UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549  FORM 10-KSB  xANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2007  oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934-  Commission file number 000-15216  Homeland Security Network, Inc. (Name of small business issuer in its charter)  Nevada86-0892913(State or other jurisdiction of
incorporation or organization)(I.R.S. Employer
Identification No.)7920 Beltline Road, Suite 770, Dallas, TX 7525475254(Address of principal executive offices)(Zip Code) Registrants telephone number, including area code: (972) 386-6667  Securities registered under Section 12(b) of the Exchange Act: Title of each className of each exchange on which registeredNoneNone  Securities registered under Section 12(g) of the Exchange Act:  Common Stock, Par Value of $.001 per Share (Title of class)  Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act.            ̈  Check whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.                 Yes x   No  ̈  Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.       ̈  Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈   No x State issuer's revenues for its most recent fiscal year: $90,378.  State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity as of a specified date within the past 60 days: $22,831,504 based on the $0.30 per share price at which common equity was sold on March 28, 2008.    State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date:  76,105,013 shares of Common Stock, $.001 par value, as of March 28, 2008.  DOCUMENTS INCORPORATED BY REFERENCE  None.  Transitional Small Business Disclosure Format (check one): Yes o No x        HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES FORM 10-KSB YEAR ENDED DECEMBER 31, 2007  INDEX PagePART I4Item 1.Description of Business4Item 2.Description of Property9Item 3.Legal Proceedings10Item 4.Submission of Matters to a Vote of Security Holders10PART II10Item 5.Market for Common Equity and Related Stockholder Matters10Item 6.Managements Discussion and Analysis or Plan of Operations13Item 7.Financial Statements18Item 8.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure18Item 8A.Controls and Procedures19Item 8B.Other Information19PART III19Item 9.Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act19Item 10.Executive Compensation21Item 11.Security Ownership of Certain Beneficial Owners and Management22Item 12.Certain Relationships and Related Transactions23Item 13.Exhibits26Item 14.Principal Accountants Fees and Services26SIGNATURES27INDEX TO FINANCIAL STATEMENTS28        Cautionary Statement Regarding Forward Looking Statements  Certain of the statements contained in this Form 10-KSB for the period ended December 31, 2007 should be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act), which reflect the current views of Homeland Security Network, Inc. (collectively, with its subsidiaries, HSNI or the Company) with respect to current events and financial performance. You can identify these statements by forward-looking words such as may, will, expect, intend, anticipate, believe, estimate, plan, could, should, and continue or similar words. These forward-looking statements may also use different phrases. From time to time, HSNI also provides forward-looking statements in other materials HSNI releases to the public or files with the SEC, as well as oral forward-looking statements. You should consult any further disclosures on related subjects in HSNIs quarterly reports on Form 10-QSB and current reports on Form 8-K filed with the SEC.  Such forward-looking statements are and will be subject to many risks, uncertainties and factors relating to HSNIs operations and the business environment in which HSNI operates, which may cause its actual results to be materially different from any future results, express or implied, by such forward-looking statements. Statements in this annual report and the exhibits to this report should be evaluated in light of these important risks, uncertainties and factors. HSNI is not obligated to, and undertakes no obligation to publicly update any forward-looking statement due to actual results, changes in assumptions, new information or as the result of future events.  PART I  ITEM I. DESCRIPTION OF BUSINESS  The Company  The Company is a Nevada corporation formed in 1993. HSNIs principal executive office is located at 7920 Beltline Rd, Suite 770, Dallas, TX 75254. HSNIs telephone number is (972) 386-6667. HSNIs website is www.hsni.us.  This report, quarterly reports on Form 10-QSB, current reports on Form 8-K and amendments to these reports filed or furnished pursuant to Section 13(a) of the Exchange Act are made available free of charge through the SECs website (www.sec.gov), which contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. In addition, these documents are made available on HSNIs website as soon as reasonably practicable after the material is electronically filed with, or furnished to, the SEC. The public may read and copy any material HSNI files with the SEC at the SECs Public Reference Room located at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  From 1998 until the third quarter of 2004, the Company provided financial products and related services to the new and pre-owned automotive finance industry. The Company primarily purchased and subsequently sold automobile finance receivables collateralized by new and pre-owned automobiles. The receivables were predominately purchased from automobile retailers nationwide and sold to banks and credit unions.  The Company changed its name to Homeland Security Network, Inc. (OTC: HSYN) on March 1, 2005 to reflect the direction of a new course of business. The Company intends `Homeland Security Network, Inc.' to be recognized as a provider of technology products and services for tracking and recovering valuable mobile assets.  The Company anticipates its new course of business will capitalize on rapidly emerging, largely under-served, GPS tracking markets. HSNI plans to serve the concerns and requirements of the individual consumer and corporations. HSNI predominantly targets markets such as commercial trucking and cargo management, commercial fleet management, equipment rental and personal vehicle tracking. These markets could have a potential demand in excess of 100 million units in the United States, Canada and Mexico over the next decade. The Company expects to impact the GPS tracking industry with state-of-the-art software, as well as with its ability to provide low cost tracking hardware, and its ability to offer a cost-effective data transmission fee. The Company's GPS products incorporate map tracking and trailing, geo-fencing alerts for designated parameter infringements, and the ability to control vehicle functions with       voice commands from its customers web-enabled mobile phones or personal computers, via the company's internet website system software. The Company plans to continually enhance features.  In the fourth quarter of 2007, the Company began a second business segment. HSNI has secured distribution rights to a patented water restoration technology, which represents a substantial opportunity in the multi-billon dollar global water purification market.  The Company has proposed the use of its services in the United States and several foreign counties.  The Company has supported two events at the United Nations and will sponsor a third on May 2, 2008.  This dinner reception is part of the Companys association with International Renewable Energy Organization (IREO), a Brazilian private partner of the United Nations. In attendance will be Ambassadors, Government Officials and entertainment celebrities.  Peter Ubaldi, President & CEO of The Company has been appointed as Chairman of IREOs Water Restoration Committee.  The Company has proposed its remediation technology for Lake Rodrigo in Brazil as part of its expanding marketing efforts in Central and South America.  HSNI has entered into a joint venture with HumaClean, a Texas based soil remediation and re-seller of processed soil for consumer and commercial users.  The first project is underway in Juarez, Mexico and the next site has been designated as Monterey, Mexico.  The Company believes that revenue from these activities will begin to be recorded in the second quarter of 2008. .  2003 Merger  On June 30, 2003, HSNI (when operating as AutoCorp Equities, Inc.) issued 100,000,000 shares of its Common Stock and 4,086,586 shares of its Series A convertible stock to Pacific Holdings Group, Inc., the parent company of Pacific Auto Group, Inc., resulting in Pacific Holdings Group owning approximately 94.0% of the outstanding HSNI shares.  The form of the transaction was a reverse triangular merger, whereby a newly formed, wholly owned acquisition subsidiary of HSNI merged with and into Pacific Auto Group, with Pacific Auto Group being the surviving corporation in the merger. Pacific Holdings Group was 100% owned by Pacific USA Holdings Group, Inc., which was the primary domestic parent company of the entire group, owning all of the outstanding stock of Pacific Holdings Group. The ultimate parent company was Pacific Electric Wire & Cable Co. in Taiwan. On December 2, 2002, Pacific USA Holdings Group filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. On November 24, 2004, the Debtors' joint plan of reorganization became effective and the Debtors emerged from Chapter 11 of the Bankruptcy Code. Neither Pacific Holdings Group nor Pacific Auto Group was party to the petition under Chapter 11 of the Bankruptcy Code.  2004 Stock Acquisition by AutoCorp Acquisition Partners  In August 2004, Pacific Holdings Group, the then controlling shareholder of the Company, and one of its affiliates, Pacific Financial Group, collectively sold their stock to a partnership, AutoCorp Acquisition Partners, formed by the then President (and CEO) and Executive Vice President of the Company.  AutoCorp Acquisition Partners designated two persons who were elected to the Board of Directors.  The designees became a majority of the board after the tenth day subsequent to the mailing and filing of the Information Statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated there under. The designees are now the beneficial owners of approximately 49% of the Company's stock and originally constituted 100% of the Company's Board of Directors.  An additional Director was voted onto the Board on December 30, 2006.  Plan of Operation  In August 2004, the Company ceased its activities in the automobile finance business and has completed the orderly liquidation of the auto receivable portfolio. Its focus is in several new markets with new products for the GPS industry and the water purification industry.  The Company anticipates this business will capitalize on rapidly emerging, largely under-served, GPS tracking markets and the worldwide need for water purification. The Company completed the purchase of the software which supports its GPS tracking technology from Rodwell Software Systems, Inc. (RSSI).  From the 1st quarter of 2005 until December of 2007, the Company had operated this system under a licensing agreement from RSSI; however, RSSI was issued a total of 8,855,760 shares of the Companys R144 common stock for this purchase. The purchase from RSSI provides the Company with technology products and support services for tracking and recovering valuable mobile assets.  HSNI's plan further incorporates engaging and developing strategic alliances with third party sale and installation entities and distributors that have a distinct sales and marketing presence in the automobile retail industry, and the commercial and government sectors. The Company expects these types of engagements to be particularly beneficial and anticipates the results of such alliances to create name recognition for the Company.        Ultimately, the Company expects to generate sustaining revenues derived primarily from the sale and installation of its GPS products and components to domestic end users and third party users generated from non-prime finance companies and buy here, pay here companies.  Additionally, the Company expects to generate revenues relating to the sale of service contracts, for which terms of service are anticipated to range from 12 to 36 months and are payable in full upon activation of the related tracking unit, as well as subsequent renewals of previous service contracts.  Costs for product development are expensed as incurred and include salaries, fees to consultants, and other related costs associated with the development of products. The Companys product development effort has thus far been outsourced to third parties. Because the rate of achievement is unpredictable, product development expenses may vary significantly from period to period. Such variability can have a significant impact on the Companys income from operations and cash flows.  The Company has also entered into the business of providing provision of water purification products and solutions for both industry and governments seeking environmentally positive changes in various bodies of water. The Company is actively negotiating contracts in the United States and internationally.  The entry into this new activity has begun and the impact of the Companys involvement should be realized in mid to late 2008.  In addition, the Company has established a joint venture relationship with a soil remediation firm company that has many years of experience in this field. The proprietary products and services from this venture are licensed to the Company on a non-exclusive basis.  Ultimately, the Company expects this activity to become a major business segment contributing sustaining revenues.  Risk Factors  Limited Operating History of Present Business:  In August 2004, as described under Part I, Item 1, the heading Acquisition by AutoCorp Acquisition Partners, the Companys stock was acquired by a partnership formed by the then President (and CEO) and Executive Vice President of the Company. Although the Companys current management has extensive operating experience in the consumer finance industry, the brief operating history as a provider of technology products and services for tracking and recovering valuable mobile assets provides only a limited basis for evaluation. The prospects for the Company must be considered in light of the risks, expenses, difficulties and problems frequently encountered in transitioning a company.  Risks, uncertainties and factors that could cause HSNIs actual results to differ materially from forward-looking statements include, but are not limited to, the following:  · The ability to maintain adequate liquidity and produce sufficient cash flow to meet HSNIs capital expenditure requirements; · The ability to attract and retain qualified management and other personnel; · The number of potential customers in a target market; · Changes in the competitive environment in which HSNI operates; · Changes in government and regulatory policies; · Uncertainty relating to economic conditions generally and in particular affecting the markets in which HSNI operates; · Pricing and availability of equipment, materials, inventory and programming; · The ability to complete acquisitions or divestitures and to integrate any business or operation acquired; · The ability to enter into strategic alliances or other business relationships; · The ability to overcome significant operating losses; · The ability to reduce costs; · The ability to develop HSNIs products and services and to penetrate existing and new markets; and · Technological developments and changes in the industry        Risk Associated with Expansion:  The Company's growth strategy may include future mergers or acquisitions, or expansion of services and products offered. There can be no assurance that management will successfully integrate the refocused operations of the Company with those that may be acquired or established in the future and effectively manage the combined enterprise. There will be a need to limit overhead as additional operations may be acquired while still maintaining sufficient staff. Failure to do so would have a materially adverse effect on the business, financial condition and results of operations of the Company (See Plan of Operations).  General Economic Conditions:  One of the Company's new businesses is related, in part, to the sale of new and pre-owned automobiles. Sales are affected by employment rates, prevailing interest rates, and other general economic conditions. Economic slowdown or recession could lead to inventory and production decreases. Adverse economic changes and sluggish sales of new and pre-owned automobiles and weaknesses in the economy could lead to a decline in the sale of tracking devices.  The Companys other new business, the water purification business, is not expected to be affected by general economic conditions.  Since the reliance on pure water is essential to the operations of all economies, the Company does not anticipate economic challenges unless they are related to extraordinary circumstances.  The Company feels that the new technologies employed in this new business will provide a cost effective solution where there has not been one in the past.  Competition:  The Company will compete with other product and service suppliers in the GPS industries. The GPS tracking industry relies on coordinating the merging of four separate components in order to operate as a GPS tracking system. They are: hardware, firmware, a software or application system, and wireless communication providers. The Company is a GPS tracking company that has adapted a portion of its hardware and software capabilities to operate on what is currently the least costly type of airtime network provider in the industry. It is possible that a competitor could adapt its hardware and software to also utilize the Companys current airtime provider. This event could reduce the size of the Companys targeted markets.  The Company will also compete in the water purification industry.  This industry is competitive and relies on technologies that must satisfy numerous regulatory and compliance requirements which have already been overcome by the developers of the technology that the Company has licensed.  The Company is aligning itself with established professionals and experts in this industry.  The Company anticipates that the new technologies which it will bring to the market should provide a competitive advantage.  However, there are large and well capitalized businesses that will offer competition that could make the Companys progress into this new business segment difficult.  Dependence on Key Alliances:  Presently, the Company is no longer dependent on a single electronics developer and manufacturer to develop and manufacture the Companys products. However, it is possible that new emerging technologies could render the Companys products obsolete or that procurement of supplies could become scarce or more costly to acquire should the Companys suppliers terminate their alliance with the Company.  Additionally, the Company presently relies on the ability of a wholesale distributor, strategic alliances and a limited in-house sales force to market and sell the products. Many competitors are larger and have greater financial and marketing resources than the Company.  Dependence on Management Information Systems:  The Company's future success depends in part on the ability to continue to adapt technology on a timely and cost-effective basis to meet changing customer and industry standards and requirements.        Dependence on Key Personnel:  The Company is highly dependent on the services of certain key employees. The Company has entered into an employment agreement with some, but not all such employees. The loss of certain key employees' services could have a materially adverse effect on the business and operations of the Company. In addition, the future success of the Company depends upon its ability to attract and retain qualified general personnel, which have sufficient and suited expertise in the GPS tracking industry tracking industry and the water purification industry. There can be no assurance of success in attracting and retaining qualified personnel in the future.  Market for Common Stock; Volatility of Prices:  There has been a limited public trading market for the Companys shares of common stock. There can be no assurance that a regular trading market for the common stock will ever develop or, if developed, that it will be sustained.  The market price of the common stock could also be subject to significant fluctuations in response to such factors as variations in the anticipated or actual results of operations of the Company or other companies in the GPS tracking industries, changes in conditions affecting the economy generally, analyst reports, general trends in industry, and other political or socioeconomic events or factors.  Liquidity and Need for Additional Funding:  Due to recurring operating losses and the Company's current working capital deficit, there is a need to obtain additional funding of working capital for the Company to operate as a going concern. Various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures on other forms of debt will be pursued. The Company is currently negotiating additional investments in the Company.  However, there can be no assurance that additional funding will be available when needed, or if available, that its terms will be favorable or acceptable.  Substantial Leverage:  Although substantially leveraged at the end of fiscal year 2007, in order to meet the ongoing working capital requirements of the Company, additional indebtedness may have to be incurred, perhaps resulting in a more highly leveraged capital structure. A highly leveraged capital structure could have adverse consequences, including: · Limiting the ability to obtain additional financing; · Requiring  the use of operating  cash flow to meet  interest and principal repayment obligations; · Increasing  the  Company's  vulnerability  to changes in general  economic conditions and competitive pressures; and · Limiting the Company's ability to realize some or all of the benefits of significant business opportunities.  In addition, any indebtedness that would be incurred is expected to contain covenants that limit, among other things, the ability to incur additional indebtedness, engage in mergers and acquisitions, pay dividends or take other actions. These covenants may also require the meeting of certain financial tests and the maintenance of a minimum level of collateral and may give the lender the right to perform periodic audits to ensure compliance with the terms of the applicable loan. Non-compliance with any of the terms of such covenants may result in a suspension of funding, acceleration and consequent demand for repayment and a foreclosure on collateral, as well as the pursuit of other rights and remedies, all of which could have a materially adverse effect on the financial condition, results of operations and prospects of the Company.  Interest Rate Fluctuations:  The Company's profitability is based, in part, on the interest rate charged on interest bearing liabilities. Interest rates with respect to outstanding indebtedness or indebtedness that may be incurred in the future are, or will be, as the case may be, based on interest rates prevailing in the market at the time the debt is incurred. In some cases, the rates may be floating rates. Increases in interest rates paid on outstanding       indebtedness would adversely affect the profitability of the Company and consume cash allocated for other operating activities.  Lack of Prospective Dividends:  The Company has not paid any dividends on its Common Stock and anticipates that future earnings, if any, will be used to reduce debt or finance future growth and that dividends will not be paid to shareholders. There can be no assurance that operations will result in sufficient revenues to enable the Company to operate at profitable levels or to generate positive cash flow. Accordingly, the Company does not anticipate the payment of any dividends on Common Stock for the foreseeable future (see Item 5, Market for Common Equity and Related Stockholder Matters).  Inflation:  Higher interest rates, which generally occur with inflation, would tend to increase the cost of credit used by the Company and would thus, decrease profits.  Possible Other Risks:  In addition to all risks and assumptions including, but not limited to, those identified under this "Risk Factors" section, businesses are often subject to risks not foreseen or fully appreciated by management. In reviewing this report, investors and potential investors should keep in mind other possible risks that could be important. Among key factors that may have a direct bearing on the Company's results are competitive practices in GPS tracking industries, the ability to meet existing financial obligations in the event of adverse industry or economic conditions or to obtain additional capital to fund future research and development requirements of GPS products, commitments and expansion, and the impact of current and future laws and governmental regulations on operations.  Employees  At December 31, 2007, the Company employed a total of 6 people. No employees are covered by a collective bargaining agreement.  ITEM 2. DESCRIPTION OF PROPERTY  The principal executive office of the Company is located at 7920 Beltline Rd, Suite 770, Dallas, TX 75254. Approximately 930 square feet of leased premises are at this location. The rent is approximately $13,000 per year. The lease expires in January 2011.  The Company leases space at 140 Smith Street, Suite 200 Keasbey, New Jersey 08832 for sales development. The lease is for one year with a one year renewal.  The annual rent is $18,000.  The lease commenced on January 1, 2007.  Rent expense totaled $53,417 and $68,831 for the years ended December 31, 2007 and 2006, respectively.    ITEM 3. LEGAL PROCEEDINGS  The Company is presently a party to a legal proceeding as follows:  Plus 4 Credit Union FK/A Houston Postal Credit Union (HPCU).  The Company, through its wholly owned subsidiary, Autocorp Financial Services, Inc. (ACFS) had entered into an auto loan servicing agreement dated January 7, 2003. ACFS and HPCU have disputes over collection of certain auto finance receivables and general performance under the servicing agreement.  HPCU and the Company have settled the dispute for $41,000.  The company will pay $5,000 upon signing of the document and a monthly payment of $1,000 per month through February 2009.  A balloon payment of $24,000 is due on March 1, 2009.  This settlement is secured by a $41,000 judgment.         ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS  Not Applicable  PART II  ITEM. 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS  The Common Stock of the Company was traded on the OTC Bulletin Board but due to late filings, it has been put on the Pink Sheets.  There were several mitigating circumstances which created this event and although the Company appealed the decision it was unable to immediately regain Bulletin Board status.  However after three on time filings the company can apply for re-listing on the Bulletin Board.  This document will represent the second on time filing since the Pink Sheet listing.  The company continues to maintain its fully reporting status. The table below lists the high and low bid prices for each quarter of the last two fiscal years.   Bid Quotations*   Fiscal 2007:LowHighFirst Quarter$0.010$0.019Second Quarter0.0070.018Third Quarter0.0040.023Fourth Quarter0.0090.014Fiscal 2006:First Quarter0.060.10Second Quarter0.010.10Third Quarter0.010.09Fourth Quarter0.010.03  *These quotations reflect inter-dealer prices, without retail mark-up, markdown, or commission and thus may not represent actual transactions.  Information Relating to the Companys Voting Securities  Common Stock  Shares of Common Stock are the only voting securities of the Company.  Holders of the Common Stock are entitled to one vote on all matters presented to stockholders for each share registered in their respective names. As of March 28, 2008, there were 302,248,191 shares of Common Stock outstanding. The Series A and Series B Preferred Stock have no voting rights.  At December 31, 2007, there were approximately 514 holders of record of the Common Shares of the Company.  The Company has not paid any dividends on its Common Stock and anticipates that future earnings, if any, will be retained to finance future growth.  Preferred Stock  As part of the 2003 merger transaction, of the 10,000,000 Preferred Shares authorized in the Company's Articles of Incorporation, a total of 4,086,856 of those shares were designated as Series "A".  The terms of the Series "A" Preferred Shares are: · They have no voting rights, sinking fund provision or redemption rights; and       · They are convertible into Common Shares on a 10-for-1 basis at any time at the option of the holder.  The Company has authorized 2,000,000 shares of Series "B" Preferred Stock of which 1,621,642 shares have been issued. The terms of the Series "B" Preferred Shares are: · They pay non-cumulative dividends at the rate of 5% per year; · They have a liquidation preference of $14.64 per share; · They have no voting rights, sinking fund provisions or redemption rights; and · They are convertible into Common Shares on a 1-for-1 basis.  The holder of the preferred shares will have the right and option with the conversion. A required conversion at the Companys election will occur if either of the following events takes place: · When or if the Company's Common Stock is accepted for trading in the NASDAQ National Marketing System; and · When or if the Company's Common Stock is publicly traded at a price equal to $14.64 per share or more.  When or if the Company's Common Stock is accepted for trading in the NASDAQ National Marketing System, the Company will obtain conversion rights with respect to the preferred stock.  Recent Sales of Unregistered Securities  From January 1, 2003 through December 31, 2007, the Company issued the following securities without registration under the Securities Act of 1933:  In February 2006, 500,000 shares of common stock were issued to a party as a settlement for non-payment of a total purchase price paid for certain retail motor vehicle loan contracts: 500,000 shares at $0.05 totaling $25,000.  In March 2006, the Company obtained $27,000 under a note payable bearing interest at 7% per annum from a third party.  The note matured in May 2006.  The note is unsecured. Additionally, for and in consideration of the value received, the Company issued 1,000,000 shares of common stock.  In April 2006, such shares of common stock were issued at par value and recorded at $0.05 per share or $50,000.  The proceeds were utilized for working capital.  In April 2006, 600,000 shares of common stock were issued to two employees in payment of performance bonuses at: 400,000 shares at $0.05 and 200,000 shares at $0.05 (totaling $30,000).  In April 2006, 12,500 shares of common stock were issued to a third party as payment of technological services performed and rendered at: 12,500 shares at $0.05 (totaling $625).  A provision for an additional 12,500 shares of common stock is authorized for and due upon the completion of additional technological services performed and rendered.  In April 2006, 1,500,000 shares of common stock were issued to a related third party as payment for consulting services rendered at: 1,500,000 shares at $0.05 (totaling $75,000).  The Company obtained $100,000 under a note payable bearing interest at 10% per annum from a third party as a result of the services rendered by the related third party.  The proceeds were utilized for working capital.  In June 2006, 600,000 shares of common stock were issued to two employees in payment of performance bonuses at: 400,000 shares at $0.05 and 200,000 shares at $0.05 (totaling $30,000).  In February 2007, 8,757,443 shares of common stock were issued for advances and consulting fees at $0.02 per share totaling $175,148.  In February 2007, 3,000,000 shares of common stock were issued for legal services at $0.02 per share totaling $60,000.        In February 2007, 3,080,000 shares of common stock were issued for accounting services at $0.025 per share totaling $77,000.  In February 2007, 8,766,822 shares of common stock were issued for software development and support at $0.02 per share totaling $175,336.  In February 2007, 312,500 shares of common stock were issued for legal services at $0.04 per share totaling $12,500.  In February 2007, 1,000,000 shares of common stock were issued to a third party in consideration for accrued interest and extension of the maturity date of a $27,000 note payable that matured in May 2006. The note matures in December 2007.  Such shares of common stock were issued at par value and recorded at $0.02 per share totaling $20,000.  In June 2007, 5,000,000 shares of common stock were issued for payment of accrued salary for 2006 at $0.01 per share totaling $50,000.  In June 2007, 5,000,000 shares of common stock were issued to an employee at $0.01 per share for accrued salary totaling $50,000.  In June 2007, 5,500,000 shares of common stock were issued to an employee at $0.01 per share for accrued salary totaling $55,000.  In June 2007, 6,000,000 shares of common stock were issued to an employee at $0.01 per share for payment of accrued salary in the amount of $60,000.  In June 2007, 1,000,000 shares of common stock were issued to an employee at $0.01 per share for payment of accrued salary in the amount of $10,000.  In June 2007, 15,645,551 shares of common stock were issued for repayment of advances made to the company and for accrued salary totaling $156,455.  In June 2007, 650,000 shares of common stock were issued for payment of commissions to a consultant at $0.0096 per share in the amount of $6,260.  In September 2007, 812,500 shares of common stock were issued for legal services at $0.008 per share in the amount of $6,500.  In September 2007, 2,500,000 shares of common stock were issued for consulting and investor relations services at $0.008 per share in the amount of $20,000.  In September 2007, 9,350,152 shares of common stock were issued for advances and consulting fees at $0.01 per share in the amount of $93,501.  In September 2007, 5,903,840 shares of common stock were issued for software development and support at $0.008 per share in the amount of $47,231.  In September 2007, 200,000 shares of common stock were issued for accounting services at $0.008 per share in the amount of $1,600.  In September 2007, 3,000,000 shares of common stock were issued for consulting fees at $0.008 per share in the amount of $24,000.  Subsequent Sales of Unregistered Securities  Subsequent to year end, the Company issued 34,732,953 shares of common stock for services performed prior to December 31, 2007. These transactions were recognized as accrued expenses as of December 31, 2007. 6,500,000 shares were also issued subsequent to year end for services performed during 2008.  In January 2008, 2,951,920 shares of common stock were issued as a final payment for the software purchase at $0.01 per share totaling $295,192.  In January 2008, 2,000,000 shares of common stock were issued to an employee for services rendered to the company at $0.01 per share totaling $20,000.  In January 2008, 500,000 shares of common stock were issued for consulting services rendered to the company at $0.01 per share totaling $5,000.  In January 2008, 3,500,000 shares of common stock were issued for consulting fees at $0.01 per share totaling $35,000.  In January 2008, 200,000 shares of common stock were issued for the payment of accounting fees at $0.01 per share totaling $2,000.  In February 2008, 800,000 shares of common stock were issued for payment of a note in the amount of $8,000 at $0.01 per share totaling $8,000..  In February, 2008, 10,000,000 shares of common stock were issued at $0.025 per share for payment of accrued salary for the year ended 12/31/2007 totaling $250,000.  In February, 2008, 9,409,533 shares of common stock were issued at $0,01per share for re-payment of working capital advances during 2007 totaling, $94,095.  In February, 2008, 5,000,000 shares of common stock were issued at $0,025 per share for payment of accrued salary for the year ended 12/31/2007 totaling, $125,000  In February, 2008, 200,000 shares of common stock were issued at $0.01 per share for accounting services totaling, $2,000.  In February, 2008, 1,500,000 shares of common stock were issued at $0.01 per share for consulting services $15,000.  In February, 2008, 5,000,000 shares of common stock were issued at $0.01 per share for consulting services totaling, $50,000.  In February, 2008, 171,500 shares of common stock were issued at $0.01 per share for sales commissions totaling, $1,715.        ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION  The Company's consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. Management is seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The funding would alleviate the Company's working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding. Also, there can be no assurance that additional funding will be available when needed or, if available, that its terms will be favorable or acceptable. Management is also seeking to renegotiate certain present liabilities in order to alleviate the working capital deficiency.  If the additional financing or arrangements cannot be obtained, the Company would be materially and adversely affected and there would be substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.  Since the end of 2007, the Company has entered the water purification industry and will aggressively pursue this business during 2008.  Management believes that there is potential opportunity in this field and it has taken several steps to finalize a number of transactions which will potentially change the liquidity and capital of the Company. The new relationships which have been created include several foreign governments, domestic government agencies, partnerships with United Nations groups and humanitarian organizations. The Company has entered into a joint venture with a soil remediation company and considers this an additional opportunity to generate substantial revenue.  The results of these endeavors will not be realized until the second or third quarter of 2008.  Management's Discussion and Analysis or Plan of Operations should be read in conjunction with the Audited Consolidated Financial Statements and related notes. The results of operations for the period ended December 31, 2007 are not necessarily indicative of operating results expected for future reporting periods.  Forward Looking Statements  As previously stated on page 3, this report contains forward-looking statements. Additional written or oral forward-looking statements may be made by the Company from time to time in filings with the Securities and Exchange Commission or otherwise. Such forward-looking statements are within the meaning of that term in section 27A of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  Such statements may include, but are not limited to, projections of revenue, income, or loss, estimates of capital expenditures, plans for future operations, products, or services, financing needs or plans, as well as assumptions relating to the foregoing. The words "believe," "expect," "anticipate," "estimate," and similar expressions identify forward-looking statements, which speak only as of the date the statement was made.  Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future events and actual results could differ materially from those set forth herein. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Aforementioned disclosures, as well as other statements in this Report on Form 10-KSB, including those in the notes to the Companys consolidated financial statements, describe factors, among others, that could contribute to or cause such differences, or that could affect the Companys stock price.  Revenues  Product Sales:  For the year ended December 31, 2007 revenues from product sales increased by 67%, or $36,118 as compared to the same period a year ago, primarily because the Company elected to broaden its hardware distribution capabilities and protect itself against a concentration with one hardware manufacturer.  In addition, the Company believed that it could (and, in fact did) find a device which was less expensive to purchase.  As a result additional testing and software/firmware changes were necessary.        Other Income:  For the year ended December 31, 2007 revenue from sources categorized as other income decreased by 100%, or $9,350 as compared to the same period a year ago, primarily due to: · A decrease in interest income of $8,450 or 100%, primarily resulting from a reduction of interest; and · income earned on the Company's portfolio of automobile finance receivables due to terminations of certain servicing and loan pools and sales of certain loan pools; and · A decrease in other income of $900 resulted from auto sales no longer available to the Company.  Cost of Sales  Product Sales:  For the year ended December 31, 2007 cost of product sales decreased by 15%, or $7,339 as compared to the same period a year ago, primarily due to a decrease in the purchase of product while the Company expanded, developed and tested its new devices as described above.  Operating Expenses:  Operating expenses for the year ended December 31, 2007 decreased by $1,268,489, or 52% as compared to the same periods a year earlier primarily due to: · Interest Expense decreased by $7,563 for the year ended December 31, 2007 as compared to the same period a year earlier mainly attributed to the decreased borrowing by the company to support its working capital needs and the settlement of debt from issuances of common stock; · Compensation and benefits decreased by $415,775 for the year ended December 31, 2007 as compared to the same period a year earlier primarily due to a decrease in staff and related benefits; · Office, occupancy and equipment decreased by $26,970 for the year ended December 31, 2007 as compared to the same period a year earlier primarily due to a decrease in rent and associated rent expense as a result of moving to less expensive space in Dallas, Texas; · Professional fees decreased by $330,790 for the year ended December 31, 2007 as compared to the same period a year earlier primarily due to decreased needs related to legal counsel, accounting fee requirements, and consulting fees mostly related to SEC compliance; · Loan Servicing expenses decreased by $8,613 for the year ended December 31, 2007 as compared to the same period a year earlier primarily due to a direct result of the Company's sale of a significant portion of the finance receivables portfolio and its termination of the servicing of loan pools with various credit unions; · Depreciation and amortization expense decreased by $157,462 for the year ended December 31, 2007 as compared to the same period a year earlier due to a partial year of amortization of capitalized software costs as compared to 2006 which included a full year of amortization on separate software costs; · The Company incurred a decrease in product development costs of $160,791 during the year ended December 31, 2007 because the major product development costs were incurred when the systems and technology were in their initial start-up phase. During 2006, changes were made as the new devices came on-line but the costs of this enhancement was not as great as the earlier development.  The Company was able to use the technology they developed in 2005 as a base for the 2006 enhancements; · The Company recognized a gain in decrease of provision for loan losses of $15,218 for the year ended December 31, 2007 as compared to the same period a year earlier since no loan loss reserve was required due as the Company has exited the automobile financing industry.  Other expenses net of other income decreased by $608,417 for the year ended December 31, 2007 as compared to the same period a year earlier primarily due to impairment of intangible assets decreased by $624,433 for the year ended December 31, 2007 as compared to the same period a year earlier due to no further impairment of capitalized software development costs.        Liquidity  The Company's consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. Management is seeking various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The funding should alleviate the Company's working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability. Also, there can be no assurance that additional funding will be available when needed or, if available, that its terms will be favorable or acceptable.  These factors raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.  Management is seeking to raise additional capital and to renegotiate certain liabilities in order to alleviate the working capital deficiency.  Due to recurring operating losses and the Company's current working capital deficit, there is a need to obtain additional funding of working capital for the Company to operate as a going concern. The Company incurred operating losses of $1,137,717, and net losses of $1,055,036 for the year ended December 31, 2007. In 2007, the Company has been able to minimally sustain its working capital needs based on capital derived primarily from:  issuances of additional common stock; notes payable; vendor financing; and proceeds from the sale of tracking devices and airtime.  In March 2007, the Company obtained $95,000 under a note payable bearing interest at 10% per annum from Monet Acquisition, LLC.   The funds were for additional consideration related to sale of subsidiaries. The note matures in April 2008.  The proceeds were utilized for working capital.  In July 2007, the Company obtained $7,975 under a note payable from a related party.  The holder has the option to convert the note to common stock of the Company.  The note matured in November 2007.  The note is unsecured.   The proceeds were utilized for working capital.  In October 2007, the Company obtained $15,000 under a note payable bearing interest at 12% per annum from a third party.  The holder has the option to convert the note to common stock of the Company.  The note matures in July 2008.  The note is unsecured.  The proceeds were utilized for working capital.  The Company's cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized in the following table:  Year Ended
December 31,20072006Cash provided by (used in):Operating activities$(23,984)$(78,027)Investing activities--Financing activities22,975$77,093Decrease in cash$(1,009)$(934)  Net cash used in operating activities for the year ended December 31, 2007 decreased to $23,984 from cash used in operations of $78,027 for the year ended December 31, 2006. The decrease is essentially comprised of the following specifics:  · Accounts payable and other accrued expenses decreased by $992,873 primarily due to the settlement of certain liabilities through the issuance of common stock;       · Depreciation and amortization expense decreased by $157,462 due to a full year of amortization of capitalized software in 2006 versus one quarter of new software amortization during 2007; · The net loss decreased by $1,911,013 from the prior year.  Net cash provided by investing activities was $0 for the year ended December 31, 2007 was consistent with cash provided by investing activities of $0 for the year ended December 31, 2006  Net cash provided by financing activities was $22,975 for the year ended December 31, 2007 compared to cash provided by financing activities of $77,093 for the year ended December 31, 2006. The Company received proceeds of approximately $22,975 from the issuance of notes payable during 2007. For the year ended December 31, 2006, the Company received $127,000 from notes payable and made $49,907 in principal payments on long term debt.  Market for Common Stock; Volatility of Prices  There has been a significant increase in the public trading market for Common Shares of the Company. There can be no assurance that a regular trading market for the Common Shares will stay at this level.  Management believes that this trading volume is a result of the development of the Companys new business segment, water purification. The market price of the Common Shares could also be subject to significant fluctuations in response to such factors as variations in the anticipated or actual results of operations of the Company or other companies in the GPS tracking and water purification industries, changes in conditions affecting the economy generally, analyst reports, general trends in industry, and other political or socioeconomic events or factors.  Critical Accounting Policies  The Company's critical accounting policies are as follows.  Off Balance Sheet Arrangements:  The Company does not have any transactions, agreements or other contractual arrangements that constitute off-balance sheet arrangements.  Deferred Tax Valuation:  The Company continues to incur tax net operating losses, which are available to carry forward and offset future taxable income. These net operating losses were generated, principally as a result of losses resulting from the operations of the Company.  A deferred tax asset results from the benefit of utilizing these net operating loss carry-forwards in future years.  Due to the current uncertainty of realizing the benefits of the tax NOL carry-forward, a valuation allowance equal to the tax benefits for the deferred taxes has been established.  The full realization of the tax benefit associated with the carry-forward depends predominately upon the Company's ability to generate taxable income during future periods, which is not assured.  Intangible Assets:  Software development costs, recorded at cost, are amortized over five years, the expected useful life of the asset. Intangible assets are reviewed for impairment whenever events or circumstances indicate impairment might exist, or at least annually. The Company assesses the recoverability of its assets in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets," comparing projected undiscounted cash flows associated with those assets against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. The Company determined that impairment existed at December 31, 2006 and recorded such loss on the statement of operations.  Stock-Based Compensation: Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payments, (SFAS No. 123(R)) for all share-based payment awards to employees and directors including stock options, restricted stock units and employee stock purchases       related to our employee stock purchase plan.  In accordance with SFAS No. 123(R), shares issued are recorded based on grant-date fair value.  Quantitative and Qualitative Disclosures about Market Risk  There has been no material change to the information from what was disclosed in the Companys annual report on Form 10-KSB for the year ended December 31, 2006 and the Companys quarterly reports on Form 10QSB for periods ended September 30, 2007, June 30, 2007 and March 31, 2007. Refer to the Companys December 31, 2006 annual report on Form 10-KSB and quarterly reports on Form 10QSB for periods ended September 30, 2007, June 30, 2007 and March 31, 2007 for information regarding quantitative and qualitative disclosures about market risk.  ITEM 7. FINANCIAL STATEMENTS  The following audited consolidated financial statements are attached to and filed as part of this report (please see pages 25-44): · Consolidated Balance Sheets for the Years Ended December 31, 2007 and 2006; · Consolidated Statements of Operations for the Years Ended December 31, 2007 and 2006; · Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006; · Consolidated Statement of Changes in Shareholders' Equity (Deficit) For the Years Ended    December 31, 2007 and 2006; and · Notes to Consolidated Financial Statements.  ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES   None.  ITEM 8A. CONTROLS AND PROCEDURES  Evaluation of Controls and Procedures  HSNIs Chief Executive Officer and President, have evaluated the effectiveness of the Company's "disclosure controls and procedures"(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Managements assessment of internal control over financial reporting was conducted using the criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).  A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Companys annual or interim financial statements will not be prevented or detected on a timely basis. Based on that evaluation, the Companys Chief Executive Officer and President have identified the following material weaknesses: · Lack of documentation of internal controls; · Lack of certain internal controls related to the identification of contractual obligations; · Lack of internal controls related to the timely communication of all transaction details to those responsible for the accounting process; · Lack internal controls and procedures to ensure timely and appropriate review of accounting detail and financial information; · Lack of certain internal controls over period-end reporting related to the identification of significant transactions; primarily equity transactions, and accounting for them in the proper periods; · Less than adequate staff to prepare financial footnotes in accordance with generally accepted accounting principles; and · The Company has no formally documented internal control procedures.  For controls in place, there is no consistent oversight to identify errors in financial reporting.  Thus, this results in errors in the preliminary unaudited financial statement balances on a consistent basis.        The Company has undertaken a review of its disclosure, financial information and internal controls and procedures. The Company believes the appropriate direction which it has taken is as follows: · The Company has augmented, as necessary, such procedures by obtaining concurrence with independent outside accounting experts prior to finalizing financial reporting; · A process has been established whereby accounting and operational personnel and an executive management member collectively determine the appropriate accounting and disclosure review of material agreements; and · The Company has instituted regular quarterly meetings to review each department's significant activities and respective disclosure controls and procedures.  The Chief Executive Officer and the Chairman believes these actions have and will further strengthen the internal controls of the Company. Although not yet accomplished, the Company is committed to augment, as necessary, such procedures by obtaining concurrence with independent outside accounting experts prior to finalizing financial reporting.  ITEM 8B. OTHER INFORMATION  In January of 2008, the company filled a vacancy on its Board of Directors.  The company appointed Joseph Battiato as a director and chairman of the board of directors.  PART III  ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT  Members of the Board of Directors are elected to serve until the next annual meeting or until their successor is elected and qualified. As of March 28, 2008, the date of the next annual meeting has not been selected. The Company presently contemplates that should a 2008 Annual Meeting of Shareholders be held, the newly elected Directors will hold a regular annual meeting of the Board of Directors. If a regular meeting is not held, the Directors will sign a unanimous consent in lieu of holding the meeting and will re-elect certain current officers and add new officers and directors for the coming year.  The Executive Officers and Directors of the Company as of March 28, 2008 are:  NAME AGE POSITION DIRECTOR SINCE  Peter Ubaldi 62 Chief Executive Officer 2004 President, Principal Accounting Officer and Director  Joseph Battiato 51 Director and Chairman 2008  Roy Pardini 63 Executive Vice-President 2006 And Director  Peter Ubaldi.  Mr. Ubaldi has worked in the finance industry for thirty-six years. Mr. Ubaldi began his career with a major CPA firm and has since specialized in various finance-related industries as an investment banker and executive manager. Mr. Ubaldi has extensive experience with major banking institutions, as well as specialty finance and equipment leasing companies. Mr. Ubaldi had been the comptroller of one of the countries first publicly traded auto and equipment leasing companies.    Joseph Battiato. Mr. Battiato has over 34 years experience in the financial industry and capital markets.  He is a principal in Ellington Management Group, where he is responsible for the acquisition, valuation and surveillance of whole loan mortgages and mortgage-backed transactions.  He previously served as president of Riverside Professional Services a consulting firm providing assistance during mergers and acquisitions.  Prior to that, Battiato was president of Aegis Consumer Funding Group where he supervised all aspects of business operations and SEC compliance.  Roy Pardini.  Mr. Pardini has in excess of 35 years experience in the marketing and sales of various products and services to both consumers and commercial businesses.  Before joining the Company 10] years ago, Mr. Pardini was divisional vice president for a national multi-billion dollar retail sales company. Mr. Pardini has extensive experience in the automotive industry and was able to initially develop the Companys entry in that industry for its GPS products.  Mr. Pardini over the years has provided funding for the Company.  On January 22, 2007 the Board of Directors accepted the resignation of Charles Norman from his position as CEO. Upon termination Mr. Norman was issued 5,000,000 shares of common stock.  In January of 2008 Mr. Norman resigned from the Board of Directors of the Company and was replaced by Joseph Battiato.        Indemnification of Directors and Officers  Subject to and subsequent to an appointment or election as an officer or director, the Company provides contractual indemnification.  The Company agrees to indemnify the positions of directors and officers as follows: A director or officer shall not be liable for any claim or demand on account of damages in any manner. The Company agrees to indemnify and hold directors or officers, without limitation, harmless from any and all damages, losses (which shall include any diminution in value), shortages, liabilities (joint or several), payments, obligations, penalties, claims, litigation, demands, defenses, judgments, suits, proceedings, costs, disbursements or expenses of any kind or nature whatsoever, specifically including without limitation, fees, disbursements and expenses of attorneys, accountants and other professional advisors and of expert witnesses and cost of investigation and preparation. A director or officer will be indemnified from any decision or action taken prior to his or her hire date as a director or officer.  Code of Ethics  The Company has not yet adopted a code of ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, or controller, or persons performing similar functions.  The Company deferred its adoption of a code of ethics due to events such as the change of control, the Company's contraction, and the refocus of the Companys business.  The Company is still undergoing several changes to its structure and operating procedures.  It has entered into an industry with products and services of global significance; water purification. For this reason the Company has not completed the adoption of a code of ethics but as soon as it is practical will be posted on the Companys web site.  Section 16(a) Beneficial Ownership Reporting Compliance  Section 16(a) of the Securities and Exchange Act of 1934, as amended, generally requires the Companys directors and executive officers and persons who own more than 10% of a registered class of the Companys equity securities (10% owners) to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securities of the Company. Directors and executive officers and 10% owners are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file. During preparation of this filing, we discovered that the reports required by Section 16(a) were not filed in connection with the securities issuances to our officers and directors during fiscal 2007.  Audit Committee  During the 2007 fiscal year, our Board of Directors performed some of the same functions of an Audit Committee, such as: recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditors independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls.  Nominating Committee  We do not have a Nominating Committee or Nominating Committee Charter. Our board of directors performed some of the functions associated with a Nominating Committee. Generally, nominees for directors are identified and suggested by the members of the board or management using their business networks. The board has not retained any executive search firms or other third parties to identify or evaluate director candidates in the past and does not intend to in the near future. We have elected not to have a Nominating Committee in that we are a development stage company with limited operations and resources.          ITEM 10. EXECUTIVE COMPENSATION   The following table sets forth, for each of the last three fiscal years, compensation paid by the Company in common stock for its Chief Executive Officer, President and Executive Vice-President. None of the next highly compensated officers serving on December 31, 2007 received more than $100,000 for fiscal 2007.  Long Term Compensation  Name/PrincipalFiscal YearAnnual CompensationAwards and PayoutsPositionSalaryBonusStockOptionsLTIPAwardsSARsPeter UbaldiCEO & President2007$250,000--------CFO & President2006$250,000--------CFO & President2005$256,000--------Roy PardiniExecutive VP2007$125,000--------  In May 2004, (amended and restated January 2005) HSNI entered into an Employment Agreement (Agreement) with Peter Ubaldi. The Agreement provided that Mr. Ubaldi should serve as the President of HSNI to January 1, 2007.  In January of 2007, Mr. Ubaldis Employment Agreement was extended for an additional two years and he will continue to serve as President and as a member of the Board, as well as the Companys CEO.  As payment for services, HSNI agrees to pay Mr. Ubaldi, as the President, a minimum base salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is eligible to be paid bonuses, from time to time, at the discretion of HSNIs Board of Directors, of cash, stock or other valid forms of compensation. Upon termination of and under the terms of the Agreement, Mr. Ubaldi shall be entitled to severance compensation in an amount equal to twenty-four months of base salary as shall exist at the time of such termination. Upon the resignation of Mr. Norman, Mr. Ubaldi was appointed by the Board of Directors to CEO.  In January 2007, the Company entered into an Employment Contract with Roy Pardini.  Mr. Pardini will be paid a base salary of $125,000 per year and be eligible to receive bonuses from time to time at the discretion of the Board of Directors of the Company.  The term of the contract is for two years with a renewal term as agreed upon by the Company and Mr. Pardini.  Mr. Pardini is currently serving on the Board of Directors of the Company for no additional compensation. Mr. Pardini has served in various executive capacities with the Company since 2000.  His background was focused on sales and marketing while with HSNI in its present business and previously in the auto finance industry.  Mr. Pardini is a stockholder and has from time to time provided capital to the Company.  Compensation Committee  We currently do not have a compensation committee of the board of directors. However, the board of directors may establish a compensation committee once the company is no longer in its development stage, which would consist of inside directors and independent members. Until a formal committee is established, our Board of Directors will review all forms of compensation provided to our executive officers, directors, consultants and employees including stock compensation and loans  Stock Plan  The Company has a non-qualified stock option plan (the Plan) that was adopted by the Board of Directors in March 1997. The Plan, as authorized, provides for the issuance of up to 2,000,000 shares of the Companys stock. Persons eligible to participate in the Plan as recipients of stock options include full and       part-time employees of the Company, as well as officers, directors, attorneys, consultants and other advisors to the Company or affiliated corporations.  Options issued under the Plan are exercisable at a price that is not less than twenty percent (20%) of the fair market value of such shares (as defined) on the date the options are granted. The non-qualified stock options are generally non-transferable and are exercisable over a period not to exceed ten (10) years from the date of the grant. Earlier expiration is operative due to termination of employment or death of the issuee. The entire Plan expired on March 20, 2007, except as to non-qualified stock options then outstanding, which will remain in effect until they have expired or have been exercised. As of December 31, 2007, 1,990,289 shares had been exercised and issued under the Plan.  On November 8, 2006, the Company filed a Non-Statutory Stock Option Plan with the Securities and Exchange Commission.  This 2006 Non-Statutory Stock Option Plan is intended as an employment incentive, to aid in attracting and retaining in the employ or service of Homeland Security Network, Inc., a Nevada Corporation, and any Affiliated Corporation, persons of experience and ability and whose services are considered valuable to encourage the sense of proprietorship in such persons, and to stimulate the active interest of such persons in the development and success of the Company.  This Plan provides for the issuance of non-statutory stock options which are not intended to qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended.  There are a total of 15,000,000 common shares in the Plan.  As of December 31, 2007, 12,600,000 shares had been issued under the Plan.  Compensation of Directors  No Directors fees were paid during fiscal 2007 or 2006.  ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT  The following table sets forth certain information, as of December 31, 2007, concerning the beneficial ownership of Common Stock by all Directors and nominees, officers, all Directors and officers of the Company, as a group, and each person who beneficially owns more than 5% of the 261,015,238 outstanding shares of Common Stock, $.001 par value. Unless otherwise indicated, each person named has sole voting and investment power over the shares indicated;  Name of Beneficial Owner (1)Number of SharesPercent of Class(2)AutoCorp Acquisition Partners (1)24,1310.0001%Charles Norman (1)26,815,42210.27%Peter Ubaldi, CEO and Director (1)35,833,04913.72%Smith Street Holdings16,507,4766.34%Blaise Zampetti, Senior Vice President7,640,4762.92%Michael R. Dumont and Terry Dumont15,600,0005.97%Roy Pardini, Vice-President of Sales21,099,1288.08%Beneficial Owners as a Group115,855,07544.38%Directors and Executive Officers as a Group64,572,65324.73%   1.  Charles Norman and Peter Ubaldi each own a 50% interest in AutoCorp Acquisition Partners.  AutoCorp Acquisition Partners as a company does not have a common equity position in HSNI but holds 4,086,856 shares of Series A Preferred Stock and 1,621,642 shares of Series B Preferred Stock. The preferred shares, however, reside in the name of AutoCorp Acquisition Partners.  The Series A shares are convertible into Common Shares on a 10-for-1 basis at any time at the option of the holder. The Series B stock pay non-cumulative dividends at the rate of 5% per year; have a liquidation preference of $14.64 per share; have no voting rights, sinking fund provisions or redemption rights; and are convertible into Common Shares on a 1-for-1 basis.        Section 16(a) Beneficial Ownership Reporting Compliance  Section 16(a) of the Securities Exchange Act of 1934 and the rules promulgated there under require that directors and executive officers of the Company and beneficial owners of greater than 10% of the Company's Common Stock file various reports with the Securities and Exchange Commission.  The Company does not file on these individuals behalf and solely reviews reports furnished to HSNI. The Company has reviewed its files with respect to fiscal 2007. The following persons failed to file timely or did not file a Form 3, Form 4 or Form 5 within fiscal year 2007: Charles Norman; and Peter Ubaldi.  ITEM 12. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS  Pacific Holdings Group, Inc.  On June 30, 2003, Pacific Auto Group, Inc. (PAG) became a wholly owned subsidiary of Homeland Security Network, Inc. (HSNI), and the HSNI securities described below were issued to Pacific Holdings Group, Inc. (PHG), the sole stockholder of PAG. The form of the transaction was a reverse triangular merger, whereby a newly formed, wholly owned, acquisition subsidiary of HSNI merged with and into PAG, with PAG being the surviving corporation in the merger and a subsidiary of HSNI.  On June 30, 2003, PHG was 100% owned by PUSA.  On December 2, 2002, PUSA filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The ultimate parent company was PEWC.  PAG is the holding company for its wholly owned subsidiary American Finance Company, Inc. (AFCO).  AFCO's principal operations consisted of the purchase of automobile finance receivables, collateralized by new and pre-owned automobiles, from franchised and independent automotive dealers throughout the United States.  PUSA was the primary domestic parent company of the entire group, owning all of the outstanding stock of PHG.  Effective June 30, 2003, HSNI issued 100,000,000 shares of its Common Stock and 4,086,586 shares of its Series A convertible stock to PHG, the parent company of PAG, resulting in PHG owning approximately 94.0% of the outstanding HSNI shares.  Pacific Financial Group, Inc. (PFG), an affiliate of PHG, owned 1,621,642 shares of Series B Non-Cumulative Convertible Preferred Stock of HSNI; par value $0.001 per share (the "Series B Preferred Shares"). Those Series B Preferred Shares were convertible at any time, at the option of the holder on a one-for-one basis, into 1,621,642 HSNI Common Shares. The Series B Preferred is non-voting stock.  Subsequent to the June 30, 2003 merger transaction, on a fully-diluted basis, PFG immediately beneficially owned 1,621,642 HSNI Common Shares, and PHG beneficially owned 136,490,202 HSNI Common Shares. On a fully diluted basis, PHG and PFG together beneficially owned 142,490,202 HSNI Common Shares, which represented 95.66% of the 148,953,873 HSNI Common Shares that would then be outstanding.  On June 30, 2003, Pacific USA Holdings Corp. (PUSA) was the sole stockholder of PFG and PHG and as such beneficially owned 142,490,202 HSNI Common Shares. Pacific Electric Wire and Cable (PEWC) was the sole shareholder of PUSA and as such beneficially owned 142,490,202 HSNI Common Shares, which represented 95.66% of the 148,953,873 HSNI Common Shares then outstanding.  On August 20, 2004, PHG, the then controlling shareholder of the Company, and one of its affiliates, Pacific Financial Group (PFG) and, collectively with PHG, the ("Sellers"), sold their stock to a partnership, AutoCorp Acquisition Partners (AAP, the "Purchaser") formed by the then President (and CEO) and Executive Vice President of the Company.  The Purchaser designated Charles Norman, the then President (and CEO) and Peter Ubaldi, the then Executive Vice President of the Company (the "Purchaser Designees") who were elected to the Board of Directors. The Purchaser Designees became a majority of the Board after the tenth day subsequent to the       mailing and filing of the Information Statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated there under. The Purchaser is now the beneficial owner of Company's stock and the Purchaser Designees constitute 2/3rds of the Company's Board of Directors.  Background of Transaction and Change in Control  Pursuant to an acquisition agreement entered into as of August 20, 2004 by and among the Sellers, the Purchaser and the Company, the Sellers sold all of the stock of the Company held by it to the Purchaser. Pursuant to the acquisition agreement, the Board members, all of who had been appointed by PHG as controlling shareholder of the Company, appointed the Purchaser Designees to the Board. Two of the PHG-appointed directors then resigned immediately and the remaining two PHG-appointed directors resigned on September 13, 2004, being more than ten days after the mailing and filing of the Information Statement pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated there under.  AAP acquired the stock of the Sellers and by its principles (1) delivered their personal guarantee to Far East National Bank ("FENB") to obtain the release of the guarantee by PEWC discussed below; and (2) agreed the Company could make the transfers and give the releases to PHG described (and in the amounts indicated) below; simultaneously with PHG funding and canceling the obligations of the Company described (and in the amounts indicated) below. The Purchasers paid no cash to the Sellers for the stock.  PEWC is PHG's indirect parent. PEWC had provided a guarantee to FENB in connection with a $10 million revolving credit facility from FENB to AFCO Receivables Funding Corp, an indirect subsidiary of the Company. At the date of the closing of the acquisition agreement, there was $661,796 outstanding under the revolving credit facility. It was a condition to the closing that PEWC be released from its guarantee.  The Company transferred to PHG (i) the entire ownership of certain residual interests in securitization assets, which were then on the books of American Finance Company, a PAG subsidiary, in the amount of $2 million; (ii) the balances in certain bank accounts of the Company and its subsidiaries in the amount of $404; and (iii) a 1993 Lexus automobile owned by AutoCorp Financial Services, Inc., a wholly owned subsidiary of HSNI; along with the agreement of the Company to transfer subsequent to the closing any other assets not directly associated with the Company's then primary business of automobile sub-prime receivable acquisition.  The Company released PHG and its affiliates from certain receivables due from them to the Company in the amount of $37,395.  Simultaneously with the transfers and releases by the Company, PHG funded certain payroll obligations in the amount of $173,852 and loan portfolio obligations of the Company in the amount of $56,000, and to cancel certain obligations owed to PHG and its affiliates by the Company and the Company's subsidiaries in the amount of $4,139,880.  As part of the transaction, PHG secured the release of 35 million shares of restricted Company Common Stock pledged to FENB in connection with an outstanding loan to PHG and an affiliate of PHG. Such shares are part of the 94,000,000 Common Shares Sellers sold to Purchaser.  Rodwell Software Systems, Inc.  The Company entered into an agreement dated April 16, 2007 with Rodwell Software Systems, Inc. (RSSI) regarding the Company's acquisition of all of the systems, software, data and technology developed by RSSI for the Company being used in the operation of its GPS tracking division.  The Company had been operating this system which they helped developed under a licensing agreement with RSSI since the Company entered the GPS industry.  The company issued to RSSI 5,903,840 shares of R-144 common stock prior to year end and an additional 2,951,920 shares subsequent to year-en.  RSSI also received as payment an option to acquire an additional 4,583,640 shares of R-144 common stock at $0.001 per share after the Companys stock is trading for a period of 30 days at an average above $0.10 per share.        Monet Acquisition, LLC Agreement On September 26, 2006, the Company entered into an agreement to sell 80% of the total issued and outstanding common stock of its wholly-owned subsidiary Pacific Auto Group, Inc. ("PAG") pursuant to a Stock Purchase Agreement by and between Homeland Security Network, Inc. and Monet Acquisition, LLC, a Delaware limited liability company. Monet agreed to assume certain liabilities of PAG in consideration of the stock purchase. Pacific Auto Group, Inc. will be operated and controlled totally independent of HSNI; however, it is the intention of HSNI to distribute the remaining 20% of the outstanding common stock of PAG that HSNI owns to its stockholders as a dividend. On May 24, 2007, the Company contributed 100% of the outstanding stock in its subsidiaries, American Finance Company (AFCO) and 100% of the outstanding stock of Autocorp Financial Services Corp. (ACFS) to AFCO Receivables Funding Corp (AFCORF).  After this reorganization, the Company sold 90% of its stock to Monet Acquisition, LLC.  The Company issued a Promissory Note in the amount of $95,000 at an interest rate of 10% per annum to Monet.  This loan from Monet is personally guaranteed by the President and CEO of the Company, Peter Ubaldi. For other related party transactions see Financial Footnotes 10, 12, and 13.  ITEM 13. EXHIBITS  Exhibit Index  The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission.  Exhibit NumberExhibit Description3.1Amendments to Articles of Incorporation (incorporated by reference to Exhibit C of HSNIs February 7, 2005 DEF 14C).10.1Acquisition Agreement (incorporated by reference to Exhibit 2.1 of HSNIs August 31, 2004 8-K).21.1List of Subsidiaries (filed herewith).31.1Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2Certification of President and pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 200232.2Certification of President Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002  ITEM 14. PRINCIPAL ACCOUNTANTS FEES AND SERVICES  AUDIT FEES  BKR Cornwell Jackson were our auditors for the fiscal year ended December 31, 2007 and for the three quarters ended September 30, 2007. Fees for audit services totaled approximately $65,000 and $65,000 in 2007 and 2006, respectively. There were no audit related tax, or other fees paid to the Companys independent registered public accounting firm.  AUDIT RELATED FEES  None.        TAX FEES  None.  ALL OTHER FEES  None.  THE BOARD OF DIRECTORS PRE-APPROVAL POLICY AND PROCEDURES  We do not have a separate Audit Committee. Our full Board of Directors performs the functions of an Audit Committee.  During fiscal year 2007, the Board of Directors  adopted  policies  and  procedures  for the pre-approval of audit and non-audit  services  for  the  purpose  of  maintaining  the independence of our independent  auditors.  We may not engage our independent auditors to render any audit or non-audit service unless either the service is approved in advance by the Board of Directors or the engagement to render the service is entered into pursuant to the Board of Director's pre-approval policies and procedures. On an annual basis, the Board of Directors may pre-approve services that are expected to be provided to us by the independent auditors during the following 12 months. At  the  time  such  pre-approval  is  granted,  the Board of Directors must (1) identify the particular pre-approved services in a sufficient level of detail so that  management  will  not  be  called  upon  to  make judgment as to whether a proposed  service  fits  within  the  pre-approved  services and (2) establish a monetary limit with respect to each particular pre-approved service, which limit may  not  be  exceeded  without obtaining further pre-approval under the policy.  The Board has considered whether the provision of the services described above under the caption "All Other Fees" is compatible with maintaining the auditor's independence.         SIGNATURES  In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.  Homeland Security Network, Inc.Registrant/s/ PETER UBALDIPeter UbaldiPresident and Chief Executive Officer  Dated: April 14, 2008   Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.   NameTitleDate/s/ Peter Ubaldi
Peter UbaldiChief Executive Officer & Director and PresidentApril 14, 2008/s/ Joseph BattiatoDirector and ChairmanApril 14, 2008Joseph Battiato/s/ Roy PardiniDirectorApril 14, 2008Roy Pardini         HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS  December 31, 2007 and 2006  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM29CONSOLIDATED FINANCIAL STATEMENTSConsolidated Balance Sheets30Consolidated Statements of Operations31Consolidated Statements of Cash Flows32Consolidated Statement of Changes in
Shareholders' Equity (Deficit)33Notes to Consolidated Financial Statements34                    REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Board of Directors and Shareholders Homeland Security Network, Inc.  We have audited the accompanying consolidated balance sheets of Homeland Security Network, Inc. and its subsidiaries as of December 31, 2007 and 2006, and the related consolidated statements of operations, shareholders deficit, and cash flows for the years then ended.  These consolidated financial statements are the responsibility of the Companys management.  Our responsibility is to express an opinion on these financial statements based on our audits.  We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  We were not engaged to perform an audit of the Companys internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting.  Accordingly we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.  In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Homeland Security Network, Inc. and its subsidiaries as of December 31, 2007 and 2006, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.  The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 4 to the financial statements, the Company has suffered losses from operations, incurred negative cash flows from operations, and has a shareholders deficit at December 31, 2007 and 2006. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Managements plans in regards to these matters are also described in Note 5.  These consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.     /s/ BKR Cornwell Jackson Plano, Texas April 15, 2008           HOMELAND SECURITY NETWORK, INC.  AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS  December 31,
2007December 31,
2006ASSETSCurrent Assets:Cash$833$1,842Accounts Receivable  related parties, net of                           allowances of $133,250 and $133,250, respectively8,793-Inventories29,800-Total current assets39,4261,842Property, plant and equipment, net of accumulated depreciation of $50,360 and $44,365, respectively1,31113,374Capitalized software, net110,848-Deferred charges and other assets:Other long-term assets1,124-Total other assets113,283-Total assets$152,709$15,216LIABILITIES AND STOCKHOLDERS DEFICITAccounts payable and accrued liabilities$1,279,693$1,492,609Accounts payable and accrued liabilities to related parties905,3451,348,724Notes payable to related parties1,149,3661,371,009Amounts payable to credit unions80,03280,032Line of credit166,085166,085Total current liabilities3,580,5214,458,459Commitments and contingenciesShareholders deficit:Series A cumulative convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 4,086,856 issued and outstanding4,0874,087Series B cumulative convertible preferred stock, no par value, 5% non-cumulative; liquidation preference of $14.64 per share; 2,000,000 shares authorized, 1,621,642 issued and outstanding352,643352,643Common Stock, par value $.001; 400,000,000 shares authorized, 261,015,238 and 175,536,430 shares issued and outstanding261,016175,537Additional paid-in-capital21,872,83319,887,845        Accumulated deficit(25,518,651)(24,463,615)(3,028,072)(4,043,503)Less treasury at cost, 1,817,000 shares(399,740)(399,740)Total Stockholders deficit(3,427,812)(4,443,243)Total liabilities and stockholders deficit$152,709$15,216  The accompanying notes are an integral part of these Consolidated Financial Statements.   HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS  For the Years Ended December 31,20072006Revenues:Net Product Sales  related parties and other$90,378$54,260Cost of goods sold43,00750,346Gross Margin  Product Sales47,3713,914Interest income  finance receivables-8,450Other Income-900Other Income-9,350Gross Margin47,37113,264Expenses:Interest expense175,572183,135Compensation and benefits612,0411,027,816Office occupancy and equipment69,04696,016Professional and consulting fees232,646563,436Loan servicing-8,613Depreciation and amortization11,829169,291Product development expense-160,791Provision for loan loss-(15,218)Marketing expense129-Other operating expense83,825126,447Bad debt expense-133,250Total expenses1,185,0882,453,577Loss from Operations$(1,137,717)$(2,440,313)Other income (deductions):Other Income16,5358,046Forgiveness of Debt85,05990,651Impairment of Intangible Asset-(624,433)Loss on Assets(18,913)-Interest Expense
(See Note 15)--        Total other income (deductions)82,681(525,736)Net loss$(1,055,036)$(2,966,049)Net loss per share, basic and diluted$(0.005)$(0.02)Weighted average shares outstanding, basic and diluted225,972,306174,142,526  The accompanying notes are an integral part of these Consolidated Financial Statements.   HOMELAND SECURITY NETWORK, INC.  AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31,20072006Cash flows from operating activities:Net loss$(1,055,036)$(2,966,049)Adjustments to reconcile net loss from continuing operations to net cash used in operating activities:Gain on sale of assets--Depreciation and amortization11,829169,291Bad debt expense-133,250Impairment of intangible asset-624,433Loss on disposal of fixed assets18,913-Common stock issued for commissions6,260-Common stock issued for services and compensation57,019189,626Common stock issued for interest expense68,934-Forgiveness of debt(85,059)(91,548)Changes in:Accounts receivable(8,793)10,482Inventories(29,800)-Other current assets-1,055Other assets(1,124)7,635Accounts payable and other accrued expenses992,8731,843,798Principal payments collected on consumer loans--Net cash used in operating activities(23,984)(78,027)Cash flows from financing activities:Principal payments of long-term debt-(49,907)Proceeds from notes payable22,975127,000Net cash provided by financing activities22,97577,093Net decrease in cash(1,009)(934)Cash beginning of the year1,8422,776        Cash end of the year$833$1,842Supplemental disclosure of cash flow information:Noncash activities:Stock issued for acquisition of fixed assets$845$-Stock issued for acquisition of capitalized software$23,615$-Stock issued for debt conversion$339,618$-Stock issued for settlement/repayment of accrued expenses$1,480,662$25,000Conversion of payable to a note$95,000$-  The accompanying notes are an integral part of these Consolidated Financial Statements.  HOMELAND SECURITY NETWORK, INC.  AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Deficit)  For the Years Ended December 31, 2007 and 2006  Common StockAdditional
Paid-In CapitalPreferred Stock  Series ASharesAmountSharesAmountBalance at December 31, 2005171,123,930$171,124$19,677,6324,086,856$4,087Common stock issuances4,412,5004,413210,213--Net loss-----Balance at December 31, 2006175,536,430$175,537$19,887,8454,086,856$4,087Common stock issuances85,478,80885,4791,984,988--Net loss-----Balance at December 31, 2007261,015,238$261,016$21,872,8334,086,856$4,087Preferred Stock  Series BTreasury StockAccumulatedTotal StockholdersSharesAmountSharesAmountDeficitEquity (Deficit)Balance at December 31, 20051,621,642$352,6431,817,000(399,740)$(21,497,566)$(1,691,820)Common Stock issuances-----214,626Net Loss----(2,966,049)(2,966,049)Balance at December 31, 20061,621,642$352,6431,817,000(399,740)$(24,463,615)$(4,443,243)Common Stock issuances-----2,070,467        Net Loss----(1,055,036)(1,055,036)Balance at December 31, 20071,621,642$352,6431,817,000(399,740)$(25,518,651)$(3,427,812)  The accompanying notes are an integral part of these consolidated financial statements.   HOMELAND SECURITY NETWORK, INC. AND SUBSIDIARIES NOTES TO AUDITED CONSOLIDATED FINANCIAL STATEMENTS  Note 1. Basis of Presentation  The financial information presented in this report comprises the consolidated financial information (i) for the year ended December 31, 2007; and (ii) for the year ended December 31, 2006.  The consolidated financial statements include the Companys accounts and those of its subsidiaries.  All material inter-company balances have been eliminated.  In the opinion of HSNIs management, the consolidated financial statements include all adjustments, which consist of normal recurring adjustments, necessary to present fairly the consolidated financial position, results of operations and cash flows of the Company for the period presented.  Note 2. Significant Accounting Policies  Use of Estimates  The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). These accounting principles require management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. When sources of information regarding the carrying values of assets, liabilities and reported amounts of revenue and expenses are not readily apparent, HSNI bases its estimates on historical experience and on various other assumptions that HSNIs management believes to be reasonable for making judgments. HSNI evaluates all of its estimates on an on-going basis and may consult outside experts to assist in HSNIs evaluations. These estimates, judgments and assumptions can affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements, as well as the reported amounts of revenue and expenses during the periods presented. Actual results could differ from those estimates.  Revenue Recognition  The Company recognizes revenue principally on two types of transactions  sales of products and wireless communication service fees.  In accordance with guidance provided by the Securities and Exchange Commissions Staff Accounting bulletin No. 104, or SAB No. 104, Revenue Recognition, revenue is recognized when all of the following are met: (i) persuasive evidence of an arrangement exists, (ii) title and risk of loss have passed, (iii) delivery has occurred or the services have been rendered, (iv) the sales price is fixed or determinable and (v) collection is reasonably assured.  The Company generally recognizes revenue on products sales upon shipment, which is prior to the installation of the related products on the consumers vehicle or other valuable assets.  For revenues relating to the sale of wireless communication service, subscriptions are recognized over the life of the contract.  The term of service contracts offered range from 1 to 36 months and are generally payable in full, however, some submit monthly fees through electronic fund transfers upon activation of the related unit or renewal of a previous service contract.          Accounts Receivable  Accounts receivable relating to the Companys tracking device segment consist of payments due from wholesalers of the products. In the normal course of business, the Company monitors the financial condition of the Companys customer base; accordingly, the Company has recorded a provision for uncollectible accounts as of December 31, 2007 and 2006, of $133,250 and $133,250, respectively.  The account deemed uncollectible relates to an individual customer for which the Company has a note payable outstanding to an affiliated entity of the customer with a principal balance of $141,875 and $141,875 as of December 31, 2007 and 2006, respectively.  As the note payable terms do not have a right of offset, the Company has reserved the balance in full in accordance with its own accounting policies; however, the Company believes it has a legal right of offset if the affiliated entity of the customer pursues further collection efforts on the notes payable balance.  Depreciation and Amortization  Furniture and equipment are carried at cost net of accumulated depreciation. Depreciation and amortization are calculated using the straight-line method over the estimated useful life of the assets.  The Company capitalizes certain computer software costs, after technological feasibility has been established which are amortized utilizing the straight-line method over the economic life of the related software which has been estimated at five years.  Goodwill and Intangible Assets  Goodwill and intangible assets are accounted for in accordance with SFAS No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").  Under SFAS 142, goodwill and indefinite lived intangible assets are not amortized but instead are reviewed annually for impairment, or more frequently, if impairment indicators arise. Separable intangible assets that are not deemed to have an indefinite life will continue to be amortized over their estimated useful lives. The Company tests for impairment whenever events or changes in circumstances indicate that the carrying amount of goodwill or other intangible assets may not be recoverable, or at least annually at December 31 of each year.  These tests are performed at the reporting unit level using a two-step, fair-value based approach. The first step compares the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, a second step is performed to measure the amount of impairment loss.  The second step allocates the fair value of the reporting unit to the Company's tangible and intangible assets and liabilities.  This derives an implied fair value for the reporting unit's goodwill. If the carrying amount of the reporting unit's goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized equal to that excess.  In the event that the Company determines that the value of goodwill or other intangible assets have become impaired, the Company will incur a charge for the amount of the impairment during the fiscal quarter in which the determination is made.  Deferred financing costs  The Company capitalizes costs associated with the issuance of debt instruments. These costs are amortized on a straight-line basis over the term of the related debt instruments.  Income Taxes  Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are generally recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and net operating loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, a valuation allowance has been established to reduce any deferred tax asset in which the Company is not able to determine on a more likely than not basis that the deferred tax asset will be realized.        Long-Lived Assets  HSNI accounts for its long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, (SFAS No. 144) which requires that long-lived assets be evaluated whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the total of the undiscounted future cash flows is less than the carrying amount of the asset or asset group, an impairment loss is recognized for the difference between the estimated fair value and the carrying value of the asset or asset group.   Fair Value of Financial Instruments  The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than a forced sale or liquidation. Significant differences can arise between the fair value and carrying amount of financial instruments that are recognized at historical cost amounts. The carrying value of cash, accounts payable and accrued liabilities approximate the fair value because of the short maturity of those instruments.  Concentrations of Credit Risk  The Company maintains its cash with high credit quality financial institutions. The Federal Deposit Insurance Corporation secures each depositor up to $100,000.  Stock-Based Compensation  Prior to January 1, 2006, we elected to follow Accounting Principles Board Opinion (APB) No. 25, Accounting for Stock Issued to Employees, and related interpretations to account for our employee and director stock options, as permitted by Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. We accounted for stock-based compensation for non-employees under the fair value method prescribed by SFAS No. 123. Effective January 1, 2006, we adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based Payments, (SFAS No. 123(R)) for all share-based payment awards to employees and directors including stock options, restricted stock units and employee stock purchases related to our employee stock purchase plan. In addition, we have applied the provisions of Staff Accounting Bulletin No. 107 (SAB No. 107), issued by the Securities and Exchange Commission, in our adoption of SFAS No. 123(R). We adopted SFAS No. 123(R) using the modified-prospective-transition method. Under this transition method, stock-based compensation expense recognized after the effective date includes: (1) compensation cost for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the measurement date fair value estimate in accordance with the original provisions of SFAS No. 123, and (2) compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the measurement date fair value estimate in accordance with the provisions of SFAS No. 123(R). Results from prior periods have not been restated and do not include the impact of SFAS No. 123(R). Stock-based compensation expense under SFAS No. 123(R) for 2006 was $62,600 relating to employee and director stock options, restricted stock units and our employee stock purchase plan. Stock-based compensation expense recognized each period is based on the greater of the value of the portion of share-base payment awards under the straight-line method or the value of the portion of share-based payment awards that is ultimately expected to vest during the period. SFAS No. 123(R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. In our pro forma disclosures required under SFAS No. 123 for periods prior to 2006, we accounted for forfeitures as they occurred. Upon adoption of SFAS No. 123(R), we elected to use the Black-Scholes-Merton option-pricing formula to value share-based payments granted to employees subsequent to January 1, 2006 and elected to attribute the value of stock-based compensation to expense using the straight-line single option method. These methods were previously used for our pro forma information required under SFAS No. 123.       On November 10, 2005, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS 123(R)-3, Transition Election Related to Accounting for Tax Effects of Share-Based Payment Awards, which detailed an alternative transition method for calculating the tax effects of stock-based compensation pursuant to SFAS No. 123(R). This alternative transition method included simplified methods to establish the beginning balance of the additional paid-in capital pool (APIC pool) related to the tax effects of employee stock-based compensation and to determine the subsequent impact on the APIC pool and Consolidated Statement of Cash Flows of the tax effects of employee stock-based compensation awards that are outstanding upon adoption of SFAS No. 123(R). Due to our historical net operating losses, we have not recorded the tax effects of employee stock-based compensation and have no APIC pool. Prior to the adoption of SFAS No. 123(R), all tax benefits of deductions resulting from the exercise of stock options were required to be presented as operating cash flows in the Consolidated Statement of Cash Flows. SFAS No. 123(R) requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) to be classified as financing cash flows. Due to our historical net operating loss position, we have not recorded these excess tax benefits as of December 31, 2007.  Recently issued Accounting Pronouncements In December 2007, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated Financial Statements an amendment of Accounting Research Bulletin No. 51 (SFAS 160), which establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company beginning January 1, 2009. As the Company does not hold any noncontrolling interests, it believes the impact of adopting SFAS 160 will not have a material effect on its consolidated statement of earnings, financial condition, and statement of cash flows or earnings per share. In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141R, Business Combinations (SFAS 141R), which establishes principles and requirements for the reporting entity in a business combination, including recognition and measurement in the financial statements of the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree. This statement also establishes disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R is effective for the Company on a prospective basis for business combinations for which the acquisition date is on or subsequent to the reporting period beginning January 1, 2009. As the Company does not have any acquisition plans, it believes the impact of adopting SFAS 141 will not have a material effect on its consolidated statement of earnings, financial condition, and statement of cash flows or earnings per share.  Note 3.  Divestiture of Subsidiary On September 26, 2006, the Company entered into an agreement to sell 80% of the total issued and outstanding common stock of its wholly-owned subsidiary Pacific Auto Group, Inc. ("PAG") pursuant to a Stock Purchase Agreement by and between Homeland Security Network, Inc. and Monet Acquisition, LLC, a Delaware limited liability company. The Company agreed to indemnify Monet against any contingent liabilities of PAG and return 20% of the entity that could potentially have value in the future depending on the buyers future action with the entity in consideration of the stock purchase. Pacific Auto Group, Inc. will be operated and controlled totally independent of HSNI; however, it is the intention of HSNI to distribute the remaining 20% of the outstanding common stock of PAG that HSNI owns to its stockholders as a dividend. On May 24, 2007, the Company contributed 100% of the outstanding stock in its subsidiaries, American Finance Company (AFCO) and 100% of the outstanding stock of Autocorp Financial Services, Inc. (ACFS) to AFCO Receivables Funding Corp. (AFCORF).  After this reorganization, the Company sold 90% of its stock in ACORF to Monet Acquisition, LLC.  The Company also issued a Promissory Note in the amount of $95,000 at an interest rate of 10% per annum to Monet.  The loan from Monet is personally guaranteed by the President and CEO of the Company, Peter Ubaldi.        Note 4. Going Concern Uncertainty  The Company has incurred net losses in the years ended December 31, 2007 and 2006 and has had working capital deficiencies both periods.  The Company's consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern. Management is seeking a revolving credit facility for the purchase of inventory and various types of additional funding such as issuance of additional common or preferred stock, additional lines of credit, or issuance of subordinated debentures or other forms of debt. The inventory financing and additional funding would alleviate the Company's working capital deficiency and increase profitability. However, it is not possible to predict the success of management's efforts to achieve profitability or to secure additional funding. Also, there can be no assurance that additional funding will be available when needed or, if available, that its terms will be favorable or acceptable. Management is also seeking to renegotiate certain liabilities in order to alleviate the working capital deficiency.  If the additional financing or arrangements cannot be obtained, the Company would be materially and adversely affected and there would be substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and realization of assets and classifications of liabilities necessary if the Company becomes unable to continue as a going concern.  Years Ended
December 31,20072006Loss from operations$(1,137,717)$(2,440,313)Other income (deductions)82,681(525,736)Net loss$(1,055,036)$(2,966,049)   Note 5. Income (Loss) Per Share  Basic loss per share is computed based on net loss divided by the weighted average number of shares of common stock outstanding during the period.  Diluted loss per share is computed based on net loss divided by the weighted average number of shares of common stock outstanding during the period after giving effect to convertible securities considered to be dilutive common stock equivalents. The conversion of preferred stock and stock options during the periods in which the Company incurs a loss from continuing operations before giving effect to gains from the sale of the discontinued operations is not assumed since the effect is anti-dilutive. The number of shares of preferred stock, which would have been assumed to be converted and have a dilutive effect if the Company had income from continuing operations, is 42,490,202 for the years ended December 31, 2007 and 2006.  See Note 18 for common stock transactions subsequent to December 31, 2007.  Note 6. Property, Plant and Equipment  Property, plant and equipment are comprised of the following at December 31, 2007 and December 31, 2006:  Description:December 31,
2007December 31,
2006Furniture and office equipment$49,486$55,554        Software2,1852,18551,67157,739Less accumulated depreciation(50,360)(44,365)Property and equipment, net$1,311$13,374  Note 7. Capitalized Software Costs  The Company accounts for the development cost of software intended for sale in accordance with Statement of Financial Accounting Standards No. 86, Accounting for Costs of Computer Software to be Sold, Leased, or Otherwise Marketed, (SFAS 86). SFAS 86 requires product development costs to be charged to expense as incurred until technological feasibility is attained. Technological feasibility is attained when the Companys software has completed system testing and been determined viable for its intended use. Accordingly the Company did not capitalize any development costs other than product development costs acquired through a third party purchase. The Company capitalizes software through technology purchases if the related software under development has reached technological feasibility or if there are alternative future uses for the software. During 2005, the Company purchased software from a third party totaling $1,131,000, for which the Company allocated $313,000 to product development expense for efforts to reach technological feasibility.  During 2007, the Company acquired new software to operate and enhance its GPS systems.  The development costs of this software totaled $116,682; these costs were capitalized as of September 30, 2007.  Capitalized software costs and accumulated amortization were as follows for the years ended December 31, 2007 and December 31, 2006. As of December 31, 2006, the Company determined that there was an impairment of its capitalized software costs due to insufficient cash flows from operations related to the software purchased in 2005. As of result, an impairment charge of $624,433 was recorded and was reflected in other expense for the year ended December 31, 2006.  December 31,
2007December 31,
2006Software development costs$116,682$-Less accumulated amortization(5,834)-Capitalized Software, net$110,848$-   Expected future capitalized software amortization expense for the years ending December 31 is as follows.  YearAmount200823,337200923,337201023,337201123,337201217,500Total$      110,848           Note 8. Stock Plans  The Company has a non-qualified stock option plan (the Plan) that was adopted by the Board of Directors in March 1997. The Plan, as authorized, provides for the issuance of up to 2,000,000 shares of the Companys stock. Persons eligible to participate in the Plan as recipients of stock options include full and part-time employees of the Company, as well as officers, directors, attorneys, consultants and other advisors to the Company or affiliated corporations.  Options issued under the Plan are exercisable at a price that is not less than twenty percent (20%) of the fair market value of such shares (as defined) on the date the options are granted. The non-qualified stock options are generally non-transferable and are exercisable over a period not to exceed ten (10) years from the date of the grant. Earlier expiration is operative due to termination of employment or death of the issuee. The entire Plan expired on March 20, 2007, except as to non-qualified stock options then outstanding, which will remain in effect until they have expired or have been exercised. As of December 31, 2006, 1,990,289 shares had been exercised and issued under the Plan.  On November 8, 2006, the Company filed a Non-Statutory Stock Option Plan with the Securities and Exchange Commission.  This 2006 Non-Statutory Stock Option Plan is intended as an employment incentive, to aid in attracting and retaining in the employ or service of Homeland Security Network, Inc., a Nevada Corporation, and any affiliated corporation, persons of experience and ability and whose services are considered valuable to encourage the sense of proprietorship in such persons, and to stimulate the active interest of such persons in the development and success of the Company.  This Plan provides for the issuance of non-statutory stock options which are not intended to qualify as incentive stock options within the meaning of section 422 of the Internal Revenue Code of 1986, as amended.  There were a total of 15,000,000 shares in the Plan at inception; 12,600,000 shares have been issued from the Plan as of December 31, 2007.  Note 9. Notes Payable to Related Parties  December 31,
2007December 31,
2006Two notes payable to a Director of the Company. Both bear interest at 8% per annum. The notes matured in February 2007286,874286,874In 2006, the Company obtained funds under a financing arrangement bearing interest at 7% per annum.  This note matured in May 2006. The term of this note was extended until December, 200727,00027,000In 2006, the Company obtained funds under a financing arrangement bearing interest at 10% per year.  The note matured in February 2007 and is convertible into shares of the Companys common stock at a fixed rate.100,000100,000In 2006, a note was established upon conversion of a trade payable balance to an interest-bearing loan.  The note bears interest at 8% per year and matured in June 2007. This note was convertible into shares of the         Companys common stock at a fixed price.  It was settled in conjunction with the issuance of common stock during 2007.-165,000In 2005, the Company obtained funds under a financing arrangement bearing interest at 8% per annum from a related third party. The note provides a line of credit totaling $500,000. The note is uncollateralized and the proceeds were utilized for working capital. This note has been renegotiated with an extended term. This note matured in January 2007.246,325246,325In March 2005, the Company obtained $134,500 under a financing arrangement bearing interest at 7% per annum from a related third party. The note is uncollateralized and the proceeds were utilized for working capital. This note has been renegotiated with an extended term. This note matured in April 2006.141,875141,875Note payable, unsecured, to an Executive bearing interest at 6% per annum and matured in July 2006.  The Company has renegotiated with the executives and the parties have agreed to an extended term.216,150216,150Note payable, unsecured, to a former Executive and current Director bearing interest at 6% per annum and matured in July 2006.  The Company has settled this liability.-174,618Note payable, unsecured, to a former Executive and current Director bearing interest at 6% per annum and matured in July 2006.  The Company intends and expects to renegotiate terms.13,16713,167Note payable to Monet Acquisition, LLC for additional consideration related to sale of subsidiaries. The note bears interest at a rate of 10% per annum and matures on April 25, 2008.  It is personally guaranteed by the CEO.95,000-Note payable to related party; proceeds used for working capital, due November 2007.  The holder has the option to convert the note to common stock of the Company.7,975-In September 2007, the Company obtained $15,000 under a financing         arrangement bearing interest at 12% per annum from a third party. The note is uncollateralized and the proceeds were utilized for working capital. This note is convertible into shares of the Companys common stock at a fixed price.15,000-$1,149,366$1,371,009  Note 10. Credit Union Participations  As of December 31, 2007, the Company no longer services automobile finance receivables. However, there was one remaining credit union relationship (Houston Postal Credit Union/Plus4 Credit Union) which resulted in a dispute over amounts due on the collection of auto finance contracts.  The Company arrived at a settlement with this credit union which calls for a total payment of $41,000 with a $5,000 initial payment and $1,000 per month until March 2009 at which time a balloon payment of $24,000 will be due.  This settlement is secured by a $41,000 judgment.  Note 11. Related Party Transactions  Rodwell Software Systems, Inc.  The Company entered into an agreement with Rodwell Software Systems, Inc. (RSSI) regarding the Company's acquisition of all of the systems, software, data and technology developed by RSSI for the Company being used in the operation of its GPS tracking division.  The Company had been operating the system under a license agreement with RSSI since the Company entered the GPS industry.  The company issued to RSSI 5,903,840 shares of R-144 common stock prior to year end, an additional 2,951,920 shares subsequent to year-end and an option to acquire an additional 4,583,640 shares of R-144 common stock at $0.001 per share after the Companys stock is trading for a period of 30 days at an average above $0.10 per share.  Certain revenues were derived from sales to related parties.  See also Note 10 and 13.  Note 12. Line of Credit  In November 2003, the Company executed a revolving credit facility in the amount of $10,000,000 with a financial institution that bore interest at a rate of prime plus 2% and matured in November 2004.  The purpose of the credit facility was to provide funding for the purchase of automobile finance installment contracts for sale to banks and credit unions.  The outstanding balance totaling $166,085 at December 31, 2007 is in default. However, the Company is presently negotiating revised payment terms with the lender.   In April 2007 the President and CEO of the Company provided a line of credit in the amount of $50,000 to the Company from Atlantic Financial Advisors, Inc (AFA), a Corporation which is 100% owned by him.  This line is used for the purchase of inventory of GPS hardware.  The interest and amortization paid by the Company to AFA is passed through to Lenders Funding (an unrelated company) of Fort Lee, New Jersey. The Company is responsible only for the amounts due to Lenders Funding for interest and principle and bank service fees incurred by AFA.  Note 13. Commitments and Contingencies  Employment Contracts  In May 2004, (amended and restated January 2005) HSNI entered into an Employment Agreement (Agreement) with Peter Ubaldi. The Agreement provides that Mr. Ubaldi shall serve as the President of HSNI through January 1, 2007. In January of 2007, the Company renewed Mr. Ubladis Employment Contract for an additional two years under the same terms and conditions as the original agreement.  At any       time prior to the expiration of the Agreement, HSNI and Mr. Ubaldi may mutually agree to extend the duration of employment under the terms of the Agreement for an additional period or periods. As payment for services, HSNI agrees to pay Mr. Ubaldi, as the President, a minimum base salary of $250,000 per annum. As provided in the Agreement, Mr. Ubaldi is eligible to be paid bonuses, from time to time, at the discretion of HSNIs Board of Directors, of cash, stock or other valid form of compensation. Upon termination of and under the terms of the Agreement, Mr. Ubaldi shall be entitled to severance compensation in an amount equal to twenty-four months of base salary as shall exist at the time of such termination. In January of 2007 the Company entered into an employment with Roy Pardini to serve as its Executive Vice President.  The term of the contract is 2 years with a base salary of $125,000 per year.  As provided by the agreement, Mr. Pardini is eligible to receive bonuses from time to time at the discretion of the Board of Directors in stock, cash or other forms of compensation. Upon termination, Mr. Pardini shall be entitled to severance compensation in an amount equal to twenty-four months of base salary as shall exist at the time of termination. Operating Leases  The Company currently leases office space in two locations.  The following table sets forth the Companys commitment thereof.  Future minimum annual payments expected under the operating lease are as follows:  Year Ending December 31,Amount2008$12,555200913,485201014,415Total$40,455  Note 15. Income Taxes  The Company continues to incur tax net operating losses (NOL's), which are available to carry forward and offset future taxable income. These NOL's were generated, principally as a result of the tax losses resulting from the operations of the Company. A deferred tax asset results from the benefit of utilizing the NOL carry-forwards in future years.  Due to the current uncertainty of realizing the benefits of the tax NOL carry-forward, a valuation allowance equal to the tax benefits for the deferred taxes has been established. The full realization of the tax benefit associated with the carry-forward depends predominately upon the Company's ability to generate taxable income during future periods, which is not assured.   The components of income taxes are comprised as follows:  December 31,
2007December 31,
2006DeferredFederal$(370,318)$(980,524)State(41,146)(144,195)(411,464)(1,124,718)Effect of Valuation Allowance411,4641,124,718$-$          The difference between the U.S. Federal statutory rate and the Company's effective rate is:  December 31,
2007December 31,
2006Federal statutory tax rate(34%)(34%)Valuation allowance34%34%Effective tax rate--   Deferred tax assets are comprised of the following:  December 31,
2007December 31,
2006Deferred Tax SummaryNet operating loss carry-forward$12,002,775$11,591,311Provision for finance receivable losses--12,002,77511,591,311Valuation allowance(12,002,775)(11,591,311)$-$-  The net operating loss carry-forwards as of December 31, 2007 and 2006 are subject to certain loss limitations under IRS Section 382 regulations. The deferred tax summary set forth above does not reflect the effect of the IRS Section 382 limitation for the years ended December 31, 2007 and 2006.  Note 16.  Pension Plans  The Company does not currently provide, administer or manage a 401(K) plan or any other pension plan.  Note 17. Legal Proceedings  The Company, through its former wholly owned subsidiary, Autocorp Financial Services, Inc. (ACFS) had entered into an auto loan servicing agreement dated January 7, 2003. ACFS and HPCU have disputes over collection of certain auto finance receivables and general performance under the servicing agreement.  Subsequent to December 31, 2007, HPCU and the Company have entered into a settlement agreement.  The Company is required to pay $5,000 upon signing of the document and a monthly payment of $1,000 per month through February 2009.  A balloon payment of $24,000 is due on March 1, 2009.  This settlement is secured by a $41,000 judgment.  In addition to the matter described above, the Company is involved in various legal actions and claims from time to time, which arise in the normal course of business. In the opinion of management, the final disposition of these matters will not have a material adverse effect on the Companys financial position or results of operations.        Note 18. Subsequent Events  Subsequent to year end, the Company issued 34,732,953 shares of common stock for services performed prior to December 31, 2007.  These transactions were recognized as accrued expenses as of December 31, 2007. 6,500,000 shares were also issued subsequent to year end for services performed during 2008. In January 2008, 2,951,920 shares of common stock were issued as a final payment for the software purchase at $0.01 per share totaling $295,192.  On March 27, 2008, the Company entered into a joint venture agreement with Huma Clean of Palestine Texas.  Huma Clean is in the soil remediation industry and specializes in lake clean up and dredging, internationally.  HSNI will complement the technology used by Huma Clean with the use of their licensed product; Clear Blue 104.  The partnership will allow HSNI to acquire projects and add to the existing capabilities of Clear Blue.  HSNI has committed an initial funding to the first project in Juarez Mexico in the amount of $800,000.  HSNI has advanced the agreed upon first tranche of funds of $200,000.