
              Capital
            
            Capital
                -
              Warrants
            
            Accumulated
                Deficit
            
            Comprehensive
                Income (Loss)
            
            Equity
              (Deficit)Balance,
                December 31, 2007
            
            $
            135,808
            
            
            48,764,677
            
            $
            48,765
            
            $
            47,799,790
            
            $
            -
            
            $
            (55,219,082
            )
            $
            (332,476
            )
            $
            (7,567,195
            )Conversion
                of convertible debentures
            
            
            
            
            
            81,567
            
            
            81
            
            
            3,105
            
            
            
            
            
            
            
            
            
            
            
            3,186Issuance
                of preferred stockSeries
                H
            
            
            8,655,880
            
            
            
            
            
            
            
            
            5,344,401
            
            
            
            
            
            (5,344,401
            )
            
            
            
            
            8,655,880Series
                I
            
            
            2,280,000
            
            
            
            
            
            
            
            
            480,000
            
            
            
            
            
            (480,000
            )
            
            
            
            
            2,280,000Series
                I warrants
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            400,982
            
            
            
            
            
            
            
            
            400,982Reduction
                in value of assets held for sale
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (755,000
            )
            
            (755,000
            )Dividends
                on Series H
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (47,810
            )
            
            
            
            
            (47,810
            )Value
                of vested stock options
            
            
            
            
            
            
            
            
            
            
            
            56,496
            
            
            
            
            
            
            
            
            
            
            
            56,496Net
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            728,848
            
            
            
            
            
            728,848Balance,
                March 31, 2008
            
            $
            11,071,688
            
            
            48,846,244
            
            $
            48,846
            
            $
            53,683,792
            
            $
            400,982
            
            $
            (60,362,445
            )
            $
            (1,087,476
            )
            $
            3,755,387





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)





**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 acquiring 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 intends to grow both
      organically and through acquisitions. The acquisition 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.





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





The
      accompanying interim condensed financial statements are unaudited, but in the
      opinion of management of the Company, contain all adjustments, which include
      normal recurring adjustments, necessary to present fairly the financial position
      at March 31, 2008, the results of operations for the three months ended March
      31, 2008 and 2007, and cash flows for the three months ended March 31, 2008
      and
      2007.





The
      Company was incorporated in 1997 as Celerity Systems, Inc. From its inception
      until June 2003, the Company was engaged in 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 (the “Investment Company Act”). 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 acquisitions 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 having a strong presence in the Mid-Atlantic region
      with a focus on the New York City market. At March 31, 2008, 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, was 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 9, the Company has sold its ownership interest in
      SHC
      in 2007 and discontinued operations in the RFID, access control and security
      software components of its 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 focused on the field of radiological detection and isotope
      identification. At March 31, 2008, the Company owned 51% of PMX.





In
      conjunction with its primary business plan, the Company, on March 13, 2008,
      entered into a Plan of Merger and Stock Purchase Agreement (the “Merger
      Agreement”) with Safety & Ecology Holdings Corporation (“Safety”) and
      certain persons named therein. Pursuant to the Merger Agreement, the Company
      purchased 10,550,000 shares of Safety’s Series A Convertible Preferred Stock
      (the “Preferred Shares”) for an aggregate purchase price of $10,550,000. As
      further described in Note 2, the Company effectively acquired 100% of Safety,
      subject to future management equity incentive programs, and at March 31, 2008
      owned 100% of the outstanding capital stock of Safety.


-
          7
          -





The
      Company owns a majority of the outstanding capital stock of its subsidiaries,
      has the right to appoint a majority of the directors to each of the subsidiary
      boards of directors and provides extensive advisory services to its
      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.





**2.
      Investment in Safety & Ecology Holdings Corporation**





On
      March
      13, 2008, the Company entered into the Merger Agreement with Safety. Previously,
      Safety and HSCC agreed, for the purposes of the transaction, to transfer
      effective control of SEC to HSCC as of March 1, 2008. From the period of March
      1, 2008 until the purchase consideration was exchanged, the Company recorded
      $59,736 for interest inputed during the period. The accompanying financial
      statements include the results of Safety from March 1, 2008, the effective
      date
      of acquisition, through March 31, 2008.





Pursuant
      to the Merger Agreement, the Company purchased 10,550,000 shares of Safety
      Series A Convertible Preferred Stock (the “Safety Preferred Shares”) and 20
      shares of Safety common stock for an aggregate purchase price of $10,550,020.
      Each Safety Preferred Share will accrue dividends cumulatively at the rate
      of
      eight percent (8%) per annum and is convertible into one (1) share of the Safety
      common stock at any time by the Company, subject to adjustment for stock
      dividends, stock splits, and similar events. Each Safety Preferred Share will
      be
      entitled to one vote as if converted into Safety common stock. The holders
      of
      the outstanding Safety Preferred Shares vote as a class on certain matters
      and
      will have the right to designate a majority of the board of directors of Safety.
      Each Safety Preferred Share will have a liquidation preference of $1.00 per
      share plus any accrued and unpaid dividends.





As
      stipulated in the Merger Agreement, MergerSub was merged with and into Safety
      (the "Merger"), with Safety surviving the Merger. In exchange for all of the
      issued and outstanding Safety common stock, the shareholders of Safety (the
      “Shareholders”) initially received: (1) an aggregate of 550,000 shares of
      Company’s Series I Convertible Preferred Stock (the “Series I Stock”)
      with an initial stated and liquidation value of $3,300,000, (2) warrants (the
      “Warrants”), par value $0.001 per share (the “Common Stock”) to purchase up to
      22,000,000 shares of the Common Stock, (3) unsecured promissory notes (the
      “Notes”) of Safety in an aggregate principal amount of $2,000,000, and (4)
      $3,900,000 in cash, (collectively, the “Merger Consideration”). Pursuant to the
      Merger Agreement, the Merger Consideration received by the Shareholders may
      be:
      (1) reduced based on Safety’s stockholders’ equity (as determined at closing)
      and (2) reduced or increased based on Safety’s working capital (as determined at
      closing). In addition, in the future, the Shareholders may receive up to an
      aggregate of $6,000,000 in Common Stock if certain performance criteria are
      achieved by Safety in 2008 and 2009. The Series I Stock and Warrants will be
      held in escrow for twelve months to offset any indemnification claims or
      purchase price adjustments pursuant to the Merger Agreement. As of March 27,
      2008, Safety secured an extension of their pending Radcon contract and qualified
      to release $1,800,000, in stated value, of the Series I Stock and Warrants
      from
      escrow.





Also
      pursuant to the Merger Agreement, (1) $6,650,000 in existing indebtedness of
      Safety was repaid, (2) $2,000,000 in Safety preferred stock was redeemed, and
      (3) approximately $2,400,000 of existing indebtedness of Safety was permitted
      to
      remain outstanding.





The
      Company amended its Certificate of Incorporation to designate 550,000 shares
      of
      its authorized preferred stock as Series I Convertible Preferred Stock. Each
      share of Series I Stock accrues a dividend of 12% per annum. The Series I Stock
      ranks *pari
      passu* with the
      Company’s Series H Convertible Preferred Stock (See Note 3) and is senior to all
      other series of the Company’s preferred stock and the Company’s common stock.
      The holder of the Series I Stock may convert the accrued dividends into
      Common Stock at a conversion price of $0.06 per share or receive a cash payment
      upon liquidation or sale of the Company. Each share of Series I Stock is
      convertible into 200 shares of Common Stock (effectively a conversion price
      of
      $0.038 per share at the date issued) and has a liquidation preference of $6.00
      per share.





The
      Warrants have an exercise price equal to $0.03, which may be adjusted under
      the
      terms of the Warrants, and have a term of five years from the date of issuance
      of March 14, 2008. The Notes accrue interest at a rate of 6% per annum and
      are subordinate to the existing indebtedness of Safety. Immediately following
      the Merger, the Company controlled 100% of the voting power of
      Safety.


-
          8
          -





The
      following is an unaudited condensed statement of operations for the three months
      ended March 31, 2008 and March 31, 2007 showing the combined results of
      operations of the Company (including all other consolidated subsidiaries) and
      Safety as though the Company had acquired the Safety shares on January 1, 2008
      and 2007 respectively:




**March
                2008**
            
            **March
                2007**Homeland
              Security Capital
              Corporation
              (Consolidated)
            
            Safety & Ecology
              Holdings
              Corporation(Safety)
            
            Pro Forma
            
            Homeland
              Security Capital
              Corporation
              (Consolidated)
            
            Safety & Ecology
              Holdings
              Corporation
              (Safety)
            
            Pro
                FormaSales
            
            $
            5,797,905
            
            $
            9,583,863
            
            $
            15,381,768
            
            $
            2,385,388
            
            $
            10,658,553
            
            $
            13,043,941Gross
                margin
            
            
            1,110,759
            
            
            2,140,919
            
            
            3,251,678
            
            
            747,861
            
            
            2,440,889
            
            
            3,188,750Operating
                income (loss)
            
            
            (1,097,352
            )
            
            534,741
            
            
            (562,611
            )
            
            (416,955
            )
            
            227,363
            
            
            (189,592
            )Net
                income (loss)
            
            $
            728,848
            
            $
            (123,913
            )
            $
            604,935
            
            $
            (2,321,223
            )
            $
            (374,006
            )
            $
            (2,695,229
            )Loss
                applicable to common shareholders
            
            $
            (6,487,484
            )
            $
            (123,913
            )
            $
            (6,611,397
            )
            $
            (9,537,555
            )
            $
            (374,006
            )
            $
            (9,911,561
            )Basic
                and diluted earnings (loss) per share
            
            $
            (0.13
            )
            $
            0.00
            
            $
            (0.13
            )
            $
            (0.24
            )
            $
            (0.01
            )
            $
            (0.25
            )





The
      following table summarizes the estimated fair values of the assets acquired
      and
      liabilities assumed at the date of acquisition, rounded to the nearest thousand.
      The Company is in the process of obtaining third party valuations of certain
      intangible assets: therefore, the allocation of the purchase price is
      preliminary and is subject to refinement.





Current
                assets
            
            $
            18,724,000Property,
                plant and equipment
            
            
            4,034,000Other
                assets
            
            
            29,000Goodwill
                and other intangible assets
            
            
            5,951,000Total
                assets acquired
            
            $
            28,738,000Current
                liabilities
            
            $
            13,501,000Long
                term debt
            
            
            1,885,000Other
                liabilities
            
            
            228,000Total
                liabilities assumed
            
            $
            15,614,000Net
                assets acquired
            
            $
            13,124,000





Goodwill
      and other intangible assets includes, $110,000 was assigned to non-compete
      agreements (3 month useful life), $1,618,000 was assigned to contracts (10
      year
      useful life), $5,000 was assigned to trademarks (indefinite life) and $4,103,000
      was assigned to goodwill.


-
          9
          -





**3.
      Securities Purchase Agreement with YA Global Investments,
      L.P.**





On
      March
      14, 2008, the Company entered into a Securities Purchase Agreement (“Purchase
      Agreement”) with YA Global Investments, L.P. (“YA”), which provided for the
      following transactions:




Pursuant
      to the Purchase Agreement, the Company has authorized the designation of its
      Series H Convertible Preferred Stock, par value $.01 per share (the "Series
      H
      Stock"), consisting of 10,000 shares of Series H Stock, which are convertible
      into shares of the Company’s Common Stock, in accordance with the terms of the
      Certificate of Designation of the Series H Stock of the Company (the
      "Certificate of Designation").




Pursuant
      to the Purchase Agreement, the Company sold to YA (1) $6,310,000 of senior
      secured notes (the “New Notes”) for a purchase price of $6,310,000, (2) 6,190
      Shares of Series H Stock (the “New Preferred Shares”) for a purchase price of
      $6,190,000, and (3) a warrant (the “YA Warrant”) to be initially exercisable to
      acquire 83,333,333 shares of Company’s common stock (the “Warrant
      Shares”).




The
      Company used $10,550,020 of the proceeds from the Purchase Agreement in the
      acquisition of Safety and the remaining amount and other consideration
      restructure the following debentures, related discounts and derivative
      liabilities:




(1)
        a Securities Purchase Agreement, dated as of February 6, 2006, (the
“February 2006 Purchase Agreement”), pursuant to which, among other things, YA
      purchased from the Company an aggregate original principal amount of $4,000,000
      of senior secured convertible debentures (the “February 2006 Debentures”), which
      had an outstanding principal balance at March 17, 2008 of $3,810,000, plus
      accrued and unpaid interest thereon.




(2)
        a Securities Purchase Agreement, dated as of August 21, 2006 (the “August
      2006 Purchase Agreement”), pursuant to which, among other things, YA purchased
      from the Company an aggregate original principal amount of $4,000,000 of senior
      secured convertible debentures (the “August 2007 Debentures”), which had an
      outstanding principal balance at March 17, 2008 of $4,000,000, plus accrued
      and
      unpaid interest thereon.




(3)
        a Securities Purchase Agreement, dated as of June 1, 2007 (the “June 2007
      Purchase Agreement”), pursuant to which, among other things, YA purchased from
      the Company an aggregate original principal amount of $2,750,000 of senior
      secured convertible debentures (the “June 2007 Debentures”), which are
      convertible into shares of Common Stock in accordance with the terms thereof,
      and which had an outstanding principal balance at March 17, 2008 of $2,750,000,
      plus accrued and unpaid interest thereon.




In
      addition, pursuant to the Purchase Agreement, YA exchanged (1) its February
      2006
      Debentures (but not accrued and unpaid interest thereon) in the amount of
      $3,810,000 for 3,810 Shares of Series H Stock (the “Exchanged Preferred Shares”
and collectively along with the New Preferred Shares, the “Preferred Shares”);
      and (2) its August 2006 Debentures and its June 2007 Debentures (but not accrued
      and unpaid interest thereon) for an aggregate original principal amount of
      $6,750,000 of senior secured notes (the “Exchanged Notes” and collectively along
      with the New Notes, the “Notes”).




Each
      share of Series H Stock accrues a dividend of 12% per annum. The holder of
      the Shares of Series H Stock (a “Series H Holder”) may convert the accrued
      dividends into Company common stock at a conversion price of $0.06 per share
      or
      receive a cash payment on liquidation or sale of the company. The Series H
      Stock
      will rank *pari
      passu* with the
      Company’s Series I Stock and senior to all other series of the Company’s
      preferred stock and the Company common stock. Each share of Series H Stock
      is convertible into 33,334 shares of Common Stock (effectively a conversion
      price of $0.03 per share) and has a liquidation preference of $1,000 per share.
      Each share of Series H Stock may be voted on an as-converted basis with the
      Company common stock but in no instance will the voting power of a Series H
      Holder with respect to its Series H Stock (when aggregated with all other Common
      Stock beneficially owned by the Series H Holder) be permitted to exceed 9.99%
      of
      the shares permitted to vote at a meeting of the Company’s stockholders. In
      addition, Series H Holders are restricted from conversions of the Series H
      Stock
      that will result in it beneficially owning more than 9.99% of the Common Stock
      following such conversion, which is subject to waiver by the Series H
      Holder.


-
          10
          -





The
      Notes
      accrue interest at a rate of 13% per annum and have a maturity date of
      March 13, 2010. The obligations of the Company pursuant to the Purchase
      Agreement and the Note have been guaranteed by Celerity Systems, Inc.
      (“Celerity”), Nexus and Homeland Security Advisory Services, Inc. (“HSAS”)
      pursuant to a Guaranty. The Notes are secured by the assets of the Company,
      Celerity and HSAS.




In
      connection with the Purchase Agreement, the Company issued to YA warrant to
      purchase up to 83,333,333 shares of Common Stock (the “YA Warrant”). The YA
      Warrant has an exercise price equal to $0.03, which may be adjusted under the
      terms of the YA Warrant, and has a term of five years from the date of issuance
      on March 17, 2008. In addition, the holder of the YA Warrant is restricted
      from exercises of the YA Warrant that will result in it beneficially owning
      more
      than 9.99% of the outstanding Common Stock following such exercise.  If the
      Company fails to file a registration statement, or if filed, fails to maintain
      the registration statements effectiveness covering the underlying shares
      pursuant to the YA Warrant, the Company will be required to settle the intrinsic
      value of the YA Warrant in cash. As a result of this feature in the Purchase
      Agreement the Company has recorded the value of the YA Warrant outside of
      permanent equity.





In
      connection with EITF 98-5 and EITF 0027, the Company reduced the carrying value
      of the Series H Stock for the fair value of the YA Warrant in the amount of
      $3,099,542. The Series H Stock was further reduced by $5,344,401 for the
      beneficial conversion feature of the security. Since the Series H Stock was
      convertible and the YA Warrant exercisable at the time of issuance, the
      Series H Stock was increased to stated value through a charge to retained
      earnings.




The
      Company also entered into a Registration Rights Agreement with YA pursuant
      to
      which the Company is obligated, upon request of YA (or its successors and
      assigns), to file a registration statement covering the resale of shares of
      Common Stock issuable upon the conversion of the Series H Stock and exercise
      of
      the YA Warrant.





In
      connection with the transactions pursuant to the Purchase Agreement, an
      affiliate of YA will receive a monitoring fee of $800,000 in the aggregate
      for
      its monitoring and managing the YA investment in the Company payable ratably
      on
      June 30, 2008 and September 30, 2008. In addition, such affiliate received
      $50,000 for its structuring of the transaction and its due diligence
      costs.





The
      Company amended its Certificate of Incorporation to designate 10,000 shares
      of
      its authorized preferred stock as Series H Stock.





**4.
      Fair Value of Investments Classified as Available-for-Sale**





On
      August
      29, 2007, the Company received 692,659 shares of Vuance, Ltd. (“Vuance”) common
      stock in exchange for all of its preferred stock in SHC. On March 31, 2008,
      the
      fair value of the Vuance common stock was $3.60 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 $755,000, reflecting the
      change in the fair value of the securities as an unrealized loss.





**5.
      Share-Based Compensation**





In
      2005,
      the Company issued to directors and an officer of the Company options to
      purchase 7,960,000 shares of 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 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 in the future. Of these options, 100,000 were
      forfeited in February 2008. In December 2006, the Company issued 250,000 options
      to an employee to purchase shares of Common Stock 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 in the future, vesting at 90,000
      shares per quarter for eight quarters.





Of
      the
      options granted in 2005, 2006 and 2007, options to purchase 218,523 shares
      of
      Common Stock vested and 100,000 options were forfeited during the three month
      period ended March 31, 2008 and the Company recorded $31,594 as compensation
      expense related to these options. During the three month period ended March
      31,
      2007, options to purchase 376,857 shares of Common Stock vested and the Company
      recorded $95,214 as compensation expense related to the vesting of these
      options.


-
          11
          -





The
      following table reflects options outstanding at the beginning of 2006, 2007
      and
      2008; options granted during 2006, 2007 and January 1, 2008 through March 31,
      2008; options exercised during 2006, 2007 and January 1, 2008 through March
      31,
      2008; options forfeited during 2006, 2007 and January 1, 2008 through March
      31,
      2008; options outstanding at December 31, 2006, December 31, 2007 and March
      31,
      2008; and options exercisable at December 31, 2006, December 31, 2007 and March
      31, 2008, along with their weighted average exercise price:





March
                2008
            
            December
                2007
            
            December
                2006Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              Price
            
            Options
            
            Weighted
              Average
              Exercise
              PriceOutstanding
                at beginning of Period
            
            
            9,660,000
            
            $
            0.103
            
            
            9,660,000
            
            $
            0.098
            
            
            7,960,000
            
            $
            0.096Granted
            
            
            -
            
            
            -
            
            
            1,239,210
            
            
            0.120
            
            
            1,800,000
            
            
            0.161Exercised
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -Forfeited
            
            
            (100,000
            )
            
            0.130
            
            
            (1,239,210
            )
            
            0.140
            
            
            (100,000
            )
            
            0.170Outstanding
                at end of Period
            
            
            9,560,000
            
            
            0.103
            
            
            9,660,000
            
            
            0.103
            
            
            9,660,000
            
            
            0.098Options
                exercisable at end of Period
            
            
            8,636,549
            
            $
            0.100
            
            
            8,418,026
            
            $
            0.100
            
            
            7,410,600
            
            $
            0.095




All
      of
      the options reflected in the table above have been restated to reflect a 1
      for
      100 reverse split of the Common Stock (See Note 8).





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 two of our subsidiaries to purchase 1,885,000 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.





**6.
      Debentures**





As
      discussed in Note 3, on March 14, 2008, the Company entered into a Purchase
      Agreement with YA, where YA acquired from the Company all of its convertible
      debentures. The transaction was accounted for as an extinguishment of debt
      resulting in a gain on the extinguishment of $3,377,997.




**7.
      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, (1) services in the case of Nexus and the newly
      acquired subsidiary Safety & Ecology Holdings Corporation (starting in the
      first quarter of 2008) and (2) products in the case of PMX.


-
          12
          -





The
      following table reflects the Company’s segments at March 31, 2008:




Homeland
                Security Capital Corporation
              Consolidated
            
            Holding
              Company
              (HSCC)
            
            Services
              Company
              (Nexus
                )
            
            Products
              Company
              (PMX.)
            
            Services
              Company
              (Safety)
            
            ConsolidatedRevenues
            
            $
            -
            
            $
            1,278,317
            
            $
            -
            
            $
            4,519,588
            
            $
            5,797,905Gross
                margin
            
            
            -
            
            
            139,563
            
            
            -
            
            
            971,196
            
            
            1,110,759Operating
                expenses
            
            
            661,525
            
            
            540,539
            
            
            54,135
            
            
            803,287
            
            
            2,059,486Depreciation
                expense
            
            
            2,300
            
            
            17,595
            
            
            -
            
            
            128,730
            
            
            148,625Other
                income (expenses) – net
            
            
            1,898,548
            
            
            (6,905
            )
            
            -
            
            
            (65,443
            )
            
            1,826,200Net
                income (loss) from continuing operations
            
            
            1,234,723
            
            
            (425,476
            )
            
            (54,135
            )
            
            (26,264
            )
            
            728,848Current
                assets
            
            
            1,184,899
            
            
            2,944,632
            
            
            1,448
            
            
            18,249,117
            
            
            22,380,096Total
                assets
            
            
            5,146,948
            
            
            3,206,099
            
            
            1,448
            
            
            28,210,481
            
            
            36,564,977





**8.
      Reverse Stock Split**





At
      the
      Company’s stockholders meeting held on July 10, 2007, the stockholders approved
      a resolution to amend the Certificate of Incorporation to effect a combination,
      or reverse split, of the 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. All share and per share amounts for all periods presented,
      reflect this reverse stock split.





**9.
      Discontinued Operations**





The
      Company discontinued its RDIF, access control and security software businesses
      upon the closing of the sale of its capital stock of its SHC subsidiar y,
      effective August 29, 2007. Previously, on 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 all of its capital stock
      in SHC to 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.




On
      August
      29, 2007, 692,659 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 months
      ended March 31, 2007.  The following table reflects selected elements of
      SHC’s three month results for the period ended March 31, 2007.


-
          13
          -





Three Months
              Ended
              March 31, 2007Revenue
            
            $
            1,447,300Gross
                Margin
            
            
            643,989Operating
                expenses
            
            
            1,216,897Other
                Income (Expense)
            
            
            10,742Net
                Loss
            
            
            (562,166
            )Net
                Assets
            
            
            2,301,845Net
                Liabilities
            
            
            1,602,596


-
          14
          -


**10.
      Adoption of SFAS No. 157**





Effective
      January 1, 2008, we adopted SFAS No. 157, which among other things,
      requires enhanced disclosures about assets and liabilities carried at fair
      value. As defined in SFAS No. 157, fair value is the price that would be
      received to sell an asset or paid to transfer a liability in an orderly
      transaction between market participants at the measurement date (exit price).
      We
      utilize market data or assumptions that market participants would use in pricing
      the asset or liability, including assumptions about risk and the risks inherent
      in the inputs to the valuation technique. These inputs can be readily
      observable, market corroborated or generally unobservable. We primarily apply
      the market approach for recurring fair value measurements and attempt to utilize
      the best available information. SFAS No. 157 establishes a fair value
      hierarchy that prioritizes the inputs used to measure fair value. The hierarchy
      gives the highest priority to unadjusted quoted prices in active markets for
      identical assets or liabilities (level 1 measurement) and lowest priority to
      unobservable inputs (level 3 measurement). The three levels of fair value
      hierarchy defined by SFAS No. 157 are as follows:





Level
      1 — Quoted prices are available in active markets for identical assets or
      liabilities as of the reporting date.





Level
      2 — Pricing inputs are other than quoted prices in active markets included in
      Level 1, which are either directly or indirectly observable as of the reporting
      date. Level 2 includes those financial instruments that are valued using models
      or other valuation methodologies. These models are primarily industry-standard
      models that consider various assumptions, including quoted forward prices for
      commodities, time value, volatility factors, and current market and contractual
      prices for the underlying instruments, as well as other relevant economic
      measures. At March 31, 2008, we have no significant Level 2
      measurements.





Level
      3 — Pricing inputs include significant inputs that are generally less observable
      from objective sources. These inputs may be used with internally developed
      methodologies that result in management’s best estimate of fair value. At
      March 31, 2008, we have no significant Level 3 measurements.





As
      of
      March 31, 2008, the Company’s assets held for sale had a carrying value of
      $2,493,572, which was measured by quoted prices in active markets for identical
      assets.





The
      Company has not changed any reported amounts for net income from continuing
      operation, net income or any per share amounts as a result of this
      adoption.




**11.
      Line of Credit**





On
      March
      17, 2008, upon the consummation of the funding of the acquisition transaction
      between HSCC and SEC, SEC was extended a bank line of credit (the “Line of
      Credit”), which among other features includes:





·
            An
                $8,000,000 Revolving Line of Credit (initial duration is two years)
                available for working capital financing for SEC and all of its current
                and
                future subsidiaries including an inter-company facility for credit
                to
                foreign operations.





·
            A
                monthly borrowing base determination based upon domestic accounts
                receivable (availability at March 31, 2008 was approximately
                $6,400,000).





·
            Interest
                rate determined at LIBOR plus margin determined on a quarterly basis
                with
                reference to funded debt to domestic EBITDA ratio.  Margin range is
                1.2% to 1.95% for an EBITDA ratio of over 2.25:1.  Maximum ratio is
                2.5:1.





Currently,
      Safety classifies the Line of Credit as a current liability due to a subjective
      acceleration clause coupled with a required lockbox agreement, with the
      expectation that, with bank concurrence, the agreement will be amended to permit
      the reclassification to a long term liability. There are certain affirmative
      and
      negative covenants relating to the Line of Credit. Safety was in compliance
      with
      these covenants as of March 31, 2008.





At
      March
      31, 2008 the balance outstanding on the Line of Credit was
      $2,789,765.


-
          15
          -





**12.
      Earnings per Share**





Diluted
      earnings per share are computed using outstanding shares plus the common stock
      options and warrants that can be converted into common stock. Diluted earnings
      per share are not indicated for the three months period ending March 31, 2008
      or
      2007 because the both periods indicate losses and the computation would be
      anti-dilutive.





The
      reconciliations of the basic and diluted Earnings Per Share for income from
      continuing operations are as follows:





For
                the Three Months Ended March 31, 2008Income
              (Numerator)
            
            Shares
              (Denominator)
            
            Per
                Share
              AmountBasic
                and Diluted Earnings Per Share:Income
                from continuing operations
            
            $
            728,848Less:
                Warrants associated with the Series H Preferred Stock
            
            
            (1,344,121
            )Less:
                Series H Preferred Stock beneficial conversion feature
            
            
            (5,344,401
            )Less:
                Series I Preferred Stock beneficial conversion feature
            
            
            (480,000
            )Less:
                Preferred stock dividends
            
            
            (47,810
            )Income/(loss)
                available to common stockholders
            
            $
            (6,487,484
            )
            
            48,792,464
            
            $
            (0.13
            )





The
      adjustments to income from operations reflected in the table above are one
      time
      adjustments that are a result of the Company’s recent transaction with YA and
      the acquisition of Safety.





**13.
      Related Party Transactions**





Safety
      leases approximately 21,000 square feet of office space from Leichtweis
      Enterprises, LLC a company controlled by Christopher Leichtweis, our President.
      The space, in Knoxville, Tennessee, serves as the headquarters for Safety.
      The
      Company believes that the terms of such lease were made on terms no less
      favorable than could have been obtained from an unaffiliated third
      party.





**14.
      Recently Issued Accounting Pronouncements**





In
      September 2006, the FASB issued SFAS No. 157, “ *Fair
      Value Measurement* .”
This
      statement defines fair value, establishes a framework for measuring fair value
      in generally accepted accounting principles and expands disclosures about fair
      value measurements. SFAS No. 157 does not require any new fair value
      measurements but may require some entities to change their measurement
      practices. We adopted SFAS No. 157 effective January 1, 2008 and the
      adoption did not have a significant effect on our consolidated results of
      operations, financial position or cash flows. (See Note 10 for other disclosures
      required by SFAS No. 157)





In
      February 2007, the FASB issued SFAS No. 159, “ *The*  *Fair
      Value Option for Financial Assets and Financial Liabilities* .”
This
      statement permits entities to choose to measure many financial instruments
      and
      certain other items at fair value that are not currently required to be measured
      at fair value. It requires that unrealized gains and losses on items for which
      the fair value option has been elected be recorded in net income. The statement
      also establishes presentation and disclosure requirements designed to facilitate
      comparison between entities that choose different measurement attributes for
      similar types of assets and liabilities. We adopted SFAS No. 159 effective
      January 1, 2008 and the adoption did not have a significant effect on our
      consolidated results of operations, financial position or cash
      flows.





In
      March 2008, the FASB issued SFAS No. 161, “ *Disclosure*  *about
      Derivative Instruments and Hedging Activities, an amendment of FASB Statement
      No. 133* .”
SFAS
      No. 161 amends and expands the disclosure requirements of SFAS No. 133
      with the intent to provide users of financial statements with an enhanced
      understanding of: (i) how and why an entity uses derivative instruments;
      (ii) how derivative instruments and related hedged items are accounted for
      under SFAS No. 133 and its related interpretations; and (iii) how
      derivative instruments and related hedged items affect an entity’s financial
      position, financial performance and cash flows. This statement is effective
      for
      financial statements issued for fiscal years and interim periods beginning
      after
      November 15, 2008, with early application encouraged. We are in the process
      of evaluating the impact of SFAS No. 161 on our consolidated financial
      statements.


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          16
          -





In
      December 2007, the FASB issued SFAS No. 141(R), “ *Business
      Combinations.* ”
SFAS
      No. 141(R) replaces SFAS No. 141. The statement retains the purchase
      method of accounting for acquisitions, but requires a number of changes,
      including changes in the way assets and liabilities are recognized in the
      purchase accounting. It changes the recognition of assets acquired and
      liabilities assumed arising from contingencies, requires the capitalization
      of
      in-process research and development at fair value, and requires the expensing
      of
      acquisition-related costs as incurred. The statement will apply prospectively
      to
      business combinations occurring in our fiscal year beginning January 1,
      2009. We are in the process of evaluating the impact of SFAS No. 141(R) on
      our consolidated financial statements.





In
      April
      2008, the FASB issued Staff Position No. FAS 142-3 which amends the factors
      that
      should be considered in developing renewal or extension assumptions used to
      determine the useful life of a recognized intangible asset under FASB Statement
      No. 142, *“Goodwill
      and Other Intangible Assets.”* The
      intent of this FSP is to improve the consistency between the useful life of
      a
      recognized intangible asset under Statement 142 and the period of expected
      cash
      flows used to measure the fair value of the asset under FASB Statement No.
      141
      (revised 2007), *“Business
      Combinations”* and
      other U.S. generally accepted accounting principles (GAAP). We are in the
      process of evaluating the effect of FAS No. 142-3 on our consolidated financial
      statements.





**15.
      Subsequent Events**





On
      May
      13, 2008, the Company’s board of directors approved a change in the Company’s
      fiscal year to July 1 st through
      June 30 th .


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          17
          -


**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, 2007. 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 and services, 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 BDC, to be regulated pursuant
      to 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 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 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 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 29, 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.


-
          18
          -





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.





On
      March
      13, 2008, the Company entered into an Agreement and Plan of Merger and Stock
      Purchase Agreement with Safety & Ecology Holdings Corporation (“Safety”).
      Safety is an environmental services company in the U.S., providing services
      worldwide. Safety specializes in the removal and remediation of hazardous
      nuclear waste for the U.S. Departments of Energy and Defense and other federal
      agencies, and in providing advanced environmental services for private industry
      in the U.S. and worldwide. Since its founding in 1991, Safety has grown
      approximately 30 percent per year, and has emerged as a technology innovator
      with more than 420 personnel worldwide.  Through
      a
      merger of Safety with a subsidiary of the Company, the
      Company acquired 100% of the voting and economic interests of
      Safety.  Effective
      control of Safety by the Company was deemed to have occurred on March 1, 2008,
      through the purchase of all of the outstanding stock of Safety. (See Note
      2) **.**




Where
      applicable in this quarterly report, references to the ‘Company’, ‘we’, ‘us’ and
‘our’ shall include Nexus, PMX and Safety, 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 – Safety recognizes revenue on their environmental and
      remediation services performed under time and material and fixed fee contracts.
      Revenues and costs associated with fixed price contracts are recognized using
      the percentage of completion method. Revenue and cost associated with time
      and
      material contracts is recognized as revenue is earned and costs are incurred.
      Nexus recognizes revenue on their security system installation and integration
      contracts using the percentage of completion method. PMX recognizes revenue
      based on the 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 senior secured notes.


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          19
          -





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.





Goodwill –
      The Company records goodwill on acquisitions where the purchase price exceeds
      the fair value of the assets acquired and the liabilities assumed. The Company,
      on a routine basis, measures goodwill to determine if any amount recorded is
      impaired. If impairment is determined, the Company adjusts the value of goodwill
      on the date impairment is first recognized.




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 four
      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 March 31, 2008 Compared With the Three Months Ended March 31,
      2007***




**Revenues**




For
      the
      three months ended March 31, 2008, the Company had sales of $5,797,905 compared
      to sales of $2,385,388 for the three months ended March 31, 2007, resulting
      in
      an increase of $3,412,517 or 143%. Sales consisted of fees earned on
      environmental remediation services and security systems installation and
      integration contracts. The increase in sales is primarily due to the acquisition
      of Safety, with revenues being recorded from March 1, 2008 in the amount of
      $4,419,588, offset by a decline in Nexus revenues of $1,007,071 for the three
      month period ended March 31, 2008 as compared to the three month period ended
      March 31, 2007.




**Cost
      of goods sold**




For
      the
      three months ended March 31, 2008, cost of sales was $4,687,146 compared to
      $1,637,527 for the three months ended March 31, 2007. Cost of sales consists
      of
      materials, labor and other costs incurred by the Company and associated with
      environmental remediation and security systems installation and integration
      contracts. The increase in cost of sales of $3,049,619, or 186%, is primarily
      due to due to the acquisition of Safety, with cost of goods sold being recorded
      from March 1, 2008 in the amount of $3,548,392, offset by a decline in Nexus
      cost of goods sold of $498,773 for the three month period ended March 31, 2008
      as compared to the three month period ended March 31, 2007.




**Operating
      expenses**




Operating
      expenses for the three months ended March 31, 2008 were $2,208,111 compared
      to
      $1,164,816 for the three months ended March 31, 2007. The increase of $1,043,295
      or 90% in operating expenses is primarily due to the acquisition of Safety,
      with
      operating expenses being recorded from March 1, 2008 in the amount of $981,028,
      further increased by increases in operating expenses in the Company of $80,314
      and reduced by a decrease in operating expenses of $18,047 at Nexus for the
      three month period ended March 31, 2008 as compared to the three month period
      ended March 31, 2007.


-
          20
          -





**Other
      income and expense**




The
      Company had net other income of $1,826,200 for the three months ended March
      31,
      2008 compared to net other expense of $1,342,102 for the three months ended
      March 31, 2007, for an increase in other income of $3,168,302 or 236%. Income
      was increased by a gain on the extinguishment of debt of $3,377,997, an increase
      in other income of $22,595, an increase in interest income of $979 and a change
      in the derivative liability valuation of $194,559, offset by increases in
      interest expense of $259,242, amortization of debt discount of $119,083,
      amortization of debt offering costs of $23,241 and a decrease in revenue from
      settlement of debt of $26,260. Primarily, all of these other income and expense
      items occurred at the Company.




**Net
      income (loss)**




As
      a
      result of the foregoing, the Company recorded net income from continuing
      operations of $728,848 for the three months ended March 31, 2008, compared
      to a
      net loss from continuing operations of $1,759,057 and an overall net loss
      including discontinued operations of $2,321,223 for the three months ended
      March
      31, 2007. The overall net income represents an increase of $3,050,071 or 131%
      when compared to the three months ended March 31, 2007. The net income of
      $728,848 reflects net other non operating income of $1,826,200 reduced by
      operating losses $663,825, $474,461, $54,135 and $45,274 at the Company, Nexus,
      PMX and Safety respectively.





**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 $3,078,076 at March 31, 2008 and $57,521 at December 31, 2007. 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 YA, dated as of
      February 6, 2006, which provided for the purchase by YA of a Convertible
      Debenture (the "2006 A Debenture") in the amount of $4,000,000, which debenture
      was convertible into Common Stock.




On
      February 6, 2006, the Company entered into an Investment Agreement with YA,
      pursuant to which the Company exchanged with YA 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 YA. Each share of Series G
      Preferred Shares may be converted, at YA’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 YA,
      which provided for the purchase by YA of a secured Convertible Debenture (the
      "2006 B Debenture") in the amount of $4,000,000, which debenture was convertible
      into Common Stock.




In
      connection with the August 21, 2006 Securities Purchase Agreement, the Company
      issued a warrant to YA for 1,000,000 shares of the 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 YA pursuant to which the Company agreed
      to
      file a registration statement covering the resale of shares of Common Stock
      issuable upon exercise of the Debenture.




On
      June
      1, 2007, the Company entered into a Securities Purchase Agreement with YA,
      which
      provided for the purchase by YA of a secured convertible debenture (the
“Debenture”) in the amount of $2,750,000.




In
      connection with the June 1, 2007 Securities Purchase Agreement, the Company
      issued a warrant to YA 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 YA pursuant to which the Company
      is obligated to file a registration statement covering the resale of shares
      of
      Common Stock issuable upon the exercise of the 2007 A Warrant.


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          21
          -





The
      Company entered into a Purchase Agreement with YA wherein YA purchased
      $6,310,000 in secured notes and $6,190,000 in Series I Convertible
      Preferred Stock in addition to a Warrant exercisable for 83,333,333 shares
      of
      the Company’s Common Stock. The Company used the proceeds from this Purchase
      Agreement fund the acquisition of Safety and to restructure the debentures
      noted
      above (See Note 3).





During
      the three months ended March 31, 2008, we had a net increase in cash of
      $3,020,555. Our sources and uses of funds were as follows:




**Cash
      Flows from Operating Activities**




We
      used
      net cash of $414,209 in our operating activities during the three month period
      ended March 31, 2008. Our net cash decrease in operating activities was
      generated by $819,954 in net changes in operating assets and liabilities,
      $728,848 in net income, $702,338 in amortization of debt discount and debt
      offering costs, $513,516 from the valuation change in derivative liabilities,
      $148,626 in depreciation and amortization, $56,496 from the use of stock based
      payments for costs and expenses and $57,407 as a result of the reduction in
      the
      valuation reserve for accounts receivable.


-
          22
          -


**Cash
      Flows from Investing Activities**




We
      used
      net cash of $8,384,179 in our investing activities during the three month period
      ended March 31, 2008 through the purchases of fixed assets of $21,131 and
      $9,176,480 for investment in equity of subsidiaries. These uses were offset
      by
      payments on notes from related parties of $813,432.




**Cash
      Flows from Financing Activities**




We
      were
      provided cash of $11,818,943 from financing activities during the three month
      period ended March 31, 2008, consisting of issuance of preferred stock of
      $6,190,000, proceeds from senior notes of $6,310,000, proceeds from term debt
      of
      $209,183 and debt discount of $36,563. Cash was used in financing activities
      for
      debt offering costs of $926,803.




As
      of
      March 31, 2008, we had a net working capital of $6,656,896.


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          23
          -


**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 Securities & Exchange Commission. C. Thomas McMillen,
      our Chief Executive Officer, and Michael Brigante, our Chief Financial Officer,
      are responsible for establishing and maintaining disclosure controls and
      procedures for our company.




Our
      management has evaluated the effectiveness of our disclosure controls and
      procedures as of March 31, 2008 (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 March
      31, 2008.




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.





***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.


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          24
          -




**RISK
      FACTORS**




**WE
      ARE SUBJECT TO VARIOUS RISKS, WHICH MAY MATERIALLY HARM OUR BUSINESS, FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS. YOU SHOULD CAREFULLY CONSIDER THE RISKS
      AND
      UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS FILING BEFORE
      DECIDING TO PURCHASE OUR COMMON STOCK. IF ANY OF THESE RISKS OR UNCERTAINTIES
      ACTUALLY OCCURS, OUR BUSINESS, FINANCIAL CONDITION OR OPERATING RESULTS COULD
      BE
      MATERIALLY HARMED. IN THAT CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD
      DECLINE AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.**




***We
      Have A Limited Operating History Which Makes It Difficult To Evaluate Our
      Current Business And Future Prospects And May Cause Our Revenues To
      Decline***




The
      Company consolidates companies in the homeland security industry. Until its
      acquisitions of Nexus and Security Holding Corp. in 2006, its joint venture
      with
      Polimaster in 2006, and its acquisition of Safety & Ecology Holdings
      Corporation in 2008, the Company had not generated any revenues other than
      interest income on its cash since 2002. The Company’s ability to generate
      revenues and earnings (if any) will be directly dependent upon the operating
      results of such acquired business and any additional acquisitions, and the
      successful integration and consolidation of those businesses. No assurances
      can
      be given that we will be successful in generating revenues and earnings based
      on
      our business model.




***We
      Are Dependent Upon Key Personnel Who Would Be Difficult To Replace And Whose
      Loss Could Impede Our Development***




The
      Company believes that its success depends principally upon the experience of
      C.
      Thomas McMillen, its Chairman and Chief Executive Officer , Christopher Leichtweis, its President, and Michael T. Brigante, its Chief
      Financial Officer. Although Messrs . McMillen,
      Leichtweis and Brigante have substantial experience in acquiring and
      consolidating businesses, our acquired companies personnel do not have
      significant experience in managing companies formed for the specific purpose
      of
      consolidating one or more companies. Additionally, Messrs. McMillen, Leichtweis and Brigante did not have
      experience in managing companies in the various sectors of the homeland security industry
      (other than McMillen’s experience in managing Fortress America Acquisition
      Corporation (“FAAC”)). As a result, the Company likely will rely significantly
      on the senior management of the businesses it acquires .
      Such
      acquired senior management may not be suitable to the Company’s business model
      or combined operations.




If
      the
      Company loses the services of one or more of its current executives, the
      Company’s business could be adversely affected. The Company may not successfully
      recruit additional personnel and any additional personnel that are recruited
      may
      not have the requisite skills, knowledge or experience necessary or desirable
      to
      enhance the incumbent management.




***Appropriate
      Acquisitions May Not Be Available Which May Adversely Affect Our
      Growth***




The
      results of the Company’s planned operations are dependent upon the Company’s
      ability to identify, attract and acquire additional desirable acquisition
      candidates, which may take considerable time. The Company may not be successful
      in identifying, attracting or acquiring additional acquisition candidates,
      in
      integrating such candidates into the Company or in realizing profits from any
      acquisition candidates, if acquired. The failure to complete additional
      acquisitions or to operate the acquired companies profitably would have a
      material adverse effect on the Company’s business, financial condition and/or
      results of operations.




***If
      Our Consolidation Strategy Is Not Successful, Our Operations And Financial
      Condition Will Be Adversely Affected***




One
      of
      the Company’s strategies is to increase its revenues, the range of products and
      services that it offers and the markets that it serves through the acquisition
      of additional homeland security businesses. To date, the Company has completed
      three acquisitions and has signed a nonbinding letter of intent with one other
      company. Investors have no basis on which to evaluate the possible merits or
      risks of any future acquisition candidates’ operations and prospects. Although
      management of the Company will endeavor to evaluate the risks inherent in any
      particular acquisition candidate, the Company may not properly ascertain all
      of
      such risks.




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          25
          -




Management
      of the Company has significant flexibility in identifying and selecting
      prospective acquisition candidates. Management may not succeed in selecting
      acquisition candidates that will be profitable or that can be integrated
      successfully. Although the Company intends to scrutinize closely the management
      of a prospective acquisition candidate in connection with evaluating the
      desirability of effecting a business combination, the Company’s assessment of
      management may not prove to be correct. The Company may enlist the assistance
      of
      other persons to assess the management of acquisition candidates.




One
      of
      the key elements of the Company’s internal growth strategy is to improve the
      profitability and increase the revenues of acquired businesses. The Company
      will
      seek to improve the profitability and increase the revenues of acquired
      businesses by various means, including combining administrative functions,
      eliminating redundant facilities, implementing system and technology
      improvements, purchasing products and services in large quantities and
      cross-selling products and services. The Company’s ability to increase revenues
      will be affected by various factors, including the Company’s ability to expand
      the products and services offered to the customers of acquired companies,
      develop national accounts and attract and retain a sufficient number of
      employees to perform the Company’s services. There can be no assurance that the
      Company’s internal growth strategies will be successful.




***Obligations
      Of Our Chief Executive Officer May Create A Conflict Of Interest That Could
      Adversely Affect The Company’s Operations***




Our
      Chairman and Chief Executive Officer, C. Thomas McMillen (“McMillen”) is
      required to devote at least 25 hours per week to the Company pursuant to an
      employment agreement, dated as of September 1, 2007, with the Company (the
      “McMillen Employment Agreement”). Mr. McMillen also serves as Chairman and
      Co-Chief Executive Officer of Secure America Acquisition Corporation (SAAC),
      a
      homeland security special purpose acquisition corporation (SPAC) that completed
      an initial public offering on October 29, 2007 and as Vice Chairman of Fortress
      International Group, Inc. (“FIGI”), a mission critical firm that is the
      successor company to FAAC which completed an initial public offering in July 2005. The officers and directors
      of
      SAAC and FIGI, including McMillen, have an obligation, so long as they are
      an
      officer or director, to present to SAAC and FIGI for its consideration, prior
      to
      presentation to any other entity, including the Company, any business
      opportunity which may reasonably be required to be presented to them under
      Delaware law, subject, however, to any pre-existing fiduciary or contractual
      obligations they might have. The McMillen Employment Agreement does not preclude
      McMillen from competing with the Company through his position as Chairman of
      SAAC or a Vice Chairman of FIGI. It is possible, however, that SAAC and FIGI
      will become a competitor of ours if the business it acquires serves markets
      or
      sectors of the homeland security industry the Company is serving.




***Our
      Inability To Successfully Integrate Our Acquisitions May Adversely Affect Our
      Operations And Financial Condition***




The
      Company’s business model is based upon an aggressive acquisition program. No
      assurance can be given that the Company will be able to successfully integrate
      its future acquisitions without substantial costs, delays or other problems.
      The
      costs of such acquisitions and their integration could have an adverse effect
      on
      short-term operating results. Such costs could include severance payments to
      employees of such acquired companies, restructuring charges associated with
      the
      acquisitions and other expenses associated with a change of control, as well
      as
      non-recurring acquisition costs including accounting and legal fees, investment
      banking fees, recognition of transaction-related obligations and various other
      acquisition-related costs. Any failure by the Company to make acquisitions
      would
      have a material adverse effect on the Company’s business, financial condition
      and results of operations. Moreover, the Company may be unable to replicate
      the
      success in consolidating various industries that other consolidators have
      achieved.




The
      Company may not be able to execute successfully its consolidation strategy
      or
      anticipate all of the changing demands that consolidation transactions will
      impose on its management personnel, operational and management information
      systems and financial systems. The integration of newly acquired companies
      may
      also lead to diversion of management attention from other ongoing business
      concerns. In addition, the rapid pace of acquisitions may adversely affect
      the
      Company’s efforts to integrate acquisitions and manage those acquisitions
      profitably. Moreover, it is possible that neither management of the Company
      nor
      management of any of the acquired companies will have the necessary skills
      to
      manage a company implementing an aggressive acquisition program. The Company
      may
      seek to recruit additional managers to supplement the incumbent management
      of
      the acquired companies but the Company may not have the ability to recruit
      additional managers with the skills necessary to enhance the management of
      the
      acquired companies. Any or all of these factors could have a material adverse
      effect on the Company’s business, financial condition and/or results of
      operations.




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          26
          -




***Competition
      And Industry Consolidation May Limit Our Ability To Implement Our Business
      Strategies***




The
      Company expects to face significant competition to acquire homeland security
      businesses from larger companies that currently pursue, or are expected to
      pursue, acquisitions as part of their growth strategies and as the industry
      undergoes continuing consolidation. Such competition could lead to higher prices
      being paid for acquired companies.




The
      Company believes that the homeland security industry will undergo considerable
      consolidation during the next several years. The Company expects that, in
      response to such consolidation and in light of the Company’s financial
      resources, it will consider from time to time additional strategies to enhance
      stockholder value. These include, among others, strategic alliances and joint
      ventures; purchase, sale and merger transactions with other large companies;
      and
      other similar transactions. In considering any of these strategies, the Company
      will evaluate the consequences of such strategies, including, among other
      things, the potential for leverage that would result from such a transaction,
      the tax effects of the transaction, and the accounting consequences of the
      transaction. In addition, such strategies could have various other significant
      consequences, including changes in management, control or operational or
      acquisition strategies of the Company. There can be no assurance that any one
      of
      these strategies will be undertaken, or that, if undertaken, any such strategy
      will be completed successfully.




***Failure
      To Qualify For Investment Company Act Exemptions Could Adversely Effect Our
      Growth And Financial Condition***




The
      regulatory scope of the Investment Company Act extends generally to companies
      engaged primarily in the business of investing, reinvesting, owning, holding
      or
      trading in securities. The Investment Company Act also may apply to a company
      which does not intend to be characterized as an investment company but which,
      nevertheless, engages in activities that bring it within the Investment Company
      Act’s definition of an investment company. The Company believes that its
      principal activities, which will involve acquiring control of operating
      companies and providing managerial and consulting services, will not subject
      the
      Company to registration and regulation under the Investment Company Act. The
      Company intends to remain exempt from investment company regulation either
      by
      not engaging in investment company activities or by qualifying for the exemption
      from investment company regulation available to any company that has no more
      than 45% of its total assets invested in, and no more than 45% of its income
      derived from, investment securities, as defined in the Investment Company
      Act.




There
      can
      be no assurance that the Company will be able to avoid registration and
      regulation as an investment company. In the event the Company is unable to
      avail
      itself of an exemption or safe harbor from the Investment Company Act, the
      Company may become subject to certain restrictions relating to the Company’s
      activities, as noted below, and contracts entered into by the Company at such
      time that it was an unregistered investment company may be unenforceable. The
      Investment Company Act imposes substantive requirements on registered investment
      companies including limitations on capital structure, restrictions on certain
      investments, prohibitions on transactions with affiliates and compliance with
      reporting, record keeping, voting, proxy disclosure and other rules and
      regulations. Registration as an investment company could have a material adverse
      effect on the Company.




***Potential
      Tax Consequences Of Our Acquisitions May Adversely Affect Our Financial
      Conditions***




As
      a
      general rule, federal and state tax laws and regulations have a significant
      impact upon the structuring of business combinations. The Company will evaluate
      the possible tax consequences of any prospective business combination and will
      endeavor to structure the business combination so as to achieve the most
      favorable tax treatment to the Company, the acquisition candidate and their
      respective stockholders. Nonetheless, the Internal Revenue Service (the “IRS”)
      or appropriate state tax authorities may not ultimately agree with the Company’s
      tax treatment of a consummated business combination. To the extent that the
      IRS
      or state tax authorities ultimately prevail in recharacterizing the tax
      treatment of a business combination, there may be adverse tax consequences
      to
      the Company, the acquisition candidate and/or their respective
      stockholders.




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          27
          -


*We
      May Be Dependent On Government
      Contracts For A Substantial Portion Of Our Revenues, And Any Reduction In The
      amount Of Business We Do With Federal, State And Local Governments And
      Government Agencies Could Have A Material Adverse Effect On Our Revenues,
      Operating Results And Financial Condition*




We
      may
      derive a substantial portion of our revenues from contracts with federal, state
      and local governments and government agencies, including subcontracts under
      government prime contracts, and the success and growth of our business will
      continue to depend on our potential and current successful procurement of
      government contracts either directly or through prime contractors. Many of
      our
      government customers, such as the Department of Defense, the Department of
      Homeland Security and the Department of Health and Human Services, as well
      as
      state and local critical incident response agencies, are subject to stringent
      budgetary constraints and political considerations, and our business, revenues
      and operating results may be materially adversely affected if levels of
      government expenditures and authorizations for critical incident response
      related programs decrease, remain constant or shift to programs in areas where
      we do not provide products and services. Traditionally, the opportunities to
      generate significant profit margins under government contracts are limited.
      This
      is particularly true with respect to certain government contracts and
      subcontracts we perform that are subject to cost-allowability and reasonableness
      limitations that have no counterpart in the private sector. In addition, our
      business under government contracts may be adversely affected if:




·
            our
                reputation or relationship with government agencies is impaired and
                reflected in past-performance ratings, which increasingly have become
                the
                determining factor among bidders in competitive
                procurements;




·
            we
                are prevented from entering into new government contracts, including
                subcontracts issued under prime government contracts, or extending
                existing government contracts based on violations or suspected violations
                of procurement laws or regulations;




·
            we
                are not granted security clearances or import or export licenses
                that may
                be required to sell our products to domestic or foreign governments
                or
                such security clearances or import or export licenses are
                revoked;




·
            there
                is a change in government procurement procedures;
                or




·
            we
                are suspended from contracting with a domestic or foreign government
                or
                any significant law enforcement
                agency.




These
      and
      other factors could cause governments and governmental agencies, or prime
      contractors that use us as a subcontractor, to reduce their purchases under
      existing contracts, to exercise their rights to terminate contracts at will
      or
      to abstain from exercising options to renew contracts, any of which could have
      a
      material adverse effect on our business, revenues and operating
      results.




***Our
      Strategy Of Generating Growth Through Acquisitions Has Risks And There Is No
      Assurance We Will Succeed, Which Could Materially Harm Our Business And
      Prospects For Growth***




We
      have
      pursued an acquisition strategy in order to build our business of providing
      an
      integrated suite of products and services to participants in the homeland
      security industry. We have acquired three operating companies to date and have
      entered into a joint venture with respect to Polimatrix. We intend to continue
      to pursue the acquisition of companies with products and services that can
      be
      integrated with our existing offerings. Our acquisition strategy is important
      to
      the success of our business because it supports our strategy of selling a broad
      platform of integrated offerings for customers who we believe prefer to buy
      multiple product and service offerings from fewer vendors. However, we may
      not
      be able to identify and acquire appropriate target businesses in the future
      at
      reasonable prices or at all. Other companies also pursue acquisitions of
      companies in the critical incident response marketplace and we expect
      competition for acquisition candidates in our industry to increase, which may
      mean fewer suitable acquisition opportunities for us, as well as higher
      acquisition prices. In addition, even if we are successful in acquiring target
      companies, we may have difficulty integrating the acquired companies’ product
      and service offerings with our existing offerings and sales channels, which
      would reduce the benefits to us of the acquisitions and limit the effectiveness
      of our strategy. If we are unable to successfully pursue our strategy of
      acquiring complementary businesses, our business, financial condition, and
      growth prospects could be materially adversely affected.




***Our
      Financial Condition Could Be Harmed If Businesses We Acquire Failed To Comply
      With Applicable Laws Or Have Other Undisclosed
      Liabilities***




Any
      business that we acquire may have been subject to many of the same laws and
      regulations to which our business is subject and possibly to others, including
      laws and regulations impacting companies that do business with federal, state
      and local governments. If any business that we acquire has not conducted its
      business in compliance with applicable laws and regulations, we may be held
      accountable or otherwise suffer adverse consequences, such as significant fines
      or unexpected termination of contracts. Businesses we acquire may have other
      undisclosed liabilities we do not discover during the acquisition process that
      could result in liability to us or other unanticipated problems, such as product
      liability claims. Unexpected liabilities such as these could materially
      adversely affect our business, financial condition and results of
      operations.




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          28
          -




***Costs
      Arising From Our Future Acquisitions Could Adversely Affect Our Financial
      Condition***




Any
      acquisition that we make could result in the use of our cash, incurrence and
      assumption of debt, contingent liabilities, significant acquisition-related
      expenses, amortization of certain identifiable intangible assets, and research
      and development write-offs, and could require us to record goodwill and other
      intangible assets that could result in future impairments that could harm our
      financial results. We will likely incur significant transaction costs pursuing
      acquisitions, including acquisitions that may not be consummated. We may not
      be
      able to generate sufficient revenues from our acquisitions to offset their
      costs, which could materially adversely affect our financial
      condition.




***If
      We Are Unable To Effectively Manage Our Growth, Our Ability To Implement Our
      Business Strategy And Our Operating Results Will Likely Be Materially Adversely
      Affected***




Our
      efforts to acquire and collaborate with complementary businesses have placed,
      and will likely continue to place, a significant strain on our management,
      administrative, operating and financial infrastructures. Our management will
      be
      required to devote considerable time to our acquisition and integration efforts,
      which will reduce the time they will have to implement our business and growth
      strategy. To manage our business and planned growth effectively, we must
      successfully develop, implement, maintain and enhance our financial and
      accounting systems and controls, integrate new personnel and businesses and
      manage expanded operations. We are still in the process of developing and
      implementing our operating and financial systems, including our internal systems
      and controls, which will be critical to properly managing expanded operations.
      If we are unable to make these improvements in our operating and financial
      reporting systems and to otherwise effectively manage our growth, our ability
      to
      implement our business strategy and our operating results will likely be
      materially adversely affected.




***Because
      Our Operating Results May Fluctuate Significantly And May Be Below The
      Expectations Of Analysts And Investors, The Market Price For Our Stock May
      Be
      Volatile***




Our
      operating results are difficult to predict and may fluctuate significantly
      in
      the future. As a result, our stock price may be volatile. The following factors,
      many of which are outside our control, can cause fluctuations in our operating
      results and volatility in our stock price:




·
            the
                seasonality of the spending cycle of our government customers and
                the
                spending patterns of our commercial
                customers;




·
            the
                number and significance of projects commenced and completed during
                a
                quarter;




·
            unanticipated
                changes in contract performance, particularly with contracts that
                have
                funding limits;




·
            the
                timing of resolutions of change orders, requests for equitable adjustments
                and other contract adjustments;




·
            decisions
                by customers to terminate our
                contracts;




·
            delays
                incurred in connection with a
                project;




·
            seasonal
                variations in shipments of radioactive
                materials;




·
            weather
                conditions that delay work at project
                sites;




·
            the
                timing of expenses incurred in connection with acquisitions or other
                corporate initiatives;




·
            staff
                levels and utilization rates;




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          29
          -




·
            changes
                in the prices of services offered by our competitors;
                and




·
            general
                economic or political conditions.




The
      deferral or loss of one or more significant contracts could materially adversely
      affect our operating results, particularly if there are significant sales and
      marketing expenses associated with the deferred or lost contracts. Additionally,
      we base our current and future expense levels on our internal operating plans
      and sales forecasts, and our operating costs are to a large extent fixed. As
      a
      result, we may not be able to sufficiently reduce our costs to compensate for
      an
      unexpected near-term shortfall in revenues.




Actual
      or
      anticipated fluctuations in our operating results could cause our stock price
      to
      decline. Due to fluctuations in our operating results, a period-to-period
      comparison of our results of operations may not be a good indication of our
      future performance. In any particular quarter or quarters, our operating results
      could be below the expectations of securities analysts or investors and our
      stock price could decline as a result.




***We
      Will Be Required To Evaluate Our Internal Controls Over Financial Reporting
      Under Section 404 Of The Sarbanes-Oxley Act Of 2002, Which Could Result In
      A
      Loss Of Investor Confidence In Our Financial Reports And Have An Adverse Effect
      On The Price Of Our Shares Of Common Stock.***




Pursuant
      to Section 404 of the Sarbanes-Oxley Act of 2002, we will be required to furnish
      a report by management on our internal controls over financial reporting. Such
      report will contain, among other matters, an assessment of the effectiveness
      of
      our internal control over financial reporting, including a statement as to
      whether or not our internal control over financial reporting is effective.
      This
      assessment must include disclosure of any material weaknesses in our internal
      control over financial reporting identified by our management. We
      have
      previously identified certain material weaknesses in our internal controls
      over
      financial reporting that we have addressed and corrected. We cannot be certain
      that we will be able to complete our evaluation of our internal controls,
      testing and any required remediation in a timely fashion once we become subject
      to the requirements mandated by Section 404 of the Sarbanes-Oxley Act of 2002.
      During the evaluation and testing process, if we identify one or more material
      weaknesses in our internal control over financial reporting, we will be unable
      to assert that such internal control is effective. If we are unable to assert
      that our internal control over financial reporting is effective, we could lose
      investor confidence in the accuracy and completeness of our financial reports,
      which may have a material adverse effect on our stock price.




Failure
      to comply with the new rules may also make it more difficult for us to obtain
      certain types of insurance, including director and officer liability insurance,
      and we may be forced to accept reduced policy limits and coverage and/or incur
      substantially higher costs to obtain the same or similar coverage. The impact
      of
      these events could also make it more difficult for us to attract and retain
      qualified personnel to serve on our board of directors, on committees of our
      board of directors, or as executive officers.




**Risks
      Relating to the Business of Safety & Ecology Holdings
      Corporation**




***We
      And Our Customers Operate In Regulated Industries That Requires Us And Them
      To
      Obtain, And To Comply With, National, State And Local Government Permits And
      Approvals***




We
      and
      our customers operate in a highly regulated environment. Our projects are often
      required to obtain, and to comply with, national, state and local government
      permits and approvals. Any of these permits or approvals may be subject to
      denial, revocation or modification under various circumstances. Failure to
      obtain or comply with the conditions of permits or approvals may adversely
      affect our operations by temporarily suspending our activities or curtailing
      our
      work and may subject us to penalties and other sanctions. Although existing
      licenses are routinely renewed by various regulators, renewal could be denied
      or
      jeopardized by various factors, including:




·
            failure
                to provide adequate financial assurance for decommissioning or
                closure;




·
            failure
                to comply with environmental and safety laws and regulations or permit
                conditions;




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          30
          -




·
            local
                community, political or other
                opposition;




·
            executive
                action; and




·
            legislative
                action.




In
      addition, if new environmental or other legislation or regulations are enacted
      or existing legislation or regulations are amended or are interpreted or
      enforced differently, we or our customers may be required to obtain additional
      operating permits or approvals. Changes in requirements imposed by our
      environmental or other permits may lead us to incur additional expenses by
      requiring us to change or improve our waste management technologies and services
      to achieve and maintain compliance. There can be no assurance that we will
      be
      able to meet all potential regulatory changes.




***Our
      International Operations Involve Risks That Could Have A Material Adverse Effect
      On Our Results Of Operations***




For
      the
      year ended December 31, 2007, we derived approximately 5.0% and 4.0% of our
      pro
      forma revenues and pro forma gross profit, respectively, from our operations
      outside of North America. Our international operations are subject to a variety
      of risks, including:




·
            recessions
                in foreign economies and the impact on our costs of doing business
                in
                those countries;




·
            difficulties
                in staffing and managing foreign
                operations;




·
            unexpected
                changes in regulatory requirements;




·
            foreign
                currency fluctuations;




·
            the
                adoption of new, and the expansion of existing, trade
                restrictions;




·
            acts
                of war and terrorism;




·
            the
                ability to finance efficiently our foreign
                operations;




·
            social,
                political and economic instability;




·
            increases
                in taxes;




·
            limitations
                on the ability to repatriate foreign earnings;
                and




·
            natural
                disasters or other crises.




***Changes
      In Existing Environmental And Other Laws, Regulations And Programs Could Affect
      Our Business***




A
      significant amount of our business relates to operations involving the
      safeguarding and disposition of radioactive materials directly or indirectly
      as
      a result of existing national and state laws, regulations and programs related
      to pollution and environmental protection. National, state and local
      environmental legislation and regulations require substantial expenditures
      and
      impose liabilities for noncompliance. Accordingly, a real or perceived
      relaxation or repeal of these laws and regulations, or changes in government
      policies regarding the funding, implementation or enforcement of these programs,
      could result in a material decline in demand for our services. The ultimate
      impact of the proposed changes will depend upon a number of factors, including
      the overall strength of the economy and the industry's views on the
      cost-effectiveness of remedies available under the changed laws and
      regulations.




Our
      operations are subject to taxation by the U.S. and U.K. governments. In the
      event of a material increase in our taxes resulting from an increase in our
      effective tax rate or change in our scheme of taxation, we may not have the
      ability to pass on the effect of such increase to our customers and, as a
      result, our stockholders could bear the burden of any such tax increase. The
      risk of a material tax increase may be exacerbated by political pressure to
      limit our operations.




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          31
          -




***We
      And Our Customers Operate In A Politically Sensitive Environment, And The Public
      Perception Of And Radioactive Materials Can Affect Our Customers And
      Us***




We
      and
      our customers operate in a politically sensitive environment. The risks
      associated with radioactive materials and the public perception of those risks
      can affect our business. Public criticisms of our business resulting from
      political activism could harm our reputation, and our stock price could suffer.




Opposition
      by third parties to particular projects can delay or prohibit the construction
      of new nuclear power plants and can limit the operation of nuclear reactors
      or
      the handling and disposal of radioactive materials. Adverse public reaction
      to
      developments in the use of nuclear power or the disposal of radioactive
      materials, including any high profile incident involving the discharge of
      radioactive materials, could directly affect our customers and indirectly affect
      our business. Adverse public reaction also could lead to increased regulation
      or
      outright prohibition, limitations on the activities of our customers, more
      onerous operating requirements or other conditions that could have a material
      adverse impact on our customers’ and our business.




We
      must
      be successful in winning new business mandates from our government and
      commercial customers to replace revenues from projects that are nearing
      completion and to increase our revenues. Our business and operating results
      can
      be adversely affected by the size and timing of a single material contract.




Our
      business strategy includes bidding on government contracts as a lead prime
      contractor in a consortium. In the past, we have operated as a subcontractor
      or
      in a minority position on a prime contractor team. In pursuing a lead prime
      contractor role, we will be competing directly with a number of large national
      and regional radiological services firms that may possess or develop
      technologies superior to our technologies and have greater financial, management
      and marketing resources than we do. Many of these companies also have
      long-established customer relationships and reputations. As a result, we may
      not
      be successful in being awarded the lead prime contractor role for any of these
      contracts.




***The
      Loss Of One Or A Few Customers Could Have An Adverse Effect On
      Us***




One
      or a
      few government and commercial customers have in the past, and may in the future
      account for a significant portion of our revenues in any one year or over a
      period of several consecutive years. Because customers generally contract with
      us for specific projects, we may lose these significant customers from year
      to
      year as their projects with us are completed. Our inability to replace this
      business with other projects could have an adverse effect on our business and
      results of operations.




***Economic
      Downturns, Reductions Or Diversions In Government Funding Could Have A Negative
      Impact On Our Businesses***




Demand
      for our services has been, and we expect that demand will continue to be,
      subject to significant fluctuations due to a variety of factors beyond our
      control, including economic conditions. During economic downturns, the ability
      of private and government entities to make expenditures on nuclear services
      may
      decline significantly. We cannot be certain that economic or political
      conditions will be generally favorable or that there will not be significant
      fluctuations adversely affecting our industry as a whole. In addition, our
      operations depend, in part, upon government funding, particularly within the
      funding levels of the environmental programs at the Departments of Energy and
      Defense. Significant changes in the level of government funding or specifically
      mandated levels for different programs that are important to our business could
      have an unfavorable impact on our business, financial position, results of
      operations and cash flows.




***As
      A Government Contractor, We Are Subject To Extensive Government Regulation,
      And
      Our Failure To Comply With Applicable Regulations Could Subject Us To Penalties
      That May Restrict Our Ability To Conduct Our Business***




Our
      government contracts are a significant part of our business. Allowable costs
      under U.S. government contracts are subject to audit by the U.S. government.
      Similarly, some U.K. contracts are subject to audit by U.K. regulatory
      authorities. If these audits result in determinations that costs claimed as
      reimbursable are not allowed costs or were not allocated in accordance with
      applicable regulations, we could be required to reimburse government authorities
      for amounts previously received.




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Government
      contracts are often subject to specific procurement regulations, contract
      provisions and a variety of other requirements relating to the formation,
      administration, performance and accounting of these contracts. Many of these
      contracts include express or implied certifications of compliance with
      applicable regulations and contractual provisions. We may be subject to qui
      tam
      litigation brought by private individuals on behalf of the government under
      the
      Federal Civil False Claims Act, which could include claims for up to treble
      damages. Additionally, we may be subject to the Truth in Negotiations Act,
      which
      requires certification and disclosure of all factual costs and pricing data
      in
      connection with contract negotiations. If we fail to comply with any
      regulations, requirements or statutes, our existing government contracts could
      be terminated or we could be suspended from government contracting or
      subcontracting. If one or more of our government contracts are terminated for
      any reason, or if we are suspended or debarred from government work, we could
      suffer a significant reduction in expected revenues and profits. Furthermore,
      as
      a result of our government contracting, claims for civil or criminal fraud
      may
      be brought by the government for violations of these regulations, requirements
      or statutes.




***We
      Are Subject To Liability Under Environmental Laws And
      Regulation***




We
      are
      subject to a variety of environmental, health and safety laws and regulations
      governing, among other things, discharges to air and water, the handling,
      storage and disposal of hazardous or radioactive materials and wastes, the
      remediation of contamination associated with releases of hazardous substances
      and human health and safety. These laws and regulations and the risk of
      attendant litigation can cause significant delays to a project and add
      significantly to its cost. Our projects often involve highly regulated
      materials, including hazardous and radioactive materials and wastes.
      Environmental laws and regulations generally impose limitations and standards
      for regulated materials and sometimes require us to obtain permits and licenses
      and comply with various other requirements. Fees associated with such
      environmental permits and licenses can be costly. In addition, the improper
      characterization, handling, testing, transportation or disposal of regulated
      materials or any other failure to comply with these environmental, health and
      safety laws, regulations, permits or licenses have resulted in fines or
      penalties from time to time and could subject us and our management to civil
      and
      criminal penalties, the imposition of investigatory or remedial obligations
      or
      the issuance of injunctions that could restrict or prevent our operations.
      These
      laws and regulations may also become more stringent, or be more stringently
      enforced, in the future.




Various
      national, state and local environmental laws and regulations, as well as common
      law, may impose liability for property damage and costs of investigation and
      clean-up of hazardous or toxic substances on property currently or previously
      owned by us or arising out of our waste management or environmental remediation.
      These laws may impose responsibility and liability without regard to knowledge
      of or causation of the presence of contaminants. The liability under these
      laws
      can be joint and several, meaning liability for the entire cost of clean-up
      can
      be imposed upon any responsible party.




When
      we
      perform our services, our personnel and equipment may be exposed to radioactive
      and hazardous materials and conditions. We may be subject to liability claims
      by
      employees, customers and third parties as a result of such exposures. In
      addition, we may be subject to fines, penalties or other liabilities arising
      under environmental or safety laws. Although to date we have been able to obtain
      liability insurance for the operation of our business, there can be no assurance
      that our existing liability insurance is adequate or that it will be able to
      be
      maintained or that all possible claims that may be asserted against us will
      be
      covered by insurance. A partially or completely uninsured claim, if successful
      and of sufficient magnitude, could have a material adverse effect on our results
      of operations and financial condition.




***Our
      Operations Involve The Handling, Transportation And Disposal Of Radioactive
      And
      Hazardous Materials And Could Result In Liability Without Regard To Our Fault
      Or
      Negligence***




Our
      operations involve the handling, transportation and disposal of radioactive
      and
      hazardous materials. Failure to properly handle these materials could pose
      a
      health risk to humans or animals and could cause personal injury and property
      damage (including environmental contamination). If an accident were to occur,
      its severity could be significantly affected by the volume of the materials
      and
      the speed of corrective action taken by emergency response personnel, as well
      as
      other factors beyond our control, such as weather and wind conditions. Actions
      taken in response to an accident could result in significant costs.




In
      our
      contracts, we seek to protect ourselves from liability associated with
      accidents, but there is no assurance that such contractual limitations on
      liability will be effective in all cases or that our, or our customers',
      insurance will cover all the liabilities we have assumed under those contracts.
      The costs of defending against a claim arising out of a nuclear incident or
      precautionary evacuation, and any damages awarded as a result of such a claim,
      could adversely affect our results of operations and financial
      condition.




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We
      maintain insurance coverage as part of our overall risk management strategy
      and
      due to requirements to maintain specific coverage in our financing agreements
      and in many of our contracts. These policies do not protect us against all
      liabilities associated with accidents or for unrelated claims. In addition,
      comparable insurance may not continue to be available to us in the future at
      acceptable prices, or at all.




***We
      Are Engaged In Highly Competitive Businesses And Typically Must Bid Against
      Other Competitors To Obtain Major Contracts***




We
      are
      engaged in highly competitive businesses in which most of our government
      contracts and some of our commercial contracts are awarded through competitive
      bidding processes. We compete with national and regional firms with nuclear
      services practices, as well as small or local contractors. Some of our
      competitors have greater financial and other resources than we do, which can
      give them a competitive advantage. In addition, even if we are qualified to
      work
      on a new government contract, we might not be awarded the contract because
      of
      existing government policies designed to protect small businesses and
      underrepresented minority contractors. Competition also places downward pressure
      on our contract prices and profit margins. Intense competition is expected
      to
      continue for nuclear service contracts, challenging our ability to maintain
      strong growth rates and acceptable profit margins. If we are unable to meet
      these competitive challenges, we could lose market share and experience an
      overall reduction in our profits.




We
      must
      be successful in the competitive process with our government and commercial
      customers to replace revenues from projects that are nearing completion and
      to
      increase our revenues. Our business and operating results can be adversely
      affected by the size and timing of a single material contract.




Our
      business strategy includes bidding on government contracts as a lead prime
      contractor in a consortium. In the past, we have operated as a subcontractor
      or
      in a minority position on a prime contractor team. In pursuing a lead prime
      contractor role, we will be competing directly with a number of large national
      and regional nuclear services firms that may possess or develop technologies
      superior to our technologies and have greater financial, management and
      marketing resources than we do. Many of these companies also have
      long-established customer relationships and reputations. As a result, we may
      not
      be successful in being awarded the lead prime contractor role for any of these
      contracts.




***Our
      Business And Operating Results Could Be Adversely Affected By Losses Under
      Fixed
      Price Contracts***




Fixed-price
      contracts require us to perform all work under the contract for a specified
      lump-sum. Fixed-price contracts expose us to a number of risks not inherent
      in
      cost-reimbursable contracts, including underestimation of costs, ambiguities
      in
      specifications, unforeseen costs or difficulties, problems with new
      technologies, delays beyond our control, failures of subcontractors to perform
      and economic or other changes that may occur during the contract
      period.




***If
      Our Partners Fail To Perform Their Contractual Obligations On A Project Or
      If We
      Fail To Coordinate Effectively With Our Partners, We Could Be Exposed To Legal
      Liability, Loss Of Reputation And Reduced Profit On The
      Project***




We
      often
      perform projects jointly with contractual partners. Success on these joint
      projects depends in part on whether our partners fulfill their contractual
      obligations satisfactorily. If any of our partners fails to perform its
      contractual obligations satisfactorily, we may be required to make additional
      investments and provide additional services in order to compensate for that
      partner's failure. If we are unable to adequately address our partner's
      performance issues, then our customer may exercise its right to terminate a
      joint project, exposing us to legal liability, loss of reputation and reduced
      profit.




Our
      collaborative arrangements also involve risks that participating parties may
      disagree on business decisions and strategies. These disagreements could result
      in delays, additional costs and risks of litigation. Our inability to
      successfully maintain existing collaborative relationships or enter into new
      collaborative arrangements could have a material adverse effect on our results
      of operations.




***Our
      Dependence On Subcontractors And Equipment Manufacturers Could Adversely Affect
      Us***




We
      often
      rely on subcontractors and equipment manufacturers to complete our projects.
      To
      the extent that we cannot engage subcontractors or acquire equipment or
      materials to provide such services, our ability to complete the project in
      a
      timely fashion or at a given profit margin may be impaired.




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In
      addition, if a subcontractor or a manufacturer is unable to deliver its
      services, equipment or materials according to the negotiated terms for any
      reason, including the deterioration of its financial condition, we may be
      required to purchase those services, equipment or materials from another source
      at a higher price. This may reduce our profitability or result in a loss on
      the
      project for which the services, equipment or materials were needed.




***Adequate
      Bonding Is Necessary For Us To Win Certain Types Of New
      Work***




We
      are
      often required to provide by payment and performance bonds or other financial
      assurances and to customers under fixed-price contracts. These surety
      instruments indemnify the customer if we fail to perform our obligations under
      the contract. If a bond is required for a particular project and we are unable
      to obtain it due to insufficient liquidity or other reasons, we will not be
      able
      to pursue that project. We have a bonding facility but, as is typically the
      case, the issuance of bonds under that facility is at the surety's sole
      discretion. Moreover, due to events that affect the insurance and bonding
      markets generally, bonding may be more difficult to obtain in the future or
      may
      only be available at significant additional cost. There can be no assurance
      that
      bonds will continue to be available to us on reasonable terms. Our inability
      to
      obtain adequate bonding and, as a result, to bid on new work could have a
      material adverse effect on our business, financial condition and results of
      operations. As of March 30, 2008, we had approximately $1.35 million of such
      instruments outstanding.




***The
      Elimination Or Any Modification Of The Price-Anderson Act’s Indemnification
      Authority Could Have Adverse Consequents For Our Business***




The
      Atomic Energy Act of 1954, as amended, or the AEA, comprehensively regulates
      the
      manufacture, use and storage of radioactive materials. Section 170 of the
      AEA, which is known as the Price-Anderson Act, supports the nuclear services
      industry by offering broad indemnification to commercial nuclear power plant
      operators and DOE contractors for liabilities arising out of nuclear incidents
      at power plants licensed by the NRC and at DOE nuclear facilities. That
      indemnification protects not only the NRC licensee or DOE prime contractor,
      but
      also companies like us that work under contract or subcontract at a DOE facility
      under a DOE prime contract or transporting radioactive material to or from
      a
      site. The indemnification authority of the NRC and DOE under the Price-Anderson
      Act was extended through 2025 by the Energy Policy Act of 2005.




***Our
      Use Of Level Of Effort Or Percent Complete Performance Account Could Result
      In
      Reduction Or Elimination Of Previously Reported Profits***




A
      significant portion of our revenues are recognized using the level of effort
      or
      percent complete performance method of accounting. Generally, the performance
      accounting practices we use result in recognizing contract revenues and earnings
      based on output measures, where estimable, or on other measures such as the
      proportion of costs incurred to total estimated contract costs. For some of
      our
      long-term contracts, completion is measured on estimated physical completion
      or
      units of production. The cumulative effect of revisions to contract revenues
      and
      estimated completion costs, including incentive awards, penalties, change
      orders, claims and anticipated losses, is recorded in the accounting period
      in
      which the amounts are known or can be reasonably estimated. Due to uncertainties
      inherent in the estimation process, it is possible that actual completion costs
      may vary from estimates, and such variances could be material to our operating
      results.




***Our
      Success Depends On Attracting And Retaining Qualified Personnel In A Competitive
      Environment***




Our
      operations require the services of highly qualified managerial and business
      development personnel, skilled technology specialists and experts in a wide
      range of scientific, engineering and health and safety fields. Partly because
      no
      new nuclear reactors have commenced construction since the mid-1970s, there
      has
      been a limited number of qualified students graduating from universities with
      specialized nuclear engineering or nuclear science-based degrees. As a result,
      the nuclear services industry is experiencing a shortage of qualified personnel.
      We face increasing competition and expense to attract and retain such personnel.
      Loss of key personnel or failure to attract personnel to expand our operations
      could have an adverse effect on our ability to operate our business and execute
      our business strategy.




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***Our
      Failure To Maintain Our Safety Record Could Have An Adverse Effect On Our
      Business***




Our
      safety record is critical to our reputation. In addition, many of our government
      and commercial customers require that we maintain certain specified safety
      record guidelines to be eligible to bid for contracts with these customers.
      Furthermore, contract terms may provide for automatic termination in the event
      that our safety record does not comply with agreed standards during the
      performance of the contract. A failure to maintain our safety record could
      have
      a material adverse effect on our business, financial condition and results
      of
      operation.




**General
      Risks**




***We
      May Need To Raise Additional Capital On Terms Unfavorable To Our
      Stockholders***




Based
      on
      our current level of operations, we believe that our cash flow from operations,
      together with amounts we are able to borrow under our existing lines of credit,
      will be adequate to meet our anticipated operating, capital expenditure and
      debt
      service requirements for the foreseeable future. However, we do not have
      complete control over our future performance because it is subject to economic,
      political, financial, competitive, regulatory and other factors affecting the
      environmental remediation and security industries. Further, our acquisition
      strategy will likely require additional equity or debt financings. Such
      financings could also be required to support our traditional and recently
      required operating units. There is no assurance that we will be able to obtain
      such financings to fuel our growth strategy and support our existing
      businesses.




***Our
      Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
      Investors To Sell Their Shares Due To Suitability
      Requirements***




Our
      Common Stock is deemed to be “penny stock” as that term is defined in Rule
      3a51-1 promulgated under the Securities Exchange Act of 1934, as amended. Penny
      stocks are stock:




·
            with
                a price of less than $5.00 per
                share;




·
            that
                are not traded on a “recognized” national
                exchange;




·
            whose
                price is not quoted on the NASDAQ automated quotation system
                (NASDAQ-listed stock must still have a price of not less than $5.00
                per
                share); or




·
            stock
                in issuers with net tangible assets less than $2,000,000 (if the
                issuer
                has been in continuous operation for at least three years) or $5,000,000
                (if in continuous operation for less than three years), or with average
                revenues of less than $6,000,000 for the last three
                years.




In
      addition to the “penny stock” rules promulgated by the SEC, the NASD has adopted
      rules that require that in recommending an investment to a customer, a
      broker-dealer must have reasonable grounds for believing that the investment
      is
      suitable for that customer. Prior to recommending speculative low priced
      securities to their non-institutional customers, broker-dealers must make
      reasonable efforts to obtain information about the customer’s financial status,
      tax status, investment objectives and other information. Under interpretations
      of these rules, the NASD believes that there is a high probability that
      speculative low priced securities will not be suitable for at least some
      customers. The NASD requirements make it more difficult for broker-dealers
      to
      recommend that their customers buy our Common Stock, which may limit your
      ability to buy and sell our stock.




Stockholders
      should be aware that, according to the SEC, the market for penny stocks has
      suffered in recent years from patterns of fraud and abuse. Such patterns include
      (i) control of the market for the security by one or a few broker-dealers that
      are often related to the promoter or issuer; (ii) manipulation of prices through
      prearranged matching of purchases and sales and false and misleading press
      releases; (iii) “boiler room” practices involving high-pressure sales tactics
      and unrealistic price projections by inexperienced sales persons; (iv) excessive
      and undisclosed bid-ask differentials and markups by selling broker-dealers;
      and
      (v) the wholesale dumping of the same securities by promoters and broker-dealers
      after prices have been manipulated to a desired degree. The Company’s management
      is aware of the abuses that have occurred historically in the penny stock
      market. Although the Company does not expect to be in a position to dictate
      the
      behavior of the market or of broker-dealers who participate in the market,
      management will strive within the confines of practical limitations to prevent
      the described patterns from being established with respect to our securities.




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          36
          -




***We
      Do Not Expect To Pay Dividends With Respect To Our Common Stock Which May Hinder
      Our Ability To Attract Additional Capital***




The
      Company has not paid any dividends on its Common Stock to date. The payment
      of
      any dividends will be within the discretion of the Company’s Board of Directors.
      The Board of Directors expects to retain all earnings, if any, for use in the
      Company’s business operations and, accordingly, the Board of Directors does not
      anticipate declaring any dividends in the foreseeable future.




***We
      Have Historically Had Severe Working Capital Shortages, Even Following
      Significant Financing Transactions***




Although
      we raised capital totaling approximately $20 million (net of expenses)
      during the last two fiscal years we have had working capital shortages in the
      past, and our consolidated financial statements for the twelve months ended
      December 31, 2007, indicate that we have a working capital deficit of
      approximately $12,338,458.




We
      issued
      12% Debentures aggregating $2.75 million in June 2007 (net proceeds of $2.56
      million after payment of fees and expenses). In August 2006 and in February
      2006, the same investor purchased Debentures aggregating $4 million (net
      proceeds of $3.585 million after payment of fees and expenses and $4 million
      (net proceeds of $3.580 million after payment of fees and expenses),
      respectively. These debentures were restructured in the current
      quarter.




As
      a
      result of our recent financing activities, including our recently completed
      acquisition of Safety & Ecology Holding Corporation, we believe we have
      sufficient working capital to finance our anticipated operations and projected
      negative cash flow throughout our 2008 fiscal
      year.




***We
      Have Raised Capital And Issued Securities During The Years Ended December 31,
      2007, 2006 And 2005, Which Has Resulted (And Will In The Future When Warrant
      Exercises Or Conversions Occur Result) In Dilution To Our Existing Stockholders;
      This Was Accomplished To Provide Necessary Working Capital Or Obtain Assets
      And
      Services. We Will Likely Issue More Securities To Raise Additional Capital
      Or To
      Obtain Other Services Or Assets, Any Of Which May Result In Substantial
      Additional Dilution***




During
      the course of the last two fiscal years, we have raised capital of approximately
      $23 million (net proceeds of approximately $20 million after payment
      of fees and expenses) to finance our business operations and acquisitions.
      We
      have raised this capital by issuing convertible debentures, shares of Common
      Stock, convertible preferred stock and common stock warrants to accredited
      investors and as compensation to investment bankers making introductions to
      the
      accredited investors and the exercise of previously issued common stock warrants
      and stock options. During this same period of time, we issued common stock
      warrants and shares of Common Stock to several persons in exchange for their
      promises to perform investment banking and financial advisory services to us.
      In
      many cases, these issuances were below the then-current market prices and can
      be
      considered dilutive to our existing stockholders—both as a reduction of their
      percentage ownership in the Company and because of issuances that will be,
      when
      warrants are exercised or debentures are converted, at prices below the market.




The
      Series F Preferred Stock (the “Series F Stock”), the Series G Preferred Stock
      (the “Series G Stock”), the Series H Convertible Preferred Stock (the
“Series H Stock”) and the Series I Convertible Preferred Stock (the
“Series I Stock” and collectively with the Series F, G and H Stock,
      the “Preferred Stock”) have significant restrictions on our ability to raise any
      additional capital. If we raise additional working capital, we will likely
      have
      to issue additional shares of our Common Stock and common stock warrants at
      prices that may dilute the interests of our existing stockholders.




***Our
      Common Stock Is Vulnerable To Pricing And Purchasing Actions That Are Beyond
      Our
      Control And, Therefore, Persons Acquiring Or Holding Our Shares Or Warrants
      May
      Be Unable To Resell Their Shares At A Profit As A Result Of This
      Volatility***




The
      trading price of our securities has been subject to wide fluctuations in
      response to quarter-to-quarter variations in our operating results, our
      announcements of new business prospects or introduction of new products by
      us or
      our competitors, and other events and factors. The securities markets themselves
      have from time to time and recently experienced significant price and volume
      fluctuations that may be unrelated to the operating performance of particular
      companies. Announcements of delays in our technological innovations or new
      introductions of products by us or our competitors and developments or disputes
      concerning government contracts could have a significant and adverse impact
      on
      such market prices. Regulatory developments in the United States and foreign
      countries, public concern as to the safety of products containing radioactive
      compounds, and economic and other external factors all affect the market price
      of our securities. **




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          37
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**PART
      II**




**ITEM
      1. LEGAL PROCEEDINGS**




None.




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




*Series
      H Preferred Stock and Secured Notes.* On
      March
      14, 2008, the Company entered into a Securities Purchase Agreement (“Purchase
      Agreement”) with YA Global Investments, L.P. (“YA Global”), which provides
      for the transactions set forth below.





In
      connection with the Purchase Agreement, the Company authorized the designation
      of its Series H Convertible Preferred Stock, par value $.01 per share (the
      “Series H Preferred Shares”) consisting of 10,000 Series H Preferred Shares,
      which are convertible into shares of the Common Stock in accordance with the
      terms of the Certificate of Designations of the Series H Convertible Preferred
      Stock of the Company (the “Certificate of Designation”).




Pursuant
      to the Purchase Agreement, the Company sold to YA Global (1) $6,310,000 of
      secured notes (the “New Notes”) for a purchase price of $6,310,000, (2) 6,190
      Series H Preferred Shares (the “New Preferred Shares”) for a purchase price of
      $6,190,000, and (3) a warrant (the “Warrant”) to be initially exercisable to
      acquire 83,333,333 shares of Common Stock (the “Warrant Shares”).




The
      Company and YA Global are parties to:




(1)
      a
      Securities Purchase Agreement, dated as of February 6, 2006, (“February 2006
      Purchase Agreement”), pursuant to which, among other things, YA Global purchased
      from the Company an aggregate original principal amount of $4,000,000 of senior
      secured convertible debentures (the “February 2006 Debentures”), which had an
      outstanding principal balance of $3,810,000, plus accrued and unpaid interest
      thereon.




(2)
      Securities Purchase Agreement, dated as of August 21, 2006 the (“August 2006
      Purchase Agreement”), pursuant to which, among other things, YA Global purchased
      from the Company an aggregate original principal amount of $4,000,000 of senior
      secured convertible debentures (the “August 2007 Debentures”), which had an
      outstanding principal balance of $4,000,000, plus accrued and unpaid interest
      thereon.




(3)
      Securities Purchase Agreement, dated as of June 1, 2007 the (“2007 Purchase
      Agreement”), pursuant to which, among other things, YA Global purchased from the
      Company an aggregate original principal amount of $2,750,000 of senior secured
      convertible debentures (the “2007 Debentures”), which are convertible into
      shares of Common Stock in accordance with the terms thereof, and which as of
      the
      date hereof has an outstanding principal balance of $2,750,000, plus accrued
      and
      unpaid interest thereon.




Pursuant
      to the Purchase Agreement, YA Global also exchanged (1) its February 2006
      Debentures (but not accrued and unpaid interest thereon) in the amount of
      $3,810,000 for 3,810
      Series H Preferred Shares (the “Exchanged Preferred Shares” and collectively
      along with the New Preferred Shares, the “Preferred Shares”); and (2)
      its
      August 2006 Debentures and the 2007 Debentures (but not accrued and unpaid
      interest thereon) for an
      aggregate original principal amount of $6,750,000 of senior secured notes in
      (the “Exchanged Notes” and collectively along with the New Notes, the
“Notes”).




Each
      Series H Preferred Share accrues a dividend of 12% per annum. The holder of
      the Series H Preferred Shares (a “Series H Holder”) may convert the accrued
      dividends into Common Stock at a conversion price of $0.06 per share or receive
      a cash payment on liquidation or sale of the company. The Series H Preferred
      Shares ranks *pari
      passu* with the
      Company’s Series I Convertible Preferred Stock and senior to all other series of
      the Company’s preferred stock and the Common Stock. Each share of Series H
      Preferred is convertible into 33,334 shares of Common Stock (effectively a
      conversion price of $0.03 per share) and has a liquidation preference of $1,000
      per share. Each Series H Preferred Share may be voted on as-converted basis
      with
      the Common Stock but in no instance will the voting power of a Series H Holder
      with respect to its Series H Preferred Shares (when aggregated with all other
      Common Stock beneficially owned by he, she or it) be permitted to exceed 9.99%
      of the shares permitted to vote at a meeting of the Company’s stockholders. In
      addition, Series H Holders are restricted from conversions of the Series H
      Preferred Shares that will result in it beneficially owning more than 9.99%
      of
      the outstanding Common Stock following such conversion.




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          38
          -




The
      Notes
      accrue interest at a rate of 13% per annum and have a maturity date of
      March 13, 2010.




In
      connection with the Purchase Agreement, the Company issued to YA Global the
      Warrant to purchase up to 83,333,333 shares of Common Stock. The Warrant has
      an
      exercise price equal to $0.03, which may be adjusted under the terms of the
      warrant, and has a term of five years from the date of issuance on
      March 17, 2008. In
      addition, the holder of the Warrant is restricted from exercises of the Warrant
      that will result in it then beneficially owning more than 9.99% of the
      outstanding Common Stock following such exercise.





The
      Company also entered into a Registration Rights Agreement with the
      YA Global pursuant to which the Company is obligated, upon request of
      YA Global (or its successors and assigns), to file a registration statement
      covering the resale of shares of Common Stock issuable upon the conversion
      of
      the Series H Preferred Shares and exercise of the Warrant.





*Series
      I Preferred Stock* .
      On
      March 13, 2008, the Company entered into an Agreement and Plan of Merger and
      Stock Purchase Agreement (the “Merger Agreement”) with Safety & Ecology
      Holdings Corporation (“Safety”), HSCC Acquisition Corp. (“MergerSub”) and
      certain persons named therein.





Pursuant
      to the Merger Agreement, in exchange for all of the issued and outstanding
      Safety common stock, the shareholders of Safety (the “Shareholders”) received,
      among other consideration: (1) an aggregate of 550,000 shares of Company
      Series I Convertible Preferred Stock (“Series I Stock”), (2) warrants
      to purchase up to 22,000,000 shares of the Common Stock (the “SEC Warrants”) and
      $3,900,000 in cash (collectively, the “Merger Consideration”).





Each
      share of Series I Stock accrues a dividend of 12% per annum. The holder of
      the
      Series Stock may convert the accrued dividends into Common Stock at a
      conversion price of $0.06 per share or receive a cash payment on liquidation
      of
      sale of the company. Each share of Series I Stock is convertible into 200 shares
      of Common Stock (effectively a conversion price of $0.03 per share) and has
      a
      liquidation preference of $6.00 per share.





The
      SEC
      Warrants have an exercise price equal to $0.03, which may be adjusted under
      the
      terms of the warrant, and has a term of five years from the date of issuance
      on
      March 17, 2008.





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**




None.




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




None.




**ITEM
      5. OTHER INFORMATION**




None.




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




(a)
      Exhibits




**Exhibit**
            
            **Description**
            
            **Location**2.1
            
            Agreement
                and Plan of Merger and Stock Purchase Agreement, dated March 13,
                2008, by and among Safety & Ecology Holdings Corporation, HSCC
                Acquisition Corp. and certain other persons named therein.
            
            Incorporated
                by reference to Exhibit 2.1 to the Company’s Current Report on
                Form 8-K filed March 19,
                2008




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**Exhibit**
            
            **Description**
            
            **Location**2.2
            
            Amendment
                No. 1 to the Agreement and Plan of Merger and Stock Purchase Agreement,
                dated March 13, 2008, by and among Safety & Ecology Holdings
                Corporation, HSCC Acquisition Corp. and certain other persons named
                therein.
            
            Incorporated
                by reference to Exhibit 2.2 to the Company’s Current Report on
                Form 8-K/A filed May 7, 20083.1
            
            Certificate
                of Designation for Homeland Security Capital Corporation’s Series H
                Convertible Preferred Stock
            
            Incorporated
                by reference to Exhibit 3.1 to the Company’s Current Report on
                Form 8-K filed on March 19, 20083.2
            
            Company’s
                Certificate of Designation for Series I Convertible Preferred
                Stock
            
            Incorporated
                by reference to Exhibit 3.1 to the Company’s Current Report on
                Form 8-K filed on March 19, 20084.1
            
            Warrant
                dated as of March 14, 2008 issued to YA Global Investments,
                L.P.
            
            Incorporated
                by reference to Exhibit 4.2 to the Company’s Current Report on
                Form 8-K filed on March 19, 200810.1
            
            Securities
                Purchase Agreement, dated as of March 14, 2008 between Homeland Security
                Capital Corporation and YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.1 to the Company’s Current Report on
                Form 8-K filed on March 19, 200810.2
            
            Registration
                Rights Agreement, dated as of March 14, 2008 between Homeland Security
                Capital Corporation and YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.2 to the Company’s Current Report on
                Form 8-K filed on March 19, 200810.3
            
            Security
                Agreement, dated March 14, 2008 by and among the Company, certain
                of its
                subsidiaries and YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.3 to the Company’s Current Report on
                Form 8-K filed on March 19, 200810.4
            
            Form
                of Senior Secured Note, dated as of March 14, 2008 issued to
                YA Global Investments, L.P.
            
            Incorporated
                by reference to Exhibit 10.4 to the Company’s Current Report on
                Form 8-K filed on March 19, 200810.5
            
            Guaranty,
                dated as of March 14, 2008, in favor of YA Global Investments, L.P.
                from certain subsidiaries of Homeland Security Capital
                Corporation
            
            Incorporated
                by reference to Exhibit 10.6 to the Company’s Current Report on
                Form 8-K filed on March 19,
                2008




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          40
          -




**Exhibit**
            
            **Description**
            
            **Location**31.1
            
            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





(b)
      Reports on Form 8-K





On
      March
      19, 2008, the Company filed a Current Report on Form 8-K reporting the Company’s
      financing with YA Global Investments, L.P.




On
      March
      19, 2008, the Company filed a Current Report on Form 8-K reporting the Company’s
      acquisition of Safety & Ecology Holdings Corporation.




On
      March
      25, 2008, the Company filed a Current Report on Form 8-K reporting the Company’s
      earnings call transcript and related press release.




On
      March
      26, 2008, the Company filed a Current Report on Form 8-K reporting the Company’s
      appointment of Christopher Leichtweis as president and director of the Company.




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          41
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**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. BriganteChief
                Financial OfficerMay
                15, 2007





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