---

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, 2010

[ ] 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 ActYes
[   ]     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 [   ]

---

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 $113,270

State the aggregate market value of voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and ask price of such common
equity, as of the last business day of the registrants most recently completed
second fiscal quarter.

The aggregate market value of Common Stock held by
non-affiliates of the Registrant on September 10, 2010 was $924,347 based on a
$0.030closing price for the Common Stock on January 29, 2010. For purposes of
this computation, all executive officers and directors have been deemed to be
affiliates. Such determination should not be deemed to be an admission that such
executive officers and directors are, in fact, affiliates of the Registrant.

(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.

68,116,636 common shares issued and outstanding as of September
  10, 2010

DOCUMENTS INCORPORATED BY REFERENCE

None.

2

---

TABLE OF CONTENTS

|               |                                                                                                                          | Page
|-------------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|               |                                                                                                                          | No. 
|               |                                                                                                                          |     
|               | **PART
      I**                                                                                                         |     
|               |                                                                                                                          |     
|Item
      1.  | Business                                                                                                                 | 5   
|               |                                                                                                                          |     
|Item
      1A. | Risk
      Factors                                                                                                       | 12  
|               |                                                                                                                          |     
|Item
      2.  | Properties                                                                                                               | 18  
|               |                                                                                                                          |     
|Item
      3.  | Legal
      Proceedings                                                                                                  | 18  
|               |                                                                                                                          |     
|Item
      4.  | [Removed
      and Reserved]                                                                                             | 18  
|               |                                                                                                                          |     
|               | PART
      II                                                                                                            |     
|               |                                                                                                                          |     
|Item
      5.  | Market
      for Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 18  
|               |                                                                                                                          |     
|Item
      6.  | Selected
      Financial Data                                                                                            | 21  
|               |                                                                                                                          |     
|Item
      7.  | Managements
      Discussion and Analysis of Financial Condition and Results of Operations                              | 21  
|               |                                                                                                                          |     
|Item
      7A. | Quantitative
      and Qualitative Disclosure about Market Risk                                                          | 26  
|               |                                                                                                                          |     
|Item
      8.  | Financial
      Statements and Supplementary Data                                                                        | 26  
|               |                                                                                                                          |     
|Item
      9.  | Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure                         | 38  
|               |                                                                                                                          |     
|Item
      9A. | Controls
      and Procedures                                                                                            | 38  
|               |                                                                                                                          |     
|Item
      9B. | Other
      Information                                                                                                  | 39  
|               |                                                                                                                          |     
|               | PART
      III                                                                                                           |     
|               |                                                                                                                          |     
|Item
      10. | Directors,
      Executive Officers and Corporate Governance                                                             | 39  
|               |                                                                                                                          |     
|Item
      11. | Executive
      Compensation                                                                                             | 43  
|               |                                                                                                                          |     
|Item
      12. | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters               | 44  
|               |                                                                                                                          |     
|Item
      13. | Certain
      Relationships and Related Transactions, and Director Independence                                          | 46  
|               |                                                                                                                          |     
|Item
      14. | Principal
      Accounting Fees and Services                                                                             | 46  
|               |                                                                                                                          |     
|Item
      15. | Exhibits,
      Financial Statement Schedules                                                                            | 47  

3

---

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.

4

---

PART I

ITEM 1. 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
November 4, at the annual and special meeting of stockholders of the Company,
our authorized capital increased to 200,000,000 shares of common stock with a
par value of $0.001.

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, 2010 we: (a) sold 4,500,000 shares of our common
stock for total cash proceeds of $225,000; issued 850,000 shares of our common
stock for services rendered to us; and (c) issued 20,770,834 shares of our
common stock for cancellation of our convertible notes payable and other
payables due our officers and directors. We still owe 600,000 shares of the
850,000 shares our common stock issued for service.

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 was to create a
Video Monitoring System which was anticipated 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 were to 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.
Effective February 28, 2010, AHA terminated the agreement claiming that the
Companys showing of a marketing video of animals at a trade show without AHA
written permission was an incurable breach of the contract. The Company believes
the termination by AHA was a breach of the agreement and on April 30, 2010, the
parties entered into a Settlement Agreement And Mutual Release.

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 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.

---

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
various 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.

We
are foundationally an intellectual capital company. Our company both develops
HS3 proprietary technology, and acquires and integrates appropriate industry
technology to provide surveillance solutions customized to the requirements of
our customers. Our established mission is to be:

The trusted security architect providing vision
when it matters.

As
a security architect, we provide professional architectural, design and
engineering to develop system solutions for our customers as desired by our
customers. This concept is the foundation of our intellectual capital and core
competencies. We use intellectual capital of our employees and the surveillance
industry to architect and design solutions that provide customers vision and
situational awareness. This acquired knowledge is transformed to innovations
that are proprietary to the Company. This occurs in part, through:

- Increased knowledge of new solutions and industry advancements
- Developing new systems
- Product and application enhancements
- Applications of new components
- Designing new, proprietary software

We
have a sustainable competitive advantage in our ability to merge existing
technology with the latest innovations in satellite broadband service, IP
hardware, proprietary software, and access control security products. We have
the expertise, capacity, staff, and ability to monitor sites located anywhere in
the United States and Canada. Our Denver monitoring facility has access to 1.7
Terabytes per second of ground-based internet capability for interfacing
purposes. We developed the technologies, proved the concepts, and started
implementation, and market penetration. We have focused on the rural and farm
animal/production market to date. There are five primary markets where our
technology can excel in providing greater access, better performance and lower
cost:

- Producers of Animal Products
- Homeland Security
- Hospitality
- Petroleum Industry
- Educational Facilities

PRODUCERS OF ANIMAL PRODUCTS:

It
is estimated that 27 million farmed animals are killed in the United States
alone per day. Globally, the figure grows to approximately 19,000 per minute or
a total of 10 billion animals per year. According to the USDA, during 2007, the
retail equivalent of U.S. beef industry was $74 billion and total U.S. beef
consumption was 28.1 billion pounds, with 2008 expected production to be
slightly lower at 26.6 billion pounds. U.S. commercial pork production in 2008
is expected to be 23.5 billion pounds and broilers (chicken) production is
expected to be 36.9 billion. In aggregate, total red meat and poultry 2008
production is expected to be 94.0 billion pounds. The meat, beef, and poultry
processing industry, which accounted for 30% of the food manufacturing sector,
reported 2007 revenues of $152.7 billion.

6

---

As
the developer and architect of a video monitoring system (VMS) and surveillance
program, we have refined the capabilities of our satellite video product and
other surveillance technologies including their implementation. We also have the
ability to provide service to remote areas underserved by high speed internet or
cable providers.

Within
a climate of increasing concerns over food safety, security and animal welfare a
tremendous market is evolving. We have developed surveillance products primarily
video, to address these issues in the livestock production industry and to a
lesser extent the food processing industry. Our solutions are developed to
convey to consumers a sense of confidence in the quality of the food they eat,
and that the producer has incorporated appropriate stewardship in animal
production processes. For the producer this provides risk mitigation, enhanced
production and value added branding.

Through
the combined use of proprietary technology, including innovations, video
analytics, and digital video recorders (DVR) our company has developed
state-of-the-art wireless, internet linked cellular, and satellite linked
surveillance systems. HS3 is in a unique position to be the first company with
national surveillance capabilities, to provide an independent 3rd
party monitoring verification system to the public that increases their level of
confidence in fundamentally important industries. HS3s surveillance and
monitoring provides these assurances with a certified humane brand, whether
acquired or created and generated in house. HS3 registered the trademarked
MONIPRO for this purpose.

Animal
protein producers desiring increased market share and greater margins require
value in programs they utilize. The true measures of value can be assessed
through increased profits and the realization of risk mitigation.

HS3s
  surveillance program allows:

- Producers to demonstrate stewardship with archived video.
- Producers to employ HS3 as a third party verifier of video for the
  establishment and certification labeling of food products at the market
  shelf, i.e. the logo/brand assures consumer that the food they purchased for
  their family has been raised humanely and handled safely.
- Producers to monitor animal behavior at remote locations and improve
  production efficiencies including herd disease awareness..
- Management to assure employees work within standards required to maintain
  the highest levels of risk mitigation and animal stewardship.
- Rebuttal to undercover video by animal activist groups.

Our
companys VMS and surveillance program provide the above criteria and was
modeled after a typical cable TV system. We offer a very low cost of entry. The
equipment is provided to the Producers who pay a monthly equipment license fee
with requisite subscription fees for monitoring services. To further lower
barriers of entry, HS3s program removes the high front end equipment costs to
the producers.

HS3
intends to enter and penetrate into the animal welfare, protein and production
business by entering into contracts with various producers, associations, and/or
companies that can use HS3s surveillance services as a part of any value-added
welfare/stewardship and production brand that they choose. As the architect of
the surveillance system, HS3 is able to provide specific elements (as designed
& tailored by the producer/company) of our monitoring services to customers
while maintaining ownership of the proprietary VMS system.

Over
the last 12 months, HS3 has determined proof of market and penetration concept
of the technology and also of the business model. HS3s strategy is to attain
market penetration with HS3 as a vendor to associations/producers and/or
companies desiring various certification programs. HS3 plans to seize the
initiative in the livestock arena because there is a significant opportunity to
expand our service to meet the needs of additional protein producers in pork,
beef, poultry, and dairy industries.

7

---

HOMELAND SECURITY:

We
have installed remote video products for the U.S. Coast Guard, enabling the
monitoring of and relaying of the physical location of freight trains at ports
of entry. The product relays GPS and live video over a cellular network.

Covert
Deployment System has been one of the many technologically advanced products we
have developed. The covert deployment products allow for the utilization of
cellular technology and provide a very small system for loss prevention
operations. These systems utilize SMS messaging for alerting and motion
detection or other triggers to activate video and record perpetrators on the
enclosed drive and send attached photos to the our secured portal. It is
estimated there are 13,000 active train locomotives currently in the United
States spread over 7 companies. Homeland Security is concerned about the risk to
the public should a locomotive and its cargo become hijacked or compromised. We
have developed and deployed a biometric access control system which limits
access to the locomotive. In addition, we implemented GPS and video monitoring
transmitted real-time over a cellular network to a centralized monitoring
center. We have completed beta testing on 28 locomotives with good results and
feedback.

HOSPITALITY:

As
in Americas schools, security for the hospitality industry is becoming
increasingly important. Hotels are trending toward increasing guest security
measures as a result of injury and liability litigation. Additionally hotel
operators are becoming more concerned with improving general security for
guests. Our internet protocol surveillance system enhances and augments the
hotels ability to monitor the hotels perimeter and access to guest areas.

We
can also provide hotels a reliable source for web hosting. An ancillary
advantage of our video monitoring system is the ability for the hotel to offer
video on web sites as an inexpensive, effective advertising tool.

PETROLEUM INDUSTRY:

The
petroleum industry spends millions of dollars and man hours monitoring oil and
gas wells throughout the country. Many oil and gas wells are in remote areas
and, aside from typical maintenance and production monitoring, there is a
constant threat of vandalism, sabotage and product theft. Today, all monitoring
of wells requires that an employee be physically present at a well to perform
necessary inspections. We are working with industry leaders to eliminate this
labor-intensive process. After installation of our Petroleum Surveillance
Package, our customers can monitor their assets from anywhere in the world using
the internet. In addition, we have, and continues to form strategic alliances
with providers of complementary monitoring products that mesh with our satellite
products and provide well operators with real-time information to enhance well
production.

We
have researched, developed and installed a remote monitoring device called
OPIE an Outdoor Portable Investigative Equipment
surveillance vehicle. The device has been used to successfully monitor gas wells
in remote Wyoming for three years. The original concept having been proven to
the customer, an oil and gas producer, has expressed desire in purchasing
additional OPIEs for their expansion to new fields.

EDUCATIONAL FACILITIES:

Even
in todays high-speed world, there are numerous school districts - rural and
urban - waiting for high-speed internet access and video monitoring. We can
provide the services required for maintaining and improving security.

The
Federal Government has mandated schools comply with the Homeland Security Act,
which in part requires video surveillance. With our system installed, security
information is available via the internet and our secured portal to individuals
with the proper security clearance.

8

---

Providing
schools with satellite broadband access to the internet at megabytes-per-second
speeds, web hosting services, and the ability to observe activities in and
around the school with digital cameras make our Company a uniquely positioned
provider. Our advanced technology and low cost of entry structure allows us to
offer education facilities products meeting requirements of Homeland
Security.

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
have executed a letter of intent for the acquisition of Wizard Works Security
Systems Inc., a 20-year old Colorado company. Wizard Works is established,
well-known Security Installation Company with local, national, and world-wide
clientele. Mr. Chester Gilliam; founder and president of Wizard Works, and his
crew add experience and knowledge HS3 Technologies, Inc. Management is of the
opinion that Wizard Works, Inc. will be a good fit for our company bringing
growth potential into new markets within the security industry.

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.

*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

9

---

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.

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

10

---

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.

Over the past two fiscal quarters, we have expended $2,611 on
research and development.

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.

Patents and Proprietary Technology

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

Marketing

We in the future may engage professional marketing firms to
market our products nationally and worldwide.

Employees

As of June 30, 2010, we had four (4) full-time employees and no
part-time employees. Of those employees, none are covered by collective
bargaining agreements.

11

---

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.

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.

12

---

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 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.

13

---

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.

14

---

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.

15

---

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 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 was approved at our November 2009 annual shareholder meeting.

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

16

---

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 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, 2010 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

17

---

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. PROPERTIES

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 from a company owned by
a major stockholder and officer of the company. We believe that our principal
office will be adequate for our immediate and future needs.

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

ITEM 4. [REMOVED AND RESERVED]

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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, 2010
      $0.01
      $0.01March 31, 2010
      $0.02
      $0.02December 31, 2009
      $0.04
      $0.03September 30, 2009
      $0.06
      $0.04June 30, 2009
      $0.08
      $0.08March 31, 2009
      $0.01
      $0.01December 31, 2008
      $0.04
      $0.02September 30, 2008
      $0.02
      $0.02June 30, 2008
      $0.02
      $0.01


On September 10, 2010, the closing price for the common stock
as reported by the quotation service operated by the OTC Bulletin Board was
$0.01.

18

---

As of September 10, 2010, there were 65 holders of record of
our common stock. As of such date, 68,116,636 common shares were issued and
outstanding.

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

Effective February 1, 2010, our company voted to issue 600,000
shares of common stock of our company to a Consultant to provide financial and
accounting services to our company. As of September 10, 2010, the shares have
not been issued.

On December 21, 2009, we issued 250,000 shares of our common
stock to a company affiliated with one of our directors for services rendered to
us. 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.

Effective November 24, 2009, we issued an aggregate of
21,370,834 shares of common stock of our company to pay off $1,068,542 of
convertible debt. The shares were issued to directors and officers of our
company in payment of various debt conversion agreements between our company and
the directors and officers.

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.

19

---

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.

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, our 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, 2010, 1,300,000 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.

20

---

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 10, 2010:

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 plansnot approved by securityholders:Options
    1,300,000
    $       
       .1667Warrants
    1,000,000
    $       
       .1200
    NoneTotal
    2,300,000
    $         .1480


ITEM 6. SELECTED FINANCIAL DATA

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

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, 2010 and 2009, respectively was approximately $536,000 and 1.1 million.

Our cash on hand at June 30, 2010 was approximately $35,000. 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 $25,000 to $40,000 per month. Until the time period that
further market/customers, are on revenue, we may need to raise additional
working capital to fund our current business activities. We intend to raise
the

21

---

additional capital needed to meet these immediate short-term
needs primarily through borrowings form officers, directors or private investors
or issuance of new equity.

We anticipate relying on cash flows from operations, equity
and/or debt financing and factoring our revenue streams for added 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, 2010 and
  2009

Revenue and Cost of goods sold.

We derived 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, 2010 and 2009 are outlined in the table
below:

| |                                    |   | Year ended |  
| | ---------------------------------- | - | ---------- | -
| |                                    |   | June 30,   |  
| |                                    |   | 2010       |  
| |                                    |   |            |  
| | VMS Revenue:                       |   |            |  
| | Equipment license/monitoring fees  | $ | 50,315     |  
| | Domain/business hosting
      fees |   | 7,852      |  
| | Other                              |   | 3,052      |  
| |                                    | $ | 61,219     |  
| |                                    |   |            |  
| | Other Revenue:                     |   |            |  
| | Equipment Sales                    |   | 30,395     |  
| | IT Services                        |   | 21,596     |  
| | Other                              |   | 60         |  
| |                                    | $ | 52,051     |  
| |                                    |   |            |  
| |                                    |   |            |  
| | Revenue                            | $ | 113,270    |  
| |                                    |   |            |  
| | Cost of goods
      sold           |   | (75,877    | )
| |                                    | $ | 37,393     |  

Other revenues for the year ended June 30, 2010 decreased as
  compared to the comparative period in 2009 as a result of reduced staff and
  temporarily suspending our marketing efforts for our products and services in
  order to focus exclusively on the AHA roll-out and implementation. As a result,
  we reduced our efforts to sell equipment and IT services to the market. Our
  cost of goods sold during the year ended June 30, 2010 includes approximately
  $22,000 for the write-off of obsolete equipment from the AHA sites and $17,600
  from year end inventory write downs.

22

---

Selling, general and administrative expenses.

Our selling, general and administrative expenses for the year
  ended June 30, 2010 and 2010 are outlined in the table below:

|                                             |   | Year ended   |  
|-------------------------------------------- | - | ------------ | -
|                                             |   | **June 30,** |  
|                                             |   |              |  
|                                             |   | 2010         |  
|Wages & employee benefits                    | $ | 232,857      |  
|Contract services                            |   | 113,426      |  
|Board Fees                                   |   | 37,500       |  
|Accounting, audit and tax expenses           |   | 30,750       |  
|Legal                                        |   | 21,527       |  
|Stock transfer/shareholder/proxy/filing fees |   | 2,698        |  
|Professional Fees/Filings                    |   | 5,131        |  
|Rent                                         |   | 17,600       |  
|Utilities                                    |   | 22,101       |  
|Computer network services                    |   | 1,852        |  
|Computer server/internet fees                |   | 3,246        |  
|Advertising/domain registration              |   | 4,781        |  
|Telephone                                    |   | 56,076       |  
|Travel, meals and entertainment              |   | 15,411       |  
|Research & development                       |   | 1,666        |  
|Insurance                                    |   | 21,418       |  
|Other expenses                               |   | (52,531      | )
|                                             | $ | 535,509      |  

Selling, general and administrative expenses for the year ended
June 30, 2010 decreased by 52% as compared to the comparative period in 2009
primarily as a result of our management making a concentrative effort to reduce
such costs including reduced head count. Contract services for the year ended
June 30, 2010 includes approximately $30,000 stock issued for services rendered
to us and approximately $33,000 paid to third parties assisting us in attempting
to raise capital. The improvement in other expenses is partially attributable to
the Settlement Agreement and Mutual Release with AHA.

*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 30,2010
    
    
    2009Current Assets
    $
    137,322
    
    $
    260,427Current Liabilities (a)
    
    1,327,027
    )
    
    1,895,871Working Capital (deficit)
    $
    (1,189,705
    )
    $
    (1,635,444
    )Long-term debt
    $
    -
    
    $
    109,024Stockholders Equity(deficit)
    $
    (1,149,350
    )
    $
    (1,680,808
    )


23

---

Current Liabilities (a)Trade accounts payable
    $
    114,393
    
    $
    75,323Other accrued
      liabilities
    
    495,110
    
    
    514,562Subordinated notes payable
    
    580,500
    
    
    -Convertible
      notes payable
    
    -
    
    
    1,173,000Long-term debt, current portion
    
    109,024
    
    
    132,986$
    1,327,027
    
    $
    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/  | 
| |                           |   | 2010       |   |   | 2009       |   |  | (Decrease) | 
| |                           |   |            |   |   |            |   |  |            | 
| | Current Assets            | $ | 137,322    |   | $ | 260,427    |   |  |            | 
| | Current Liabilities       |   | 1,327,027  |   |   | 1,895,871  |   |  |            | 
| | Working Capital (deficit) | $ | (1,189,705 | ) | $ | (1,635,444 | ) |  | 29%        | 

Cash Flows

|                                                               |   | Year
      ended June 30, |  
|-------------------------------------------------------------- | - | ------------------------- | -
|                                                               |   | 2010                      |  
|                                                               |   |                           |  
|Net cash (used in) operating activities                        | $ | (438,893                  | )
|Net cash (used in) by investing activities                     |   | (15,915                   | )
|Net cash flow provided by (used in) financing
      activities |   | 451,131                   |  
|Increase (decrease) in cash and cash equivalents               | $ | (3,677                    | )

Our cash on hand at June 30, 2010 was approximately $35,000. 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 $25,000 to $40,000 per month. Until the time period that
additional markets/customers are on revenue, we will need to raise additional
working capital to fund our current business activities. We will plan to raise
the additional capital needed to meet these immediate short-term needs primarily
through borrowings from officers, directors or private and/or equity issuance.

24

---

Over the long term we will require additional financing in
order to acquire equipment, install and monitor additional monitoring locations,
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. We have initiated discussions with
third parties to provide new equity and/or debt financing through term loans.

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.

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.

25

---

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, 2010 and 2009                                                         
|                                                                                                                      
|Consolidated
      Statements of Operations for the years ended June 30, 2010, 2009 and 2008                          
|                                                                                                                      
|Consolidated
      Statements of Stockholders Equity (Deficit) for the years ended June 30,
      2010, 2009 and 2008
|                                                                                                                      
|Consolidated
      Statements of Cash Flows for the years ended June 30, 2010, 2009 and 2008                          
|                                                                                                                      
|Notes
      to the Consolidated Financial Statements                                                                  

26

---

Report of Independent Registered Public Accounting Firm

Stockholders and DirectorsHS3 Technologies, Inc.

We have audited the accompanying consolidated balance sheet of
HS3 Technologies, Inc. as of June 30, 2010 and 2009 and the related consolidated
statements of income, stockholders equity, and cash flows for each of the years
in the two-year period ended June 30, 2010. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatements. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
HS3 Technologies, Inc. as of June 30, 2010 and 2009 and the consolidated results
of its operations and cash flows for each of the years in the twoyear period
ended June 30, 2010 in conformity with accounting principles generally accepted
in the United States of America.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
discussed in Note 2 to the financial statements, the Company has suffered
recurring losses from operations and is dependent upon the continued sale of its
securities or obtaining debt financing for funds to meet its cash requirements.
These factors raise substantial doubt about the Companys ability to continue as
a going concern. Managements plans with regard to these matters are also
described in Note 2. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.



/S/ Weaver & Martin, LLCKansas City, Missouri

  September 28, 2010

---

HS3 Technologies, Inc.Condensed consolidated balance sheets

|                                                                                                                                                                                              |   | June 30,   |   |   | June 30,   |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                              |   | 2010       |   |   | 2009       |  
|ASSETS                                                                                                                                                                                        |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|Current Assets:                                                                                                                                                                               |   |            |   |   |            |  
|Cash and cash equivalents                                                                                                                                                                     | $ | 34,915     |   | $ | 38,592     |  
|Trade accounts receivable                                                                                                                                                                     |   | 8,449      |   |   | 18,396     |  
|Other receivables                                                                                                                                                                             |   | 7,913      |   |   | 56,427     |  
|Inventory                                                                                                                                                                                     |   | 86,045     |   |   | 147,012    |  
|                                                                                                                                                                                              |   | 137,322    |   |   | 260,427    |  
|Furniture, fixtures and equipment, net of accumulated                                                                                                                                         |   |            |   |   |            |  
|depreciation of $114,538 and $84,650 respectively                                                                                                                                             |   | 34,522     |   |   | 76,493     |  
|Other assets, net                                                                                                                                                                             |   | 5,833      |   |   | 15,167     |  
|                                                                                                                                                                                              | $ | 177,677    |   | $ | 352,087    |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|LIABILITIES AND EQUITY                                                                                                                                                                        |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|Current Liabilities:                                                                                                                                                                          |   |            |   |   |            |  
|Trade accounts payable                                                                                                                                                                        | $ | 114,393    |   | $ | 75,323     |  
|Other accrued liabilities                                                                                                                                                                     |   | 495,110    |   |   | 514,562    |  
|Subordinated notes payable                                                                                                                                                                    |   | 580,500    |   |   | -          |  
|Convertible notes payable                                                                                                                                                                     |   |            |   |   | 1,173,000  |  
|Other liabilities                                                                                                                                                                             |   | 28,000     |   |   |            |  
|Long-term debt, current portion                                                                                                                                                               |   | 109,024    |   |   | 132,986    |  
|                                                                                                                                                                                              |   | 1,327,027  |   |   | 1,895,871  |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|Long-term debt                                                                                                                                                                                |   | -          |   |   | 109,024    |  
|Other liabilities                                                                                                                                                                             |   | -          |   |   | 28,000     |  
|Total Liabilities                                                                                                                                                                             |   | 1,327,027  |   |   | 2,032,895  |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|                                                                                                                                                                                              |   |            |   |   |            |  
|Stockholders Equity (Deficit):                                                                                                                                                               |   |            |   |   |            |  
|Preferred stock, $0.0001 par value, 2,500,000
      shares           authorized,
      none issued or outstanding                                                                             |   | -          |   |   | -          |  
|Common stock owed, not issued,
      600,000 and -0- shares           at
      June 30, 2010 and 2009, respectively                                                                           |   | 600        |   |   | -          |  
|Common Stock, $0.001 par value, 200,000,000
      authorized,           issued
      and outstanding 68,116,636 and 41,995,802           shares
      at June 30, 2010 and 2009, respectively |   | 68,117     |   |   | 41,996     |  
|Additional paid-in capital                                                                                                                                                                    |   | 5,569,526  |   |   | 4,385,001  |  
|Accumulated deficit                                                                                                                                                                           |   | (6,787,593 | ) |   | (6,107,805 | )
|                                                                                                                                                                                              |   | (1,149,350 | ) |   | (1,680,808 | )
|                                                                                                                                                                                              | $ | 177,677    |   | $ | 352,087    |  

See accompanying notes to condensed consolidated financial
statements

---

HS3 Technologies, Inc.Condensed consolidated statement of operations

|                                                     |   | Year ended June 30 |  
|---------------------------------------------------- | - | ------------------ | -
|                                                     |   | 2010               |  
|                                                     |   |                    |  
|                                                     |   |                    |  
|Revenue                                              | $ | 113,270            |  
|Cost of goods sold                                   |   | 75,877             |  
|Gross profit                                         |   | 37,393             |  
|                                                     |   |                    |  
|Operating Expenses:                                  |   |                    |  
|Selling, general and administrative                  |   | 535,509            |  
|Depreciation and amortization                        |   | 44,577             |  
|Total operating expenses                             |   | 580,086            |  
|                                                     |   |                    |  
|Loss from operations                                 |   | (542,693           | )
|                                                     |   |                    |  
|Other income (expense):                              |   |                    |  
|Interest expense, net                                |   | (137,095           | )
|Total
      other income (expense)                   |   | (137,095           | )
|                                                     |   |                    |  
|Net loss                                             | $ | (679,788           | )
|                                                     |   |                    |  
|Net loss per share-basic and diluted                 | $ | (0.012             | )
|                                                     |   |                    |  
|Weighted average number of common shares outstanding |   | 58,093,645         |  

See accompanying notes to condensed consolidated financial
statements

29

---

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

|                                                             |  |                   |  |   |        |  |   | Common  |  |  |            |   |   | Unamortized    |   |   |            |   |   |              |  
|------------------------------------------------------------ |  | ----------------- |  | - | ------ |  | - | ------- |  |  | ---------- | - | - | -------------- | - | - | ---------- | - | - | ------------ | -
|                                                             |  |                   |  |   |        |  |   | Stock   |  |  |            |   |   | Cost           |   |   |            |   |   | Total        |  
|                                                             |  |                   |  |   |        |  |   | Owed    |  |  | Additional |   |   | Stock/Warrants |   |   | Retained   |   |   | Stockholders |  
|                                                             |  | Commo
      Stock |  |   | Not    |  |   | Paid-in |  |  | Issued for |   |   | Earnings       |   |   | Equity     |  
|                                                             |  | Shares            |  |   | Amount |  |   | Issued  |  |  | Capital    |   |   | Service        |   |   | (Deficit)  |   |   | (Deficit)    |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|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/      
      cancellation of debt |  | 2,050,000         |  |   | 2,050  |  |   |         |  |  | 51,542     |   |   | -              |   |   | -          |   |   | 53,592       |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|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   | )
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Shares issued for cash                                       |  | 4,500,000         |  |   | 4,500  |  |   |         |  |  | 220,500    |   |   | -              |   |   | -          |   |   | 225,000      |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Shares issued for conversion of debt                         |  | 15,500,000        |  |   | 15,500 |  |   |         |  |  | 759,500    |   |   |                |   |   |            |   |   | 775,000      |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Shares issued for cancellation of debt                       |  | 5,870,834         |  |   | 5,871  |  |   |         |  |  | 176,125    |   |   |                |   |   |            |   |   | 181,996      |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Shares issued for services                                   |  | 250,000           |  |   | 250    |  |   |         |  |  | 28,400     |   |   |                |   |   |            |   |   | 28,650       |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Shares owed for services, not issued                         |  |                   |  |   |        |  |   | 600     |  |  |            |   |   |                |   |   |            |   |   | 600          |  
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Net loss                                                     |  | -                 |  |   | -      |  |   |         |  |  | -          |   |   | -              |   |   | (679,788   | ) |   | (679,788     | )
|                                                             |  |                   |  |   |        |  |   |         |  |  |            |   |   |                |   |   |            |   |   |              |  
|Balances as of June 30, 2010                                 |  | 68,116,636        |  | $ | 68,117 |  | $ | 600     |  |  | 5,569,526  |   | $ | -              |   | $ | (6,787,593 | ) | $ | (1,149,350   | )

See accompanying notes to condensed consolidated financial
statements

30

---

HS3 Technologies, Inc.Condensed consolidated statement of cash flows

|                                                                                      |   | Year ended June 30, |  
|------------------------------------------------------------------------------------- | - | ------------------- | -
|                                                                                      |   | 2010                |  
|                                                                                      |   |                     |  
|                                                                                      |   |                     |  
|Cash flows from operating activities:                                                 |   |                     |  
|Net loss                                                                              | $ | (679,788            | )
|                                                                                      |   |                     |  
|Adjustments to reconcile net loss to net cash
      provided by (used in) operations: |   |                     |  
|Depreciation and amortization                                                         |   | 44,577              |  
|Accretion of interest                                                                 |   | 5,378               |  
|Warrants, stock, and options issued for service                                       |   | 29,250              |  
|(Gain) loss on sale of fixed assets                                                   |   | 22,644              |  
|Changes in operating assets and liabilities:                                          |   |                     |  
|Accounts and other receivables                                                        |   | 58,461              |  
|Inventory                                                                             |   | 60,967              |  
|Deposit on inventory                                                                  |   | -                   |  
|Accounts payable and accrued liabilities                                              |   | 19,618              |  
|Net cash (used) in operating activities                                               |   | (438,893            | )
|                                                                                      |   |                     |  
|Cash flow from investing activities:                                                  |   |                     |  
|Additions to furniture, fixtures & equipment                                          |   | (15,915             | )
|Net cash (used in) investing activities                                               |   | (15,915             | )
|                                                                                      |   |                     |  
|Cash flow from financing activities:                                                  |   |                     |  
|Sale of common stock                                                                  |   | 225,000             |  
|Proceeds from sale of warrants                                                        |   | -                   |  
|Acquisition of stock warrants                                                         |   | -                   |  
|Convertible notes payable issued
      for cancellation                               |   |                     |  
|of accrued liabilities                                                                |   | -                   |  
|Proceeds(repayments)convertible
      notes payable                                   |   | (25,000             | )
|Proceeds(repayments)subordinated notes payable                                        |   | 207,500             |  
|Borrowings (repayments) long-term
      debt                                          |   | (138,364            | )
|Other accrued liabilities converted to equity                                         |   | 181,996             |  
|Net cash flow provided by financing activities                                        |   | 451,131             |  
|                                                                                      |   |                     |  
|Increase (decrease) in cash and cash equivalents                                      |   | (3,677              | )
|Cash and cash equivalents, beginning of period                                        |   | 38,592              |  
|Cash and cash equivalents, end of period                                              | $ | 34,915              |  
|                                                                                      |   |                     |  
|Supplemental cash flow information:                                                   |   |                     |  
|Interest paid                                                                         | $ | 29,203              |  
|Income taxes paid                                                                     | $ | -                   |  
|                                                                                      |   |                     |  
|Non cash financing activities:                                                        |   |                     |  
|Stock issued for services                                                             | $ | 29,250              |  
|Stock issued for other accrued
      liabilities                                      |   | 181,996             |  
|Stock issued for convertible notes payable                                            |   | 775,000             |  
|Subordinated notes payable issued
      for convertible notes payable                 |   | 373,000             |  

See accompanying notes to condensed consolidated financial
statements

31

---

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.

(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.

32

---

(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.

(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

33

---

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 30,2010
    
    
    2009Accrued board fees
    $
    133,332
    
    $
    95,832Accrued salaries, officers
    
    80,000
    
    
    293,542Accrued rent, officer
    
    61,505
    
    
    -Accrued interest
    
    218,176
    
    
    115,662Payroll liabilities
    
    1,569
    
    
    9,372Sales tax payable
    
    528
    
    
    154$
    495,110
    
    $
    514,562


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 suspended the accrual April 1, 2010
and did not accrue for the three months ending June 30, 2010.

On November 24, 2009, we issued
5,870,834 shares of our common stock to two officers of the Company for
cancellation of $181,996 of accrued salaries.

The Company leases office space
from a company owned by an officer/director. The Company has accrued 61,505 as a
related party liability.

Accrued interest represents interest
on the convertible and subordinated notes payable.

34

---

4.CONVERTIBLE AND SUBORDINATED NOTES
PAYABLE

Convertible Notes Payable

The Company has been provided
with unsecured loans from officers and directors or private investors pursuant
to debt conversion agreements. All principle and interest (at 12%) are due on
demand or are converted at the discretion of the provider of the loan. At June
30, 2010 and 2009 the company had -0 and $1,173,000 outstanding pursuant to such
debt conversion agreements.

On July 31, 2009 and September 7,
2009, we entered into two $50,000 loans with Williams S. Dickey pursuant to debt
conversion agreements. The loan proceeds were used for general working capital
requirements.

On October 19, 2009 we issued
4,500,000 shares of our common stock to William S. Dickey for $225,000. Proceeds
from this equity offering were used to repay $125,000 of his convertible notes
payable and $25,000 of his subordinated notes payable with the remaining $75,000
available for working capital requirements. 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 November 24, 2009, we issued
15,500,000 shares of common stock of our company to convert $775,000 of the
convertible notes payable and issued two officers $373,000 of subordinated notes
payable in exchange for the remaining outstanding convertible notes payable. The
shares were issued to U.S. persons pursuant to the exemption from registration
provided under Rule 506 of Regulation D, promulgated under the United States
Securities Act of 1933, as amended.

Subordinated Notes Payable

On September 23, 2009, we entered
into a $25,000 unsecured subordinated note payable with William S. Dickey. The
note was repaid on October19, 2009 from the proceeds of an equity offering to
Mr. Dickey.

During November and December
2009, we entered into $157,500 of additional unsecured three-month subordinated
notes payable with William S. Dickey and Robert A. Morrison. The notes bear
interest at 12% and extend monthly after the three month term.

On February 24, 2010, we entered
into a $30,000 additional unsecured three-month subordinated notes payable with
William S. Dickey. The notes bear interest at 12% and extend monthly after the
three month term.

On April 1, 2010 we entered into
a $20,000 additional unsecured three month subordinated notes payable with
Williams S. Dickey The notes bear interest at 12% and extend monthly after the
three month term

At June 30, 2010, the following
subordinated notes payable are outstanding:

William S. Dickey
    $
    500,000Robert A. Morrison
    
    80,500$
    580,500


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.

35

---

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, 2010, we recorded $34,582 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 liabilities. For the year ended June 30, 2010,
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, 2010 and 2009 we recorded $5,378 and $5,380 as
additional interest expense. At June 30, 2010 we had $5,833 discount remaining
to be amortized into interest. The value of the loans at June 30, 2010 was
$111,712. The current portion of the debt was $109,024 ($111,712 principal owed)
and the long-term portion of the debt was -0-.

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.

During fiscal year ended June 30,
2009 we: (a) issued 1,800,000 shares of our common stock for financial services
rendered to us and (b) issued 250,000 shares of our common stock for
cancellation of $21,592 of accounts payable to a third party..

On October 19, 2009 we issued
4,500,000 shares of our common stock to William S. Dickey for $225,000. Proceeds
from this equity offering were used to repay $125,000 of his convertible notes
payable and $25,000 of his subordinated notes payable with the remaining $75,000
available for working capital requirements. 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 November 24, 2009 we issued
15,500,000 shares of our common stock to convert $775,000 of convertible notes
payable. In addition, on November 24, 2009 we issued 5,870,834 shares of our
common to two officers for cancellation of $181,996 of accrued salaries. The
shares were issued to U.S. persons 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 December 21, 2009 we issued
250, 000 shares of our common stock to an affiliate of one of our Board of
Directors for services rendered to us. We valued the 250,000 shares based on the
quoted trade price on December 21, 2009 ($.021) and recorded $5,250 as contract
services expense.

On February 28, 2010 the Board
voted to issue 600,000 shares of our common stock for financial consulting
services rendered to us effective February 1, 2010. We valued the 600,000 shares
based on the quoted trade price on February 1, 2010 ($.04) and recorded $24,000
as contract services expense. As of June 30, 2010, these shares are owed, but
not issued.

Pursuant to the 2005 Stock Option
Plan, the Board of Directors had granted 2,500,000 options under the plan. At
June 30, 2010, 1,300,000 options (with an exercise price of $.1667) are
outstanding which expire in March 2012.

7. WARRANTS AND OPTIONS

The following schedule reflects
outstanding warrants and stock options as of June 30, 2010:

36

---

DateShares
    
    Issued
    
    Strike Price
    
    Expiration DateStock Options
    1,300,000
    
    March 2007
    
    $.1667
    
    March 2012Warrants
    1,000,000
    
    February 2008
    
    $.120
    
    February 2013


8. COMMITMENTS AND CONTINGENCIES

Operating leases. The Companys
operating lease was up October 31, 2009. The Companys lease is month to month.

9.SUBSEQUENT EVENTS

Management has evaluated
subsequent events through the date these financial statements were issued and
has determined that there are no transactions that need to be recorded or
disclosed.

37

---

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, 2010 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.

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, 2010.

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, 2010 that have
materially or are reasonably likely to materially affect, our internal controls
over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers, Promoters and Control
Persons

As of September 10, 2010, 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
    56
    November 9, 2005Robert A. Morrison
    President and Director
    45
    June 18, 2007Charles F. Ferris
    Chairman of the Board and
      Director
    63
    August 14, 2007Michael Yinger
    Secretary and Director
    53
    August 14, 2007


39

---

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.

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.

40

---

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.

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.

Family Relationships

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

Involvement in Certain Legal Proceedings

Our directors and executive officers, 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);

41

---

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:

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

42

---

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, 2010, 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, 2010 who had total
  compensation exceeding $100,000.

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
      2010 
        2009
      $Nil 
        $125,000
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      $124,083 
        $125,000Robert A. 
        Morrison(2)
        President
      2010 
        2009
      $Nil 
        $115,000
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        Nil
      Nil 
        N/A
      Nil 
        N/A
      Nil 
        N/A
      $423,458 
        $115,000


|(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
2010.

43

---

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,
2010 we have accrued $133,332 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
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 10, 2010, there were 68,116,636 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

44

---

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 10, 2010 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 ofBeneficial Ownership
      Percent ofClass(1)Mark Lana 1800 Boulder Street, Suite 600Denver, CO 80211
    5,218,778(2)
    7.6%Robert A. Morrison 1800 Boulder Street, Suite 600Denver, CO 80211
    1,846,282(3)
    17.3%Chuck Ferris 11612 E. 2ndAveAurora, CO 80010
    860,000
    1.3%Michael Yinger 10940 S. Parker Road, Suite 151
      Parker, CO 80134
    880,000
    1.3%William S. Dickey 6130 S. Elm Court Centennial,
      CO 80121
    13,500,000
    19.8%DQ Investment Group (4) 6130 S. Elm Ct.
      Centennial, CO 80121
    5,000,000
    7.3%Directors and Executive Officers as a group (5 people)
    37,305,060
    54.5%


|(1) | Based on 68,116,636 shares of common stock issued and
      outstanding as of September 10, 2010. 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

45

---

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.

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, 2010 and 2009:

|Services       |   | 2010   |  |   | 2009   |  |  |  | 
|-------------- | - | ------ |  | - | ------ |  |  |  | 
|Audit fees     | $ | 30,750 |  | $ | 34,000 |  |  |  | 
|Tax fees       | $ | Nil    |  | $ | Nil    |  |  |  | 
|All other fees | $ | Nil    |  | $ | Nil    |  |  |  | 
|               |   |        |  |   |        |  |  |  | 
|Total fees     | $ | 30,750 |  | $ | 34,000 |  |  |  | 

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

46

---

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, FINANCIAL STATEMENT SCHEDULES

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).                                                                                                                                              
|               |                                                                                                                                                                                                                                                              
|(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).                                                                                  

47

---

|Exhibit Number | Description                                                                                                                                                                                                                                                                                    
|-------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |                                                                                                                                                                                                                                                                                                
|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).
        Distribution Agreement with Autostar Technology Private Limited. (incorporated
        by reference
|               |                                                                                                                                                                                                                                                                                                
|10.5           | 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)                                                                                                                                               
|               |                                                                                                                                                                                                                                                                                                
|(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

48

---

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 28, 2010                                           | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Mark Lana                                                      | 
|    | Mark Lana                                                          | 
|    | Chief Executive Officer,
      Treasurer, and Director             | 
|    | Principal Accounting Officer and
      Principal Financial Officer | 
|    | Date: September 28, 2010                                           | 

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 28, 2010                                           | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Mark Lana                                                      | 
|    | Mark Lana                                                          | 
|    | Chief Executive Officer,
      Treasurer, and Director             | 
|    | Principal Accounting Officer and
      Principal Financial Officer | 
|    | Date: September 28, 2010                                           | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Charles F. Ferris                                              | 
|    | Charles F. Ferris                                                  | 
|    | Chairman of the Board and
      Director                           | 
|    | Date: September 28, 2010                                           | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Michael Yinger                                                 | 
|    | Michael Yinger                                                     | 
|    | Secretary and Director                                             | 
|    | Date: September 28, 2010                                           | 

49

---