**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

** **

**FORM 10-QSB**

** **

**QUARTERLYREPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For The Quarterly Period Ended March31, 2003**

 

**or**

 

**TRANSITIONREPORT UNDER SECTION 13 OR 15(d)OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**Commissionfile No. 0-29501**

** **

 

**COM-GUARD.COM,INC.**

(Exact name ofregistrant as specified in its charter)

 

| **NEVADA**                                                                          |   | **33-0879853**        |
|-------------------------------------------------------------------------------------|--------|-----------------------|
| (State or other jurisdiction of incorporation or organization)                      |   | (IRS Employer ID No.) |
|                                                                                |
| **2075 Corte del Nogal, Suite R  Carlsbad, California 92009**                       |
| (Address of  principal executive offices)                                           |
|                                                                                |
| Registrant’s  Telephone Number, Including Area Code:   **(760) 431-2206** |

 

Checkwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

Yes   ý  No   o

 

The number of sharesoutstanding of the registrant’s common stock as of May 12, 2003 was 17,890,006.

 

 

----

 
| **PART I - FINANCIAL INFORMATION** |
|------------------------------------|
|                               |
|                               | ITEM 1. CONDENSED  FINANCIAL STATEMENTS |
|                               |
|                               | Condensed  Balance Sheets  As of March 31, 2002 (unaudited) and June 30, 2002 |
|                               |   |
|                               | Condensed Statements  of Operations  Three-months ended March 31, 2002 and 2001 (unaudited) |
|                               |   |
|                               | Condensed Statements  of Operations  Nine-months ended March 31, 2002 and 2001 and the period  from inception through March 31, 2002 (unaudited) |
|                               |   |
|                               | Condensed Statements  of Cash Flows  Nine-months ended March 31, 2002 and 2001 and the period  from inception through March 31, 2002 (unaudited) |
|                               |   |
|                               | Notes to  Condensed Financial Statements as of March 31, 2003 (unaudited) |
|                               |   |
|                               | ITEM 2.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF    OPERATION |
|                               |   |
|                               | ITEM 3.  CONTROLS AND PROCEDURES |
|                               |   |   |
| **PART II -  OTHER INFORMATION**   |
|                               |
|                               | ITEM 1.  LEGAL PROCEEDINGS |
|                               | ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS |
|                               | ITEM 3.  DEFAULTS UPON SENIOR SECURITIES |
|                               | ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
|                               | ITEM 5.  OTHER INFORMATION |
|                               | ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K |
|                               |   |
| **SIGNATURES**                     |

 

----

 

**COM-GUARD.COM, INC.**

**CONDENSED BALANCE SHEETS**

** **
|                                                                                                                                                                      |   | **3/31/03**     |    | **6/30/02** |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|-------------|--------|
|                                                                                                                                                                      |   | **(Unaudited)** |    |        |   |
| **ASSETS**                                                                                                                                                                |   |            |    |        |   |
| Current assets                                                                                                                                                            |   |            |    |        |   |
| Cash and cash equivalents                                                                                                                                                 |   | $               | 377,120 |        | $      | 82,281 |   |
| Inventories, net                                                                                                                                                          |   | 236,286         |    | 300,000     |   |
| Related party receivables                                                                                                                                                 |   | 16,555          |    | 8,528       |   |
| Other                                                                                                                                                                     |   | 4,203           |    | —      |   |
| Total current assets                                                                                                                                                      |   | 634,164         |    | 390,809     |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Property and equipment, net                                                                                                                                               |   | —          |    | 11,786      |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Other Assets                                                                                                                                                              |   |            |    |        |   |
| Intangible asset                                                                                                                                                          |   | —          |    | 5,000       |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Total assets                                                                                                                                                              |   | $               | 634,164 |        | $      | 407,595 |   |
|                                                                                                                                                                      |   |            |    |        |   |
| **LIABILITIES AND STOCKHOLDERS’ DEFICIENCY**                                                                                                                         |   |            |    |        |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Current liabilities                                                                                                                                                       |   |            |    |        |   |
| Loan payable - bank                                                                                                                                                       |   | $               | 21,182  |        | $      | 22,036 |   |
| Accounts payable and accrued expenses                                                                                                                                     |   | 219,470         |    | 856,551     |   |
| Accrued consulting                                                                                                                                                        |   | 528,739         |    | 2,155,850   |   |
| Notes payable                                                                                                                                                             |   | 12,500          |    | 127,500     |   |
| Notes payable – stockholders                                                                                                                                         |   | 27,500          |    | 180,967     |   |
| Total current liabilities                                                                                                                                                 |   | 809,391         |    | 3,342,904   |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Long term liabilities                                                                                                                                                     |   |            |    |        |   |
| Notes payable                                                                                                                                                             |   | —          |    | 92,443      |   |
| Total long term liabilities                                                                                                                                               |   | —          |    | 92,443      |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Total Liabilities                                                                                                                                                         |   | 809,391         |    | 3,435,347   |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Commitments and Contingencies                                                                                                                                             |   |            |    |        |   |
|                                                                                                                                                                      |   |            |    |        |   |
| Stockholders’ deficiency                                                                                                                                             |   |            |    |        |   |
| Common stock, $0.001 par value, 100,000,000 sharesauthorized; 17,256,434 and 10,322,000  shares issued and outstanding at March 31, 2003 and June 30, 2002,  respectively |   | 17,256          |    | 10,322      |   |
| Common stock to be issued, $.001 par value,634,000 and 35,000 shares at March 31,  2003 and June 30, 2002, respectively                                                   |   | 634             |    | 35          |   |
| Additional paid-in capital                                                                                                                                                |   | 6,620,976       |    | 2,350,443   |   |
| Accumulated deficit during development                                                                                                                                    |   | (6,814,093      | )       | (5,388,552  | )      |
| Total stockholders’ deficiency                                                                                                                                       |   | (175,227        | )       | (3,027,752  | )      |
| Total liabilities and stockholders’ deficiency                                                                                                                       |   | $               | 634,164 |        | $      | 407,595 |   |

 

*Seeaccompanying notes to condensed financial statements.*

 

2

----

 

**COM-GUARD.COM,INC.**

**CONDENSEDSTATEMENTS OF OPERATIONS**

*(unaudited)*

*** ***
|                                               |   | ***Three-Months  Ended March 31,*** |     |
|----------------------------------------------------|--------|-------------------------------------|----------|
|                                               |   | **2003**                            |     | **2002** |   |
|                                               |   |                                |     |   |   |
| Revenues                                           |   | $                                   | 62,630   |   | $ | — |   |
| Cost of goods sold                                 |   | 58,645                              |     | — |   |
| Gross Margin                                       |   | 3,985                               |     | — |   |
|                                               |   |                                |     |   |   |
| Costs and expenses                                 |   |                                |     |   |   |
| Research and development                           |   | 34,945                              |     | 33,750 |   |
| Sales and marketing                                |   | 52,139                              |     | — |   |
| Provision to write down inventory                  |   | —                              |     | 112,500 |   |
| Consulting fees                                    |   | 107,500                             |     | 202,820 |   |
| Salaries                                           |   | 248,864                             |     | — |   |
| General and administrative                         |   | 167,811                             |     | 92,354 |   |
| Total operating expenses                           |   | 611,259                             |     | 441,424 |   |
|                                               |   |                                |     |   |   |
| Loss from operations                               |   | (607,274                            | )        | (441,424 | ) |
|                                               |   |                                |     |   |   |
| Total other expense                                |   | (97                                 | )        | — |   |
|                                               |   |                                |     |   |   |
| Net loss                                           |   | $                                   | (607,177 | ) | $ | (441,424 | ) |
|                                               |   |                                |     |   |   |
| Net loss per share available to commonstockholders |   |                                |     |   |   |
| Basic and Diluted                                  |   | $                                   | (.03     | ) | $ | (0.04 | ) |
|                                               |   |                                |     |   |   |
| Weighted average common shares                     |   | 16,977,618                          |     | 10,322,000 |   |

 

*See accompanying notes to condensedfinancial statements.*

 

3

----

 

**COM-GUARD.COM,INC.**

**CONDENSEDSTATEMENTS OF OPERATIONS**

*(unaudited)*

 
|                                               |   | **Nine  Months Ended March 31,** |         |
|----------------------------------------------------|--------|----------------------------------|--------------|
|                                               |   | **2003**                         |         | **2002** |   |
|                                               |   |                             | *** *** |   | *** *** |
| Revenues                                           |   | $                                | 63,451       |   | $ | 9,712 |   |
| Cost of goods sold                                 |   | 58,645                           |         | — |   |
| Gross Margin                                       |   | 4,806                            |         | 9,712 |   |
|                                               |   |                             |         |   |   |
| Costs and expenses                                 |   |                             |         |   |   |
| Research and development                           |   | 87,962                           |         | 106,100 |   |
| Sales and marketing                                |   | 125,071                          |         | — |   |
| Provision to write down inventory                  |   | 75,000                           |         | 384,542 |   |
| Consulting fees                                    |   | 290,100                          |         | 624,796 |   |
| Salaries                                           |   | 473,653                          |         | — |   |
| General and administrative                         |   | 377,961                          |         | 307,953 |   |
| Total                                              |   | 1,429,747                        |         | 1,423,391 |   |
|                                               |   |                             |         |   |   |
| Loss from operations                               |   | $                                | (1,424,941   | ) | $ | (1,413,679 | ) |
|                                               |   |                             |         |   |   |
| Total other expense                                |   | (600                             | )            | (1,192 | ) |
|                                               |   |                             |         |   |   |
| Net loss                                           |   | $                                | (1,425,541   | ) | $ | (1,414,871 | ) |
|                                               |   |                             |         |   |   |
| Net loss per share available to commonstockholders |   |                             |         |   |   |
| Basic and Diluted                                  |   | $                                | (.11         | ) | $ | (0.14 | ) |
|                                               |   |                             |         |   |   |
| Weighted average common shares                     |   | 13,490,222                       |         | 10,322,000 |   |

 

*See accompanying notes to condensedfinancial statements.*

 

4

----

 

**COM-GUARD.COM,INC.**

**CONDENSED STATEMENTS OF CASH FLOWS**

*(unaudited)*

 
|                                                                        |   | **Nine months ended  March 31,,** |       |
|-----------------------------------------------------------------------------|--------|-----------------------------------|------------|
|                                                                        |   | **2003**                          |       | **2002** |   |
| Cash flows from operating activities                                        |   |                              |       |   |   |
| Net loss                                                                    |   | $                                 | (1,425,541 | ) | $ | (1,414,871 | ) |
|                                                                        |   |                              |       |   |   |
| Adjustments to reconcile net loss to net cash  used in operating activities |   |                              |       |   |   |
| Depreciation and amortization                                               |   | 11,786                            |       | 119,077 |   |
| Provision to write down inventory                                           |   | 75,000                            |       | 384,542 |   |
| Impairment of intangible asset                                              |   | —                            |       | — |   |
| Impairment of deferred offering costs                                       |   | 5,000                             |       | — |   |
| Stock issued for services                                                   |   | 37,539                            |       | — |   |
| Stock issued for research and development                                   |   | —                            |       | — |   |
| Services provided as contributed capital                                    |   | —                            |       | — |   |
| Beneficial conversion feature on note                                       |   | —                            |       | — |   |
| Changes in operating assets and liabilities                                 |   | —                            |       | — |   |
| (Increase) Decrease in:                                                     |   |                              |       |   |   |
| Related party receivables and other current assets                          |   | (12,230                           | )          | — |   |
| Inventories                                                                 |   | (11,286                           | )          | — |   |
| Increase (Decrease) in:                                                     |   |                              |       |   |   |
| Accrued interest                                                            |   | —                            |       | — |   |
| Other                                                                       |   | —                            |       | (2,751 | ) |
| Accounts payable and accrued expenses                                       |   | 117,625                           |       | 710,463 |   |
| Accrued consulting                                                          |   | 184,100                           |       | — |   |
| Net cash used in operating activities                                       |   | (1,018,007                        | )          | (203,540 | ) |
|                                                                        |   |                              |       |   |   |
| Cash flows from investing activities                                        |   |                              |       |   |   |
| Capital expenditures                                                        |   | —                            |       | — |   |
| Net cash flows used in investing activities                                 |   | —                            |       | — |   |
| Cash flows from financing activities                                        |   |                              |       |   |   |
| Payments on loan payable – bank                                        |   | (854                              | )          | — |   |
| Repayment of notes payable                                                  |   | (37,000                           | )          | (1,364 | ) |
| Payments on of notes payable                                                |   | —                            |       | 222,038 |   |
| Proceeds from issuance of stock                                             |   | 1,317,700                         |       | — |   |
| Proceeds from notes payable – shareholders                             |   | 33,000                            |       | — |   |
| Proceeds from stock to be issued                                            |   | —                            |       | — |   |
| Stockholder loans and advances                                              |   | —                            |       | — |   |
| Net cash provided by financing activities                                   |   | 1,312,846                         |       | 220,674 |   |
| Net increase (decrease) in cash and cash  equivalents                       |   | 294,839                           |       | 17,134 |   |
| Cash and cash equivalents, beginning of period                              |   | 82,281                            |       | 1,990 |   |
| Cash and cash equivalents, end of period                                    |   | $                                 | 377,120    |   | $ | 19,124 |   |
|                                                                        |   |                              |       |   |   |
| Supplemental disclosure of  cash flow information                           |   |                              |       |   |   |
| Interest paid                                                               |   | —                            |       | — |   |
| Taxes paid                                                                  |   | —                            |       | — |   |

Supplemental disclosure of non-cash investing andfinancing activities:

During the nine months ended March 31, 2003 the Companysettled $985,500 of accounts payable and accrued expenses with sevenstockholders by issuing 1,407,716 shares of common stock @ $.70 per share andalso settled $157,011 of accounts payable and accrued expensed with nineshareholders by issuing 448,603 @$.35 per share.  Stock values based on agreement between the Company andshareholder.

During the nine months ended March 31, 2003 the Companywas forgiven $1,400,000 of accrued consulting expenses.

During the nine months ended March 31, 2003 the Companysettled $100,000 of notes payable and $8,600 of accrued interest by issuing335,000 shares of common stock at approximately $.30 a share based on agreementbetween Company and stockholder.

During the nine months ended March 31, 2003 $15,000 ofnotes payable was reclassified as notes payable — stockholder since thenoteholder became a stockholder during the period.

During the nine months ended March 31, 2003 the Companysettled $223,910 of notes payable – stockholders and $29,700 of accruedinterest by issuing 350,000 shares of common stock at approximately $.70 pershare and settled $33,000 of notes payable – stockholders by issuing 94,285shares of common stock at approximately $.35 per share.  Stock values based on agreement between theCompany and shareholder.

 

*See accompanying notes to condensedfinancial statements.*

 

5

----

 

**COM-GUARD.COM,INC.**

**NOTES TOCONDENSED FINANCIAL STATEMENTS**

**MARCH 31, 2003**

(unaudited)

 

**NOTE 1.  BASIS OF PRESENTATION**

** **

The accompanying unaudited condensed financialstatements of Com-Guard.com, Inc. (the “Company”) have been prepared pursuantto the rules of the Securities and Exchange Commission (the “SEC”) forquarterly reports on Form 10-QSB and do not include all of the information andnote disclosures required by generally accepted accounting principles. Thesecondensed financial statements and notes herein are unaudited, but in theopinion of management, include all the adjustments (consisting only of normalrecurring adjustments) necessary for a fair presentation of the Company’sfinancial position, results of operations, and cash flows for the periodspresented. These financial statements should be read in conjunction with theCompany’s audited financial statements and notes thereto included in theCompany’s Form 10-KSB for the year ended June 30, 2002 as filed with the SEC onSeptember 27, 2002. Interim operating results are not necessarily indicative ofoperating results for any future interim period or for the full year.

 

The Company was formed and incorporated in the state of Nevada onOctober 7, 1998 as e-WORLD SECURITY, INC. On April 16, 1999 the Company changedits name to COM-GUARD.COM, INC. Planned principal operations of the Companyhave commenced as of March 31, 2003 and therefore the Company is no longerin  the development stage. The Companysells products that afford security protection to computer hardware andsoftware in microcomputers.

 

Recent Accounting Pronouncements

 

In August 2001, the Financial Accounting Standards Board issued itsStatement of Financial Accounting Standards No. 144 (SFAS No. 144), “Accountingfor the Impairment of Long-Lived Assets.” SFAS No. 144 supersedes SFAS No. 121, “Accounting for the Impairment ofLong-Lived Assets and for Long-Lived Assets to be Disposal of a Segment of aBusiness, and Extraordinary, Unusual and Infrequently Occurring Events andTransactions.”  SFAS No. 144 retainsmany of the provisions of SFAS 121, but addresses certain implementation issuesassociated with that Statement.  Thisstatement is effective for financial statements issued for fiscal yearsbeginning after December 15, 2001.

 

In April 2002, the FASB issued SFAS No. 145, Rescission of SFAS No.4,44, and 64, Amendments of SFAS No. 13, and Technical Corrections.  SFAS No. 145 rescinds the provisions of SFASNo. 4 that requires companies to classify certain gains and loses from debt extinguishmentsas extraordinary items, eliminates the provisions of SFAS No. 44 regardingtransition to the Motor Carrier Act of 1980 and amends the provisions of SFASNo. 13 to require that certain lease modifications be treated as salesleaseback transactions.  The provisionsof SFAS No. 145 related to classification of debt extinguishments are effectivefor fiscal years beginning after May 15, 2002. Earlier application is encouraged.

 

In July 2002, the FASB issued SFAS No. 146, “Accounting forRestructuring Costs.”  SFAS No. 146applies to costs associated with an exit activity (including restructuring) orwith a disposal of long-lived assets. Those activities can include eliminating or reducing product lines,terminating employees and contracts and relocating plant facilities orpersonnel.  Under SFAS No. 146, theCompany will record a liability for a cost associated with an exit or disposalactivity when that liability is incurred and can be measured at fairvalue.  SFAS No. 146 will require theCompany to disclose information about its exit and disposal activities, therelated costs, and changes in those costs in the notes to the interim andannual financial statements that include the period in which and exit activityis initiated and in any subsequent period until the activity is completed.  SFAS No. 146 is effective prospectively forexit or disposal activities initiated after December 31, 2002, with earlieradoption encouraged.  Under SFAS No.146, a company cannot restate its previously issued financial statements andthe new statement grandfathers the accounting for

 

6

----

 

liabilities that a company had previously recorded under EmergingIssues Task Force Issue 94-3.

 

In December 2002, the FASB issued SFAS No. 148, “Accounting forStock-Based Compensation-Transition and disclosure-and amendment of SFAS No.123”.   SFAS No.148 amends SFAS No. 123,Accounting for Stack Based Compensation” and provides alternative methods foraccounting for a change by registrants to the fair value method of accountingfor stock-based compensation. Additionally, SFAS No. 148 amends the disclosure requirements of SFASNo. 123 to require disclosure in the significant accounting policy footnote ofboth annual and interim financial statements of the method of accounting forstock-based compensation and the related pro-forma disclosures when theintrinsic value method continues to be used. The statement is effective for fiscal years beginning after December 15,2002, and disclosures are effective for the first fiscal quarter beginningafter December 15, 2002.

 

The Company does not believe that adoption of theses pronouncementswill have a material effect on the Company’s financial position or result ofoperations.

 

**NOTE2:  INVENTORIES, NET**

 

Inventories consist of work in process stated at the lower of cost(first-in, first-out) or market.  During the nine-months ended March 31, 2003, the company determined thatthe fair market value of the inventory was less than the carrying amount andrecorded a $75,000 valuation reserve based on management’s planned marketingand distribution strategies and the expected pricing of the related products.

 

The valuation reserve requires the Company tomake significant estimates and changes in facts and circumstances that couldresult in material changes in the valuation reserve.

 

 

**NOTE3:  NOTES AND LOAN PAYABLE**

 

As of March 31, 2003 and June 30, 2002, notes and loan payableconsisted of the following:

 
|                                         |   | **March 31** |   | **June 30** |   |
|----------------------------------------------|--------|--------------|--------|-------------|--------|
|                                         |   |         |   |        |   |
| Loan payable –  bank                    |   | $            | 21,182 |        | $      | 22,036 |   |
|                                         |   |         |   |        |   |
| Notes payable                                |   | 12,500       |   | 127,500     |   |
|                                         |   |         |   |        |   |
| Notes payable –  stockholders           |   | 27,500       |   | 180,967     |   |
|                                         |   |         |   |        |   |
| Long term notes  payable – stockholders |   | —       |   | 92,443      |   |
|                                         |   |         |   |        |   |
| Total                                        |   | $            | 61,182 |        | $      | 422,946 |   |

 

LOAN PAYABLE - BANK

 

The loan payable – bank represents a $21,182 cash advance taken by theCompany from its bank credit card as of March 31, 2003.  The loan bears interest at 11.75% perannum.  Accrued interest at March 31,2003 on this loan has been recorded in accrued expenses.

 

7

----

 

NOTES PAYABLE

 

During March and April of 2002, the Company received $27,500 evidencedby two notes payable at an interest rate of 7.5% and all principal and interestis due one year from the date of the notes. During the nine months ended March 31, 2003, $15,000 was reclassified toNotes Payable-Stockholders.  As of March31, 2003, $12,500 remained due.  Accruedinterest at March 31, 2003 on these loans has been recorded in accruedexpenses.

 

On June 21, 2002, the Company received $100,000 evidenced by athree-month convertible note due September 21, 2002 and bearing interest at 10%per annum.  The note was convertibleinto the Company’s common stock at a conversion price of $.29787 per share.  The Company has expensed as financing costsany excess of the fair market value of the common stock at the note issuancedate over the conversion price, which amounted to $17,500.  This note and related interest was paidduring the nine months ended March 31, 2003.

 

NOTES PAYABLE - STOCKHOLDERS

 

During 2002, the Company received $273,410 from three stockholders inthe form of six notes payable with varying due dates and interest rates rangingfrom 7.0% to 10.0%.  Two of the threestockholders are related parties to the majority stockholder.  As of March 31, 2003, $27,500 remained duewhile $33,000 was converted into common stock at $.70 during the nine monthsended March 31, 2003.   Accrued intereston the remaining balance of $60,500 at March 31,2003 has been recorded inaccrued expenses.

 

**NOTE 4:  PRIVATE PLACEMENT**

 

During the nine months ended March 31, 2003, the Company commenced aprivate placement share offering wherein it offered to accredited investorsunits for a minimum amount of 3,000,000 shares and 1,500,000 warrants and amaximum amount of 6,000,000 shares of common stock and 3,000,000 warrants.  Each unit consists of 300,000 shares ofcommon stock at $.35 and 150,000 five-year warrants convertible at $.70,although the Company may accept, at their discretion, subscriptions for lesseramounts.  During the period ending March31, 2003 the Company closed this offering, of which the Company sold 4,650,003shares and 2,325,000 warrants for net proceeds of $1,317,700.  As of March 31, 2003 no warrants have beenexercised.  The fair market value of thewarrants, aggregating $721,809 was estimated on the grant date using theBlack-Scholes option pricing model as required by SFAS No. 123 with thefollowing weighted average assumptions: expected dividend yield 0%, volatility 355%, risk-free interest rate3.75%, expected option life 5 years. The Company issued 500,000 shares of common stock, valued at $175,000,in payment of offering costs incurred. The value assigned to this stock was based on the private placementoffering of $.35 per share.  The valueof the common stock has been charged to equity as direct costs to the offering.

** **

**NOTE 5:GOING CONCERN**

 

As reflected in the accompanying condensed financial statements, theCompany has a working capital deficiency of $175,227, a stockholders’ deficiencyof  $175,227, a negative cash flow fromoperations of $1,018,007 and a loss during the nine months ended March 31, 2003of $1,425,541. The ability of the Company to continue as a going concern isdependent on the Company’s ability to raise additional capital and implementits business plan. The financial statements do not include any adjustments thatmight be necessary if the Company is unable to continue as a going concern.

 

8

----

 

**ITEM 6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

The following discussion and analysis should be readin conjunction with the consolidated financial statements and notes theretoappearing elsewhere in this Quarterly Report on Form 10-QSB. The discussion ofthe Company’s business contained in this Quarterly Report on Form 10-QSB maycontain certain projections, estimates and other forward-looking statementsthat involve a number of risks and uncertainties, including those discussed belowat “Risks and Uncertainties.” While this outlook represents management’scurrent judgment on the future direction of the business, such risks anduncertainties could cause actual results to differ materially from any futureperformance suggested below. The Company undertakes no obligation to releasepublicly the results of any revisions to these forward-looking statements toreflect events or circumstances arising after the date hereof.

 

**OVERVIEW**

 

The Company haslimited operating history and is no longer in the development stage. It’sprincipal business is the exploitation of niche products for the microcomputerindustry that provide enhanced system security for both individual users andnetwork administrators. The Company’s initial product, Com-Guard, includesunique software and hardware that enables users to protect and limit access todata; and to provide a security system against tampering and unauthorized useof computers.

 

The Com-Guardsystem monitors a computer or network and detects, through proprietary softwareand hardware, unauthorized attempts to use, tamper with, or remove data orequipment. The system is designed to generate an alarm, which can be sent toany receiving device, including pagers, telephones, and other computers.

 

The market forCom-Guard consists of individual users and industry. The popularity of theInternet has created a need for both data security and access limitations.Limiting access to sensitive and/or confidential files has grown to be a needfor all users of microcomputers.

 

Home automation,including systems to provide “internal” security to certain areas of a home oroffice, represents an additional market for Com-Guard. The system, installed ina PC, has the ability to function as an internal home security system, controllinga series of sensors to protect against theft and intrusion.

 

The Company’s hascommenced the initial marketing of its products. However, quarter-to-quarterfinancial comparisons may be of limited usefulness now and for the next severalquarters as the Company continues to market its products.

 

We have startedefforts to market and sell our products through our website: *www.com-guard.com* and a number of othercommercial websites. In addition, we are working on other avenues ofdistribution and sales for our products.  Funds recently raised through a Private Placement offering have beenutilized for product development, marketing and general working capital.  We currently anticipate we have sufficientcash flow for approximately the next four months.   The company will need to improve its working capital position.The Company will need to increase revenue or raise additional funds to fullydevelop its business. There can be no assurance, however, that we will be ableto increase revenue or complete any additional debt or equity financing onfavorable terms or at all, or that any such financings, if completed, will beadequate to meet our capital requirements. Any additional equity or convertibledebt financings could result in substantial dilution to our stockholders. Ifadequate funds are not available, we will be required to delay, reduce oreliminate some or all of its planned activities. Our inability to fund ourcapital requirements would have a material adverse effect on the Company.

 

We currently haveadequate cash to last through July 31, 2003 without any additional funding orincreased sales of our products.

 

Also See “Risks and Uncertainties” included in this discussion.

 

9

----

 

**RESULTS OF OPERATIONS**

 

**NET REVENUES**

 

Revenues were $62,630 and -0- for the three-month period ended March 31,2003 and 2002, respectively. Revenues were $63,451 and $9,712 for thenine-month period ended March 31, 2003 and 2002, respectively.   The increase in sales was primarily relatedto third party software that was to be used along with the Company’s trialversion software during the nine months ended March 31, 2003.

 

**COST OF GOODSSOLD**

 

Cost of goods sold were $58,645 and -0- for the three-month and ninemonth periods ended March 31, 2003 and 2002, respectively.   The increase in cost of goods sold wasprimarily due to third party software purchased by the Company to be used tobundle with a trial version its software products.

 

**RESEARCH AND DEVELOPMENT EXPENSES**

 

For the three-month period ended March 31, 2003 and 2002, research anddevelopment expenses were $34,945 and $33,750, respectively. For thenine-month period ended March 31, 2003 and 2002, research and developmentexpenses were $87,962 and $106,100, respectively. These expenses were due toexpenditures to develop the Company’s core technology.

** **

**SALES AND MARKETING**

 

Sales andmarketing for the three-month period ended March 31, 2003 and 2002 were $52,139and $0 and for the nine-month period ended March 31, 2003 and 2002 were$125,071 and $-0-, respectively.  Theincrease in sales and marketing was due to increased efforts by the Company tomarket its products.

 

**PROVISIONTO WRITE DOWN INVENTORIES**

 

During thenine-months ended March 31, 2003, the Company wrote-down inventories by $75,000based on management’s planned marketing and distribution strategies and theexpected pricing of the related products.

 

**CONSULTINGFEES**

 

Consulting feesfor the three-month period ended March 31, 2003 and 2002 were $107,500 and$202,820, respectively, a decrease of $95,320. Consulting fees for the nine-month period ended March 31, 2003 and 2002were $290,100 and $624,796, respectively, a decrease of $334,696.  This decrease was due to commencing salariesfor key employees during the fiscal year.

 

**SALARIES**

 

Salaries for thethree-month period ended March 31, 2003 and 2002 were $248,864 and $0,respectively.  Salaries for thenine-month period ended March 31, 2003 and 2002 were 473,653 and $0,respectively.  The increase was due tothe Company commencing salary for key personnel during the fiscal year.

 

**GENERAL AND ADMINISTRATIVE EXPENSES**

 

General and administrativeexpenses were $167,811 and $92,354 for the three-month period endedMarch 31, 2003 and 2002, respectively, anincrease of $75,457 or 81%. For the nine-month period ended March 31,2003, general and administrative expenseswere $377,961 compared to $307,953 for the nine months ended March 31,2003, an increase of  $70,008 or 23%.   The increase was due to several

 

10

----

 

factors related to building the business.  More specifically, general and administrative expenses includedrelated costs for general corporate functions, including, facilities, legal,advertising, marketing related expenses, and other fees.

 

**LIQUIDITY AND CAPITAL RESOURCES**

** **

The Company has financedour operations primarily through cash generated from the sale of its stock andloans to us. The Company is no longer classified as a development stage companyand has commenced the initial marketing of its products.

 

                As of March 31,2003, the Company has reduced debt in the approximate amount of $998,000through the issuance of common stock and was able to reduce consulting payablesin the approximate amount of $1,627,000.

 

As of March 31,2003, the Company had a working capital deficiency of $175,227 as compared to aworking capital deficiency of $2,952,095 at June 30, 2002. The $2,776,868increase in working capital is due primarily a private placement offering andthe reduction of debt.

 

During the yearended June 30, 2000, the Company acquired certain hardware ISA circuit boardsfrom a current shareholder for approximately $638,000. This shareholdercurrently owns 600,000 shares of our stock. This inventory has since been writtendown to $60,000 based on its current value. During the year ended June 30,2001, the Company acquired a new series of PCI circuit boards from anothershareholder for $600,000. As of March 31, 2003, this inventory has been reducedto $165,000. This shareholder currently owns 857,142 shares of our commonstock.  During the previous two yearsthe Company has been developing, refining and testing its software for theseproducts.  The Company has recentlycompleted a new version of its software for these products and is pursuingsales opportunities.

 

In addition to thesoftware developed for the hardware circuit boards the Company also hassoftware applications that can be sold as separate products.  Since hardware related products have ahigher cost to manufacture than stand-alone software products, the Company iscurrently placing  a strong  emphasis on its software products togenerate revenue.  The Company isdeveloping strategies in certain key target areas to market itshardware/software products.

 

Our auditors haveexpressed their uncertainty as to our ability to continue as a going concern.They cite the minimal capital resources available to meet existing andanticipated obligations. In order to address this uncertainty, we have takensteps to raise additional funds to finance our operations.

 

**CRITICAL ACCOUNTING POLICIES**

 

The Company believes the following is its mostcritical accounting policy in that it is the most important to the portrayal ofthe Company’s financial condition and results and requires management’s mostdifficult, subjective or complex judgments.

 

Inventory Valuation

 

The Company regularly monitors and assesses our risk of not incurringany material sales of its inventory in the future.  This evaluation is based upon the Company’s sales force effortsand information the Company receives from potential customers.  Based upon the results of the analysis, theCompany records a valuation reserve for this risk.  This analysis requires the Company to make significant estimates,and changes in facts and circumstances could result in material changes in thevaluation reserve.

 

11

----

 

**RISKS AND UNCERTAINTIES**

 

**Ourbusiness is capital intensive and will require additional financing which willresult in dilution to existing shareholders**

 

Our operations arecapital intensive and growth will consume a substantial portion of availableworking capital. We may require additional capital in order to fund ouroperations. We do not have any commitments for additional financing and therecan be no assurance that such additional funding, if required, will beavailable, or if available, will be available upon favorable terms. Withrespect to our ability to obtain financing on favorable terms, we do not havesignificant assets to serve as loan collateral. Still further, we presently donot have a sufficient cash flow to qualify for reasonable debt financing.Insufficient funds may prevent us from implementing our business strategy. Inthe event we raise additional funds through the issuance of equity securities,dilution to the then existing stockholders will result and future investors maybe granted rights superior to those of existing stockholders.

 

**Lackof operations, positive cash flow and profitability may continue which willaffect our ability to remain in business and your entire investment may be lost**

 

We are in thedevelopment-stage and commenced pre-operating activities approximately threeyears ago. We have no history of operations, the generation of positive cashflow or profits in the industries in which we participate. If we do notgenerate positive cash flow and hence become profitable, we may not be able toremain in business and your entire investment may be lost.

 

**Uncertaintyof commercial success may result in the loss of your investment**

 

With respect toour revenue and profitability prospects, there can be no assurance ofcommercial success of its Com-Guard product. Furthermore, the computer industryis characterized by rapid change and growth. There can be no assurance that wewill be able to keep up with the pace of technological change or fund itsgrowth. If we fail to achieve commercial success, your entire investment may belost.

** **

**Competitionmay have an adverse effect on our business which will affect the value of yourinvestment**

 

We are subject tocompetition from other companies that may try to emulate or compete withsimilar products or services. These competitors have been in the businesslonger than us and may have large executive and operating staffs. There can beno assurance that our prospects will not be adversely affected by competitionfrom these companies. The introduction of similar or superior products bycurrent or future competitors could have a material adverse effect on our businessand financial condition which will affect the value of your investment.

 

**Dependenceon management will affect our profitability and the value of your investment**

 

Future successdepends on the continued services of Dr. Edward W. Savarese, Chief ExecutiveOfficer and Joe Sigismonti, President and Chief Operating Officer. While weintend to enter into customary employment agreements with each of them, theloss of any of their services would be detrimental and could have a materialadverse effect on the business, financial condition and results of operations.Future success is also dependent on our ability to identify, hire, train andretain other qualified managerial and other employees. Competition for theseindividuals is intense and increasing. We may not be able to attract,assimilate, or retain qualified technical and managerial personnel and ourfailure to do so could have a material adverse effect on the business,financial condition and results of operations. In this event, the value of yourinvestment will be similarly adversely affected.

 

**Dependenceon proprietary technology and risks of third party infringement claims willaffect the value of your investment**

 

Although we havereceived patent protection, there can be no assurance that our measures toprotect our current proprietary rights will be adequate to preventmisappropriation of such rights or that our competitors will not independentlydevelop or patent technologies that are substantially equivalent to or superiorto our technologies.

 

12

----

 

Additionally, although we believe that our products and technologies donot infringe upon the proprietary rights of any third parties, there can be noassurance that third parties will not assert infringement claims againstproducts and technologies that we license, or have the rights to use, fromthird parties. Any such claims, if proved, could materially and adverselyaffect our business and results of operations. In addition, though any suchclaims may ultimately prove to be without merit, the necessary managementattention to, and legal costs associated with litigation or other resolution ofsuch claims could materially and adversely affect our business and results ofoperations.

 

**Theresults of research and development efforts are uncertain and we may not beable to compete effectively in the marketplace**

 

We will need tomake significant research and development expenditures to remain competitive.While we perform extensive usability and beta testing of new products, theproducts we are currently developing or may develop in the future may not betechnologically successful. If they are not technologically successful, theresulting products may not achieve market acceptance and these products may notcompete effectively with products of competitors currently in the market orintroduced in the future. If we are unsuccessful in the marketplace, you maylose your entire investment.

 

**Relianceon third party technologies will affect the value of your investment**

 

Our softwareproducts are designed to run on multiple operating systems and integrate withsecurity products from other vendors. No assurances can be given that thesebusinesses will actually adopt such technologies as anticipated or will not inthe future migrate to other computing technologies that we do not support.Moreover, if our products and technology are not compatible with newdevelopments from these companies, as to which there can be no assurances, thebusiness, results of operations and financial condition could be materially andadversely affected. If we are unable to successfully and timely developproducts that operate under existing or new operating systems, or if pending oractual releases of the new operating systems delay the purchase of products,future net revenues and operating results could be materially adverselyaffected. Additionally, as hardware vendors incorporate additional server-basednetwork management and security tools into network operating systems, thedemand may decrease for some products, including those currently underdevelopment. In the event such demand decreases, it may reduce the value ofyour investment.

 

**Ourauditors have expressed doubts about our ability to continue as a going concernwhich may result in the loss of your entire investment**

 

In preparing ouraudited financial statements, our auditors have expressed doubts about ourability to continue as a going concern. If we discontinue operations as a goingconcern, you will lose your entire investment.

 

**Risks Relating to Our Common Stock**

 

Because our commonstock has just recently been listed on the NASD OTC Bulletin Board there can beno assurance that a regular trading market for our common stock will ever bedeveloped and as such the investors must be able to bear the financial risk oflosing their entire investment.

 

Our common stockwas listed on December 24, 2002 on the NASD OTC Bulletin Board under thetrading symbol “CGUD.” There has been only limited trading activity in oursecurities at this time and there can be no assurance that a regular tradingmarket for our common stock will ever be developed. We do not know if a marketfor our common stock will be established or that, if established, a market willbe sustained. Therefore, investors should realize that they may be unable tosell our common stock if they purchase it. Accordingly, investors must be ableto bear the financial risk of losing their entire investment in our commonstock.

 

Since asignificant portion of our common stock is being registered and may beavailable for resale, a significant overhang on the market could depress themarket price of our stock which will reduce the value of your investment

 

13

----

 

Following theeffective date of this registration statement, a maximum of 9,047,865 shares ofour common stock will be eligible for resale to the public. This amount ofcommon stock represents a significant overhang on any market that may developfor our common stock. If a substantial number of shares in this overhang weresold in a short period of time, any market for our common stock could bedramatically depressed which will result in a reduction of the value of yourinvestment.

 

**Dividends**

 

We have never paida cash dividend on our common stock. We are not obligated to pay a dividend onour common stock and do not anticipate payment of any dividends for theforeseeable future. We anticipate retaining our earnings to finance ouroperations, growth, and expansion.

 

**Potentialvolatility of stock price will affect the value of our common stock**

 

There can be noassurance that an active public trading market can be established or sustained.Furthermore, if a regular trading market for the common stock is established,the shares could be subject to significant fluctuations in response tooperating results and other factors, many of which are not within our control.

 

**ITEM 3. CONTROLS AND PROCEDURES**

 

Evaluation of disclosure controls and procedures.  Edward W. Savarese, our Chief ExecutiveOfficer and Gerry B. Berg, our Chief Financial Officer, have preformed anevaluation of the Company’s disclosure and procedures, as that term is definedin Rule 13a-14 © of the Securities Exchange Art of 1934, as amended (the“Exchange Act”), within 90 days of the date of this report and each hasconcluded that such disclosure controls and procedures are effective to ensurethat information required to be disclosed in our periodic reports filed underthe Exchange Act is recorded, processed, summarized and reported, within thetime period specified by the Securities and Exchange Commission’s rules andregulations.

 

Changes in internal controls.  Nosignificant changes in the Company’s internal controls or in other factors thatcould significantly affect these controls were made as a result of theevaluation.

 

**PART II****- OTHERINFORMATION**

 

**ITEM 1****.  LEGAL PROCEEDINGS**

 

None.

 

**ITEM 2****.  CHANGES IN SECURITIES AND USE OF PROCEEDS**

 

None

 

**ITEM 3****.  DEFAULTS UPON SENIOR SECURITIES**

 

None

 

**ITEM 4****.  SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS**

 

None.

** **

**ITEM 5****.  OTHER INFORMATION**

 

None.

** **

**ITEM 6****.  EXHIBITS AND REPORTS ON FORM 8-K**

 

(a) Exhibits:

 

None

 

(b)  Reports onForm 8-K:

 

None.

 

14

----

 

**CERTIFICATIONOF CHIEF EXECUTIVE OFFICERAND CHIEF FIANCIAL OFFICERPURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002**

 

Pursuant toSection 906 of the Sarbanes-Oxley Act of 2002, each of the undersignedcertifies that this periodic report fully complies with the requirements ofsection 13(a) or 15(d) of the Securities Exchange Act of 1934 andthat information contained in this periodic report fairly presents, in allmaterial respects, the financial condition and results of operations of Com-Guard.com, Inc.

 
|   | COM-GUARD.com, INC. |
|--------|---------------------|
|   |                |   |
|   | By:                 | /s/  EDWARD W. SAVARESE   |
|   |                | Edward W. Savarese |
|   |                | *Chief Executive Officer* |
|   |                |   |
|   |                |   |
|   | By:                 | /s/  GERRY B. BERG |
|   |                | Gerry B. Berg |
|   |                | *Chief Financial Officer* |
|   |                | *(Principal Financial and  Accounting Officer)* |

 

 

15

----

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 
| Dated: May 12, 2003 |
|---------------------|
|                |
| COM-GUARD.com, INC. |
|                |
| By:                 | /s/  EDWARD W. SAVARESE |   |
|                | Edward W. Savarese |
|                | *Chief Executive Officer* |
|                |   |
|                |   |
|  By:           | /s/  GERRY B. BERG |   |
|                | Gerry B. Berg |
|                | *Chief Financial Officer* |
|                | *(Principal Financial and  Accounting Officer)* |

 

16

----

 

**Certification**

 

I, Edward Savarese, certify that:

 

1.                    I havereviewed this quarterly report on Form 10-QSB of Com-Guard.com, Inc.;

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                    Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have: 

a.  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b.  evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.  presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                    Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction):

 

a.  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.  any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 

 
| Date:    May 12, 2003 |   |                               |
|-------------------------------------------|--------|------------------------------------|
|                                      |   |                               |
|                                      | By:    | /s/  EDWARD  W. SAVARESE |   |
|                                      |   | Edward W. Savarese                 |   |
|                                      |   | Chief Executive Officer            |   |
|                                      |   |                               |

 

17

----

 

**Certification**

I, Gerry Berg, certify that:

 

1.                    I havereviewed this quarterly report on Form 10-QSB of Com-Guard.com, Inc.;

 

2.                    Based on myknowledge, this quarterly report does not contain any untrue statement of amaterial fact or omit to state a material fact necessary to make the statementsmade, in light of the circumstances under which such statements were made, notmisleading with respect to the period covered by this quarterly report;

 

3.                    Based on myknowledge, the financial statements, and other financial information includedin this quarterly report, fairly present in all material respects the financialcondition, results of operations and cash flows of the registrant as of, andfor, the periods presented in this quarterly report;

 

4.                    Theregistrant’s other certifying officers and I are responsible for establishingand maintaining disclosure controls and procedures (as defined in Exchange ActRules 13a-14 and 15d-14) for the registrant and have: 

a.  designedsuch disclosure controls and procedures to ensure that material informationrelating to the registrant, including its consolidated subsidiaries, is madeknown to us by others within those entities, particularly during the period inwhich this quarterly report is being prepared;

 

b.  evaluatedthe effectiveness of the registrant’s disclosure controls and procedures as ofa date within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

 

c.  presentedin this quarterly report our conclusions about the effectiveness of thedisclosure controls and procedures based on our evaluation as of the EvaluationDate;

 

5.                    Theregistrant’s other certifying officers and I have disclosed, based on our mostrecent evaluation, to the registrant’s auditors and the audit committee ofregistrant’s board of directors (or persons performing the equivalentfunction): 

a.  allsignificant deficiencies in the design or operation of internal controls whichcould adversely affect the registrant’s ability to record, process, summarizeand report financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

 

b.  any fraud,whether or not material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

 

6.                    Theregistrant’s other certifying officers and I have indicated in this quarterlyreport whether or not there were significant changes in internal controls or inother factors that could significantly affect internal controls subsequent tothe date of our most recent evaluation, including any corrective actions withregard to significant deficiencies and material weaknesses.

 
| Date:    May 12, 2003 |   |                          |
|-------------------------------------------|--------|-------------------------------|
|                                      |   |                          |
|                                      | By:    | /s/  GERRY B.  BERG |   |
|                                      |   | Gerry B. Berg                 |   |
|                                      |   | Chief Financial Officer       |   |
|                                      |   |                          |

 

18

----