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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C.
20549

FORM 10-Q

(Mark One)

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

For the quarterly period ended December 31, 2009

OR

[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Commission file number001-32289

HS3 TECHNOLOGIES,
INC.(Exact name of registrant as specified in its
charter)

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

(303) 455-2550(Telephone number, including
area code)

Indicate by check mark 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. Yes [X] No [ ]

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

|Large accelerated filer [ ] |                                                     | Accelerated filer [ ]          
|--------------------------- | --------------------------------------------------- | -------------------------------
|Non-accelerated filer [ ]   | (Do not check if a smaller
      reporting company) | Smaller reporting company [ X ]

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court.[ ] YES [ ]
NO

Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).[ ] YES [ ] NO

As of February 12, 2010, there were 68,116,636 shares of the
registrants Common Stock issued and outstanding

1

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TABLE OF CONTENTS

PART I  FINANCIAL INFORMATION

|         |                                                                                                                                                                      | Page
|-------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----
|         |                                                                                                                                                                      | No. 
|Item 1.  | Unaudited Condensed Consolidated Financial Statements                                                                                                                | 4   
|         | Condensed consolidated balance sheets as of December 31,
        2009 and June 30, 2009                                                                              | 5   
|         | Condensed consolidated statements of operations for the
        three months and six months ended December 31, 2009 and 2008                                         | 6   
|         | Condensed consolidated statements of stockholders equity
        (deficit) for the years ended June 30, 2008 and 2009 and six months ended
        December 31, 2009 | 7   
|         | Condensed consolidated statements of cash flows for the
        three months and six months ended December 31, 2009 and 2008                                         | 8   
|         | Notes to condensed consolidated financial statements                                                                                                                 | 9   
|Item 2.  | Managements Discussion and Analysis of Financial
        Condition and Results of Operations                                                                        | 14  
|Item 3.  | Quantitative and Qualitative Disclosures about Market Risk                                                                                                           | 22  
|Item 4.  | Controls and Procedures                                                                                                                                              | 22  
|         |                                                                                                                                                                      |     
|         | PART II
       OTHER INFORMATION                                                                                                                                    |     
|         |                                                                                                                                                                      |     
|Item 1.  | Legal Proceedings                                                                                                                                                    | 22  
|Item 1A. | Risk Factors                                                                                                                                                         | 22  
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                          | 28  
|Item 3.  | Defaults upon Senior Securities                                                                                                                                      | 28  
|Item 4.  | Submission of Matters to a Vote of Security Holders                                                                                                                  | 28  
|Item 5.  | Other Information                                                                                                                                                    | 29  
|Item 6.  | Exhibits                                                                                                                                                             | 29  

2

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING
STATEMENTS

This Quarterly Report contains
forward-looking statements including, but not limited to the following:


      certain statements, including
          possible or assumed future results of operations, in Managements
          Discussion and Analysis of Financial Condition and Results of Operations;
      any statements contained herein regarding
          the prospects for our business or any of our services;
      any statements preceded by, followed by
          or that include the words may, should, believes,
          expects, anticipates, intends, continues,
          estimates, plans, targets predicts,
          attempts, is scheduled, or similar expressions;
          and
      other statements obtained herein regarding
          matters that are not historical facts.


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

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

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

3

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PART 1  FINANCIAL INFORMATION

Item 1. Unaudited Condensed Consolidated Financial
Statements.

The interim unaudited condensed
consolidated financial statements of HS3 Technologies, Inc. as of and for the
three month and six month period ended December 31, 2009 are included herein
beginning on the following page. The accompanying interim unaudited condensed
consolidated financial statements should be read in conjunction with our audited
consolidated financial statements and related notes for the year ended June 30,
2009, together with our discussion and analysis of financial condition and
results of operations, included in our Annual Report on Form 10-K filed on
September 21, 2009 with the Securities and Exchange Commission (File No.
001-32289). Our financial statements are stated in United States dollars (US$)
and are prepared in accordance with United States Generally Accepted Accounting
Principles.

The unaudited condensed
consolidated financial statements include the accounts of HS3 Technologies, Inc.
and our wholly-owned subsidiary, ip-Colo, Inc. All inter-company balances and
transactions have been eliminated.

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

4

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

|                                                                                                                                                                                         |   | December 31, |   |   | June 30,   |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------------ | - | - | ---------- | -
|                                                                                                                                                                                         |   | 2009         |   |   | 2009       |  
|ASSETS                                                                                                                                                                                   |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|Current Assets:                                                                                                                                                                          |   |              |   |   |            |  
|Cash and cash equivalents                                                                                                                                                                | $ | 45,587       |   | $ | 38,592     |  
|Trade accounts receivable                                                                                                                                                                |   | 35,951       |   |   | 18,396     |  
|Inventory                                                                                                                                                                                |   | 137,458      |   |   | 147,012    |  
|                                                                                                                                                                                         |   | 218,996      |   |   | 204,000    |  
|Furniture, fixtures and equipment, net of accumulated
      depreciation of      $102,711 and $84,650
      respectively                                                                 |   | 74,347       |   |   | 76,493     |  
|Other assets, net                                                                                                                                                                        |   | 66,927       |   |   | 71,594     |  
|                                                                                                                                                                                         | $ | 360,270      |   | $ | 352,087    |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|LIABILITIES AND EQUITY                                                                                                                                                                   |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|Current Liabilities:                                                                                                                                                                     |   |              |   |   |            |  
|Trade accounts payable                                                                                                                                                                   | $ | 154,176      |   | $ | 75,323     |  
|Other accrued liabilities                                                                                                                                                                |   | 386,083      |   |   | 514,562    |  
|Convertible notes payable                                                                                                                                                                |   | -            |   |   | 1,173,000  |  
|Subordinated notes payable                                                                                                                                                               |   | 530,500      |   |   | -          |  
|Long-term debt, current portion                                                                                                                                                          |   | 144,061      |   |   | 132,986    |  
|                                                                                                                                                                                         |   | 1,214,820    |   |   | 1,895,871  |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|Long-term debt                                                                                                                                                                           |   | 34,118       |   |   | 109,024    |  
|Other long-term liabilities                                                                                                                                                              |   | 28,000       |   |   | 28,000     |  
|Total
      Liabilities                                                                                                                                                                  |   | 1,276,938    |   |   | 2,032,895  |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|                                                                                                                                                                                         |   |              |   |   |            |  
|Stockholders Equity (Deficit):                                                                                                                                                          |   |              |   |   |            |  
|Preferred stock, $0.0001 par value,
      2,500,000 shares authorized,      none issued or
      outstanding                                                                             |   |              |   |   |            |  
|Common Stock, $0.001 par value, 200,000,000 authorized,
           issued and outstanding 68,116,636 and
      41,995,802 at December      31, 2009 and June 30,
      2009 respectively |   | 68,117       |   |   | 41,996     |  
|Additional paid-in capital                                                                                                                                                               |   | 5,546,126    |   |   | 4,385,001  |  
|Accumulated deficit                                                                                                                                                                      |   | (6,530,911   | ) |   | (6,107,805 | )
|                                                                                                                                                                                         |   | (916,668     | ) |   | (1,680,808 | )
|                                                                                                                                                                                         | $ | 360,270      |   | $ | 352,087    |  

See accompanying notes to condensed consolidated financial
statements

5

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

|                                                                |   | Three months ended December 31, |   |   | Six months ended December 31, |  
|--------------------------------------------------------------- | - | ------------------------------- | - | - | ----------------------------- | -
|                                                                |   | 2009                            |   |   | 2008                          |  
|                                                                |   |                                 |   |   |                               |  
|                                                                |   |                                 |   |   |                               |  
|Revenue                                                         | $ | 37,220                          |   | $ | 33,925                        |  
|Cost of goods sold                                              |   | 9,361                           |   |   | 11,733                        |  
|Gross profit                                                    |   | 27,859                          |   |   | 22,192                        |  
|                                                                |   |                                 |   |   |                               |  
|Operating Expenses:                                             |   |                                 |   |   |                               |  
|Selling, general and administrative                             |   | 65,852                          |   |   | 249,407                       |  
|Depreciation and amortization                                   |   | 11,530                          |   |   | 11,821                        |  
|Total operating expenses                                        |   | 77,382                          |   |   | 261,228                       |  
|                                                                |   |                                 |   |   |                               |  
|Loss from operations                                            |   | (49,523                         | ) |   | (239,036                      | )
|                                                                |   |                                 |   |   |                               |  
|Other income (expense):                                         |   |                                 |   |   |                               |  
|Interest expense, net                                           |   | (33,229                         | ) |   | (17,850                       | )
|Total other income (expense)                                    |   | (33,229                         | ) |   | (17,850                       | )
|                                                                |   |                                 |   |   |                               |  
|Net loss                                                        | $ | ( 82,752                        | ) | $ | (256,886                      | )
|                                                                |   |                                 |   |   |                               |  
|Net loss per share-basic and diluted                            | $ | (0.002                          | ) | $ | (0.006                        | )
|                                                                |   |                                 |   |   |                               |  
|Weighted average number of common
           shares outstanding |   | 54,472,342                      |   |   | 40,745,802                    |  

See accompanying notes to condensed consolidated financial
statements

6

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

|                                                                                |  |              |  |   |         |  |   |            |   |   | Unamortized    |   |   |                   |   |   |              |  
|------------------------------------------------------------------------------- |  | ------------ |  | - | ------- |  | - | ---------- | - | - | -------------- | - | - | ----------------- | - | - | ------------ | -
|                                                                                |  |              |  |   |         |  |   |            |   |   | Cost           |   |   |                   |   |   | Total        |  
|                                                                                |  |              |  |   |         |  |   | Additional |   |   | Stock/Warrants |   |   | Retained          |   |   | Stockholders |  
|                                                                                |  | Common Stock |  |   | Paid-in |  |   | Issued for |   |   | Earnings       |   |   | Equity            |  
|                                                                                |  | Shares       |  |   | Amount  |  |   | Capital    |   |   | Service        |   |   | (Deficit)         |   |   | (Deficit)    |  
|Balances as of June 30, 2007                                                    |  | 31,470,802   |  | $ | 31,471  |  | $ | 3,658,713  |   | $ | (281,920       | ) | $ | (3,374,938        | ) | $ | 33,326       |  
|Shares issued for cash                                                          |  | 5,300,000    |  |   | 5,300   |  |   | 524,700    |   |   | -              |   |   | -                 |   |   | 530,000      |  
|Shares issued for services                                                      |  | 3,175,000    |  |   | 3,175   |  |   | 204,875    |   |   | 165,920        |   |   | -                 |   |   | 373,970      |  
|Warrants issued for services                                                    |  | -            |  |   | -       |  |   | 16,135     |   |   | 116,000        |   |   | -                 |   |   | 132,135      |  
|Purchase of warrants                                                            |  | -            |  |   | -       |  |   | (70,964    | ) |   | -              |   |   | -                 |   |   | (70,964      | )
|Net loss                                                                        |  |              |  |   | -       |  |   | -          |   |   | -              |   |   | (1,556
      ,448 | ) |   | (1,556,448   | )
|Balances as of June 30, 2008                                                    |  | 39,945,802   |  | $ | 39,946  |  | $ | 4,333,459  |   | $ | -              |   | $ | (4,931,386        | ) | $ | (557,981     | )
|Shares issued for cash                                                          |  | -            |  |   | -       |  |   | -          |   |   | -              |   |   | -                 |   |   | -            |  
|Shares issued for services/
           cancellation of debt                     |  | 2,050,000    |  | $ | 2,050   |  | $ | 51,542     |   |   | -              |   |   | -                 |   |   | 53,592       |  
|Net loss                                                                        |  |              |  |   | -       |  |   | -          |   |   | -              |   | $ | (1,176,419        | ) | $ | ( (1,176,419 | )
|Balances as of June 30, 2009                                                    |  | 41,995,802   |  | $ | 41,996  |  | $ | 4,385,001  |   | $ | -              |   | $ | (6,107,805        | ) | $ | (1,680,808   | )
|Shares issued for services                                                      |  | 250,000      |  |   | 250     |  |   | 5,000      |   |   | -              |   |   | -                 |   |   | 5,250        |  
|Shares issued for cancellation of debt
           and other accrued liabilities |  | 25,870,834   |  |   | 25,871  |  |   | 1,156,125  |   |   | -              |   |   | -                 |   |   | 1,181,996    |  
|Net loss                                                                        |  |              |  |   | -       |  |   | -          |   |   | -              |   |   | (423,106          | ) |   | (423,106     | )
|Balances as of December 31, 2009                                                |  | 68,116,636   |  | $ | 68,117  |  | $ | 5,546,126  |   | $ | -              |   | $ | (6,530,911        | ) | $ | (916,668     | )

See accompanying notes to condensed consolidated financial
statements

7

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

|                                                                                     |   | Six months ended December 31, |  
|------------------------------------------------------------------------------------ | - | ----------------------------- | -
|                                                                                     |   | 2009                          |  
|                                                                                     |   |                               |  
|                                                                                     |   |                               |  
|Cash flows from operating activities:                                                |   |                               |  
|Net loss                                                                             | $ | (423,106                      | )
|                                                                                     |   |                               |  
|Adjustments to reconcile net loss to net cash                                        |   |                               |  
|provided by (used in) operations:                                                    |   |                               |  
|Depreciation and amortization                                                        |   | 22,728                        |  
|Accretion of interest                                                                |   | 2,689                         |  
|Warrants, stock, and options issued for
      service                                |   | 5,250                         |  
|Changes in operating assets and
      liabilities:                                   |   |                               |  
|Accounts and other receivables                                                       |   | (17,555                       | )
|Inventory                                                                            |   | 9,554                         |  
|Accounts payable and accrued liabilities                                             |   | (49,626                       | )
|Net cash (used in) operating activities                                              |   | (450,066                      | )
|                                                                                     |   |                               |  
|Cash flow from investing activities:                                                 |   |                               |  
|Additions to furniture, fixtures &
      equipment                                   |   | (15,915                       | )
|Net cash (used in) investing activities                                              |   | (15,915                       | )
|                                                                                     |   |                               |  
|Cash flow from financing activities:                                                 |   |                               |  
|Sale of common stock                                                                 |   | 225,000                       |  
|Proceeds (repayments) convertible
      notes payable                                |   | (25,000                       | )
|Proceeds (repayments) subordinated notes payable                                     |   | 157,500                       |  
|Borrowings (repayments) long-term
      debt                                         |   | (66,520                       | )
|Other accrued liabilities converted to equity                                        |   | 181,996                       |  
|Net cash flow provided by (used
      in)financing activities                        |   | 472,976                       |  
|                                                                                     |   |                               |  
|Increase (decrease) in cash and cash
      equivalents                               |   | 6,995                         |  
|Cash and cash equivalents, beginning of period                                       |   | 38,592                        |  
|Cash and cash equivalents, end of period                                             | $ | 45,587                        |  
|                                                                                     |   |                               |  
|                                                                                     |   |                               |  
|Supplemental cash flow information:                                                  |   |                               |  
|Interest paid                                                                        | $ | 17,264                        |  
|Income taxes paid                                                                    | $ | -                             |  
|                                                                                     |   |                               |  
|Non cash financing activities:                                                       |   |                               |  
|Stock issued for services                                                            | $ | 5,250                         |  
|Stock issued for other accrued liabilities                                           | $ | 181,996                       |  
|Stock issued for convertible
      notes payable                                     | $ | 775,000                       |  
|Subordinated notes payable issued for
      convertible          notes
      payable | $ | 373,000                       |  

See accompanying notes to condensed consolidated financial
statements

8

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HS3 Technologies, Inc.

Notes to condensed consolidated financial statements

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICES

(a) Nature of Business

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

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

(b) Basis of presentation and use of estimates

The accompanying unaudited
condensed consolidated financial statements in this Quarterly Report on Form
10-Q have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, these statements reflect adjustments
(consisting only of normal recurring entries), which in our opinion, are
necessary for a fair presentation of the financial results for the interim
periods presented. Certain information and notes normally included in annual
financial statements have been condensed in or omitted from these interim
financial statements pursuant to such rules and regulations. These condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes for the year ended June 30,
2009, together with our discussion and analysis of financial condition and
results of operations, included in our Amended Annual Report on Form 10-K filed
on September 21, 2009 with Securities and Exchange Commission.

Our accounting and financial
reporting policies conform to accounting principles and practices generally
accepted in the United States of America. The accompanying consolidated
financial statements include the accounts of HS3 and its controlled
subsidiaries. All significant inter-company accounts and transactions have been
eliminated in the preparation of the accompanying condensed consolidated
financial statements.

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

(c) Cash and cash equivalents

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

9

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(d) Furniture, Fixtures and Equipment

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

(e) Inventory

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

(f) Long-lived Assets

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

(g) Loss Per Share

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

(h) Financial Instruments

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

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

(i) Income Taxes

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

(j) Equity-Based Compensation

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

10

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(k) Concentration of Credit Risk

We sell products to customers in
diversified industries and geographical regions. We continually evaluate the
creditworthiness of our customers. We evaluate the collectability of accounts
receivable on a combination of factors. Our policies require us to record
specific reserve if we become aware of anything that would cause us to question
a specific customers inability to meet their financial obligations to us. We
will record a specific reserve for bad debts to reduce a related receivable when
we believe an amount is not collectible. We do not have any reserves for bad
debt at December 31, 2009.

(l) Revenue Recognition

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

(m) Reclassifications

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

2. GOING CONCERN

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

3. OTHER ACCRUED LIABILITIES

Other accrued liabilities are as
follows:

December 31,
    
    
    June 30,2009
    
    
    2009Accrued board fees
    $
    120,832
    
    $
    95,832Accrued salaries, officers
    
    80,000
    
    
    293,542Accrued interest
    
    184,893
    
    
    115,662Payroll liabilities
    
    224
    
    
    9,372Sales tax payable
    
    134
      
    
    154$
    386,083
    
    $
    514,562


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

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

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

11

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4. CONVERTIBLE AND SUBORDINATED NOTES PAYABLE

Convertible Notes Payable

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

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

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

On November 24, 2009, we issued
15,500,000 shares of common stock of our company to convert $775,000 of the
convertible notes payable and issued two officers $373,000 of subordinated notes
payable in exchange for the remaining outstanding convertible notes payable. The
shares were issued to U.S. persons pursuant to the exemption from registration
provided under Rule 506 of Regulation D, promulgated under the United States
Securities Act of 1933, as amended.

Subordinated Notes Payable

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

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

At December 31, 2009, the following
subordinated notes payable are outstanding:

William S. Dickey
    $
      450,000Robert A. Morrison
    
      80,500$
      530,500


5. LONG-TERM DEBT

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

The notes have an interest rate
of 15.499% and mature in three (3) years from the commencement date, and are
collateralized with the Companys personal property as defined in the loan and
security agreement. For the six months ended December 31, 2009, we recorded
$19,953 as interest expense pursuant to the notes.

12

---

Each note also has a final
payment fee of $14,000 that is due on the earlier to occur of the maturity date
or prepayment. These fees are being amortized over the life of the loans with
the obligation reflected in other long-term liabilities. For the six-months
ended December 31, 2009, we expensed $4,668.

The $400,000 proceeds were
allocated to each instrument based on the fair market value of each based on the
Black-Scholes pricing model. The assumptions used in valuing the warrants were:
stock price $.13; exercise price $.12, life  5 years; volatility 101.17%;
dividend yield 0%; and the yield of a risk free investment 3.08% . We determined
the fair value of the note and interest to be $400,000 and the fair market value
of the warrants to be $16,814. We allocated the proceeds to each based on the
respective percentages of total value. The value of the notes was $383,865 and
the warrants $16,135. The discount on the notes will be accreted into interest
expense based on the straight line method over the three (3) year life of the
loans. For the six months ended December 31, 2009 we recorded $2,689
respectively as additional interest expense. At December 31, 2009 we had 5,378
discount remaining to be amortized into interest. The value of the loans at
December 31, 2009 was $183,557. The current portion of the debt was $144,061
after discount ($149,439 principal owed) and the long term portion of the debt
was $34,118 after discount ($34,118 principal owed).

6. COMMON STOCK

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

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

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

On November 24, 2009 we issued
15,500,000 shares of our common stock to convert $775,000 of convertible notes
payable. In addition, on November 24, 2009 we issued 5,870,834 shares of our
common to two officers for cancellation of $181,996 of accrued salaries. The
shares were issued to U.S. persons pursuant to the exemption from registration
provided under Rule 506 of Regulation D, promulgated under the United States
Securities Act of 1933, as amended.

On December 21, 2009 we issued
250, 000 shares of our common stock to an affiliate of one of our Board of
Directors for services rendered to us. We valued the 250,000 shares based on the
quoted trade price on December 21, 2009 ($.021) and recorded $5,250 as contract
services expense.

Pursuant to the 2005 Stock Option
Plan, the Board of Directors had granted 2,500,000 options under the plan. At
December 31, 2009, 1,500,000 options (with an exercise price of $.1667) are
outstanding which expire in March 2012.

7. SUBSEQUENT EVENTS

The Company has evaluated all
subsequent events through February 12, 2010, the date the financial statements
were issued and no additional items were noted that needed to be disclosed.

13

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Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations

Critical Accounting Polices and Estimates

The following discussion and
analysis of the results of operations and financial condition should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements.

A summary of the significant
accounting polices that we have adopted and followed in the preparation of our
condensed consolidated financial statements is detailed in our consolidated
financial statements for the year ended June 30, 2009, included in our Annual
Report on Form 10-K filed on September 21, 2009.

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

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

Corporate History

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

On November 4, 2009, at the
annual and special meeting of stockholders of our company, our authorized
capital increased to 200,000,000 shares of common stock with a par value of
$0.001.

Current Business

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

14

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Our company integrates
technology, services and people into solutions that enhance the level of
security protection and surveillance services. Our companys goal is to become a
security portal, with cutting-edge technology applications and solutions
specifically tailored to meet the security needs of various customers. All of
the products and services, including biometric access control, satellite remote
monitoring, and DVRs are security related. Unlike many security companies that
focus exclusively on security hardware sales, our companys value proposition is
to offer proprietary products to generate recurring revenue for our company in
the form of monitoring and equipment licensing fees. We view the installation of
our hardware products as the entry vehicle into a long-term technological
relationship with our customers. We continually enhance our existing products by
periodically re-designing them to accommodate our customer needs.

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

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

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

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

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

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

PRODUCERS OF ANIMAL PRODUCTS:

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

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

15

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

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

Animal protein producers desire
increased market share that hold margins while requiring value in programs they
utilize. HS3s true measures of value can be assessed through increased profits
and the realization of risk mitigation.

HS3s surveillance program allows:

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

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

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

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

HOMELAND SECURITY:

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

HS3s covert deployment system is
one of the products developed that is technologically advanced. The covert
deployment system allows the utilization of cellular technology and provides a
physically small footprint for loss prevention operations. These systems utilize
SMS messaging for alerting and motion detection or other triggers to activate
video that records perpetrators on the enclosed drive, simultaneously sending
attached photos to our secured portal. It is estimated there are 13,000 active
train locomotives currently in the United States spread over 7 companies.
Homeland Security is concerned about the risk to the public should a locomotive
and its cargo become hijacked or compromised. We have developed and deployed a
biometric access control system which limits access to the locomotive. In
addition, we implemented GPS and video monitoring transmitted in real-time over
a cellular network to a centralized monitoring center. We have completed beta
testing on 28 locomotives with good results and feedback.

16

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HOSPITALITY:

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

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

PETROLEUM INDUSTRY:

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

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

EDUCATIONAL FACILITIES:

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

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

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

RESULTS OF OPERATIONS:

Three Months Ended December 31, 2009 and 2008

Revenue and Cost of goods sold.

We derive revenue from our operations
  by charging monthly fees for providing integrated equipment, monitoring, hosting,
  labor and other technology services as well as equipment sales to our customers.
  Our revenue and cost of goods sold for the three month period ended December
  31, 2009 and 2008 are outlined in the table below:

17

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Three months endedDecember 31,2009
      
      
      2008VMS Revenue:Equipment license/monitoring fees
      $
      15,477
      
      $
      3,089Domain/business hosting
        fees
      
      1,337
      
      
      1,266Other
      
      660
      
      
      -$
      17,474
      
      $
      4,.355Other Revenue:Equipment sales
      $
      13,585
      
      $
      19,931IT Services
      
      6,161
      
      
      9,639Other
      
      -
      
      
      -$
      19,746
      
      $
      29,570Revenue
      $
      37,220
      
      $
      33,925Cost of goods sold
      
      (9,361
      )
      
      (11,733
      )$
      27,859
      
      $
      22,192


Our VMS revenues for the three
month period ended December 31, 2009 increased as compared to the comparative
period in 2008 as a result of bringing additional monitoring locations on
revenue. At December 31, 2009, we had 23 monitoring locations on revenue.

IT services revenues for the
three month period ended December 31, 2009 decreased as compared to 2008 as our
staff was focusing on the manufacture of VMS units as opposed to selling such
services to the market.

Our gross profit percent on
equipment sales was 31% for the three months ended December 31, 2009 as compared
to 41% for the 2008 comparable three-month period.

Selling, general and administrative expenses.

Our selling, general and
administrative expenses for the three month period ended December 31, 2009 and
2008 are outlined in the table below:

Three months endedDecember 312009
      
    
    2008Wages & employee benefits
    $
    (22,616
    )
    $
    168,708Contract services
    
    22,704
    
    
    31,085Board Fees
    
    12,500
    
    
    12,500Accounting, audit and tax expenses
    
    -
    
    
    4,250Legal
    
    11,202
    
    
    (9,529
    )Stock transfer/shareholder/proxy fees
    
    2,043
    
    
    884Other professional fees/filings
    
    2,420
    
    
    -Rent
    
    4,400
    
    
    13,200Utilities
    
    4,810
    
    
    2,399Computer network services
    
    387
    
    
    791Computer server/internet fees
    
    759
    
    
    152Advertising/domain registration
    
    602
    
    
    10,316Telephone
    
    14,557
    
    
    5,194Travel, meals and entertainment
    
    2,896
    
    
    9,475Research & development
    
    632
    
    
    -Insurance
    
    4,125
    
    
    720Other expenses
    
    4,431
      
    
    (738
    )$
    65,852
      
    $
    249,407


Wages & employee benefits are
down in the comparable quarters as we corrected our accrual for officers wages
based on the conversion of their accrued salaries to equity on November 24,
2009.

18

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Six Months Ended December 31, 2009 and 2008

Revenue and Cost of goods sold.

We derive revenue from our
operations by charging monthly fees for providing integrated equipment,
monitoring, hosting, labor and other technology services as well as equipment
sales to our customers. Our revenue and cost of goods sold for the six month
period ended December 31, 2009 and 2008 are outlined in the table below:

Six months endedDecember 31,2009
    
    
    2008VMS Revenue:Equipment license/monitoring fees
    $
    28,909
    
    $
    3,089Domain/business hosting
      fees
    
    3,648
    
    
    2,898Other
    
    2,173$
    34,730
    
    $
    5,987Other Revenue:Equipment sales
    $
    20,010
    
    $
    69,194IT Services
    
    9,136
    
    
    41,839Other
    
    -
      
    
    285$
    29,146
      
    $
    111,318Revenue
    $
    63,876
    
    $
    117,305Cost of goods sold
    
    (13,978
      )
    
    (45,008
    )$
    49,898
      
    $
    72.297


Our VMS revenues for the six
month period ended December 31, 2009 increased as compared to the comparative
period in 2008 as a result of bringing additional monitoring locations on
revenue. At December 31, 2009, we had 23 monitoring locations on revenue.

IT services revenues for the six
month period ended December 31, 2009 decreased as compared to 2008 as our staff
was focusing on the manufacture of VMS units as opposed to selling such services
to the market.

Our gross profit percent on
equipment sales was 30% for the six months ended December 31, 2009 as compared
to 35% for the 2008 comparable six-month period.

19

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Selling, general and administrative expenses.

Our selling, general and
administrative expenses for the six month period ended December 31, 2009 and
2008 are outlined in the table below:

Six months endedDecember 31,2009
      
    
    2008Wages & employee benefits
    $
    127,088
    
    $
    290,920Contract services
    
    83,076
    
    
    90,926Board Fees
    
    25,000
    
    
    25,000Accounting, audit and tax expenses
    
    22,500
    
    
    27,625Legal
    
    12,207
    
    
    (1,681
    )Stock transfer/shareholder/proxy fees
    
    2,698
    
    
    959Other professional fees/filings
    
    2,420
    
    
    -Rent
    
    17,600
    
    
    26,400Utilities
    
    9,015
    
    
    5,016Computer network services
    
    774
    
    
    26,538Computer server/internet fees
    
    1,528
    
    
    152Advertising/domain registration
    
    1,671
    
    
    10,824Telephone
    
    27,030
    
    
    11,244Travel, meals and entertainment
    
    6,649
    
    
    12,466Research & development
    
    720
    
    
    -Insurance
    
    9,692
    
    
    5,177Other expenses
    
    11,423
      
    
    30,835$
    361,091
      
    $
    562,401


Selling, general and
administrative expenses for the six month period ended December 31, 2009
decreased by 36% as compared to the comparative period in 2008 do to the
correction of the over accrual in wages upon the conversion of the liability
into equity. Without this correction, our selling, general and administrative
expenses are down 16% period over period as our management continues to make a
concentrative effort to reduce such costs until top-line revenue can support our
business operations.

20

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Liquidity and Capital Resources

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

Working CapitalPercentageDecember 31,
    
    
    June 30,
    
    
    Increase/2009
      
    
    2009
      
    
    (Decrease)Current Assets
    $
    218,996
    
    $
    204,000Current Liabilities
    
    1,214,820
      
    
    1,895,871Working Capital
      (deficit)
    $
    (995,824
    )
    $
    (1,691,871
    )
    
    41.14%


|Cash
      Flows                                               |   | Six months ended |  
|-------------------------------------------------------------- | - | ---------------- | -
|                                                               |   | December 31,     |  
|                                                               |   | 2009             |  
|                                                               |   |                  |  
|Net cash (used in) operating activities                        | $ | (450,066         | )
|Net cash (used in) by investing activities                     |   | (15,915          | )
|Net cash flow provided by (used in)
      financing activities |   | 472,976          |  
|Increase (decrease) in cash and cash equivalents               | $ | 6,995            |  

Our cash on hand at December 31,
2009 was approximately $46,000. We have made a concentrated effort over the
prior twelve months to reduce our selling, general and administrative expenses,
which currently have a cash burn rate of approximately $40,000 to $50,000 per
month. Until the time period that additional monitoring locations are on
revenue, we may need to raise additional working capital to fund our current
business activities. We will plan to raise the additional capital needed to meet
these immediate short-term needs primarily through borrowings from officers,
directors or private investors.

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

On November 24, 2009, we issued
15,500,000 shares of common stock of our company to convert $775,000 of the
convertible notes payable and issued two officers $373,000 of subordinated notes
payable in exchange for the remaining outstanding convertible notes payable. In
addition, on November 24, 2009 we issued 5,870,834 shares of our common stock to
two officers for cancellation of $181,996 of accrued salaries. The shares were
issued to U.S. persons pursuant to the exemption from registration provided
under Rule 506 of Regulation D, promulgated under the United States Securities
Act of 1933, as amended.

Over the long term we will
require additional funds in order to acquire equipment, install and monitor
additional monitoring locations, as well as any other expansions into newer
markets for us, will require additional financing. We anticipate relying on cash
flows from operations, equity offerings, and debt financing for such expansion.
We presently do not have any arrangements for additional financing for the
expansion of our operations, and no potential lines of credit or sources of
financing are currently in place for the purpose of proceeding with our plan of
operations. We have initiated discussions with a third party to provide new
equity and/or debt financing through a revolving credit facility or term
loans.

21

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Contractual Obligations

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

Going Concern

Our ability to continue as a
going concern is dependent upon our obtaining additional working capital to
develop business operations. We intend to use borrowings and equity sales to
mitigate the affects of our cash position; however, no assurance can be given
that debt or equity financing, if and when required, will be available.

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About
Market Risks

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

Item 4T. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our
management, including our principal executive officer and the principal
financial officer, we have conducted an evaluation of the effectiveness of the
design and operation of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as
of the end of the period covered by this report. Based on this evaluation, our
principal executive officer and principal financial officer concluded as of
September 30, 2009 that our disclosure controls and procedures were
effective.

Changes in Internal Controls Over Financial
Reporting

There have been no changes in our internal controls over
financial reporting that occurred during the quarter ended December 31, 2009
that have materially or are reasonably likely to materially affect, our internal
controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

We know of no material, existing
or pending legal proceedings against our company, nor are we involved as a
plaintiff in any material proceeding or pending litigation. There are no
proceedings in which any of our directors, officers or affiliates, or any
registered or beneficial shareholder, is an adverse party or has a material
interest adverse to our interest.

Item 1A. Risk Factors.

Much of the information included in this 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 report that important factors in some cases have affected and, in the
  future, could materially affect actual results and cause actual results to differ
  materially from the results expressed in any such estimates, projections or
  other forward-looking statements. In evaluating us, our business
  and any investment in our business, readers should carefully consider the following
  factors. Our new business operations will be subject to a number of risks and
  uncertainties, including those set forth below:

22

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Risks Related To Our Business

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

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

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

We have not yet achieved sustainable positive cash flows. As
such, we will depend to a large extent on outside capital over the near-term to
fund our capital needs. Such outside capital may be obtained from additional
debt and 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 shareholders.
Obtaining commercial loans, assuming those loans would be available, will
increase our liabilities and future cash commitments. If we are unable to obtain
financing in the amounts and on terms deemed acceptable to us, we may be unable
to implement our business and growth strategies, respond to changing business or
economic conditions, withstand adverse operating results, consummate desired
acquisitions or compete effectively.

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

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

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

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

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

We will derive all of our revenues from the sale, licensing or
  leasing of our security products and services. Such security products and services
  are characterized and affected by rapid technological change, evolving industry
  standards and regulations and changing client preferences. Our success will
  depend, in significant part, upon our ability to make timely and cost-effective
  enhancements and additions to our technology and to introduce new security products
  and services that meet customer demands.

23

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We expect new security products and services to be developed
  and introduced by other companies that compete with our security products and
  services. The proliferation of new and established companies offering similar
  security products and services may reduce demand for our particular security
  products and services. There can be no assurance that we will be successful
  in responding to these or other technological changes, to evolving industry
  standards or regulations or to new security products and services offered by
  our current and future competitors. In addition, we may not have access to sufficient
  capital for our research and development needs in order to develop new security
  products and services.

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

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

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

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

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

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

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

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

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

24

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

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

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

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

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

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

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

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

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

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

Our industry is characterized by rapid changes in technology
  and customer demands. As a result, our security products and services may quickly
  become obsolete and unmarketable. Our future success will depend on our ability
  to adapt to technological advances, anticipate customer demands, develop new
  security products and services and enhance our current security products and
  services on a timely and cost-effective basis. Further, our security products
  and services must remain competitive with those of other companies with substantially
  greater resources.

25

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We may experience technical or other difficulties that could
  delay or prevent the development, introduction or marketing of new security
  products and services or enhanced versions of existing security products and
  services. Also, we may not be able to adapt new or enhanced security products
  or services to emerging industry standards, and our new security products or
  services may not be favorably received.

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

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

Risks Related To Our Common Stock

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

A prolonged decline in the price of our common stock could
result in a reduction in the liquidity of our common stock and a reduction in
our ability to raise capital. Because our operations have been financed through
the sale of equity securities, a decline in the price of our common stock could
be especially detrimental to our liquidity and our continued operations. Any
reduction in our ability to raise equity capital in the future would force us to
reallocate funds from other planned uses and would have a significant negative
effect on our business plans and operations, including our ability to develop
new products and continue our current operations. If the stock price declines,
there can be no assurance that we can raise additional capital or generate funds
from operations sufficient to meet our obligations. We believe the following
factors could cause the market price of our common stock to continue to
fluctuate widely and could cause our common stock to trade at a price below the
price at which you purchase your shares of common stock:

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

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

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

Subsequent to shareholder approval at our November 4, 2009
annual meeting, our certificate of incorporation authorizes the issuance of
200,000,000 shares of common stock. Our board of directors has the authority to
issue additional shares of common stock up to the authorized capital stated in
the certificate of incorporation. Our board of directors may choose to issue
some or all of such shares of common stock to acquire one or more businesses or
to provide additional financing in the future. The issuance of any such shares
of common stock will result in a reduction of the book value or market price of
the outstanding shares of our common stock. If we do issue any such additional
shares of common stock, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other shareholders. Further, any
such issuance may result in a change of control of our corporation.

26

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

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

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

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

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

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

Other Risks

Trends, Risks and Uncertainties.

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

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

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

27

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

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

Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds

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

On November 24, 2009, we issued
15,500,000 shares of common stock of our company to convert $775,000 of the
convertible notes payable and issued two officers $373,000 of subordinated notes
payable in exchange for the remaining outstanding convertible notes payable. In
addition, on November 24,2009 we issued 5,870,834 shares of common stock to two
officers for cancellation of $181,996 of accrued salaries. The shares were
issued to U.S. persons pursuant to the exemption from registration provided
under Rule 506 of Regulation D, promulgated under the United States Securities
Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security
Holders

On November 4, 2009 an annual and special meeting of
stockholders of HS3 Technologies Inc., a Nevada corporation, was held at Suite
600, 1800 Boulder Street, Denver, Colorado USA 80211. The Meeting was held with
the following approved, with 78% of the potential votes voting:

Elect: Mark Lana  Chief Executive Officer, Treasurer,
  and Director

Elect: Robert A. Morrison  President and Director

Elect: Charles F. Ferris, Ph.D.  Chairman of the Board
  and Director

Elect: Michael Yinger  Secretary and Director

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

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

Item 5. Other Information

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

On September 23, 2009, we entered
into a $25,000 unsecured subordinated note payable with William S. Dickey. The
note was repaid on October 19, 2009 from the proceeds of an equity offering to
Mr. Dickey.

28

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

On November 24, 2009 we issued
15,500,000 shares of our common stock to convert $775,000 of convertible notes
payable. In addition, on November 24, 2009 we issued 5,870,834 shares of our
common stock to two officers for cancellation of $181,996 of accrued salaries.
The shares were issued to U.S. persons pursuant to the exemption from
registration provided under Rule 506 of Regulation D, promulgated under the
United States Securities Act of 1933, as amended.

On December 21, 2009 we issued
250,000 shares of our common stock to an affiliate of one of our Board of
Directors for services rendered to us. We valued the 250,000 shares based on the
quoted trade price on December 21, 2009 ($.021) and recorded $5,250 as contract
services expense.

Item 6. Exhibits

Exhibits required by Item 601 of Regulation S-K

|Exhibit | Description                                                                                                                                                                                                                                                        
|------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                                                                                                    
|(3)     | Articles of
        Incorporation and Bylaws                                                                                                                                                                                                                       
|3.1     | Articles of Incorporation (incorporated
        by reference from our Registration Statement on Form SB-2 filed on August
        2, 2004).                                                                                                                        
|3.2     | By-laws (incorporated
        by reference from our Registration Statement on Form SB-2 filed on August
        2, 2004).                                                                                                                                          
|3.3     | Certificate
        of Change filed with the Nevada Secretary of State on December 1, 2009
        (filed herewith).                                                                                                                                               
|(4)     | Instruments
        Defining the Rights of Security Holders, Including Indentures                                                                                                                                                                                  
|4.1     | 2005 Stock Option Plan of HS3
        Technologies, Inc. (incorporated by reference from our Current Report
        on Form 8-K filed on November 10, 2005).                                                                                                       
|(10)    | Material Contracts                                                                                                                                                                                                                                                 
|10.1    | Share Purchase Agreement dated
        March 5, 2005 among Zeno Inc., Linda Smith, Acropolis Investment Holdings,
        LLC and Gregory S. Yanke Law Corporation (incorporated by reference from
        our Current Report on Form 8-K filed on March 10, 2005).
|10.2    | Asset Purchase
        Agreement dated August 31, 2005, between Zeno Inc. and IP-Colo, Inc. (incorporated
        by reference from our Current Report on Form 8-K filed on September 16,
        2005).                                                           
|10.3    | Surveillance Installment and
        Training Agreement dated December 20, 2005 (incorporated by reference
        from our Current Report on Form 8-K filed December 23, 2005).                                                                                   
|10.4    | Partnership Agreement
        with Wright-Hennepin Cooperative Electric Association (incorporated by
        reference from our Current Report on Form 8-K filed on June 11, 2007).                                                                                
|10.5    | Distribution Agreement with Autostar
        Technology Private Limited (incorporated by reference from our Current
        Report on Form 8-K filed on April 4, 2007).                                                                                            
|10.6    | Warrant Purchase
        Agreement dated November 6, 2007 (incorporated by reference from our Current
        Report on Form 8-K filed on November 20, 2007).                                                                                                      
|10.7    | Agreement with the American Humane
        Association (incorporated by reference from our Current Report on Form
        8-K filed on August 14, 2008)                                                                                                            
|10.8    | Subordinated
        Loan Agreement with our company and Robert A. Morrison dated November
        6, 2009 (incorporated by reference from our Current Report on Form 8-K
        filed on December 20, 2009).                                                     

29

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|Exhibit | Description                                                                                                                                                                                                                  
|------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number  |                                                                                                                                                                                                                              
|10.9    | Debt Settlement
        and Subscription Agreement with our company and Robert A. Morrison dated
        November 6, 2009 (incorporated by reference from our Current Report on
        Form 8-K filed on December 20, 2009).
|10.10   | Debt Settlement and Subscription
        Agreement with our company and Mark L. Lana dated November 6, 2009 (incorporated
        by reference from our Current Report on Form 8-K filed on December 20,
        2009).      
|10.11   | Debt Settlement
        and Subscription Agreement with our company and William S. Dickey dated
        November 6, 2009 (incorporated by reference from our Current Report on
        Form 8-K filed on December 20, 2009). 
|10.12   | Subordinated Loan Agreement between
        our company and William S. Dickey dated November 6, 2009 (incorporated
        by reference from our Current Report on Form 8-K filed on December 20,
        2009).             
|10.13   | Debt Settlement
        and Subscription Agreement with our company and Greg Dickey dated November
        6, 2009 (incorporated by reference from our Current Report on Form 8-K
        filed on December 20, 2009).       
|10.14   | Debt Settlement and Subscription
        Agreement with our company and Charles F. Ferris dated November 6, 2009
        (incorporated by reference from our Current Report on Form 8-K filed on
        December 20, 2009). 
|10.15   | Debt Settlement
        and Subscription Agreement with our company and Mike Yinger dated November
        6, 2009 (incorporated by reference from our Current Report on Form 8-K
        filed on December 20, 2009.        
|(14)    | Code of Ethics                                                                                                                                                                                                               
|14.1    | Code of Ethics
        and Business Conduct (incorporated by reference from our Annual Report
        on Form 10-KSB filed on October 10, 2007).                                                                             
|31      | Section 302 Certifications                                                                                                                                                                                                   
|31.1    | Section
        302 Certification (filed herewith).                                                                                                                                                                          
|(32)    | Section 906 Certification                                                                                                                                                                                                    
|32.1    | Section
        906 Certification (filed herewith).                                                                                                                                                                          

30

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.

|                         | HS3
      TECHNOLOGIES, INC.                           
|------------------------ | -------------------------------------------------------
|                         | (Registrant)                                           
|                         |                                                        
|                         |                                                        
|Dated: February 12, 2010 | /s/
      Mark Lana                                    
|                         | Mark Lana                                              
|                         | Chief Executive Officer and Director                   
|                         | (Principal Executive Officer, Principal
      Financial
|                         | Officer and Principal Accounting Officer)              

31

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