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 June 30, 2006

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

               For the transition period from _______ to _______.

                             Commission file number
                                    814-00631

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

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

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

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


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes |_| No |X|

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| 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. |_| Yes |_| 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 4,155,380,536 par value $.001 per share, shares of common stock
outstanding as of August 14, 2006.

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

<PAGE>

PART I

FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

      The accompanying interim condensed consolidated financial statements and
notes to the consolidated financial statements for the interim periods as of
June 30, 2006 and for the three and six months ended June 30, 2006 and 2005, are
unaudited. The accompanying interim unaudited financial statements have been
prepared by the Company in accordance with accounting principles generally
accepted in the United States for interim financial statements and pursuant to
the requirements for reporting on Form 10-QSB and Article 10 of Regulation S-B.
Accordingly, these inteim unaudited financial statements do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 2006, are not necessarily indicative of the results that
may be expected for the year ending December 31, 2006. The condensed
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Form 10-K of the Company
as of and for the year ended December 31, 2005. Certain June 30, 2005 balances
have been reclassified to conform to the June 30, 2006 financial statement
presentation.


                                        1

<PAGE>

                      HOMELAND SECURITY CAPITAL CORPORATION
                           Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                     June 30, 2006   December 31,2005
                                                                     -------------   ----------------
                                                                      (unaudited)
<S>                                                                  <C>               <C>
ASSETS

  Cash                                                               $    646,280      $  1,094,061
  Accounts receivable                                                   3,404,003                --
  Inventories                                                              52,776                --
  Costs in excess of billings on uncompleted contracts                    515,449                --
  Other current assets                                                    172,893           144,657
                                                                     ------------      ------------
    Total current assets                                                4,791,401         1,238,718
                                                                     ------------      ------------
  Fixed assets, net                                                       206,232            24,306
  Deferred officers' compensation                                         240,000                --
  Deferred financing costs - net                                          447,780                --
                                                                     ------------      ------------
    Total assets                                                     $  5,685,413      $  1,263,024
                                                                     ============      ============

Liabilities and Stockholders' Equity

  Accounts payable                                                   $  1,107,841      $    384,792
  Judgments and defaults payable                                           44,000            44,000
  Accrued interest                                                        129,810            64,911
  Billings in excess of costs on uncompleted contracts                    523,681                --
  Derivative liability                                                  2,674,923                --
  Other current liabilities                                               134,232             4,601
                                                                     ------------      ------------
    Total current liabilities                                           4,614,487           498,304
  Convertible debentures - related party,
    net of $2,996,667 discount                                          1,003,333                --
  Convertible debentures, net                                                  --           222,500
                                                                     ------------      ------------
                                                                        1,003,333           222,500
                                                                     ------------      ------------
     Total liabilities                                                  5,617,820           720,804
                                                                     ------------      ------------
Commitments and contingencies                                                  --                --
  Minority interest in consolidated subsidiaries                          205,499                --
  Stockholders' Equity (deficit)
  Preferred stock Series F                                                100,000           100,000
  Preferred stock Series G                                                100,000                --
  Common stock, $.001 par value, 20,000,000,000 shares authorized,
    4,155,380,536 and 4,397,728,539
    shares issued and outstanding, respectively                         4,155,381         4,397,729
  Additional paid-in capital                                           42,556,343        41,822,550
  Accumulated deficit                                                 (47,049,630)      (45,778,059)
                                                                     ------------      ------------
  Total stockholders' equity (deficit)                                   (137,906)          542,220
                                                                     ------------      ------------
     Total liabilities and stockholders' equity (deficit)            $  5,685,413      $  1,263,024
                                                                     ============      ============
</TABLE>

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


                                        2

<PAGE>

                      HOMELAND SECURITY CAPITAL CORPORATION
                Consolidated Statements of Operations (unaudited)

<TABLE>
<CAPTION>
                                                            Three Months     Three Months      Six Months       Six Months
                                                                Ended            Ended            Ended           Ended
                                                            June 30, 2006    June 30, 2005    June 30, 2006   June 30, 2005
                                                           --------------   --------------   --------------   -------------
<S>                                                        <C>              <C>              <C>              <C>
Sales                                                      $    2,053,707   $           --   $    2,741,737   $         --
                                                           --------------   --------------   --------------   ------------
Cost of sales
  Materials                                                       888,314               --        1,268,560             --
  Labor                                                           278,001                           539,099
  Other                                                                --               --          123,727             --
    Total cost of sales                                         1,166,315               --        1,931,386             --
                                                           --------------   --------------   --------------   ------------
    Gross profit on sales                                         887,392               --          810,351             --
    General and administrative expenses                         1,273,635          192,239        2,329,966        392,920
                                                           --------------   --------------   --------------   ------------
      Operating income (loss)                                    (386,243)        (192,239)      (1,519,615)      (392,920)
Other income (expense)
    Amortization of debt offering costs                           (43,332)              --          (72,220)       (40,529)
      Beneficial conversion feature - convertible
      debentures                                                       --          (53,709)              --       (242,988)
    Amortization of debt discounts                               (290,000)              --         (483,333)            --
    Interest expense                                              (51,934)          (9,374)         (90,535)       (68,112)
    Settlement of debt                                             13,276         (156,408)          13,276         32,038
    Minority interest in loss of consolidated subsidiary           (8,654)              --           60,225             --
    Other income (expense)                                      1,240,660           39,944          820,631         39,944
                                                           --------------   --------------   --------------   ------------
Total other income (expense)                                      860,016         (179,547)         248,044       (279,647)
                                                           --------------   --------------   --------------   ------------
      Net income (loss) attributable
       to common stockholders                              $      473,773   $     (371,786)  $   (1,271,571)  $   (672,567)
                                                           ==============   ==============   ==============   ============
Income (loss) per common share, basic and diluted
Net income (loss) per common share attributable
  to common stockholders - basic                           $         0.00   $         0.00   $         0.00   $       0.00
                                                           ==============   ==============   ==============   ============
  - diluted                                                $         0.00   $           --   $           --   $         --
                                                           ==============   ==============   ==============   ============

  Weighted average shares outstanding - basic               4,144,179,071    4,428,073,650    4,167,858,917    491,955,173
                                                           ==============   ==============   ==============   ============
  - dliuted                                                 4,435,012,404               --               --             --
                                                           ==============   ==============   ==============   ============


</TABLE>

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


                                        3

<PAGE>

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

<TABLE>
<CAPTION>
                                                                      Six Months      Six Months
                                                                        Ended           Ended
                                                                    June 30, 2006   June 30, 2005
                                                                    -------------   -------------
<S>                                                                  <C>             <C>
Cash flows from operating activities:
  Net loss                                                           $(1,271,571)    $  (672,567)
  Adjustments to reconcile net loss to net
    cash used in operating activities:
      Settlement of debt                                                 (11,514)       (181,901)
      Stock issued for payment of expenses                               271,216              --
      Depreciation and amortization                                       21,065           5,600
      Beneficial conversion - convertible notes                               --         242,988
      Amortization of debt discount                                     (321,744)             --
      Amortization of debt offering costs                                 72,220          40,529
      Changes in operating assets and liabilities:
        Accounts Receivable                                           (3,277,316)             --
        Inventories                                                      (52,776)             --
        Other assets                                                    (670,373)       (150,215)
        Accounts payable                                                 723,050         (50,083)
        Judgments and defaults payable                                        --        (103,774)
        Accrued interest                                                  76,413        (310,020)
        Other current liabilities                                        653,312           6,039
                                                                     -----------     -----------
          Net cash provided by (used in) operating activities         (3,788,018)     (1,173,404)

Cash flows from investing activities:
  Purchase of fixed assets                                              (202,991)             --
  Increase in other assets                                              (240,000)             --
  Minority interest in consolidated subsidiaries                         205,499              --
  Proceeds from liquidation of Yorkville Advisors Management, LLC             --       5,240,000
                                                                     -----------     -----------
          Net cash provided by (used in) investing activities           (237,492)      5,240,000

Cash flows from financing activities:
  Proceeds from convertible debentures - related party                 4,000,000              --
  Cost of convertible debentures - related party                        (430,000)             --
  Conversion of convertible debentures                                  (222,500)             --
  Common stock issued for convertible debentures                         230,229
  Payments on notes payable                                                  --      (1,542,500)
  Payments on notes payable - related party                                  --      (1,265,000)
  Acquisition of treasury stock                                               --        (417,967)
                                                                     -----------     -----------
          Net cash used in financing activities                        3,577,729      (3,225,467)

Net increase (decrease) in cash                                         (447,781)        841,129
Cash, beginning of period                                              1,094,061           1,863
                                                                     -----------     -----------
Cash, end of period                                                  $   646,280     $   842,992
                                                                     ===========     ===========
Cash paid for:
  Interest                                                           $    17,410     $   302,040
                                                                     ===========     ===========
  Taxes                                                              $        --     $        --
                                                                     ===========     ===========
</TABLE>

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


                                        4

<PAGE>

             HOMELAND SECURITY CAPITAL CORPORATION AND SUBSIDIARIES
            Consolidated Statement of Changes in Stockholders' Equity
                     For the six months ended June 30, 2006

<TABLE>
<CAPTION>
                                                                                                               Total
                                                        Common Stock           Additional                  Stockholders'
                                     Preferred   --------------------------      Paid-       Accumulated     (Deficit)
                                       Stock        Shares         Amount      In Capital      Deficit        Equity
                                     ---------   -------------   ----------   -----------   ------------   -------------
<S>                                   <C>        <C>             <C>          <C>           <C>             <C>
Balance December 31, 2005             $100,000   4,397,728,539   $4,397,729   $41,822,550   $(45,778,059)   $   542,220
Issuance of preferred stock
  Series G                             100,000                                    710,000                       810,000
  Exchanged for common stock                      (450,000,000)    (450,000)     (360,000)                     (810,000)
Conversion of debentures to common                 157,651,997      157,652        72,577                       230,229
Value of vested stock options                                                     271,216                       271,216
Issuance of common stock for fees                   50,000,000       50,000        40,000                        90,000
Net loss (unaudited)                                                                          (1,271,571)    (1,271,571)
                                                                                            ------------    -----------
Balance, June 30, 2006                $200,000   4,155,380,536   $4,155,381   $42,556,343   $(47,049,630)   $  (137,906)
                                      ========   =============   ==========   ===========   ============    ===========
</TABLE>

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


                                       5

<PAGE>

                      HOMELAND SECURITY CAPITAL CORPORATION
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)
                                  JUNE 30, 2006

      Overview

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


1.    Presentation of Unaudited Interim Financial Statements

      On May 20, 2003, the Company formed a subsidiary, Celerity Systems, Inc.,
a Nevada corporation, ("Celerity NV"). The assets and liabilities related to the
Company's existing interactive video business were transferred to Celerity NV
for 100% of the common stock. As this subsidiary is not an investment company,
between June 3, 2003 and December 31, 2005, it is not consolidated with the
parent company.

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

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

      The results of operations for the three and six months ended June 30, 2005
reflect the Company's results as a BDC. Accounting principles used in the
preparation of the financial statements between June 3, 2003 and December 31,
2005 are different than those of prior or subsequent periods and, therefore, the
financial position and results of operations of these periods are not directly
comparable. The primary differences in accounting principles relate to the
carrying value of investments.

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

2.    Stock-Based Compensation

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


                                       6

<PAGE>

      Of the options granted in December 2005 and February 2006, options to
purchase 290,833,333 shares of Common Stock vested during the six month period
ended June 30, 2006 and the Company recorded $271,217 as compensation expense
related to the vesting of these options.

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

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

      Celerity NV had no operations for the six months ended June 30, 2006 or
for the six months ended June 30, 2005.

      Because of lack of sales of systems and consequent lack of operating
profits, the Company's directors decided in September 2004 to cease operations
and dispose of the remaining business and related assets. Accordingly, the
Company entered into a sales agreement with Escent Systems, Inc. whereby the
Company transferred all the assets and business plus $15,000 for working capital
in return for a 25% equity position in Escent Systems, Inc. Since the net assets
of Celerity NV had been written to nil, there was no further loss recorded on
the transaction. Because of the lack of operations and uncertainty of continued
operations, Celerity NV has not assigned any value to the investment.

4.    Investment in Sagamore Holdings, Inc.

      In September 2004, the Company entered into a business development
agreement with Sagamore Holdings, Inc. ("Sagamore') with an effective date of
October 4, 2004. The Company received 7,500,000 shares of Sagamore common stock
as consideration for its agreement to provide future services regarding capital
formation and management advise. The Company has reviewed the valuation of the
Sagamore stock using fair value, and, based on the liquidation preference of the
preferred stockholder, management has considered the value of the stock as nil.
Also, the Company has rendered no specific services in 2006 or 2005. There have
been no events or circumstances occurring in the six months ended June 30, 2006
that would change the valuation. Accordingly, the Board of Directors has
continued to include the value of the Sagamore stock in its financial statements
as nil and has not recognized any revenue from the transaction.

5.    Investment in Yorkville Advisors Management, LLC.

      On December 1, 2003, the Company purchased a minority interest in
Yorkville, which is the investment manager of a private equity fund that is a
principal holder of equity securities of the Company. The purchase price
amounted to $5,240,000. In 2005, the Company was informed that Yorkville was in
the process of an orderly liquidation of its business. Under the terms of a
Preferential Rights Agreement, the Company's membership interest in Yorkville
has been converted into a new class with certain preferential rights and shall
receive consideration equal to the original purchase price less certain debt of
approximately $1,500,000 due to an affiliated company of Yorkville. The Company
received this consideration in full and in cash by May 3, 2005.


                                       7

<PAGE>

6.    Acquisition of Nexus Preferred Shares

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

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

      The following is an unaudited condensed statement of operations for the
six months ended June 30, 2006 showing the combined results of operations of the
Company and Nexus as though the Company had acquired the Nexus Preferred Shares
on January 1, 2006:

                                                  Pro Forma
                          HMSC        Nexus      Adjustments    Pro Forma
                     ------------  -----------   -----------   -----------
Sales                $         --  $ 2,741,737                 $ 2,741,737
Net loss             $ (1,271,571)  $ (704,090)    $60,225     $(1,915,436)
Net loss per share           0.00         0.00          --            0.00

      Since the Company operated during 2005 as a BDC with an entirely different
business strategy and had no meaningful operations for the six months ended June
30, 2005, we believe that it would not provide a meaningful comparison to
provide a pro forma unaudited condensed statement of operations showing the
combined results of operations of the Company and Nexus as though the Company
had acquired the Nexus Preferred Shares on January 1, 2005.

7.    Investment in Nexus Technology Group

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


8.    Series G Preferred Stock

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

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


                                       8

<PAGE>

9.    Sale of Convertible Debentures

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

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

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

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

10.   Income or Loss Per Share

      Basic and diluted imcome or loss per share were computed by dividing net
income or loss attributable to Common Stock by the weighted average number of
common shares outstanding during each period.

11.   Long-term Debt

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

                                         June 30, 2006   December 31, 2005
                                         -------------   -----------------
5% convertible debentures - 2004           $    - 0 -         $222,500
5% convertible debentures - 2006            1,003,333            - 0 -
                                           ----------         --------
Long-term debt less current maturities     $1,003,333         $222,500
                                           ==========         ========

      During the six months ended June 30, 2006, $222,500 in face value of
convertible debentures plus accrued interest of $19,243 were presented for
conversion, accordingly, 157,651,997 shares of Common Stock were issued.

12.   Stock Buyback Program

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


                                       9

<PAGE>

13.   Judgments and Defaults Payable

      In January 2002, the Company terminated the Equity Line of Credit entered
into on September 14, 2001 due to delays in getting related shares registered
and in order to pursue other types of financing arrangements. As a result, the
Company does not have an effective registration statement including common
shares to be issued in connection with certain debentures issued in 2001 and the
first quarter of 2002 under the 1999 Line of Credit Agreement, entered into with
Cornell Capital Partners. The Company is required to pay liquidated damages in
the form of increased interest on the convertible debentures as a result of not
filing an effective registration statement for these debentures at a rate of 2%
of the principle plus interest per month. The liability for liquidated damages
has been accrued at its maximum amount. The Company has remaining accrued
liquidated damages of $36,000 at June 30, 2006 and 2005.

      In 2003, Del Rio Enterprises sued the Company for non-payment of services
rendered. During 2003, a judgment was rendered against the Company in the amount
of $8,000. This amount has been accrued at June 30, 2006.

14.   Common Stock

      During the six months ended June 30, 2006, the Company issued 50,000,000
shares of Common Stock valued at $90,000 in partial payment for costs of
issuance on its 5% convertible debenture.


                                       10

<PAGE>

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

      Introductory Statements

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

      Overview

      Homeland Security Capital Corporation (together with any subsidiaries
shall be referred to as the `Company,' `we,' `us' and `our') was incorporated in
Delaware on August 12, 1997, and is located in Arlington, Virginia. The Company
focuses on the acquisition and development of homeland security 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 June 3, 2003, the Company elected to become a business development
company ("BDC"), to be regulated pursuant to Section 54 of the Investment
Company Act of 1940, as amended (the "Investment Company Act"). A business
development company is an investment company designed to assist eligible
portfolio companies with capital formation and management advice. The Company
then changed its business plan to primarily seek investments in developing
companies.

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

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

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

      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.


                                       11

<PAGE>

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

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

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

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

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

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

      Results of Operations

      Three Months Ended June 30, 2006 Compared With the Three Months Ended June
30, 2005

      Revenues

      For the three months ended June 30, 2006, the Company had sales of
$2,053,707 consisting of fees earned by Nexus on security systems installation
and integration contracts. The Company had no sales for the three month period
ended June 30, 2005. The increase in sales is due to the implementation of the
Company's new business strategy of acquiring and integrating businesses that
provide homeland security products and services.

      Cost of goods sold

      For the three months ended June 30, 2006, cost of sales was $1,166,315
consisting of materials, labor and other costs incurred by Nexus associated with
security systems installation and integration contracts. The Company had no cost
of sales for the three months ended June 30, 2005. The increase in cost of sales
is due to the implementation of the Company's new business strategy of acquiring
and integrating businesses that provide homeland security products and services.

      General and administrative expenses

      General and administrative expenses for the three months ended June 30,
2006 were $1,273,635 compared to $192,239 for the three months ended June 30,
2005. The increase of $1,081,396 or 562% in general and administrative expenses
is primarily due to general and administrative expenses that were incurred in
the acquisition of Nexus. The increase consisted of additional professional fees
of $38,125 for the acquisition of Nexus, additional personnel costs of $701,138,
increases in facility and insurance expenses of $188,085 and general
administrative costs of $154,048. These costs and other expenses were incurred
in connection with the Company's change in business strategy for the three month
period.


                                       12

<PAGE>

      Other income and expense

      The Company had net other income of $860,016 for the three months ended
June 30, 2006 compared to net other expenses of $(179,547) for the three months
ended June 30, 2005 for an increase of $1,039,563 or 579%. Income was increased
by a positive change in the derivative valuation of $1,194,955, settlement of
trade payables of $169,684 and interest income of $5,761. Other income and
expense was decreased by increases in interest expense of $42,560, amortization
of debt discounts of $236,291, amortization of debt offering costs of $43,332
and recording of minority interest in the consolidated Nexus subsidiaries of
$8,654.

      Net income (loss)

      As a result of the foregoing, the Company recorded a net income of
$473,773 for the three months ended June 30, 2006 compared to a net loss of
$371,786 for the three months ended June 30, 2005. This represents an increase
in the net income of $845,559 or 227%.

      Six Months Ended June 30, 2006 Compared With the Six Months Ended June 30,
2005

      Revenues

      For the six months ended June 30, 2006, the Company had sales of
$2,741,737, consisting of fees earned by Nexus on security systems installation
and integration contracts. The Company had no sales for the six month period
ended June 30, 2005. The increase in sales is due to the implementation of the
Company's new business strategy of acquiring and integrating businesses that
provide homeland security products and services.

      Cost of goods sold

      For the six months ended June 30, 2006, cost of sales was $1,931,386,
consisting of materials, labor and other costs incurred by Nexus associated with
security systems installation and integration contracts. The Company had no cost
of sales for the six months ended June 30, 2005. The increase in cost of sales
is due to the implementation of the Company's new business strategy of acquiring
and integrating businesses that provide homeland security products and services.

      General and administrative expenses

      General and administrative expenses for the six months ended June 30, 2006
were $2,329,966 compared to $392,920 for the six months ended June 30, 2005. The
increase of $1,937,046 or 493% in general and administrative expenses is
primarily due to general and administrative expenses that were incurred in the
acquisition of Nexus. The increase consisted of additional professional fees of
$242,089 for the acquisition of Nexus, additional personnel costs of $1,255,457,
increases in facility and insurance expenses of $184,604 and general
administrative costs of $254,896. These costs and other expenses were incurred
in connection with the Company's change in business strategy for the six month
period.

      Other income and expense

      The Company had net other income of $248,044 for the six months ended June
30, 2006 compared to net other expenses of $(279,647) for the six months ended
June 30, 2005 for an increase of $527,691 or 189%. Income was increased by a
positive change in the derivative valuation of $805,077, recording a minority
interest in the loss of the consolidated Nexus subsidiary of $60,225, and
interest income of $15,554. Other income and expense was decreased by increases
in interest expense of $22,423, amortization of debt discounts of $240,345,
amortization of debt offering costs of $31,691, a reduction in the settlement of
trade payables of $18,762 and a reduction in investment income of $39,944.

      Net loss

      As a result of the foregoing, the Company recorded a net loss of
$1,271,571 for the six months ended June 30, 2006 and a net loss of $672,567 for
the six months ended June 30, 2005. This represents an increase in the net loss
of $599,004 or 89%.


                                       13

<PAGE>

      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 $646,280 at June 30, 2006 and $1,094,061 at December 31,
2005. Our primary needs for cash are to fund our ongoing operations until such
time as they begin to generate sufficient cash to fund operations and to have
cash available to make additional acquisitions of businesses that provide
homeland security products and services. While we believe that we have
sufficient cash on hand to satisfy our current operating commitments, we will
require significant additional funding in order to make additional acquisitions.

      While we currently do not have any commitments in place for additional
funding, on August 29, 2005, the Company entered into term sheet agreement with
Cornell Capital Partners to enter into a $50 million standby equity distribution
agreement (the "SEDA Financing"). Based on the SEDA term sheet, Cornell Capital
Partners shall commit to purchase up to $50 million of Common Stock of the
Company over the course of 24 months after an effective registration of the
Company's common stock, par value $.001 per share (the "Common Stock"). The
Company shall have the right, but not the obligation, to sell Common Stock to
Cornell Capital Partners, in advances up to $1,000,000 each. Upon closing, the
Company shall issue to Cornell restricted shares and/or warrants of the
Company's Common Stock in an amount equal to 2% of the commitment amount based
on a share price of $0.001 per share. The number of restricted shares issued
shall be limited to less than 4.9% of the total outstanding shares of the
Company at closing. Upon each advance, Cornell Capital Partners shall receive
directly from escrow cash compensation equal to 5% of the gross proceeds of such
advance. The Company shall sell to Cornell Capital Partners the Common Stock at
a purchase price equal to 98% of the market price, which is defined as the
lowest closing bid price of the Common Stock during the five consecutive trading
days after the date an advance notice is given to Cornell Capital Partners. As
of August 14, 2006, the Company has not received any definitive documents in
connection with the SEDA Financing. The final terms and conditions of the SEDA
Financing may be subject to modification as mutually agreed upon by the Company
and Cornell Capital Partners at the time of entering into definitive agreements.

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

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

      During the six months ended June 30, 2006, we had a net decrease in cash
of $(447,781). Our sources and uses of funds were as follows:

      Cash Flows from Operating Activities

      We used net cash of $(3,788,018) in our operating activities during the
six month period ended June 30, 2006. Our net cash used in operating activities
resulted primarily from the Company's net loss of $(1,271,571) for the six
months ended June 30, 2006, a use of $(2,547,690) from net changes in operating
assets and liabilities for the six months ended June 30, 2006 and the net change
in derivative and debt discounts of $321,744. These uses have been offset by
$271,216 from the use of stock issued as compensation and for payment of
expenses, $21,065 in depreciation and amortization and $72,220 in amortization
of debt offering costs for the six months ended June 30, 2006.

      Cash Flows from Investing Activities


                                       14

<PAGE>

      We used net cash of $(237,492) in our investing activities during the six
month period ended June 30, 2006, consisting primarily $202,991 in purchases of
fixed assets and an increase of $240,000 in other assets, offset by an increase
of $205,499 in minority interest in consolidated subsidiaries.

      Cash Flows from Financing Activities

      We provided cash of $3,577,729 from financing activities during the six
month period ended June 30, 2006, consisting of $4,000,000 in proceeds from
convertible debentures issued less $430,000 in costs associated with the
issuance of those debentures. We also converted debentures and received net
proceeds of $7,729 in cash.

      As of June 30, 2006, we had positive net working capital of $176,914.

      ITEM 3. CONTROLS AND PROCEDURES

      (a) Evaluation of Disclosure Controls and Procedures:

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

      (b) Changes In Internal Controls Over Financial Reporting

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


                                       15

<PAGE>

                                     PART II

ITEM 1.  LEGAL PROCEEDINGS

None.

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

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5.  OTHER INFORMATION

None.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

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

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

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

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

10.1         Securities Purchase Agreement dated        Incorporated by reference as Exhibit
             February 6, 2006, by and between           10.1 to Form 8-K filed with the
             Homeland Security Capital Corporation      Commission on February 14, 2006
             and Cornell Capital Partners LP

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

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

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


                                       16

<PAGE>

<TABLE>
<CAPTION>
Exhibit No                   Description                                  Location
----------   ----------------------------------------   ----------------------------------------
<S>          <C>                                        <C>
10.5         Security Agreement dated February 6,       Incorporated by reference as Exhibit
             2006, by and between Homeland Security     10.5 to Form 8-K filed with the
             Capital Corporation and Cornell Capital    Commission on February 14, 2006
             Partners, LP.

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

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

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

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

      (b)   Reports of Form 8-K:

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

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

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

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

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


                                       17

<PAGE>

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


                                       18

<PAGE>

                                   SIGNATURES

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

HOMELAND SECURITY CAPITAL CORPORATION


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

August 14, 2006