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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2009

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number 001-32289

HS3 TECHNOLOGIES,
INC.(Name of small business issuer in its charter)

|Nevada                                                               | 20-3598613                          
|-------------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of incorporation or
      organization) | (I.R.S. Employer Identification No.)
|                                                                     |                                     
|                                                                     |                                     
|1800 Boulder Street, Suite 600, Denver, CO                           | 80211-6400                          
|(Address of principal executive offices)                             | (Zip Code)                          

Issuer's telephone number 303-455-2550

Securities registered pursuant to Section 12(b) of the Act:

|Title of each class | Name of each exchange on which registered
|------------------- | -----------------------------------------
|Nil                 | Nil                                      

Securities registered pursuant to Section 12(g) of the Act:

N/A(Title of class)

Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 the Securities Act. Yes [ ]   No[ x ]

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the Act Yes [ ]   No[ x ]

Indicate by check mark whether the registrant: (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 last 90 days.
Yes[ x ]  No [ ]

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-K (§229.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
Yes [ ]   No [ ]

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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not 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-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of large accelerated filer, accelerated
filer and smaller reporting company in Rule 12b-2 of the Exchange Act.

|Large accelerated filer [ ] | Accelerated filer [ ]          
|--------------------------- | -------------------------------
|Non-accelerated filer [ ]   | Smaller reporting company [ x ]

Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes [ ]   No[ x ]

State issuer's revenues for its most recent fiscal year
$201,794

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 prices of such common
equity, as of a specified date within 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act.)

Note: If determining whether a person is an affiliate will
involve an unreasonable effort and expense, the issuer may calculate the
aggregate market value of the common equity held by non-affiliates on the basis
of reasonable assumptions, if the assumptions are stated.

28,561,576 common shares @ $0.060(1)=$1,713,695

(1)Average of bid and ask closing prices on
September 11, 2009.

(APPLICABLE ONLY TO CORPORATE REGISTRANTS)

State the number of shares outstanding of each of the issuer's
classes of equity stock, as of the latest practicable date.

41,995,802 common shares issued and outstanding as of
September 11, 2009

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS

|         | PART
      I                                                                                         | Page
|-------- | ---------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                      | No. 
|Item 1.  | Description of Business                                                                              | 5   
|Item 1A. | Risk Factors                                                                                         | 9   
|Item 2.  | Description of Property                                                                              | 14  
|Item 3.  | Legal
      Proceedings                                                                              | 14  
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                  | 15  
|         | PART II                                                                                              |     
|Item 5.  | Market for Common Equity and Related Stockholder Matters                                             | 15  
|Item 6.  | Selected
      Financial Data                                                                        | 17  
|Item 7.  | Managements Discussion and Analysis of Financial
      Condition and Results of Operations          | 18  
|Item 7A. | Quantitative and Qualitative Disclosure about Market Risk                                            | 22  
|Item 8.  | Financial Statements and Supplementary Data                                                          | 22  
|Item 9.  | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure           | 33  
|Item 9A. | Controls and Procedures                                                                              | 33  
|Item 9B. | Other Information                                                                                    | 34  
|         | PART III                                                                                             |     
|Item 10. | Directors,
      Executive Officers and Corporate Governance                                         | 35  
|Item 11. | Executive Compensation                                                                               | 38  
|Item 12. | Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters | 40  
|Item 13. | Certain Relationships and Related Transactions, and
      Director Independence                      | 41  
|Item 14. | Principal Accounting Fees and Services                                                               | 42  
|Item 15. | Exhibits                                                                                             | 42  

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This annual report contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These statements relate to future events or our future financial
performance including, but not limited to the following:

.certain statements, including
possible or assumed future results of operations, in Managements Discussion and
Analysis of Financial Condition and Results of Operations;

.any statements contained
herein regarding the prospects for our business or any of our services;

.any statements preceded by,
followed by or that include the words may, should, believes, expects,
anticipates, intends, continues, estimates, plans, targets
predicts, attempts, is scheduled, or similar expressions; and

.other statements obtained
herein regarding matters that are not historical facts.

Our business and results of
operation are subject to risk and uncertainties, many of which are beyond our
ability to control or predict. Because of these risks and uncertainties, actual
results may differ materially from those expressed or implied by forward-looking
statements, and investors are cautioned not to place undue reliance on such
statements, which speak only as of the date thereof. Important factors that
could cause actual results to differ materially from our expectations and may
adversely affect our business and results of operations, include, but are not
limited to those risk factors set forth in this report under the heading Item
1A. Risk Factors.

In this annual report, unless
otherwise specified, all dollar amounts are expressed in United Sates dollars
and all references to common shares refer to the common shares in our capital
stock.

As used in this annual report,
the terms we, us, our, and HS3, means HS3 Technologies, Inc., unless the
context clearly requires otherwise.

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PART I

ITEM 1. DESCRIPTION OF BUSINESS

Corporate Overview

The address of our principal executive office is 1800 Boulder
Street, Suite 600, Denver, Colorado 80211-6400. Our telephone number is (303)
455-2550.

Our common stock is quoted on the OTC Bulletin Board under the
symbol HSTH.

Corporate History

We were incorporated under the
laws of the State of Nevada on January 28, 2003 under the name Zeno, Inc. On
November 9, 2005, we closed on an asset purchase agreement with IP-Colo, Inc.
(IPC) wherein we acquired all of the assets of IPC. IPC was in the development
stage of providing advanced wireless technologies, integrated with high-speed
internet via satellite to provide real-time security and monitoring for many
industries. On or about October 10, 2005, we changed our name to HS3
Technologies, Inc.

On September 6, 2006, we effected
one (1) new for four (4) old reverse stock split of our authorized, issued and
outstanding stock. As a result, our authorized capital decreased to 50,000,000
shares of common stock with a par value of $0.001 each and 2,500,000 preferred
stock with a par value of $0.001 each.

During fiscal year ended June 30,
2007 we: (a) sold 10,862,500 shares of our common stock for total cash proceeds
of $919,000; (b) issued 1,760,000 shares of our common stock for services
rendered to us; (c) issued 1,356,811 shares in conversion of notes; and (d)
issued 7,250,000 warrants for services rendered to us.

During fiscal year ended June 30,
2008 we: (a) sold 5,300,000 shares of our common stock for total cash proceeds
of $530,000; (b) issued 3,175,000 shares of our common stock for services
rendered to us; (c) purchased and cancelled 5,000,000 warrants for $70,964 and
(d) issued 1,000,000 warrants in conjunction with our long-term debt.

During fiscal year ended June 30,
2009 we: (a) have issued 2,050,000 shares of our common stock for services
rendered to us or for cancellation of various trade payables and (b) entered
into $857,000 of convertible notes payable with officers and private
investors.

Effective February 1, 2009, we
signed a ten (10) year agreement with the 130 year old American Humane
Association (AHA). HS3 and AHAs relationship is to create a Video Monitoring
System which has been indicated by AHA to become a standard part of the American
Humane Certified program(AHC), which is a voluntary fee-based program available
to producers, processors and haulers of animals raised for food. The AHC program
provides independent third-party verification that those businesses treat and
care for their animals humanely. Pursuant to the AHA agreement, we will provide
the installation, integration, and monitoring of production facilities and the
transportation of animals to ensure the husbandry and transportation of the
animals conforms to AHC certification standards. Pursuant to the agreement, we
will be paid a recurring monthly monitoring and equipment license fee for all
monitoring locations attached to the agreement via executed statement of
works.

Current Business

Currently we are primarily
focused in the security and animal welfare industry. We have expanded our market
strategies with a diverse new line of cutting edge products and services to meet
the growing needs of the security industry by providing a single source portal
to our customers with products and services in combinations that complete the
security and monitoring matrix. To meet the ever changing needs of the industry,
we have launched a combination of state-of-the art products and services that
include digital video recording technology (DVR), video monitoring centers,
biometric access control, personal biometric identification units, cellular and
wireless mesh network units and wireless internet-linked satellite surveillance
systems. This combination of products encompasses a total line that we believe
will meet many commercial and residential customer security needs. Our
monitoring center in Denver, Colorado serves as a single point integrated
security solutions portal, integrating our proprietary analytical software,
network security, and video products.

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We are still in our infancy as a
viable commercial entity, and consequently our focus has been on the
identification of market needs, the development of our security products and
services to meet these needs, and the branding of our company. We anticipate
that the expected growth in revenues will assist us in attracting additional
financing to allow us to add the needed resources in order to further support
the growth of our operations.

In the long-term, our ability to
continue as a going concern is dependent upon successful and sufficient
acceptance of our current security products, services and solutions by the
market. Additionally we expect any new products or services that we may
introduce in the future will have positive impact on our success and our ability
to continue as a going concern. The continuing successful development and sales
of our products and services, and finally, achieving a profitable level of
operations will contribute to our ongoing success.

After successful beta testing of
three (3) beta sites and thirteen (13) monitoring locations, we entered into a
ten (10) year agreement with the AHA, pursuant to which we are to install and
integrate video monitoring systems in production, transportation and slaughter
facilities to reflect the animal species and sub groups that the American Human
Certified certifies allowing AHA to have a system that can provide real-time
analytical technology tools and increase observation frequency. We, in
conjunction with AHA, will roll out our products and services for those
producers and processors as part of the AHC program.

Corporate Strategy

Our company integrates
technology, services and people into solutions that enhance the level of
security protection and surveillance services. Our companys goal is to become a
security portal, with cutting-edge technology applications and solutions
specifically tailored to meet the security needs of government, commercial and
residential customers.

All of the products and services,
including biometric access control, satellite remote monitoring, and DVRS are
all security related. Unlike many of the security companies that focus
exclusively on the hardware sales side of the business, our companys value
proposition is to use our proprietary products to generate recurring revenue for
our company in the form of monitoring and equipment licensing fees. We view the
installation of our hardware products as the entry vehicle into a long-term
technological relationship with our customers. We continually enhance our
existing products by periodically re-designing them to accommodate to the
requirement of our customer needs.

Research indicates that the video
surveillance market is poised for explosive growth driven in part by step-up
security measures according to government mandates for the monitoring of food
safety and animal welfare in the coming years, a desire for heightened security,
the need to replace existing and aging infrastructures as well as the transition
from an analog based industry to a digital one will occur.

We intend to focus our attention
on our agreement with AHA which certifies the livestock production cycle from
birth-to-death. There are two primary production facilities that are critical
in this process; growing houses and slaughter houses. We estimate that the
number of large growing houses and slaughter houses suitable for our services
and technology to be approximately 10,000 and 300 respectively.

Additional markets that we plan
to explore with HS3 products and services are (i) agricultural producers that
are concerned with covert animal welfare groups penetrating the security of
their operations and (ii) the food processing ,transport, and safety monitoring
of animal protein production of the business which takes food from
slaughter/death to dinner table. That final process is critical for ensuring
food safety for consumers. Additionally this can obviate expensive beef and
poultry recalls or theft, that cost beef and poultry companies millions of
dollars each year.

Principal Products and Services

We offer a diverse line of cutting-edge products, services, and
customized integrated security solutions that can be applied to any commercial,
agricultural, or residential package. We offer Digital Video Recording
Technology, a self-contained remote video outpost-OPIE (Outside Portable
Investigative Equipment), Video Monitoring, Cellular and Wireless Mesh Networks
and Wireless Internet-Linked Satellite Surveillance Systems, Remote Video
Monitoring and System Management Services. We have designed and built ammonia
and temperature sensors, and other customer specific digital sensors that are
utilized within the livestock industry for the monitoring of animal welfare.

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Digital Video Recording
Technology

We provide in house manufactured DVRs that are designed to meet
the specific requirements of our customers. HS3 manufactured DVRs are durable,
efficient, integrated solutions employing HS3s logical and physical security
specifications. Designed with intelligent capabilities and built by our staff
insures frame rates and bandwidth demands meeting our monitoring center
requirements for efficient transmission and visual reception quality. Typical
customer requests are for 4-port DVRs with the largest having been built to
date including 16 ports.

OPIE (Outside Portable Investigative Equipment)

OPIE is a self-contained remote video outpost with real time
surveillance solution consisting of a combination of cutting edge video
transmission and storage technologies integrated into a completely mobile
platform. OPIE integrates remote video monitoring, motion detection sensors,
proprietary wireless Mesh networking, satellite and cellular connectivity into a
self contained, self sufficient, mobile platform. The units' unique design
allows for the addition of solar panels and deep cycle batteries, allowing OPIE
to function independently of external AC power restrictions.

The units can be used for visually monitoring border security,
utilities such as water storage areas, power transmission towers, oil and gas
pipe lines, construction sites, disaster and first response sites. Our
combination of applications and systems make these units truly unique as they
work in remote or inaccessible locations where access to electric and internet
networks.is limited or not available.

Video Monitoring

We offer Video Monitoring and video verification services using
our Integrated Security Portal located within our Denver Monitoring Center. We
combine analytical software, network security, and video verification products
to provide customers with total security solutions.

Our integrated operating systems provide real-time access
through secured networks delivering monitoring information 24/7 via the internet
to authorized personnel possessing the proper security clearance. Additional
biometric technology can be added to ensure user identity interface.

Cellular and Wireless Mesh Network
Units and High Speed Satellite Internet

We have developed and deployed wireless mesh networking
products that were created to meet our need for remote location video
monitoring. When conducting video monitoring for remote locations such as oil
fields or power plants, the challenge for camera location is the limited range
due to cost restraints of laying cable. The wireless mesh network was created to
enhance satellite Internet connection by increasing connectivity over a broader
physical range.

We provide customers with completely integrated surveillance
solutions using existing high-speed internet or satellite connectivity. We have
access to and can supply satellite internet access to all locations in the
continental United States. By replacing the need for copper or fiber-optic
telephony equipment in the business or home, customers cost savings can be
significant. We hope to bring service for the first time to areas and industries
currently not able to access internet cost effectively.

Manufacturing

To maintain the highest standards and insure that HS3 DVRs
specifications meet the internal transmission requirements of our Denver
monitoring center, we will continue manufacturing under the watchful eyes of our
staff. Manufacturing of our DVR security products are completed in-house. We
additionally plan to rely on camera manufacturers to produce high quality
security products for sale to our customers.

Installation

The installation of our security products has been performed by
our in-house team of installers. HS3 continues to focus on service and customer
satisfaction, not just technology as the total solution we offer customers. We
will rely on these installers to install our security products.

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Competition

We will face competition from companies providing a variety of
security products and services. Many of our competitors and potential
competitors have established customer bases, widespread brand recognition and
existing partnerships with other industry participants, as well as substantially
greater financial, technical and marketing resources than we do. We expect
significant competitive factors to include: price, service reliability, ease of
access and use, transmission speeds, breadth of service offerings, customer
support, brand recognition, operating experience, and the ability to bundle
complementary services. We expect to encounter a number of challenges in
competing with companies already providing some of the same products and
services. Our plans are to stay ahead of the competition by establishing
exclusive relationships for OEM designed and produced products unique to the
industry. Many of these companies have an entrenched position in the marketplace
and lower upfront installation charges than ours. Increased competition may come
in the form of new market entrants, greater cooperation among our competitors,
whether in the form of alliances or vertical or horizontal integration, or
changes in the capabilities of other companies arising from technological
innovations that we cannot foresee.

Regulation

The majority of this industry is in an unregulated format. With
part of our product line related to satellite usage the satellite industry is
highly regulated both in the United States and internationally. We are subject
to the regulatory authority of the U.S. government, primarily through the FCC.
The FCC is the government agency with primary authority in the United States to
regulate and license commercial satellite systems, including those which we will
be dependent upon. FCC rules require that satellite systems avoid interfering
with other authorized users of radio spectrum, and that they comply with FCC
rules governing U.S.-licensed satellite systems in general and Ka-band
geostationary satellite systems in particular. The U.S. Congress has enacted the
Communications Assistance for Law Enforcement Act of 1994, or CALEA, which
requires that any equipment, facilities, and services deployed by
telecommunications carriers meet certain electronic surveillance requirements
identified in the statute. The statute specifically exempts providers of
information services, such as internet service providers. We believe that the
services we intend to offer will not be covered by CALEA. However, the
convergence of technology continues to blur the line between exempt information
services and covered telecommunications services. If we were held to be subject
to the requirements of CALEA, we may have to deploy additional equipment in
order to comply with the unforeseen statutory obligations, and we could be
subject to monetary civil penalties for failure to comply with the statute or
implementing regulations.

Research and Development

Our research and development efforts are focused on enhancing
our products including: (i) periodic re-design of products and incorporation of
new technologies to improve performance and manufacturability; (ii) design of
new product lines for standard products and additional specialized applications;
and (iii) expansion and the adaptation of existing products to accommodate the
requirements of customer needs. Research and development efforts are conducted
in-house, or by contracted consultants and with individuals who have unique
exclusive relationships developed with some of our suppliers.

Intellectual Property

We own and operate the duly registered internet domain name:
www.HS3Tech.com. The information contained in our website is not part of this
current report. We hold as a trade secret the method and processing performed on
video transmitted to our monitoring center and the analytics applied.

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Patents and Proprietary Technology

We are in the process of obtaining a patent on OPIE (Outside
Portable Investigative Equipment)

Marketing

We have engaged professional marketing firms to market our
products nationally and worldwide.

Employees

As of June 30, 2009, we had six (6) full-time employees and no
part-time employees. Of those employees, none are covered by collective
bargaining agreements.

ITEM 1A. RISK FACTORS

Much of the information included in this annual report includes
or is based upon estimates, projections or other forward-looking statements.
Such forward-looking statements include any projections or estimates made by us
and our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions, or other future
performance suggested herein. We undertake no obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of such statements.

Such estimates, projections or other forward-looking
statements involve various risks and uncertainties as outlined below. We
caution readers of this annual report that important factors in some cases have
affected and, in the future, could materially affect actual results and cause
actual results to differ materially from the results expressed in any such
estimates, projections or other forward-looking statements. In evaluating us,
our business and any investment in our business, readers should carefully
consider the following factors.

Our new business operations will be subject to a number of
risks and uncertainties, including those set forth below:

Risks Related To Our Business

We will require significant additional financing, the
availability of which cannot be assured, and if we are unable to obtain such
financing, our business may fail.

Our business plan calls for significant expenses necessary to
continue the development of our business and expand our position in the market.
There is no assurance that actual cash requirements will not exceed our
estimates. We may need to raise additional funds to:

- support our planned growth;
- develop or enhance new and existing security products;
- increase our marketing efforts;
- acquire complementary businesses, security products or technologies;
  and/or
- respond to competitive pressures or unanticipated requirements.

We have not yet achieved sustainable positive cash flows. As
such, we will depend to a large extent on outside capital over the near-term to
fund our capital needs. Such outside capital may be obtained from additional
debt, equity financing or factoring (selling) our contracted for revenue stream.
We do not currently have any arrangement for financing and there is no assurance
that capital will be available to meet our operating costs or, if the capital is
available, that it will be on terms acceptable to us. The issuance of additional
equity securities by us would result in a dilution in the equity interests of
our current shareholders. Obtaining commercial loans, assuming those loans would
be available, will increase our liabilities and future cash commitments. If we
are unable to obtain financing in the amounts and on terms deemed acceptable to
us, we may be unable to implement our business and growth strategies, respond to
changing business or economic conditions, withstand adverse operating results,
consummate desired acquisitions or compete effectively.

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We operate in a highly-competitive industry and our failure
to compete effectively may adversely affect our ability to generate revenue.

We are aware of similar security products and services which
compete directly with our security products and services and some of the
companies developing these security products and services have significantly
greater financial, technical and marketing resources, larger distribution
networks, and generate greater revenue and have greater name recognition than
us. These companies may develop security products superior to those of our
company. Such competition will potentially affect our chances of achieving
profitability, and ultimately adversely affect our ability to continue as a
going concern.

Some of our competitors conduct more extensive promotional
activities and offer lower prices to customers than we do, which could allow
them to gain greater market share or prevent us from increasing our market
share. In the future, we may need to decrease our prices if our competitors
continue to lower their prices. Our competitors may be able to respond more
quickly to new or changing opportunities, technologies and customer
requirements.

To be successful, we must carry out our business plan,
establish and strengthen our brand awareness through marketing, effectively
differentiate our product line from those of our competitors and build our
distribution network. To achieve this we may have to substantially increase
marketing and research and development in order to compete effectively. Such
competition will potentially affect our chances of achieving profitability, and
ultimately adversely affect our ability to continue as a going concern.

Rapid technological changes in our industry could render our
security products or services non-competitive or obsolete and consequently
affect our ability to generate revenues.

We will derive all of our revenues from the sale, licensing or
leasing of our security products and services. Such security products and
services are characterized and affected by rapid technological change, evolving
industry standards and regulations and changing client preferences. Our success
will depend, in significant part, upon our ability to make timely and
cost-effective enhancements and additions to our technology and to introduce new
security products and services that meet customer demands. We expect new
security products and services to be developed and introduced by other companies
that compete with our security products and services. The proliferation of new
and established companies offering similar security products and services may
reduce demand for our particular security products and services. There can be no
assurance that we will be successful in responding to these or other
technological changes, to evolving industry standards or regulations or to new
security products and services offered by our current and future competitors. In
addition, we may not have access to sufficient capital for our research and
development needs in order to develop new security products and services.

We could lose our competitive advantages if we are not able
to protect our proprietary technology and intellectual property rights against
infringement, and any related litigation could be time-consuming and costly.

Our success and ability to compete depends in part on our
proprietary technology incorporated in our security products. If any of our
competitors copy or otherwise gain access to our proprietary technology or
develop similar technologies independently, we would not be able to compete as
effectively. We consider our technologies invaluable to our ability to continue
to develop and maintain the goodwill and recognition associated with our brand.
The measures we take to protect our technologies, and other intellectual
property rights, which presently are based upon registered trade marks in
addition to trade secrets, may not be adequate to prevent their unauthorized
use.

Although we rely, in part, on contractual provisions to protect
our trade secrets and proprietary know-how, there is no assurance that these
agreements will not be breached, that we would have adequate remedies for any
breach or that our trade secrets will not otherwise become known or be
independently developed by competitors. Further, the laws of foreign countries
may provide inadequate protection of intellectual property rights. We may need
to bring legal claims to enforce or protect our intellectual property rights.
Any litigation, whether successful or unsuccessful, could result in substantial
costs and a diversion of corporate resources. In addition, notwithstanding any
rights we have secured to our intellectual property, other persons may bring
claims against us claiming that we have infringed on their intellectual property
rights, including claims that our intellectual property rights are not valid.
Adverse determinations in litigation in which we may become involved could
subject us to significant liabilities to third parties, require us to grant
licenses to or seek licenses from third parties and prevent us from
manufacturing and selling our security products. Any claims against us, with or
without merit, could be time-consuming and costly to defend or litigate, divert
our attention and resources, result in the loss of goodwill associated with our
trademarks or require us to make changes to our technologies. Furthermore, we
cannot assure you that any pending patent

- 10 -

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application made by us will result in an issued patent, or
that, if a patent is issued, it will provide meaningful protection against
competitors or competitor technologies.

We may not be able to hire and retain qualified personnel to
support our growth and if we are unable to retain or hire such personnel in the
future, our ability to improve our security products and services and implement
our business objectives could be adversely effected.

To continue to grow, we will need to recruit additional senior
management personnel, including persons with financial and sales experience. In
addition, we must hire, train and retain a significant number of other skilled
personnel, including persons with experience in sales and marketing. We have
encountered competition for these personnel. We may not be able to find or
retain qualified personnel, which may have a material adverse impact on our
business.

We have a history of losses and negative cash flows, which
is likely to continue unless our security products gain sufficient market
acceptance to generate a commercially viable level of sales.

Although we anticipate that we will be able to start generating
increased revenues during the next six months to 12 months, we also expect an
increase in development and operating costs. Consequently, we expect to incur
operating losses and net cash outflows unless and until our existing security
products and services, and or any new security products that we may develop or
acquire, gain market acceptance sufficient to generate a commercially viable and
sustainable level of sales.

We may be dependent upon third party manufacturers to
produce our security products. We could be adversely affected by an increase in
our manufacturers services or a significant decline in our manufacturers
financial condition. As a result, our business may fail and investors may lose
their entire investment.

As a quality assurance and efficiency measure, we plan to
manufacture our own security products and additionally contract some
manufacturing to third parties. We could be adversely affected by an increase in
our manufacturers prices of manufacturing services or a significant decline in
our manufacturers financial condition. If the relationships with any one of our
manufacturers is terminated and we are not successful in establishing a
relationship with an alternative manufacturer who offers similar services at
similar prices, our results of operations could be adversely affected, our
business may fail and investors may lose their entire investment.

The limitation of any one of our manufactures available
manufacturing capacity due to significant disruption in their manufacturing
operation could have a material adverse effect on sales revenue and results of
operations and financial condition.

We will be dependent upon third party manufacturers to produce
some of our security products. If production at any one of our manufacturers
manufacturing plant is disrupted for any number of reasons, manufacturing yields
may be adversely affected and we may be unable to meet our customers
requirements. Consequently, our customers may purchase security products from
our competitors. This could result in a significant loss of revenues and damage
to our customer relationships, which could materially adversely affect our
business, results of operations or financial condition.

Unless we can establish significant sales of our current
security products and services, our potential revenues may be significantly
limited.

We expect that a substantial portion, if not all, of our future
revenue will be derived from the licensing of our security products and
services. We expect that these security products and services and their
extensions and derivatives will account for a majority, if not all, of our
revenue for the foreseeable future. The successful introduction and broad market
acceptance of our security products - as well as the development, introduction
and market acceptance of any future enhancements - are, therefore, critical to
our future success and our ability to generate revenues. Unfortunately, there
can be no assurance that we will be successful in marketing our current product
offerings, or any new product offerings, applications or enhancements. Failure
to achieve broad market acceptance of our security products, as a result of
competition, technological change, or otherwise, would significantly harm our
business.

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There is a high risk of business failure due to the fact
that we have not commenced commercial operations with positive cash
flow.

Although we are in the early stages of developing and
implementing the commercialization of our security products and services, there
is no assurance that we will be able to successfully develop sales of our
security products and services. Thus we have no way of evaluating whether we
will be able to operate the business successfully, and there is no assurance
that we will be able to achieve profitable operations.

Potential investors should be aware of the difficulties
normally encountered in developing and commercializing new security products and
the high rate of failure of such enterprises. The likelihood of success must be
considered in light of the problems, expenses, difficulties, complications and
delays encountered in connection with the commercialization process that we plan
to undertake. These potential problems include, but are not limited to,
unanticipated problems relating to development, manufacture and financing of our
security products. If we are unsuccessful in addressing these risks, our
business will most likely fail.

If we fail to effectively manage our growth our future
business results could be harmed and our managerial and operational resources
may be strained.

As we proceed with the commercialization of our security
products and services, we expect to experience significant and rapid growth in
the scope and complexity of our business. We will need to add staff to market
our security services, manage operations, handle sales and marketing efforts and
perform finance and accounting functions. We will be required to hire a broad
range of additional personnel in order to successfully advance our operations.
This growth is likely to place a strain on our management and operational
resources. The failure to develop and implement effective systems, or to hire
and retain sufficient personnel for the performance of all of the functions
necessary to effectively service and manage our potential business, or the
failure to manage growth effectively, could have a materially adverse effect on
our business and financial condition.

Our security products and services may become obsolete and
unmarketable if we are unable to respond adequately to rapidly changing
technology and customer demands.

Our industry is characterized by rapid changes in technology
and customer demands. As a result, our security products and services may
quickly become obsolete and unmarketable. Our future success will depend on our
ability to adapt to technological advances, anticipate customer demands, develop
new security products and services and enhance our current security products and
services on a timely and cost-effective basis. Further, our security products
and services must remain competitive with those of other companies with
substantially greater resources. We may experience technical or other
difficulties that could delay or prevent the development, introduction or
marketing of new security products and services or enhanced versions of existing
security products and services. Also, we may not be able to adapt new or
enhanced security products or services to emerging industry standards, and our
new security products or services may not be favorably received.

Demand for our security products and services might be
insufficient for us to become profitable.

We cannot predict with certainty the potential consumer demand
for our security products or services or the degree to which we will meet that
demand. If demand for our security products or services do not develop as
expected and achieve consumer market acceptance, we might not be able to
generate enough revenue to become profitable or to sustain our operations. We
plan to target the sale of our security products and services to four primary
customer groups; residential, commercial, agricultural, and government. We have
based our strategy to target these consumers on a number of assumptions, some or
all of which could prove to be incorrect. Even if markets for our service
develop, we could achieve a smaller share of these markets than we currently
anticipate.

Risks Related To Our Common Stock

A decline in the price of our common stock could affect our
ability to raise further working capital and adversely impact our
operations.

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been financed through
the sale of equity securities, a decline in the price of our common stock could
be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to
reallocate

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funds from other planned uses and would have a significant
negative effect on our business plans and operations, including our ability to
develop new products and continue our current operations. If the stock price
declines, there can be no assurance that we can raise additional capital or
generate funds from operations sufficient to meet our obligations. We believe
the following factors could cause the market price of our common stock to
continue to fluctuate widely and could cause our common stock to trade at a
price below the price at which you purchase your shares of common stock:

- actual or anticipated variations in our quarterly operating results;
- announcements of new services, products, acquisitions or strategic
  relationships by us or our competitors;
- changes in accounting treatments or principles;
- changes in earnings estimates by securities analysts and in analyst
  recommendations; and
- general political, economic, regulatory and market conditions.

The market price for our common stock may also be affected by
our ability to meet or exceed expectations of analysts or investors. Any failure
to meet these expectations, even if minor, could materially adversely affect the
market price of our common stock.

If we issue additional shares of common stock in the future,
it will result in the dilution of our existing shareholders.

Our certificate of incorporation authorizes the issuance of
50,000,000 shares of common stock. Our board of directors has the authority to
issue additional shares of common stock up to the authorized capital stated in
the certificate of incorporation. Our board of directors may choose to issue
some or all of such shares of common stock to acquire one or more businesses or
to provide additional financing in the future. The issuance of any such shares
of common stock will result in a reduction of the book value or market price of
the outstanding shares of our common stock. If we do issue any such additional
shares of common stock, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders. Further, any
such issuance may result in a change of control of our corporation. On August 7,
2009, our board recommended increasing the total authorized shares to
200,000,000, which will be included at the annual meeting for shareholder
vote.

If a market for our shares of common stock does not develop,
shareholders may be unable to sell their shares of common stock.

There is currently a limited market for our common stock, which
trades through the Over-the-Counter Bulletin Board quotation system. Trading of
stock through the Over-the-Counter Bulletin Board is frequently thin and highly
volatile. There is no assurance that a sufficient market will develop in the
stock, in which case it could be difficult for shareholders to sell their stock.

Trading of our stock may be restricted by the Securities and
Exchange Commissions penny stock regulations which may limit a stockholders
ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations
which generally define penny stock to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission which provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customers account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may

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have the effect of reducing the level of trading activity in
the secondary market for the stock that is subject to these penny stock rules.
Consequently, these penny stock rules may affect the ability of broker-dealers
to trade our securities. We believe that the penny stock rules discourage
investor interest in and limit the marketability of, our common stock.

The Financial Industry Regulatory Authority, or FINRA, has
adopted sales practice requirements, which may limit a stockholders ability to
buy and sell our shares of common stock.

In addition to the penny stock rules described above, the
FINRA has adopted rules that require that in recommending an investment to a
customer, a broker-dealer must have reasonable grounds for believing that the
investment is suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers, broker-dealers must
make reasonable efforts to obtain information about the customers financial
status, tax status, investment objectives and other information. Under
interpretations of these rules, FINRA believes that there is a high probability
that speculative low-priced securities will not be suitable for at least some
customers. FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit your
ability to buy and sell our stock and have an adverse effect on the market for
our shares.

Other Risks

Trends, Risks and Uncertainties.

We have sought to identify what we believe to be the most
significant risks to our business, but we cannot predict whether, or to what
extent, any such risks may be realized nor can we guarantee that we have
identified all possible risks that might arise. Investors should carefully
consider all of the risk factors before making an investment decision with
respect to our common stock.

We may be unable to continue as a going concern in which
case our securities will have little or no value.

Our independent auditors have noted in their report concerning
our financial statements as of June 30, 2009 that we have incurred substantial
losses since inception, which raises substantial doubt abut our ability to
continue as a going concern. In the event we are not able to continue operations
you will likely suffer a complete loss of your investment in our securities. See
our auditors report on our consolidated financial statements elsewhere in this
Form 10-K

Our By-laws contain provisions indemnifying our officers and
directors against all costs, charges and expenses incurred by them.

Our By-laws contain provisions with respect to the
indemnification of our officers and directors against all costs, charges and
expenses, including an amount paid to settle an action or satisfy a judgment,
actually and reasonably incurred by him, including an amount paid to settle an
action or satisfy a judgment in a civil, criminal or administrative action or
proceeding to which he is made a party by reason of his being or having been one
of our directors or officers.

ITEM 2. DESCRIPTION OF PROPERTY

Principal Offices

Our principal offices are located at 1800 Boulder Street, Suite
600, Denver, Colorado 80211-6400. Our telephone number at our principal office
is (303) 455-2550. The 4,400 square foot space is leased for $4,400 per month
plus taxes and utilities from a company owned by a major stockholder and officer
of the company, for a 2-year term that commenced on November 1, 2007. We believe
that our principal office will be adequate for our needs for the next 2
years.

ITEM 3. LEGAL PROCEEDINGS

We know of no material, existing, or pending legal proceedings
against our company, nor are we involved as a plaintiff in any material
proceeding or pending litigation. There are no proceedings in which any of our
directors,

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officers or affiliates, or any registered or beneficial
shareholder, is an adverse party or has a material interest adverse to our
interest.

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

On November 4, 2009 an annual and special meeting of
stockholders of HS3 Technologies Inc., a Nevada corporation, will be held at
Suite 600, 1800 Boulder Street, Denver, Colorado USA 80211. The Meeting will be
held for the following purposes:

Elect: Mark Lana  Chief Executive Officer, Treasurer, and
Director Elect: Robert A. Morrison  President and Director Elect: Charles F.
Ferris, Ph.D.  Chairman of the Board and Director

Elect: Michael Yinger  Secretary and Director

Stockholder ratification of the appointment of Weaver &
Martin, LLC as our independent auditors

Increase to the number of shares of our common stock from
50,000,000 shares to 200,000,000 shares, par value $0.001.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Our common stock is quoted on the OTC Bulletin Board under the
Symbol HSTH. Our stock was originally approved for trading on the OTC Bulletin
Board under the symbol ZNNO. On November 25, 2005 our symbol was changed to
HSTT in connection with a change of name. On September 6, 2006 our symbol was
changed to HSTH in connection with a forward stock split.

The following table reflects the high and low bid information
for our common stock obtained from Big Charts a service of MarketWatch and
reflects inter-dealer prices, without retail mark-up, markdown or commission,
and may not necessarily represent actual transactions.

The high and low bid prices of our common stock for the periods
indicated below are as follows:

National Association of Securities Dealers OTC
      Bulletin BoardQuarter Ended
    High
    LowJune 30, 2009
    $0.13
    $0.01March 31, 2009
    $0.11
    $0.01December 31, 2008
    $0.04
    $0.01September 30, 2008
    $0.04
    $0.01June 30, 2008
    $0.02
    $0.01March 31, 2008
    $0.05
    $0.02December 31, 2007
    $0.15
    $0.03September 30, 2007
    $0.20
    $0.06June 30, 2007
    $1.28
    $0.32


On September 11, 2009, the closing price for the common stock
as reported by the quotation service operated by the OTC Bulletin Board was
$0.06.

As of September 11, 2009, there were 65 holders of record of
our common stock. As of such date, 41,995,802 common shares were issued and
outstanding.

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Our common shares are issued in registered form. Empire Stock
Transfer Inc., 7251 West Lake Mead Boulevard, Suite 300, Las Vegas, Nevada
89128-8351 (Telephone: (775) 562-4091; Facsimile: (775) 974-1444) is the
registrar and transfer agent for our common shares.

Dividend Policy

We have not paid any cash dividends on our common stock and
have no present intention of paying any dividends on the shares of our common
stock. Our current policy is to retain earnings, if any, for use in our
operations and in the development of our business. Our future dividend policy
will be determined from time to time by our board of directors.

Recent Sales of Unregistered Securities

On March 1, 2009 we issued 250,000 shares of our common stock
to a third party for cancellation of $21,592 of accounts payable due such third
party. The shares were issued to a U.S. person pursuant to the exemption from
registration provided under Rule 506 of Regulation D, promulgated under the
United States Securities Act of 1933, as amended.

On February 1, 2009, we entered into a $500,000 loan with
William S. Dickey, Chief Operating Officer, pursuant to a debt conversion
agreement. The loan bears interest at 15% and a conversion price of $0.10 per
share and is due on demand or converted at the option of the lender. The loan
was issued to a U.S. person pursuant to the exemption from registration provided
for under Rule 506 of Regulation D, promulgated under the United States
Securities Act of 1933, as amended.

On February 1, 2009, we entered into an eleven (11) month
Financial Consulting Agreement with William S. Dickey. We issued 1,000,000
shares of our common stock for such services rendered to us. The shares were
issued to a U.S. person pursuant to the exemption from registration provided for
under Rule 506 of Regulation D, promulgated under the United States Securities
Act of 1933, as amended.

On June 6, 2008, we issued 2,500,000 shares of our common stock
in a private placement, at a purchase price of $0.10 per share for gross
proceeds of $250,000 to one subscriber. The shares were issued to one U.S.
person (as that term is defined in Regulation S of the Securities Act of 1933)
relying upon Rule 506 of Regulation D of the Securities Act of 1933.

On June 4, 2008, we issued 1,820,000 shares of our common stock
in a private placement to seven U.S. persons (as that term is defined in
Regulation S of the Securities Act of 1933) relying upon section 4(2) and/or
Rule 506 of Regulation D of the Securities Act of 1933. The stock was issued to
5 employees and 2 board members.

In February and March, 2008, we, pursuant to a loan and
security agreement, entered into two (2) $200,000 promissory notes with Vencore
Solutions, LLC. The loans are for 36 months with a fixed interest rate of
15.499% and a combined monthly payment of $13,964 (principal plus interest)
payable on the 10th of each month. As of June 30, 2009 there is a
balance of $242,010. The notes are secured with the companys personal property
as defined in the loan and security agreements. The company has issued Vencore
Solutions, LLC a warrant for the purchase of 1,000,000 shares of common stock at
a purchase price of $.12 per share with an expiration date of five (5) years
after the commencement date of the first loan. The warrants were valued, using
the Black-Scholes calculation method, at $16,814. Also, since these were issued
in connection with a loan we booked $16,135 as a loan discount to the note
balance to be amortized to interest expense over the life of the loan.

On February 28, 2008, we sold 250,000 shares of our stock for
$25,000.

November 8, 2007, we issued an aggregate of 600,000 shares of
our common stock, valued at $45,000, for services rendered to our company.

On November 6, 2007, we entered into a Warrant Purchase
Agreement with Malibu Holdings, LLC wherein we purchased from Malibu 5,000,000
share purchase warrants that entitled the holder to purchase one share of our
company for each share purchase warrant at an exercise price of $0.12 per share.
As consideration for the purchase, we paid Malibu $70,964 and entered into a
Release with A.B. Goldberg and Malibu Holdings, LLC. After the purchase, Malibu
holds 1,250,000 share purchase warrants with an exercise price of $.12 per share
that expired on September 8, 2008.

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On November 5, 2007, we issued 2,500,000 shares of our common
stock in a private placement, at a purchase price of $0.10 per share for gross
proceeds of $250,000 to one subscriber. The shares were one to U.S. person (as
that term is defined in Regulation S of the Securities Act of 1933) relying upon
Rule 506 of Regulation D of the Securities Act of 1933.

On November 1, 2007 we sold 50,000 shares of our common stock
for $5,000.

On September 15, 2007 we issued 35,000 shares of our stock to
Connor Hollis for professional services valued at $3,850 based on the trading
price of our stock on the day the Board authorized the stock to be issued.

On August 15, 2007 we agreed to issue 720,000 shares of our
common stock to Mr. Ferris and Mr. Yinger, Directors of our company, for
services that they have rendered. The valued of the services was $86,400 based
on the trading price of our stock on the day the shares were approved and this
was included as professional fee expense.

Equity Compensation Plan Information

We have no long-term incentive plans, other than the Stock
Option Plan described below.

Stock Option Plan

On November 9, 2005, the company adopted the 2005 Stock Option
Plan for its directors and employees, reserving a total of 2,500,000 shares of
its common stock for issuance pursuant to grants to be made under the stock
option plan. As of June 30, 2009, 1,500,000 options (with an exercise price of
$.1667) are outstanding which expire in March 2012

The purpose of the 2005 Stock Option Plan is to retain the
services of valued key employees and consultants of our company and such other
persons as shall be selected in accordance with the 2005 Stock Option Plan, and
to encourage such persons to acquire a greater proprietary interest in our
company, thereby strengthening their incentive to achieve the objectives of the
shareholders of our company, and to serve as an aid and inducement in the hiring
of new employees and to provide an equity incentive to consultants.

The exercise price of shares subject to any option must be at
least 100% of the fair market value of the shares on the date of grant. The
maximum term of any stock option is 5 years from the date the option is granted.
The 2005 Stock Option Plan shall terminate on November 9, 2015.

The following table summarizes certain information regarding
our equity compensation plan at September 11, 2009:

Plan Category
    Number of
      Securities to be Issued Upon Exercise of Outstanding
      Options, Warrants and Rights
    Weighted-Average Exercise Price of
      Outstanding Options, Warrants and Rights
    Number of Securities Remaining Available
      for Future Issuance Under Equity Compensation
      Plans (Excluding Securities Reflected in Column)Equity compensation plans not approved by security
      holders: Options Warrants
    1,500,000 1,000,000
    $ .1667 $ .1200
    NoneTotal
    2,500,000
    $ .1480


ITEM 6. SELECTED FINANCIAL DATA

As a smaller reporting company, we are not required to
provide the information required by this Item.

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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview

You should read the following discussion of our financial
condition and results of operations together with the audited financial
statements and the notes to audited financial statements included elsewhere in
this filing prepared in accordance with accounting principles generally accepted
in the United States. This discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those anticipated in these forward-looking statements.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
investors.

Our principal capital resources have been through the
subscription and issuance of common stock, although we have also used loans from
Vencore Solutions, LLC, stockholder loans, and advances from related
parties.

Plan of Operations And Cash Requirements

Our operating expenses (selling, general and administrative
expenses) consist mostly of wages and benefits, contract services and
communication expenses. The amount incurred by our company for the years ended
June 30, 2009 and 2008, respectively was approximately $1.1 million and 2.1
million.

Our cash on hand at June 30, 2009 was approximately $40,000. We
have made a concentrated effort over the prior twelve months to reduce our
selling, general and administrative expenses, which currently have a cash burn
rate of approximately $60,000 to $75,000 per month. Until the time period that
additional monitoring locations, pursuant to the AHA contract or other
market//customers, are on revenue, we may need to raise additional working
capital to fund our current business activities. We intend to raise the
additional capital needed to meet these immediate short-term needs primarily
through borrowings form officers, directors or private investors or factoring
our revenue streams.

Over the long term we will require additional financing in
order to acquire equipment, install and monitor additional locations pursuant to
the AHA contract, as well as any other expansions into newer markets for us. We
anticipate relying on cash flows from operations, equity and/or debt financing
and factoring our revenue streams for such expansion. We presently do not have
any arrangements for additional financing for the expansion of our operations,
and no potential lines of credit or sources of financing are currently in place
for the purpose of proceeding with our plan of operations.

Results of Operations for the year ended June 30,2009 and
2008

Revenue and Cost of goods sold.

We derive revenue from our operations by charging monthly fees
for providing integrated equipment, monitoring, labor and other technology
services as well as equipment sales to our customers. Our revenue and cost of
goods sold for the year ended June 30, 2009 and 2008 are outlined in the table
below:

| |                                    |   | Year ended | 
| | ---------------------------------- | - | ---------- | 
| |                                    |   | June 30,   | 
| |                                    |   | 2009       | 
| |                                    |   |            | 
| | VMS Revenue:                       |   |            | 
| | Equipment license/monitoring fees  | $ | 21,488     | 
| | Domain/business hosting
      fees |   | 4,546      | 
| | Other                              |   | 20,072     | 
| |                                    | $ | 46,106     | 

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| |                          |   | Year ended |  
| | ------------------------ | - | ---------- | -
| |                          |   | June 30,   |  
| |                          |   | 2009       |  
| |                          |   |            |  
| | Other Revenue:           |   |            |  
| | Equipment sales          | $ | 102,762    |  
| | IT Services              |   | 52,585     |  
| | Other                    |   | 341        |  
| |                          | $ | 155,688    |  
| |                          |   |            |  
| |                          |   |            |  
| | Revenue                  | $ | 201,794    |  
| |                          |   |            |  
| | Cost
      of goods sold |   | (71,459    | )
| |                          | $ | 130,335    |  

Other revenues for the year ended June 30, 2009 decreased as
compared to the comparative period in 2008 as a result of our Company
temporarily suspending marketing efforts for our products and services in order
to focus exclusively on the AHA beta testing consummation, signing of the
agreement and the intended roll-out and implementation. During the year ended
June 30, 2008, we had approximately $784,000 of sales to Nickelodeon pursuant to
an agreement that failed to develop into a monitoring arrangement for our
Company. Our gross profit percent on equipment sales was 30% and 42% for the
year ended June 30, 2009 and 2008, respectively.

VMS revenue is however growing as we have started rolling our
locations in conjunction with the AHA contract

Selling, general and administrative expenses.

Our selling, general and administrative expenses for the year
ended June 30, 2009 and 2008 are outlined in the table below:

|                                      |   | Year ended | 
|------------------------------------- | - | ---------- | 
|                                      |   | June 30,   | 
|                                      |   |            | 
|                                      |   | 2009       | 
|Wages & employee benefits             | $ | 607,405    | 
|Contract services                     |   | 141,926    | 
|Computer network services             |   | 27,312     | 
|Accounting, audit and tax expenses    |   | 33,595     | 
|Rent                                  |   | 52,800     | 
|Legal                                 |   | 13,611     | 
|Board fees                            |   | 50,000     | 
|Telephone                             |   | 46,125     | 
|Travel, meals and entertainment       |   | 19,055     | 
|Research and development              |   | 1,233      | 
|Stock transfer/shareholder/proxy fees |   | 1,902      | 
|Insurance                             |   | 22,294     | 
|Computer server/other                 |   | 1,155      | 
|Utilities                             |   | 13,302     | 
|Advertising/promotion/IR              |   | 59,272     | 
|Other expenses                        |   | 18,957     | 
|Bad debt expenses                     |   | 17,151     | 
|                                      | $ | 1,127,095  | 

Selling, general and administrative expenses for the year ended
June 30, 2009 decreased by 48% as compared to the comparative period in 2008
primarily as a result of our management making a concentrative effort to reduce
such costs.

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Contract services for the year ended June 30, 2009 decreased as
compared to the comparative period in 2008 primarily as a result of the
inclusion in 2008 of $163,250 of stock issued for services to the independent
directors and two third parties and $85,234 to a former officer for services.
Included in the year ended June 30, 2009 is $20,000 of stock issued for
services, $86,000 for marketing consulting fees and $17,500 for investment
banking fees.

Advertising/promotion/IR expenses for the year end June 30,
2009 increased as compared to the comparative period in 2008 primarily as a
result of $32,500 (including stock issued for services, $12,000) to Wall Street
Resources, pursuant to our Financial Communications Consulting Agreement and
$11,100 for a web site development project. Other expenses for the year ended
June 30, 2008 includes $282,000 of amortization cost of warrants issued late in
2006.

Financial Condition, Liquidity and Capital Resources

Our principal capital resources have been through the issuance
of common stock, shareholder loans, advances from related parties and
borrowings. Our primary liquidity needs are to fund our working capital
requirements and future equipment purchases. Our ability to continue as a going
concern is dependent upon obtaining additional working capital to develop our
business operations.

|                                |   | June 30, |   |   | June 30,    |  
|------------------------------- | - | -------- | - | - | ----------- | -
|                                |   | 2009     |   |   | 2008        |  
|                                |   |          |   |   |             |  
|Current Assets                  | $ | 438,702  |   | $ | 260,427     |  
|Current Liabilities (a)         |   | 832,053  |   |   | 1,895,871   |  
|Working Capital
      (deficit) | $ | (393,351 | ) | $ | ((1,635,444 | )
|                                |   |          |   |   |             |  
|                                |   |          |   |   |             |  
|Long-term debt                  | $ | 242,010  |   | $ | 109,024     |  
|Stockholders Equity(deficit)   | $ | (557,981 | ) | $ | (1,680,808  | )
|                                |   |          |   |   |             |  
|                                |   |          |   |   |             |  
|Current Liabilities (a)         |   |          |   |   |             |  
|Trade accounts payable          | $ | 215,890  |   | $ | 75,323      |  
|Other accrued liabilities       |   | 290,926  |   |   | 514,562     |  
|Convertible notes payable       |   | 212,000  |   |   | 1,173,000   |  
|Long-term debt, current portion |   | 113,237  |   |   | 132,986     |  
|                                | $ | 832,053  |   | $ | 1,895,871   |  

Our primary liquidity needs are to fund our working capital
requirements and future capital expenditures. Our ability to continue as a going
concern is dependent upon obtaining additional working capital to develop our
business operations. We intend to use borrowings, security sales and/or
factoring our revenue streams to mitigate the affects of our cash position;
however, due to current conditions in the debt and equity markets, no assurance
can be given that debt or equity financing, if and when required, will be
available.

Working Capital

|                          |   |            |   |   |          |   |  | Percentage |  
|------------------------- | - | ---------- | - | - | -------- | - |  | ---------- | -
|                          |   | June 30,   |   |   | June 30, |   |  | Increase/  |  
|                          |   | 2009       |   |   | 2008     |   |  | (Decrease) |  
|                          |   |            |   |   |          |   |  |            |  
|Current Assets            | $ | 260,427    |   | $ | 438,702  |   |  | (40.6%     | )
|Current Liabilities       |   | 1,895,871  |   |   | 832,053  |   |  | 127.9%     |  
|Working Capital (deficit) | $ | (1,635,444 | ) | $ | (393,351 | ) |  | 315.8%     |  

- 20 -

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|Cash Flows                                    |   |                     |   |   |          |   |   |          |  
|--------------------------------------------- | - | ------------------- | - | - | -------- | - | - | -------- | -
|                                              |   | Year ended June 30, |  
|                                              |   | 2009                |   |   | 2008     |   |   | 2007     |  
|                                              |   |                     |   |   |          |   |   |          |  
|Net cash (used in) operating
      activities | $ | (908,298            | ) | $ | (767,802 | ) | $ | (891,310 | )
|Net cash (used in) by investing activities    |   | (25,809             | ) |   | (6,593   | ) |   | ( 40,322 | )
|Net cash flow provided by (used in)           |   | 842,381             |   |   | 903,729  |   |   | 919,000  |  
|financing activities                          |   |                     |   |   |          |   |   |          |  
|Increase (decrease) in cash and cash          | $ | (91,726             | ) | $ | 129,334  |   | $ | (12,632  | )
|equivalents                                   |   |                     |   |   |          |   |   |          |  

Our cash on hand at June 30, 2009 was approximately $40,000. We
have made a concentrated effort over the prior twelve months to reduce our
selling, general and administrative expenses, which currently have a cash burn
rate of approximately $60,000 to $75,000 per month. Until the time period that
additional monitoring locations, pursuant to the AHA contract, or other
markets/customers are on revenue, we may need to raise additional working
capital to fund our current business activities. We intend to raise the
additional capital needed to meet these immediate short-term needs primarily
through borrowings from officers, directors or private investors or factoring
our revenue streams..

Over the long term we will require additional financing in
order to acquire equipment, install and monitor additional monitoring locations
pursuant to the AHA contract, as well as any other expansions into newer markets
for us. We anticipate relying on cash flows from operations, equity and/or debt
financing and/or factoring our revenue streams for such expansion. We presently
do not have any arrangements for additional financing for the expansion of our
operations, and no potential lines of credit or sources of financing are
currently in place for the purpose of proceeding with our plan of
operations.

Contractual Obligations

As a smaller reporting company, we are not required to
provide tabular disclosure obligations.

Going Concern

We have incurred losses since our inception. Because of these
historical losses, we will require additional working capital to develop our
business operations. We intend to use borrowings, security sales and/or revenue
factoring to mitigate the affects of our cash position; however, no assurance
can be given that debt or equity financing, if and when required, will be
available.

The continuation of our business is dependent upon obtaining
further financing and achieving a break even or profitable level of operations.
Any issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current or future stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments.

There are no assurances that we will be able to either (i)
achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (ii) obtain additional financing to support our working capital
requirements. To the extent that funds generated from operations and any equity
and/or debt financing are insufficient, we will have to raise additional working
capital. No assurance can be given that additional financing will be available,
or if available, will be on terms acceptable to us. If adequate working capital
is not available, we may not be able to increase our operations.

These conditions raise substantial doubt about our ability to
continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets
and classification of liabilities that might be necessary should we be unable to
continue as a going concern.

- 21 -

---

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Our financial statements and accompanying notes are prepared in
accordance with generally accepted accounting principles in the United States.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue and
expenses. These estimates and assumptions are affected by managements
application of accounting policies. We believe that understanding the basis and
nature of the estimates and assumptions involved with the following aspects of
our financial statements is critical to an understanding of our financials

We base our assumptions and estimates on historical experience
and other sources that we believe to be reasonable at the time. Actual results
may vary from our estimates due to changes in circumstances, weather, politics,
global economics, mechanical problems, general business conditions and other
factors. Our significant estimates are related to the valuation of warrants,
stock and options and the valuation allowance for our deferred income tax
benefit.

Our financial statements are stated in United States dollars
(US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

As a smaller reporting company, we are not required to
provide the information required by this Item.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements are filed as
part of this annual report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheet as of June 30, 2009 and 2008

Consolidated Statements of Operations for the years ended June
30, 2009, 2008 and 2007

Consolidated Statements of Stockholders Equity (Deficit) for
the years ended June 30, 2009, 2008 and 2007

Consolidated Statements of Cash Flows for the years ended June
30, 2009, 2008 and 2007

Notes to the Consolidated Financial Statements

- 22 -

---



- 23 -

---

|HS3 Technologies, Inc.               
|-------------------------------------
|Condensed consolidated balance sheets

|                                                              |   | June 30,   |   |   | June 30,   |  
|------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                              |   | 2009       |   |   | 2008       |  
|ASSETS                                                        |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|Current Assets:                                               |   |            |   |   |            |  
|Cash and cash equivalents                                     | $ | 38,592     |   | $ | 130,318    |  
|Trade accounts receivable                                     |   | 18,396     |   |   | 215,499    |  
|Other receivables                                             |   | 56,427     |   |   | -          |  
|Inventory                                                     |   | 147,012    |   |   | 92,885     |  
|                                                              |   | 260,427    |   |   | 438,702    |  
|Furniture, fixtures and equipment, net of
      accumulated   |   |            |   |   |            |  
|depreciation of $84,650 and $54,454
      respectively        |   | 76,493     |   |   | 80,880     |  
|Other assets, net                                             |   | 15,167     |   |   | 24,500     |  
|                                                              | $ | 352,087    |   | $ | 544,082    |  
|                                                              |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|LIABILITIES AND
      EQUITY                                  |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|Current Liabilities:                                          |   |            |   |   |            |  
|Trade accounts payable                                        | $ | 75,323     |   | $ | 215,890    |  
|Other accrued liabilities                                     |   | 514,562    |   |   | 290,926    |  
|Convertible notes payable                                     |   | 1,173,000  |   |   | 212,000    |  
|Long-term debt, current portion                               |   | 132,986    |   |   | 113,237    |  
|                                                              |   | 1,895,871  |   |   | 832,053    |  
|                                                              |   |            |   |   |            |  
|Long-term debt                                                |   | 109,024    |   |   | 242,010    |  
|Other long-term liabilities                                   |   | 28,000     |   |   | 28,000     |  
|Total
      Liabilities                                       |   | 2,032,895  |   |   | 1,102,063  |  
|                                                              |   |            |   |   |            |  
|                                                              |   |            |   |   |            |  
|Stockholders Equity (Deficit):                               |   |            |   |   |            |  
|Preferred stock, $0.0001 par value, 2,500,000 shares          |   |            |   |   |            |  
|authorized, none issued or outstanding                        |   | -          |   |   | -          |  
|Common Stock, $0.001 par value, 50,000,000
      authorized,  |   |            |   |   |            |  
|issued
      and outstanding 41,995,802 and 39,945,802 shares |   |            |   |   |            |  
|at June 30, 2009 and
      2008, respectively                 |   | 41,996     |   |   | 39,946     |  
|Additional paid-in capital                                    |   | 4,385,001  |   |   | 4,333,459  |  
|Accumulated deficit                                           |   | (6,107,805 | ) |   | (4,931,386 | )
|                                                              |   | (1,680,808 | ) |   | (557,981   | )
|                                                              | $ | 352,087    |   | $ | 544,082    |  

See accompanying notes to condensed consolidated financial
statements

- 24 -

---

|HS3 Technologies, Inc.                        
|----------------------------------------------
|Condensed consolidated statement of operations

|                                     |   | Year ended June 30, |  
|------------------------------------ | - | ------------------- | -
|                                     |   | 2009                |  
|                                     |   |                     |  
|                                     |   |                     |  
|Revenue                              | $ | 201,794             |  
|Cost of goods sold                   |   | 71,459              |  
|Gross profit                         |   | 130,335             |  
|                                     |   |                     |  
|Operating Expenses:                  |   |                     |  
|Selling, general and administrative  |   | 1,127,095           |  
|Depreciation and amortization        |   | 39,531              |  
|Total operating expenses             |   | 1,166,626           |  
|                                     |   |                     |  
|Loss from operations                 |   | (1,036,291          | )
|                                     |   |                     |  
|Other income (expense):              |   |                     |  
|Interest expense, net                |   | (140,128            | )
|Total other income (expense)         |   | (140,128            | )
|                                     |   |                     |  
|Net loss                             | $ | (1,176,419          | )
|                                     |   |                     |  
|Net loss per share-basic and diluted | $ | (0.028              | )
|                                     |   |                     |  
|Weighted average number of common    |   |                     |  
|shares outstanding                   |   | 41,141,692          |  

See accompanying notes to condensed consolidated financial
statements

- 25 -

---

|HS3 Technologies, Inc.                                                  
|------------------------------------------------------------------------
|Condensed consolidated statement of stockholders
      equity (deficit)

|                                                |  |              |  |   |         |  |   |            |   |   | Unamortized    |   |   |            |   |   |              |  
|----------------------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- | - | - | -------------- | - | - | ---------- | - | - | ------------ | -
|                                                |  |              |  |   |         |  |   |            |   |   | Cost           |   |   |            |   |   | Total        |  
|                                                |  |              |  |   |         |  |   | Additional |   |   | Stock/Warrants |   |   | Retained   |   |   | Stockholders |  
|                                                |  | Common Stock |  |   | Paid-in |  |   | Issued for |   |   | Earnings       |   |   | Equity     |  
|                                                |  | Shares       |  |   | Amount  |  |   | Capital    |   |   | Service        |   |   | (Deficit)  |   |   | (Deficit)    |  
|                                                |  |              |  |   |         |  |   |            |   |   |                |   |   |            |   |   |              |  
|Balances as of June 30, 2006                    |  | 17,491,491   |  | $ | 17,492  |  | $ | (17,492    | ) | $ | -              |   | $ | (450,611   | ) | $ | (450,611     | )
|Issuance of shares in conversion of debenture   |  | 125,000      |  |   | 125     |  |   | 499,875    |   |   | -              |   |   | -          |   |   | 500,000      |  
|Issuance of shares in conversion of
      notes |  | 1,231,811    |  |   | 1,232   |  |   | 121,949    |   |   | -              |   |   | -          |   |   | 123,181      |  
|Shares issued for cash                          |  | 10,862,500   |  |   | 10,862  |  |   | 908,139    |   |   | -              |   |   | -          |   |   | 919.000      |  
|Shares issued for services                      |  | 1,760,000    |  |   | 1,760   |  |   | 623,040    |   |   | (165,920       | ) |   | -          |   |   | 458,880      |  
|Warrants issued for services                    |  | --           |  |   | -       |  |   | 982,448    |   |   | (116,000       | ) |   | -          |   |   | 866,448      |  
|Options issued to employees                     |  | -            |  |   | -       |  |   | (540,755   |   |   | -              |   |   | -          |   |   | 540,755      |  
|Net loss                                        |  | -            |  |   | -       |  |   | -          |   |   | -              |   |   | (2,924,327 | ) |   | (2,924,327   | )
|Balances as of June 30, 2007                    |  | 31,470,802   |  | $ | 31,471  |  | $ | 3,658,713  |   | $ | (281,920       | ) | $ | (3,374,938 | ) | $ | 33,326       |  
|Shares issued for cash                          |  | 5,300,000    |  |   | 5,300   |  |   | 524,700    |   |   | -              |   |   | -          |   |   | 530,000      |  
|Shares issued for services                      |  | 3,175,000    |  |   | 3,175   |  |   | 204,875    |   |   | 165,920        |   |   | -          |   |   | 373,970      |  
|Warrants issued for services                    |  | -            |  |   | -       |  |   | 16,135     |   |   | 116,000        |   |   | -          |   |   | 132,135      |  
|Purchase of warrants                            |  | -            |  |   | -       |  |   | (70,964    | ) |   | -              |   |   | -          |   |   | (70,964      | )
|Net loss                                        |  | -            |  |   | -       |  |   | -          |   |   | -              |   |   | (1,556,448 | ) |   | (1,556,448   | )
|Balances as of June 30, 2008                    |  | 39,945,802   |  | $ | 39,946  |  | $ | 4,333,459  |   | $ | -              |   | $ | (4,931,386 | ) | $ | (557,981     | )
|Shares issued for cash                          |  | -            |  |   | -       |  |   | -          |   |   | -              |   |   | -          |   |   | -            |  
|Shares issued for services/                     |  | 2,050,000    |  |   | 2,050   |  |   | 51,542     |   |   | -              |   |   | -          |   |   | 53,592       |  
|cancellation of debt                            |  |              |  |   |         |  |   |            |   |   |                |   |   |            |   |   |              |  
|Net loss                                        |  | -            |  |   | -       |  |   | -          |   |   | -              |   |   | (1,176,419 | ) |   | (1,176,419   | )
|Balances as of June 30, 2009                    |  | 41,995,802   |  | $ | 41,996  |  | $ | 4,385,001  |   | $ | -              |   | $ | (6,107,805 | ) | $ | (1,680,808   | )

See accompanying notes to condensed consolidated financial
statements

- 26 -

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|HS3 Technologies, Inc.                        
|----------------------------------------------
|Condensed consolidated statement of cash flows

|                                                        |   | Year ended June 30, |  
|------------------------------------------------------- | - | ------------------- | -
|                                                        |   | 2009                |  
|                                                        |   |                     |  
|                                                        |   |                     |  
|Cash flows from operating
      activities:             |   |                     |  
|Net loss                                                | $ | (1,176,419          | )
|                                                        |   |                     |  
|Adjustments to reconcile net loss to net cash           |   |                     |  
|provided by (used in) operations:                       |   |                     |  
|Depreciation and amortization                           |   | 39,531              |  
|Accretion of interest                                   |   | 5,380               |  
|Warrants, stock, and options issued for
      service   |   | 53,592              |  
|Stock issued for conversion of
      note payable       |   | -                   |  
|(Gain) loss on sale of fixed assets                     |   | -                   |  
|Changes in operating assets and
      liabilities:      |   |                     |  
|Accounts and other receivables                          |   | 140,676             |  
|Inventory                                               |   | (54,127             | )
|Deposit on inventory                                    |   | -                   |  
|Accounts payable and accrued
      liabilities          |   | 83,069              |  
|Net cash (used) in operating activities                 |   | (908,298            | )
|                                                        |   |                     |  
|Cash flow from investing activities:                    |   |                     |  
|Proceeds from sale of fixed
      assets                |   | -                   |  
|Additions to furniture, fixtures &
      equipment      |   | (25,809             | )
|Net cash (used in) investing activities                 |   | (25,809             | )
|                                                        |   |                     |  
|Cash flow from financing activities:                    |   |                     |  
|Sale of common stock                                    |   | -                   |  
|Proceeds from sale of warrants                          |   | -                   |  
|Acquisition of stock warrants                           |   | -                   |  
|Convertible notes payable
      issued for cancellation |   | 104,000             |  
|of accrued
      liabilities                            |   |                     |  
|Proceeds from convertible
      notes payable           |   | 857,000             |  
|Borrowings (repayments) long-term debt                  |   | (118,619            | )
|Net cash flow provided by financing
      activities    |   | 842,381             |  
|                                                        |   |                     |  
|Increase (decrease) in cash and cash
      equivalents  |   | (91,726             | )
|Cash and cash equivalents, beginning of period          |   | 130,318             |  
|Cash and cash equivalents, end of period                | $ | 38,592              |  
|                                                        |   |                     |  
|                                                        |   |                     |  
|Supplemental cash flow information:                     |   |                     |  
|Interest paid                                           | $ | 44,108              |  
|Income taxes paid                                       | $ | -                   |  
|                                                        |   |                     |  
|Non cash financing activities:                          |   |                     |  
|Stock issued for services                               | $ | 53,592              |  

See accompanying notes to condensed consolidated financial
statements

- 27 -

---

HS3 Technologies, Inc.

Notes to condensed consolidated financial statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

(a) Nature of Business

HS3 Technologies, Inc. (HS3 or
the Company) was incorporated in Nevada on January 28, 2003. Prior to a name
change in October 2005, the Company was known as Zeno, Inc. The Company also
changed its fiscal year end from March 31 to June 30. In November 2005, the
Company acquired ip-Colo, Inc., in a reorganization, a development stage
corporation (herein referred to as ip-Colo). On the date of the
reorganization, the Company, a non-operating entity without any assets or
liabilities, was to provide advanced wireless technologies integrated with
high-speed internet, via satellite, and to provide real-time security and
monitoring for many industries.

We offer a diverse line of
cutting edge products, services and customized integrated security solutions to
meet the growing needs of the security industry. To meet the ever changing needs
of the industry, we have launched a combination of state-of-the art products and
services that include digital video recording technology (DVR), personal
biometric identification units, video monitoring, cellular and wireless mesh
networks and wireless internet-linked satellite surveillance systems. This
combination of products encompasses a total line that we believe will meet many
commercial, agricultural, governmental, and residential customer security
needs.

Effective February 1, 2009, we
signed a ten (10) year agreement with the 131-year-old American Humane
Association (AHA"). HS3 and AHAs relationship is to create a Video Monitoring
System (VMS) which has been indicated by AHA to become a standard part of the
American Humane Certified (AHC) program, which is a voluntary fee-based
program available to producers, processors and haulers of animals raised for
food. The AHC program provides independent third-party verification that those
businesses treat and care for their animals humanely. Pursuant to the AHA
agreement, we will provide the installation, integration, and monitoring of
production facilities and the transportation of animals to ensure the husbandry
and transportation of the animals conforms to AHC certification standards.
Pursuant to the agreement, we will be paid a recurring monthly monitoring and
equipment license fee for all monitoring locations attached to the agreement
through executed statement of works.

(b) Basis of presentation and use of estimates

The accompanying condensed
consolidated financial statements in this annual report on Form 10-K have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. Accordingly, these statements reflect adjustments (consisting only
of normal recurring entries), which in our opinion, are necessary for a fair
presentation of the financial results for the periods presented. Our accounting
and financial reporting policies conform to accounting principles and practices
generally accepted in the United States of America. The accompanying
consolidated financial statements include the accounts of HS3 and its controlled
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in the preparation of the accompanying condensed consolidated
financial statements We have no off-balance-sheet arrangements that have or are
reasonably likely to have a current or future effect on our financial condition,
changes in financial condition, revenues or expenses, results of operations,
liquidity, capital expenditures or capital resources that is material to
stockholders.

The preparation of financial
statements in accordance with United States generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses in the reporting
period. The Company regularly evaluates estimates and assumptions related to the
useful life and recoverability of long-lived assets, stock-based compensation
and deferred income tax asset valuation allowances. The Company bases its
estimates and assumptions on current facts, historical experience and various
other factors that it believes to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values
of assets and liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced by the
Company may differ materially and adversely from the Companys estimates. To the
extent there are material differences between the estimates and the actual
results, future results of operations will be affected.

---

(c) Cash and cash equivalents

We consider all short-term
investments with a remaining maturity of three months or less at the date of
purchase to be cash equivalents.

(d) Furniture, Fixtures and Equipment

Furniture, fixtures and equipment
are recorded at historical cost, net of accumulated depreciation. Depreciation
is computed using the straight-line method based on estimated useful lives (3-5
years). Expenditures for maintenance and repairs are charged to expense.

(e) Inventory

Inventory consists of finished
goods purchased from third-party manufacturers and component parts and is valued
at the lower of average cost or market. Average cost is determined using the
first-in, first-out method of accounting.

(f) Long-lived Assets

Long-lived assets are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable, in accordance with the Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standard
(SFAS) No.144, Accounting for the Impairment or Disposal of Long-Lived
Assets. An impairment loss would be recognized when the carrying amount of
an asset exceeds the estimated undiscounted future cash flows expected to result
from the use of the asset and its eventual disposition.

(g) Loss Per Share

Basic and diluted earnings (loss)
per share are computed using the weighted average number of shares outstanding
during the period. Diluted earnings per share gives effect to all potential
diluted common shares outstanding during the period. In periods of net loss,
there are no diluted earnings per share since the result would be
anti-dilutive.

(h) Financial Instruments

The fair value of financial
instruments is determined at a specific point in time, based on relevant
information about financial markets and specific financial instruments. As these
estimates are subjective in nature, involving uncertainties and matters of
significant judgment, they cannot be ascertained with precision. Changes in
assumptions can significantly affect estimated fair values.

The carrying value of cash and
cash equivalents, accounts payable and accrued liabilities approximate their
fair value because of the short-term nature of these instruments.

(i) Income Taxes

The Company has adopted SFAS No.
109, Account for Income Taxes, which requires the Company to recognize deferred
tax liabilities and assets for the expected future tax consequences of events
that have been recognized in the Companys consolidated financial statements and
tax returns using the liability method. Under this method, deferred tax
liabilities and assets are determined based on the temporary differences between
the consolidated financial statements and tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the differences are
expect to reverse.

(j) Equity-Based Compensation

Common stock, warrants, and
options issued for services are accounted for based on the fair market value at
the date the services are performed. If the awards are based on a vesting period
the fair market value of the awards is determined as vesting is earned. If the
services are to be performed over an extended period of time, the value is
amortized over the life of the period that services are performed.

29

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(k) Concentration of Credit Risk

We sell products to customers in
diversified industries and geographical regions. We continually evaluate the
creditworthiness of our customers. We evaluate the collectability of accounts
receivable on a combination of factors. Our policies require us to write off or
record specific reserve if we become aware of anything that would cause us to
question a specific customers inability to meet their financial obligations to
us. We will write off receivables when we believe an amount is not collectible.
We do not have any reserves for bad debt at June 30, 2009.

(l) Revenue Recognition

We record revenue when persuasive
evidence of an arrangement exists, services have been rendered or product
delivery has occurred, the sales price to the customer is fixed or determinable,
and collectability is reasonably assured.

(m) Reclassifications

Certain amounts in the prior periods have been reclassified to
conform to the current periods presentation.

2. GOING CONCERN

The accompanying condensed
consolidated financial statements have been prepared assuming that we will
continue as a going concern. Our ability to continue as a going concern is
dependent upon us obtaining additional working capital to develop our business
operations. We intend to use borrowings, stock sales and/or revenue factoring to
mitigate the affects of our cash position; however, no assurance can be given
that debt or equity financing, if and when required, will be available. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets and classification of
liabilities that might be necessary should we be unable to continue as a going
concern.

3. OTHER ACCRUED LIABILITIES

Other accrued liabilities are as follows:

|                           |   | June 30, |  |   | June 30, | 
|-------------------------- | - | -------- |  | - | -------- | 
|                           |   | 2009     |  |   | 2008     | 
|                           |   |          |  |   |          | 
|Accrued board fees         | $ | 95,832   |  | $ | 45,832   | 
|Accrued rent, officer      |   | -        |  |   | 62,154   | 
|Accrued salaries, officers |   | 293,542  |  |   | 106,563  | 
|Accrued interest           |   | 115,662  |  |   | 38,075   | 
|Payroll liabilities        |   | 9,372    |  |   | 30,609   | 
|Sales tax payable          |   | 154      |  |   | 7,693    | 
|                           | $ | 514,562  |  | $ | 290,926  | 

Board fees to the two independent
board of directors are $25,000 annually which is being deferred until the
Company has the ability to pay at which time the board members have the option
to receive cash or convert into common stock at the rate of $0.12 or the rate of
the last conversion agreement.

The Company leases office space
from a company owned by an officer/director. On March 31, 2009, the Company
issued a $104,000 convertible note payable to the officer/director for
cancellation of the accrued rent.

Accrued interest represents interest on the convertible notes
payable.

30

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4. CONVERTIBLE NOTES PAYABLE

The Company has been provided
with the following unsecured loans (bearing interest from 12% to 15% and
convertible between $0.10 to $0.12) from officers, directors or private
investors pursuant to debt conversion agreements. All principle and interest are
due on demand or are converted at the discretion of the provider of the
loan.

|                   |   | June 30   |  |   | June 30 | 
|------------------ | - | --------- |  | - | ------- | 
|                   |   | 2009      |  |   | 2008    | 
|                   |   |           |  |   |         | 
|Officers and/or    |   |           |  |   |         | 
|Directors:         |   |           |  |   |         | 
|William S. Dickey  | $ | 725,000   |  | $ | -       | 
|Robert A. Morrison |   | 300,000   |  |   | 174,000 | 
|Mark L. Lana       |   | 27,000    |  |   | 27,000  | 
|Charles Ferris     |   | 10,000    |  |   | 10,000  | 
|Mike Yinger        |   | 1,000     |  |   | 1,000   | 
|                   | $ | 1,063,000 |  | $ | 212.000 | 
|Private Investors  |   | 110,000   |  |   | . - .   | 
|                   | $ | 1,173,000 |  | $ | 212,000 | 

During the year ended June 30,
2009, we entered into loans for a total of $857,000 pursuant to debt conversion
agreements. On March 31, 2009, we entered into a $104,000 loan with Rob Morrison
pursuant to a debt conversion agreement for cancellation of accrued rent to such
officer.

5. LONG-TERM DEBT

In February and March 2008 the
Company, pursuant to a loan and security agreement, entered into two (2)
$200,000 promissory notes. In addition, the Company issued to the lender a
warrant for the purchase of one million (1,000,000) shares of common stock at a
purchase price of $.12 per share with an expiration date of five (5) years after
the commencement date of the first loan.

The notes have an interest rate
of 15.499% and mature in three (3) years from the commencement date, and are
collateralized with the Companys personal property as defined in the loan and
security agreement. For the year ended June 30, 2009, we recorded $50,479 as
interest expense pursuant to the notes.

Each note also has a final
payment fee of $14,000 that is due on the earlier to occur of the maturity date
or prepayment. These fees are being amortized over the life of the loans with
the obligation reflected in other long-term liabilities. For the year ended June
30, 2009, we expensed $9,334.

The $400,000 proceeds were
allocated to each instrument based on the fair market value of each based on the
Black-Scholes pricing model. The assumptions used in valuing the warrants were:
stock price $.13; exercise price $.12, life  5 years; volatility 101.17%;
dividend yield 0%; and the yield of a risk free investment 3.08% . We determined
the fair value of the note and interest to be $400,000 and the fair market value
of the warrants to be $16,814. We allocated the proceeds to each based on the
respective percentages of total value. The value of the notes was $383,865 and
the warrants $16,135. The discount on the notes will be accreted into interest
expense based on the straight line method over the three (3) year life of the
loans. For year ended June 30, 2009 and 2008 we recorded $5,380 and $2,689
respectively as additional interest expense. At June 30, 2009 we had $8,067
discount remaining to be amortized into interest. The value of the loans at June
30, 2009 was $250,077. The current portion of the debt was $132,986 after
discount ($138,364 principal owed) and the long term portion of the debt was
$109,024 after discount ($111,713 principal owed).

31

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6. COMMON STOCK

During fiscal year ended June
30, 2008 we: (a) sold 5,300,000 shares of our common stock for $.10 per share
for total cash proceeds of $530,000; (b) issued 3,175,000 shares of our common
stock for services rendered to us; (c) purchased and cancelled 5,000,000 of the
outstanding warrants for $70,964 and (d) issued 1,000,000 warrants in
conjunction with our long-term debt.

On August 15, 2008 the Company
entered into a six (6) month Financial Communications Consulting Agreement
with Wall Street Resources, Inc. to provide written analytical coverage and
consultation matters concerning corporate finance and investor communications.
The Company agreed to issue the consultant a Commencement Bonus payable in the
form of 800,000 shares of the Companys 144 restricted Common Stock and $3,000
which has been accrued for. We valued the 800,000 shares based on the quoted
trade price on August 15, 2008 ($0.015) and recorded $12,000 as
advertising/promotion/IR expense. In addition, the Company will pay the
consultant at a rate of $2,500 per month during the term of the agreement which
is due on the 15th of each month with payments accruing until the
Company raises in excess of $500,000 or becomes cash flow positive. At June 30,
2009, $20,500 has been accrued and included in trade accounts payable pursuant
to this agreement.

On February 1, 2009, we entered
into a eleven (11) month Financial Consulting Agreement with a third party. We
issued the third party 1,000,000 shares of our common stock for services
rendered to us. We valued the 1,000,000 shares based on the quoted trade price
of February 1, 2009 ($.020) and recorded $20,000 as contract services
expense.

On March 1, 2009, we issued
250,000 shares of our common stock to a third party for cancellation of $21,592
of accounts payable due such third party. In addition, we entered into a six (6)
month consulting agreement with this third party agreeing to pay the consultant
at a rate of $9,000 per month to provide consultation maters concerning
marketing and relationships with potential producers under the AHA
agreement.

Pursuant to the 2005 Stock Option
Plan, the Board of Directors had granted 2,500,000 options under the plan. At
June 30, 2009, 1,500,000 options (with an exercise price of $.1667) are
outstanding which expire in March 2012. In addition, 1,250,000 and 1,000,000
share purchase warrants with an exercise price of $.12 per share expired on
September 8, 2008 and December 4, 2008, respectively.

On January 30, 2009, we entered
into a common share purchase agreement wherein we were to acquire 2,821,391 of
our common shares from a shareholder for $56,427 in which we advanced money. The
agreement did not close and the parties have rescinded the transaction and we
have recorded a receivable back for the money, which is currently outstanding
and subject to litigation.

7. WARRANTS AND OPTIONS

The following schedule reflects outstanding warrants and stock
options as of June 30, 2009:

|              |           | Date          |              |                
|------------- | --------- | ------------- | ------------ | ---------------
|              | Shares    | Issued        | Strike Price | Expiration Date
|              |           |               |              |                
|Stock Options | 1,500,000 | March 2007    | $.1667       | March 2012     
|Warrants      | 1,000,000 | February 2008 | $.120        | February 2013  

32

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8. COMMITMENTS AND CONTINGENCIES

Operating leases. We lease
property and equipment under non-cancelable operating leases that extend through
July 31, 2010. At June 30, 2009, future minimum lease payments under these
non-cancelable operating leases are as follows:

Year Ending
    
    Property andJune 30:
    
    Equipment2010
    $
    19,0192011
    
    1182012
    
    -2013
    
    -2014
    
    -Thereafter
    
    -$
    19,137


9. SUBSEQUENT EVENTS

In July 2009, we executed eight
(8) statement of works pursuant to the Master Licensing and Monitoring Agreement
with AHA dated February 1, 2009. These eight statement of works adds 22
monitoring locations to the already 13 beta locations we had on revenue. We are
currently working on additional statement of works with AHA that would add
approximately 60 additional locations. . Subsequent to year ended June 30, 2009,
William S. Dickey loaned us on August 1, 2009 and September 7, 2009 another
$100,000 pursuant to similar debt conversion agreements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

None.

ITEM 9A CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our
management, including our principal executive officer and the principal
financial officer, we have conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
of the end of the period covered by this report. Based on this evaluation, our
principal executive officer and principal financial officer concluded as of June
30, 2009 that our disclosure controls and procedures were effective such that
the material information required to be included in our Securities and Exchange
Commission reports is recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and forms
relating to our company, particularly during the period when this report was
being prepared.

Management's Annual Report on Internal Control Over
Financial Reporting

Our management is responsible for establishing and maintaining
adequate internal control over financial reporting, as such term is defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act, for the Company.

Internal control over financial reporting includes those
policies and procedures that: (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorizations of its
management and directors; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of our assets that could have a material effect on the financial statements.

33

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Management recognizes that there are inherent limitations in
the effectiveness of any system of internal control, and accordingly, even
effective internal control can provide only reasonable assurance with respect to
financial statement preparation and may not prevent or detect material
misstatements. In addition, effective internal control at a point in time may
become ineffective in future periods because of changes in conditions or due to
deterioration in the degree of compliance with our established policies and
procedures.

A material weakness is a significant deficiency, or combination
of significant deficiencies, that results in there being a more than remote
likelihood that a material misstatement of the annual or interim financial
statements will not be prevented or detected.

Under the supervision and with the participation of our Chief
Executive Officer and Chief Operations Officer, management conducted an
evaluation of the effectiveness of our internal control over financial
reporting, as of June 30, 2009, based on the framework set forth in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO). Based on its evaluation under this framework,
management concluded that our internal control over financial reporting was not
effective as of June 30, 2009.

Management assessed the effectiveness of the companys internal
control over financial reporting as of evaluation date and identified the
following material weaknesses:

Insufficient Resources:We have an
inadequate number of personnel with requisite expertise in the key functional
areas of finance and accounting.

Inadequate Segregation of Duties: We have an
inadequate number of personnel to properly implement control procedures.

Lack of Audit Committee:We do not have a
functioning audit committee, resulting in ineffective oversight in the
establishment and monitoring of required internal controls and procedures.

Management is committed to improving its internal controls and
will (1) continue to use third party specialists to address shortfalls in
staffing and to assist the company with accounting and finance responsibilities,
(2) increase the frequency of independent reconciliations of significant
accounts which will mitigate the lack of segregation of duties until there are
sufficient personnel and (3) may consider appointing audit committee members in
the future. Management, including our Chief Executive Officer and Chief
Operating Officer, has discussed the material weakness noted above with our
independent registered public accounting firm. Due to the nature of this
material weakness, there is a more than remote likelihood that misstatements
which could be material to the annual or interim financial statements could
occur that would not be prevented or detected.

This annual report does not include an attestation report of
our registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the our
registered public accounting firm pursuant to temporary rules of the SEC that
permit us to provide only management's report in this annual report.

Changes in Internal Controls Over Financial
Reporting

There have been no changes in our internal controls over
financial reporting that occurred during the year ended June 30, 2009 that have
materially or are reasonably likely to materially affect, our internal controls
over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

34

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers, Promoters and Control
Persons

As of September 11, 2009, our directors and executive officers,
their age, positions held, and duration of such, are as follows:

Name
    Position Held with our
      Company
    Age
    Date First Elected or AppointedMark Lana
    Chief Executive Officer, Treasurer, and
      Director
    55
    November 9, 2005Robert A. Morrison
    President and Director
    44
    June 18, 2007William S. Dickey
    Chief Operations Officer
    51
    February 17, 2009Charles F. Ferris
    Chairman of the Board and Director
    62
    August 14, 2007Michael Yinger
    Secretary and Director
    52
    August 14, 2007


Business Experience

The following is a brief account of the education and business
experience of directors and executive officers during at least the past five
years, indicating their principal occupation during the period, and the name and
principal business of the organization by which they were employed.

Mark Lana, Chief Executive Officer, Treasurer, and
Director

Mr. Lana was appointed as Chief Executive Officer on November
9, 2005 and as a member of our board of directors on November 21, 2005.

Mr. Lana has been an entrepreneur for over 30 years. He owned
and operated several multi-unit and corporate extended stay hotels each with a
staff of over 10 people in the Denver metro area for the past 20 years. He was
involved in the housing industry and built, remodeled and refurbished single
family and multi-unit dwellings. Mr. Lana has been involved in developing
markets and putting together the financing for commercial real estate
transactions and acquisitions. He has been involved with software development
for medical transcription services and for payroll efficiencies in the
hotel/motel labor market. During the 1990's Mr. Lana was able to develop a
system of medical records transcriptions that enabled records to be transcribed
at several remote locations and then be centrally transmitted back to the
hospital/clinic. His software applications were used by the Denver medical
profession for use in delivering radiology reports to medical facilities and
physician's offices from remote locations.

Robert A. Morrison, President and Director

Mr. Morrison was appointed as President and Director on June
18, 2007. He resigned as President March 4, 2008 and was appointed Chief of
corporate and business development. He assumed the function of Chief Operations
Officer effective July 1, 2008, resigned from this post & reassumed
President on February 1, 2009.

For the past 15 years Mr. Morrison has been the owner of RAM
Enterprises Inc, a computer networking consulting company that designs, builds
and maintains computer networks for various enterprises. Mr. Morrison was a
director of ID-Confirm Inc. from December 12, 2004 to January 5, 2007 and was
its President, Chief Executive Officer from September 12, 2005 to June 13, 2006,
Chief Financial Officer from November 16, 2004 to July 22, 2005 and Chief
Technology Officer from July 13, 2006 to January 5, 2007.

William S. Dickey, Chief Operations Officer

Bill Dickey was elected to act as Chief Operations Officer
February 17, 2008.

35

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Mr. Dickey was Executive Vice President, COO and Director of
the general partner at TransMontaigne Partners L.P. (2005-2008) and Executive
Vice President and COO of TransMontaigne Inc (2000-2008). He has also served as
Vice President of TEPPCO Partners, L.P. and Vice President and CFO for
Associated Natural Gas, Inc and its successor, Duke Energy Field Services. Bill
attended New Mexico State University where he earned a Bachelor of Science in
Accounting.

Charles F. Ferris, Chairman of the Board and
Director

Dr. Ferris was elected as a director on August 14, 2007.

Dr. Ferris is the Founder and President of Strategic Science
LLC. He is a specialist on advanced topics in biotechnology, business
management, and technology-based economic development. He provides strategic
guidance to technology companies in the areas of scientific, business and
corporate development, and is passionate about applying these backgrounds to
optimize health and wellness outcomes. His professional career has also resulted
in significant relationships with many academic, scientific, tech-policy and
business opinion leaders. Dr. Ferris previously served as the Director of
Biosciences Programs for the State of Colorados science and technology
development agency. The agency was formed to promote public/private consortia
and foster research excellence, technology transfer and technology-based
business development.

As a retired Lieutenant Colonel from the U.S. Army, Dr. Ferris
has an extensive background and training in military medical capabilities and
protocols as well as chemical, radiation and biological defense. Dr. Ferris
served as Chair of both the Letterman Army Institutional Review Committee and
the Animal Care and Use Committee.

A resident of Colorado since 1983, Dr. Ferris has been involved
in biological sciences research and business activities for over 20 years. His
particular expertise is in the convergence of basic science and emerging
technologies and taking these to market.

Dr. Ferris earned both his B.S. (animal science) and M.S.
(reproductive physiology) from The Ohio State University, his M.B.A. from the
University of Colorado and his Ph.D. (reproductive physiology) from Utah State
University.

Dr. Ferris has graduated from numerous Army military medical
courses and schools, including the Command and General Staff College.

Michael Yinger, Secretary and Director

Mr. Yinger was elected as a director on August 14, 2007.

Mr. Yinger is a seasoned senior executive, with experience
creating, building, and managing organizations, providing strategic advice via
Board of Directors membership, both in the US and internationally. Over the
course of his career, Mr. Yinger has delivered positive results (sales growth of
10-20% in a down market), dealt with senior level clients (CxO level), and
established efficient organizations and partnerships in a number of different
industries, within startups and established companies. He is well versed in
business management consulting, including outsourcing (domestically and
internationally) and business/integration. Mr. Yinger has direct experience
managing technical as well as strategic initiatives, in traditional or matrix
management environments.

Committees of the Board

Audit Committee

We do not have an Audit Committee, our entire board of
directors performs the functions of an Audit Committee. The current size of our
board of directors does not facilitate the establishment of a separate
committee.

Nominating Committee

We do not have a Nominating Committee, our entire board of
director performs the functions of a Nominating Committee and oversees the
process by which individuals may be nominated to our board of directors.

36

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The current size of our board of directors does not facilitate
the establishment of a separate committee. We hope to establish a separate
Nominating Committee consisting of independent directors, if the number of our
directors is expanded.

Compensation Committee

We do not have a compensation committee.

Significant Employees

Our significant employees, their ages and positions held are as
follows:

Name
    Position Held with our Company
    AgeScott Annis
    Chief Technology Officer
    40


Scott Annis  Chief Technology Officer

Mr. Annis is responsible for the strategic rollout of HS3
Technologies solutions including site-surveys, deployment, implementation,
liaison with WildBlue Communication technicians and maintenance of customer
installations. Mr. Annis brings over 25 years of experience working with
computers, servers, networks, wireless networking and routers. Prior to joining
HS3 Technologies, Mr. Annis founded Nanuke Systems, Inc., a full-service
Internet solutions firm. Nanuke Systems provides website and email hosting,
wireless Internet access and network design, services and repair. Nanuke Systems
specializes in the design, development and implementation of remote access
solutions for large corporations. Mr. Annis also attended the University of
Colorado at Boulder's Aerospace Engineering Program.

Family Relationships

There are no family relationships between any director or
executive officer.

Involvement in Certain Legal Proceedings

Our sole director and executive officer, promoters or control
persons have not been involved in any of the following events during the past
five years:

1. any bankruptcy petition filed by or
against any business of which such person was a general partner or executive
officer either at the time of the bankruptcy or within two years prior to that
time;

2. any conviction in a criminal
proceeding or being subject to a pending criminal proceeding (excluding traffic
violations and other minor offences);

3. being subject to any order,
judgment, or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business,
securities or banking activities; or

4. being found by a court of competent
jurisdiction (in a civil action), the Commission or the Commodity Futures
Trading Commission to have violated a federal or state securities or commodities
law, and the judgment has not been reversed, suspended, or vacated.

Code of Ethics

On September 10, 2007, our board of directors adopted a Code of
Ethics and Business Conduct that applies to, among other persons, our company's
chief executive officer, president and chief financial officer (being our
principal executive officer, principal financial officer and principal
accounting officer), as well as persons performing similar functions. As
adopted, our Code of Ethics and Business Conduct sets forth written standards
that are designed to deter wrongdoing and to promote:

37

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1. honest and ethical conduct, including the ethical handling
of actual or apparent conflicts of interest between personal and professional
relationships;

2. full, fair, accurate, timely, and understandable disclosure
in reports and documents that we file with, or submit to, the Securities and
Exchange Commission and in other public communications made by us;

3. compliance with applicable governmental laws, rules and
regulations;

4. the prompt internal reporting of violations of the Code of
Ethics and Business Conduct to an appropriate person or persons identified in
the Code of Ethics and Business Conduct; and

5. accountability for adherence to the Code of Ethics and
Business Conduct.

Our Code of Ethics and Business Conduct requires, among other
things, that all of our company's senior officers commit to timely, accurate and
consistent disclosure of information; that they maintain confidential
information; and that they act with honesty and integrity.

In addition, our Code of Ethics and Business Conduct emphasizes
that all employees have a responsibility for maintaining financial integrity
within our company, consistent with generally accepted accounting principles,
and federal and state securities laws. Any employee who becomes aware of any
incidents involving financial or accounting manipulation or other
irregularities, whether by witnessing the incident or being told of it, must
report it to our company. Any failure to report such inappropriate or irregular
conduct of others is to be treated as a severe disciplinary matter. It is
against our company policy to retaliate against any individual who reports in
good faith the violation or potential violation of our company's Code of Ethics
and Business Conduct by another.

Our Code of Ethics and Business Conduct was filed with the
Securities and Exchange Commission as Exhibit 16.1 to our annual report on Form
10-KSB for the year ended June 30, 2007. We will provide a copy of the Code of
Ethics and Business Conduct to any person without charge, upon request. Requests
can be sent to: HS3 Technologies Inc., Suite 600, 1800 Boulder Street, Denver,
CO 80211-6400.

Audit Committee Financial Expert

Our board of directors has determined that it does not have a
member of the audit committee that qualifies as an audit committee financial
expert as defined in Item 407(d)(5)(ii) of Regulation S-K.

We believe that our entire board of directors is capable of
analyzing and evaluating financial statements that present a breadth and level
of complexity of accounting issues that are generally comparable to the breadth
and complexity of the issues reasonably expected to be raised by our company. In
addition, we believe that retaining an independent director who would qualify as
an audit committee financial expert would be overly costly and burdensome and
is not warranted in our circumstances given the early stages of our development
and the fact that we have not generated revenues to date.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act requires our
executive officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to provide us with
copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons, we
believe that during fiscal year ended June 30, 2009, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.

ITEM 11. EXECUTIVE COMPENSATION

The particulars of compensation paid to the following
persons:

- our principal executive officer; and
- each of our two most highly compensated executive officers who were serving
  as executive officers at the end of the year ended June 30, 2009 who had total
  compensation exceeding $100,000.

38

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SUMMARY COMPENSATION TABLEName and
      Principal Position
    Year
    Salary
      ($)
    Bonus
      ($)
    Stock
      Awards ($)
    Option
      Awards ($)
    Non-Equity Incentive Plan
      Compensa- tion ($)
    Nonqualified
      Deferred Compensation Earnings
      ($)
    All
      Other Compensa- tion ($)
    Total
      ($)Mark Lana(1)Chief Executive Officer, Treasurer
    2009
    $125,000
    0
    0
    0
    0
    0
    0l
    $125,0002008
    $125,000
    Nil
    $14,400
    $43,260
    Nil
    Nil
    Nil
    $139,4002007
    $125,000
    Nil
    Nil
    Nil
    Nil
    Nil
    Nil
    $168,260Robert A.
      Morrison(2)President
    2009
    $115,000
    0
    0
    0
    0
    Nil
    Nil
    $115,0002008
    $115,000
    Nil
    Nil
    $33,3401
    N/A
    N/A
    N/A
    $148,3402007
    $115,000
    Nil
    N/A
    $151,411
    N/A
    N/A
    N/A
    $266,411


|(1) | Mr. Lana was appointed President and Chief Executive
      Officer on November 9, 2005 and resigned as President on June 18, 2007. He
      assumed the duties of President on July 1, 2008 and subsequently resigned
      this role on February 17, 2009.                                                                                     
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                 
|(2) | Mr. Morrison was appointed President on June 18, 2007. He
      resigned as President March 4, 2008 and was appointed Chief of corporate
      and business development. He assumed the function of Chief Operations
      Officer effective July 1, 2008 and resigned this role on February 17, 2009
      and reassumed the role of President.

Outstanding Equity Awards at Fiscal Year-End

The following table sets forth for each named executive officer
certain information concerning the outstanding equity awards as of June 30 2009.

Option Awards
    Stock AwardsName
    Number of
      Securities Underlying Unexercised
      Options Exercisable
    Number of
      Securities Underlying Unexercised
      Options Unexercisable
    Equity
      Incentive Plan Awards: Number of
      Securities Underlying Unexercised
      Unearned Options
    Option
      Exercise Price
    Option
      Expiration Date
    Number
      of Shares or Units of Stock
      that Have NotVested
    Market
      Value of Shares or Units
      of Stock that **Have Not**
      Vested
    Equity Incentive Plan
      Awards : Number of Unearned
      Shares, Units or Other Rights
      that Have Not Vested
    Equity Incentive Plan
      Awards : Market or Payout Value of
      Unearned Shares, Units or Other Rights
      that Have Not VestedMark Lana
    200,000
    200,000
    Nil
    $0.1667
    March 20, 2012
    Nil
    Nil
    Nil
    NilRobert Morrison
    900,000
    900,000
    Nil
    $0.1667
    March 20, 2012
    Nil
    Nil
    Nil
    Nil


Compensation of Directors

On August 15, 2007 we agreed to issue 720,000 shares of our
common stock to Mr. Ferris and Mr. Yinger, Directors of our company, for
services that they rendered up to that date. The value of the services was
$86,400 based on the trading price of our stock on the day the shares were
approved and this was included as professional fee expense. Subsequent to August
15, 2007, we agreed to compensate our independent directors at $25,000 annually
which may be deferred until we have the ability to pay, at which time the board
members have the option to receive cash or convert to common equity. At June 30,
2009 we have accrued $95,832 for board fees unpaid and an offsetting
professional fee expense. On June 4, 2008 we agreed to issue 600,000 shares of
our common stock to Mr. Ferris and Mr. Yinger for additional services rendered.
The value of the services was $24,000 based on the trading price of our stock on
the day the shares were approved and this was included as professional fee
expense.

Directors are entitled to reimbursement for reasonable travel
and other out-of-pocket expenses incurred in connection with attendance at
meetings of our board of directors. Our board of directors may award special

39

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remuneration to any director undertaking any special services
on our behalf other than services ordinarily required of a director.

Long-Term Incentive Plans

There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers, except that
our directors and executive officers may receive stock options at the discretion
of our board of directors. We do not have any material bonus or profit sharing
plans pursuant to which cash or non-cash compensation is or may be paid to our
directors or executive officers, except that stock options may be granted at the
discretion of our board of directors.

We have no plans or arrangements in respect of remuneration
received or that may be received by our executive officers to compensate such
officers in the event of termination of employment (as a result of resignation,
retirement, change of control) or a change of responsibilities following a
change of control, where the value of such compensation exceeds $60,000 per
executive officer.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS

As of September 11, 2009, there were 41,995,802 shares of our
common stock outstanding. The following table sets forth certain information
known to us with respect to the beneficial ownership of our common stock as of
that date by (i) each of our directors, (ii) each of our executive officers, and
(iii) all of our directors and executive officers as a group. Except as set
forth in the table below, there is no person known to us who beneficially owns
more than 5% of our common stock. The number of shares beneficially owned is
determined under rules of the Securities and Exchange Commission and the
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
the individual has the sole or shared voting power or investment power and any
shares which the individual has the right to acquire within 60 days of September
11, 2009 through the exercise of any stock option or other right. Unless
otherwise noted, we believe that each person has sole investment and voting
power (or shares such powers with his or her spouse) with respect to the shares
set forth in the following table:

Name and Address of Beneficial
      Owner
    Amount and Nature of Beneficial
      Ownership
    Percent of
      Class(1)Mark Lana 1800 Boulder Street, Suite 600
      Denver, CO 80211
    2,937,113(2)
    6.99%Robert A. Morrison 1800 Boulder
      Street, Suite 600 Denver, CO 80211
    4,277,113(3)
    10.18%Chuck Ferris 11612 E.
      2ndAve Aurora, CO 80010
    660,000
    1.57%Michael Yinger 10940 S. Parker Road,
      Suite 151 Parker, CO 80134
    660,000
    1.57%William S. Dickey 6130 S. Elm Court
      Centennial, CO 80121
    1,000,000
    2.38%


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Name and Address of Beneficial
      Owner
    Amount and Nature of Beneficial
      Ownership
    Percent of
      Class(1)DQ Investment Group (4) 6130 S. Elm Ct.
      Centennial, CO 80121
    5,000,000
    11.91%Directors and Executive Officers as a
      group (5 people)
    14,534,226
    34.60%


|(1) | Based on 41,995,802 shares of common stock issued and
      outstanding as of September 11, 2009. Except as otherwise indicated, we
      believe that the beneficial owners of the common stock listed above, based
      on information furnished by such owners, have sole investment and voting
      power with respect to such shares, subject to community property laws
      where applicable. Beneficial ownership is determined in accordance with
      the rules of the Securities and Exchange Commission and generally includes
      voting or investment power with respect to securities. Shares of common
      stock subject to options or warrants currently exercisable or exercisable
      within 60 days are deemed outstanding for the purposes of computing the
      percentage ownership of the person holding such options or warrants, but
      are not deemed outstanding for the purposes of computing the percentage
      ownership of any other person.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Includes 200,000 stock options currently exercisable or
      exercisable within 60 days                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Includes 900,000 stock options currently exercisable or
      exercisable within 60 days.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Family partnership in which William S. Dickey is a
      general partner with voting control.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

Changes in Control

We are unaware of any contract or other arrangement the
operation of which may at a subsequent date result in a change of control of our
company.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE

Except as disclosed herein, there have been no transactions or
proposed transactions in which the amount involved exceeds the lesser of
$120,000 or one percent of the average of our total assets at year-end for the
last three completed fiscal years in which any of our directors, executive
officers or beneficial holders of more than 5% of the outstanding shares of our
common stock, or any of their respective relatives, spouses, associates or
affiliates, has had or will have any direct or material indirect interest.

Director Independence

We currently act with four (4) directors, consisting of Mark
Lana, Robert A. Morrison, Charles F. Ferris and Michael Yinger. We have
determined that Charles F. Ferris and Michael Yinger qualify as "independent" as
the term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities
Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the
NASDAQ Marketplace Rules.

Currently our audit committee consists of our entire board of
directors. We currently do not have nominating, compensation committees or
committees performing similar functions. There has not been any defined policy
or procedure requirements for shareholders to submit recommendations or
nomination for directors.

Our board of directors has determined that it does have a
member of its audit committee who qualifies as an audit committee financial
expert as defined in as defined in Item 407(d)(5)(ii) of Regulation S-K.

From inception to present date, we believe that the members of
our board of directors have been and are collectively capable of analyzing and
evaluating our financial statements and understanding internal controls and
procedures for financial reporting.

41

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table sets forth the fees billed to the company
for professional services rendered by the company's independent registered
public accounting firm, for the years ended June 30, 2009, 2008 and 2007:

|Services       |   | 2009   |  |   | 2008   |  |   | 2007   | 
|-------------- | - | ------ |  | - | ------ |  | - | ------ | 
|Audit fees     | $ | 34,000 |  | $ | 35,000 |  | $ | 20,000 | 
|Tax fees       | $ | Nil    |  | $ | Nil    |  | $ | Nil    | 
|All other fees | $ | Nil    |  | $ | Nil    |  | $ | Nil    | 
|               |   |        |  |   |        |  |   |        | 
|Total fees     | $ | 34,000 |  | $ | 35,000 |  | $ | 20,000 | 

Audit Fees. Consist of fees billed for professional
services rendered for the audits of our financial statements, reviews of our
interim consolidated financial statements included in quarterly reports,
services performed in connection with filings with the Securities and Exchange
Commission and related comfort letters and other services that are normally
provided in connection with statutory and regulatory filings or engagements.

Tax Fees. Consist of fees billed for professional
services for tax compliance, tax advice and tax planning. These services include
assistance regarding federal, state and local tax compliance and consultation in
connection with various transactions and acquisitions.

We do not use Weaver and Martin LLC, for financial information
system design and implementation. These services, which include designing or
implementing a system that aggregates source data underlying the financial
statements or generates information that is significant to our financial
statements, are provided internally or by other service providers. We do not
engage Weaver and Martin LLC to provide compliance outsourcing services.

Effective May 6, 2003, the Securities and Exchange Commission
adopted rules that require that before Weaver and Martin LLC is engaged by us to
render any auditing or permitted non-audit related service, the engagement
be:

- approved by our audit committee (the functions of which are performed by
  our entire board of directors); or
- entered into pursuant to pre-approval policies and procedures established
  by the board of directors, provided the policies and procedures are detailed
  as to the particular service, the board of directors is informed of each
  service, and such policies and procedures do not include delegation of the
  board of directors' responsibilities to management.

Our entire board of directors pre-approves all services
provided by our independent auditors. All of the above services and fees were
reviewed and approved by our sole director either before or after the respective
services were rendered.

Our board of directors has considered the nature and amount of
fees billed by Weaver and Martin LLC and believe that the provision of services
for activities unrelated to the audit is compatible with maintaining Weaver and
Martin LLCs independence.

ITEMS 15. EXHIBITS

Exhibits required by Item 601 of Regulation S-K

|Exhibit Number | Description                                                                                                                            
|-------------- | ---------------------------------------------------------------------------------------------------------------------------------------
|(3)            | Articles of Incorporation
      and Bylaws                                                                                             
|3.1            | Articles of Incorporation (incorporated by
      reference from our Registration Statement on Form SB-2 filed on August 2,
      2004).
|3.2            | By-laws (incorporated by
      reference from our Registration Statement on Form SB-2 filed on August 2,
      2004).                  

42

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|(4)   | Instruments Defining the
      Rights of Security Holders, Including Indentures                                                                                                                                                                              
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.1   | 2005 Stock Option Plan of HS3 Technologies,
      Inc. (incorporated by reference from our Current Report on Form 8-K filed
      on November 10, 2005).                                                                                                     
|(10)  | Material Contracts                                                                                                                                                                                                                                           
|10.1  | Share Purchase Agreement dated March 5, 2005
      among Zeno Inc., Linda Smith, Acropolis Investment Holdings, LLC and
      Gregory S. Yanke Law Corporation (incorporated by reference from our
      Current Report on Form 8-K filed on March 10, 2005).
|10.2  | Asset Purchase Agreement dated
      August 31, 2005, between Zeno Inc. and IP-Colo, Inc. (incorporated by
      reference from our Current Report on Form 8-K filed on September 16,
      2005).                                                           
|10.3  | Surveillance Instalment and Training Agreement
      dated December 20, 2005 (incorporated by reference from our Current Report
      on Form 8-K filed December 23, 2005).                                                                                  
|10.4  | Partnership Agreement with
      Wright-Hennepin Cooperative Electric Association (incorporated by
  reference from our Current Report on Form 8-K filed on June 11, 2007).                                                                                  
|10.5  | Distribution Agreement with Autostar Technology
      Private Limited. (incorporated by reference from our Current Report on
      Form 8-K filed on April 4, 2007).                                                                                         
|10.6  | Warrant Purchase Agreement
      dated November 6, 2007 (incorporated by reference from our Current Report
      on Form 8-K on November 20, 2007)                                                                                                           
|10.7  | Agreement with the American Humane Association
      (incorporated by reference from our Current Report on Form 8-K filed on
      August 14, 2008)                                                                                                          
|(14)  | Code of Ethics                                                                                                                                                                                                                                               
|14.1  | Code of Ethics and Business Conduct
      (incorporated by reference from our Annual Report on Form 10- KSB filed on
      October 10, 2007)                                                                                                                 
|(16)  | Letter on Change in
      Certifying Accountant                                                                                                                                                                                                              
|16.1  | Letter from Gordon Hughes & Banks, LLP
      regarding change in certifying accountant (incorporated by reference from
      our Form 8-K filed on July 30, 2007).                                                                                           
|(31)  | Section 302
      Certifications                                                                                                                                                                                                                             
|31.1* | Section 302 Certification (Robert A. Morrison).                                                                                                                                                                                                              
|31.2* | Section 302 Certification (Mark
      Lana).                                                                                                                                                                                                                 
|(32)  | Section 906 Certification                                                                                                                                                                                                                                    
|32.1* | Section 906 Certification
      (Robert A. Morrison).                                                                                                                                                                                                        
|32.2* | Section 906 Certification (Mark Lana).                                                                                                                                                                                                                       

*Filed herewith

43

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

HS3 TECHNOLOGIES INC.

|By:  
      /s/ Robert A. Morrison                                
|------------------------------------------------------------------
|Robert A. Morrison                                                
|President and Director                                            
|Principal Executive
      Officer                                 
|Date: September 18, 2009                                          
|                                                                  
|                                                                  
|                                                                  
|By:   /s/ Mark Lana                                               
|Mark Lana                                                         
|Chief Executive Officer,
      Treasurer, and Director            
|Principal Accounting
      Officer and Principal Financial Officer
|Date: September 18, 2009                                          

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 dates indicated.

|By:   /s/ Robert A. Morrison                                      
|------------------------------------------------------------------
|Robert A. Morrison                                                
|President and Director                                            
|Principal Executive
      Officer                                 
|Date: September 18, 2009                                          
|                                                                  
|                                                                  
|                                                                  
|By:  
      /s/ Mark Lana                                         
|Mark Lana                                                         
|Chief Executive Officer,
      Treasurer, and Director            
|Principal Accounting
      Officer and Principal Financial Officer
|Date: September 18, 2009                                          
|                                                                  
|                                                                  
|                                                                  
|By:  
      /s/ Charles F. Ferris                                 
|Charles F. Ferris                                                 
|Chairman of the Board and
      Director                          
|Date: September 18, 2009                                          
|                                                                  
|                                                                  
|                                                                  
|By:  
      /s/ Michael Yinger                                    
|Michael Yinger                                                    
|Secretary and Director                                            
|Date: September 18, 2009                                          

44

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