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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-K

(Mark One)

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

For the fiscal year ended June 30, 2011

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

For the transition period from [   ] to [   ]

Commission file number 001-32289

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

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

Issuer's telephone number 303-455-2550

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

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

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

N/A(Title of class)

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

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

Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the last 90 days.
Yes[ x ] No [   ]

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

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Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.

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

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

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

The aggregate market value of Common Stock held by
non-affiliates of the Registrant on December 31 , 2011 was $584,308 based on a
$0.018 average bid and asked price of such common stock, as of the last business
day of the registrants most recently completed first fiscal quarter.

(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.

82,623,836 common shares issued and outstanding as of
September 30, 2011

DOCUMENTS INCORPORATED BY REFERENCE

None.

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TABLE OF CONTENTS

|         | PART
      I                                                                                                             | Page
|-------- | ------------------------------------------------------------------------------------------------------------------------ | ----
|         |                                                                                                                          | No. 
|Item 1.  | Business                                                                                                                 | 5   
|Item 1A. | Risk Factors                                                                                                             | 12  
|Item 2.  | Properties                                                                                                               | 17  
|Item 3.  | Legal
      Proceedings                                                                                                  | 17  
|Item 4.  | [Removed and Reserved]                                                                                                   | 17  
|         | PART II                                                                                                                  |     
|Item 5.  | Market for
      Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 17  
|Item 6.  | Selected
      Financial Data                                                                                            | 19  
|Item 7.  | Managements Discussion and Analysis of Financial
      Condition and Results of Operations                              | 19  
|Item 7A. | Quantitative
      and Qualitative Disclosure about Market Risk                                                          | 23  
|Item 8.  | Financial Statements and Supplementary Data                                                                              | 24  
|Item 9.  | Changes in and
      Disagreements with Accountants on Accounting and Financial Disclosure                               | 36  
|Item 9A. | Controls and Procedures                                                                                                  | 36  
|Item 9B. | Other
      Information                                                                                                  | 37  
|         | PART III                                                                                                                 |     
|Item 10. | Directors,
      Executive Officers and Corporate Governance                                                             | 38  
|Item 11. | Executive Compensation                                                                                                   | 41  
|Item 12. | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters               | 43  
|Item 13. | Certain Relationships and Related Transactions, and
      Director Independence                                          | 44  
|Item 14. | Principal
      Accounting Fees and Services                                                                             | 44  
|Item 15. | Exhibits, Financial Statement Schedules                                                                                  | 45  

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This annual report contains forward-looking statements. These
statements relate to future events or our future financial performance. In some
cases, you can identify forward-looking statements by terminology such as may,
should, expects, plans, anticipates, believes, estimates,
predicts, potential or continue or the negative of these terms or other
comparable terminology. These statements are only predictions and involve known
and unknown risks, uncertainties and other factors, including the risks in the
section entitled Risk Factors, that may cause our or our industrys actual
results, levels of activity, performance or achievements to be materially
different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by
applicable law, including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform these
statements to actual results.

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

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

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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 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.

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.

On November 4, 2009 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.

During fiscal year ended June 30,
2011 we: (a) issued 1,700,000 shares of our common stock for services rendered
to us; and (b) issued 12,207,200 shares of our common stock for conversion of
accrued board fees, accrued interest, accrued salaries and accrued rent due our
officers, directors and largest shareholder.

Current Business

Our company has expanded its technical
installation service with a focus on the Quick Serve Restaurant market
(QSR).

Effective December 10, 2010 we
entered into a Master Subcontract Agreement with Insight Direct USA, Inc., an
Illinois corporation, and its affiliate Calence, LLC dba Insight Networking, a
Delaware limited liability corporation. Pursuant to the agreement, our company
will be a master provider of technical and installation services to an
internationally renowned QSR chain. Our companys efforts have been refocused
toward the services required by the QSR. Under the terms of the agreement with
Insight our company will provide Insight with information technology services
set forth in any statement of work issued by Insight. Each statement of work is
a separate agreement that identifies a specific scope of work to be performed by
our company.

Under the agreement our companys
duties include:

- participating in meetings with Insight and clients for whom we are
  performing services;
- keeping Insight informed as to progress and any delays in our services;
- providing Insight with any operational information, on request, including
  time sheets, installation scripts, performance logs, survey information, or
  inventory records related to its performance;

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- make a good faith effort to reach mutually acceptable provisions and
  adjustments with any statement of work to meet client requirements and
  expectations;
- ensure that our employees, contractors and agents conduct themselves in a
  professional manner and comply with reasonable requests and standard
  procedures and policies concerning working hours, safety and security rules
  applicable to those working at Insight or any clients facilities

Prices for services will be
mutually agreed upon and set forth in any statement of work or purchase order
issued against such statement of work. Insight will pay all undisputed invoices
within 30 days of receipt of invoices from our company and shall receive a 3%
discount on any invoices paid within 10 days of receipt.

The agreement is effective until
terminated on (i) 45 days prior written notice by either party to the other (ii)
if either party becomes insolvent, enters bankruptcy, reorganization or other
similar proceedings, admits in writing its inability to pay debts, or makes or
attempts to make an assignment for the benefit of creditors.

Our company is providing labor;
trained installation teams to install cable, network upgrades of Point of Sale
(POS) terminals, install software, and upgrade servers and cameras. The service
that our company is providing is necessary for the QSR to meet federally
mandated Payment Card Industry Data Security Standards (PCI) compliant
requirements assembled by the Payment Card Security Standards Council.

To date our companys
installation teams have successfully completed installations in ten states from
coast to coast servicing multiple sites within each market. The teams have
provided the position of Clean-up team provider to our service offering.
Clean-up teams are responsible for resolving technical and installation issues
left unfinished by other services providers. We are very comfortable becoming
the expert and lead provider of choice to the QSR. It is our ability to
acquire highly qualified individuals and allowing them to excel within our
companys structure that continues to keep our companys in the forefront of
providing exceptional service.

Insight estimates over
substantial locations for the QSR will require PCI compliant installation and
services to Point of Sale (POS) terminals over the next two years. To complete
the estimated number of installations over the period HS3s will need to train
and deploy sufficient numbers of four-man service teams to install approximately
4 locations per week. We currently have five (5) 4-man teams deployed. HS3
technicians complete the two day training and testing at a facility in our
Denver monitoring center. Between 10 and 16 qualified candidates participate in
each training session with approximately 95% qualifying as Team members. Two
additional staff will be required to supervise the field teams .

Our company has recently
increased services offered to the expanding self- storage market. Teams trained
to service the QSR market have the ability to install systems and provide
service to self- storage customers. Installing video cables and cameras, and
providing video analytics through our remote video monitoring and data center
fill a need lacking with-in the self- storage industry.

Our company anticipates the addition
of these two service markets will substantially improve our outlook in the near
future.

On April 27, 2011 our company
entered into a teaming agreement and employment agreement with Chester A.
Gilliam and his company WizardWorks Security Systems Inc. (the Subcontractor).
Under the agreement the Subcontractor will provide us with products and services
set out in the agreement (the Program). The company will compensate the
Subcontractor for participation in the Program by providing up to a $360,000
bonus and the company issued on March 1, 2011 500,000 shares of our companys
common stock pursuant to the agreement. The $360,000 bonus will be divided into
three annual installments equal to the lesser of $120,000 per annum or 50% of
the revenue received from WizardWorks accounts during that period. The Program
bonus will be paid at the end of each calendar quarter. If during any quarter
the total revenue received from WizardWorks accounts is less than $60,000, the
installment for that quarter will be calculated to minimally equal 50% of the
total revenues received from WizardWorks. If over the three year term the amount
paid to WizardWorks is less than $360,000 this agreement will continue for one
year increments until paid. Our company has the sole right to accelerate
payments to reach the agreed $360,000 at any time during the term of the
agreement.

In consideration for the above, our company will receive,
record, and dispense all revenue from WizardWorks as of January 1, 2011 and may
invoice customers under the WizardWorks name or our companys name. At the
completion of the bonus payments, our company has the right to assume the
WizardWorks name and logo for $1.00. Our company will pay the Subcontractor $400
per month rent for the uses of the Subcontractors premises. Upon thirty day
written notice we may vacate premises, remove all equipment and terminate the
rental arrangement.

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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 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 security related. Unlike many security companies that
focus exclusively on security hardware sales, our companys value proposition is
to offer 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 our customer needs.

We are primarily an intellectual
capital company. Our company both develops HS3 proprietary technology and
acquires and integrates appropriate industry technology to provide surveillance
solutions customized 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 required 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:

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.

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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.

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.

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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.

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.

CONSTRUCTION PROJECTS:

HS3 is working with three
national construction companies to provide remote video security deploying the
companys OPIE product. When installed, OPIE provides recurring revenue through
live video monitoring of remote job sites. Captured video is transmitted to the
Denver monitoring center for analytics and event classification. Management is
confident that the increasing need for remote security will continue, and open
untapped markets for our proprietary cost effective solution. Uniquely
positioned our company feels the market for our OPIE technology will continue to
grow for years to come.

HS3 is continuing to work with a
national livestock trailer manufacturing company to provide its proprietary
video technology in trailers that monitor animal welfare and handling during
transportation, loading, and unloading. Our company is in the second year of
deploying this technology and has reached a threshold where its ready for this
market. HS3 has the technology and capability to provide the solution to the
livestock industry, solving transportation monitoring requirements.

SELF-STORAGE FACILITIES:

Over the last 30 years the self-storage industry has typically
employed part-time guard services to randomly check their properties during off
hours. HS3 has a solution that offers continuous surveillance utilizing our
companys technology and Denver monitoring center to provide 24/7/365
monitoring, improving both monitoring and reduced costs.

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.

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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.

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 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.

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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 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.

We incurred expenses in the amount of $6,850 for the year ended
June 30, 2011 and $5,222 for the year ended June 30, 2010

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)

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Marketing

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

Employees

As of June 30, 2011, our company had six (6) full-time
employees and no part-time employees. Of those employees, none are covered by
collective bargaining agreements.

REPORTS TO SECURITY HOLDERS

We are required to file annual, quarterly and current reports,
proxy statements and other information with the Securities and Exchange
Commission and our filings are available to the public over the internet at the
Securities and Exchange Commissions website at http://www.sec.gov. The public
may read and copy any materials filed by us with the Securities and Exchange
Commission at the Securities and Exchange Commissions Public Reference Room at
100 F Street N.E. Washington D.C. 20549. The public may obtain information on
the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-732-0330. The SEC also maintains an Internet site
that contains reports, proxy and formation statements, and other information
regarding issuers that file electronically with the SEC, at
http://www.sec.gov.

ITEM 1A. RISK FACTORS

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

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

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

Risks Related To Our Business

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

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

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

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

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

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

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

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

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

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

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

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

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

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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.

There is a high risk of business failure due to the fact
that we may not maitain commercial operations with sustainable,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.

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

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

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

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

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

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

Risks Related To Our Common Stock

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

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

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

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

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

The Securities and Exchange Commission has adopted regulations
which generally define penny stock to be any equity security that has a market
price (as defined) less than $5.00 per share or an exercise price of less than
$5.00 per share, subject to certain exceptions. Our securities are covered by
the penny stock rules, which impose additional sales practice requirements on
broker-dealers who sell to persons other than established customers and
accredited investors. The term accredited investor refers generally to
institutions with assets in excess of $5,000,000 or individuals with a net worth
in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly
with their spouse. The penny stock rules require a broker-dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the Securities and
Exchange Commission which provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must
provide the customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customers account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customers confirmation. In addition, the penny stock
rules require that prior to a transaction in a penny stock not otherwise exempt
from these rules, the broker-dealer must make a special written determination
that the penny stock is a suitable investment for the purchaser and receive the
purchasers written agreement to the transaction. These disclosure requirements
may 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, 2011 that we have incurred substantial
losses since inception, which raises substantial doubt about 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

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

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

ITEM 2. 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, 2011
    $0.070
    $ 0.007March 31, 2011
    $0.020
    $0.012December 31, 2010
    $0.032
    $0.020September 30, 2010
    $0.012
    $0.010June 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
    $0.08


On September 30, 2011, the closing price for the common stock
as reported by the quotation service operated by the OTC Bulletin Board was
$0.018

As of September 30, 2011, there were 65 holders of record of
our common stock. As of such date, 82,623,836 common shares were issued and
outstanding.

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

Dividend Policy

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

Recent Sales of Unregistered Securities

On June 24, 2011, our company issued 12,207,200 shares of our
common stock for conversion of accrued board fees, salaries, rent and interest
as well as some trade payables due our officers, directors and largest
shareholder. The shares were issued at the average quoted trade price for the
period from May 16, 2011 through June 24, 2011 ($.04445).

On April 1, 2011 our Board voted and our company issued 600,000
shares of our common stock to an employee. We valued the 600,000 shares based on
the quoted trade price on April 1, 2011 ($0.012) and recorded $7, 200 as stock
for services expense.

On April 27, 2011 our company entered into a teaming agreement
and employment agreement with Chester A. Gilliam and his company WizardWorks
Security Systems Inc. (the Subcontractor). Under the agreement the
Subcontractor will provide us with products and services set out in the
agreement (the Program) over a three (3) year period and the company will
compensate the Subcontractor for participation in the Program by providing up to
a $360,000 bonus and the company issued on March 1, 2011 500,000 shares of our
companys common stock pursuant to the agreement. We valued the 500,000 shares
based on the quoted trade price on March 1, 2011 ($.012) and recorded $6,000 as
stock for services expense.

On October 4, 2010 our Board voted to issue 600,000 shares of
our common stock for financial consulting services rendered to us. We valued the
600,000 shares based on the quoted trade price on October 4, 2010 ($.0097) and
recorded $5,820 as stock for services expense.

During the fiscal year ended June 30, 2010 we: (a) issued
4,500,000 shares of our common stock for $225,000 which was used to repay
$150,000 of convertible and subordinated notes payable; (b) issued 15,500,000
shares of our common stock to convert $775,000 of convertible notes payable; (c)
issued 5,870,834 shares of our common stock to two officers for cancellation of
$181,996 of accrued salaries, and (d) issued 250,000 shares of our common stock
for services rendered to us.

During fiscal year ended June 30, 2009 we: (a) issued 1,800,000
shares of our common stock for financial services rendered to us (valued at
$32,000) and (b) issued 250,000 shares of our common stock for cancellation of
$21,592 of accounts payable to a third party.

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. 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.

As of June 30, 2010, 1,300,000 stock options (with an exercise
price of $.1667) were outstanding with an expiration date of March 22, 2012.
Effective June 24, 2011, the Board accepted the cancelation of the 1,300,000
stock options.

Purchase of Equity Securities by the Issuer and Affiliated
Purchases

We did not purchase any of our shares of common stock or other
securities during our fourth quarter of our fiscal year end June 30, 2011.

18

---

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.

Plan of Operations And Cash Requirements

Our operating expenses (selling, general and administrative
expenses) consist mostly of wages and benefits, contract services, board fees
and other professional service fees. The amount incurred by our company for the
years ended June 30, 2011 and 2010, respectively was approximately $472,000 and
$536,000.

Our cash on hand at June 30, 2011 was $13,341. We have made a
concentrated effort over the prior twelve months to reduce our selling, general
and administrative expenses, which currently have a cash burn rate of
approximately $60,000 per month. Our principal capital resources have been
through the subscription and issuance of common stock, stockholder loans,
advances from related parties and utilization of our $250,000 revolving line of
credit facility. In the future, we anticipate relying on cash flows from
operations and our revolving line of credit facility for the purpose of
proceeding with our plan of operations.

19

---

Results of Operations for the year ended June 30, 2011 and
2010

Revenue and Cost of goods sold.

We primarily derive revenue from
our operations by (i) providing technical installation services to the QSR
market and (ii) by charging monthly fees for providing integrated equipment,
monitoring, hosting, 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, 2011 and 2010 are outlined in the table below:

Year endedJune 30,2011
    
    
    2010Contract Revenue:Equipment license/monitoring fees
    $
    25,972
    
    $
    50,315QSR revenue
    
    1,203,653
    
    
    -Revenue sharing from teaming agreement
    
    57,067
    
    
    -Domain/business hosting
      fees
    
    3,753
    
    
    7,852Discounts taken
    
    (19,255
    )
    
    -$
    1,271,190
    
    $
    58,167Other Revenue:Equipment sales
    
    18,398
    
    
    30,395IT services
    
    20,837
    
    
    21,596Other revenue/(expenses)
    
    (24
    )
    
    3,112$
    39,211
    
    $
    55,103Revenue
    $
    1,310,401
    
    
    113,270Cost
      of goods sold
    
    (742,412
    )
    
    (75,877
    )$
    567,989
    
    $
    37,393


Contract revenues for the year ended June 30, 2011 increased as
compared to the comparative period in 2010 as we started to focus on the QSR
part of our business starting in December 2010 and the start effective January
1, 2011 of our revenue sharing from the teaming agreement. During the fiscal
year ended June 30, 2011 we serviced 531 QSR locations.

20

---

Selling, general and administrative
expenses.

Our selling, general and administrative expenses for the year
ended June 30, 2011 and 2010 are outlined in the table below:

Year endedJune 30,2011
    
    
    2010Wages & employee benefits
    $
    255,988
    
    $
    232,857Other contract labor/equipment
    
    21,570
    
    
    84,176Board fees
    
    50,000
    
    
    37,500Stock for services
    
    19,020
    
    
    29,250Accounting, audit and tax expenses
    
    31,500
    
    
    30,750Legal
    
    3,842
    
    
    21,527Stock transfer/shareholder/proxy/filing
      fees
    
    6,171
    
    
    2,698Professional fees/filings
    
    4,680
    
    
    5,131Rent
    
    2,182
    
    
    17,600Utilities
    
    26,016
    
    
    22,101Computer network services
    
    720
    
    
    1,852Computer server/internet fees
    
    2,576
    
    
    3,246Advertising/domain registration
    
    256
    
    
    4,781Telephone
    
    13,812
    
    
    56,076Travel, meals and entertainment
    
    11,852
    
    
    15,411Sales & marketing & R&D
    
    3,380
    
    
    1,666Insurance
    
    34,505
    
    
    21,418Postage/printing
    
    2,888
    
    
    2,216Bank service charges
    
    1,667
    
    
    1,381Office/computer supplies
    
    8,818
    
    
    4,789Automobile expenses
    
    7,471
    
    
    3,883Dues & subscriptions
    
    696
    
    
    1,134Taxes/licenses & permits
    
    6,327
    
    
    4,574Penalties & interest
    
    2,327
    
    
    3,665Bad debt expense
    
    46,556
    
    
    2,397Other misc, expenses / (income)
    
    (5,251
    )
    
    (76,570
    )$
    559,469
    
    $
    535,509


Without the other misc. expenses /(income), selling, general
and administrative expenses for the year ended June 30, 2011 decreased by
approximately 8% as compared to the comparative period in 2010 primarily as a
result of our management making a concentrative effort to reduce such costs.
Other contract labor / equipment for the year ended June 30, 2010 includes
approximately $33,000 in fees paid to third parties assisting us in attempting
to raise capital. Other misc. expenses/(income) for the year ended June 30, 2010
includes the gain realized from the Settlement Agreement and Mutual Release with
AHA.

21

---

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
under our revolving line of credit agreement. Our primary liquidity needs are to
fund our working capital requirements and future equipment purchases. Our
ability to continue as a going concern may be dependent upon obtaining
additional long-term capital to develop our business operations.

June 30,
    
    
    June 30,2011
    
    
    2010Current Assets
    $
    427,013
    
    $
    137,322Current Liabilities (a)
    
    (1,010,449
    )
    
    (1,327,027
    )Working Capital (deficit)
    $
    (583,436
    )
    $
    (1,189,705
    )Long-term debt
    $
    -
    
    $
    -Stockholders equity(deficit)
    $
    (557,821
    )
    $
    (1,149,350
    )Current Liabilities (a)Trade accounts payable
    $
    103,058
    
    $
    114,393Other accrued liabilities
    
    25,121
    
    
    495,110Subordinated notes payable
    
    711,270
    
    
    580,500Revolving line of credit
    
    150,000
    
    
    -Other liabilities
    
    21,000
    
    
    28,000Long-term debt, current portion
    
    -
    
    
    109,024$
    1,010,449
    
    $
    1,327,027


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 and
expand our business operations. We intend to use borrowings from our revolving
line of credit, equity sales and/or further shareholder loans and advances from
related parties to mitigate the affects of our cash position.

Working Capital

PercentageJune 30,
    
    
    June 30,
    
    
    Increase/2011
    
    
    2010
    
    
    (Decrease)Current Assets
    $
    427,013
    
    $
    137,322
    
    
    211%Current Liabilities
    
    1,010,449
    
    
    1,327,027
    
    
    ( 24%
    )Working Capital (deficit)
    $
    (583,436
    )
    $
    (1,189,705
    )
    
    51%


Cash FlowsYear ended June 30,2011
    
    
    2010Net cash (used in) operating
      activities
    $
    (710,533
    )
    $
    (438,893
    )Net cash (used in) by investing activities
    
    (15,705
    )
    
    (15,915
    )Net cash flow provided by (used in)
      financing activities
    
    704,664
    
    
    451,131Increase (decrease) in cash and cash equivalents
    $
    (21,574
    )
    $
    (3,677
    )


22

---

Our cash on hand at June 30, 2011 was $13,341. We have made a
concentrated effort over the prior twelve months to reduce our selling, general
and administrative expenses, which currently have a cash burn rate of
approximately $60,000 per month. In the future, we anticipate relying on cash
flows from operations and our revolving line of credit facility for the purpose
of proceeding with our plan of operations.

Contractual Obligations

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

Going Concern

Until year ended June 30, 2011, we have incurred losses since
our inception. Because of these historical losses, we may require additional
working capital and long term capital to develop our business operations. We
intend to use borrowings from our revolving line of credit facility, equity
sales and/or future shareholder loans and advances from related parties to
mitigate the affects of our cash position.

The continuation of our business is dependent upon us
maintaining and achieving a break even or profitable level of operations. There
are no assurances that we will be able to either (i) maintain a level of
revenues adequate to break even and 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 debt
financing are insufficient, we will have to raise additional capital through
equity offerings. No assurance can be given that additional debt financing or
equity infusion 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.

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.

23

---

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, 2011 and 2010                                                   
|Consolidated Statements of Operations for
      the years ended June 30, 2011 and 2010                    
|Consolidated Statements of Stockholders Equity (Deficit)
      for the years ended June 30, 2011 and 2010
|Consolidated Statements of Cash Flows for
      the years ended June 30, 2011 and 2010                    
|Notes to the Consolidated Financial Statements                                                            

24

---

Report of Independent Registered Public Accounting Firm

Stockholders and Directors HS3 Technologies, Inc.

We have audited the accompanying consolidated balance sheet of
HS3 Technologies, Inc. as of June 30, 2011 and 2010 and the related consolidated
statements of operations, stockholders equity, and cash flows for each of the
years in the two-year period ended June 30, 2011. 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, 2011 and 2010 and the consolidated results
of its operations and cash flows for each of the years in the twoyear period
ended June 30, 2011 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 & Samyn, LLC Kansas City, Missouri
October 4, 2011

---

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

|                                                                                                                                                                                      |   | June 30,   |   |   | June 30,   |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                                                                                                                                                      |   | 2011       |   |   | 2010       |  
|ASSETS                                                                                                                                                                                |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|Current Assets:                                                                                                                                                                       |   |            |   |   |            |  
|Cash and cash equivalents                                                                                                                                                             | $ | 13,341     |   | $ | 34,915     |  
|Trade accounts receivable                                                                                                                                                             |   | 351,248    |   |   | 8,449      |  
|Other receivables                                                                                                                                                                     |   | -          |   |   | 7,913      |  
|Inventory                                                                                                                                                                             |   | 62,424     |   |   | 86,045     |  
|                                                                                                                                                                                      |   | 427,013    |   |   | 137,322    |  
|Fixed assets, net of accumulated
      depreciation of $139,150 and $114,538 respectively                                                                                             |   | 25,615     |   |   | 34,522     |  
|Other assets, net                                                                                                                                                                     |   | -          |   |   | 5,833      |  
|                                                                                                                                                                                      | $ | 452,628    |   | $ | 177,677    |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|LIABILITIES AND EQUITY                                                                                                                                                                |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|Current Liabilities:                                                                                                                                                                  |   |            |   |   |            |  
|Trade accounts payable                                                                                                                                                                | $ | 103,058    |   | $ | 114,393    |  
|Other accrued liabilities                                                                                                                                                             |   | 25,121     |   |   | 495,110    |  
|Subordinated notes payable                                                                                                                                                            |   | 711,270    |   |   | 580,500    |  
|Note payable, current portion                                                                                                                                                         |   | 150,000    |   |   | -          |  
|Long-term debt, current portion                                                                                                                                                       |   | 21,000     |   |   | 109,024    |  
|Other liabilities                                                                                                                                                                     |   | -          |   |   | 28,000     |  
|                                                                                                                                                                                      |   | 1,010,449  |   |   | 1,327,027  |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|Long-term debt                                                                                                                                                                        |   | -          |   |   | -          |  
|Total
      Liabilities                                                                                                                                                               |   | 1,010,449  |   |   | 1,327,027  |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|                                                                                                                                                                                      |   |            |   |   |            |  
|Stockholders Equity (Deficit):                                                                                                                                                       |   |            |   |   |            |  
|Preferred stock, $0.0001 par value, 2,500,000
      shares authorized, none      issued or
      outstanding                                                                          |   | -          |   |   | -          |  
|Common stock owed, not
      issued,- 0- and 600,000 shares       at June
      30, 2011 and 2010, respectively                                                                       |   | -          |   |   | 600        |  
|Common Stock, $0.001 par value, 200,000,000
      authorized,       issued and outstanding
      82,623,836 and 68,116,636 shares at June 30,
            2011 and 2010, respectively |   | 82,624     |   |   | 968,117    |  
|Additional paid-in capital                                                                                                                                                            |   | 6,117,246  |   |   | 5,569,526  |  
|Accumulated deficit                                                                                                                                                                   |   | (6,757,691 | ) |   | (6,787,593 | )
|                                                                                                                                                                                      |   | (557,821   | ) |   | (1,149,350 | )
|                                                                                                                                                                                      | $ | 452,628    |   | $ | 177,677    |  

See accompanying notes to condensed consolidated financial
statements

25

---

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

|                                                           |   | Year ended June 30, |  
|---------------------------------------------------------- | - | ------------------- | -
|                                                           |   | 2011                |  
|                                                           |   |                     |  
|Revenue                                                    | $ | 1,310,401           |  
|Cost of goods sold                                         |   | 742,412             |  
|Gross profit                                               |   | 567,989             |  
|                                                           |   |                     |  
|Operating Expenses:                                        |   |                     |  
|Selling, general and administrative                        |   | 559,469             |  
|Depreciation and amortization                              |   | 30,445              |  
|Total operating expenses                                   |   | 589,914             |  
|                                                           |   |                     |  
|(Loss) from operations                                     |   | (21,925             | )
|                                                           |   |                     |  
|Other income (expense):                                    |   |                     |  
|Interest expense                                           |   | (60,875             | )
|Forgiveness of debt                                        |   | 112,702             |  
|Total other income (expense)                               |   | 51,827              |  
|                                                           |   |                     |  
|Net Income/(loss)                                          | $ | 29,902              |  
|                                                           |   |                     |  
|Net income(loss) per share-basic and
      diluted         | $ | 0.0004              |  
|                                                           |   |                     |  
|Weighted average number of common shares
      outstanding |   | 69,555,130          |  

See accompanying notes to condensed consolidated financial
statements

26

---

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

|                                       |  |              |  |   |            |  |   |                  |   |   |            |  |   |            |   |   | Total        |  
|-------------------------------------- |  | ------------ |  | - | ---------- |  | - | ---------------- | - | - | ---------- |  | - | ---------- | - | - | ------------ | -
|                                       |  |              |  |   |            |  |   | Common           |   |   | Additional |  |   | Retained   |   |   | Stockholders |  
|                                       |  | Common Stock |  |   | Stock Owed |  |   | Paid-in          |   |   | Earnings   |  |   | Equity     |  
|                                       |  | Shares       |  |   | Amount     |  |   | Not
      Issued |   |   | Capital    |  |   | (Deficit)  |   |   | (Deficit)    |  
|                                       |  |              |  |   |            |  |   |                  |   |   |            |  |   |            |   |   |              |  
|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   | )
|Shares issued for conversion of debt   |  | 12,207,200   |  |   | 12,207     |  |   | -                |   |   | 530,400    |  |   | -          |   |   | 542,607      |  
|Shares issued for services             |  | 2,300,000    |  |   | 2,300      |  |   | (600             | ) |   | 17,320     |  |   | -          |   |   | 19, 020      |  
|Net income                             |  | -            |  |   | -          |  |   | -                |   |   | -          |  |   | 29,902     |   |   | 29,902       |  
|Balances as of June 30, 2011           |  | 82,623,836   |  | $ | 82,624     |  |   | -                |   | $ | 6,117,246  |  | $ | (6,757,691 | ) | $ | (557,821     | )

See accompanying notes to condensed consolidated financial
statements

27

---

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

|                                                                                      |   | Year ended June 30, |  
|------------------------------------------------------------------------------------- | - | ------------------- | -
|                                                                                      |   | 2011                |  
|                                                                                      |   |                     |  
|Cash flows from operating
    activities:                                             |   |                     |  
|Net income(loss)                                                                      | $ | 29,902              |  
|                                                                                      |   |                     |  
|Adjustments to reconcile net loss to net cash provided by
      (used in) operations: |   |                     |  
|Depreciation and amortization                                                         |   | 30,445              |  
|Accretion of interest                                                                 |   | 2,689               |  
|Warrants, stock, and options
      issued for service                                 |   | 19,020              |  
|(Gain) loss on sale of fixed assets                                                   |   | -                   |  
|Changes in operating assets and
      liabilities:                                    |   |                     |  
|Accounts and other receivables                                                        |   | (334,886            | )
|Inventory                                                                             |   | 23,621              |  
|Accounts payable and accrued liabilities                                              |   | (481,324            | )
|Net cash (used) in operating activities                                               |   | (710,533            | )
|                                                                                      |   |                     |  
|Cash flow from investing activities:                                                  |   |                     |  
|Additions to fixed assets                                                             |   | (15,705             | )
|Net cash (used in) investing activities                                               |   | (15,705             | )
|                                                                                      |   |                     |  
|Cash flow from financing activities:                                                  |   |                     |  
|Sale of common stock                                                                  |   | -                   |  
|Convertible notes payable
      issued for cancellation of accrued liabilities        |   | -                   |  
|Proceeds(repayments) revolving line of credit                                         |   | 150,000             |  
|Proceeds(repayments)convertible notes payable                                         |   | -                   |  
|Proceeds(repayments)subordinated notes payable                                        |   | 130,770             |  
|Borrowings (repayments)
      long-term debt                                          |   | (118,713            | )
|Other accrued liabilities converted to equity                                         |   | 542,607             |  
|Net cash flow provided by financing
      activities                                  |   | 704,664             |  
|                                                                                      |   |                     |  
|Increase (decrease) in cash and cash
      equivalents                                |   | (21,574             | )
|Cash and cash equivalents, beginning of period                                        |   | 34,915              |  
|Cash and cash equivalents, end of period                                              | $ | 13,341              |  
|                                                                                      |   |                     |  
|                                                                                      |   |                     |  
|Supplemental cash flow information:                                                   |   |                     |  
|Interest paid                                                                         | $ | 41,102              |  
|Income taxes paid                                                                     | $ | -                   |  
|                                                                                      |   |                     |  
|Non cash financing activities:                                                        |   |                     |  
|Stock issued for services                                                             | $ | 19,020              |  
|Stock issued for other accrued liabilities                                            |   | 542,607             |  
|Stock issued for convertible
      notes payable                                      |   | -                   |  
|Subordinated notes payable issued for
      convertible notes payable                 |   | -                   |  

See accompanying notes to condensed consolidated financial
statements

28

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|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.

(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.

29

---

(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) Income/(Loss) Per Share

Basic and diluted income/(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 follows ASC subtopic
740-10 (formerly Statement of Financial Accounting Standard No. 109,
(Accounting for Income Taxes) for recording the provision for income taxes.
ASC 740-10 requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability each period. If available evidence
suggests that is more likely than not that some portion of all of the deferred
tax assets will not be realized, a valuation allowance is required to reduce the
deferred tax assets to the amount that is more likely than not to be realized.
Future changes in such valuation allowance are included in the provision for
deferred income taxes in the period of change.

Deferred income taxes may arise
from temporary differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods. Deferred taxes are
classified as current or non-current, depending on the classification of assets
and liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected 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 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 have $25,000 reserves for bad debt at
June 30, 2011.

30

---

(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) Recent Pronouncements

In January 2010, FASB issued ASU
No. 2010-06  Improving Disclosures about Fair Value Measurements. This update
provides amendments to Subtopic 820-10 that requires new disclosure as follows:
1) Transfers in and out of Levels 1 and 2. A reporting entity should disclose
separately the amounts of significant transfers in and out of Level 1 and Level
2 fair value measurements and describe the reasons for the transfers. 2)
Activity in Level 3 fair value measurements. In the reconciliation for fair
value measurements using significant unobservable inputs (Level 3), a reporting
entity should present separately information about purchases, sales, issuances,
and settlements (that is, on a gross basis rather than as one net number). This
update provides amendments to Subtopic 820-10 that clarifies existing
disclosures as follows: 1) Level of disaggregation. A reporting entity should
provide fair value measurement disclosures for each class of assets and
liabilities. A class is often a subset of assets or liabilities within a line
item in the statement of financial position. A reporting entity needs to use
judgment in determining the appropriate classes of assets and liabilities. 2)
Disclosures about inputs and valuation techniques. A reporting entity should
provide disclosures about the valuation techniques and inputs used to measure
fair value for both recurring and nonrecurring fair value measurements. Those
disclosures are required for fair value measurements that fall in either Level 2
or Level 3. The new disclosures and clarifications of existing disclosures are
effective for interim and annual reporting periods beginning after December 15,
2009, except for the disclosures about purchases, sales, issuances, and
settlements in the roll forward of activity in Level 3 fair value measurements.
These disclosures are effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. The adoption of this
ASU did not have a material impact on the Companys financial statements.

In February 2010, FASB issued ASU
No. 2010-9 - Amendments to Certain Recognition and Disclosure Requirements. This
update addresses certain implementation issues related to an entitys
requirement to perform and disclose subsequent-events procedures, removes the
requirement that public companies disclose the date of their financial
statements in both issued and revised financial statements. According to the
FASB, the revised statements include those that have been changed to correct an
error or conform to a retrospective application of U.S. GAAP. The amendment is
effective for interim and annual reporting periods in fiscal year ending after
June 15, 2010. The adoption of this ASU did not have a material impact on the
Companys financial statements.

In December 2010, the FASB issued
Accounting Standards Update No. 2010-29, Disclosure of Supplementary Pro
Forma Information for Business Combinations (Topic 805)Business Combinations
(ASU 2010-29), to improve consistency in how the pro forma disclosures are
calculated. Additionally, ASU 2010-29 enhances the disclosure requirements and
requires description of the nature and amount of any material, nonrecurring pro
forma adjustments directly attributable to a business combination. ASU 2010-29
is effective for us in fiscal 2011 and should be applied prospectively to
business combinations for which the acquisition date is after the effective
date. Early adoption is permitted. The adoption of the ASU did not have a
material impact on the Companys financial statements.

In May, 2011, The FASB issued ASU
2011-4, Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and IFRS. The objective of this amendment is to
achieve common fair value measurement and disclosure requirements in U.S GAAP
and IFRS. This amendment is to ensure that fair value has the same meaning in
U.S. GAAP and IFRS and that their respective fair value measurement and
disclosure requirements are the same. This guidance is effective for the first
quarter of 2012. The Company does not expect that this authoritative guidance
will have any material effect on the Companys financial statements.

The Company has considered all
new accounting pronouncements and has concluded that there are no new
pronouncements that may have a material impact on results of operations,
financial condition, or cash flows, based on current information.

(n) Reclassifications

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

31

---

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 from our revolving line of credit
facility, equity sales and/or further shareholder loans and advances from
related parties 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. FIXED ASSETS

Fixed assets consisted of the following:

June 30,
    
    
    June 30,2011
    
    
    2010Computer hardware
    $
    118,978
    
    $
    109,337Leasehold improvements
    
    10,500
    
    
    10,500Opie/VMS installed
    
    11,295
    
    
    5,231Vehicles
    
    23,992
    
    
    23,992164,765
    
    
    149,060Accumulated depreciation
    
    (139,150
    )
    
    (114,538
    )$
    25,615
    
    $
    34,522


During the years ended June 30,2011 and 2010, depreciation
expense was $24,612 and $35,244 respectively.

4. OTHER ACCRUED LIABILITIES

Other accrued liabilities are as follows:

June 30,
    
    
    June 30,2011
    
    
    2010Accrued board fees
    $
    -
    
    $
    133,332Accrued salaries, officers
    
    -
    
    
    80,000Accrued rent, officer
    
    -
    
    
    61,505Accrued interest
    
    -
    
    
    218,176Payroll liabilities
    
    25,081
    
    
    1,569Sales tax payable
    
    40
    
    
    528$
    25,121
    
    $
    495,110


On June 24, 2011, the company issued 12,207,200 shares of our
common stock for conversion of accrued board fees ($137,062), salaries
($80,000), rent ($76,535), interest ($234,010) and trade payables ($14,999) due
our officers, directors and largest shareholder. The shares were issued at the
average quoted trade price for the period from May 16, 2011 through June 24,
2011 ($.04445). Remaining accrued board fees as of June 24, 2011 not converted
into equity ($46,270) were replaced with new subordinated notes payable.

32

---

5. SUBORDIINAED NOTES PAYABLE

Subordinated notes payable outstanding are as follows:

June 30,
    
    
    June 30,2011
    
    
    2010William S. Dickey
    $
    550,000
    
    $
    500,000Robert A. Morrison
    
    75,000
    
    
    80,500Charles Ferris
    
    18,770
    
    
    -Michael Yinger
    
    27,500
    
    
    -Greg Dickey
    
    20,000
    
    
    -Mira Fine
    
    20,000
    
    
    -$
    711,270
    
    $
    580,500


Expense on these notes bear interest at 12% and are on a month
to month term. The Company recorded $40,138 interest for the year ended June 30,
2011. Subsequent to June 30, 2011, $61,770 of these subordinated notes payable
have been paid by the Company.

6. LONG-TERM DEBT

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

The notes have an interest rate
of 15.499% and mature in three (3) years from the commencement date, and are
collateralized with the Companys personal property as defined in the loan and
security agreement. For the year ended June 30, 2011, we recorded $6,189 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, 2011,
we expensed $5,833.

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.

On December 30, 2010 the Company
entered into a loan payment modification/settlement agreement with the lender in
which we paid $65,000 as a one-time payment and will pay a remaining balance of
$36,000 as the settlement of the outstanding balance and accrued interest on
these notes. The discount on the notes was accrued into interest expense through
the date of the settlement agreement. For the year ended June 30, 2011 we
recorded $2,689 as additional interest expense and amortized $5,833 of other
assets. The lender also subordinated to our subordinated notes payable. The
$36,000 will be paid at $3,000 a month through January 10, 2012 at zero
interest. As of June 30, 2011, $21,000 remains outstanding pursuant to the
modification/settlement agreement.

7. NOTE PAYABLE

On December 17, 2010, the Company
entered into a one year promissory note with a commercial bank. The note is a
revolving line of credit, wherein the Company can receive advances up to
$250,000. The note bears interest at 3.85% and is guaranteed pursuant to a
Guaranty Fee Agreement between William S. Dickey and the Company, wherein the
Company pays Mr. Dickey a monthly fee of $1,250 to provide the guaranty. At June
30, 2011 the Company had $150,000 outstanding on this line of credit.

33

---

8. INCOME TAXES

The Company follows ASC subtopic
740-10 (formerly Statement of Financial Accounting Standard No. 109,
(Accounting for Income Taxes) for recording the provision for income taxes.
ASC 740-10 requires the use of the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred tax assets and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected to
be realized or settled. Deferred income tax expenses or benefits are based on
the changes in the asset or liability each period. If available evidence
suggests that is more likely than not that some portion of all of the deferred
tax assets will not be realized, a valuation allowance is required to reduce the
deferred tax assets to the amount that is more likely than not to be realized.
Future changes in such valuation allowance are included n the provision for
deferred income taxes in the period of change.

Deferred income taxes may arise
from temporary differences resulting from income and expense items reported for
financial accounting and tax purposes in different periods. Deferred taxes are
classified as current or non-current, depending on the classification of assets
and liabilities to which they relate. Deferred taxes arising from temporary
differences that are not related to an asset or liability are classified as
current or non-current depending on the periods in which the temporary
differences are expected to reverse.

The Companys operations for the
year ended June 30, 2010 resulted in losses, thus no income taxes have been
reflected in the accompanying statements of operations. The Companys operations
for the year ended June 30, 2011 resulted in income but was offset by operating
loss carry-forwards.

As of June 30, 2011, the Company
has net operating loss carry-forwards which may or may not be used to reduce
future income taxes payable. Current Federal Tax Law limits the amount of loss
available to offset against future taxable income when a substantial change in
ownership occurs. Therefore, the amount available to offset future taxable
income may be limited. A valuation allowance has been recorded to reduce the net
benefit recorded in the financial statements related to this deferred asset. The
valuation allowance is deemed necessary as a result of the uncertainty
associated with the ultimate realization of these deferred tax assets.

9 COMMON STOCK

During fiscal year ended June 30,
2009 we: (a) issued 1,800,000 shares of our common stock for financial services
rendered to us (valued at $32,000) and (b) issued 250,000 shares of our common
stock for cancellation of $21,592 of accounts payable to a third party.

During fiscal year ended June 30,
2010 we: (a) issued 4,500,000 shares of our common stock for $225,000 which was
used to repay $150,000 of convertible and subordinated notes payable; (b) issued
15,500,000 shares of our common stock to convert $775,000 of convertible notes
payable; (c) issued 5,870,834 shares of our common stock to two officers for
cancellation of $181,996 of accrued salaries, and (d) issued 250,000 shares of
our common stock for services rendered to us.

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. These shares were issued on October 4, 2010.

On October 4, 2010 the Board
voted to issue 600,000 shares of our common stock for financial consulting
services rendered to us. We valued the 600,000 shares based on the quoted trade
price on October 4, 2010 ($.0097) and recorded $5,820 as stock for services
expense.

On April 27, 2011 our company
entered into a teaming agreement and employment agreement with Chester A.
Gilliam and his company WizardWorks Security Systems Inc. (the Subcontractor).
Under the agreement the Subcontractor will provide us with products and services
set out in the agreement (the Program) over a three (3) year period and the
company will compensate the Subcontractor for participation in the Program by
providing up to a $360,000 bonus and the company issued on March 1, 2011 500,000
shares of our companys common stock pursuant to the agreement. We valued the
500,000 shares based on the quoted trade price on March 1, 2011 ($.012) and
recorded $6,000 as stock for services expense.

On April 1, 2011 the Board voted
and the company issued 600,000 shared of our common stock to an employee. We
valued the 600,000 shares based on the quoted trade price on April 1, 2011
($0.012) and recorded $7, 200 as stock for services expense.

34

---

On June 24, 2011, the company
issued 12,207,200 shares of our common stock for conversion of accrued board
fees, salaries, rent and interest as well as some trade payables due our
officers, directors and largest shareholder. The shares were issued at the
average quoted trade price for the period from May 16, 2011 through June 24,
2011 ($.04445).

Pursuant to the 2005 Stock Option
Plan, the Board of Directors had granted 2,500,000 options under the plan of
which 1,300,000 were outstanding as of March 31, 2011. Effective June 24, 2011
the Board accepted the cancellation of the 1,300,000 stock options from three
employees, (with an exercise price of $.1667 per share) which were to expire on
March 22, 2012.

10. WARRANTS AND OPTIONS

At June 30, 2011 there are
1,000,000 outstanding warrants at a strike price of $.120 and expiring in
February 2013. There are no outstanding stock options.

11. CONCENTRATIONS AND CONTINGENCIES

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

Sales to one major customer
represented 93% of sales and 83% of accounts receivable for the year ended June
30, 2011.

12. FAIR VALUE MEASUREMENTS

The Company adopted ASC Topic
820-10 on July 1, 2010 to measure the fair value of its financial assets
required to be measured on a recurring basis. The adoption ASC Topic 820-10 did
not impact the Companys financial condition or results of operations. ASC Topic
820-10 establishes a fair value hierarchy that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). ASC Topic 820-10 defines fair values as the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants on the measurement date. A fair
value measurement assumes that the transaction to sell the asset or transfer the
liability occurs in the principal market for the asset or liability. The three
levels of the fair value hierarchy under ASC Topic 820-10 are described
below:

Level 1  Valuations based on quoted
prices in active markets or identical assets or liabilities that an entity has
the ability to access.

Level 2  Valuations based on quoted
prices for similar assets and liabilities in active markets, quoted prices for
identical assets and liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable for substantially the
full term of the assets or liabilities.

Level 3  Valuations based on inputs
that are supportable by little or no market activity and that are significant to
the fair value of the asset or the liability.

The Company has no level 3 assets or
liabilities.

The following table presents a
reconciliation of all assets and liabilities measured at fair value on a
recurring basis as of June 30, 2011:

|                          |   | Level 1 |  |  | Level 2 |  |  | Level 3 |  |   | Fair Value | 
|------------------------- | - | ------- |  |  | ------- |  |  | ------- |  | - | ---------- | 
|Cash and cash equivalents | $ | 13,341  |  |  | -       |  |  | -       |  | $ | 13,341     | 
|Trade accounts receivable |   | -       |  |  | 351,248 |  |  | -       |  |   | 351,248    | 
|Inventory                 |   | 62,424  |  |  |         |  |  | -       |  |   | 62,424     | 
|Other receivables         |   | -       |  |  | -       |  |  | -       |  |   | -          | 
|Trade accounts payable    |   | 103,058 |  |  |         |  |  | -       |  |   | 103,058    | 
|Accrued liabilities       |   | 25,121  |  |  |         |  |  | -       |  |   | 25,121     | 
|Notes payable             |   | 861,270 |  |  |         |  |  |         |  |   | 861,270    | 

35

---

The following table presents a
reconciliation of all assets and liabilities measured at fair value on a
recurring basis as of June 30, 2010:

|                          |   | Level 1 |  |  | Level 2 |  |  | Level 3 |  |   | Fair Value | 
|------------------------- | - | ------- |  |  | ------- |  |  | ------- |  | - | ---------- | 
|Cash and cash equivalents | $ | 34,915  |  |  | -       |  |  | -       |  | $ | $34,915    | 
|Trade accounts receivable |   | -       |  |  | 8,449   |  |  | -       |  |   | 8,449      | 
|Inventory                 |   | 86,045  |  |  |         |  |  | -       |  |   | 86,045     | 
|Other receivables         |   | -       |  |  | 7,913   |  |  | -       |  |   | 7,913      | 
|Trade accounts payable    |   | -       |  |  | 114,393 |  |  | -       |  |   | 114,393    | 
|Accrued liabilities       |   | -       |  |  | 495,110 |  |  | -       |  |   | 495,110    | 
|Notes payable             |   | -       |  |  | 580,500 |  |  |         |  |   | 580,500    | 

13 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.

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, 2011 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.

36

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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, 2011.

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, 2011 that have
materially or are reasonably likely to materially affect, our internal controls
over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

37

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE

Directors and Executive Officers, Promoters and Control
Persons

As of September 23, 2011, 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
    58
    November 9, 2005Robert A. Morrison
    President and
      Director
    47
    June 18, 2007Charles F. Ferris
    Chairman of the
      Board and Director
    65
    August 14, 2007Michael Yinger
    Secretary and
      Director
    55
    August 14, 2007


Business Experience

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

Mark Lana, Chief Executive Officer, Treasurer, and
Director

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

Mr. Lana has been an entrepreneur for over 30 years. He owned
and operated several multi-unit and corporate extended stay hotels. 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
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.

38

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

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

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

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

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

Michael Yinger, Secretary and Director

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

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

Committees of the Board

Audit Committee

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

Nominating Committee

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

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.

Involvement in Certain Legal Proceedings

None of our directors, executive officers, promoters or control
persons has been involved in any of the following events during the past ten
years:

1. A petition under the Federal bankruptcy laws or any state
insolvency law was filed by or against, or a receiver, fiscal agent or similar
officer was appointed by a court for the business or property of such person, or
any partnership in which he was a general partner at or within two years before
the time of such filing, or any corporation or business association of which he
was an executive officer at or within two years before the time of such
filing;

39

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2. Such person was convicted in a criminal proceeding or is a
named subject of a pending criminal proceeding (excluding traffic violations and
other minor offenses);

3. Such person was the subject of any order, judgment, or
decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from, or
otherwise limiting, the following activities:

| | i.   | Acting as a futures commission merchant, introducing
      broker, commodity trading advisor, commodity pool operator, floor broker,
      leverage transaction merchant, any other person regulated by the Commodity
      Futures Trading Commission, or an associated person of any of the
      foregoing, or as an investment adviser, underwriter, broker or dealer in
      securities, or as an affiliated person, director or employee of any
      investment company, bank, savings and loan association or insurance
      company, or engaging in or continuing any conduct or practice in
      connection with such activity
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ii.  | Engaging in any type of business practice; or                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | iii. | Engaging in any activity in connection with the purchase
      or sale of any security or commodity or in connection with any violation
      of Federal or State securities laws or Federal commodities
  laws;                                                                                                                                                                                                                                                                                                                                                                                                                           

4. Such person was the subject of any order, judgment or
decree, not subsequently reversed, suspended or vacated, of any Federal or State
authority barring, suspending or otherwise limiting for more than 60 days the
right of such person to engage in any activity described in paragraph (f)(3)(i)
of this section, or to be associated with persons engaged in any such
activity;

5. Such person was found by a court of competent jurisdiction
in a civil action or by the Commission to have violated any Federal or State
securities law, and the judgment in such civil action or finding by the
Commission has not been subsequently reversed, suspended, or vacated;

6. Such person was found by a court of competent jurisdiction
in a civil action or by the Commodity Futures Trading Commission to have
violated any Federal commodities law, and the judgment in such civil action or
finding by the Commodity Futures Trading Commission has not been subsequently
reversed, suspended or vacated;

7. Such person was the subject of, or a party to, any Federal
or State judicial or administrative order, judgment, decree, or finding, not
subsequently reversed, suspended or vacated, relating to an alleged violation
of:

| | i.   | Any Federal or State securities or commodities law or
      regulation; or                                                                                                                                                                                                                                                
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |      |                                                                                                                                                                                                                                                                                                                           
| | ii.  | Any law or regulation respecting financial institutions
      or insurance companies including, but not limited to, a temporary or
      permanent injunction, order of disgorgement or restitution, civil money
      penalty or temporary or permanent cease-and-desist order, or removal or
      prohibition order; or
| |      |                                                                                                                                                                                                                                                                                                                           
| | iii. | Any law or regulation prohibiting mail or wire fraud or
      fraud in connection with any business entity; or                                                                                                                                                                                                            

8. Such person was the subject of, or a party to, any sanction
or order, not subsequently reversed, suspended or vacated, of any
self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act
(15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29)
of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange,
association, entity or organization that has disciplinary authority over its
members or persons associated with a member.

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;

40

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

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

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

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

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

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

Audit Committee Financial Expert

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

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

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act requires our
executive officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and transactions in, our
securities with the Securities and Exchange Commission and to provide us with
copies of those filings. Based solely on our review of the copies of such forms
received by us, or written representations from certain reporting persons, we
believe that during fiscal year ended June 30, 2011, all filing requirements
applicable to its officers, directors and greater than ten percent beneficial
owners were complied with.

41

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ITEM 11. EXECUTIVE COMPENSATION

The particulars of compensation paid to the following
persons:

SUMMARY COMPENSATION TABLENameand PrincipalPosition
    Year
    Salary($)
    Bonus($)
    StockAwards($)
    OptionAwards($)
    Non-EquityIncentivePlanCompensa-tion($)
    NonqualifiedDeferredCompensationEarnings($)
    AllOtherCompensa-tion($)
    Total($)Mark Lana(1)Chief ExecutiveOfficer, Treasurer
    2011 2010
    $Nil $Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil Nil
    80,000 (3)Nil
    80,000 NilRobert A.
      Morrison(2)President
    2011 2010
    $Nil $Nil
    Nil Nil
    Nil Nil
    Nil Nil
    Nil N/A
    Nil N/A
    Nil N/A
    Nil Nil


|(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.
|    |                                                                                                                                                                                                                                                                                                                                                 
|(3) | On June 24, 2011 the Company converted $80,000 of
      deferred salary to Mr. Lana into equity, issuing him 1,799,800 shares of
      common stock.                                                                                                                                                                                            

Stock Options/SAR Grants

There were no equity or and non-equity awards granted to the
named executives in 2011:

Outstanding Equity Awards at Fiscal Year End

There were no outstanding equity awards as of June 30, 2011.

Option Exercises

During our Fiscal year ended June 30, 2011 there were no
options exercised by our named officers

42

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Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers. We have no
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 the board of directors or
a committee thereof.

Indebtedness of Directors, Senior Officers, Executive
Officers and Other Management

None of our directors or executive officers or any associate or
affiliate of our company during the last two fiscal years, is or has been
indebted to our company by way of guarantee, support agreement, letter of credit
or other similar agreement or understanding currently outstanding.

Family Relationships

There are no family relationships between any of our executive
officers or directors.

Compensation of Directors

Compensation to our independent directors is $25,000 annually
which may be deferred until we have the ability to pay, at which time the board
members have the option to received cash or convert to common equity.

On June 23, 2011 there was $183,332 of accrued board fess
through the period ending June 30, 2011. On June 24, 2011, We issued the
following shares and entered into subordinated notes payable to our two (2)
independent directors for payment of the $183,332 accrued board fees.

NewShares
    
    
    SubordinatedIssues
    
    
    NotesCharles Ferris
    
    1,640,000
    
    $
    18,770Michael Yinger
    
    1,443,600
    
    
    27,5003,083,600
    
    $
    46,270


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 30, 2011, there were 82,623,836 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,

43

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there is no person known to us who beneficially owns more than
5% of our common stock. The number of shares beneficially owned is determined
under rules of the Securities and Exchange Commission and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under such
rules, beneficial ownership includes any shares as to which the individual has
the sole or shared voting power or investment power and any shares which the
individual has the right to acquire within 60 days of September 30, 2011 through
the exercise of any stock option or other right. Unless otherwise noted, we
believe that each person has sole investment and voting power (or shares such
powers with his or her spouse) with respect to the shares set forth in the
following table:

Name and Address of Beneficial
      Owner
    Amount and Nature of
      Beneficial Ownership(1)
    Percent of
      Class(1)Mark Lana 1800 Boulder Street, Suite 600
      Denver, CO 80211
    7,018,578
    8.49%Robert A. Morrison 1800 Boulder
      Street, Suite 600 Denver, CO 80211
    15,749,082
    19.06%Chuck Ferris 11612 E.
      2ndAve Aurora, CO 80010
    2,500,000
    3.03%Michael Yinger 10940 S. Parker Road,
      Suite 151 Parker, CO 80134
    2,373,600(3)
    2.87%Directors and Executive Officers as a
      group (4 people)
    27,641,260
    33.45%William S. Dickey 6130 S. Elm Court
      Centennial, CO 80121
    22,521,000(2)
    27.26%


|(1) | Based on 82,623,836 shares of common stock issued and
      outstanding as of September 30, 2011. 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 5,000,000 shares to DQ Investment Group, a
      family partnership controlled by Mr. Dickey.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Includes 250,000 shares to Pythia, a Company under
      control of Mr. Yinger.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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.

44

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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, 2011 and 2010:

Services
    
    2011
    
    
    2010Audit fees
    $
    31,500
    
    $
    30,750Tax fees
    $
    Nil
    
    $
    NilAll other fees
    $
    Nil
    
    $
    NilTotal fees
    $
    31,500
    
    $
    30,750


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

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

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

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

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

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

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

45

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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).                                                                                                                                          
|3.3            | Certificate of Change filed with
        the Nevada Secretary of State on December 1, 2009 (incorporated by reference
        from our Quarterly report on Form 10-Q filed on February 12, 2010).                                                                  
|(4)            | Instruments
        Defining the Rights of Security Holders, Including Indentures                                                                                                                                                                                  
|4.1            | 2005 Stock Option Plan of HS3
        Technologies, Inc. (incorporated by reference from our Current Report
        on Form 8-K filed on November 10, 2005).                                                                                                       
|(10)           | Material Contracts                                                                                                                                                                                                                                                 
|10.1           | Share Purchase Agreement dated
        March 5, 2005 among Zeno Inc., Linda Smith, Acropolis Investment Holdings,
        LLC and Gregory S. Yanke Law Corporation (incorporated by reference from
        our Current Report on Form 8-K filed on March 10, 2005).
|10.2           | Asset Purchase
        Agreement dated August 31, 2005, between Zeno Inc. and IP-Colo, Inc. (incorporated
        by reference from our Current Report on Form 8-K filed on September 16,
        2005).                                                           
|10.3           | Surveillance Instalment and Training
        Agreement dated December 20, 2005 (incorporated by reference from our
        Current Report on Form 8-K filed December 23, 2005).                                                                                    
|10.4           | Partnership Agreement
        with Wright-Hennepin Cooperative Electric Association (incorporated by
        reference from our Current Report on Form 8-K filed on June 11, 2007).                                                                                
|10.5           | Distribution Agreement with Autostar
        Technology Private Limited. (incorporated by reference from our Current
        Report on Form 8-K filed on April 4, 2007).                                                                                           
|10.6           | Warrant Purchase
        Agreement dated November 6, 2007 (incorporated by reference from our Current
        Report on Form 8-K on November 20, 2007)                                                                                                             
|10.7           | Agreement with the American Humane
        Association (incorporated by reference from our Current Report on Form
        8-K filed on August 14, 2008)                                                                                                            
|10.16          | Master Subcontract
        Agreement effective December 10, 2010 with Insight Direct USA, Inc. (incorporated
        by reference from our Current Report on Form 8-K filed April 28, 2011)                                                                        
|10.17          | Teaming Agreement and Employment
        Agreement dated February 1, 2011 with Chester Gilliam (incorporated by
        reference from our Current Report on Form 8-K filed April 28, 2011).                                                                       
|(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).                                                                                                                                                                                                            

46

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|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

47

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SIGNATURES

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

HS3 TECHNOLOGIES INC.

|By: | /s/ Robert A. Morrison                                             | 
|--- | ------------------------------------------------------------------ | 
|    | Robert A. Morrison                                                 | 
|    | President and Director                                             | 
|    | Principal Executive Officer                                        | 
|    | Date: October 5, 2011                                              | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Mark Lana                                                      | 
|    | Mark Lana                                                          | 
|    | Chief Executive Officer,
      Treasurer, and Director             | 
|    | Principal Accounting Officer and
      Principal Financial Officer | 
|    | Date: October 5, 2011                                              | 

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: October 5, 2011                                              | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Mark Lana                                                      | 
|    | Mark Lana                                                          | 
|    | Chief Executive Officer,
      Treasurer, and Director             | 
|    | Principal Accounting Officer and
      Principal Financial Officer | 
|    | Date: October 5, 2011                                              | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Charles F. Ferris                                              | 
|    | Charles F. Ferris                                                  | 
|    | Chairman of the Board and
      Director                           | 
|    | Date: October 5, 2011                                              | 
|    |                                                                    | 
|    |                                                                    | 
|    |                                                                    | 
|By: | /s/ Michael Yinger                                                 | 
|    | Michael Yinger                                                     | 
|    | Secretary and Director                                             | 
|    | Date: October 5, 2011                                              | 

48

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