UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-KSB/A (Mark One) x
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the fiscal year endedJune
      30, 2006[
    ]
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934For the transition period from[
    ]to[
    ] Commission file number001-32289  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 number303.455.2550 Securities registered pursuant to Section 12(b) of the Act: Title of each
      classNil
    
    Name of each
      exchange on which registeredNil Securities registered pursuant to Section 12(g) of the Act: Common Shares,
      par value $0.001(Title of class) Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yesx
    No [
    ] Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ] State issuers revenues for its most recent fiscal
year.$42,409 Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12-b-2 of theExchange
Act). Yes [  ]
    
    Nox       - 2 -   State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked prices of such common
equity, as of a specified date within 60 days. (See definition of affiliate in
Rule 12b-2 of the Exchange Act.) Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated. 8,344,827 common shares @ $0.33(1) =
$2,753,792.90 (1) Average of bid and ask closing prices on October 3,
2006. (ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE
YEARS) Check whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a
court.     Yes [
]     No [ ] (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. 17,491,491 common shares issued and outstanding as of October 3,
2006 DOCUMENTS INCORPORATED BY REFERENCE If
the following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which
the document is incorporated: (1) any annual report to security holders; (2) any
proxy or information statement; and (3) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 (Securities Act). The listed
documents should be clearly described for identification purposes (e.g., annual
report to security holders for fiscal year ended December 24, 1990). Transitional Small Business Disclosure Format (Check
      one):
    Yes [
    ]
    Nox.       - 3 -   PART I Item 1.
    Description of Business. This annual report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. These statements relate to future
events or our future financial performance. 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. In this annual report, unless otherwise specified, all dollar amounts are
expressed in United States dollars and all references to common shares refer
to the common shares in our capital stock. As used in this annual report, the terms we, us, our, and HS3
mean HS3 Technologies, Inc., unless the context clearly requires
otherwise. 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 in the State of Nevada on January 28, 2003 with
authorized capital of 200,000,000 shares of common stock with a par value of
$0.001 and 10,000,000 shares of preferred stock with a par value of $0.001 under
the name Zeno, Inc.. Following our incorporation, we focused our business
efforts on establishing our company as an exploration stage mineral exploration
company, with claims on properties located in the Thunder Bay Mining District of
Ontario, Canada. We were not successful in implementing our business plan or successful in
raising sufficient capital to explore our properties in any material way. As
management of our company investigated opportunities and challenges involved
with financing and exploring our properties, management realized that the
business did not present the best opportunity for our company to realize value
for our stockholders. Accordingly, we abandoned our exploration plan and focused
on the identification of sustainable businesses with which to enter into a
business opportunity or business combination. In October 2005, we changed our name to HS3 Technologies, Inc. and
changed our year end from March 31 to June 30. On November 9, 2005, we acquired ip-Colo, Inc., in a reorganization,
which was a development stage corporation organized in Colorado on December 24,
2004. On the date of the reorganization, we were a non-operating entity without
any assets or liabilities.      - 4 -   Immediately prior to the reorganization, we had a total of 19,405,750
shares of issued and outstanding common stock. The reorganization was entered
into pursuant to an Asset Purchase Agreement whereby we issued 403,130 shares of
common stock to the stockholders of ip-Colo, Inc. for all of the previously
issued and outstanding common stock of ip-Colo, Inc.. Concurrently, we cancelled
2,317,380 shares of common stock outstanding upon agreement with stockholders. As a consequence of the reorganization, the former ip-Colo, Inc.
stockholders owned approximately 57.6% of the resultant 17,491,500 outstanding
shares of our common stock. The reorganization was recorded as a
recapitalization effected by a reverse acquisition wherein we were treated as
the acquiree for accounting purposes, even though we were the legal acquirer.
Accordingly, the results of operations included in the financial statements
consist solely of the accounting acquirer, ip-Colo, Inc. since its December 24,
2004 inception and our company from the date of reorganization. Since our
company as the accounting acquiree was previously inoperative, goodwill was not
recorded. On September 6, 2006, we effected a 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. We are a development stage company with minimal revenues in the business
of providing satellite-based internet connectivity for businesses and
households. Our Current Business Following the closing of the agreement with ip-Colo, Inc., our company
commenced the development of the internet services and wireless technology
acquired from ip-Colo, Inc. We intend to provide customers with complete integrated solutions to
high-speed internet and surveillance needs. We will supply high-speed 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 high-speed
internet cost effectively. Our integrated operating system provides real-time access through our
satellite network to deliver 24/7 security information that is available via the
internet to authorized personnel, with the proper security clearance. Additional
biometric technology can be added to ensure user identity interface. We will provide satellite internet broadband access at high-speeds, web
hosting services, the ability to observe activities around remote facilities
with digital IP cameras, as well as advanced biometrics for time and attendance
and access control. We are nearing completion of a solar powered, standalone video
transmission platform. Easily deployed, the unit will transmit video using our
DVR via satellite or a cellular network to observers at remote locations.
Potentially the units would 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 there is no access to electric
networks. We plan to continue building a sales network capable of selling our
unique products to all of the continental United States. Market Our business involves using wireless technologies, integrated with our
high-speed internet via satellite to provide real-time security and monitoring
for many industries. We intend to target: 
    The oil and gas industry for
      their surveillance systems to monitor the activity and flows from each
      well and along pipelines.       - 5 -    
    Rural America to have
      satellite technology for high speed internet, video/television service and
      VOIP.
    Any industry concerned with
      security surveillance using CCTV which will be more accessible by using
      satellite technology.
    Government/Homeland Security
      concerns by supplying visual and capacity flow information for
      installations such as water supply, chemical plants, and other sensitive
      sites.
    Food industry locations to use
      cameras and satellite transmissions that will allow the owner/operators to
      view employees, customers, and transactions 24 hours a
  day.
    Multi-family units and office
      complexes to provide high-speed internet, television and phone services to
      its tenants in a faster more efficient cost effective
  manner. Sales and Marketing Strategy We believe that our services will be in high demand for the
above-mentioned markets because of the following: 
    The satellite signal will be
      accessible in all areas of the United States and Canada even in the most
      remote regions.
    Cost savings will be realized
      by consumers who will be able to bundle services such as cable/satellite
      television, high speed internet, and VOIP.
    Our wireless technology
      exceeds the capabilities of current wireless internet because we can
      incorporate high speed internet, VOIP, real-time video/television, and
      telephone services.
    In addition, as part of our
      total security package, we will distribute the most advanced biometric
      authentication devices to assist management in eliminating fraudulent
      employee clocking-in. Manufacturing Manufacturing of our products will be contracted to third parties. These
contract manufacturers have expertise in the manufacturing of products such as
ours. We will rely on these contract manufacturers to produce high quality
products for sale to our customers. Competition We will face competition from companies providing internet access through
a variety of services, including satellite, traditional dial-up, DSL, cable
modem, ISP and terrestrial wireless connections. 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
have. 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 face competition from
three types of internet access providers: Ka-band satellite broadband providers,
Ku-band satellite broadband providers and terrestrial internet access providers.
We expect to encounter a number of challenges in competing with companies
already providing terrestrial internet access. Many of these companies have an
entrenched position in the marketplace and lower upfront installation charges
than ours. We also expect that their monthly subscription fees may be lower than
ours. Many of the major cable companies are deploying or plan to deploy
broadband internet access over their cable networks, often bundled with cable
television access. Other terrestrial wireless companies have also announced
plans to offer broadband internet access using multi-channel multi-point
distribution service, or MMDS, or local multi-point distribution service
technologies. As the demand for high-speed internet access and other broadband
services increases, so will competition. 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 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 upon     - 6 -   which we will be dependent. 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 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 companys 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 additional specialized applications; and (iii) expansion
and adaptation of existing products to accommodate the requirements of customer
needs. Research and development efforts are conducted in-house and/or by
contracted consultants. Intellectual Property Our company owns and operates the duly registered internet domain name:
www.HS3Tech.com. The information contained in our website is not part of this
current report. Employees As of October 3, 2006, our company had 6 full-time employees and no
part-time employees. Of those employees, none are covered by collective
bargaining agreements. Description of Property Our principal executive offices are located at 1800 Boulder Street, Suite
600, Denver, Colorado, USA 80211. The 3,000 square foot space is leased for
$4,000 per month from an officer and stockholder of our company, for a 3-year
term that commenced on October 1, 2005. We believe that our principal office
will be adequate for our needs for the next 3 years. Critical Accounting Policies We believe our revenue recognition policies are in compliance with all
applicable accounting regulations. In summary, we recognize revenues from the
sale of satellite and surveillance systems when it can be determined that
persuasive evidence of an arrangement exists, delivery and acceptance has
occurred, the revenues are established or determinable and collectability is
probable. RISK FACTORS Much of the information included in this quarterly 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
quarterly report that important factors in some cases have affected and, in the     - 7 -   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 our company is 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
  products; 
    increase our marketing efforts; 
    acquire complementary businesses, 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 or
equity financing. 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 stockholders. Obtaining commercial loans,
assuming those loans would be available, will increase our liabilities and
future cash commitments. If we are unable to obtain financing in the amounts and
on terms deemed acceptable to us, we may be unable to implement our business and
growth strategies, respond to changing business or economic conditions,
withstand adverse operating results, consummate desired acquisitions or compete
effectively. We operate in a highly-competitive industry and our failure to compete
effectively may adversely affect our ability to generate
revenue. Management is aware of similar products which compete directly with our
products and some of the companies developing these products 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 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 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 of internet services and
related security products. Such 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     - 8 -   cost-effective enhancements and additions to our technology and to
introduce new products and services that meet customer demands. We expect new
products and services to be developed and introduced by other companies that
compete with our products and services. The proliferation of new and established
companies offering similar services and products may reduce demand for our
particular products. 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 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 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 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 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. 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 products and implement our business objectives could be
adversely effected. To continue our growth, 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 in sales and marketing. We have encountered competition for these
personnel. We may not be able to find or retain qualified personnel, which will
have a material adverse impact on our business. Risks Related To Our Industry Risks relating to satellite launch and operations could prevent us from
commencing operations or further expanding our business. If we fail to negotiate contracts with one or more of our satellite
providers, we might not be able to offer our services. A significant percentage
of satellites never become operational because of launch failure, satellite
destruction or damage during launch, or improper orbital placement. Whomever we
enter into an agreement with for satellite services might not be able to
successfully launch or operate the satellites, and our contractual remedies will
not adequately compensate us for lost revenue. We will not be able to offer any
service and generate any revenue until we have access to satellite bandwidth.      - 9 -   Delays in the construction and launch of satellites are common, and
performance failure by satellite and launch contractors could delay the
introduction or expansion of our services and ability to meet our revenue
projections. We might not be able to timely introduce and expand our services and meet
our revenue expectations if there is a delay in manufacturing or launching
satellites that we will depend upon for satellite bandwidth. Delays in the
construction and launch of satellites are common, and there are limited
suppliers of these services. We must rely on third parties to construct and
launch satellites and then provide us with access to them. If any of these
parties become insolvent or fail to perform their obligations for us in a timely
manner, the introduction, operation or expansion of our services could be
delayed. If any of these parties default on their contracts, our contractual
remedies will not adequately compensate us for our lost revenue and our
anticipated competitive advantage. Failure to develop key vendor and service-provider relationships for
essential components of our business on acceptable terms or in a timely manner
could delay the introduction of our services and result in greater expenses than
we expect. We will depend on third parties to provide us with many services that
will be essential for the conduct of our business. If we fail to establish key
service-provider relationships on acceptable terms or in a timely manner, the
commencement of our services could be delayed and our costs could significantly
increase. We are in various stages of discussions with third parties to provide
these essential services, which most importantly, includes access to satellite
bandwidth at cost-effective prices. These relationships will be vital to our
ability to provide ourservices, to grow and add customers and to
efficiently operate our business. We might not be able to enter into these
relationships or do so on commercially reasonable terms or within the time
necessary to launch ourservices. If we do enter into these
relationships, our service providers and vendors might not be sufficiently
responsive to our needs or meet our performance standards, which could increase
our expenses, delay the introduction of our services or impair the quality of
ourservices. Our services depend on the development and integration of complex
technologies in a novel configuration that might not function as designed, which
might prevent us from offering our services as planned, or at all. Our services will require new applications of existing technology and the
complex integration of different technologies, which might not operate as
designed. Components of satellite, gateway and related technologies are still
being developed and have not yet been tested in actual operations. Hardware or
software errors in space or on the ground could increase costs, delay our
ability to offer ourservices, cause us to lose customers or prevent
us from offering our services at all, each of which could limit our ability to
generate revenue and become profitable. Premature failure of satellites that we will rely upon could hurt our
business reputation and projected revenue and earnings. Satellites have limited useful lives, and if one of the satellites were
to prematurely fail, it could adversely affect the quality of our services, our
business reputation, and our projected revenue and earnings. Any of the
satellites could fail before the end of their useful lives. There are many
causes for the in-orbit failure of satellites, including: - component failure; -
loss of power or fuel; - construction defects; - unexpected degradation of solar
panels; - mistakes in issuing commands to the satellite; - inability to control
the position, altitude, or orientation of the satellite; - disruptive military
actions or acts of war; and - damage or destruction due to solar storms or other
astronomical events, or collisions with space debris. Any premature failure
could hurt market acceptance of our services and our competitive position. Satellite technology has inherent limitations that could adversely affect
the quality of our service, customer retention, revenue growth and
profitability. The satellites that we will rely upon will operate in the Ka-band portion
of the radio-frequency spectrum. Satellites of this type have inherent
technological limitations, the most significant being latency and an occurrence
known as rain fade. In addition, two-way communications satellites generally
have a fixed capacity limitation. Each of these limitations could cause us to
lose customers and could adversely affect the quality of our service, revenue
and ability to achieve or sustain profitability. Latency: Latency is the delay
caused by the time it takes for data traveling in a network to travel up to one
of the satellites and back to earth. GEO satellites have a relatively high
round-trip latency     - 10 -   compared to satellite systems closer to the earth or broadband systems
located on the earth. While the latency of low-orbit satellite and
terrestrial-based broadband signals is approximately 30 to 70 milliseconds, the
latency of GEO satellite signals is approximately 250 milliseconds, or
one-quarter of a second. This relatively high latency will prevent our satellite
system from supporting, in a high-quality fashion, time-sensitive services such
as toll-quality voice calls and highly interactive games, or similar products
and services that may be developed and introduced over broadband networks in the
future. This limitation could affect our ability to compete with other broadband
internet services, such as terrestrial broadband services, that do not
experience similar latency. Rain Fade: Rainfall affects Ka-band signals more
severely than signals in the lower frequency satellite communication bands
currently in use, such as Ku-band. This occurrence is known as rain fade. Our
service could slow down or even stop during periods of heavy rain. This
limitation could adversely impact the quality and market acceptance of our
services. Fixed Capacity: Satellites have a fixed amount of capacity to handle
two-way data traffic. As a result, we might not be able to meet our customers
transmission speed expectations. The transmission speeds we can deliver to our
customers at any particular time depend on several factors that we cannot
predict, such as the number of customers online at any one time, the connection
speeds used by these customers, their usage patterns, the types and quantity of
content accessed over our system and the geographic location of our customers.
Although we have designed our system to account for anticipated usage patterns,
we might not be able to provide a satisfactory broadband experience for our
customers at all times due to capacity constraints. If we do not have sufficient
capacity on a particular satellite or in a specific geographic region to meet
the peak demand levels, some of our customers will experience service
degradation, such as slower than expected access speeds, which could damage our
business reputation, cause customer dissatisfaction and result in a loss of
customers. Installing additional capacity or reallocating existing capacity
could be expensive and time consuming. As a result, our fixed-capacity
limitation could negatively affect our revenue. Our services will face intense competition from providers of terrestrial
broadband services and other satellite system operators, and if we cannot
effectively compete, we might be unable to expand our business and achieve
profitability. We will face competition from companies providing a wide variety of
wireless and wireline internet access services, some of which could have
distinct advantages over our service. We might not be able to effectively
compete with these companies, which could limit our revenue and our ability to
achieve, sustain or grow profitability. Some of these services require little or
no start-up costs for consumers, and they do not require consumers to install a
satellite dish. We could also experience increased competition from new
terrestrial wireless technologies, such as local multi-point distribution
services and multi-channel multi-point distribution services. Mergers, joint
ventures and alliances among franchise, wireless or private cable television
operators, regional Bell operating companies and others could result in
providers offering bundled telecommunications services in competition with us.
Increased competition might result in our inability to obtain significant market
share or compel us to reduce prices to remain competitive, which could result in
lower gross margins. Many of our competitors and potential competitors have widespread brand
recognition, existing partnerships with industry participants and greater
financial, marketing, distribution, technical and other resources than we do. As
a result, they might be able to respond more quickly than we can to new
opportunities and technologies. In addition, many of these competitors already
offer, or will offer, internet access packages integrated with other
communications services. Our ability to compete with these companies will depend
on our ability to provide substantially similar or better service at prices that
are competitive with those offered by these companies and to effectively market
our services. If we are not able to provide our service at competitive prices, our
sales will suffer. We might not be able to offer our services at prices competitive with
other broadband service providers, which could limit our sales and revenue
growth. The manufacturing and distribution costs of our system could be more
expensive than we anticipate, making it difficult for us to offer our service to
customers at prices that will induce them to purchase our services and allow us
to become profitable. Pricing of services to consumers in the telecommunications
and internet access industries, both of which have similarities to the broadband
service industry, have historically fallen, and we expect this to happen in the
broadband internet access industry as well. We initially intend to subsidize the
cost of acquiring and installing our CPE to encourage customers to make an
initial investment in our services. As competition to provide broadband internet
access services increases, we could be forced to lower prices for our services
if our competitors engage in volume-based pricing and other forms of price
competition. As a result, we     - 11 -   might not be able to compete successfully with existing or potential
competitors in the broadband internet access market. Our revenue growth depends on our ability to implement a successful
distribution strategy for our services. We intend to sell our services primarily through local satellite
television dealers, DBS service providers, national electronics and department
store chains and through wholesale channels such as communications service
providers. We might not be able to establish or maintain these relationships,
which could decrease our revenue. We have limited experience in developing
distribution relationships of this type. If we are unsuccessful in developing
additional distribution relationships, or if parties with which we develop
relationships do not perform as expected, our services might not achieve broad
market acceptance and our ability to grow our business could be significantly
harmed. Demand for our services might be insufficient for us to become
profitable. We cannot predict with certainty the potential consumer demand for our
services or the degree to which we will meet that demand. If demand for our
services does 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. Among other things, we believe that consumer acceptance of our
services will depend upon our ability to: - provide a competitively priced,
high-quality satellite broadband service; - successfully brand, market and sell
ourservices on a nationwide basis; - efficiently use established DBS
distribution channels; and - enter into and capitalize on additional strategic
distribution relationships. We will initially focus our sales and marketing
efforts to target the U.S. households and industries that will not have access
to terrestrial broadband services, such as DSL or cable modem service, at the
time we commence ourservices. 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. Rapid technological and industry changes could make our services obsolete
or outdated, which could cause our sales to suffer. The broadband communications industry is characterized by rapid
technological change, frequent product innovations, changes in customer
requirements and expectations, and evolving industry standards. If we are unable
to keep pace with these changes, our sales will suffer. Competitors could have
access to technologies not available to us, which might enable them to build a
system that is more appealing to consumers. Products and services using new
technologies, or emerging industry standards, could make our technologies
obsolete. Our success will depend in part on our ability to bring our services
to our target markets before competing technologies become widely accepted, as
well as our ability to adapt and implement new technologies and services. Failure to comply with existing, changing or new regulatory requirements
could prevent or delay our ability to implement our current business
plan. We are subject to the regulatory authority of the FCC, the frequency
coordination process of the International Telecommunication Union, or ITU, and
the regulatory requirements of other countries in which we plan to offer our
services. Failure to comply with existing, changing or new regulations could
prevent us from implementing our current business plan. Regulatory changes could
significantly impact our operations by, among other things: - adding terms and
conditions to the continuing effectiveness of our licenses; - changing blanket
licensing requirements for our CPE; - imposing fees or other charges, thereby
raising our compliance costs; - requiring that we relocate one or more of our
satellites to a different orbital location; - allocating remaining Ka-band
spectrum favorably to our competitors; and - making current products obsolete.
We might need to modify our services or operations to comply with new or changed
regulations. These modifications could be expensive and time consuming, and
could adversely affect our ability to provide our services cost effectively or
at all.      - 12 -   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; 
    trends or conditions in the internet service provider and satellite
      wireless industry; 
    changes in accounting treatments or
  principles; 
    changes in earnings estimates by securities analysts and in analyst
      recommendations; 
    changes in market valuations of other internet service provider and
      satellite wireless companies; 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 stockholders. 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 stockholders. Further, any such issuance may result in a
change of control of our corporation. If a market for our shares of common stock does not develop, stockholders
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 stockholders 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     - 13 -   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 National Association of Securities Dealers Inc., or NASD, 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 NASD has
adopted rules requiring 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, the NASD believes that there is a high probability that
speculative low-priced securities will not be suitable for at least some
customers. The NASD requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may limit our
stockholders ability to buy and sell our stock and which may have an adverse
effect on the market for our shares of common stock. 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, 2006 that we have incurred substantial
losses since inception, which raises substantial doubt abut our ability to
continue as a going concern. In the event we are not able to continue operations
you will likely suffer a complete loss of your investment in our securities. See
our auditors report on our consolidated financial statements elsewhere in this
Form 10-KSB. Any change to government regulation/administrative practices may have a
negative impact on our ability to operate and our profitability. The laws, regulations, policies or current administrative practices of
any government body, organization or regulatory agency in the United States or
any other jurisdiction, may be changed, applied or interpreted in a manner which
will fundamentally alter the ability of our company to carry on our
business.      - 14 -   The actions, policies or regulations, or changes thereto, of any
government body or regulatory agency, or other special interest groups, may have
a detrimental effect on us. Any or all of these situations may have a negative
impact on our ability to operate and/or our profitability. Our By-laws contain provisions indemnifying our officers and directors
against all costs, charges and expenses incurred by them. Our By-laws contain provisions with respect to the indemnification of our
officers and directors against all costs, charges and expenses, including an
amount paid to settle an action or satisfy a judgment, actually and reasonably
incurred by him, including an amount paid to settle an action or satisfy a
judgment in a civil, criminal or administrative action or proceeding to which he
is made a party by reason of his being or having been one of our directors or
officers. Item 2.
    Description of Property. Principal Offices Our principal offices are located at 1800 Boulder Street, Suite 600,
Denver, Colorado 80211-6400. Our telephone number at our principal office is
(303) 455-2550. The 3,000 square foot space is leased for $4,000 per month for a
3 year term that commenced on October 1, 2005. We believe that our principal
office is adequate for our needs. Item 3.
    Legal Proceedings. We know of no material, active 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.
    Submissions of Matters to a Vote of Security
    Holders. None. PART II Item 5.
    Market for Common Equity and Related Stockholder
      Matters. Our Common stock is quoted on the OTC Bulletin Board under the Symbol
HSTH. Our stock was originally approved for trading on the OTC Bulletin Board
under the symbol ZNNO. On November 25, 2005 our symbol was changed to HSTT
in connection with a change of name. On September 6, 2006 our symbol was changed
to HSTH in connection with a forward stock split. The following table reflects the high and low bid information for our
common stock obtained from Stockwatch 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 DealersOTC Bulletin BoardQuarter Ended(1)
    High
    LowJune 30, 2006
    $1.28
    $0.32March 31, 2006
    $2.64
    $1.04December 31, 2005
    $4.52
    $2.08September 30, 2005
    $n/a
    $n/a  (1)
    Our common stock received approval for quotation on July 20, 2005.
      The first trade occurred on October 12,
2005.       - 15 -   On October 3, 2006, the closing price for the common stock as reported by
the quotation service operated by the OTC Bulletin Board was $0.35. As of October 3, 2006, there were 42 holders of record of our common
stock. As of such date, 17,491,491 common shares were issued and outstanding. Our common shares are issued in registered form. Empire Stock Transfer
Inc., 7251 West Lake Mead Boulevard, Suite 300, Las Vegas, Nevada 89128-8351
(Telephone: (775) 562-4091; Facsimile: (775) 974-1444) is the registrar and
transfer agent for our common shares. Dividend Policy We have not paid any cash dividends on our common stock and have no
present intention of paying any dividends on the shares of our common stock. Our
current policy is to retain earnings, if any, for use in our operations and in
the development of our business. Our future dividend policy will be determined
from time to time by our board of directors. Recent Sales of Unregistered Securities In connection with the closing of the Agreement on November 9, 2005, we
issued an aggregate of 403,130 shares of common stock to the fourteen
shareholders of IPC. The shares of our common stock issued to the shareholders
of IPC were issued in reliance upon an exemption from registration in an
offering of securities pursuant to the United States Securities Act of 1933, as
amended. Equity Compensation Plan Information We have no long-term incentive plans, other than the Stock Option Plan
described below. Stock Option Plan On November 9, 2005, the Company adopted the 2005 Stock Option Plan for
its directors and employees, reserving a total of 2,500,000 shares of its common
stock for issuance pursuant to grants to be made under the stock option plan. As
of June 30, 2006, no options were granted under this 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 select in accordance with the 2005 Stock Option Plan, and to encourage
such persons to acquire a greater proprietary interest in our company, thereby
strengthening their incentive to achieve the objectives of the shareholders of
our company, and to serve as an aid and inducement in the hiring of new
employees and to provide an equity incentive to consultants. The exercise price of shares subject to any option must be at least 100%
of the fair market value of the shares on the date of grant. The maximum term of
any stock option is 5 years from the date the option is granted. The 2005 Stock
Option Plan shall terminate on November 9, 2015. Item 6.
    Plan of Operation. 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.      - 16 -   Plan of Operations We are a development stage company that has generated minimal
revenues. Our operating expenses consist mostly of general and administrative
expenses. The amount incurred by our company during the period from on inception
to June 30, 2006 was $472,686. We anticipate that we will require up to $1,500,000 for the 12 months
ending June 30, 2007 to develop our internet and wireless technology products
and provide for the expansion and adaptation of existing products to accommodate
the requirements of customer needs. Purchase of Significant Equipment We do not anticipate the purchase or sale of any plant or significant
equipment during the next twelve-month period. Personnel Plan We do not anticipate any significant changes in the number of employees
during the next twelve-month period. 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. Financial Condition, Liquidity and Capital Resources Our principal capital resources have been through the issuance of common
stock, although we may use shareholder loans, advances from related parties, or
borrowing in the future. At June 30, 2006, we had a working capital deficit of $449,357 compared
to working capital deficit of $5,841 as at June 30, 2005. At June 30, 2006, our total current assets were $144,905, which consists
of $13,616 cash, compared to total current assets of $3,969 as at June 30,
2005. At June 30, 2006, our total current liabilities were $675,845 compared to
total current liabilities of $7,810 as at June 30, 2005. At June 30, 2006, we had cash on hand of $13,616 compared to $3,041 as at
June 30, 2005. For the year ended June 30, 2006, we posted a net loss of $444,770
compared to $5,841 for the period from inception to June 30, 2005. Since
inception, we have posted a net loss of $450,611. The principal components of
the loss for the year ended June 30, 2006 were professional fees and general and
administrative fees. For the year ended June 30, 2006, we incurred operating expenses of
$462,826 compared to $472,686 for the period from incorporation to June 30,
2006. We estimate that our monthly burn rate will be $85,000. Cash Requirements We will require additional funds to implement our growth strategy in
exploration operations. These funds may be raised through equity financing, debt
financing, or other sources, which may result in further dilution in the equity
ownership of our shares. There is still no assurance that we will be able to
maintain operations at a level sufficient for an investor to obtain a return on
his investment in our common stock. Further, we may continue to be     - 17 -   unprofitable. Estimated Funding Required During the Twelve Month Period Ended June 30,
2007 Operating expensesSales and Marketing
    
    $
    90,000Research and Development
    
    
    15,000Consulting and Professional Fees and Wages
    
    
    10,000Product Development
    
    
    7,500Public Relations
    
    
    25,000Travel and Promotion
    
    
    15,000General and Administrative
    
    
    200,000Total
      Operating Expenses
    
    
    362,500Working Capital
    
    
    300,000Total
    
    $
    662,500 We currently anticipate that revenues will commence and increase in the
long-term as we increase our sales and marketing activities and introduce new
products relating to internet services and wireless technology. We expect to
keep our operating costs to a minimum until cash is available through operating
or financing activities. We anticipate that we will start generating modest
revenues from internet services and wireless technology within the next three
months, however, we are not in a position to predict whether we will be able to
generate sufficient sales revenues to meet operating expenses. There can be no assurance that additional financing will be available to
us when needed or, if available, that it can be obtained on commercially
reasonable terms. If we are not able to obtain the additional financing on a
timely basis, if and when it is needed, we will be forced to scale down or
perhaps even cease the operation of our business. On May 9, 2006, we entered
into a short term loan agreement with The Regency Group, LLC for a promissory
note of $100,000 which is due and payable on May 9, 2007. The annual interest
rate on this note is 8%. Going Concern Due to our being a development stage company and not having generated
significant revenues, in the Audit Report by our Independent Registered Public
Accounting Firm for the year ended June 30, 2006, our independent auditors
included an explanatory paragraph regarding substantial doubt about our ability
to continue as a going concern. We have historically incurred losses, and through June 30, 2006 have
incurred losses of $450,611 since our inception. Because of these historical
losses, we will require additional working capital to develop our business
operations. We intend to raise additional working capital through private
placements, public offerings, bank financing and/or advances from related
parties or shareholder loans. The continuation of our business is dependent upon obtaining further
financing and achieving a break even or profitable level of operations. The
issuance of additional equity securities by us could result in a significant
dilution in the equity interests of our current or future stockholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments. There are no assurances that we will be able to either (i) achieve a
level of revenues adequate to generate sufficient cash flow from operations; or
(ii) obtain additional financing through either private placements, public
offerings and/or bank financing necessary to support our working capital
requirements. To the extent that funds generated from operations and any private
placements, public offerings and/or bank financing are insufficient, we will
have to raise additional working capital. No assurance can be given that
additional financing will be available, or if available, will be on terms
acceptable to us. If adequate working capital is not available we may not
increase our     - 18 -   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 asset carrying amounts or
the amount 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. In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reported period. Actual results could differ
from those estimates. Revenue Recognition The Company follows the guidance of the Securities and Exchange
Commissions Staff Accounting Bulletin 104 for revenue recognition. In general,
the Company records 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. Inventory Inventory consists of finished goods purchased from third-party
manufacturers and is valued at the lower of average cost or market. Average cost
is determined using the first-in, first-out method of accounting. Recently Issued Accounting Standards SFAS No. 156, Accounting for Servicing of Financial Assets, SFAS No.
155 Accounting for Certain Hybrid Financial Instruments, SFAS No. 154,
Accounting Changes and Error Corrections  a replacement of APB Opinion No. 20
and FASB Statement No. 3 SFAS No. 151, Inventory Costs  an amendment of
ARB No. 43, Chapter 4 SFAS No. 152, Accounting for Real Estate Time-Sharing
Transactions - an amendment of FASB Statements No. 66 and 67, SFAS No. 153,
Exchanges of Non-monetary Assets  an amendment of APB Opinion No. 29, and
SFAS No. 123R (revised 2004), Share-Based Payment, were recently issued. SFAS
No. 151, 152, 153, 154, 155 and 123R (revised 2004) have no current
applicability to our company and have no effect on the financial
statements.      - 19 -    Item 7.
    Financial Statements. Our financial statements are stated in United States dollars (US$) and
are prepared in accordance with United States Generally Accepted Accounting
Principles. The following consolidated financial statements are filed as part of this
annual report: Reports of Independent Registered Public Accounting Firms              F1 - F2 Balance Sheet                                                                                                F3 Statements of Operations                                                                            F4 Statements of Changes in Stockholders Equity (Deficit)                       F5 Statements of Cash Flows                                                                            F6 Notes to the Consolidated Financial Statements                                     F7 - F15      - F1-  REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM  To
the Board of Directors HS3 Technologies, Inc. (a
development stage company) Denver, Colorado  We have audited the accompanying consolidated balance sheet of HS3
Technologies, Inc. (a company in the development stage-the Company) as of June
30, 2006 and the related consolidated statements of operations, stockholders
equity (deficit), and cash flows for the year ended June 30, 2006 and the
cumulative period from December 24, 2004 (inception) to June 30, 2006. We did
not audit the cumulative period from December 24, 2004 (inception) to June 30,
2005. Those amounts were audited by other auditors, whose report dated September
15, 2005 has been furnished to us, and our opinion, insofar as it relates to the
cumulative amounts from December 24, 2004 (inception) to June 30, 2005, is based
solely on the report of the other auditors. 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 audit.  We conducted our audit 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 misstatement. 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 also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.  In our opinion, based on our report and the report of the other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of HS3 Technologies, Inc. as of June 30, 2006,
and the results of its operations and its cash flows for the year then ended and
for the cumulative period from December 24, 2004 (inception) to June 30, 2006,
in conformity with accounting principles generally accepted in the United States
of America.  The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Companys lack of revenues and operating losses raise
substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.   Gordon, Hughes & Banks, LLP Greenwood Village, Colorado September 18, 2006           - F2- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM   To the Board of Directors and Shareholders  IPCOLO, Inc.  Denver, Colorado   We have audited the balance sheet of IPCOLO, Inc. (A Development Stage Company) as of June 30, 2005 and the related consolidated statements of operations, changes in stockholders equity and cash flows from inception (December 24, 2004) through June 30, 2005.  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 audit. We conducted our audit 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 misstatement.  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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IPCOLO, Inc. (A Development Stage Company) as of June 30, 2005, and the results of its operations and its cash flows from inception (December 24, 2004) through June 30, 2005 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 5 the Company has been in the development stage since inception and has no significant revenue generating operations. Realization of the Companys assets is dependent upon the Companys ability to meet its future financing requirements, and the success of future operations. These factors raise substantial doubt about the Companys ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary in the event that the Company cannot continue in existence.  Stark Winter Schenkein & Co., LLP  Denver, Colorado September 15, 2005      - F3- HS3 Technologies, Inc.(a development stage company)Consolidated Balance Sheet
    
    
    June 30,2006ASSETSCurrent AssetsCash and cash equivalents
    
    $
    13,616Accounts receivable
    
    
    9,946Inventory
    
    
    112,993Deposit on inventory
    
    
    8,350Total current assets
    
    
    144,905Furniture, fixtures and equipment, net of accumulated
      depreciationof $7,688
    
    
    80,329Total assets
    
    $
    225,234LIABILITIESCurrent LiabilitiesAccounts payable and accrued liabilities
    
    $
    75,845Convertible debenture
    
    
    500,000Note payable
    
    
    100,000Total Current Liabilities
    
    
    675,845STOCKHOLDERS EQUITYPreferred stock, $0.001 par value, 2,500,000 shares
      authorized;none issued or outstanding
    
    
    -Common stock, $0.001 par value, 50,000,000
      authorized;17,491,500 shares issued and outstanding
    
    
    17,492Additional paid-in capital
    
    
    (17,492)(Deficit) accumulated during development
    stage
    
    
    (450,611)Total stockholders equity (deficit)
    
    
    (450,611)Total liabilities and stockholders equity
      (deficit)
    
    $
    225,234The accompanying notes are an integral part of these
      consolidated financial statements       - F4-    HS3 Technologies, Inc.
    
    
    
    
    
    For the
    
    
    For the Cumulative(a development stage company)
    
    
    
    
    
    Period from
    
    
    Period fromFor the Year
    
    
    December 24, 2004
    
    
    December 24, 2004ended
    
    
    (inception) to
    
    
    (inception) toConsolidated Statements of Operations
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006Net sales
    
    $
    42,409
    
    $
    4,723
    
    $
    47,132Cost of goods sold
    
    
    23,099
    
    
    704
    
    
    23,803Gross profit
    
    
    19,310
    
    
    4,019
    
    
    23,329Operating expenses:Sales & marketing
    
    
    53,415
    
    
    -
    
    
    53,415General and administrative
    
    
    401,723
    
    
    9,860
    
    
    411,583Depreciation
    
    
    7,688
    
    
    -
    
    
    7,688Total operating expenses
    
    
    462,826
    
    
    9,860
    
    
    472,686Income (loss) from operations
    
    
    (443,516)
    
    
    (5,841)
    
    
    (449,357)Other income (expense)Interest income
    
    
    1,203
    
    
    -
    
    
    1,203Other expense
    
    
    (2,457)
    
    
    -
    
    
    (2,457)Total other income (expense)
    
    
    (1,254)
    
    
    -
    
    
    (1,254)Net (loss)
    
    $
    (444,770)
    
    $
    (5,841)
    
    $
    (450,611)Net (loss) per share-basic and diluted
    
    $
    (0.04)
    
    $
    (0.01)
    
    $
    (0.06)Weighted average number of common sharesoutstanding basic and diluted
    
    
    11,869,333
    
    
    625,000
    
    
    7,947,611The accompanying notes are an integral part of these
      consolidated financial statements       - F5-    HS3 Technologies, Inc.(a development stage company)Consolidated Statement of Stockholders Equity
      (Deficit)
    
    
    
    
    
    (Deficit)Period from December 24, 2004 (inception) to June 30,
      2006
    
    
    
    
    accumulated
    
    TotalAdditional
    
    during
    
    StockholdersCommon Stock
    
    Paid-in
    
    development
    
    EquityShares
    
    Amount
    
    Capital
    
    stage
    
    (deficit)Inception, December 24, 2004
    
    -
    $
    -
    $
    -
    $
    -
    $
    -Shares issued for cash
    
    625,000
    
    625
    
    375
    
    -
    
    1,000Contributed services
    
    -
    
    -
    
    1,000
    
    -
    
    1,000Net (loss) for the period ended June 30,
    2005
    
    -
    
    -
    
    -
    
    (5,841)
    
    (5,841)Balances as of June 30, 2005
    
    625,000
    
    625
    
    1,375
    
    (5,841)
    
    (3,841)Effect of recapitalization onNovember 9, 2005
    
    16,866,500
    
    16,867
    
    (18,867)
    
    -
    
    (2,000)Net (loss)
    
    -
    
    -
    
    -
    
    (444,770)
    
    (444,770)Balances as of June 30, 2006
    
    17,491,500
    $
    17,492
    $
    (17,492)
    $
    (450,611)
    $
    (450,611)The accompanying notes are an integral part of these
      consolidated financial statements       - F6-    HS3 Technologies, Inc.
    
    
    
    
    
    For the
    
    
    For the Cumulative(a development stage company)
    
    
    
    
    
    Period from
    
    
    Period fromFor the Year
    
    
    December 24, 2004
    
    
    December 24, 2004ended
    
    
    (inception) to
    
    
    (inception) toConsolidated Statements of Cash Flows
    
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    June 30, 2006Cash flows from operating activities:Net (loss)
    
    $
    (444,770)
    
    $
    (5,841)
    
    $
    (450,611)Adjustments to reconcile net (loss) to net
      cashprovided by (used in) operations:Depreciation
    
    
    7,688
    
    
    -
    
    
    7,688Contributed services
    
    
    -
    
    
    1,000
    
    
    1,000Effect of recapitalization
    
    
    (2,000)
    
    
    -
    
    
    (2,000)Changes in other current assets and
      liabilities:Accounts receivable
    
    
    (9,018)
    
    
    (928)
    
    
    (9,946)Inventory
    
    
    (112,993)
    
    
    -
    
    
    (112,993)Deposit on inventory
    
    
    (8,350)
    
    
    -
    
    
    (8,350)Accounts payable and accrued liabilities
    
    
    75,345
    
    
    500
    
    
    75,845Net cash (used in) operating activities
    
    
    (494,098)
    
    
    (5,269)
    
    
    (499,367)Cash flows from investing activities:Purchase of fixed assets
    
    
    (88,017)
    
    
    -
    
    
    (88,017)Net cash from (used in) investing
    activities
    
    
    (88,017)
    
    
    -
    
    
    (88,017)Cash flows from financing activities:Proceeds from convertible debenture
    
    
    500,000
    
    
    -
    
    
    500,000Issuance of common stock
    
    
    -
    
    
    1,000
    
    
    1,000Advance from stockholder
    
    
    (7,310)
    
    
    7,310
    
    
    -Proceeds from note payable
    
    
    100,000
    
    
    -
    
    
    100,000Net cash flow provided by financing
    activities
    
    
    592,690
    
    
    8,310
    
    
    601,000Increase in cash and cash equivalents
    
    
    10,575
    
    
    3,041
    
    
    13,616Cash and cash equivalents, beginning of
    period
    
    
    3,041
    
    
    -
    
    
    -Cash and cash equivalents, end of period
    
    $
    13,616
    
    $
    3,041
    
    $
    13,616Supplemental cash flow information:Interest paid
    
    
    -
    
    
    -
    
    
    -Income taxes paid
    
    
    -
    
    
    -
    
    
    -The accompanying notes are an integral part of these
      consolidated financial statements       - F7-    HS3 Technologies, Inc.(A development stage
      company)Notes
      to Consolidated Financial Statements  1.
Organization and Business HS3
Technologies, Inc. (a development stage company) was incorporated in Nevada on
January 28, 2003, and herein is referred to as the Company. 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. As
of June 30, 2006, the Company had minimal revenue and is in the development
stage of providing satellite-based internet connectivity for businesses and
households. The Company will market and sell internet-based services,
entertainment, and remote surveillance technologies. Principal activities to
date have consisted of organizing the Company, developing a business plan,
assembling a management team and network of professional consultants and
professionals, preliminary product design and capital formation. (a)
Reorganization on November 18, 2004 On
November 9, 2005, the Company acquired ip-Colo, Inc. in a reorganization, which
was a development stage corporation organized in Colorado on December 24, 2004
(herein referred to as ip-Colo). On the date of the reorganization, the
Company was a non-operating entity without any assets or liabilities. Immediately
prior to the reorganization, the Company had a total of 19,405,750 shares of
issued and outstanding common stock. The reorganization was entered into
pursuant to an Asset Purchase Agreement whereby the Company issued 403,130
shares of common stock to the stockholders of ip-Colo for all of the previously
issued and outstanding common stock of ip-Colo. Concurrently, the Company
cancelled 2,317,380 shares of common stock outstanding upon agreement with
stockholders. As
a consequence of the reorganization, the former ip-Colo shareholders owned
approximately 57.6% of the resultant 17,491,500 outstanding shares of the
Company common stock. The reorganization was recorded as a recapitalization
effected by a reverse acquisition wherein the Company is treated as the acquiree
for accounting purposes, even though it was the legal acquirer. Accordingly, the
results of operations included in the financial statements consist solely of the
accounting acquirer, ip-Colo since its December 24, 2004 inception and from the
date of reorganization. Since the accounting acquiree, the Company, was
previously inoperative, goodwill was not recorded. Effective
September 6, 2006, as described more fully in Note 10, the Company effected a
reverse one for four reverse stock split of authorized, issued and outstanding
common stock. The effects of the reverse stock split have been retroactively
presented in the historical and accompanying financial statements. (b)
Going Concern and Liquidity The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. At present, the Company is in the development
stage, is wholly reliant on its ability to raise additional capital for future
financing needs and has had minimal revenues, saleable product, service or other
business operations through June 30, 2006. These factors raise substantial doubt
about the Companys ability to continue as a going concern. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty. Management
plans to address this uncertainty include completion of product acquisition,
development of a sales force and initiating revenue producing activities. In the
first quarter of 2007, management continues to aggressively pursue alternative
financing arrangements to assist in meeting these goals.      - F8-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements 2.
Significant Accounting Policies (a)
Principles of Consolidation The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, ip-Colo. All inter-company balances and transactions
have been eliminated. (b)
Accounting Estimates The
preparation of these financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates and assumptions. (c)
Cash and Cash Equivalents Cash
equivalents comprise certain highly liquid instruments with a maturity of three
months or less when purchased. At June 30, 2006 cash and cash equivalents
consisted of cash. (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
the estimated useful lives of five (5) years. Depreciation expense for the
fiscal year ended June 30, 2006, the period from inception through June 30,
2005, and the cumulative period from inception to June 30, 2006 was $7,688, $0,
and $7,688 respectively. (e)
Inventory Inventory
consists of finished goods purchased from third-party manufacturers 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. The amount of
the impairment loss to be recorded is calculated by the excess of the assets
carrying value over its fair value. Fair value is generally determined using a
discounted cash flow analysis. (g)
Advertising Expenses The
Company expenses advertising costs as incurred. The Company incurred $69,259,
$0, and $69,259 advertising and promotion expenses for year ended June 30, 2006,
the period from December 24, 2004 (inception) through June 30, 2005, and the
cumulative period from inception to June 30, 2006, respectively.      - F9-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements 2.
Significant Accounting Policies (continued) (h)
Research and Development Costs The
Company has not incurred any research and development costs. (i)
Organization Costs The
Company accounts for organization costs under the provisions of Statement of
Position 98-5, Reporting on the Costs of Start-Up Activities which
requires that all organization costs be expensed as incurred. (j)
Loss Per Share Basic
earnings (loss) per share are computed using the weighted average number of
shares outstanding during the period. Diluted earnings per share are computed on
the basis of the average number of common shares outstanding plus the dilutive
effect of stock options and warrants. In periods of net loss, there are no
diluted earnings per share since the result would be anti-dilutive. (k)
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. Management is of the opinion that the Company is not exposed
to significant currency, interest or credit risks arising from these financial
instruments. (l)
Income Taxes The
Company has adopted SFAS No. 109, Accounting for Income Taxes, which requires
the Company to recognize deferred tax liabilities and assets for the expected
future tax consequences of events that have been recognized in the Companys
consolidated financial statements and tax returns using the liability method.
Under this method, deferred tax liabilities and assets are determined based on
the temporary differences between the consolidated financial statements and tax
bases of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. (m)
Stock-Based Compensation The
Company has adopted the fair value method of accounting for stock-based
compensation recommended by of SFAS No. 123,Accounting for Stock Based
Compensation. The
fair value of stock options is estimated at the grant date using the
Black-Scholes Option Pricing Model. This model requires the input of a
number of assumptions, including expected dividend yields, expected stock price
volatility, risk-free interest rates, and an expected life of the options.
Although the assumptions used reflect      - F10-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements  2.
Significant Accounting Policies (continued) managements
best estimate, they involve inherent uncertainties based on market conditions
generally outside the control of the Company. If future market conditions are
different than the assumption used, stock-based compensation expense could be
significantly different. (n)
Comprehensive Income The
Company had no items of comprehensive income for the year ended June 30, 2006,
for the period from December 24, 2004 (inception) through June 30, 2005, or for
the period from December 24, 2004 (inception) through June 30, 2006.  (o)
Revenue Recognition  The
Company follows the guidance of the Securities and Exchange Commissions Staff
Accounting Bulletin 104 for revenue recognition. In general, the Company records
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.  (p)
Effect of Recent Accounting Pronouncements  In
December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123 (revised 2004) Share-Based Payments(SFAS 123(R)).
This statement requires that we record all share-based payment expense in our
financial statements based on a fair value methodology.  On April 14,
2005, the Securities and Exchange Commission (SEC) announced amended
compliance dates for SFAS 123(R). The SEC previously required companies to
adopt this standard no later than July 1, 2005, but the new rules now
require us to adopt FAS 123(R) starting with our first quarter of our
fiscal year beginning May 1, 2006. Additionally, in March 2005, the
SEC issued Staff Accounting Bulletin No. 107 (SAB No. 107), which
summarizes the staffs views regarding share-based payment arrangements for
public companies. We are evaluating the impact of the new standards and,
although we have not completed our analysis, we anticipate that the expense
would not exceed the amounts disclosed in Accounting for Stock-Based
Compensationhad we been expensing under the new rule. In
June 2005, the FASB issued SFAS No. 154, Accounting Changes and Error
Corrections which replaces Accounting Principles Board (APB) Opinion 20
and FASB Statement 3. Statement 154 changes the requirements for the accounting
and reporting of a change in accounting principle. Opinion 20 previously
required that most voluntary changes in accounting principles be recognized by
including the cumulative effect of the new accounting principle in net income of
the period of change. Statement 154 now requires retrospective application of
changes in accounting principle to prior period financial statements, unless it
is impractical to determine either the period-specific effects or the cumulative
effect of the change. The Statement is effective for fiscal years beginning
after December 15, 2005. In
February 2006, the FASB issued SFAS No. 155, Accounting for
Certain Hybrid Financial Instruments (SFAS 155), which amends
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities.
SFAS 155 simplifies the accounting for certain derivatives embedded in
other financial instruments by allowing them to be accounted for as a whole if
the holder elects to account for the whole instrument on a fair value basis.      - F11-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements 2.
Significant Accounting Policies (continued) The
statement also clarifies and amends certain other provisions of
SFAS No. 133 and SFAS No. 140. SFAS 155 is effective
for all financial instruments acquired, issued, or subject to a re-measurement
event occurring in fiscal years beginning after September 15, 2006. We do
not expect the adoption of SFAS 155 to have an impact on our results of
operations or financial condition. In
March 2006, the FASB issued SFAS No. 156, Accounting for
Servicing of Financial Assetsan amendment to FASB Statement
No. 140 (SFAS 156). SFAS 156 requires that all separately
recognized servicing rights be initially measured at fair value, if practicable.
In addition, this statement permits an entity to choose between two measurement
methods (amortization method or fair value measurement method) for each class of
separately recognized servicing assets and liabilities. This new accounting
standard is effective January 1, 2007. We do not expect the adoption of
SFAS 156 to have an impact on our results of operations or financial
condition. In
September 2006, the FASB issued SFAS No. 157,Fair Value Measurements,
which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosures about fair
value measurements. SFAS 157 is effective in fiscal years beginning after
November 15, 2007. Management is currently evaluating the impact that the
adoption of this statement may have on the Companys consolidated financial
position and results of operations. Management
does not expect the adoption of these rules and pronouncements to have a
material impact on the Companys financial statements.  3.
Convertible Debenture  On
October 10, 2005, the Company received total gross proceeds of $500,000 and
issued a convertible debenture, convertible into 125,000 shares of common stock
at the option of the Company once the fair market value of the Companys common
stock exceeds $4.00 per share. The Debenture matures on October 30, 2006. and is
due and payable in full.  Interest
was to accrue and be paid in full at 5% per annum if the acquisition of ip-Colo,
Inc. did not occur within 120 days of the closing of the debenture. As described
in Note 1 in the accompanying footnotes, the acquisition of ip-Colo, Inc. did
occur on November 9, 2005 or within 29 days of the closing of the debenture.
Thus, no interest is due or payable. Further, the fair value of the Companys
stock did exceed $4.00 per share as quoted on the Over-the-Counter Bulletin
Board in November 2005. Therefore, the Company may convert the outstanding
debenture on or before the maturity date of October 30, 2006 using a conversion
price of $4.00 per share, or into 125,000 shares. As of June 30, 2006, the
convertible debenture remains outstanding as an obligation of the Company.  4. Note
Payable On
May 9, 2006, the Company entered into an unsecured short-term promissory note
for $100,000. The note bears interest at 8% annually and is due in full on May
9, 2007.      - F12-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements 5.
Stockholders Equity (Deficit) and Stock Option Plan The
Company, as described in Note 1, was capitalized with the reorganization that
occurred on November 9, 2004, resulting in 16,866,500 shares of common stock
being issued. During
the fiscal period ended June 30, 2005, the Company issued 625,000 shares of
common stock for $1,000. During
the fiscal period ended June 30, 2005, the Company received contributed services
from members of management valued at $1,000. The
board of directors has approved a Stock Option Plan (the Plan) authorizing the
issuance of a total of 10,000,000 shares pursuant to which directors, officers,
employees of the Company are eligible to receive grants of options for the
Companys common stock. Each stock option entities its holder to purchase one
common share of the Company. The Plan is administrated by the board of directors
but is subject to the approval of the Companys stockholders. To
date, no options have been granted under this plan. 6.
Commitments and Contingencies In
connection with its rental of office/operations space, the Company has entered
into a 5-year lease with a company controlled by an officer and stockholder. The
Company incurred $35,500, $4,000, and $39,500 in rental expense for year ended
June 30, 2006, the period from December 24, 2004 (inception) through June 30,
2005, and the cumulative period from inception to June 30, 2006, respectively.
Future minimum rentals under the lease are as follows:  Year
      Ending June 30,
    Minimum
      rentals2007
    $
    48,0002008
    48,0002009
    48,0002010
    48,000$
    192,000 7.
Concentration of Credit Risk SFAS
No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of significant concentrations of credit risk
regardless of the degree of such risk. As of June 30, 2006, financial
instruments that potentially expose the Company to credit risk consist of cash. The
Company maintains cash balances in a high quality financial institution. The
Federal Deposit Insurance Corporation insures the accounts up to $100,000.
Management believes the risk of loss to be minimal. 8.
Income Taxes As
of June 30, 2006, the Company had approximately $428,000 in pretax federal and
state net operating loss carryforwards expiring in 2025 and 2026.      - F13-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements 8.
Income Taxes (continued) The
Company provides for deferred taxes arising from temporary differences in the
book and tax carrying amounts of assets and liabilities. Temporary differences
arise primarily from allowance accounts and depreciation. The
deferred tax asset that results from such operating loss carryforwards and
temporary differences of approximately $165,000 as of June 30, 2006 , has been
fully reserved for in the accompanying consolidated financial statements as
follows;  Deferred
      tax liabilities
    $
    -Deferred
      tax assetsNet
      operating loss deductions
    $
    165,000Other
      deferred assets
    
    -Total
      deferred tax assets
    
    165,000Valuation
      allowance
    
    (165,000)$
    - Reconciliation
of the differences between the statutory tax rate and the effective tax rate is
as follows: Year
      ended June 30, 2006
    Inception
      to June 30, 2005
    Inception
      to June 30, 2006Federal
      Statutory tax (benefit) rate
    (34.0%)
    (34.0%)
    (34.0%)State
      taxes, net of federal tax (benefit) rate
    (4.63%)
    (4.63%)
    (4.63%)Effective
      tax rate
    (38.63%)
    (38.63%)
    (38.63%)Valuation
      allowance
    (38.63%)
    (38.63%)
    (38.63%)Effective
      income tax rate
    -
    -
    -       - F14-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements  9.
    Related
      party transactions The
Company leases office space from a company controlled by a major stockholder.
Rental payments made under the operating lease for 2006 were $35,500. See Note
6. For the year ended June 30, 2006, computer equipment (servers and computer
hardware ) for $51,000 was purchased from a company controlled by a major
stockholder of the Company. Also during this year, leasehold improvements
totaling $10,500 were paid to the landlord, which is an entity controlled by a
major stockholder of the Company. In addition, included in accounts receivable
and accounts payable as of June 30, 2006, are $3,331 and $20,868 respectively,
resulting from activities of the Company associated with various entities
controlled by a major stockholder of the Company.    10.
Subsequent events (Unaudited)  On
August 8, 2006, the Company entered into a short term promissory note for
$15,000. The note matures on August 8, 2007, and bears interest at a rate of 8%
per annum. The promissory note is unsecured.  On
August 23, 2006, the Company entered into two convertible bridge loans
aggregating $50,000. The notes bear interest at 10% and are due no later than
December 31, 2006, if certain conditions are not met by the Company.  On
September 19, 2006, the Company entered into two convertible bridge loans
aggregating $24,000. The notes bear interest at 10% and are due no later than
December 31, 2006, if certain conditions are not met by the Company.  The
holders, at their option, may convert, at any time until the close of business
on the business day before the date of final maturity of the convertible
debentures, all or any portion of the principal amount of the convertible
debentures into fully paid and non-assessable shares of common stock at the
conversion price of $0.02 per share at the date of conversion. The conversion is
contingent upon the Company completing a 4 for 1 reverse split of its common
stock, which was completed on September 6, 2006.  In
connection with the convertible bridge loans, a total of 2,500,000 warrants were
issued collectively to the bridge loan holders. The warrants are exercisable at
any time at an exercise price of $0.03 per share, for a period of two years.  In
late September 2006, the Company completed a series of equity private placements
aggregating $275,000 by issuing 3,437,500 shares of common stock at a purchase
price of $0.08 per share. In connection with these subscriptions, an individual
received stock purchase warrants for 3,437,500 shares of common stock at an
exercise price of $0.12 per share. The stock purchase warrants are exercisable
for a period of 24 months from the date of issue.  In
addition, the Company is preparing to file a new registration statement to
register additional shares underlying the convertible bridge loans and private
placements as provided for in the subscription agreements. The Company is
required to file the registration statement within 90 days of the
agreements.  Effective
September 6, 2006, the Company has effected a one (1) new for four (4) old
reverse stock split of our authorized, issued and outstanding common stock. As a
result, the authorized capital has decreased from      - F15-    HS3
      Technologies, Inc. (A development stage company)Notes
      to Consolidated Financial Statements  10.
Subsequent events (Unaudited) (continued)  200,000,000
shares of common stock with a par value of $0.001 each and 10,000,000 preferred
stock with a par value of $0.001 each 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. The issued and outstanding share capital has decreased from
69,966,000 shares of common stock to 17,491,500 shares of common stock.      - 20 -    Item 8.
    Changes In and Disagreements With Accountants on Accounting and
      Financial Disclosure. None. Item 8A.
    Disclosure Controls and
Procedures As required by Rule 13a-15 under the Exchange Act, we have carried out an
evaluation of the effectiveness of the design and operation of our companys
disclosure controls and procedures as of the end of the period covered by this
annual report, being June 30, 2006. This evaluation was carried out under the
supervision and with the participation of our companys management, including
our companys president and chief financial officer. Based upon that evaluation,
our companys president concluded that our companys disclosure controls and
procedures are effective as at the end of the period covered by this report.
There have been no changes in our companys internal controls or in other
factors, which could significantly affect internal controls subsequent to the
date we carried out our evaluation. Disclosure controls and procedures are controls and other procedures that
are designed to ensure that information required to be disclosed in our
companys reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the
Securities and Exchange Commissions rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our companys reports filed
under the Exchange Act is accumulated and communicated to management, including
our companys president, as appropriate, to allow timely decisions regarding
required disclosure. Item 8B.
    Other Information None. PART III Item 9.
    Directors, Executive Officers, Promoters and Control Persons;
      Compliance with Section 16(a) of the Exchange
  Act. Directors and Executive Officers, Promoters and Control
Persons As at October 3, 2006, our sole director and executive officer, their
age, positions held, and duration of such, are as follows:  Name
    Position Held with our Company
    Age
    Date FirstElected or
      AppointedMark Lana
    President, Treasurer, Secretary and Director
    52
    November 9, 2005 Business Experience The following is a brief account of the education and business experience
of our sole director and executive officer 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 he was employed. Mark Lana Mr. Lana was appointed as President and 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      - 21 -  extended stay hotels each with a staff of over 10 people in the Denver
metro area for the past 20 years. He was involved in the housing industry and
built, remodeled and refurbished single family and multi-unit dwellings. Mr.
Lana has been involved in developing markets and putting together the financing
for commercial real estate transactions and acquisitions. He has been involved
with software development for medical transcription services and for payroll
efficiencies in the hotel/motel labor market. During the 1990s Mr. Lana was
able to develop a system of medical records transcriptions that enabled records
to be transcribed at several remote locations and then be centrally transmitted
back to the hospital/clinic. His software applications were used by the Denver
medical profession for use in delivering radiology reports to medical facilities
and physicians offices from remote locations. Committees of the Board Audit Committee We do not have an Audit Committee, our sole director 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 sole 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. Significant Employees We currently do not have any significant employees. Family Relationships There are no family relationships between any director or executive
officer. Involvement in Certain Legal Proceedings Our sole director and executive officer, promoters or control persons
have not been involved in any of the following events during the past five
years: 1. any bankruptcy petition filed by or against any business of which such
person was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time; 2. any conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor
offences); 3. being subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities;
or 4. being found by a court of competent jurisdiction (in a civil action),
the Commission or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment has not been
reversed, suspended, or vacated.      - 22 -   Code of Ethics Our board of directors have not yet established a Code of Ethics and
Business Conduct. 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 401(e) of Regulation S-B. We believe that our sole director 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, 2006, all filing requirements applicable to
its officers, directors and greater than ten percent beneficial owners were
complied with. Item 10.
    Executive Compensation. The following table provides certain summary information concerning the
compensation earned by our President and each of our three other most highly
compensated executive officers whose aggregate salary and bonus for the fiscal
years ended June 30, 2006, 2005 and 2004 was in excess of $100,000.  Long Term CompensationAnnual Compensation
    Awards
    Pay-outsName and PrincipalPosition
    FiscalYearEnded
    Salary
    Bonus
    OtherAnnualCompen-sation
    SecuritiesUnderlyingOptions/SARsGranted
    RestrictedStock
    Awards
    LTIPPay-outs
    All OtherCompen-sationMark Lana(1)President and
      Chief Executive Officer
    200620052004
    $85,000$Nil$Nil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNilLougene Baird(2)former Chief
      Operating Officer and Secretary
    200620052004
    $Nil$Nil$Nil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNilBonnie McNamara(3)formerChief
      Financial Officer
    200620052004
    $Nil$Nil$Nil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNil
    NilNilNilFrank McGill(4)formerPresident and
      Chief Executive Officer
    200620052004
    N/A$Nil$Nil
    N/ANilNil
    N/ANilNil
    N/ANilNil
    N/ANilNil
    N/ANilNil
    N/ANilNilLinda Smith(5)former Chief
      Financial Officer and Treasurer
    200620052004
    N/A$Nil$Nil
    N/ANilNil
    N/A$7,125Nil
    N/ANilNil
    N/ANilNil
    N/ANilNil
    N/ANilNil (1)
    Mr. Lana was appointed President and Chief Executive Officer on
      November 9, 2005. (2)
    Ms. Baird was appointed Chief Operating Officer and Secretary on
      November 9, 2005 and resigned as an officer on March 8,
  2006. (3)
    Ms. McNamara was appointed Chief Financial Officer on March 14,
      2006 and resigned on June 13, 2006.      - 23 -   (4)
    Mr. McGill resigned as President and Chief Executive Officer on
      November 9, 2005. (5)
    Ms. Smith resigned as Chief Financial Officer and Treasurer on
      November 9, 2005 Stock Options and Stock Appreciation Rights From the date of inception to June 30, 2006, we did not grant any stock
options or stock appreciation rights to any of our directors or officers and
there were no stock options or stock appreciation rights outstanding on June 30,
2006. Compensation of Directors We reimburse our directors for expenses incurred in connection with
attending board meetings. We have not paid any directors fees or other cash
compensation for services rendered as a director since our inception to June 30,
2006. We have no formal plan for compensating our directors for their service
in their capacity as directors, although such directors are expected in the
future to receive stock options to purchase common shares as awarded by our
board of directors or (as to future stock options) a compensation committee
which may be established. 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. No director received
and/or accrued any compensation for their services as a director, including
committee participation and/or special assignments. Employment Contracts and Termination of Employment and Change in Control
Arrangements We have not entered into any employment agreement or consulting agreement
with our sole director and executive officer. There are no arrangements or plans in which we provide pension,
retirement or similar benefits for directors or executive officers. Our
directors and executive officers may receive stock options at the discretion of
our board of directors in the future. 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 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 11.
    Security Ownership of Certain Beneficial Owners and
      Management. As of October 3, 2006, there were 17,491,491 shares of our common stock
outstanding. The following table sets forth certain information known to us with
respect to the beneficial ownership of our common stock as of that date by (i)
each of our directors, (ii) each of our executive officers, and (iii) all of our
directors and executive officers as a group. Except as set forth in the table
below, there is no person known to us who beneficially owns more than 5% of our
common stock. The number of shares beneficially owned is determined under rules
of the Securities and Exchange Commission and the information is not necessarily
indicative of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has the sole
or shared voting power or investment power and any shares which the individual
has the right to acquire within 60 days of October 3, 2006 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:       - 24 -    Name and Address of Beneficial Owner
    Amount and Nature of Beneficial Ownership
    Percent of Class(1)Mark Lana1800 Boulder Street, Suite
      600Denver, CO 80211
    2,377,113 common shares
    13.59%Lougene BairdPO Box 5035Kailua, HI 96745
    2,377,113 common shares
    13.59%Dimitrios Gountis7400 E. Orchard Rd
      #290Greenwood Village, CO 80111
    1,007,500 common shares
    5.76%Robert A. Morrison, IV1800 Boulder Street,
      Suite 600Denver, CO 80211
    2,377,113 common shares
    13.59%S & G Holdings5198 S. Memphis
      CtCentennial, CO 80015
    1,007,825 common shares
    5.76%Directors and Officers as a group(1
      person)
    2,377,113 common shares
    13.59% (1)
    Based on 17,491,491 shares of common stock issued and outstanding
      as of October 3, 2006. 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. 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 12.
    Certain Relationships and Related
  Transactions. We have not been a party to any transaction, proposed transaction, or
series of transactions in which the amount involved exceeds $60,000, and in
which, to our knowledge, any of our directors, officers, five percent beneficial
security holder, or any member of the immediate family of the foregoing persons
has had or will have a direct or indirect material interest. Item 13.
    Exhibits Exhibits required by Item 601 of Regulation S-B  Exhibit
      Number
    Description(3)
    Articles of
      Incorporation and Bylaws3.1
    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).       - 25 -    (4)
    Instruments
      Defining the Rights of Security Holders, Including
      Indentures4.1
    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
      Contracts10.1
    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).(16)
    Letter on Change in
      Certifying Accountant16.1
    Letter from Amisano
      Hanson, Chartered Accountants regarding change in certifying accountant
      (incorporated by reference from our Form 8-K/A filed on January 17,
      2006).(31)
    Section 302
      Certifications31.1*
    Section 302
      Certification.(32)
    Section 906
      Certification32.1*
    Section 906
      Certification. *Filed herewith Item 14.
    Principal Accountant 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 year ended June 30, 2006 and June 30, 2005:  Services
    2006
    2005Audit fees
    $9,000
    $5,500Tax fees
    $Nil
    $NilAll other fees
    $Nil
    $NilTotal fees
    $9,000
    $5,500 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 by Gordon Hughes & Banks, LLP for the fiscal year ended
June 30, 2006 and with Amisano Hanson for the fiscal year ended June 30, 2005 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.      - 26 -   We do not use Gordon Hughes & Banks, LLP 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 Gordon Hughes & Banks, LLP to provide compliance outsourcing
services. Effective May 6, 2003, the Securities and Exchange Commission adopted
rules that require that before Gordon Hughes & Banks, LLP 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 sole director); 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 sole director 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 sole director has considered the nature and amount of fees billed by
Gordon Hughes & Banks, LLP and believes that the provision of services for
activities unrelated to the audit is compatible with maintaining Gordon Hughes
& Banks, LLPs independence.  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/ Mark
Lana Mark Lana President, Chief Executive Officer and Director Principal Executive Officer, Principal Accounting Office and Principal Financial Officer Date: October 18, 2006.  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/ Mark
Lana Mark Lana President, Chief Executive Officer and Director Principal Executive Officer, Principal Accounting Office and Principal Financial Officer Date: October 18, 2006.